The 2018 Structured Settlement Production Report – Part 4
Melissa Price’s 2018 Structured Settlement Production Report, distributed recently to industry participants, highlighted both positive and concerning news for NSSTA and the structured settlement market.
The good news: 2018 sales totals of $6.02 billion represent the first time since 2008 the structured settlement market has reported annual annuity premium in excess of $6 billion – an increase of 8.45% over the 2017 totals.
The cause for concern: In 2002 (16 years ago), annual structured settlement annuity sales totaled $6.14 billion – exceeding 2018 annual sales by $120 million!
Because of its significance for the structured settlement and personal injury settlement planning markets, The Chronicle is devoting a series of articles to the most recent Report which includes historical structured settlement premium and case data. Part 1 and Part 2 of the series summarize portions of the Report data. Part 3 discussed three significant historical trends which help to explain the 17-year regressive structured settlement sales cycle.
This article (Part 4) identifies and summarizes five significant market disruptions and distractions – each of which has had a negative impact on structured settlement sales during the past 17 years. Part 5 will discuss prospect for future market growth.
Class Action Lawsuits – Although the Weil class action lawsuit preceded the reporting period analyzed in this article, in many ways it determined and continues to drive the entire future of the market. For example, in 2001, a group of plaintiff brokers started SSP and created a new business model for structured settlements (“Personal Injury Settlement Planning”) that has challenged and increasingly displaced the traditional defense-controlled “Claim Management” structured settlement business model. Competition between these two structured settlement business models and the resulting “shift in control” are discussed in Part 3 of this series. Two other structured settlement related class action lawsuits (Macomber v. Travelers and Spencer v. Hartford) were both settled. However, they resulted in both annuity providers exiting the market and caused further disruptions to the traditional structured settlement business model and structured settlement sales. More recently, a structured settlement lawsuit (Ezell v. Lexington) was dismissed by a Federal District Court although that decision is being appealed.
Secondary Market – When NSSTA cooperated with NASP in 2001 to help enact both IRC 5891 and the Model State Protection Act, many NSSTA member were already complaining the secondary market had “stolen” the structured settlement brand. Despite unsavory, and at times illegal, secondary market business practices, the general public was associating structured settlements with factoring as a result of aggressive, expensive TV and Internet advertising by secondary market companies. NSSTA apparently believed, incorrectly as it turned out, the legislation they helped enact in 2001 would end or minimize factoring’s bad business practices which were tarnishing the structured settlement name and arguably reducing sales. Certainly, the legislation has helped. Secondary market bad business practices, however, continue with some resulting negative impact on primary market sales. In retrospect, some additional (or alternative) strategy was/is needed by NSSTA and its members to protect its payees, reduce secondary market bad business practices and improve sales by focusing primary market resources on more positive objectives than fighting with the secondary market.
Credit and Liquidity Crisis – The Wall Street Journal characterized September 14-20, 2008 as “The Week That Changed American Capitalism”. The structured settlement market felt the impact. Among other developments, the United States Treasury seized control of AIG which at the time was by far the leading structured settlement annuity provider. Although AIG never left the structured settlement market, it also has never re-gained its leadership as an annuity provider. In 2008, AIG sold $1.45 billion of structured settlement annuity premium. In 2009, AIG sold $429 million. In 2018, AIG sold $286 million. The overall impact of the credit and liquidity crisis (and resulting lower interest rates) on structured settlement annuity premium also appears to have been severe. Here are the numbers including then-current 30-year Treasury bond yields:
- 2018 – $6.02 billion (2.81%)
- 2017 – $5.55 billion (3.04%)
- 2016 – $5.80 billion (2.98%)
- 2015 – $5.35 billion (2.69%)
- 2014 – $5.25 billion (3.92%)
- 2013 – $5.13 billion (3.04%)
- 2012 – $4.82 billion (2.98%)
- 2011 – $4.97 billion (4.39%)
- 2010 – $5.52 billion (4.65%)
- 2009 – $5.38 billion (2.83%)
- 2008 – $6.23 billion (4.35%)
Single Claimant QSF Controversy – This issue, which has represented a conflict between plaintiff and defense brokers; between NSSTA and SSP; and between competing business models; has also consumed considerable primary market resources during the reporting period – especially beginning in 2004 when SSP requested a ruling from Treasury (which NSSTA opposed) and which Treasury declined to provide. It represents a good example (in addition to secondary market conflicts) of how lack of industry unity has helped to prevent industry growth. Following NSSTA’s lead, its member annuity providers thru 2018 have expanded their definition of “single claimant” to include “multiple claimants” who do not have competing interests – despite the fact no known cases exist preventing favorable tax results for single claimant QSFs.
ELNY Liquidation – With one exception, the structured settlement industry has maintained a perfect record in fulfilling its promises to pay it future periodic payments. That record includes an estimated (by the authors of “Structured Settlements and Periodic Payment Judgments”) 930,600 cases since the United States market began in the late 1970s. The one exception is Executive Life of New York (ELNY) which entered rehabilitation in 1991 and was liquidated in 2012. Even following contributions from state guaranty funds and voluntary contributions from other life companies, 1550 ELNY structured settlement payees suffered a total $900 million shortfall as a result of the ELNY liquidation. Although the public relations impact is difficult to measure, and may not have been as severe as initially feared, structured settlement sales have almost certainly been negatively impacted.