Last week the NASP met for their annual meeting and a few individuals have blogged about the event. This author would like to comment on a few points brought up by other authors.
Insurance Companies Purchasing Their Own Product
There are currently two issuers who factor structured settlements- Allstate and Clearscape Funding (Symetra). The problem with these two companies is that they have high discount rates starting at 10- 12%, they take forever to complete a transaction, and it is a conflict of interest to purchase the settlement on the back end and make another profit off of the annuitant.
An annuitant can receive a better rate anywhere.
Reasons an Annuitant Sells the Rights to Their Payments
Over the past few months Settlement Quotes has been keeping track of the reasons our clients have sold the rights to their payments. With the consent of these individuals we will be publishing the list to show how 99% of these individuals had no choice but to sell their payment rights because of their particular financial circumstances.
Rates are increasing throughout the settlement funding industry because of the inevitable inflation increase. It will be no surprise to this author to see rates increase up and over 10% throughout the next few years. Structured settlement factoring transactions are priced on the basis that a dollar today will not have the same buying power as it will tomorrow.
The $700 billion bailout along with the increasing deficit is just the start to the reasons why inflation could spin out of control over the next few years. If inflation increases then so do prices for everything else, therefore a $1.00 today will buy even less 5 years from now.
Guaranteed Payments- Maybe Not
Many individuals state that these annuities are guaranteed payments and risk free for investors. This may be to an extent for the tort victim, but not so for the secondary market. As some of you know, the guarantee committee met with a few members of the secondary market in August to decide if they are going to guarantee the payments when purchased. To this author's knowledge no decision has been made.
This has a huge impact on how these annuities are priced. If a company like AIG were to go under an investor would be out $10's of millions. Even if the guarantee committee decides to guarantee a transaction per the state requirement, the investor would still lose money on the transactions where the present value was calculated to be over the state maximum guarantee level, usually $100,000.
The situation outlined above was very close to reality a few weeks ago and many investors would have lost millions.