The conference featured an ambitious and successful educational program highlighting prior NASP accomplishments and focusing on emerging issues that impact both the primary and secondary structured settlement markets. For the first time in NASP's history, conference attendance was open to primary market participants.
S2KM previously published an introductory blog post identifying NASP 2012 conference speakers and topics and providing links to S2KM reports from previous NASP conferences. Subsequent S2KM blog posts will recap speaker presentations.
This blog post offers S2KM's general observations and impressions of some of the broader structured settlement industry issues based upon NASP's 2012 conference.
Why Has Factoring Flourished?
Compared with the primary structured settlement market, both NASP and the secondary market appear to be flourishing. What explains this paradoxical success?
The groundwork for secondary structured settlement market success began in 1997 when NASP launched a strategic lobbying initiative resulting in the enactment of IRC 5891 and NCOIL's Model State Structured Settlement Protection Act (Model Act).
Although neither legislative development would have been possible without support from the National Structured Settlement Trade Association (NSSTA), the lobbying agendas of the two associations were markedly different. Ultimately NASP prevailed on several critical issues including:
- "Best interest" standard vs. NSSTA's preferred "financial hardship" standard.
- Denying annuity owners and providers the right to veto proposed transfers.
- Eliminating maximum discount rates.
In addition to NASP's lobbying success, NASP's members have achieved considerable, and controversial, marketing success utilizing aggressive television advertizing and sophisticated Internet techniques. As one measure of this marketing success, the primary market now claims the secondary market has "stolen the structured settlement brand".
Both the primary and the secondary structured settlement markets were devastated by the 2008 financial crisis which:
- Temporarily shut down asset-backed securities markets including securities backed by structured settlement payment rights.
- Created an industry liquidity crisis which resulted in:
- J.G. Wentworth, the largest secondary market company, entering bankruptcy in 2009.
- AIG, the largest primary market company, receiving a financial bailout from the U.S. government in 2008 and 2009.
- Both Wentworth and AIG have subsequently recovered and regained their respective market leadership roles.
- Reduced interest rates to historic low levels causing a substantial reduction in primary market sales beginning in 2009.
As of the 2012 second calendar quarter, the secondary structured settlement market appears to have fully recovered from the 2008 financial crisis. The primary market has not yet recovered. Part of the reason is that interest rates, whether high or low, affect the primary and secondary structured settlement markets differently.
Other reasons, however, also help explain the growing success of the secondary structured settlement market.
- Structured settlement transfers improve the structured settlement product by addressing a critical need for many structured settlement recipients - a liquidity need that was not properly addressed in the original settlement plan or, alternatively, resulted from unanticipated developments.
- Continuing strong demand exists among some institutional and individual investors for recycled structured settlement payment rights.
Linked Markets - Same Customers
Having failed politically to end structured settlement factoring, NSSTA, and many annuity providers, have adopted alternative strategies which appear to be misguided attempts to create obstacles and impede the growth of the secondary structured settlement market.
NSSTA's 2006 bylaw amendments represent one such example. As NSSTA explained to its members: "because [the secondary market] activities [prohibited by the amendments] are inconsistent with the membership qualifications, engaging in those activities can lead to suspension or expulsion from membership and to denial of new membership applications." (emphasis added).
The increasing "administrative fees" annuity providers charge factoring companies, either as a condition to avoid "opposed transfers" or to allow transfers of life contingent payment rights, represents another example. Ultimately, the structured settlement recipients who transfer payment rights pay for those administrative fees which, for some annuity providers, now represent a new profit center.
How do these types of actions help the structured settlement customer or improve the structured settlement industry?
Both NSSTA and NASP, and their members, share a common existential interest in IRC 104(a)(2) and 130. Both NSSTA and NASP recognize the anticipated re-writing of the U.S. tax code expected to begin following the 2012 Presidential election represents a threat to those tax sections.
Arguably, the existence of IRC 5891, which not only links to IRC 104(a)(2) and 130, but also to the 48 state structured settlement protection statutes, has both expanded and strengthened the U.S. structured settlement legislative framework.
Having collaborated to help enact IRC 5891 and the NCOIL Model Act, shouldn't NSSTA and NASP also collaborate to defend and maintain IRC 104(a)(2) and 130 - and to identify additional shared interests for structured settlement industry improvement and growth?
Improving Industry Education
In his opening comments at the NASP 2012 conference, outgoing NASP President Matthew Bracy challenged attendees to make the structured settlement transfer business better: "better in the marketplace, better in the courts, and above all better for the customers who so need the service this industry provides."
One way NASP "walks the walk" of secondary market improvement is by inviting its critics to speak at NASP conferences. NASP challenges these critics not only to address secondary market problems but also to recommend improvements.
Critics who have spoken at past NASP conferences include: Jack Meligan, Stephen Harris, Peter Vodola, John Darer, and Richard Risk. Other critics, including NSSTA leaders, have been invited but have declined to participate.
Jan Schlichtmann, keynote speaker for the 2012 NASP conference, began by stating: "I don't like your advertizing". He then praised NASP for inviting and encouraging criticism to better itself and the secondary structured settlement market.
NSSTA also has permitted criticism as part of its educational programs. Examples include: Joseph DiGangi (see: "Settlement Consulting") and Dan Clark (see: "SSP and NSSTA 2010 Annual Meetings"). Whenever NSSTA has addressed strategically important and/or controversial issues (egs. IRC 468B and IRC 5891), however, NSSTA members generally hear only "politically correct" speakers and perspectives.
Because of the importance of issues such as qualified settlement funds (QSFs) and the secondary market for the future of structured settlements, NSSTA members increasingly must rely upon non-NSSTA educational programs and educational resources to interact with the people and ideas challenging and changing the structured settlement industry.
Fortunately for NSSTA members, as well as members of the Society of Settlement Planners (SSP), NASP has now opened an entirely new educational forum to challenge and expand their understanding of structured settlements.