The U.S. structured settlement industry in 2012 increasingly defined itself into three related markets (the primary, secondary and settlement planning markets) with the liquidation of Executive Life Insurance Company of New York (ELNY) representing the dominant industry storyline.
This blog post highlights 2012 non-ELNY structured settlement developments for the primary market. Subsequent S2KM blog posts will highlight structured settlement developments for the 2) settlement planning and 3) structured settlement secondary markets and summarize 4) ELNY-related events.
The primary structured settlement market in 2012 was characterized by continuing sales declines including the departure of two annuity providers (Hartford and Symetra). As reported by Melissa Evola and "Structured Settlements and Periodic Payment Judgments" (S2P2J), annual structured settlement annuity premium reached an historic high in 2008 ($6,226,578,725) after consistently averaging close to $6 billion annually from 2001-2007.
The 2011 structured settlement annuity premium total of $4,974,710,838 represented an approximate 10 percent decline from 2010 and an approximate 20 percent decline from 2008. And based upon reported third quarter 2012 numbers, this year's structured settlement annuity numbers could be even lower.
Through the end of September 2012, reported nine month structured settlement annuity premium totaled $3,570,584,333 compared with 2011 ($3,638,466,321) and 2008 ($4,429,915,586) figures for similar nine month results. The comparable nine month case totals for these years: 2012 (18,701 cases); 2011 (21,846 cases); and 2008 (25,545 cases).
Many structured settlement industry participants attribute declining sales to low interest rates including future forecasts by the Federal Reserve. Market yields on U.S. Treasury securities at 30 year constant maturity peaked at 13.45 percent in 1981. Here are several historic average annual rates for 30 year Treasury securities (source: U.S. Department of the Treasury):
- 2012 (as of December 21) - 2.93%
- 2011 - 3.91%
- 2010 - 4.25%
- 2009 - 4.08%
- 2008 - 4.28%
- 2007 - 4.84%
- 2000 - 5.94%
- 1990 - 8.61%
- 1980 - 11.27%
Critics of the primary structured settlement market attribute the continuing sales decline to a broader set of factors. For example, speaking at the 2012 National Association of Settlement Purchasers (NASP) conference, Mark Wahlstrom described 2012 as "another bad year for the primary market". He characterized declines in primary market annuity premium as a "negative trend that will eventually impact the secondary market" and identified the following causes:
- The structured settlement is an insular, closed community with aging leadership and a shrinking sales force.
- Structured settlement annuity providers, and most brokers, lack marketing and innovation skills.
- Primary market participants are intimidated by the Internet.
- Instead of offering customer solutions, the primary market continues to sell a single product.
- With historically low interest rates, that product produces a zero return when you consider inflation.
- The primary market has not responded strategically to tort reform and increasing competition from other professionals.
- By continuing their "factoring wars", the primary market has missed opportunities to cooperate with the secondary market.
- The ELNY liquidation means the primary market can no longer claim all structured settlement recipients have received 100% of their payments.
Perhaps the most positive 2012 development for the primary structured settlement industry was the remarkable business turnaround of American International Group, Inc. (AIG). Four years following its $182 billion financial bailout of AIG, the United States Department of Treasury and the Federal Reserve sold almost all of their remaining AIG ownership interest during 2012, which at one time reached 92 percent, and achieved a net positive investment return of $22.7 billion.
AIG's significant role in the U.S. structured settlement market, and the impact of AIG's 2008 financial collapse, are apparent from annual AIG structured settlement annuity premium results (compiled by Melissa Evola) with AIG's estimated annual share of the U.S. structured settlement annuity market in parentheses.
- 2002 - $1.179 billion (19%)
- 2003 - $1.195 billion (20%)
- 2004 - $1.221 billion (20%)
- 2005 - $1.316 billion (21%)
- 2006 - $1.463 billion (24%)
- 2007 - $1.468 billion (24%)
- 2008 - $1.454 billion (23%)
- 2009 - $0.429 billion (8%)
- 2010 - $0.499 billion (9%)
- 2011 - $0.395 billion (11%)
For the first three quarters of 2012, based upon Evola's reporting, AIG (Amgen/AILife) sold $409,213,518 of total structured settlement premium representing 11 percent of total U.S. structured settlement annuity premium ($3,570,584,333) for the same period.
Additional post in S2KM's blog series: "Structured Settlements in 2012":
- Part 1 - Primary market
- Part 2 - Settlement planning
- Part 3 - Secondary market
- Part 4 - Executive Life of New York