Beyond Structured Settlements

Settlement Consulting - 3

In prior posts about settlement consulting, S2KM:

• Reviewed Joseph DiGangi's discussion at the NSSTA 2009 Winter Meeting titled: "Comprehensive Settlement Consulting in the 21st Century". See: "Settlement Consulting".
• Continued DiGangi's discussion by asking questions and offering comments about "settlement consulting" definitions and scope. See: "Settlement Consulting - 2".

This S2KM post outlines settlement consulting history - from a structured settlement perspective.

S2KM's structured settlement history diagram (developed with graphic artist Keith Burtoft) concludes with the founding of the National Association of Medicare Set-Aside Professionals (NAMSAP) in 2005.

Beginning in 2005, S2KM has continued to monitor structured settlement history by attending and reporting about settlement consulting conferences addressing structured settlements.

For the past three years, S2KM has also published annual reports about structured settlement developments:

• Structured Settlements in 2008;
  
• Structured Settlements in 2007;
• Structured Settlements in 2006.

Using the same categories as S2KM's structured settlement history diagram, here are some of the more recent settlement consulting highlights:

Social Security

• Deficit Reduction Act of 2005 (DRA);
• The Ahlborn Case (2006) - see John Campbell's analysis of the Eighth Circuit's decision which the U.S. Supreme Court unanimously affirmed.
• Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA);
• Additional MSA rules for structured settlements (2008);
• New POMS for Special Needs Trusts (2009) - see David Lillesand's report;

Taxation - see related articles on the Wood & Porter website:

• Banks and Banaitis cases (2005) - attorney fees;
• Murphy case (2007);
• IRS Letter Ruling 200836019 (2008) - Non-qualified 130 assignments and attorney fees.

State Legislation (2005-2008) - see Release 45 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

• Structured settlement protection statutes;
• Uniform Trust Code;
• UCC Article 9 anti-assignment provisions;
• Medicaid annuity rules.

Other Developments

• Academy of Special Needs Planners (ASNP) founded (2007);
• AIG receives $150 billion U.S. Government bailout (2008);
• Joseph Ricci replaces Randy Dyer as NSSTA Executive Director (2008);
• SSP publishes its "Standards of Professional Conduct" (2008) and begins its Registered Settlement Planner (RSP) certification (2008);
• American Association of Nurse Life Care Planners (AANLCP) founded (2008);
• Several annuity providers depart the structured settlement market (2005-2008);
• Structured settlement annuity premium remains level at $6 billion per year (2001-2008);
  
• Structured settlement surveys identify a larger market (2006-2008);
• Settlement consulting bloggers and podcast providers emerge (2004-2009).

For reasons why S2KM views 1982, 2001 and 2008 as strategically important for structured settlements, see "Structured Settlements in 2008 - 1".

AIG Structured Settlement Wiki

Important AIG developments continue on a daily basis. For structured settlement stakeholders who are attempting to monitor AIG developments, S2KM has created and continues to update this AIG Structured Settlement Wiki including this AIG Structured Settlement Timeline.

AIG Knew About Valuation Problems

Despite denials by former AIG CEO Martin Sullivan last week before a Congressional subcommittee, a Wall Street Journal article (subscription required) published this weekend offers evidence that top AIG officials knew about problems in valuing derivative contracts as early as October 2007.

During his October 7, 2008 testimony, Sullivan stated he truly believed what he told AIG investors on December 5, 2007: "that AIG has accurately identified all areas of exposure to the U.S. residential-housing market; ...we are confident of our marks and the reasonableness of our valuation methods".

Criminal prosecutors are currently investigating whether AIG executives misled AIG's outside auditor and AIG investors about the value of its derivatives.

The WSJ article reports that Joseph St. Denis, a former AIG internal auditor who resigned October 1, 2007, has written a letter of the House Committee on Oversight and Government Reform stating that he learned in early September 2007 that AIG Financial Products had been asked by its trading partners for billions of dollars of collateral related to AIG derivatives. In his letter to Congress, Mr. St. Denis stated the valuation model of one of AIG's trading partners indicated AIG Financial Partners "was in a potentially material liability position."

Another reason for his resignation, according to Mr. St. Denis, were statements made to him by Joseph Cassano, CEO of AIG Financial Products, that Cassano had "deliberately excluded" Mr. St. Denis from evaluating the AIG derivatives "because [Cassano] was concerned that [St. Denis] would pollute the process."

In his letter to Congress, Mr. St. Denis claims that later in October 2007, following his resignation, he told AIG's chief auditor, Michael Roemer, why he had resigned and Roemer said he would report those reasons to AIG's audit committee.

In addition, in November 2007, the WSJ article reports AIG's external auditor, PricewaterhouseCoopers, told Mr. Sullivan, then AIG's CEO and Steven Bensinger, AIG's Chief Financial Officer, that "it believed that AIG could have a material weakness" in its risk management according to minutes of an AIG audit committee meeting which were also released to Congress.

In other weekend news about AIG, Senator Max Baucus, Chairman of the Senate Finance Committee and a longtime supporter of structured settlements, wrote to Federal Reserve chairman Ben Bernanke on Friday denouncing AIG's earlier sales retreat in California. Senator Baucus stated: “If AIG was throwing money around for tee times and hot stone massages while begging for Federal Reserve dollars, it’s a scandal and an outrage and heads will roll. I want to know who we can fire and how we can get this misspent money back, and I want both of those things to happen pronto.”

For additional S2KM coverage of AIG, see this AIG Structured Settlement Wiki which features an updated AIG structured settlement timeline.

AIG Structured Settlement Annuity Market

What is happening with AIG annuities in the structured settlement market?

Two weeks have passed since AIG's Board of Directors approved the largest government bailout of a private company in United States history just "hours before bankruptcy". In recent years, AIG has been the largest issuer and purchaser of structured settlement annuities.

Prior S2KM blog posts about AIG address:

• AIG - 1: Who do you trust?
• AIG - 2: How strong are structured settlements?
• AIG Structured Settlement Timeline

Financial Ratings:

• The credit rating agencies most recently downgraded AIG and its subsidiaries on September 15, 2008.
• A.M. Best, the most closely watched rating agency within the structured settlement industry, downgraded AIG from A+ to A.
• Structured settlement stakeholders, including agents and recipients, historically have insisted upon a minimum A.M. Best rating of A+.

Primary Market - S2KM spoke last week Friday with the Chief Operating Officer of one of AIG's approved agents for structured settlement annuities. This AIG agent reported:

• The AIG agent has received "almost no inquiries about AIG";
• The AIG agent no longer recommends AIG because of AIG's "A" rating from A.M. Best;
• The AIG agent is attempting "to ignore AIG" despite AIG improving rates for AIG structured settlement annuities as recently as last week.

Secondary Market - S2KM spoke last week and today with two senior sales representatives from a leading structured settlement transfer (factoring) company. These sales representatives reported:

• Structured settlement annuities, including AIG annuities, "are still good investments".
• Their company, a substantial purchaser of AIG annuities, continues to purchase AIG annuities.
• For the past 2 weeks, their company has experienced "very heavy traffic" - much of it related to AIG.
• Their company believes investors will continue to purchase structured settlement derivative securities: "If we can't sell AIG annuities, we won't purchase AIG annuities".
• Asked why AIG structured settlement recipients call factoring companies instead of AIG agents, both essentially replied: "many AIG structured settlement recipients blame their structured settlement advisors and trial attorneys for recommending AIG annuities. The last people they call for advice about AIG annuities are their attorneys and AIG agents".

For a list of AIG's approved structured settlement agents, see the "Featured Links" on AIG's structured settlement website.

To find a factoring company, try a Google search for "structured settlement".

AIG Structured Settlement Timeline

The events of the past two weeks have been unprecedented in American financial history as well as structured settlement history. This blog post continues S2KM's coverage of AIG in the context of the current financial crisis and how to grow the structured settlement market. 

S2KM's prior AIG blog posts:

• AIG - 1: Sets forth one perspective for AIG analysis - who can you trust? If you are an AIG structured settlement recipient, agent or professional advisor, who can you trust for information and financial advice about AIG?
• AIG - 2: Looks at AIG and the current financial crisis as an historic test and opportunity for structured settlements. How strong are structured settlement promises and obligations?

This S2KM blog post introduces a first draft AIG structured settlement timeline. S2KM welcomes your comments with suggested additions or corrections.

Note: for an updated AIG structured settlement timeline, see S2KM's AIG Structured Settlement Wiki.

AIG Structured Settlement Timeline 

• 1919 - Cornelius Vander Starr originates AIG in Shanghai, China.
• 1962 - Hank Greenberg becomes head of AIG's North American operations.
• 1968 - Greenberg assumes Starr's position as CEO of AIG international.
• 1987 - AIG forms AIG Financial Products in London.
• 1998 - AIG Financial Products begins to sell collateralized debt obligations (CDO) and credit default swaps (CDS).
• August 2001 - AIG acquires American General for $23 billion of AIG stock.
• October 14, 2004 - Then New York Attorney Eliot Spitzer announces that two AIG executives have pleaded guilty to criminal charges in connection with rigged insurance bids.
• 2005 - AIG sells more than $1.3 billion of the $6.1 billion of total annual U.S. structured settlement annuity premium. The Office of Thrift Supervison, a U.S. Government regulator, begins reviewing AIG Financial Products operations. A.M. Best places AIG's financial strength "under review with negative implications" and subsequently downgrades its AIG rating from A++ to A+. Other rating agencies also downgrade AIG.
• March 15, 2005 - Greenberg resigns as Chairman, CEO and Director of AIG. Greenberg is succeeded as CEO by Martin J. Sullivan. Greenberg continues as CEO of AIG partner Starr International. Both Starr and Greenberg continue as major AIG shareholders.
• May 2005 - AIG restates its financial position including a reduction in book value.
• 2006 - AIG sells more than $1.4 billion of the $6.1 billion annual U.S. structured settlement annuity premium.
• February 9, 2006 - AIG and the New York State Attorney General's office agree to a settlement in which AIG pays a fine of $1.6 billion.
• 2007 - AIG sells more than $1.4 billion of the $5.9 billion annual U.S. structured settlement annuity premium. A.I.G. Financial Products’ holds approximately $500 billion of CDS.
• January 24-26, 2007 - NSSTA hosts its 2007 Winter Meeting in Albuerque, N.M.titled "Who Can Your Client Trust?" At the NSSTA meeting, AIG announces a new transparency initiative. Here is an excerpt from S2KM's blog report:

"Supporting Casualty Claims - Ismael Acevedo, Vice President of AIG's Structured Settlement Division delivered an educational primer for structured settlement consultants who represent (or want to represent) casualty claim departments. Acevedo's presentation summarized the results of an AIG survey of 1000 claims adjustors. In addition, Acevedo announced a new AIG initiative to make its structured settlement program "more transparent". Acevedo did not specify whether or how this new AIG initiative will apply to such issues as factoring and/or to informed consent by injured claimants for structured settlement compensation arrangements".

• September 30, 2007 - AIG announces a $352 million loss on its CDO portfolio.
• April 16-19, 2008 - NSSTA hosts its 2008 Annual Meeting in LaJolla, California. AIG announces the results of an AIG structured settlement survey. Here is an excerpt from S2KM's blog report:

"[J.P.] Steele announced the results of a Structured Settlements Survey Report sponsored by AIG and conducted in September 2007 by Esearch.com, Inc. The results of the survey, which appear on the AIG website, highlight the need to better educate plaintiff attorneys and injury victims about structured settlements."

• June 15, 2008 - Sullivan resigns as CEO and is replaced by Robert B. Willumstad.
• September 14, 2008 - New York insurance regulators approve AIG's request to borrow $20 billion from its insurance subsidiaries. AIG announces it may sell its aircraft leasing division to raise capital.
• September 15, 2008 - AIG suffers a financial downgrade by all of the credit rating agencies. A.M. Best downgrades AIG's financial strength from A+ to A.
• September 16, 2008 - AIG's stock price on the NYSE suffers a meltdown following its financial strength downgrade reaching a low of $1.25 from its 52 week high of $70.13. The Federal Reserve announces the creation of a 24-month credit facility for AIG with up to $85 billion. In exchange AIG issues the government warrants for a 79.9% equity stake plus the right to suspend dividends to previously issued common and preferred stock. The U.S. government loan is collateralized by AIG's assets, including subsidiaries, and with an interest rate of LIBOR (three month London Interbank Offered Rate) plus 8.5%. By accepting the terms of this rescue package, AIG becomes the largest government bailout of a private company in U.S. history. Edward M. Liddy replaces Willumstad as CEO.
• September 17, 2008 - The National Association of Insurance Commissioners (NAIC) announces that Eric R. Dinallo, New York's Insurance Superintendent, will oversee an NAIC task force created to expedite the approval of sales of American International Group assets.
• September 22, 2008 - Dinallo issues a news release stating AIG's insurance subsidiaries are financially sound and announcing he will issue notices to insurance companies, agents and brokers to remind them of their responsibilities under New York Insurance Law to fully inform consumers of the possible costs of switching life insurance, annuity and other policies. Other state insurance commissioners issue similar announcements and warnings. AIG CEO Liddy states AIG will begin announcing the subsidiaries AIG intends to sell during the week of September 29, 2008.
• September 24, 2008 - Chubb and Travelers announce they will no longer participate as partners with AIG on co-surety bonds. AIG publicly questions the motives of its competitors.
• September 26, 2008 - The NAIC task force for AIG hires Centerview Partners Holdings L.L.C. to help it oversee the sale of AIG insurance subsidiaries. AIG announces the New York Stock Exchange will permit it to issue "a large amount" of preferred stock to the Federal Reserve Bank of New York without obtaining AIG shareholder permission. Greenberg sells 35 million shares of the New York-based company held by Starr International Co. and 5 million shares of his personal holdings. Greenberg continues to control personally and through Starr substantial AIG stock.