Beyond Structured Settlements

Structured Settlements in 2007

Happy holidays from S2KM Limited. Thank you for reading S2KM's blog during 2007. This final 2007 S2KM blog post highlights some of this year's important structured settlement developments and issues.  For additional background information, see:

• S2KM Mid-2007 Structured Settlement Report
• Structured Settlements in 2006

Industry Growth and Development

• Industry insiders are predicting final 2007 structured settlement annuity sales (qualified and non-qualified) will match or slightly exceed total 2006 production of $6.1 billion.
• Membership growth in 2007 for the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP), the primary structured settlement trade associations, also appears flat. Neither of these associations has articulated a strategy for growing the structured settlement industry.
• NSSTA replaced long-time Executive Director Randy Dyer in 2007 with association management company Smith Bucklin. NSSTA has announced it will continue a business relationship with Dyer. However, NSSTA has not yet announced Dyer's new role or responsibilities.
• Annuity provider Mass Mutual exited the structured settlement industry in 2007 joining other recent industry departures such as Genworth, Travelers and Aegon. No new annuity providers entered the structured settlement market in 2007.
• The secondary life and annuity markets continued to be controversial within the structured settlement industry in 2007. Semetra resigned from NSSTA in 2007 based in part on their disagreement with NSSTA's Bylaw Amendments related to structured settlement factoring. Neither NSSTA nor SSP allows factoring companies to join their associations.
• Although the secondary structured settlement market continues to grow in 2007, the overall pace of its growth appears to have leveled off for many, but not all, participants.
• Preliminary strategic recognition and some consolidation continued during 2007 within these overlapping markets:
  
  • Structured settlements;
  • Personal injury settlement planning;
  • Litigation funding;
  • Special needs planning;
  • Secondary insurance and annuity markets.

Legislation and Regulations    

• New York Governor Eliot Spitzer announced a $750 million "agreement in principle" for Executive Life of New York in 2007. The agreement is designed to continue paying all ELNY annuitants 100% of their benefits. The announcement represents a public relations victory for the structured settlement industry. Many questions about the agreement, however, remain unanswered. For example: the amount of contributions from indemnity (casualty) insurers who own or have assigned structured settlement annuities.
• State Medicaid Agencies are continuing to adopt annuity provisions from the Deficit Reduction Act into their state Medicaid Plans. Interpretations and applications of these new annuity rules remain inconsistent creating process bottlenecks and denials. The impact of the secondary annuity markets on Medicaid qualification remains unclear in 2007. The Social Security Administration (SSA) announced in 2007 that it will draft POMS for annuities in 2008. For additional information about the Deficit Reduction Act, see:
  • Release 41 of "Structured Settlements and Periodic Payment Judgments";
  • Inconvenient Questions; and
  • NAELA Annuity Policy White Paper.
• 48 states have enacted structured settlement protection statutes. Overall, these statutes appear to be accomplishing their purposes and functioning with increasing certainty and efficiency. Pennsylvania's judiciary adopted Pennsyvania Rule 229.2 in 2007 tightening some rules and processes within that state's protection statute.
• The U.S. Treasury has not ruled on single claimant 468B funds in 2007.

Case Law - some of the significant 2007 cases:    

• DOJ Sovereign Immunity Defense - see "Drinker Biddle's Structured Settlement Update" for analysis of two DOJ sovereign immunity cases: Transamerica v. Settlement Capital and Continental Casualty v. United States.
• Primary Market Disclosure Case - "Pullman & Comley's Structured Settlement Insights" provided the first Internet analysis of Joseph v. The City of New York which Pullman & Comley characterizes as ""the first court opinion to analyze the requirements in structured settlement protection acts that disclosures be made when negotiating a structured settlement."
• Rapid Settlements cases challenging secondary market laws and business practices including:
  
  • Rapid v. Symetra; and
  • CNA v. Rapid Settlements

• Murphy v. IRS - Eleven months after ruling that taxing damage awards for nonphysical compensatory damages violated the United States Constitution, the United States Court of Appeals for the District of Columbia Circuit has reversed itself in Murphy v. IRS by holding that the United States can tax awards for emotional distress and injury to reputation.
• Macomber v. Travelers - the parties agreed to a confidential settlement in 2007.  It is unclear what legal precedents, if any, the earlier Connecticut State Supreme Court rulings in this case will hold for current or future structured settlement litigation.
  

Educational Programs and Resources

• Both NSSTA and SSP offered certification programs in 2007.    
• S2KM attended educational programs for the following trade associations in 2007 and wrote blog posts (see links) evaluating their structured settlement educational programs:          
  
  • National Structured Settlement Trade Association (NSSTA).          
  • Society of Settlement Planners (SSP)          
  • American Association for Justice (AAJ)          
  • National Academy of Elder Law Attorneys (NAELA)          
  • Academy of Special Needs Planners (ASNP)          
  • National Association of Settlement Purchasers (NASP)    
• The structured settlement industry continued to offer various additional educational resources in 2007:          
  
  • Blogs, podcasts, wikis and concept maps;          
    
  • Digital and hardcopy newsletters;          
    
  • Hardcopy legal textbooks.

Business Standards and Practices

• 2007 developments
  
  • Broker Relations Initiative - status report provided in this S2KM blog post.
  • SSP Ethics Project - status report provided in this S2KM blog post.
• 2007 issues:
  
  • Structured settlement public policy
  • Claim management vs. settlement planning
  • Consumer and investor protection including:
    
    • Compensation disclosure;
    • Informed consent;
    • Single claimant 468B funds;
    • Unfair claim practice legislation;
    • Fiduciary responsibilities for professional advisors.

• Additional compensation issues:
  • Rebating
  • Affinity programs
  • Secondary market transactions
• Unauthorized practice of law.

Symetra Registers for Initial Public Offering

Symetra Financial Corporation (Symetra) filed a Registration Statement with the Securities and Exchange Commission (SEC) on June 29, 2007 announcing a proposed initial common stock offering of $750,000,000.  The Registration Statement identifies Merrill Lynch, Goldman Sachs, J.P. Morgan and Lehman Brothers as Symetra's investment bankers. According to the Registration Statement, the proposed sale to the public will occur: "as soon as practicable after the effective date of the Registration Statement." Symetra said it expects to be listed on the New York Stock Exchange under the symbol "SYA".

Symetra acquired its core life and investment businesses from Safeco Insurance in August 2, 2004. The investors included affiliates of White Mountain Insurance Group and Berkshire Hathaway as well as key executives including Randall H. Talbot, President and Chief Executive Officer, and Roger F. Harbin, Executive Vice President and Chief Operating Officer. According to the Registration Statement, all of the common stock to be sold is currently owned by the investors. Symetra will not receive any proceeds from the sale. 

The Registration Statement identifies income annuities, including structured settlement annuities, as one of Symetra's five core business segments. Symetra has been a controversial participant within the structured settlement industry.  Because Symetra has an "A" financial rating from A.M. Bests (as opposed to an "A+" rating), Symetra has experienced competitive difficulties in structured settlements. Unlike other structured settlement annuity providers, Symetra has formed a factoring company affiliate, Clearscape Funding Corporation, (Clearscape). Symetra resigned as a member of the National Structured Settlement Trade Association (NSSTA) at the end of 2006.

Symetra's Registration Statement includes several statements about structured settlements and Symetra's structured settlement program. Specifically addressing the financial ratings issue, Symetra states: "our current financial strength ratings limit our ability to offer structured settlement contracts. If our principal life insurance company subsidiary, Symetra Life Insurance Company, increases its financial strength ratings from “A” (Excellent) to “A+” (Excellent) from A.M. Best, courts will be more willing to approve structured settlement contract arrangements from us. Improving this key rating will allow us to participate fully in this market."

Symetra's Registration Statement does not specifically discuss Clearscape or the structured settlement secondary market.

Additional, selected, summary highlights from Symetra's June 29, 2007 Registration Statement:

• As of March 31, 2007, Symetra had:
  
  • Over 1,200 full-time and part-time employees;
  • Over 2 million customers;
  • Over $1.4 billion of total stockholders' equity
• Symetra's five business segments
  • Group medical, life and disability
  • Retirement products and services
  • Income annuities including structured settlement annuities
  • Individual term, universal and variable life
  • Unallocated corporate investment income
• Symetra's competitive strengths
  • Innovative and collaborative product development capabilities
  • High quality distribution relationships
  • Leading group medical stop loss insurance provider
  • Diverse businesses
  • Flexible technology platform
  • Experienced management team
• Symetra's growth strategies
  • Target large and growing markets
  • Develop distribution relationships
  • Innovative in anticipating customer needs
  • Effectively manage capital
  • Pursue complimentary acquistions
• Symetra's business risks
  • Interest rate fluctuations
  • Reserve requirements
  • Deviation from pricing assumptions
  • Amortization of deferred acquisition costs
  • Potential downgrade of financial ratings
  • Highly regulated industry
  • Constraints related to holding company structure
• Symetra's financial strength ratings
  • A.M. Best's: A
  • Standard & Poor's: A-
  • Moody's: A2
  • Fitch: A+
• Structured Settlements
  • Symetra distributes structured settlements through 551 settlement consultants representing 66 agencies in 49 states and the District of Columbia.
  • Symetra believes their ability to participate and compete effectively in structured settlements depends on their ability to achieve financial upgrades from the ratings agencies.

For prior S2KM reporting on Symetra, see:

• Rapid v. Symetra
• Wentworth and Symetra