Market Metrics
Although its new "Growth Initiative" has represented a well-publicized, number one priority of the National Structured Settlement Trade Association (NSSTA) during 2015, the results of this initiative have not yet produced a noteworthy impact on structured settlement annuity sales.
As reported by Melissa Evola Price, the United States structured settlement primary market has continued to slowly recover from its 2012 nadir during 2015 with first nine months annuity sales of $3.96 billion resulting from 18,635 cases - a premium increase of 3% compared to $3.86 billion resulting from 19,778 cases for the same period in 2014. The average per case annuity premium has increased to $212,703 from $195,305.
Based upon these results, 2015 annual structured settlement annuity sales can be expected to approximate $5.4 billion. The projected 2015 annual premium totals, however, will still fall substantially short of the historic 12 month industry high ($6.2 billion in 2008) after consistently averaging close to $6 billion annually from 2001-2007.
Recent Annual Structured Settlement Annuity Premium
- 2015 (third quarter) - $3.96 billion
- 2014 - $5.25 billion
- 2013 - $5.13 billion
- 2012 - $4.82 billion
- 2011 - $4.97 billion
- 2010 - $5.5 billion
- 2009 - $5.4 billion
- 2008 - $6.2 billion
Adding the 2015 Third Quarter results to historic U.S. structured settlement totals, S2KM estimates the following primary market metrics from 1976 thru September 2015:
- Total annuity premium: $148.7 billion.
- Total structured settlement cases: 847,200
- Average annuity premium: $175,600.
Nine month 2015 sales results (in millions) for individual structured settlement annuity providers (per Price's report) which are members of the National Structured Settlement Trade Association (NSSTA) plus the rounded increase (+) or decrease (-) from comparable 2014 results:
- Berkshire Hathaway: $974 MM (-12%)
- Pacific Life: $642 MM (+16%)
- MetLife: $592 MM (-13%)
- Prudential: $563 MM (+22%)
- Liberty Life: $422 MM (-2%)
- Amgen: $408 MM (+8%)
- New York Life: $298 MM (+45%)
- Mutual of Omaha: $65 MM (+63%)
Low Interest Rates
Many structured settlement industry participants attribute decreased sales to low interest rates. 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):
- 2015 (as of December 28) - 2.95%
- 2014 - 2.97%
- 2013 - 3.96%
- 2012 - 2.95%
- 2011 - 3.91%
- 2010 - 4.25%
- 2009 - 4.08%
- 2008 - 4.28%
- 2007 - 4.84%
- 2000 - 5.94%
- 1990 - 8.61%
- 1980 - 11.27%
Submarkets - Multiple noteworthy submarkets, each with significant structured settlement growth potential, are incorporated within the annuity production numbers set forth above. With the exception of non-qualified assignments funded with life insurance annuities sold by NSSTA members, S2KM is not aware of published metrics for these submarkets.
- Non-Qualified Assignments
- Non-qualified assignments represent transfers of periodic payment obligations that do not meet the requirements of IRC section 130. They are generally used to defer taxable damage awards such as punitive damages as well as contingent attorney fees. Because they do not benefit from the favorable tax treatment of IRC 130, most non-qualified assignees are "off-shore" companies located in jurisdictions which do not tax the funds received by the assignee as income.
- Two NSSTA-member annuity providers (Liberty Life and American General) currently offer and separately report non-qualified sales
- Reported nine month 2015 non-qualified structured settlement sales by Liberty and Amgen totaled $159.0 million compared with $113.2 million in 2014 - a substantial increase which does not include non-qualified sales by a growing number of non-NSSTA member companies.
- Release 58 of "Structured Settlements and Periodic Payment Judgments" (S2P2J) features an expanded analysis of the non-qualified market.
- Medicare Set-Asides
- A Medicare set-aside (MSA) is an administrative and funding mechanism utilized in certain categories of settlements to protect Medicare's interests as "secondary payer" under the Medicare Secondary Payer (MSP) statute.
- Although Federal law does not define MSAs, or mandate specific types of MSA funding mechanisms, CMS (the responsible federal agency) has established certain basic requirements for workers compensation MSAs (WCMSAs).
- Under current CMS rules, structured settlement annuities have an inherent cost advantage over lump sum alternatives for funding WCMSAs resulting from the method CMS prescribes for calculating present values.
- Although industry reporting does not currently separate MSA annuity sales, S2KM has previously estimated that eight (8%) percent of 2013 structured settlement premium and 24 percent of 2013 structured settlement annuities were attributable to WCMSAs.
- Although no specific CMS rules or requirements currently exist for liability MSAs, one professional MSA administrator has informed S2KM that liability MSAs now represent 30% of his company's cases and the percent is growing.
- Special Needs Trusts
- Established by Congress in 1993 as part of the Omnibus Budget and Reconciliation Act, Special Needs Trusts (SNTs) provide an authorized method for disabled individuals to hold an unlimited amount of assets in trust without disqualification for certain means-tested government benefits including Social Security Income and Medicaid.
- When utilized as part of a personal injury settlement, SNTs are frequently funded with structured settlement annuities.
- Similar to MSAs, industry reporting does not currently separately report SNT annuity sales.
- Although an important strategic relationship clearly exists between structured settlement brokers and special needs attorneys, neither professional community have fully embraced the other for reasons explained in prior S2kM blog posts.
- As a result, continuing opportunities exist to expand structured settlements funding of SNTs as well as other government benefit programs promoted by special needs attorneys such as the ABLE Act and the Affordable Care Act.
How large is the potential U.S. annual structured settlement market?
Based on recent Towers Watson studies, S2KM has previously estimated that more than $170 billion of United States tort costs (excluding workers compensation) represented payments to injury victims and their attorneys during 2014. Within that framework, and in the context of an S2KM interview, NSSTA President Michael Goodman recently stated his own estimate of potential market size for the structured settlement industry to be $8 to $10 billion range per year.
Secondary Market
Unlike the primary structured settlement market, which has experienced modest annual sales increases since 2012, the secondary market appears to have regressed according to industry experts. As a point of reference, based on interviews with industry experts in 2012, S2KM estimated 2012 structured settlement secondary market activity to be:
- 12,000 secondary market transfers - with less than 120 contested by annuity owners and/or providers.
- $360 million of total secondary market purchases (money paid to transferors).
- $30,000 average individual transfer.
Following zero (0%) percent growth in 2013, the number of secondary market transfers appears to have declined as much as 15% during 2014 with another decrease of as much as 7% predicted in 2015, according to various industry sources.
This decline in secondary market transfers received further confirmation from:
- An exhibit to J.G. Wentworth's December 10, 2015 SEC Form 8-K which indicates a $48 million drop in structured settlement revenue for the first three quarters of 2015 compared with the same 2014 period ($764MM vs. $812 MM).
- J.G. Wentworth's current stock price - which closed on the New York Stock Exchange at $1.82 per share on December 28, 2015 down from its historic high of $19.59 on February 28, 2014.
Industry experts estimate J.G. Wentworth currently controls between 65-72% of the U.S. secondary structured settlement market.
Based upon the 2013-2015 transfer estimates indicated above, S2KM further updates its estimates of historic (1986-2015) structured settlement secondary market metrics as follows:
- 168,000 transfers - involving 84,000 structured settlement recipients.
- $5 billion - aggregate sums paid to transferor structured settlement recipients.
- $12.9 billion - aggregate periodic payments purchased by secondary market companies.
For S2KM's summary of 2015 structured settlement issues and developments, see this blog post.
For S2KM's prior year summaries of the structured settlement market, see the structured settlement wiki.
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