Beyond Structured Settlements

Structured Settlement 2016 Annuity Sales

Among many recent structured settlement industry developments, perhaps the most significant and impressive has been the continuation of sustained primary market annuity sales growth - especially in the context of various industry challenges. These challenges have included: 1) the aftermath of the ELNY insolvency; 2) continuation of historic low interest rates; 3) public exposure of unsavory secondary market business practices; and 4) a generational transition within the structured settlement industry.

Despite these challenges, primary market annuity sales (on a comparative basis with prior years) totaled $5.73 billion in 2016 (based upon 24,750 cases with an average case size of $231,478) according to industry estimates compiled and recently distributed by Melissa Price. 2016 sales totals compare favorably, and show a steady increase, compared with similar sales totals for these prior years::

• 2015 - $5.35 billion
• 2014 - $5.25 billion
• 2013 - $5.13 billion
• 2012 - $4.82 billion

For the first time, Ms Price's 2016 report included structured settlement annuity sales by USAA. Although USAA is a member of the National Structured Settlement Trade Association (NSSTA), it is S2KM's understanding that USAA is one of multiple "affiliated" life companies that limits its structured settlement sales to internal USAA claims only. Typically, because these companies don't compete for external business, they don't report their sales data.

Inclusive of USSA, 2016 structured settlement sales totaled $5.80 billion (based upon 25,201 cases with an average case size of $230,320. Even including USSA, the 2016 annual premium totals still fall short of the historic 12 month industry high ($6.2 billion in 2008) after consistently averaging close to $6 billion annually from 2001-2007.

It should also be noted, that while structured settlement premium has continued to increase since 2012, the number of structured cases has not noticeably increased - resulting in an ever-increasing average case size. This development may be explained by more structured settlement brokers transitioning to a settlement planning approach, which by definition targets larger cases. For example, Ringler, historically the largest U.S. structured settlement broker, has recently re-branded itself as "the largest settlement planning company in the nation."

Incorporating the USAA 2016 numbers, and adding the 2016 results to historic U.S. structured settlement totals, S2KM estimates the following primary market metrics from 1976 thru 2015:

• Total annuity premium: $156 billion.
• Total structured settlement cases: 879,000
• Average annuity premium: $177,474

Berkshire Hathaway continued its recent primary market leadership in 2016 by generating $1.504 billion of structured settlement annuity premium - a 15% percent increase from 2015. For the first time since 2011, two companies exceeded $1 billion in structured settlement annuity sales as Pacific Life increased its 2016 total to $1.186 billion from its year earlier total of $871MM - a 36% percent increase.

The U.S. structured settlement market now consists of nine NSSTA-member annuity providers who report their structured settlement annuity sales - down from more than 20 as recently as 2002. 2016 sales results (rounded in millions) for the seven other structured settlement annuity providers (per Ms Price's report) plus the rounded percentage increase (+) or decrease (-) from comparable 2015 results:

• MetLife: $815MM (+6%)
• Amgen: $688MM (+12%)
• Liberty Life: $513MM (-6%)
• New York Life: $487MM (+32%)
• Prudential: $399MM (-48%)
• Mutual of Omaha: $141MM (+44%)
• USAA: $72MM (first report)

Ms Price's 2016 compilation also reports an annual increase in annuity premium for non-qualified structured settlement assignments (from $190.3 million in 2015 to $199.2 million in 2016) as a portion of the overall structured settlement numbers. Non-qualified assignments represent transfers of periodic payment obligations that do not meet the requirements of IRC sections 130 and 104(a)(1) or (2) including deferred attorney fees.

From S2KM's perspective, several factors help to explain the sustained primary market sales growth:

• Increased Industry Unity - As former SSP President Neil Johnson pointed out in 2014, for many years, an historical lack of structured settlement industry unity created a drain - a drain on financial resources ... a drain on productivity ... a drain on our public image ... a drain on physical and emotional health. Lack of unity diverts attention from productive projects." Recent leaders of NSSTA, SSP and NASP have encouraged greater cooperation and focused their associations on more productive projects.
  • SSP - As an organization, SSP is no longer a political advocate for injury victims' rights. As Joe Tombs, its current President, stated in this recent S2KM interview: "A year ago, we decided to abandon taking 'political' positions.'' Instead, Tombs added: "1) SSP has substantially expanded its membership; 2) we have re-focused on professional settlement planning as our primary Mission and purpose; 3) we have pretty much put to bed the idea that we oppose NSSTA; and 4) we have developed a new set of Professional Practice Standards which we will introduce during our 2017 Annual Conference."
  • NSSTA - Although NSSTA continues to advocate for structured settlements, NSSTA has likewise undertaken its own initiatives toward achieving greater industry unification. As identified by former NSSTA President Michael Goodman in 2014, these initiatives have included: 1) a strong relationship with the AAJ; 2) improved dialogue with the SSP; 3) guest educational participation involving SSP and NASP representatives; 4) successful cooperation with NASP to enact revised structured settlement protection legislation in multiple states.
• Market Research - Among the structured settlement growth opportunities, expanded use by traditional stakeholders represents arguably the number one priority - a priority which NSSTA highlighted during 2014 by commissioning CLM Advisors to conduct a three-part survey of senior claims executives (Part 1); front line claims professionals (Part 2); and plaintiff attorneys (Part 3). For S2KM's summary and analysis of these surveys, see:
  • Senior Claim Executives
  • Claim Professionals
  • Plaintiff Attorneys
• Transitional Goals- During NSSTA' 2015 Annual Meeting, Goodman announced a series of transitional growth-oriented goals for NSSTA and its members: 1) modifying NSSTA's traditional "protect and preserve" message to inspire primary market growth; 2) moving beyond "interest rate selling"; 3) moving beyond a focus on factoring; 4) identifying and pursuing new markets for structured settlement annuities; 5) adding one or more new life company providers; 6) engaging new, younger structured settlement brokers; 7) providing a new and improved training initiative.
• Growth Initiative Committee - To help support these goals, NSSTA's Board of Directors established a new NSSTA "Industry Growth Initiative," "designed to identify opportunities to expand the use of structured settlements and bring those opportunities to the structured settlement industry marketplace." The first Growth Initiatives to be selected and approved:
  • Rejuvenate Defense Programs (including casualty insurers, commercial insureds and TPAs) - Originally the prime movers for structured settlements, many defense insurers have reduced or completely abandoned their structured settlement programs citing a variety of reasons.
  • Amend the Federal Employee Compensation Act - FECA, which provides workers compensation like benefits for federal workers, currently does not permit structured settlements.
  • Convertible Deferred Lump Sums - As a sales response to "low interest rates", the Growth Committee proposed a new structured settlement feature. As envisioned, the convertible deferred lump sum would allow a structured settlement recipient to select a future lump sum that would automatically convert on its payment date into a series of predetermined periodic payments payable at whatever annuity rates offered at the time of conversion by the issuing life company.
  Under current President Len Blonder and current Growth Committee Chair Sean Coleman, the number of Growth Initiatives continues to expand with assistance from new NSSTA Communications and Marketing Director Abbey Hudson.
• Educational and Lobbying Support - To support its Growth Initiative, NSSTA has also expanded both its educational and certification programming as well as its strategic lobbying and lobbying partnerships. Educational Committee Co-Chairs Jordan Bossler and Nolan Robinson, CSSC Co-Chairs Karen Meyers and Patricia Fairhurst, and their respective committees, plus Compliance and Administrative Director Debbie Sink provide NSSTA with its strongest-ever group of educational resources. NSSTA Executive Director Eric Vaughn, who also serves as Vice Chair of the American Association for People with Disabilities (AAPD) and manages the Congressional Structured Settlement Caucus , has continued to expand NSSTA's lobbying outreach thru strategic relationships with national special needs attorney associations.

Ms Price's reports do not provide information about the structured settlement secondary market. For S2KM's most recent estimates of secondary market metrics, see this prior blog post. Based upon industry sources, it is S2KM's understanding that structured settlement secondary market sales declined during 2016.

NSSTA 2015 Fall Conference

Although the National Structured Settlement Trade Association (NSSTA) did not promote a specific theme for its 2015 Fall Educational Conference, one of the speakers succinctly captured the program's overall purpose and accomplishment when he described NSSTA's new Industry Growth Initiative as "changing the focus of our future."

Industry Growth Initiative

NSSTA's website description of its Industry Growth Initiative highlights "a significant decline in production since its peak at $6.3 Billion in 2008" and asserts "we do an excellent job protecting our industry" before announcing that "this year we want all NSSTA members to focus their time, energy and resources on new opportunities to expand the use of structured settlements-to grow our industry."

NSSTA President Michael Goodman utilized his Opening Conference Comments in Phoenix (as well as a preconference interview with S2KM) to describe the status and organizational structure of the NSSTA Industry Growth Initiative.

"My first priority as President of NSSTA," Goodman stated, "is to identify growth opportunities for the structured settlement industry. First, we asked all NSSTA members to submit ideas for growth at [email protected]. . Second, I tried to put together a NSSTA Growth Committee consisting of a highly talented cross section of industry leaders with diverse perspectives. Third, the Committee evaluated all of the 28 (to date) NSSTA member growth proposals and selected three for NSSTA Board of Directors approval to develop immediate implementation plans with success metrics."

Goodman introduced the NSSTA Growth Committee members including co-Chairmen William Goodman, Sean Coleman, John McCulloch and John Arendt. Speaking for the Committee, Coleman enthused: "I love our change of focus. Historically, NSSTA has been reactive, dodging bullets. The Growth Initiative redirects our mindset and focus. It encourages us to become proactive. The Growth Committee has already surpassed by highest expectations."

Goodman and the Committee co-Chairmen identified the following three NSSTA Growth Initiatives already selected and approved:

• Rejuvenate Defense Programs (including casualty insurers, commercial insureds and TPAs) - Originally the prime movers for structured settlements, many defense insurers have reduced or completely abandoned their structured settlement programs citing a variety of reasons. Beginning with three target carriers, the Committee plans to analyze the causes, and ultimately revitalize the programs, to create new prototype defense program models. Note: NSSTA recently commissioned surveys of Senior Claims Executives; and front line Claims Professionals which S2KM summarized and evaluated in prior blog posts.
• Amend the Federal Employee Compensation Act (FECA) - FECA, which provides workers compensation like benefits for federal workers, currently does not permit structured settlements. With payouts totally approximately $4.5 billion per year, FECA represent an attractive potential market for structured settlements with administrative cost savings being one justification for a legislative amendment. Based upon preliminary interviews, the Growth Committee believes FECA stakeholders view structured settlements favorably. The Committee is gathering statistical data to support its proposal and building grassroots support.
• Convertible Deferred Lump Sums - As a sales response to "low interest rates", the Growth Committee is proposing a new structured settlement feature. As envisioned, the convertible deferred lump sum would allow a structured settlement recipient to select a future lump sum that would automatically convert on its payment date into a series of predetermined periodic payments payable at whatever annuity rates offered at the time of conversion by the issuing life company. A Canadian broker attending the NSSTA conference stated that at least one Canadian life company already offers this structured settlement product feature. The Committee anticipates whichever annuity provider introduces this product feature in the U.S. will probably also seek an IRS private letter ruling.
• Note: NSSTA's Growth Committee identified a fourth preliminary initiative (Dissipation Study) - to confirm that injury victims squander lump sums. However, this initiative is currently on hold. For background, see this 2009 S2KM review of Jeremy Babener's legal research paper analyzing historic dissipation studies.

Factoring Update

Goodman also addressed the state of the structured settlement industry including a "factoring update". As part of this report, Goodman confirmed that NSSTA and the National Association of Settlement Purchasers (NASP) have agreed to cooperate legislatively in several states to seek the following consumer protection amendments for state structured settlement protection statutes:

• No forum shopping.
• Payee required to attend hearing.
• Stricter application of approval requirements.
• Advanced notice of transfer.
• Required disclosure of prior transfers.

Supporting this cooperative initiative, NSSTA has begun offering its members a new Judicial Education Training Seminar - taught in Phoenix by John McCulloch and Stephen Harris. Goodman also announced he will be a featured speaker at NASP's 2015 Annual Conference next week in Las Vegas - the first serving NSSTA President to do so. Perhaps anticipating his NASP appearance, and cognizant of the recent Washington Post article ("a perfect storm for factoring"), Goodman advised the NSSTA Conference attendees: "Factoring is not a zero sum game. What is bad for them is not always good for us."

Additional Conference Presentations

Many structured settlement participants believe control of the primary structured settlement market, and future market growth, have shifted from the defense to plaintiff attorneys and their injury victim clients. Although NSSTA has been slow to embrace plaintiff-focused personal injury settlement planning, NSSTA's Fall Conference included two presentation featuring plaintiff representatives:

• A Trial Lawyer Panel - moderated by Ryan Garrison with plaintiff attorneys Julio Zapata and Francisco Gutierrez; plus
• An introduction to the National Association of Trial Lawyers Executives (NATLE) by Gayle Bennett, Deputy Director of the New Mexico Trial Lawyers Association.

Both plaintiff presentations emphasized opportunities to expand the market for structured attorney fees. Both plaintiff attorneys expressed a preference for advisors who are "knowledgeable not just about structured settlements but also other investment vehicles."

In addition to the Judicial Education Training session mentioned above, three other NSSTA presentations addressed educational issues and programs:

• Best Practices for Structured Settlement Case Resolution - During her excellent review of structured settlement fundamentals, Betty Gregware expressed serious concern about the general quality of structured settlement documentation and the need to increase competence across the industry.
• Professional Broker Education - Gregware, Melissa Price and Debbie Sink introduced a new educational program NSSTA is developing primarily for individuals who are new to the structured settlement industry. They also provided an administrative overview of "NSSTA University" whereby NSSTA partners with members to secure CE credits for member-sponsored educational seminars for insurance claims departments or law firms.
• MSSC Paper Presentation - Mal Deener moderated a panel featuring Trish Fairhurst, Richard Carroll and other members of the first graduating class of NSSTA's new Masters Structured Settlement Consultant (MSSC) professional designation. Each MSSC graduate is required to submit a paper and these papers will be published on NSSTA's website. NSSTA will offer its next MSSC program beginning April 27, in conjunction with its Certified Structured Settlement Consultant (CSSC) program, at the University of Notre Dame

Separate from, but related to, NSSTA Growth Initiative, NSSTA's Board of Directors has appointed a Special Needs Attorney Task Force to develop strategic relationships with special needs attorney professional associations and to identify collaborative marketing opportunities with special needs attorneys more generally. NSSTA member Carola Davis and Special Needs Alliance attorney Patty Sitchler initiated a NSSTA presentation/discussion in Phoenix which hopefully will continue and expand to the benefit of both professional communities.

A critical factor, both challenge and opportunity, for growing the primary structured settlement market concerns succession planning. What new generation of distributors, or distribution channel(s), or business models, will emerge (and when) to replace and build upon the accomplishments of the pioneering generation (now in their 60s and 70s) who originated the structured settlement market in the late 1970s? NSSTA's Fall Conference featured two presentations addressing these issues:

• Succession Planning - Presenter Jim Early looked at the succession issue primarily from the point of view of the individual producer. Among his observations: "nepotism works in the structured settlement industry" and "a lack of capital has prevented the primary market from bringing in and training new people."
• Diversity Discussion - Angel Viera and Stacy McCall offered a convincing case for promoting greater diversity among new structured settlement professionals as a key component for future growth. Their presentation included and elicited several thought-provoking observations including: 1) "From a demographic perspective, our industry should mirror the people we serve" and 2) "Our industry suffers from a lack of diversity of thinking. Where do we find new voices and perspectives?"

Lifetime payments represent a valuable, optional structured settlement benefit which can be further enhanced from a pricing perspective when rated ages are applicable. Kevin Puckett and Ken Kiefer expounded on these important issues during their presentation about Mortality, Morbidity & Rated Ages.

NSSTA members Susan Clark and Robert Caples introduced Arnie Begler and Scott Henry, representing Pipitone Group, NSSTA's new public relations firm, and together they discussed NSSTA's Communications Program. Because journalists, as well as their readers, frequently confuse the primary and secondary structured settlement markets, Pipitone's "first test" was responding to the aforesaid Washington Post article. Pipitone's stated assignment is "to find the best communications practices and bring them to NSSTA" which will include designing a new NSSTA website. Among NSSTA's priorities, and Pipitone's challenges, will be attempting to reclaim the "structured settlement" brand inclusive of Google searches which currently are dominated by secondary market companies.

NSSTA Executive Director Eric Vaughn concluded NSSTA's Fall Conference with a Government Relations Update - his characteristically insightful and energizing overview of structured settlement legislative and regulatory activities. Among other accomplishments, Vaughn was recently named Vice Chairman of the American Association of People with Disabilities (AAPD).

Other recent NSSTA-related S2KM blog posts:

• Michael Goodman Interview
• NSSTA Marketing Surveys
  • Senior Claim Executives
  • Claim Professionals
  • Plaintiff Attorneys
• NSSTA 2015 Structures 202 Conference
• NSSTA 2015 Annual Conference