In an email announcement last Friday afternoon the NSSTA board of directors informed membership that they have decided not to renew their contract with Trade Association and Society Consultants (TASC). Instead, they have chosen to retain the services of The Smith Bucklin Company to provide the association management services going forward. Smith Bucklin is, according to the email, the largest trade association company in the US and probably brings a greater amount of resources to the table as a result of it.

What this means to long time TASC President Randy Dyer, who has been the face of NSSTA pretty much from the beginning of the organization, is yet to be determined. From a reading of the announcement it would seem the door is open for Randy to stay on in some capacity while the actual day to day operations of the association are being shifted to The Smith Bucklin Company. Whether or not an arrangement is worked out obviously remains to be seen.

While there is never a good time for change, clearly the industry is facing some challenges and opportunities, and the board felt that there needed to be more resources brought to bear. At least that's my take on it, as no one in the decision circle is talking about this other then to refer to the email statement. I'm sure over time the thought process and rationale will come out, but for now the industry's largest trade association will be in transition to new operational leadership.

In some welcome news in the continuing shift away from in house compensation and commission sharing/rebating arrangements it was announced by Hartford Financial Services that effective March 27, 2007 that any case written through a Hartford Casualty subsidiary that is funded with a Hartford Life Insurance annuity contract will now pay a full 4% commission to the rep's, as opposed to the 3% compensation that was the standard with that deal for the last 10+ years.

Obviously, the Macomber Case and other litigation that focused on commission sharing and rebating has put a lot of the industries practices under the microscope, and in my opinion the Hartford program was an unnecessary relic of older days that needed to be ended.

Good decision by Hartford to get this done, and it should help to continue smoothing relations between defense and plaintiff brokers who were often at odds about the mandatory nature of the program.  

In a long awaited move both NSSTA and the settlement industry's big player, AIG, have both come out with forceful policy statements to the structured settlement industry on the issue of Factoring Referrals and the role of factoring in relation to the goals of NSSTA.

In the AIG letter that was sent out to all producers on November 2, 2006 J.P. Steele, the director of AIG/American General structured settlements addressed their concerns regarding factoring referrals. The key elements of the letter to brokers and agents are as follows:

1. AIG had become aware of one of the dirty secrets of the settlement business, that being that many factoring companies had been approaching settlement brokers and firms with a questionable business proposition. That proposition being if the settlement broker would turn over the names of annuitants in the cases they had written over the years, or decades they had been in business, the factoring company would pay a referral fee or commission to the broker for each case that resulted in a factoring transaction.

2. AIG issued a reminder to agents and brokers that participating in this practice is specifically prohibited by federal and state privacy laws and the structured settlement agent agreement with AG Life. As a result they made it abundantly clear that if a broker was found to have engaged in this activity they would face immediate termination of their agent agreement and would be referred to state insurance departments for further action.

3. They further reminded agents and brokers that a settlement agreement is a private contract, the terms of which are usually confidential, and that disclosure of material information could make the agent personally liable under both civil and criminal laws.

Essentially, this was a big, loud warning shot being fired by the 1000 pound Gorilla of the settlement community that the lax standards that have become increasingly prevalent in dealing with factoring companies will no longer be tolerated. Personally, I think this is long over due and hopefully will be a first step among the life markets to remind agents that they are under contract, must uphold privacy laws and resist the easy money being offered by factoring firms by sharing the names of annuitants. Obviously, I feel factoring has a legitimate place in the settlement world and is a crucial safety net for annuitants who are in desperate circumstances and must cash out of their annuity. You can listen to all of my podcasts and those of Matt Bracy and Settlement Capital by visiting the Capital Blog site. However, due care and professional standards must be maintained in the process of marketing to annuitants and informing them of their rights to factor, and the "gentle reminder" provided by AIG is a very positive step in that direction.

In a related move, NSSTA on October 26, 2006 offered to the membership a change intended to bring some of the wayward elements of the organization into compliance with larger mission. The specific wording is that membership in the Association is available only to " a business organization or individual that (a) is engaged in activities that advance the Associations mission, as set forth in Article I, Section 3; and (b) is not engaged, directly or through any related party, in other activities that are incompatible with such mission." They then go on to clarify this rather broad language and definition to include the following as activity's the NSSTA board feels are incompatible with that mission statement:

1.  Actively soliciting and promoting structured settlement factoring transaction to individuals who are receiving periodic payments under structured settlements....Involvement of a NSSTA member or it's affiliates in actively soliciting and promoting liquidation of structured settlements through factoring transaction impairs NSSTA's credibility and consequently its effectiveness, in advocating the use of structured settlements to provide long term financial security.

2. Sharing information and documentation about existing structured settlements with, or using such information to solicit factoring transactions for, an entity engaged in structured settlement factoring transactions with respect to individuals recieving payments under structured settlements.

3. Using the status of NSSTA member and access to NSSTA communications channels to promote and facilitate structured settlement factoring transactions.

4. Selling payee names/addresses or other identifying information to an entity engaged in structured settlement factoring transactions.

The letter goes on to further outline the NSSTA belief that factoring is ultimately harmful to the general mission of NSSTA and is contrary to the interests of most annuitants, and that the organizations ability to effectively lobby to federal and state governmental officials, as well as the trial bar, judges and others is harmed when members are engaged in an activity that is ultimately harmful to the over all mission.

Clearly, we are looking at the big guns deciding enough is enough on factoring abuse, and that having fought to a stalemate in the war with factoring companies at the federal and state level, as seen by the establishment of section 5891 and the creation of model legislation in the states codifying the process by which factoring can occur, they are now going to flex their muscle in two areas; Agency appointments to write annuities and membership in NSSTA, the largest trade association of settlement professionals. The days of members and agents having a foot in both worlds is about to come to an end.

While I'm largely sympathetic to the industry concerns about the abuses that have occurred, and continue to occur in the factoring area, I'm not entirely comfortable with the heavy handed and broad interpretation the association is taking in keeping its members " inline and in lock step." The facts are that factoring is legal, is being enshrined in both the federal tax code and state law and that those of us who work in the plaintiff market often have a fiduciary responsibility to our client, i.e. the claimant, to advise them of their rights, responsibilities and options regarding factoring if they are the beneficiary of a periodic payment stream. Further, here on this channel and other forums I often take up the issue of factoring, education on issues related to it, and it's not a huge stretch given the broad interpretation of the NSSTA rules that I could potentially be in violation under the provision of "promoting and facilitating settlement factoring transactions." I guess only time will tell on that one.

In the larger and more immediate picture, Symetra and Allstate might need to take a hard look at their factoring subsidiary operations or activities or face removal from NSSTA. Clearly, some changes are going to occur, some feelings will be bruised and people will need to make decisions as to how they handle their business. Stay tuned.  

Effective October 23, 2006 Pacific Life has upgraded and expanded their structured legal fee program to allow for the following:

1. The claimant does not have to structure with Pacific Life, or with any other annuity company, in order for the trial lawyer to structure their fee. Essentially this means that Pacific Life has now joined most of the other life markets and  is accepting "stand alone" legal fee structures. This is important as there has been a widely held misconception that the attorney can only structure if the claimant is also structuring.

2. Pacific Life will, like many other markets, offer joint and survivor annuity options. What this means for trial lawyers is that they can select a life payment that allows for annuity benefits for as long as they or their spouse is alive. This is a huge upgrade in that it allows for the tax deferral of the fee to continue on for the life of a spouse, instead of accelerating payments into the year of the attorneys death.

3. The qualified assignment and release form is required on structured stand alone attorney fees. This is a departure from the more typical qualified assignment that is used, but does allow for language that gives a stronger release.

 As mentioned before structured legal fees are the biggest area of potential growth in our market, and if you'd like to read more on the subject you can check out my blog at Wahlstrom and Associates to see some of the more in depth information we provided there on this topic.

Well, it's been a month or so since the rather surprising announcement by Genworth Financial that they were going to close down their structured annuity division at the end of August, and thus removing a couple of the great names of the settlement industry, First Colony Life and Mayflower Life, from the roster of markets.

In the emails and phone calls i've had with various industry people, brokers, company reps, etc, there we a couple of major themes that ran through their observations.

1. The announcement totally came out of the blue. Typically you can see some of this coming, either as a result of an investment downgrade, merger, business reversal or a prolonged period of poor pricing. None of those were the case with Genworth as their pricing had been reasonably competitive, their financial's were strong and they had come out of their spin off from GE Capital with generally very good reviews.

 2. People are were expecting some contraction of the market, but Genworth was not a name anyone tossed out as a likely candidate to stop writing structures. With Genworth making a very strong push on the variable and fixed annuity business it would have seemed to be a natural to keep the structured annuity side running, but clearly the management at Genworth didn't like their margins, or more likely the prospects for growth, and decided it was better off placing it's resources elsewhere.

3. Genworth's withdrawal high lighted the issue that is facing our industry, and that is that we are not on a plateau, but we are in fact contracting. With each quarter it become more and more apparent that other financial vehicles such as trusts, variable annuities, mutual funds, banks, etc, are capturing most of the cash in settlements. If the only growth a life market can get is from cannibalizing premium from other markets, that's not a healthy allocation of resources and will eventually lead to a life company taking a hard look at their reasons for staying in a market.

As I have told others, I wasn't surprised a market decided to leave, but I was surprised it was Genworth. I still expect before year end we will have at least one more announcement regarding a market leaving. The Companies still writing settlement annuties are:

Allstate Life, American General, Aviva, Fidelity & Guarantee, Hartford Life, John Hancock, Liberty Life, Mass Mutual Life, Met Life, NY Life, Pacific Life, Prudential, Symetra and Travelers. Which one will decide to pull out next is pretty much anyone's guess.

It's been over two weeks now since the Murphy vs IRS decision was handed down by the Federal Appeals court, in which opinion Judge Ginsburg offered a sweeping repudiation of the theory that all litigation proceeds that aren't directly tied to physical injury or sickness are income, and therefore, taxable. The general reaction of tax professionals and court watchers is that the Murphy decision will be contested to the Supreme Court and eventually overturned, but I personally don't think it is a guarantee at all that it would be reversed.

However, my larger concern, and the theme of this particular post is to discuss my belief that the "settlement industry" is once again failing to seize the day and aggressively agree with this stunning decision and line up on the side of the broken and beaten in society, at least from a tax stand point.

Lets look at the facts. Murphy v IRS is largely a philosophical shift away from the concept that all proceeds from litigation that aren't directly tied to personal physical injury or sickness should be taxable. It is a repudiation of the Treasury and Big Government theory that because you were molested, because you were defamed, because you were wrongfully imprisoned you some how "earned income" for the return of your human capital that an award in those areas implies. I, and others in our business, have been troubled for a long time that there exists a gross inequity in that someone who is raped and beaten obtains a tax free award under section 104(a)(2) but that someone who is systematically molested, abused and traumatize mentally and emotionally over a period of years was in a position where there award was taxable.

Judge Ginsburg in his decision for the court largely attacked and swept away the techno/tax law babble that supported that flimsy argument and went to the heart of what is equitable and just. It is what Judges are supposed to do and he did it masterfully. My concern is that the fall out of this, if you read the blogs and news commentary on it, is that all the "tax and lobby guys", who typically have all the warmth, humor and joy of a rock, are upset that the Judge messed with their precious tax code in such a dramatic way, and as a matter of policy and protecting their turf, they want to see it reversed, "just because".

I think it would be a great PR and general business move if the Settlement Industry in the form of NSSTA, the SSP and the Life Insurance industry got their lobbyists out, went up to Congress and made it absolutely clear that we as an industry are choosing to side with molestation victims, wrongfully jailed prisoners, people who have been defamed and abused and ask to have the code amended permanently to correct this injustice and not leave it in the hands of the courts. Congress has the power to make this permanent, and I think it would be a bold and powerful statement by NSSTA and SSP to come out and proclaim our belief that the prior position was wrong and that we agree with Judge Ginsburg.

To often we are seen as the bad guys, the money changers in the Temple, who debate how many angel dance on the head of a pin, instead of looking after the broken, abused and beaten among us. Lets hope this doesn't turn into another "policy debate" but instead is seen as a chance to lead and demonstrate our firm belief in taking care of those who can't take care of themselves, or at the very least, not supporting those who would tax human suffering as income.  

It was announced today that John McCulloch will be leaving Allstate Life Insurance today as it's director in charge of the structured settlements division. I was informed that John will be taking a position with EPS Settlements doing marketing and advance market support for the EPS group.

As most industry people are aware John was the brain child behind a great deal of the non-qualified innovation in our industry while at both AEGON/Transamerica and then with Allstate. In particular the development of the Structured Sale product, work on structured legal fees and other innovations should be areas of significant premium growth over the next 5 years so his loss at the company side is going to be noticed by our industry.

Innovation and creation of new markets and products isn't exactly a hallmark of the settlement industry and as such Allstate and the industry's loss is going to be EPS's gain. Hopefully Allstate steps up, puts a strong person in that position and continues to pursue the development of the structured sale and non-qualified markets as those clearly remain the great untapped areas of growth for the Settlement Industry.  

In a long over due move, Mass Mutual Life via their Settlement Solutions group out of Charlotte, NC announced last week that they would now begin to write stand alone structured legal fees. This brings the folks from Springfield into the marketplace where a lot of premium is being written and where I personally believe most of the real action and growth in our business is going to take place in the next 18 months.

Structured legal fees are the greatest untapped source of premium our industry has available, but too often the life markets have had inconsistent underwriting standards as to the types of cases they would write, whether they would do stand alone fees, whether they would do fee's on non-qualified cases, etc. I am continuously amazed at how the life markets and brokers have failed to capitalize on the new clarity from the IRS, Congress and Supreme Court rulings as to the ability of attorney's to structure, but will complain about the lack of growth in premium.

An industry advertising campaign would go a long way to create a rising tide that would lift all ships, if that campaign were directed at tax professionals and trial lawyers. The fact remains it is the only industry that can effectively do non-qualified deferred compensation with their fee's, but the vast majority of trial lawyers still don't know about it. Having some uniformity in what kinds of cases can be structured, how they are underwritten and what requirements are needed would go a long, long way to kick start this sleeping giant.  

I was talking with my friend and fellow blogger John Darer of the Structured Settlement 4 Real blog the other day about how I am appalled at the incredibly poor policy issue and pride in workmanship exhibited by most of the major life insurance markets. We both agreed that the standards of policy issue and the actual product placed in the clients hand, that being the physical paper policy, have declined so badly in the last 10 to 15 years it is literally embarrassing professionally to deliver some of these contracts. John beat me to the punch with his commentary on the topic, but I really do need to weigh in with my two cents on this as it is, by my informal survey, one of the biggest complaints among agents in our business.

First, and this is going to REALLY date me, in my first job out of college I worked at New England Mutual Life Insurance Company, in their home office on Boylston St in Boston, MA. It was the late 70's, jobs were exceptionally scarce for new graduates and I was grateful to have a "career" in the life insurance business working for a blue chip company like NEL. Of course they were eventually bought out by Met Life and are a mere marketing name now, but back then they were renown for being the white shoe, old school, blue blooded Yankee insurance company and they did everything with a great deal of style and flair. I found this out when my "management training" thrust me into the policy issue and underwriting department at the very time they were installing their very first IBM main frame system, designed to cope with the flood of new business they were writing and issuing on a new product. It was utter and complete chaos and while I eventually survived my initiation to the life insurance industry, I was able to watch the transition of issuing physical policies from contracts that were essentially assembled by hand, put in a professional jacket for delivery and then mailed out, to one where early laser printers were employed to mass produce and blast out contracts by the hundreds.

 In this process, which no doubt saved a huge amount of time and money, something was definitely lost and I could see it first hand. You see, at one time New England Life actually employed several women who with fountain pens would actually hand write, in beautiful penman ship, the front page of the contract. These contracts were literally works of art in both the stitching and the presentation, and they were done in that fashion because the company at that time believed strongly that the delivery and presentation of that life insurance contract was a direct reflection on the companies values and attitude toward that customer.

Now, I don't want to go back to the days of penned contracts, but really folks, does anyone stop and stare at their life insurance contract or annuity contract and say, you know that company values me as a customer, and appreciates that I am sending them a great deal of my money? Most of the contracts look very similar to an 8th grade history report, with pages typed, hurriedly stamped, photo copies jammed in and stapled together like something to be tossed out the door and forgotten. I got some contracts from one major life market last week, and I was literally embarrassed to send them on to my client. Pages out of order, printed on something akin to copy paper, stapled in the upper right hand corner and tossed in a binder that is too big to fit in a standard over night envelope. I will avoid naming the company at the moment as I am doing a survey of each market to see what their contracts look like, because John insists they aren't the worst of the bunch, which I find hard to imagine.

I'd like to suggest that the life markets that read my blogs, and I know most of you do read it, stop and consider what you can do that is in your budget that would improve the presentation and delivery of your ultimate product, the contract. No, I don't want a return to the old days, that's too much to hope for I guess, but couldn't we at least have a presentation package that includes policy service numbers, return envelopes, company information, a neat and professional contract all in a jacket that doesn't look like I ran it off at Kinkos just before I mailed it?

Please, throw us a bone here. You are looking cheap, careless and foolish to your customers and it doesn't take much to dress it up and do a better job. It just takes someone who cares enough to do it.  

As you know we are starting a month long series on the topic of factoring, liquidity on structured annuity contracts and the ethical and business issues surrounding the secondary markets.

In to the midst of this is the rather large elephant in the parlor that no one seems to want to discuss, and that is Symetra's entree' into the secondary market, and a their rather aggressive and public push to make themselves a player. As this is no doubt being debated at the NSSTA annual and in other forums, I thought I would raise an example of some of the issues that are going to arise as a result of their decision to be a player in that market.

I have attached two separate documents, one is a copy of the filings between Symetra and Rapid Settlements last month in Texas State Court, as well as the copy of the decision in the Illinois Appellate Court between Forman v Symetra that is the basis for the Texas complaint by Rapid Settlements. Each is available by clicking the high light.

Now, let me make clear, I have zero stake in these cases, have no interest in any of the parties and am not going to comment on the potential success or failure of the litigation at hand. However, I do think settlement professionals and trial lawyers will find this an instructive case study in the potential conflict of interests and business issues that are going to be raised as life markets elect to enter the secondary liquidity markets.

Also, i'm really wondering what NSSTA is going to do about this, as Symetra is clearly a long time, loyal provider of structured annuities and a market I've used and recommended with out hesitation over the years. How NSSTA and other industry organizations elect to deal with this new twist in our business is going to be fascinating to watch, and we will report on it as stories develop. I'm afraid there are going to be some long standing relationships damaged as life markets start looking at their installed book of annuitants and realize the asset value and transaction benefits of providing liquidity.   

Long time settlement industry member, Rhonda Bentzen, recently announced that she has formed a new firm, Bentzen Funding Solutions. Her new entity will continue to specialize in factoring, but will also provide a unique twist in that it will have a sub-speciality in "cross border" settlement between Canadian and US interests. Given her long back ground in both structured settlements and factoring, as well as her work in both Canada and the US, I'd suspect Rhonda will be quite successful in her new venture.

Further proof of the continued growth of factoring firms, specialization and ties between standard structures and needs for liquidity among annuitants.  

As reported in this mornings London Times, Aviva has ended it's pursuit of Prudential UK, bringing to close for now the anticipated merger between the two international insurance giants.

As mentioned earlier this week, i'm going to start doing more reporting of company combinations in both the life and property casualty area, as I believe from what i've researched that given current prices for markets and the financial imperative to get bigger, we are going to see a significant increase in the numbers of mergers and buy outs in the insurance industry.

Check out the Settlement Round table podcast section to hear the recent podcast with Patrick Hindert, who attended the SSP meeting in Washington, DC and reports back on his observations. A quick summary of the new officers, invited speakers and issues raised that will be followed up on in subsequent podcasts.

Click to listen here. 

Ok, got your attention with that one didn't I?

It's Aviva's parent company in the UK and the UK branch of Prudential, but this article in Reuters news service is an excellent discussion of how the two UK firms are looking for a way to merge and create what would be the third largest insurance conglomerate in the world.  

What I like about this is it is an excellent description of the Aviva parent company that essentially guarantee's the US life company so many of us use to fund structured settlement annuity contracts. While Aviva isn't a household name in the US, it is clearly a major player internationally and provides a level of security on a par with most of the major US life markets.

I'd clip this one and put it in your Aviva folder for those questions we all get on who Aviva is.  

There are plenty of official press releases on this sale, announced on Wednesday of this past week, describing the transaction by which Allstate sold off it's variable annuity block of business to Prudential Life.

The transaction is pretty straight forward, with the VA block, with net assets of approximately $16 billion and a sale value of $540,000,000 will transfer to Prudential, which already has $54 billion in assets under management in variable contracts. The transaction will move Prudential to number 3 in total VA assets behind Met Life and Hartford, but what I find really intriguing about the deal is the selling and marketing arrangements that go along with it. They are in brief:

1. Allstate gets a two year window during which it can sell FIXED annuities through the Prudential sales network.

2. Prudential Life gets a distribution agreement for variable annuities through the Allstate agent and financial institution network.

3. Prudential will get access for the first time to the Morgan Stanley investment clients through Allstates long standing partnership with the investment bank, thus giving them access to a higher level of professionals in the fund management business.

I've often wondered when the life markets were going to begin to realize that not every company needs to own and develop every product, and that sharing distribution networks and "cobranding product" was a win-win for every one. I think there are some very logical candidates for similar deals in the settlement industry where cobranding of niche product and access to selling groups might make a great deal of sense. Only time will tell if that ever occurs.