Structured Settlements – Industry Analysis
Structured Settlement Industry
Analysis – Primary and
Secondary Markets
Presenter & Moderator
Patrick J. Hindert
Managing Director
The Settlement Services Group, LLC
pjhindert@tssg.net
S3 – Business Model
11/12/2010
Venetian Resort
NASP
2010 Conference
Las Vegas, NV
November 10-12, 2010
Copyright © 2010 The Settlement Services Group. All Rights Reserved.
1
Structured Settlement: Definition
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What is a Structured Settlement?
“Structured settlement” is defined for tax purposes
in IRC Section 5891(c)(1). A claimant-centric
structured settlement may provide a potential
financial solution and security, featuring promised
periodic payments, in lieu of a single lump-sum.
“Structured Settlement and Periodic Payment
Judgments” by Daniel W. Hindert, Joseph J.
Dehner and Patrick J. Hindert, illustrates
structured settlements with the following diagrams:
Diagram 3.3 Annuity Financing
RELEASE FROM TORT LIABILITY
DEFENDANT
OR ITS INSURER
CLAIMANT
PO
LI C
Y
AN
NU
ITY
PR
EM
I
UM
S
FIT
NE
BE
HT
ITY
IG
NU
LR
AN
UA
CT
RA
NT
CO
CT
E
DIR
AN
NU
ITY
NO
DUTY TO MAKE PERIODIC
PAYMENTS
ANNUITY ISSUER
S3 – Business Model
11/12/2010
Copyright © 2010 The Settlement Services Group. All Rights Reserved.
2
Structured Settlement: History
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Stage 1
“Lump-sum”
• Single
Hallmark Recovery Rule
“Cash &
Functions Close”
• Exceptions:
Work Comp
No-Fault
1965-1975
Regulatory
Government
Benefits
1975-1981
1982 Stage 2 - Structured Settlement
“Claim Management Era”
•
•
•
•
•
1982-1987
1988-1994
OBRA ’80
CMS
Social
MSP Regs
Security Act Incl. Medicare
42
CFR
411.46
Secondary
Medicare/
Medicaid Payer Act (MSP)
Taxation
State
Legislation
Financial
Interest Rates/
Credit & Regs
Structured
Settlement
Revenue
Rulings
Model
Periodic
Payment of
Judgments
Act
Periodic
Tax
Payment
Reform
Settlement Act
Act
CA
Supreme
Court
approves
MICRA
2001-2005
TAMRA
2006-2007
CMS ‘01
Issues MSP
‘Patel’ policy memo
(1st of 14 memos)
Small
Rev Proc
Bus. Job
93-34
(Re: 468B) Protection
Act ‘96
Uniform
Periodic
Payment of
Judgments
Act
Uniform
Prudent
Investor
Act
Revised
UCC
Article 9
Tax Payer
Victims of
Relief Act ‘97 Terrorism Tax
(WC-§130QAR)
Relief Act
US
v.
Baxter
Deficit
Reduction
Act
2008-2009
2010
MMSEA
enacted
Health Care
Reform
American Job
Creation Act
468B Regs
(IRS Project)
(‘911 Fund’)
Model State
Structured
Settlement
Protection
Act
NAIC Model
NY,FL,MA,MN Pennsylvania
NAIC Model
adopt S2
Rule 229.2
Unfair Trade Compensation
Disclosure disclosure rules
Protection Act
Statement
‘Dodd-Franks’
Interest
rates bottom
Credit &
Liquidity Crisis
Interest Rates
Peak
1st Transfer
Business
Standards &
Practices
Class Action
Lawsuits
1st of 48 state
S2 Protection
Acts
NSSTA adopts
Code of Ethics
LTR 83-3035
BaldwinUnited
Associations
NAELA
founded
HIPAA
Symetra
launches
Clearscape
NSSTA restricts
factoring by
Members
ABA Model Rules
NAELA adopts
Code of Ethics
Macomber v.
Travelers
Weil v.
Manufacturers
Insolvencies
S3 – Business Model
1995-2000
Medicaid
Omnibus
Reconciliation
Budget Act
(§130 QAR)
Secondary
Market
Disclosure
•
•
•
•
•
•
Periodic Payments
Annuity Financing
Qualified Assignment
Defendant Control
“Gray Market”
2001 Stage 3 - Settlement Consulting
“Accountability & Planning Era”
Primary & Secondary Markets
Blended Products
Claimant-Centric Solutions
Multiple Stakeholders
Risk Analysis
Safe Harbors
Gramm
Leach
Biley
Grillo case
Saltzburg and
Chemerinsky
(’06 paper to ABA)
ELNY agreement
NASP founded
11/12/2010
SSP founded
Fresno
County
Cases
48 States
S2 Protection
Acts
SSP adopts
Standards of
Prof. Conduct
Spencer v.
Harford
First Executive/ Monarch
Executive Life Capital
(CA)
NSSTA
founded
Symetra
resigns
NSSTA
NAMSAP
founded
Joseph v.
City of NY
AIG bailout
Lehman Bros
bankruptcy
JG
Wentworth
bankruptcy
ELNY
(possible)
Insolvency
NASP 1st affiliate
conference
Copyright © 2010 The Settlement Services Group. All Rights Reserved.
3
Structured Settlement-Stage 3 (Complex- Secured Creditor)
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Primary (Creation) & Secondary (Transfer) Markets – Accountability and Planning
$
Claimant/Payee
Key: Interested Parties
w/ Periodic Payment Rights
Primary Market
$
Promise
to Pay $
Secondary Market
Secured Creditor
Post Settlement Transfer Agmt
w/ PPR Transfer Order
Settlement Agreement & Release
Defendant
Payments
Alternative Payees
Currently Primary Market Only
MSA Arrangement
Settlement Preservation
Trust
Special Needs Trust
Non-Profit
Post Settlement
PPR Transfer Order
Transfer
Notices
MSA
Payments
Discount
Cash
Trust
Payments
468B Fund-‘QSF’
Annuity
Ownership/
Obligation to
Pay
Or
Corpus at
Death
Or
468B Funding
Order
Court
$
$
Trust
Payments
State/Medicaid
Court
Premium +
Non-Qualified
Assignment
Premium +
Qualified
Assignment
Or
Funding Company
/ Transferee
Premium +
Qualified
Assignment
Structured Settlement
Assignee
Premium
$
Annuity Pledged to
Secured Creditor
Annuity Issuer
Post-transfer Annuity Payments
Residual Pre-transfer Annuity Payments
Residual to Claimant Estate
Or
Or
Or
S3 – Business Model
11/12/2010
Annuity Payments
Copyright © 2010 The Settlement Services Group. All Rights Reserved.
4
Settlement Consulting
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Increasing risk and costs associated with increasing regulation and claimant choices
are driving Stage 3 structured settlement industry participants to a new and very
different business model – Settlement Consulting.
Stakeholder
Settlement Choices
Many
Increasing
Settlement
Consulting
Business Model:
Claimant Centric
Planning Focused
Regulation /
Public Policy
Low
High
Claim Management
Business Model:
Defendant Centric
Commission
Focused
Few
Risk / Cost
Stage 1
Stage 2
1982
Time
S3 – Business Model
11/12/2010
Stage 3
2001
2010
Spencer v. Hartford
Settlement
Copyright © 2010 The Settlement Services Group. All Rights Reserved.
5
Contact Information
“We have the Answers”
Patrick Hindert
Managing Director
pjhindert@tssg.net
Phone: 513-899-2100
Mobile: 513-248-2452
The Settlement Services Group, LLC
(TSSG)
www.tssg.net
9057 Swigert Road
Loveland, Ohio
45150
Timothy Morbach
Director of Sales
ttmorbach@tssg.net
Phone: 734-335-7452
Mobile: 734-718-8718
Fax: 734-404-6276
16115 Weatherfield Drive
Northville, Michigan
48168-2316
Pat is co-author with Daniel W. Hindert
and Joseph J. Dehner of “Structured
Settlement and Periodic Payment
Judgments,” published by American
Lawyer Media
S3 – Business Model
11/12/2010
Copyright © 2010 The Settlement Services Group. All Rights Reserved.
6