Periodic Payment Assumption Reinsurance
Periodic Payment Reinsurance, a/k/a Reinsurance Structured Settlements, can be used to resolve taxable damage cases (e.g. employment, intellectual property, bad faith), as a means to do policy buyouts, and as an alternative method to structure attorney fees where, despite domestic insurer guarantees, a plaintiff or attorney is not comfortable with non qualified assignments. A periodic payment reinsurance agreement can be executed as a two party reinsurance agreement (just between insurers) or a three-party reinsurance agreement that includes the claimant, where the claimant agrees to look to the reinsurer in lieu of the insurer/reinsured much like the way the claimant would look to the assignee when a qualified assignment is completed. Periodic payment reinsurance is only available where the paying party is an insurer. Reinsurance structured settlements can be used in in the settlement of either tax-exempt or taxable claims or damages.
A Group LTD insurer or disability insurer could take advantage of using periodic payment reinsurance in a disability claim settlement.
Examples of such claims include:
- Claimant has no interest in vocational rehabilitation or return to work programs
- Claimant is permanently disabled with no possibility of returning to work
- There is an unclear or multiple medical scenarios for the long term
- There is disputed medical treatment or disputed claim
- Policy limits will likely being reached
The mechanics involve the disability carrier entering into a compromise agreement with the claimant, providing for future periodic payments within the agreement and obtaining the claimant's agreement to look solely to the reinsurer for future payments.
Benefits to Insurer of Using Reinsurance Structured Settlements on Disability Claims:
Benefits to Claimant of Reinsurance Structured Settlements:
- Reduce Claim Reserve and avoid possible future adverse reserve development.
- Reduce or eliminate the expense and time required to administer payments, which in turn reduces the number of pending claims handled by adjusters.
- Transfer of obligation.
- Cost-effective benefits. In addition substandard underwriting is available. If the medical history of a claimant justifies a rated age, it may reduce the cost of providing the negotiated payments in the reinsurance agreement. It may help make a settlement possible.
- Pass on the investment on reinvestment risk to the reinsurer.
- Reinsurer guarantees the payments regardless of the performance of the financial markets.
- Increased flexibility. Claimant's needs may have changed from those anticipated when the policy was established.
- Payment streams may be created to meet a variety of claimant needs thus giving insurers the ability to restructure their payment stream, improve negotiating position and achieve resolution of their claim.
- Elimination of liability feature available.
- Increased flexibility. If the underlying policy only pays out until age 65, the benefits can be structured to go lifetime or provide COLA or future deferred lump sum payments. There is no need to adhere to the level and frequency of payments under the disability policy.
- Reinsurer has the top rating from A.M. Best of A++ (Superior).