Periodic Payment Assumption Reinsurance

REINSURANCE STRUCTURED SETTLEMENT SOLUTIONS

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Structured Settlements Using Reinsurance

Periodic Payment Reinsurance | Reinsurance Structured Settlements

What is Reinsurance?

Where an insurance company transfers a portion  of its obligations and/or risks to another insurance company. Note that it is a contract between two insurers and not an annuity contract or annuity policy.

Periodic Payment Reinsurance, a/k/a Reinsurance Structured Settlements, can be used to resolve personal injury and wrongful death cases,  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 a plaintiff or attorney is not comfortable with non qualified assignments.

Two Forms of Periodic Payment Reinsurance

A periodic payment reinsurance agreement can be executed as a two party reinsurance agreement (just between insurers-the ceding insurer remains contingently liable), or a three-party reinsurance agreement that includes the claimant, where there is a legal novation. The claimant agrees to release the ceding insurer from the future periodic payment obligation and agrees to look to the reinsurer in lieu of the insurer/reinsured.  This is much like the way the claimant would look to the assignee when a qualified or non qualified assignment is completed.  With the three-party reinsurance the Reinsured may be relieved of having to footnote potential contingent liabilities per FASB 113 .

Periodic payment reinsurance is only available where the paying party is an insurer


Reinsurance structured settlements can be used in the settlement of either tax-exempt or taxable claims or damages.


 Use of Reinsurance Strucured Settlements


A Group LTD insurer or disability insurer could take advantage of using periodic payment reinsurance in a disability claim settlement.


Where a Reinsurance Solution May Help Resolve LTD Claims:

 

  • 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.
  • Claimant  wants to improve credit quality of insurer behind LTD obligation. For example compare one of the largest writers of LTD to a provider of periodic payment reinsurance.

 

UNUM/Provident/Paul Revere     

 

A.M. Best               A                                       

Moodys                 A2  

         S&P                          A 


     

National Indemnity Company


A.M. Best     A++

Moodys         Aa1

S&P                AA+                              

 

Ratings current as of September 7, 2022

 

Benefits to Insurer of Using Reinsurance Structured Settlements on Disability Claims:

 

  • 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.

 

Benefits to Claimant of Reinsurance Structured Settlements:

 

  • 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).


Last updated March 14, 2024

 

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