1.  Mortality risk is transferred to a life insurer. Writing structured settlement annuities on a life contingent basis can eliminate reserve deficiencies arising from poor mortality forecasts. A life insurer’s actual mortality experience tends to be more predictable due to a large pool of risks. However, reserve adjustments related to medical expenses and other factors may still be necessary. To the extent annuity financing reduces adverse reserve development it will also stabilize future earnings.

Mortality Based Discounts(MBD’s) are applied when, in the underwriters determination, an individual’s life expectancy is shorter due to a disclosed medical condition. Of significant interest is that a ratable condition need not be related to the claim being filed. A rated age will significantly bring down the cost of a life contingent payment stream. The use of rated ages and mortality data is a major advantage in reducing the cost of Workers’ Comp Medicare Set Aside Arrangements (WCMSA). IMPORTANT TIP! Both industrial and non-industrial medical conditions that may reduce the applicant’s life expectancy in the view of the life insurance company that provides the annuities for the workers compensation structured settlement. This may reduce the cost of the Medicare Set Aside Allocation making it easier for a case to settle.

2. Investment and reinvestment risk is transferred to a life insurer. In a sense, all non-fatality worker’s compensation claims can be divided into two groups. Short-term claims constitute the largest group in terms of numbers of cases and represent a significant portion of claim debts. These short-term liabilities match up nicely with the short duration assets of the typical casualty company or pool.

The next group of claims is made up of long-term claims. These long-term liabilities are not well matched with the short duration assets of the typical casualty company or pool portfolio. Purchasing annuities or using periodic payment reinnsurance to fund these long-term claims provides a better matching of assets and liabilities. This is a cost effective strategy since the Capital requirements and long-term investment strategies of life companies allow them to price annuities competitively compared to assets of similar quality and duration.

3. Administrative expenses can be decreased through the structured annuity or reinsurance financing mechanism. . Payments can be made directly to the claimant by the life insurer or reinsurer, relieving the obligor of this burden. Some annuity issuers and reinsurers can make payments on a weekly or bi-weekly basis.

4. Compromise Settlements and Redemptions 

• Qualified assignments under IRC Section 130 have been permitted for compromise settlements and redemptions, since August 5, 1997, under the Tax Payer Relief Act of 1997. Qualified assignments may provide additional financial security to the payee, particularly if the structured settlement annuity issuer is of greater credit quality than a self insured employer or workers compensation insurer..
• Non qualified assignments or reinsurance structured settlements can be used where there is a pre-August 5, 1997 workers compensation settlement.
• Several others provide a reinsurance approach to finance both statutory obligations and compromise settlements.
• Several companies have created special endorsements that provide for the commutation of the funding asset upon the cessation of the statutory obligation. (e.g. remarriage of a widow or widower)