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How Structured Settlement Issuers Dealt With Pandemic Rate Drops

John Darer • Mar 10, 2020

Insurers Shifted to Daily Rate Pricing Model for Agile Pricing

Structured Settlement Quotes News

With fixed rate structured settlements close to returning to levels seen prior to the pandemic let's take a look at how  life insurers that issue structured settlement annuities reacted in real time.

To be prudent and agile in structured settlement annuity pricing  in the early months of the Covid-19 pandemic, times of unprecedented market volatility, a number of structured settlement annuity issuers such as Independent Life Insurance Company and Prudentiual Insurance Company of America shifted to daily rate pricing  for all structured settlement quotes, 

What is Daily Rate Structured Settlement Pricing?

Think of Daily Rates as a sort of  "Blue Plate Special" or "Catch of the Day".  Bonds are an important asset carried by structured annuity issuing life insurance companies to back up their liabilities. On any given trading day, it is possible that bond rates in the open market may be more favorable than the investments (or investment assumptions) used to set the traditional "book rates" set by the insurance company. If such favorable investments are available, the insurance company may be able to buy an asset to back up a particular liability at a more favorable rate and be willing to extend a more favorable daily rate which ultimately helps to achieve a more favorable result for our clients.Generally daily rate come out in the morning. But like the blue plate special that attracts scores of tighter budget or fiscally conservative diners to lower priced meals within a restricted time periods, bond markets are fluid and it may be possible to get a better rate at different times of day. It's always worth a try. Furthermore,  it is possible that a company with a large amount of surplus reserves may be inclined to extend a daily rate, for competitive reasons.  In times of unprecedented volatility you might be looking at  "Catch of The Hour" or "Catch of the Minute"

Legal Reserve Life Insurance Companies

The insurance companies that issue structured settlement annuities are legal reserve life insurance life insurance companies . They must carry reserves and are required must submit annual statements to state insurance regulators in each state where they are licensed to conduct  business. The format and contents of the forms used are prescribed by the State Insurance Commissioners. They give a detailed report of an insurance company's financial status, an important factor in evaluating the company's solvency and compliance with the insurance laws. 

Every few years, depending on a company's state law of domicile,  companies operating in multiple states undergo a more detailed home office examination of its financial position. This audit is conducted by a team of State Insurance Department Examiners representing the various areas in which the company is licensed to do business. Companies licensed in a single state are subject only to an annual home office examination by their State Insurance Department.

Surplus are those assets of the insurance company that are not reserves, and are basically "stand by" assets that are available to back any future policies that the company might underwrite. Another way to look at surplus is that it represents the capacity of the insurance company to take on new business. The permitted asset rules typically do not apply to surplus, meaning that the surplus can be invested in any investment that is otherwise legal and prudent for the insurance company to invest in.
Daily rates are usually required over certain premium thresholds due to the potential impact on surplus reserves and regulatory asset/liability matching requirements.  Among other reasons, diversification may be prudent to structure under these thresholds to achieve better aggregate pricing on a given case.

Are Daily Structured Settlement Quotes Always Better Than Book Settlement Annuity Quotes?

No,  sometimes the structured settlement rates are worse on a daily rate basis than the book rate.  Sometimes the daily rates are better only for specific types of cash flows.



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