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Structured Settlements in 2008 - 1

By Patrick Hindert

pThis S2KM blog post, the first of three summarizing strongstructured settlements in 2008/strong, evaluates the year from an stronghistorical perspective/strong. strongTwo subsequent posts/strong will:/p ul liSummarize 2008 strongconferences/strong attended by S2KM;/li liHighlight strongchallenges/strong facing the industry in 2009./li /ul pquot;emStructured Settlements and Periodic Payment Judgments/emquot; (a href=http://www.lawcatalog.com/table_of_contents.cfm?productID=1118amp;return=listview target=_blankS2P2J/a), co-authored by Daniel Hindert, Joseph Dehner, and Patrick Hindert, features historical summaries of both the primary and secondary structured settlement markets. spana class=wiki_link_ext href=http://s2kmblog.typepad.com/rethinking_structured_set/2008/11/s2p2j-release-44.html rel=nofollowS2P2J Release 44/a/span is now available./pp S2KM previously has published strongthree online historical summaries/strong of structured settlements:/p ul liA spana class=wiki_link_ext href=http://www.flickr.com/photos/87569154@N00/314287256/ rel=nofollowvisual history of structured settlements/a/span to 2005;/li lispana class=wiki_link_ext href=http://s2kmblog.typepad.com/rethinking_structured_set/2006/12/structured_sett.html rel=nofollowStructured Settlements in 2006/a/span;/li lispana class=wiki_link_ext href=http://s2kmblog.typepad.com/rethinking_structured_set/2007/12/structured-sett.html rel=nofollowStructured Settlements in 2007/a/span./li /ul pAs these summaries demonstrate, the history of structured settlements includes many diverse and inter-related developments. From S2KM#39;s perspective, the strongmost strategically important years/strong in the history of structured settlements strongprior to 2008/strong have been:/p ul listrong1982/strong - during which Congress enacted the Periodic Payment Settlement Act of 1982:ul liAdding quot;emperiodic payments/emquot; to IRC section 104(a);/li liCreating IRC section 130 and quot;emQualified Assignments/emquot;;/li liEstablishing a public policy to support structured settlements./li /ul /li listrong2001/strong - during which:ul liCongress enacted IRC section 5891to provide tax rules, definitions and penalties for transfers of structured settlement payment payment rights and to create a state run system for reviewing and approving such transfers;/li liCMS published its first policy memorandum for Medicare set-aside arrangements (MSAs);/li liThe Society of Settlement Planners (SSP) was founded as an alternative to the National Structured Settlement Trade Association (NSSTA) which was formed in 1985./li /ul /li /ul pAlthough it is premature to evaluate the full stronghistorical impact of 2008/strong for the structured settlement industry, the cataclysmic financial events of the past four months have already created serious repercussions for both the primary and secondary markets. The stronggood news:/strong thanks to the federal government bailout of AIG, no structured settlement recipients have suffered any loss of structured settlement payments to date because of the economic meltdown. The strongbad news:/strong the U.S. economy and financial markets remain in jeopardy creating unprecedented challenges for the structured settlement industry in 2009./p pstrong2008 Structured Settlement Financial Summary/strong/p ul liThe Wall Street Journal characterized September 14-20, 2008 as emquot;The Week That Changed American Capitalismquot;/em. Among other developments, United States Treasury Secretary Henry Paulson announced on September 16 the federal government had seized control of strongAIG/strong in an $85 billion bailout. Paulson stated AIG had been only quot;emhours from bankruptcy/emquot;. On October 8, the Federal Reserve Board increased its loan to AIG by an additional $37.8 billion./li listrongAIG/strong subsequently announced span class=BodyCopy-Hit planned to sell its North American life subsidiaries, including American General, as part of its plan to repay the bailout loan from the U.S. government. /spanFor additional information and continuing reports about the Federal government#39;s bailout of AIG, see S2KM#39;s spana class=wiki_link href=http://aigstructuredsettlements.wikispaces.com/homeAIG structured settlement wiki/a/span./li liUntil September 2008, strongAIG/strong had been the largest purchaser and the largest seller of structured settlements. In 2006, AIG sold more than $1.4 billion of the $6.1 billion annual U.S. structured settlement annuity premium. In 2007, AIG sold more than $1.4 billion of the $5.9 billion annual U.S. structured settlement annuity premium. During the first nine months of 2008, AIG sold more than $1.2 billion of the $4.4 billion of the U.S. structured settlement annuity premium./li liAlong with other financial and insurance companies, the stock prices of strongstructured settlement annuity providers/strong have been battered during the fourth quarter of 2008. Some annuity providers have experienced rating downgrades. Analysts, investors and rating agencies have expressed concerns about the potential exposures these companies may have to failed or bailed out companies as well as the general decline in their stock portfolios and shareholder equity./li liOn December 16, 2008, strongAviva Life/strong announced it was exiting the structured settlement business to concentrate its resources on less capital intensive businesses. Aviva joined other annuity providers who exited the structured settlement business during 2006 and 2007 including Mass Mutual, Genworth, Travelers and Aegon./li liThe financial crisis has frozen the credit markets and shut down most asset-backed securitizations causing substantial problems for the secondary structured settlement market. span style=font-family: Arial;In November, Standard amp; Poor#39;s cut strongJ.G. Wentworth/strong#39;s counterparty and senior-secured bank loan ratings/spanspan style=font-family: Arial; from B-/spanspan style=font-family: Arial; to CCC+ /spanspan style=font-family: Arial;due to quot;/spanspan style=font-size: 10pt; font-family: Arial;severe dislocation of the credit marketsquot; that have quot;rendered unprofitablequot; some financing transactions.br / /span/li lispan style=font-size: 10pt; font-family: Arial;On December 5, strongJ.G. Wentworth/strong announced the pricing of /span$74.6 million of Class A-1 Notes in connection with its 2008-3 securitization. The Class A-1 Notes were priced at 700 bps over benchmark interest rate swaps and will have ratings of Aaa and aaa by Moody#39;s and A.M. Best respectively. The purpose: to provide the necessary proceeds to satisfy one of the conditions under J.G. Wentworth#39;s November 28, 2008 margin call waiver agreement with Deutsche Bank to reduce warehouse loan indebtedness by $50 million./li liAlthough demand for strongsettlement transfers/strong has remained strong throughout 2008, strongdiscount rates/strong have increased from 8% to 16% during the past six months./li /ul

Full post as published by Beyond Structured Settlements on December 22, 2008 (boomark / email).