Structured Settlements Today

How Pandemics and Market Pandemonium Impact

Structured Settlement Rates

March 26, 2020 - We felt compelled to make this our first three-newsletter-month in nearly a decade because we know clients have concerns about the viability of structured settlements during these tumultuous times among their more important worries.

Having fielded lots of inquiries from those concerned about the impact recent interest rate cuts may have had on structured settlements (and because we suspect many others have NOT inquired because they simply assume the worst), we offer what we hope is a helpful assessment of the state of structured settlement rates today.

NOTE: We addressed this topic more broadly in our last

two newsletters: Safety First and Time and Money .

As a prelude to the following, there's this timely article from Reinsurance News noting that Kroll Bond Rating Agency (KBRA) believes COVID-19 will not have a major impact on the life and health industry. Not surprising given the industry is designed to withstand challenging times like these.

How Life Insurers Invest

When you hear about the Federal Reserve cutting interest rates to zero, this is NOT the rate upon which structured settlements are based but rather the rate banks charge each other for overnight lending.

While the federal funds rate is indeed a benchmark for most other interest rates, it's instructive to understand first and foremost that life insurance companies invest primarily in corporate bonds.

A review of most structured settlement life markets' portfolios reveals that 70% to 80% or more of their assets are invested in corporate bonds, the bulk of which are investment grade. The balance of their holdings consists of a combination of real estate, mortgages, equities and some other high yielding debt. Overall, very minimal exposure to the stock market.

How Do Bond Rates Compare?

When comparing corporate bond yields to other popular alternatives like the oft-referenced 10-Year U. S. Treasury Note, how to corporates stack up?

Below is a graph tracking back to February 18, 2020 when the S&P 500 Investment Grade Corporate Bond Index was showing a yield of 2.56% while the 10-Year Treasury stood at only 1.55%.

Historically, structured settlement rates hovered around 50 basis points better than Treasuries. But that was in "normal" times. (NOTE: 1 basis point = 1/100 of 1%)

Fast forward to March 23, 2020 and you can see the two headed in opposite directions with the 10-Year sinking to 0.76% while the spread on the corporates increased a whopping 3 53 basis points, increasing the yield to 4.29% .

After bottoming out from their February 28 levels around March 9, both the 10-Year and 30-Year Treasuries have crept back up but neither has returned to their same levels as of Monday.

Corporate bonds, on the other hand, have jumped up markedly since their lows and are now yielding significantly more than Treasuries.

This is an inexact comparison to structured settlement rates since life insurers purchase more than just bonds as stated above. Plus, the durations of their obligations tend to be much greater than the S&P bond index would indicate.

But it does illustrate how life insurers are able to offer structured settlement rates that are more competitive than what you'll find with government securities.

I realize this is a lot of inside baseball to digest, but I wanted to provide the detail behind the reality that structured settlements remain a very viable settlement option.

So Structured Settlement Rates Are Good After All?

Everything's relative but I can say that it's worth checking.

After a pretty unsteady few weeks when this all began, things have settled down considerably and some structured settlement payment streams are even paying more than they were before all of us started staying inside watching reruns of The Andy Griffith Show all day long.

And 2020 has been one of our busiest years EVER thus far.

Most of our shorter duration payout patterns are impractical but anything with a bit of a deferral and a longer duration might surprise you. Especially when the tax advantage is factored in.

Cases over $100,000 may also be eligible for DAILY RATE pricing so it's always best to check.

One thing that should not be lost amidst all this discussion about interest rates, however:

"You can't put a price tag on security."

The fundamental purpose of structured settlements is to provide a base level of safety and security to those who need it most. Structured settlements have supported people through Black Monday, 911, and the Great Recession.

They'll see us through this, too.

At Your Essential Service

With courts closing, many claims professionals working from home, and other restrictions put in place to combat this dangerous epidemic, we remind you that our firm is considered an essential service.

Like many of you, we are equipped to conduct business via video conferencing as well as good old-fashioned phone and email. To the extent in-person meetings are required (within driving distance), we come armed with disinfectant wipes, latex gloves, and a commitment to staying six feet away from anyone we meet or pass.

In short, we're here for you.

Thank you!

I hope you found our newsletter helpful. Thank you for reading and best wishes to you for continued success in your personal and professional lives.

Stay safe everyone,

Dan Finn, CPCU, MSSC™, RICP®

Master's Certified Structured Settlement Consultant™

Retirement Income Certified Professional®

"Building lifetime client relationships!"

Dan@FinnFinancialGroup.com | 949.999.3322 | FinnFinancialGroup.com

CA Insurance License: 0A96173