Parts 1 and 2 of The Chronicle’s Series analyzing Melissa Price’s 2018 Structured Settlement Production Report highlighted both the positive and the concerning news for NSSTA and the structured settlement market contained in her historical data.
The good news: 2018 sales totals of $6.02 billion represent the first time since 2008 the structured settlement market has reported annual annuity premium in excess of $6 billion - an increase of 8.45% over the 2017 totals.
The cause for concern: In 2002 (17 years ago), annual structured settlement annuity sales totaled $6.14 billion – exceeding 2018 annual sales by $120 million!
Note: the 2018 reported numbers include only NSSTA annuity providers. Independent Life entered the structured settlement market as a de novo company April 23, 2018. We joined NSSTA in 2019. Therefore our 2018 annuity premium sales are not included in the 2018 Industry Report.
As a new structured settlement market participant, and the only life company ever to focus exclusively on structured settlements, Independent Life is optimistic about the future. However, we believe that all market participant can benefit from studying, and learning lessons from, the history of the structured settlement market
Melissa Price’s 2018 Report, when compared with data from prior years, raises multiple strategic questions. For example, what developments, decisions, etc. have resulted in the regressive 17-year sales cycle - essentially putting NSSTA members and the primary structured settlement market (from an annuity premium perspective) where they were prior to 2002 (actually $120 million behind)?
Many forces have resulted in the regressive 16-year structured settlement sales cycle. To summarize, on a macro basis, the structured settlement market has experienced at least three significant transitions and five major “disruptions” and/or “distractions” during the past 16 years which (along with the industry’s response) have arguably negatively impacted sales.
This article summarizes the three significant transitions. Subsequent article in this series will discuss the five major disruptions and/or distractions (Part 4) and future prospects for market growth (Part 5).
Significant Transitions – Each of the following has had a significant structural impact on the structured settlement market:
Interest Rates – Declining interest rates are frequently identified as a primary reason why structured settlement sales declined during the 2008-2017 time period. Although interest rates have declined generally throughout the history of structured settlements, they have a complicated relationship to the structured settlement market. For examples: when interest rates were historically high (during the early 1980s): 1) many plaintiff attorneys still complained about interest rates thinking they would go higher; and 2) some annuity providers made overly aggressive assumptions about their future re-investment rates which created subsequent legacy problems – and arguably lower rates for those companies. Yields on 30-year Treasury bonds (a good structured settlement rate indicator) peaked in 1982 (13.45%) and hit an historical nadir of 2.11% in 2016. Here is a look at how historic 30-year Treasury bond yields (as of January) matched up with annual structured settlement annuity production:
- 2019 (2.97%)
- 2018 – $6.02 billion (2.81%)
- 2017 - $5.55 billion (3.04%)
- 2016 - $5.80 billion (2.98%)
- 2015 - $5.35 billion (2.69%)
- 2014 - $5.25 billion (3.92%)
- 2013 - $5.13 billion (3.04%)
- 2012 - $4.82 billion (2.98%)
- 2011 - $4.97 billion (4.39%)
- 2010 - $5.52 billion (4.65%)
- 2009 - $5.38 billion (2.83%)
- 2008 - $6.23 billion (4.35%)
- 2007 - $5.998 billion (4.79%)
- 2006 - $6.11 billion (4.51%)
- 2005 - $6.13 billion (Not Available)
- 2004 - $6.14 billion (Not Available)
- 2003 - $5.97 billion (Not Available)
- 2002 - $6.14 billion (5.56%)
Shift in control – Although the 1996 Weil class action lawsuit settlement resulted in annuity providers appointing plaintiff brokers, NSSTA (and the structured settlement market) was still defense-controlled in 2002 – more so as the result of a group of plaintiff brokers forming SSP in 2001. Affiliated life/P&C programs and approved “life company lists” were industry standards. Two high-profile class action lawsuits (see below), publicity about the Grillo case, increased use of qualified settlement funds and more numerous plaintiff brokers – all resulted in a shift of negotiation control favoring plaintiffs and their advisors. This shift in control increasingly highlighted two competing structured settlement business models: the traditional defense controlled “claim management” model vs. the evolving plaintiff-oriented “settlement planning model”. This shift in control also increased competition between defense and plaintiff brokers and caused a divided industry to lose focus on growing the market. The combination of these factors (plus generally lower interest rates) have been contributing factors to the regressive 17-year structured settlement sales cycle.
Generational leadership – perhaps the most important, inevitable and yet to be fully realized transition in the structured settlement market is the transition in generation leadership. The U.S. structured settlement market is more than 40 years old. Although some industry “pioneers” are still active, a new, more diversified generation of participants is now entering the market. Industry veterans, however, still occupy most leadership positions within NSSTA. As the new generation increasingly brings additional skills and perspectives to the existing market, and gains insights from structured settlement history, they already have a solid foundation upon which to build additional structured settlement annuity premium.