What is next for the structured settlement profession now that two of the major life insurance markets that underwrote structured settlements announced this week that they would be shutting their structured settlement departments?
In the case of John Hancock, I have long wondered how long they would stay in the structured settlement market once they were acquired by and merged their US operations with Manulife. As some of you may know I started in the structured settlement profession in 1981 and was financed as a new agent by Manulife, the large and creative Canadian powerhouse of the life insurance industry. It is now generally forgotten that the first structured settlement annuities where written by Manulife and their creative actuaries, underwriters and entrepreneurial spirit were crucial to the formation of this profession.
However, they made a strategic decision in the late 1980's to exit the structured settlement arena as they felt the pricing had gotten out of control in that era and even then the company had extensive roots in Asian markets that they wanted to exploit, so allocating capital to their fast growing divisions there always made the most sense. When they demutualized and then purchased John Hancock, I always felt that is was only a matter of time before the guys in Canada made a business decision to again deploy those assets into the Asian markets and now with the accounting and reserve issues that TARP and other US financial market regulations bring, they have made a string of decisions to strategically shut down exposure in the US annuity markets that brought an end to the structured settlement division yesterday.
As for Allstate, the news that they would shut down was a bit more surprising to me. However, given their retreat from the market through what was essentially take it or leave it pricing of the product over the last 18 months gave a pretty clear signal that they were going to shut it down eventually. The major blow in the Allstate deal is that you now only have one life company left that does non-qualified, taxable damage structures and that is Liberty Life through their BARCO subsidiary. Hopefully they see a modest surge in premium now that two major markets have shut the doors and it keeps them sufficiently engaged in the process to continue writing structures.
The bigger problem is that we now have a profession, the "structured settlement profession", that has seen the number of life markets shrink dramatically over the last year alone. In the last year alone we have seen Hartford Life, Symetra, Allstate and John Hancock close up their structured settlement units, which follows the exit of companies such as Aviva, Genworth, Mass Mutual and others just a few years earlier. As it stands today you have left the following companies:
Liberty Life: A solid A rated carrier that is the last remaining company writing taxable damage non-qualified structured settlements.
New York Life: The blue chip highly rated carrier that along with Berkshire Hathaway is generally considered by trial lawyers to be the safest markets.
American General: Part of the AIG/Chartis family of companies and making a solid comeback from the dark days of the market melt down and AIG bail out.
Met Life: Another one of the foundational life markets in the profession.
Prudential Insurance: Once one of the writers of non-qualified structured settlements and still a major market in qualified structures.
Pacific Life: Another rock solid company that has steadily built market share in structured settlements.
Berkshire Hathaway: The newest player and a major entity that has a stated goal of being one of the big three in premium written, certainly the bright news in our profession over the last 18 months.
Mutual of Omaha: A solid niche company like Liberty Life that is a bit hamstrung by the decision to not do substandard underwriting, but has a solid team running it's division and shows a commitment to the market.
Unfortunately given the market conditions and reality of our profession, coupled with the fact that post TARP/2008 that many life companies want to limit their exposure to the US annuity markets for a variety of business and financial reasons, we are looking at a future where it would not be surprising to see at least one and possibly two more life companies exit in the next 12 months as well.
The impact on the profession of settlement planning and structured settlements will be profound as it isn't just about having a lot of markets available. It is about the loss of intellectual and human capital that these life companies brought to the table through access to actuaries, sales teams, underwriters and financial professionals. You can't possibly build a thriving profession when you have a constantly contracting number of players. This is simply the latest stage in the slow and painful contraction of our profession that has relied on one core product and industry players who purposely limited access to that product for the short term gain of the people who sell it.
You can't shrink your way to prosperity and I don't see any encouraging news on the horizon as the guys pulling the strings continue to retrench and limit access to markets even more than before.