Are Secondary Market Annuities Safe?
Many prospective investors ask, “Are Secondary Market Annuities Safe”
In fact, the annuities that back the payment streams an investor purchases when buying Secondary Market Annuities are among the safest assets available anywhere.
It’s useful to remember where Secondary Market Annuities come from. Secondary Market Annuities originally come from Structured Settlements. These are payment streams issued to injured parties in compensation for injuries or other claims. These awards are negotiated by the parties, usually in a court case or out of court settlement. The winners of these settlements have legal counsel who have a duty to look out for their client’s interests, and consequently, when they opt for a Structured Settlement they are opting for the safety and well- being of the clients over a long period of time.
The annuity companies that offer Structured Settlement Annuities are the strongest in the industry- Met Life, New York Life, John Hancock, Genworth, Allstate, Symetra, Berkshire Hathaway… these are generally AAA rated carriers and in the business of conservatively managing risk and paying claims safely and on time.
Almost by definition, with Structured Settlement Annuities you are dealing with the best of the best right from the start.
But in addition, it’s helpful to know that it’s mostly big institutions in the space, and not as much an individual investor’s game. You’re in luck and have an opportunity to get at an asset class few know about!
Institutional buyers of Structured Settlement Annuities:
For decades, payment streams backed by Structured Settlement Annuities have been aggregated and securitized and sold to institutional investors. JG Wentworth, the largest player in the industry, sells nearly $600,000,000 ($600M) worth of asset backed notes each year. The assets are, of course, diverse pools of Structured Settlement Annuity backed payment streams.
These asset backed securities routinely trade at yields just over the 30 year Treasury – they are A rated payments and are snapped up by long term institutional investors.
When reading the securities offering documentation and credit reports of JG Wentworth’s notes (contact us if you want a copy), the analysts identify risk in two main areas:
- Transfer Risk
- Carrier Risk
For #2, first, Carrier risk is largely mitigated by the sheer size and quality of the carriers that operate in the Structured Settlement annuity space. We’re dealing with the best of the best- Met Life, NY Life, Prudential… we’re generally not dealing with smaller insurance companies.
And as to #1, Transfer risk refers to the legal procedure transferring a payment stream from seller to you as buyer. Luckily for you, we follow a rigid and state mandated procedure that ensure transfers are complete, legally reviewed, and court approved, each time.
Here are a few more key points.
Structured Settlement Transfer Process:
The transfer process making you a new payee under an existing payment stream is also very safe. There is a relatively uniform process adopted in 49 states that requires notifications, disclosures, and procedures to be followed. While the majority of the documentation is contractual, there is one step in the process where a court with jurisdiction over the original settlement also needs to rule that the transfer is in the seller’s interest.
While the court order is one key piece among several that properly document a transfer of payment rights, it actually does nothing to verify the payments. An investor’s name in the court order simply exposes the investor in a public manner. The process we use through our firm DCF Exchange protects investor confidentiality.
There are a variety of additional reasons that Structured Settlement Annuities are extremely safe. These are summarized below
Safety Factor #1
An insurance company paying a structured settlement is a party to the court ordered transfer process. The payment remains in force throughout the transfer process regardless of who receives the checks. Just because the payee changes as a result of a court- ordered transfer does not change the underlying payment stream or give the carrier any right to stop making payments.
Safety Factor #2:
There are five key items that document a case transfer and ensure legal safety of payments to you:
- Benefits letter from the issuer to the payee, which establishes that the Payee has the payments to sell,
- Court order changing the payee name to you or an entity that benefits you, such as our Business Trust
- Acknowledgement letter or stipulation agreement after the court hearing from the Issuer naming you or an entity that benefits you as the new payee of the specific payment stream you purchased.
- Legal Review reviewing all documents, notices, filings, UCC statements and procedures in each case and every jurisdiction the case is subject to.
- Absolute Assignment of the cash flows assigning the payments to you forevermore.
Safety Factor #3:
Because a typical client of ours purchases multiple Secondary Market Annuities, purchasing contracts in the secondary market virtually assures that you will place assets in several companies with no sacrifice to average yield or overall performance. You will spread your risk among many carriers, all generally highly rated, and achieve high yield diversification.
Secondary Market Annuities are extremely safe investments. Sign up to the right to view our live inventory and get started today!