Annuities

Secondary market annuity

The term secondary market annuity is a misnomer. Certain salespeople use it as a term to describe an investment in factored structured settlement payment rights. The financial instrument that certain salespeople call a "secondary market annuity" comes about when a structured settlement factoring company buys certain structured settlement payment rights. The originating structured settlement factoring company may then further assign the rights (or subsets of thoe rights to investors for monetary consideration. The factoring company is not an insurance company and the investors not paying a premium to an insurance company. The investment that some salespeople call a secondary market annuity does not meet the definition of annuity under the insurance law for many states and does not enjoy the statutory protections. The National Association of Insurance Commissioners, an association of state regulators of insurance (including annuities) issued its Statutory Issue Paper No. 160 which makes clear that the acquisition of structured settlement payment rights is a not an annuity or an insurance product. The term "structured settlement payment rights" means rights to receive payments under a structured settlement. When the ownership of structured settlement payment rights is transferred by a Qualified Order, the ownership of the actual insurance product, the structured settlement annuity, does not change hands. The ownership of the annuity stays the same, as it was when the structured settlement was established. It is in most cases owned by a qualified assignment company, a subsidiary of the structured settlement annuity issuer. The structured settlement payment streams being marketed to investors as "secondary market annuities" do not have the same statutory protections as legitimate annuities. As of March 11, 2022, 34 states had adopted the 2017 Revisions to the Life and Health Guaranty Association Model Act #520) which expressly exclude factored structured settlement payment streams from their state guaranty association insolvency schemes. On November 30, 2021, the NAIC Receivership and Insolvency (E) Task Force adopted a draft memorandum that encourages state insurance departments to review their receivership and guaranty fund laws to ensure they address: (i) conflicts of law between the guaranty fund law or the provisions of any other law; (ii) continuation of coverage; (iii) priority of distribution of estate assets; (iv) full faith and credit stays and injunctions; (v) the 2021 revisions to the Holding Company Models; (vi) treatment of workers’ compensation large deductible policies; and (vii) the 2017 revisions to the Life and Health Insurance Guaranty Association Model Act (#520).According to the Task Force, the above have been identified as critical for states’ laws with respect to multi-jurisdictional receivership (Wikipedia).

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