Ten years ago, with great fanfare, LIMRA authored a research briefings paper article[i] regarding current SPIA impaired risk market participants and its high hopes for their expanding role in income planning. At the time, seven carriers, including my old company, Presidential Life Insurance Company of Nyack, New York (Presidential Life), were active in that segment of the immediate annuity market. An additional ten carriers were contemplating market entry within the next six months.
While impaired risk annuity underwriting has always been available in the structured settlement annuity (litigation annuities) markets, in 2001, the NAIC set guidelines for retail SPIAs. The guidelines established “favorable carrier reserving” for annuitants with impaired health starting with those risks set at table four or lower. In one form or another, all states but New York eventually adopted the revised reserving standards. So, everything looked rosy at the time.
Fast forward to 2015, and there is one major participant barely hanging on. So, what happened? A few carriers just new to the process in 2005 were “adverse selected” and were compelled to abandon the market; some carriers, like Presidential Life, were acquired and new owners were not interested in that business; and then, of course, 2008 got in the way and consequently capital became scarce with executive management/shareholders placing higher and higher return expectations on remaining available capital.
These contacts and their underwriting are still very much needed today. An actual case I recently worked on involves a 17-year-old child who had severe medical limitations resulting from a medical malpractice incident occurring at birth. While there was an eventual financial settlement, the boy’s guardian(s) elected to only partially settle the award via litigation annuity contracts and took the bulk of the award in cash to be invested and professionally managed. Now, many years later, with their investment elections suffering due to poor performance and high fees, there is no opportunity to further purchase litigation annuity contracts. A litigation annuity contract purchase has to be elected at time of settlement or award.