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Public Policy

Today’s Structured Settlement Annuities: Safe, Secure & Highly Regulated

Since the late 1970s, when structured settlements began to be widely used, dozens of life insurers have issued structured settlement annuities providing for benefits with an estimated value of more than $100 billion.

Insurance regulation is a state responsibility, and any life insurance company that transacts business within a state must maintain multiple licenses from the state’s insurance department and must comply with extensive regulatory requirements designed to protect policyholders. Every life insurance company is required, for example, to satisfy stringent capital requirements and limitations on permitted investments and to file detailed financial statements, verified by its actuaries, that allow regulators to evaluate its financial condition and its ongoing compliance with insurance regulations.

Structured settlement annuities have always been highly secure. During the last twenty years their security has improved in many important ways. All states have approved rules that minimize the risk that any issuer of structured settlement annuities will become insolvent. These rules also maximize the safeguards available to structured settlement annuitants in the unlikely event of an insolvency.

These rules include:

  • Tightened accounting rules, including imposition of risk-based capital testing,
  • Mandatory annual audits,
  • Uniform investment guidelines requiring that investments meet standards for security,
  • Minimum capital and surplus requirements, and
  • Independent reviews and spontaneous audits to ensure compliance.

Annuities & financial security

An insurance company’s risk-based capital ratio is a measure of its assets, liabilities and the degree of risk associated with its operations and investments. The ratio is obtained by dividing the company’s capital by the minimum amount of capital that state insurance departments regard as necessary to support an insurer’s operations. A higher risk-based capital ratio is indicative of greater financial security.