Settlement Annuities and
Iam reading Anthony Riccardi’s article regarding settlement annuities (“The
Role for Actuaries in Settlement Annuities and Factoring,” July/August) and did
not see any mention of their effects on
reinsurance. While the article discusses
life insurance, these also play a role on
the casualty side, especially in workers’
compensation. As a simple example,
imagine that a company has a $1 million
loss and a $750,000 retention (the excess
carrier picks up the last $250,000). Assuming a 4. 5 percent interest rate and an
11-year payout for this claim without an
annuity, the present value of this claim
is $908,236 unlimited and $708,231 for
the company’s retention. If an annuity
is purchased at t=0 for $908,236, the
company immediately pays its $750,000
and the reinsurer reimburses them the
excess. Thus, the annuity shifts $41,769
($750,000–$708,231) from the reinsurer
to the company. It is in the reinsurer’s
best interest to encourage these annuity
settlements, but not the company’s.
Ellen Pierce, MAAA, FCAS
Another Consideration in
Veterans’ Mortality Experience
I enjoyed reading Mr. Lehpamer’s article (“Mortality Experience of Civil War Veterans and Comparison With Other Wars,”
July/August). One factor that may have
affected the mortality of privates in the
last two decades of the study could have
been the commencement in 1906 of benefits from old-age pensions to veterans.
These pensions were likely to have improved the privates’ financial well-being
vs. that of the U.S. population. Mr. Lehpa-mer did reference in his article the known
improvement in mortality from financial
Creativity Depends on
I would like to offer a comment about Jay Vadiveloo’s article on lessons learned
from managing the Goldenson Center
(“Unleashing the Creative Potential,”
While it is tempting to bring the
creativity of his approach into the workplace, I think it is critical to have the
sponsor/supervisor be the sort of person
who is unselfish and not egotistical. The
team leader who engages all the abilities of his/her team members will find a
great benefit to involving the team in all
aspects of the project.
Thanks to Vadiveloo for pulling this
information together and seeing the possibility of making the workplace a better
environment for students and other
Defendants see advantages from such an annuity structure as well, which is why many states are mandating
that plainti;s who prevail in personal injuries or
wrongful death actions accept a structured settlement o;er that includes periodic payments
from a settlement annuity. However, the Internal Revenue Service treats the annuity
contract as financed and owned by the
defendant, which means the plainti; irrevocably relinquishes investment liquidity. 1
Consequently, cash-strapped payees
who are locked into rigidly structured
settlement annuity frameworks often seek
immediate liquidity. A growing gray market
known as factoring has emerged to provide
immediate lump sums for settlement annuities. The nature of these factoring transactions
is controversial and remains the subject of much
debate—and as this market develops, actuaries can
play a crucial role in providing enlightenment in order
to level the playing field for individuals seeking liquidity
in the factoring market.
To appreciate how and why an actuary might play a role in
the settlement annuity and factoring debate, let’s first provide
some basic operational definitions for readers who are not acquainted with this specialized area of actuarial work.
1. “Investment liquidity” is defined as the ease of an asset’s conversion to cash.
■ Settlement Annuity: A contractually stipulated schedule of
periodic benefit payments, which are due and payable to a
plainti;/annuitant (also known as a payee), not subject to personal income tax and defendant-financed from the lump-sum
proceeds of either a personal injury or wrongful death settlement or award in compliance with Internal Revenue Code
§104(a)( 2) and Revenue Ruling 79-220. The most common
modes of a settlement annuity are:
—Annuity Certain: A stream of specified benefit payments
made to an annuitant, or to his estate, at periodic intervals
for a predetermined number of years (or months) only; payments are not dependent on the survival of the annuitant.
—LifeAnnuity: A stream of specified benefit payments
made at periodic intervals for the duration of an annuitant’s lifetime; if there is a periodic payment limitation
that specifies a point when the payments must otherwise
cease (notwithstanding the annuitant’s survival), the benefit stream is known as a temporary life annuity.
■ Factoring: A liquidity transaction that converts a settlement
annuity contract’s stipulated schedule of periodic payments
into an immediate lump sum payable to a plainti;/annuitant.
The first reported case to use a settlement annuity contract
was M & P Stores, Inc. v. Taylor (1958). The term “structured
settlement annuity” does not appear in this case, but the jury
awarded $36,000 in damages “to be paid at $150 per month for
The Role for Actuaries
“I;WAN T MY MONE Y, AND I WAN T IT NO W!” Everyone has heard the refrain from late- night television commercials promising
a quick lump-sum payout rather than a stream
of smaller amounts paid over a longer period.
If a plaintiff in a tort case is physically
injured and suffering ongoing economic
losses, he or she may decide to accept an
offer of a settlement annuity—compensation
distributed in periodic benefit payments.
Indeed, a risk-averse plaintiff stands to gain
distinct advantages by doing so.
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IN 2015 THE UNITED STATES OF AMERICA CELEBRATES THE 150TH ANNIVERSARY OF THE END OF THE CIVIL WAR,
which raged from April 1861 to April 1865. Considering both Union and Confederate forces, many historians have
estimated that about 620,000 soldiers died during those four years. However, in 2011 Binghamton University historian J. David Hacker stated that the number of soldier deaths was approximately 750,000, or about 20 percent higher
than traditionally estimated, and possibly as high as 850,000. Some historians believe that the Civil War accounted
for at least as many American deaths as all other U.S. wars combined.
With respect to the longevity experience of soldiers who
survived the Civil War, two di;erent points of view developed:
( 1) Veterans were healthy, active men relative to the general
population (because disabled and chronically sick individuals
were excluded from fighting), and thus the mortality experi-
ence of veterans should be favorable compared with the overall
male population, especially as time elapsed from the end of the
war and wounds and diseases were healed; or ( 2) The expe-
rience of war would negatively a;ect the future longevity of
veterans years after the conflict, and one should expect shorter
life spans and higher mortality rates than in the general male
population for some time.
Back issues from the University of Pennsylvania Medical
Bulletin show that the health of the survivors of the Civil War
was studied in the late 19th century. In that publication John
S. Billings, examining census records, attempted to gauge the
death rates of veterans; he found the data did not support view
( 1), as his calculations were showing that the expectation of life
for veterans was not as great as or greater than that of other
males. Yet support for view ( 1), at least for the Army o;cer
Civil War Veterans
and Comparison With Other Wars class,mightbeexpectedfromthemulti- tudeofsocioeconomicstudiesdonelater
in the 20th century. That is, Army o;cers
came out of a social class that typically
correlated with education and financial well-being; these two
attributes for a group almost always show better mortality ex-
perience than that found in the general population or in groups
that do not have these characteristics.
Green-Wood Cemetery in Brooklyn, New York, was one of
America’s early rural cemeteries. It was founded in 1838 and
today is a National Historic Landmark. Its 478 beautifully landscaped acres and outstanding architecture serve as the final
resting place of 560,000 individuals, including nearly 5,000 veterans of the Civil War. Recent work by the cemetery’s historian,
Je;rey Richman, and a group of dedicated volunteers has produced biographies of many of these veterans; their work also
documents years of birth and death. That data allowed the author of this paper to investigate veteran mortality experience
separated by highest achieved Army rank.
This article comes to three conclusions about the mortality experience of Civil War veterans based on this data set and includes
a brief comparison with other veteran studies from other wars.
The Civil War Army Veteran Population at
The biographies of the soldiers at Green-Wood give their highest attained rank:
FieldorGeneralOfficer 300 56
CommissionedOfficer 740 145
Private 1,803 191
Total 3,559 468
This article examines the mortality experience of the 3,559
veterans who died after 1865. The next table separates the surviving o;cers further by rank.
Above: The Civil War section
of Green-Wood Cemetery.
Right: After the war, Union
mortality that differed
from that of the general
32 CONTINGENCIES JUL | AUG. 15 WWW.CONTINGENCIES.ORG JUL | AUG. 15 CONTINGENCIES 33