Law Times

Law Times • December 15, 2008 BRIEF: STRUCTURED SETTLEMENTS PAGE 13 he worldwide financial crisis could prove to be a boon for structured settlements in Canada as inves- tors seek stability in a tumultu- ous marketplace. The agreements have always been used by those deemed in- competent and receiving lump sum insurance payouts. Yet oth- ers choose to invest their payouts themselves during bull market times, believing they or their fi- nancial adviser can outperform structured settlements. "They rejected the notion of a structured settlement on the basis that they can do better in the marketplace on rates of return," says Bob Nigol, man- aging partner of Henderson Structured Settlements Inc. "As of September they can't." Structured settlements are Structured settlements promoted as alternative to volatile market T BY KELLY HARRIS Law Times our clients continue and will continue to receive payments per their contract. The insurance business is significantly different from the banking and invest- ment banking industry." Baxter says her company has available for people receiving compensatory damages for per- sonal injury or death. They work much the same as guaranteed tax-free annuities or pensions. The agreements were created by the federal government as an in- centive for people to invest com- pensatory damages to provide guaranteed income. Nigol says the belief that structured settlements placed with AIG Life of Canada, a subsidiary of the American in- surance giant AIG. The Cana- dian operation is separate and is regulated by the Office of the Superintendent of Finan- cial Institutions. She says one of the roles of the OSFI is to make sure insurance compa- nies operating in Canada have enough capital and surplus to satisfy their obligations to their policyholders. "AIG Life of Canada main- tains assets, capital, and surplus significantly greater than OSFI's requirements, all of which are held in Canada," she says. "It is also important to note that AIG's structured settlement portfolio never had and does not have any subprime exposure." Baxter says that structured settlements carry the least risk of any investments on the mar- ket. They also carry three levels of guarantee, the first being the assets of the company holding the money. If payments cannot be made, Assuris, similar to the Canadian Deposit Insurance Corp., covers $2,000 or 85 per cent of the payment which ever is greater. Thirdly, the owner of the contract covers whatever system, something that can receive both the ire and praise from its citizens. "We are highly regulated in this country and we're apt to complain about that during good times. During bad times I think we are all pretty much thankful that we are regulated like that," Nigol says. "So the five life markets in Canada pro- ducing structured settlements is not made up in the first two levels of guarantee. "Canada's financial regula- are incredibly solvent." Regardless of the markets tory system is one of the most robust of the developed na- tions," says Baxter. "Our clients can have the peace of mind that they are in one of Canada's most risk-free investment." Nigol also agrees that Can- ada has a robust regulatory the recent market turmoil. "Our biggest competition is cash," Thorpe says. "People be- lieve that they can, I would say, outperform the market. They can consistently get the monthly returns they need to provide the income they need." upheaval in the market, says Thorpe, shows a greater value in structured settlements even for This, combined with the We are highly regulated in this country and we're apt to complain about that during good times. During bad times I think we are all pretty much thankful that we are regulated like that. Phil Thorpe of the McKellar Group says the very nature of structured settlements means that there will always be a need for the agreements. One key about market downturns is that when speaking to clients it may be easier to explain the value of risk-free investments considering those that can replace income. "There are always people getting structured settlements," he says. "They are a risk-free, tax-free investment that doesn't change with the markets." The OSFI provides additional information on capital levels and that information can be found on the group's web site at www. osfi-bsif.gc.ca. LT investors could outperform the settlements on their own prior to September was also folly. He points out that on medium- to long-term investments, struc- tured settlements have always outperformed other types of investing. But when the mar- ket is hot there is a temptation to shy away from investments that take longer to peak. That isn't the case anymore as risk aversion and not risky invest- ments are more the norm, and as a result "the structured set- tlement market and business in general is much better now than it was prior to Septem- ber," Nigol says. "Those who are competent thought, 'Well, I can manage my money to better resolve than putting it in an annuity, an annuity is locked and I think I can play the casino,'" Nigol says in reference to gambling on the stock market. "The empirical proof is you can't." Ironically, aside from the subprime mortgage fiasco, one of the incidents that caused much of the market upheaval in September leading more people to structured settlements was the near collapse of U.S.-based insurance giant AIG. This led to questions about the stability of structured settlements. Banking and structured settlements are very different industries, how- ever, regulations in Canada have left both on a stronger footing than in other places around the world. "The market turmoil has clearly affected investors around the globe," says Kyla Baxter of Baxter Structures Inc. "In Can- ada, the majority of investors have been affected with very few exceptions. The exceptions include investors that have structured settlements. "None of Baxter Structures' clients have been impacted. All McKellar.indd 1 www.lawtimesnews.com Often imitated, never duplicated. The McKellar Structured Settlement™ For almost 30 years, McKellar has set the standard for excellence in structured settlements. With over 250 years of combined claims, legal, accounting and structure expertise at your disposal... Why settle for less? www.mckellar.com VANCOUVER 1-800-465-7878 EDMONTON 780-420-0897 McKELLAR STRUCTURED SETTLEMENTS INC. GUELPH 1-800-265-8381 HALIFAX 1-800-565-0695 USA 1-800-265-2789 12/10/08 9:21:59 AM

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