A.M. Best's New Methodology: Securitization of Period-Certain and Life-Contingent Structured Settlements
A.M. Best Co. has released a new methodology, “Securitization of Period-Certain and Life-Contingent Structured Settlements,” which describes how A.M. Best rates securitizations collateralized by structured settlements.
A structured settlement is an agreement between a claimant and a defendant, whereby the claimant agrees to settle a lawsuit in exchange for periodic payments to be made by the defendant to the claimant over time. Structured settlements are a popular method for settling personal injury, product liability, medical malpractice and wrongful death cases. The defendant discharges its obligation by purchasing an annuity from a highly rated life insurance company.
The methodology discusses the basics of structured settlements; the role of factoring companies in the transactions; the application of insurer impairments and recoveries to the transactions; the protocol for determining the mortality risk of the annuitants; the stochastic process for simulating the cash flows for period-certain and life-contingent structured settlements; general transaction requirements, recommendations and expectations; and other issues surrounding the securitization of structured settlements.
To access this methodology and other special reports, analytical methodologies and transactions relating to structured finance, please visit http://www3.ambest.com/sfc/.