Buyer s Guide for Purchasing Secondary Market Annuities

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1 Pacific Structured Assets, Inc. Secure High Yield Investments for the Sophisticated Buyer Buyer s Guide for Purchasing Secondary Market Annuities 2012 Pacific Structured Assets, Inc. All Rights Reserved Pacific Structured Assets, Inc Foothill Blvd, Suite 109 Tujunga, CA (800)

2 WHAT IS A SECONDARY MARKET ANNUITY? Secondary Market Annuities (SMA), at their most basic and fundamental level, are just income streams that are owned by private parties that are then resold. Pacific Structured Assets buys these payment streams from private parties through its origination company, Catalina Structured Funding, assures compliance with all state and federal guidelines, and then remarkets these payment streams to private parties. The payments are then made by the same obligor that has always been obligated to make the payment. So, for example, if you buy a SMA that is an Allstate Life Insurance Company annuity, you just become the new owner of that payment stream and will have all the original rights and benefits of the original owner. Allstate would now pay you as the payee of the income stream, rather than the prior owner. The basic categories of SMA s are Factored Structured Settlements, Lottery Prize Awards, Casino Jackpot Winnings, and Immediate Annuity Income Streams. 1 P age

3 Factored Structured Settlements A Factored Structured Settlement is a settlement of a civil lawsuit. Typically a plaintiff in a personal injury or workers compensation case will settle his or her claim with an insurance carrier in exchange for the promise of the insurance carrier to pay to the claimant certain sums of money over a period of years. In order to satisfy its promise or obligation, a casualty insurer purchases an annuity policy from a life insurance company. This annuity policy in turn pays out to the original claimant the money promised by the casualty insurer in the settlement of the lawsuit. For example, John Doe is killed in an automobile accident. Mr. Doe s wife sues the driver of the car that hit and killed Mr. Doe. In settlement of the action, the defendant s insurance carrier agrees to pay Mrs. Doe $2, every month for the life of Mrs. Doe, with 360 of these payments guaranteed and after the 360 payments are made, $2, to Mrs. Doe for as long as she lives. In this example, the casualty insurer purchases an annuity policy from a life insurance company. The annuity policy names Mrs. Doe as the payee of the payments promised originally by the casualty insurer. Mrs. Doe ends up with a structured settlement annuity being paid to her by the life insurance company and guaranteed by the casualty insurer. 2 P age

4 In the United States, it is currently estimated that more than $6 billion of new structured settlement annuity policies are written per year. Many of these settlements are created by insurance companies in house by using their own P&C sister company. Over the last 5 years, 14 companies have accounted for over 80% of the market. Of the approximately 600 producers nationwide, most write these annuities using one of the 14 major insurance companies. These insurance companies include, among others, Allstate, MetLife, Transamerica, Genworth, New York Life Insurance Company, Prudential Insurance, Hartford Life Insurance and American General Life Insurance. Lottery Prize Awards State lottery prizes are routinely offered to the winners as an annuitized payment. The deferred payout generally involves the payment of a prize over as much as a thirty-year period with installment payments made on an annual basis to the lottery winner. Typically, a state lottery will fulfill its obligation to make the annuitized payments by the segregation and purchase of treasury securities that correlate to the maturity dates of the installment payments due to the winner. In other cases, the lottery may purchase annuities or guaranteed investment contracts issued by highly rated, nationally recognized 3 P age

5 life insurance companies such as The Prudential Insurance Company of America. PSA acquires the right to receive lottery payments directly from the state lottery, in place of the original winner, by contracting with the winner to provide that winner with a lump sum of cash today. These assignments are court ordered and acknowledged by the particular state lottery commission. The practice has been ongoing for almost two decades and there is no known instance of a default in payments under this process. Casino Jackpots Many casinos offer large jackpots on their slot machines. When a person wins one of these jackpots, they receive a payment stream of 30 years or longer. The result is that a million dollar jackpot really becomes a $33, annual annuity for 30 years. Because no option exists to the winner to accept a cash payout, a market has developed whereby these guaranteed future payments can be sold on the private market and a match can be made between a party who wants an immediate lump sum and a party who would prefer some, or all of the future payment stream from the casino winning. PSA will buy these future payments in exchange for cash now. These same payments can be assigned to our investors who just 4 P age

6 step into the shoes of the original winner and collect the funds directly from the gaming company who issued the prize at the time the jackpot was won. Immediate Annuity Income Streams PSA offers liquidity to individuals who own an immediate annuity. These individuals may have purchased the annuity as part of their retirement plan or may have inherited the annuity after the death of a loved one. When there is no surrender value available to the owner of the annuity policy, PSA provides an option where previously no option existed. Because these policies are freely transferrable, we will buy the annuity and will pay the original owner the fair market value for the policy. PSA then markets these policies to individuals who are looking for an exponentially higher return than what is otherwise available on the primary market. Buy buying these recycled policies, the rate of return is 50% to 200% higher than what would be otherwise available if you bought the policy directly from the insurance company issuing the product. Because it is a transfer of the ownership of the policy itself and is acknowledged by the annuity issuer, you get the same policy and the same rights as if you 5 P age

7 bought it directly from the life insurance carrier but with a much higher return on your money. Why are SMA s a Wise Investment? The typical Secondary Market Annuity is a Factored Structured Settlement. The payments from these SMA s are made by U.S. based insurance companies that are legally required to make a guarantee. Furthermore, state law requires insurance companies to maintain a reserve and a surplus to meet obligations to policy holders. These assets must be held in investment grade bonds and are protected in bankruptcy. In case an insurance company is liquidated and does not have sufficient funds to meet claims, all states have a State Insurance Guarantee Association which provides protection to annuity holders. Finally, the payments are also guaranteed by an Assignment Company existing solely to meet the obligations under the annuity policy. 6 P age

8 Why do SMA s Provide a Greater Rate of Return Compared with Most Other Investments? Avoiding stock market volatility may leave you with low investment return options such as CD s or money market accounts. Whether you are in search of long-term growth or a return on your investment that starts with an immediate monthly payment stream, SMA s can provide a high rate of return that is guaranteed. Due to federal laws governing the creation of structured settlements, original recipients are unable to accelerate their payment streams. This in turn creates a market for the purchase of annuity streams at discounted prices. For this reason, investors find that SMA s provide competitive earning rates of 4% to 7%. 7 P age

9 What are the Risks Involved with SMA s? SMA s are fixed rate annuities that are independent of the stock market. In addition, these assets are not derivatives or securities and are not related to the health of the economy. However, the security of the annuity is directly related to the financial strength of the insurance company that issued the annuity. We only seek those annuities issued by highly rated insurance companies. In the event that these highly rated insurance companies are liquidated and have insufficient funds to meet claims, the State Insurance Guarantee Association provides protection to annuity holders. However, we make no representation or warranties in this regard. Furthermore, Fixed Term Annuities are not deposits and are not insured by the FDIC or any other federal government agency. Fixed Term Annuities must be held to term and therefore are not liquid investments. Factors such as (1) risk; (2) nature of payment stream and; (3) average life of payment stream; can be utilized to determine what in our inventory meets your needs. While a risk that an insurance company may go insolvent exists, PSA will only deliver to you the products which rise to your appropriate level of risk tolerance. The vast majority of the annuities offered by Pacific Structured Assets, 8 P age

10 however, are issued from the most highly rated insurance companies. In the end, our financial partners get the benefit of the creditworthiness of these insurance companies coupled with a rate of return from annuities that is not available to the general public. What is the Next Step? First and foremost, get comfortable with this asset class. Our team of experts are here to discuss SMA s, the process of acquiring the assets, and the risks associated with this asset class. We are here to educate you and provide you with whatever assistance you may need. Once you have decided that investing into SMA s is the right choice for you, contact us to open an account. You will receive weekly updates on the inventory available. If you see something that meets your goals, we will provide you with the necessary documents, obtain any and all required court approvals, work with the insurance companies involved to complete the assignment process, and then present you with a final file evidencing your ownership of this asset. This is an exciting opportunity that is not generally available to the public. Call us today to find out more. We look forward to working with you. 9 P age