A New Product Has Been Discovered

Investment News has an article about the factoring of annuities purchased in settlement of civil disputes.  It goes something like this: Plaintiff sues for compensation for an injury, defendant settles by agreeing to pay a stream of payments, an annuity is purchased to provide those payments, plaintiff decides he wants cash now, and so decides to sell the annuity.  There have long been a couple of companies that have purchased these contracts in a word-of-mouth market.  Apparently, now the business is ready to "mainstream."

If the structured settlements business follows the same arc as the life settlements business, this is what we will see:

1. Local agents providing a service in their community looking for investors to share in the great yields afforded.
2. Financial advisors solicited for client introductions, under the assurance that "this isn't a security."
3. States bust promoters for selling unregistered securities.
4. Syndicator creates a pool and sells securities through broker dealers to capitalize the fund.
5. Annuities will be written for the express purpose of selling them to structured settlement factors.

All along the way, there will be debates over the ethics of the transactions, and the appropriate regulatory response.

The product development will take several years; the life settlements business started as viaticals in the late 1980s.  The players involved will improve in station and reputation as the investment becomes more mainstream.  The ultimate validation is a mutual; fund and/or ETF dedicated to the trade.  Look for it sometime after 2020.