New York 50A and 50B Case Resolution
New York 50A and 50B Case Resolution
This is another in the continuing saga of 10-Year Treasuries. The daily yields have been used as the "...rate in effect on the date of the verdict" or the base discount rate for amended 50A, original 50A and 50B cases.
The recent precipitous decline in daily yields now brings into play the unintended consequence that yields are likely to remain well below the breakeven discount level. In other words, the discounted Award after statutory inflation of 4% but before allocated expenses and attorney fees is greater than the pre-discounted Award after allocation of lump sums. At an index rate of 2.2%, the Net Award or cash payout exceeds the Total Award by more than 10% for valuation original 50A and 50B valuation models.
In October, the daily yields went below the breakeven 3.625% yield on three occasions, with a low of 3.48%, and in November on eight occasions, with a low of 2.93%. The daily yield has been below breakeven for every business day since November 17th, with a low to date of 2.08%. Of more importance, while the December interim auction rate remained the same as in November at 3.75%, the yield went from 3.78% to 2.67%.
With the Fed lowering target rates to -0-, and committing to maintaining market liquidity, it is likely that the low yields will continue for some time.
Initially, providers may be able to offer annuities at much lower premiums than the Net discounted Award amount, but, faced with continuing portfolio losses, they will be under pressure to raise the premiums to a level that approaches the net discounted Award. In the interim, there will be inconsistencies internal to the discounted Award, allocated expenses, attorney fees and interest.
With continuing portfolio losses and rising settlement costs, liability carriers will continue to slow settlements. We strongly recommend an aggressive approach to the settlement of personal injury and wrongful death actions by presenting the defense with a full valuation of a proposed Award, including
This pro-active approach will place good faith settlement requirements directly on the liability carrier.
At a discount rate of 2.2%, the total of periodic payments will be little more than the return of the net Award amount to the Plaintiff.
We also recommend that plaintiff take short term future losses in cash, then combine them with lump sums and portions of past pain and suffering, to fund a taxable trust, and utilize tax deductible aspects of medical and custodial expenses associated with any future short term losses. These trusts can optimize returns, protect principle and provide disbursement flexibility.
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