New York 50A and 50B Case Resolution
New York 50A and 50B Case
The worldwide economic confusion continues. The market leadership(?) alternately declares victory over the recession, or a new plunge toward depression. The administration declares victory for the rescue plans in creating or retaining 150,000 jobs, and new unemployment claims continue to go up. The housing crisis is being resolved by tearing down buildings, and little, if anything, has been done to resolve the sub-prime mess. The commercial real estate crisis is still on the horizon.
Yet, major financial institutions which came to the government for a massive bail-out have all passed the stress test. That stress test was performed on a cash basis, rather than a capital adequacy basis. The latter would bring into play "mark to market" and the requirement to at least reserve some portion of at-risk loans.
Now, the banks are in the market to raise capital and pay off the bail-out. Those offerings are based on earnings on the no-cost bailout funds, and passing the stress test.
This construct is very unstable. An upward movement in interest rates could accelerate sub-prime defaults and further flood the market with foreclosed property. Continued economic weakness could further adversely affect commercial occupancy. This would increase the pressure on the government to further their funding of employment at the very time that the failure of this regimen becomes apparent.
All of this affects case settlement in two ways. The rates at which Awards and settlements are valued will continue to be low, and insurers will continue to make every effort to defer resolution of cases in order to marshal their cash resources.
The regular May 15 auction of 10-Year notes has a rate of 3.15% and a yield of 3.19%. In the last six months the 10-Year daily yield range has risen from 2.08% to a high of 3.29. The forces currently controlling the economy will push to keep the 10-Year rates/yields in the current range or may even return them to the 2.45-2.95% range. But, as inflation arrives and the dollar weakens, there will be enormous pressure to raise rates that will be resisted to protect the current and expected economic construct.
During this period of low yields, the overall return (total payments divided by net element valuation) on future Awards fall to marginal return points for shorter term future loss elements.
For these reasons and with the reluctance of liability carriers to liquidate their liability obligations, plaintiffs should take an aggressive approach to settlement by offering a valuation based on some average that is above a breakeven discount rate, selecting elements of shorter term loss to take as cash, and investing the proceeds together with a portion of past Pain and Suffering and lump sums through a trust. That would leave longer term elements resolved through annuities, and shorter term items in a taxable trust that can, to some extent, adjust to inflation.
We have recently written a primer on Article 50 Awards, and how their complexities can be made simple.
For a subject by subject discussion of the applicable statutes
Operation of New York 50A Operation of New York 50B
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