Annuity FYI Blog

The Insurance and Financial Advisor recently reported good news for TIAA-CREF clients with a TIAA Traditional Annuity. An executive VP from the company confirms that the guaranteed fixed annuties will provide payouts in 2009 that are equal or greater to the income recieved in 2008. 

According to TIAA, it can afford to offer steady returns in a fluctuating market because the Traditional General Account backing the annuities is extremely diversified (no more than 1% in a single investment) and has therefore suffered less from market swings.

The Michael White-Symetra Bank Fee Income Report was recently released, revealing the banks that earned the most combined income in mutual fund and annuities fees during the first three quarters of 2008.

1. Bank of America ($1.42 billion)
2. Wachovia
3. Wells Fargo
4. U.S. Bank
5. JPMorgan Chase

Following up on a post from last month, a coalition of insurance companies has filed a lawsuit against the Security and Exchange Commission over the new rule that classifies indexed annuities as securities. According to the Coalition for Indexed Products’ lawyer, Eugene Scalia, Rule 151A violates securities laws that give individual states (not the SEC) jurisdiction to regulate annuities. OM Financial Life Insurance, American Equity Investment Life Insurance, National Western Life Insurance, and Midland National Life Insurance are among the coalition members.

The SEC admits that the new regulations could cost insurance companies up to $100 million per year. The coalition’s press release also states that state insurance legislators, as well as the National Association of Insurance Commissioners and several members of Congress, oppose the ruling due to its potentially negative impact on consumer choice and affordability. Since equity indexed annuities guarantee the return of an investor’s principal plus interest, these groups believe that they shouldn’t be put in the same category as riskier securities.

The lawsuit was filed in the Court of Appeals for the District of Columbia on January 16th, the same day Rule 151A was officially published.

In Kiplinger’s Personal Finance magazine, Kimberly Lankford advised individuals with annuities or life insurance policies from AIG to sit tight. Despite the well-publicized struggles of its other divisions, the life insurance subsidiaries are mostly unaffected and currently have an A rating from A.M. Best (under review with negative implications).  State capital requirements mean that AIG has enough money in reserve to pay claims.

Variable annuities from AIG (e.g. the Vanguard variable annuity) are also secure, says Kimberly, since they are invested in mutual funds through entirely separate accounts. Annuities will be paid out normally.

If you abandon your AIG annuity or insurance policy, you may be subject to surrender penalties, cancellation charges, and/or higher premiums (lower annuity rates). In addition, the agent that sells you the new policy might be paid an additional commission if you switch.

Nationwide has had several of its companies’ annuity safety ratings downgraded by Fitch Ratings. Fitch puts the blame largely on the privatization of Nationwide Mutual Insurance Company’s (NMIC) life insurance operations, which resulted in decreased capital availability and flexibility. Investment losses in 2008 and predicted for this year also contributed to Fitch downgrading Nationwide. 

Important rankings from the Fitch press release:

• The Insurer Financial Strength (IFS) ratings for NMIC, Nationwide Life Insurance Company of America (NWLA), and Nationwide Life Insurance Company (NWL) have slipped from AA- to A+.
• Fitch’s Rating Outlook for Nationwide is now Negative.
• Nationwide Financial Services’ (NFS) senior unsecured debt has had its rating downgraded to BBB+ from A-.