Annuity FYI Visitor Blog

After severe fourth-quarter losses, annuity provider Lincoln National has decided to enter a reinsurance agreement with Commonwealth Annuity and Life Insurance Co. The Wall Street Journal’s Kerry E. Grace writes that the plan will result in capital relief of around $240 million.

Details of the agreement between Lincoln and Goldman Sachs subsidiary Commonwealth are as follows:

• Lincoln will re-insure $1.5 billion of its reserves (solely a closed block of life insurance policies) to Commonwealth
• Commonwealth provides quota-share coinsurance of 55%

Last week, Lincoln (also known as Lincoln Financial) withdrew its application to issue debt under the FDIC Temporary Liquidity Guarantee Program. However, they may still receive some government assistance: Lincoln is now eligible for U.S. Treasury funds, since its’ application for a savings-and-loan charter has been approved.

Following up on yesterday’s post on Matt Ackermann’s article, Axa Equitable (the third largest provider of variable annuities) is an example of the rise in variable annuity rates and simultaneous decrease in their benefits.

Last month, Axa’s variable annuity product with a living benefit has had its roll-up, which is its guaranteed minimum rate of return, reduced to by 1 percent to 5%. Meanwhile, fees were increased to 85 basis points (a 5-point rise). This is after another adjustment in November that saw fees increase by 20 basis points with a 0.5% decrease in its roll-up.

Always remember to compare annuity rates when looking to invest!

Despite a 15% drop in sales of variable annuities over the past year, Matt Ackermann from Financial-Planning.com reports that several insurers are actually increasing their prices! Some are even predicting that variable annuity prices may double in the near future.

While it may not make sense to increase prices when demand has fallen, the director of annuity firm Kehrer-Limra chalks it up to the increasing cost of a variable annuity’s benefits and guarantees. He also says that many companies fear that the recession will continue for a long time, making it even harder to recoup the cost of providing investors with guaranteed minimum income benefits in a bad stock market.

When buying an annuity, it’s very important that the insurer providing the product is stable. Doing so minimizes the risk that you will lose part or all of your investment. Ratings are a good way to find out about a company’s strength. Here are TheStreet.com’s 10 strongest annuity insurers, as reported by Melissa Gannon:

1. Teachers Insurance and Annuity Assocation of America (TIAA-Cref)
2. State Farm Life Insurance Company
3. Country Life Insurance Company
4. State Farm Life and Accident Insurance Company
5. American Family Life Insurance Company
6. New York Life Insurance and Annuity Corporation
7. Massachusetts Mutual Life Insurance Company (MassMutual)
8. Pacific Life Insurance Company
9. New York Life Insurance Company
10. Fidelity Investments Life Insurance Company

In the Indianapolis Star, financial expert Andrew Roller advises that annuities are often a safe alternative to depositing money in a bank account. While the government insures all but the largest bank deposits through FDIC, some savers are still worried about their financial security.

An annuity is insured by the insurance company providing, which makes certain people more comfortable. If the insurer is unable to pay out annuity claims, state guaranty associations will cover up to a certain amount of the investment (often up to $100,000 similar to FDIC guarantees).

Andrew stresses that you should compare annuity rates, fees, and terms if you decide to go this route for your savings.