Annuity FYI Blog

Ratings company A.M. Best has shown concern lately over marketplace happenings that may push them to downgrade some ratings.  Due to the government’s arguing over the debt crisis and many weak European economies, the U.S. Life/Annuity sector may have its rating downgraded to negative from its current rating of stable.  The Insurance Networking News article “Possible Revision to Rating Outlook for U.S. Life/Annuity Sector” explores the consequences of the ratings.  Life insurance companies’ stability are being individually reviewed to see what happens to their risk-adjusted capitalization during times of economic stress.  Some companies are more affected than others by the debt crisis and the falling European economies.  Those companies who show a higher decline and those with a large amount of domestic and foreign sovereign credits may see their ratings decline.

The biggest stressors right now in the U.S. Life/Annuity sector are uncertainty in the global markets, higher volatility in the equity markets, a continuous weak real estate market, and unemployment coupled with low consumer confidence.  Insurance companies are having a harder time increasing their revenues and earnings.  Products like equity linked cds, fixed indexed annuities, and more are affected by the changing markets.  While A.M. Best believes that raising the debt ceiling will help the financial markets’ stability in the short term, they think that other long term solutions are necessary.  However, A.M. Best does acknowledge that many companies are being proactive to ensure their capital is protected, their portfolios are lower risk, and they are positioned for growth.  If the annuity ratings outlook is downgraded, most insurers hope that their actions toward market protection will keep them positive.

Transamerica Life Insurance Company is working on four new variable annuities with CUNA Mutual Group.  The variable annuities will be offered to credit union members according to the CU Insight press center.  They’ll be included in the MEMBERS brand of products and will be named MEMBERS Landmark, MEMBERS Liberty, MEMBERS Extra, and MEMBERS Freedom.  Each variable annuity offers different features for credit union investors.  The four new variable annuities are replacing the previous variable annuity offerings, but they will not affect credit union members who already carried those variable annuities.  Starting May 2 of this year, the MEMBERS brand of variable annuities will be offered in most states.

CUNA Mutual has offered annuities to their members since the 1980′s, but this is their first partnership with Transamerica.  Transamerica is an AEGON company, which has been in business since the early 1900′s.  They have an A+ (superior) financial strength rating from A.M. Best.  This partnership of variable annuities will be added to CUNA Mutual’s other annuity products, which include indexed, fixed, and single premium immediate annuities.  They pride themselves as having an “all-weather” portfolio of products.  Credit union members are being offered an expanding product line of variable annuities because annuities are becoming more popular in retirement for their guaranteed lifetime income.  CUNA Mutual realizes the importance of annuities for their members who are both saving for and living in retirement.

According to Insurance News Net’s article “Phoenix Cos. Forms Alliance for Indexed Annuities, Continues to Seek New Distribution Channels,” the Connecticut based company is looking to sell their products through many new channels.  They are now collaborating with AltiSure Group, an annuity company that also designs and distributes life insurance.  The companies will work together in developing equity indexed annuities and life insurance in hopes to bring them to a much greater number of consumers.  Independent marketing organizations distribute Altisure’s products.  All combined in 2009, they had $4 billion of annuity premiums sold.

James D. Wehr took over as President and CEO at Phoenix in May 2009.  He has been working to increase the company’s financial strength ratings by opening new distribution channels like this partnership and coming out with some alternative products for generating retirement income.  They began private labeling their products, so that Phoenix became the private label manufacturer with a different financial institution actually putting their name on Phoenix’s products.  Their A.M. Best financial rating increased last week from a B+ (Good) to an A- (Excellent).  Their outlook was also listed as stable.  As fixed annuity rates remain fragile, Phoenix looks to their equity indexed annuities and other annuity products to help customers gain the retirement income that they need.

According to California’s Daily Breeze article “MONEYWISE: Looking into the renewed interest in investing in annuities,” Stephanie Enright says that the government’s interest in promoting annuities has sparked an increased interest from investors.  Annuities are most often issued by insurance companies and grow over time with the expectation that you can receive lifetime income payments in retirement.  Two reasons annuities are popular are that some have a long-term-care insurance rider, which is increasingly popular today.  They also grow tax-deferred until you receive your money, then they are taxed like ordinary income.

Fixed annuities and variable annuities are your two options.  The fixed variety gives you a certain return based on interest rates at the time of purchase or a link to a financial index.  Variable annuities can have greater risk, but greater reward as your return is variable.

The author believes that the two most important things to consider when looking into annuities are the financial strength of the insurance company issuing the product and the structure of your contract.  Comdex ranks insurers based on the financial strength ratings from companies like Moodys, Standard & Poor’s, and A.M. Best Co.  Their stability and financial strength is the only thing guaranteeing your lifetime income payments.  You also want to know how your annuity agent is paid through commissions and fees.  Other contract details include riders like death benefits for spouses or other relatives.  Make sure you know all of the annuity details before purchasing the product.

A.M. Best Co. changed the U.S. life insurance and annuity sector rating to ‘stable’ from ‘negative’.  This information comes from the Insurance and Financial Advisor article “A.M. Best upgrades life/annuity sector’s outlook to ‘stable’,” by Bob Graham.  In A.M. Best Co.’s opinion, the industry has sufficient capitalization to operate and even deal with added stress.  After downgrading the industry’s ratings in 2009 because of financial impairments in the insurance companies, they believe that the industry will continue with moderate growth moving forward.

This industry has taken quite a hit since the end of 2008, both from the world’s economic problems and A.M. Best Co.  A declining real estate sector, an increase in unemployment, low interest rates like fixed annuity rates, decreased consumer spending, and debt and credit problems factored into lower ratings.  As insurance companies have improved their balance sheets, lessened the risk they take on, and moved in a favorable direction with regards to credit spreads and financial impairments, A.M. Best Co. recognized these improvements.  While they recognize that the industry will continue to face challenges, they believe that the worst is over and the life and annuity industry is stabilized.