Annuity FYI Blog

It is crucial to choose insurance companies wisely when purchasing annuities.  Your annuity is only as sound as the insurance company that is backing it up.  Sometimes it can be beneficial to split your money into annuities at different insurance companies for even more security.  Kathy Kristoff of the LA Times further explained in “Check out what’s backing your life insurance policy”.

Variable annuities are usually managed by separate investment companies, so in the event of an insurance company failure, your investment would be returned to you.  With fixed annuities, guarantees come on a state level.  All state funds are different, but $100,000 of a fixed annuity’s current value is often covered.

You shouldn’t have to worry about any of that if you choose a sound insurance company though.  An expert can help you with this choice; you can also do some research on your own.  A.M. Best, Moody’s, and Standard & Poor’s are companies that issue ratings to all insurance companies.  The better the ratings, the better the insurance company.  There are also many websites that list the ratings, including this one.

Fidelity Investment Life Insurance Company and its subsidiary, Empire Fidelity Investments Life Insurance Company have maintained their A+ financial strength rating with A.M. Best.  This information is from a press release by A.M. Best.  The superior strength rating and good issuer credit ratings are great news and mean that the company has continued earnings growth over the past five years, through a tumultuous market.

This is how A.M. Best says that Fidelity held strong in the industry:  “strong risk-adjusted capitalization, generally positive statutory and GAAP earnings, its focus on high credit quality and liquidity within its investment portfolio, prudent enterprise risk management practices and the competitive advantages it is afforded in marketing its life insurance and variable annuity products through the name recognition and branding of Fidelity Investments.”  Some moderate investment approaches helped Fidelity do better than its peers selling similar products.

Jackson National Life Insurance Company has fixed annuities to thank for it’s increasing sales in the first quarter of 2009.  While sales of their variable annuities were down compared to last year, sales of traditional fixed annuities almost doubled from the same period last year.  And their fixed index annuity sales increased by 83% from first quarter 2008 to first quarter 2009.

Financial strength ratings for Jackson have ranged from good (Moody’s) to superior (A.M. Best) and have been solid for six years.  According to President and CEO Clark Manning, “Jackson’s prudent approach to product pricing and risk management is a significant competitive advantage in the current market environment.”  They could be worth checking out for those seeking new financial opportunities.

A recent press release by A.M. Best announces that they have revised their rating of Nationwide Financial Services to negative. Nationwide’s rating had been stable.

A.M. Best says that the downgrade are is largely due to the fact that the firm’s financial performance is heavily based on the equity markets. Its products include variable annuities and variable life insurance, the former of which has been hit severely by the stock market’s fall. Nationwide’s line of variable annuities is currently garnering negative net flows.

However, there is a silver lining: the company has positive total annuity flows, presumably due to successful fixed annuity sales.

Walter Updegrave, editor of Money magazine, recently wrote about the conventional wisdom of annuities being a safer investment and wondered if that is still true today. He believes that an annuity continues to be a good option, but that you need to keep several guidelines in mind when you compare annuities.

• Number one on your checklist is to make sure that the insurer you buy your annuity from is healthy and solvent. If an insurance company fails, you will lose whatever money you put in it. Purchasing only annuity products with A.M. Best or Standard & Poor’s ratings of A or better will assist you in deciding which insurers are financially strong.
• Walter also suggests dividing your investment into multiple annuities from different companies. Since states provide about $100,000 per insurer from guaranty associations, purchasing from several insurers will hedge your bets in the case that one or more of them fails.
• Ask and receive detailed and clear information about all fees attached to the annuity; including surrender fees, investment fees, rider and guarantee fees, and insurance charges. Understand what the percentages are and when they are due.
• Of course, the best way is to protect your investment is to know exactly what you are buying and to make sure if it’s the right product for you. According to Walter, many guaranteed variable annuities add their promised growth rates to a ‘benefit base’ (that the insurer calculates as a hypothetical amount you’re allowed to draw from an annuity) as opposed to your true account value. Such accounts could result in a nasty shock if you cash out, because you will receive only your actual account value.