Annuity FYI Visitor Blog

Jackson National Life Insurance Company had record sales and net income in 2009, according to Business Wire press release “Jackson(R) Announces Record Sales and Record Profit in 2009.”  With sales and deposits of $15.2 billion, Jackson saw an 8% increase from 2008.  Their net income of $670 million was a complete turnaround from a $1 billion loss in 2008.  Although the financial market was still a challenging one, Jackson recorded their highest sales and net income in the history of the company.  Variable annuities accounted for $10 billion of their 2009 sales, an increase of $3.5 billion from the previous year.  Jackson’s fixed index annuities sold $2.2 billion, which was an increase of more than 100% from 2008.  While traditional deferred fixed annuity sales decreased from 2008, they still accounted for $1.6 billion in sales.

Ratings from all four financial strength rating companies have remained strong over the past seven years.  A.M. Best rates Jackson an A+(superior), Standard & Poor’s and Fitch Ratings both rate them an AA(very strong), and Moody’s Investor Services Inc. gives Jackson an A1(good) rating.  These strong ratings are earned in part by Jackson’s top annuity sales rankings in 2009.  They had 5.9% of the market share in total annuity sales which put them in 4th place.  They were also 4th in new sales of variable annuities, giving them a market share of 8.1%.  A market share of 7.5% in sales of fixed index annuities gave Jackson their third 4th place ranking.  While they dropped in ranking for fixed annuity sales from 2008, it was a planned move to preserve the company’s capital.

A week in Taiwan gave Retirement Income Journal’s Kerry Pechter some insight into the Taiwanese retirement system along with some sightseeing time.  In “The View from Taroko Gorge,” Pechter shares what he learned about their system as a whole and from an individual tour guide’s perspective.  His tour guide was a 51-year old woman who had a successful trading business and much wealth until a financially irresponsible husband and changing times took it all away, including her pension.  She moved back with her parents, evaluated her strengths and became a successful tour guide, and is now back on the road to financial stability.

By viewing Taiwan’s retirement financing, Pechter brought insight to our predicament in America.  They lost a lot in the 2008 economic decline as well.  He met with university professors, managers from the local Prudential and Fitch Ratings, and government officials.  Government and university employees are lucky to have a generous pension and some other workers in the public and private sector receive pensions through their jobs as well.  Taiwan also has a government pension similar to Social Security, but that only pays around 15% of your income into retirement and is running out of money.  A National Annuity Pension Plan to cover people who are self-employed or are not covered by other plans was established in 2008 and has an annuity payout option.

Prudential and 38 other firms saw the opportunity in this wealthy and open market to set up shop and manage some of the state funds and other Taiwanese retirement funds.  The management of funds is a very political business in Taiwan, subject to manipulation and infrequent or incomplete reporting.  The firms working in Taiwan hope to infiltrate the marketplace even further and find a way to make retirement planning less political and more about the people.

It looks like there are some questionable practices going on with the financial strength rating institutions, according to “CalPERS Gives Rating Agencies an FFF” by Kerry Pechter in the Retirement Income Journal. Investors and advisers alike have historically put a lot of faith in the ratings from Fitch, Standard & Poor’s, and Moody’s.  The companies rate the financial strength of annuities, bonds, and bond funds through a letter value system.  Unfortunately, a lawsuit filed by California’s state employee pension fund (CalPERS) alleges that the companies have been biased in their ratings process by using an “issuer pay” model.  This model basically blurs the lines between the rating and the compensation received by the rating institutions.  They stand to receive a higher financial payout with better ratings since they are paid by the debt issuers that they rate.

CalPERS lost close to $1 billion by investing in Structured Investment Vehicles (SIVs) that had the highest long-term debt ratings at the time.  They believe that these ratings institutions negligently misrepresented the SIVs because of the issuer pay model pressuring them to give high ratings so they would get large returns.  All three ratings companies have promised to look into the issues and make changes if necessary, but also believe that the losses can be attributed to a difficult economic environment and “natural actions.”  The possibility exists that although the system used by these institutions may have been unethical, it may very well still be legal which would negate any lawsuit.  This makes it more important than ever to do your research in order to find the best annuities, bonds, and stocks for your portfolio.

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-.