Annuity FYI Blog

On the heels of ING’s negative press regarding variable annuities, their shares fell an average of 5% this week.  This information comes from Henry Steelman’s Annuity News Journal article, “Shares in ING Group Fell 5% Wednesday.”  ING is a huge financial institution all over the world covering banking and investment services as well as variable annuities and life insurance needs.  The downward trend in equities and lower annuity rates have taken a hit on ING’s variable annuities, so much so that the company expects a charge of $1.5 billion for its U.S. insurance unit.

The investment portfolios tied to their variable annuities have been under-performing and the company is paying out much more in premiums because of increasing life spans.  Moody’s lowered ING Group’s financial rating in the U.S. from A2 to A3 and Fitch lowered their ratings as well.  Investors were likely reacting to these financial ratings decreases in addition to the news.  Shares were down 5% in Amsterdam, then closed down 2%.  In the NYSE, ING’s American deposit receipt was down 8%, then closed down 3%.  The company plans to use contingent funding and review many aspects of their variable annuities going forward.  Many analysts are telling investors not to sell their shares of ING just yet.

Written by Rachel Summit

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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.

Ohio National will keep its ‘A+ Superior’ rating from A.M. Best, according to an Ohio National Financial Services news release.  The rating is based on the strength of their balance sheet, their business profile, and their operating performance.  This is the second to highest rating on A.M. Best’s 16-part scale.  Not only did Ohio National receive this ‘A+ Superior’ strength rating, but their rating outlook was upgraded to ‘stable’.  In a review of the company’s 2009 finances and operations, Ohio National was found to have some of the best annuities, as well as “strong risk-adjusted capitalization, positive net operating gains in 2009, and the improved position of its investment portfolio.”  They also had some strong increases from 2009 to the first quarter of 2010.

The other major financial rating companies also praised Ohio National’s financial strength this past April.  Standard & Poor’s reaffirmed their ‘AA’ (very strong) rating for the company’s ability to pay out claims.  This rating is S & P’s third-highest out of their 21-point scale.  Moody’s Investors Service maintained Ohio National’s ‘A1′ rating for insurance financial strength.  The ratings for Ohio National’s financial strength and ability to pay claims have not changed since 1991, which shows the company’s rock solid stability.  National Security Life and Annuity Company, Ohio National’s New York subsidiary offering variable annuities, received an ‘A Excellent’ rating which is the third highest possible.

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.

In “A Chat with Jackson’s Clifford Jack,” Kerry Pechter of the Retirement Income Journal interviewed Jackson National Life’s Executive Vice President, Clifford Jack.  Jackson is one the U.S.’s top fixed and variable annuity issuer.  With a Moody’s rating of A1 (Good) and $3.4 billion in retail sales and deposits for this year’s second quarter, they are having a record year amidst marketplace turmoil.  Jackson was ranked eighth as a variable annuity provider in the first quarter of 2009, jumping ahead of big names Hartford Life, Pacific Life, AIG, and RiverSource Life.  They have succeeded with 1035 exchanges, with a 23% yearly increase in annuity net flows from the first half of 2008 to the first half of 2009.

EVP Clifford Jack explains why you should make a 401k annuity transfer or find another way to purchase an annuity from Jackson.  He attributes their success to the quality and consistency in both the product and message that Jackson delivers.  They did not receive any public or raised private capital during the financial crisis because they already had a strong balance sheet and wise investments.  Jack says that variable annuities have provided better security overall in the past year and that because of this, Jackson has seen a large increase in the number of advisers coming to them for their quality products.  Their marketing has shifted focus to financial due diligence.  Jackson’s main goal for the future is to continue what they have been doing.  They don’t want to change their business philosophy when it is working well for the company and its consumers.