Annuity FYI 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.

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.

The Allianz Life Insurance Company of North America has been selling annuities, life and long-term care insurance since its inception in 1896, according to company press release “Allianz Life Ratings Reaffirmed and Record Earnings Reported.”  Allianz Life is based in Minneapolis; their parent company is Allianz SE, a global financial services group.  Both their Moody’s and Standard & Poor’s ratings were reaffirmed this year.  Moody’s rates Allianz Life A2 (Good) and their S & P rating is AA (Very Strong).

The second quarter of 2009 was record setting for the company’s profits, which were up 77% from last year.  Their capital position also improved significantly with help from their parent company.  Allianz Life’s President and CEO is grateful to have such a strong parent company during difficult economic times.  They also believe that they have benefited from their conservative investment portfolio.  Using a 401k annuity to ensure guaranteed income for life is becoming more popular as people live longer.  Allianz Life has new variable annuity rider options that it will introduce next week to keep up with consumer demand for annuities.

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.

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.