Annuity FYI Blog

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.

It looks like the battle is over for fixed indexed annuities and other indexed annuity products.  The U.S. Securities and Exchange Commission said they would have to reevaluate their information after the U.S. Court of Appeals vacated the SEC’s Rule 151A.  The SEC had hoped to get indexed annuities classified as securities so they would be put under the SEC’s jurisdiction.  According to National Underwriter’s “Rater: Indexed Annuity Ruling Will Stick,” Standard & Poor’s Ratings Services believes that the SEC will not pursue their indexed annuity fight, at least for the next year and a half.

After the Court of Appeals announcement, President Obama signed H.R. 4173 forbidding the SEC from claiming jurisdiction over fixed indexed annuities and other annuity products in the general account of insurance companies.  The rule is known as the Dodd-Frank Wall Street Reform and Consumer Protection Act bill and states that you cannot compare annuities to the other stock market products that the SEC is in charge of.  Without H.R. 4173, the SEC’s Rule 151A would have taken effect next January.  Standard & Poor’s announced with their outlook improvement for American Equity Investment Life Holding Company that it is unlikely the SEC will revisit this issue in the next couple years, if at all.

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.

Variable annuity assets increased by the largest margin in 17 years in the second quarter of 2009, according to Andrew Frye of Bloomberg.com.  His article “Variable Annuity Assets Advance Most in 17 Years,” lists the main reasons as a stock market rise and an increase in the amount that savers are investing.  The total variable annuity assets reached $1.19 trillion to end the second quarter.  This was a big help to the largest two life insurers, MetLife Inc. and Prudential Financial Inc.  A 15% jump in the S&P 500 Index helped the funds backing these variable annuities remain strong.

The Insured Retirement Institute’s Cathy Weatherford believes that consumers will remain careful with their investments, even as the economy stabilizes.  She thinks that 401k annuity rollovers and other annuity purchases will remain high as people continue to save and want to ensure their money is safe.  With government money helping to stabilize the economic and housing markets, the home price index showed its first increase since 2006.  The top provider of variable annuities, MetLife, had a 27% sales increase and Prudential had a 23% increase.  Variable annuity sales are surging as markets increase and consumers seek good investments.  See if they are right for you by contacting an expert.