What are the advantages and disadvantages of an Equity-Indexed Annuity?

What are the advantages and disadvantages of an Equity-Indexed Annuity?

The major advantage of an equity-indexed annuity over other types of deferred annuity products is potentially higher interest rates available from links to equity indexes, which historically have provided significantly higher yields than fixed interest rate products. The major advantage, of course, may be the major disadvantage also, particularly in periods of index volatility. However, all equity-indexed annuities have an underlying minimum interest rate guarantee which guarantees you will never lose your premium due to index fluctuations or volatility. Thus the equity-indexed annuity provides the best of both worlds-linkage to equity indexes with no risk due to index volatility and safety of premium.

Annuity Guide

Fixed Annuity

What are the advantages and disadvantages of a Variable Annuity?

What are the advantages and disadvantages of a Variable Annuity?

The advantage of a Variable Annuity is the ability to place your annuity
premium into equity investments such as stocks, bonds or mutual funds
and participate in the potentially higher increases available
historically in the equity or bond markets.
Increases in your Variable
Annuity are tax deferred until they are actually withdrawn from the
contract or annuitized. All increases in a Variable Annuity are taxed
as ordinary income the year the money is withdrawn.
The major
disadvantage of a Variable Annuity is that your assets, including your
premium, are subject to market risk, i.e. loss in value based upon poor
performance of the markets. As with a fixed deferred annuity, your
purchase of a Variable Annuity should be viewed as a means to fund your
long-term retirement goals.
Historically, products in the equity
markets have resulted in higher increases than fixed rate products. Of
course, many factors are important in determining whether a Variable
Annuity is right for you, including your age, retirement goals and
aversion to risk. If you are young and looking to preserve significant
funds for your long-term retirement needs, a Variable Annuity is an
excellent way to do so.
If you are older and closer to retirement, or
simply desire to preserve your accumulated assets by purchasing a
secure vehicle, a fixed deferred annuity may be the best choice.

Annuity Surrender Charges and How To Avoid Them.

Is there any way to avoid the annuity surrender or early withdrawal charges?





Yes.
With most fixed deferred annuities, surrender or withdrawal charges are
waived if you (1) die;
(2) become confined to a hospital or nursing
home for a specified period; or
(3) you choose to take a guaranteed
income stream. In addition, most fixed deferred annuities allow you
take up to 10% of your annuity contract value each year without incurring a
surrender or withdrawal charge.
See tax consequences of early
annuity withdrawals. Annuity rollover.

There
are no penalties on distributions if:
(1) You are older than age 59 ½ (2) Distributions are made on or after
the death of the owner of the annuity (3) Become disabled
(4) Distributions are made as a series of substantially equal periodic
payments (not less than annually) for your life or your life expectancy
or joint life expectancies of you and your designated beneficiary
(5) Distributions are made under a single premium immediate annuity
with a starting date no later than one year from the date you purchase
the annuity.
(6) If the distributions are made under certain annuities issued as a
part of a structured settlement agreement.
There are additional exceptions in the case of IRAs. Please contact
your tax advisor for more details.

401k Annuity

Annuity Rate

What Are Advantages and Disadvantages of a Fixed Annuity?

What are the advantages and disadvantages of a Fixed Deferred Annuity?

The
major advantages of a fixed deferred annuity are guarantee of premium
and tax deferral. Generally, fixed deferred annuities appeal to the
risk averse who are looking to preserve funds for retirement with
guarantee of premium, competitive fixed rate interest guarantees and no
risk to premium. The major disadvantage of a fixed rate deferred
annuity is that fixed rate guarantee-type products have provided lower
growth than those available historically in the equity markets. Of
course, many factors are important in determining whether a fixed rate
deferred annuity is right for you, including your age, retirement goals
and aversion to risk. If you are older and closer to retirement, or
simply desire to preserve your assets in a secure vehicle, a fixed
deferred annuity may be the best choice. If you are younger and looking
to preserve significant funds for your long-term financial needs and
are willing to take greater risk, an Equity-Indexed or Variable Annuity
might be a better alternative at the present time.

What is a Fixed Deferred Annuity?

A Fixed Deferred Annuity is a contract between you and the insurance company which pays a guaranteed current interest rate.
The interest rate may be guaranteed for one or more years and earns compound interest. The interest earnings compound on a tax-deferred basis.
Fixed deferred annuities are offered either on a single premium basis, i.e. you give the insurance company a lump sum premium payment, (typically $5,000 or more) or on a flexible premium basis, i.e. you pay a lower re-occurring premium payment on a monthly, quarterly, or annual basis. In addition to tax deferral, fixed deferred annuities offer safety of your premium.
Fixed deferred annuities offer a current interest rate which may never be less than a lifetime minimum guaranteed interest rate (typically 3%).
The current interest rate is declared and guaranteed by the insurance company. Thus your premium in a fixed deferred annuity is not subject to market risk associated with volatile financial markets.
Fixed deferred annuities have penalties for early withdrawal called surrender charges or withdrawal charges. These charges typically decline over the length of the surrender charge period.

Dissent Regarding Final Rule 151A Index Annuities

SEC Speech: Opening Remarks and Dissent Regarding Final Rule 151A: Indexed Annuities and Certain Other Insurance Contracts;(Troy A. Paredes) Washington, D.C.: December 17, 2008

Speech by SEC Commissioner:
Opening Remarks and Dissent Regarding Final Rule 151A
Indexed Annuities and Certain Other Insurance Contracts
by
Commissioner Troy A. Paredes
U.S. Securities and Exchange Commission
Open Meeting of the Securities & Exchange Commission
Washington, D.C.
December 17, 2008

Thank you, Chairman Cox.

I believe that proposed Rule 151A addressing indexed annuities is rooted in good intentions. For instance, at the time the rule was proposed, the Commission watched a television clip from Dateline NBC that described individuals who may have been misled by seemingly unscrupulous sales practices into buying these products. Part of our tripartite mission at the SEC is to protect investors, so there is a natural tendency to want to act when we hear stories like this.

However, our jurisdiction is limited; and thus our authority to act is circumscribed. Rule 151A is about this very question: the proper scope of our statutory authority.

In our effort to protect investors, we cannot extend our reach past the statutory stopping point. Section 3(a)(8) of the Securities Act of 1933 ('33 Act) provides a list of securities that are exempt from the '33 Act and thus, by design of the statute, fall beyond the Commission's reach. The Section 3(a)(8) exemption includes, in relevant part, "[a]ny insurance or endowment policy or annuity contract or optional annuity contract, issued by a corporation subject to the supervision of the insurance commissioner . . . of any State or Territory of the United States or the District of Columbia." I am not persuaded that Rule 151A represents merely an attempt to provide clarification to the scope of exempted securities falling within Section 3(a)(8). Instead, by defining indexed annuities in the manner done in Rule 151A, I believe the SEC will be entering into a realm that Congress prohibited us from entering. Therefore, I cannot vote in favor of the rule and respectfully dissent.

Rule 151A takes some annuity products (indexed annuities), which otherwise may be covered by the statutory exemption in Section 3(a)(8), and removes them from the exemption, thus placing them within the Commission's jurisdiction to regulate. If the Commission's Rule 151A analysis is wrong — which is to say that indexed annuities do fall within Section 3(a)(8) — then the SEC has exceeded its authority by seeking to regulate them. In other words, the effect of Rule 151A would be to confer additional authority upon the SEC when these products, in fact, are entitled to the Section 3(a)(8) exemption.

The Supreme Court has twice construed the scope of Section 3(a)(8) for annuity contracts in the VALIC and United Benefit cases.1 I believe the approach embraced by Rule 151A conflicts with these Supreme Court cases. Although neither VALIC nor United Benefit deals with indexed annuities directly, the cases nevertheless are instructive in evaluating whether such a product falls within the Section 3(a)(8) exemption. And despite the adopting release's efforts to discount its holding, at least one federal court applying VALIC and United Benefit has held that an indexed annuity falls within the statutory exemption of Section 3(a)(8).2

When fixing the contours of Section 3(a)(8), the relevant features of the product at hand should be considered to determine whether the product falls outside the Section 3(a)(8) exemption. Rule 151A places singular focus on investment risk without adequately considering another key factor — namely, the manner in which an indexed annuity is marketed.

Moreover, I believe that Rule 151A misconceptualizes investment risk for purposes of Section 3(a)(8). The extent to which the purchaser of an indexed annuity bears investment risk is a key determinant of whether such a product is subject to the Commission's jurisdiction. Rule 151A denies an indexed annuity the Section 3(a)(8) exemption when it is "more likely than not" that, because of the performance of the linked securities index, amounts payable to the purchaser of the annuity contract will exceed the amounts the insurer guarantees the purchaser. This approach to investment risk gives short shrift to the guarantees that are a hallmark of indexed annuities. In other words, the central insurance component of the product eludes the Rule 151A test. More to the point, Rule 151A in effect treats the possibility of upside, beyond the guarantee of principal and the guaranteed minimum rate of return the purchaser enjoys, as investment risk under Section 3(a)(8). I believe that it is more appropriate to emphasize the extent of downside risk — that is, the extent to which an investor is subject to a risk of loss — in determining the scope of Section 3(a)(8). When investment risk is properly conceived of in terms of the risk of loss, it becomes apparent why indexed annuities may fall within Section 3(a)(8) and thus beyond this agency's reach, contrary to Rule 151A.

Not only does Rule 151A seem to deviate from the approach taken by courts, including the Supreme Court, but it also appears to depart from prior positions taken by the Commission. For example, in an amicus brief filed with the Supreme Court in the Otto case,3 the Commission asserted that the Section 3(a)(8) exemption applies when an insurance company, regulated by the state, assumes a "sufficient" share of investment risk and there is a corresponding decrease in the risk to the purchaser, such as where the purchaser benefits from certain guarantees. Yet Rule 151A denies the Section 3(a)(8) exemption to an indexed annuity issued by a state-regulated insurance company that bears substantial risk under the annuity contract by guaranteeing principal and a minimum return.

In addition, Rule 151A seems to diverge from the analysis embedded in Rule 151. Rule 151 establishes a true safe harbor under Section 3(a)(8) and provides that a variety of factors should be considered, such as marketing techniques and the availability of guarantees. The Rule 151 adopting release even indicates that the rule allows for certain "indexed excess interest features" without the product falling outside the safe harbor.

An even more critical difference between Rule 151 and Rule 151A is the effect of failing to meet the requirements under the rule. If a product does not meet the requirements of Rule 151, there is no safe harbor, but the product nevertheless may fall within Section 3(a)(8) and thus be an exempted security. But if a product does not pass muster under the Rule 151A "more likely than not" test, then the product is deemed to fall outside Section 3(a)(8) and thus is under the SEC's jurisdiction. In essence, while Rule 151 provides a safe harbor, Rule 151A takes away the Section 3(a)(8) statutory exemption.

I am not aware of another instance in the federal securities laws where a "more likely than not" test is employed, and for good reason. A "more likely than not" test does not provide insurers with proper notice of whether their products fall within the federal securities laws or not. If an insurer applies the test in good faith and gets it wrong, the insurer nonetheless risks being subject to liability under Section 5 of the Securities Act, even if the insurer had no intent to run afoul of the federal securities laws. In addition, under the "more likely than not" test, the availability of the Section 3(a)(8) exemption turns on the insurer's own analysis. Accordingly, it is at least conceivable that the same product could receive different Section 3(a)(8) treatment depending on how each respective insurer modeled the likely returns.

Further, I am concerned that Rule 151A, as applied, reveals that the "more likely than not" test, despite its purported balance, leads to only one result: the denial of the Section 3(a)(8) exemption. In practice, Rule 151A appears to result in blanket SEC regulation of the entire indexed annuity market. The adopting release indicates that over 300 indexed annuity contracts were offered in 2007 and explains that the Office of Economic Analysis has determined that indexed annuity contracts with typical features would not meet the Rule 151A test. Indeed, the adopting release elsewhere expresses the expectation that almost all indexed annuity contracts will fail the test. If everyone is destined to fail, what is the purpose of a test? Further, there is at least some risk that in sweeping up the index annuity market, the rule may sweep up other insurance products that otherwise should fall within Section 3(a)(8).

The rule has other shortcomings, aside from the legal analysis that underpins it. These include, but are not limited to, the following.

First, a range of state insurance laws govern indexed annuities. I am disappointed that the rule and adopting release make an implicit judgment that state insurance regulators are inadequate to regulate these products. Such a judgment is beyond our mandate or our expertise. In any event, Section 3(a)(8) does not call upon the Commission to determine whether state insurance regulators are up to the task; rather, the section exempts annuity contracts subject to state insurance regulation.

Second, as a result of Rule 151A, insurers will have to bear various costs and burdens, which, importantly, could disproportionately impact small businesses. Some even have predicted that companies may be forced out of business if Rule 151A is adopted. Such an outcome causes me concern, especially during these difficult economic times. Even when the economy is not strained, such an outcome is disconcerting because it can lead to less competition, ultimately to the detriment of consumers.

Third, the Commission received several thousand comment letters since Rule 151A was proposed in June 2008. Consistent with comments we have received, I believe that there are more effective and appropriate ways to address the concerns underlying this rulemaking. One possible alternative to Rule 151A would be amending Rule 151 to establish a more precise safe harbor in light of all the relevant facts and circumstances attendant to indexed annuities and how they are marketed. A more precise safe harbor would provide better clarity and certainty in this area — regulatory goals the Commission has identified — and would preserve the ability of insurers to find an exemption outside the safe harbor by relying directly on Section 3(a)(8) and the cases interpreting it. I believe further exploration of alternative approaches is warranted, as is continued engagement with interested parties, including state regulators.

In closing, I request that my remarks be included in the Federal Register with the final version of the release. My remarks today do not give a full exposition of the rule's shortcomings, but rather highlight some of the key points that lead me to dissent. I wish to note that these dissenting remarks just given represent my view after giving careful consideration to the range of arguments presented by the Commission's staff, particularly the Office of General Counsel, the commenters, and my own counsel, as well as those of my fellow Commissioners. Although I cannot support the rule, I nonetheless thank the staff for the hard work they have devoted to its preparation.

Endnotes

1See generally SEC v. Variable Annuity Life Ins. Co. of Am., 359 U.S. 65 (1959); SEC v. United Benefit Life Ins. Co., 387 U.S. 202 (1967).

2See Malone v. Addison Ins. Mktg., Inc., 225 F. Supp. 2d 743 (W.D. Ky. 2002).

3Otto v. Variable Annuity Life Ins. Co., 814 F.2d 1127 (7th Cir. 1987). The Supreme Court denied the petition for a writ of certiorari.

http://www.sec.gov/news/speech/2008/spch121708tap.htm
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Modified: 12/17/2008

Traditional Fixed Interest Rate Annuities

American Equity - Products for Today - Fixed Rate Annuities

Traditional Fixed Interest Rate Annuities
A traditional fixed annuity is a contract between you and American Equity. Your annuity earns a competitive interest rate, which is declared by the board of directors at American Equity and is guaranteed for a specified period of time. It also contains a guaranteed minimum interest over the term of the contract. Taxes are not due on earnings until withdrawn.

The benefits and features of American Equity�s traditional fixed annuities include:

* Tax-Deferred Growth.
* Competitive current and renewal interest rates.
* First year additional interest rate bonuses or Multi-Year Guaranteed Interest Rates.
* Single or Flexible Premium.
* No up front sales charges or fees.
* Systematic Withdrawals of interest or amounts to satisfy IRS minimum distributions available immediately.**
* 10% penalty-free withdrawals starting in year 2.
* Additional liquidity if you are confined to a nursing home or diagnosed with a terminal illness (available by state approval).
* Company Surrender Charges may apply for early withdrawal.
* Surrender Charges are waived at death.

** Benefit not guaranteed and subject to change.

Features and benefits may vary by contract form and state. Please review the contract or product disclosure for more information.

Annuities are products of the insurance industry and are not guaranteed by any bank or insured by the FDIC.

What Is Triple Compounding?

American Equity - Tax Deferral

Triple Compounding Solutions!

One of the primary advantages of deferred annuities is the opportunity to accumulate a substantial sum of money by allowing your premium and interest to grow tax-deferred. Interest earned on your American Equity annuity is not currently taxable by the federal or state government until you choose to make a withdrawal. This is the key difference between an annuity and other taxable financial vehicles. A 5% return may sound good initially, but if you are in a taxable vehicle with a combined 27% tax bracket, the actual return is 3.65%. Combine this with an average inflation rate of 4%, and what have you truly gained? That�s right... nothing!

Taxable vs. Tax-Deferred

With that in mind, consider the many advantages of an annuity, including triple compounding! With annuities you earn interest on your principal, interest on your interest, and interest on what you would normally pay in taxes. You will not pay income taxes on annuity interest until you withdraw it from your annuity. You control when you pay income taxes!

Deferred Annuity

SEC Ignores Congressional, State, and Industry Opposition to Indexed Annuity Proposal

SEC Ignores Congressional, State, and Industry Opposition to Indexed Annuity Proposal

SEC Ignores Congressional, State, and Industry Opposition to Indexed Annuity Proposal

Last update: 11:09 a.m. EST Dec. 12, 2008
WASHINGTON, Dec 12, 2008 /PRNewswire via COMTEX/ -- The Coalition for Indexed Products issued a statement expressing "deep disappointment" in the Security and Exchange Commission's decision to pursue Proposed Rule 151A, which would require all indexed annuities to be registered as securities. The SEC announced yesterday that the proposal would be an agenda item on the Commission's December 17 meeting.
A letter signed by 19 members of Congress -- including several on the House Financial Services Committee -- was recently sent to SEC Commissioners expressing opposition to the proposed rule, according to the Coalition. It noted that Proposed Rule 151A would "reduce product availability and consumer choice" and "effectively [place] the cost of the regulation squarely on the shoulders of consumers."
Other high profile opponents include the National Association of Insurance Commissioners, the National Conference of Insurance Legislators, and a number of Congressional members who wrote separate letters to the SEC.
"The SEC's action appears to ignore the thousands of comments filed against this misguided proposal," said Jim Poolman, spokesperson for the Coalition and former North Dakota Insurance Commissioner.
"It is concerning that the SEC continues to see this issue as a priority in the middle of arguably the most severe financial crisis since World War II," Mr. Poolman added. "The Commission seems content to eliminate millions in market capital from the insurance industry, based on highly questionable suppositions."
SOURCE The Coalition for Indexed Products

Annuity
Annuity Rate
Annuity Guide
Index Annuities
Deferred Annuity

Fixed Indexed Universal Life Insurance

Sagicor Life Introduces New Fixed Indexed Universal Life Product - 12/10/2008 - insurancenewsnet.com

Tampa, FL - December 9, 2008 – Sagicor Life Insurance Company is pleased to introduce its Platinum Series Fixed Indexed Universal Life product Which is now available in the following states: AL, AR, CO, DC, DE, GA, FL, HI, ID, IN, KS, MD, MO, NC, NE, NV, OK, RI, SC, and WA. More state approvals are soon.

The Platinum Series Fixed Indexed Universal Life product is ideal for family income protection, college savings, wealth building, retirement savings, estate planning, wealth transfer, charitable giving, business continuation, buy/sell plans, executive bonus plans, deferred compensation plans and more. The Fixed Indexed Universal Life is part of a growing portfolio of life and annuity products offered by Sagicor Life.

A key highlight of the Fixed Indexed Universal Life product is it provides immediate death benefit protection along with three distinct crediting strategies offering the potential for significant cash value growth on a taxed-deferred basis with no market risk. The available crediting strategies include a one-year Declared Rate Strategy, a one-year point-to-point strategy linked to the S&P 500® Index and a three-year point-to-point strategy based on a basket of indices made up of the Russell® 2000, the Dow Jones EURO STOXX 50® Index and the Hang Seng Index.

Other features include the Accelerated Benefit Insurance Rider which includes Terminal Illness and Chronic Illness Living Benefits*, penalty-free withdrawals, policy loans after the first year** and preferred loans available after the policy has been in force for ten years. Available optional riders include the Primary Insured Term Rider, Waiver of Monthly Deductions Rider, Additional Insured Term Rider, Children’s Term Rider, and Accidental Death Benefit Rider. Policy and Riders are not available in all states and state variations apply. For more information visit www.SagicorLifeUSA.com or contact our Sales Department at salesdept@sagicorlifeusa.com or call 800-406-9900.

About Sagicor Life Insurance Company

Sagicor Life Insurance Company is a full-service life insurance company offering a wide range of competitive products consisting of term, whole life, indexed life and annuities. Licensed in 44 states and the District of Columbia, Sagicor Life is a wholly-owned subsidiary of Sagicor Financial Corporation, one of the oldest insurance groups in the Americas, with operations in 22 countries including the United States, United Kingdom, Latin America and the Caribbean. Sagicor Life is committed to offering our agents and customers world-class service with integrity and value.

* Not available in all states.
** In Indiana, loans can be taken in the first year.

MEDIA CONTACT:

Anabel S. Thomas
Sagicor Life Insurance Company
Phone: (813) 287-1602 ext. 6207
Fax: (813) 287-7420
anabel_thomas@sagicor.com

Index Annuity
Equity Index
Index Annuity Rate

Fixed Rate Annuities can’t be seen as asset in determining nursing home assistance.

Annuity ruling sets standard | Wilkes-Barre News | The Times Leader

Annuity ruling sets standard
Recent decision reaffirms other rulings that annuity can’t be seen as asset in determining nursing home assistance.

By Terrie Morgan-Besecker tmorgan@timesleader.com
Law & Order Reporter

In a precedent-setting ruling, a federal appellate court has said the state Department of Public Welfare cannot consider a $250,000 annuity a Wilkes-Barre woman purchased following her husband’s entry into a nursing home as an asset when determining whether he was eligible for Medicaid benefits.

The ruling by the Third Circuit Court of Appeals is the latest in a series of court cases brought by welfare officials in Pennsylvania and other states. The cases challenge a loophole in the Medicaid law that officials say has allowed affluent couples to use annuities to shelter assets that otherwise would be available to pay for an institutionalized spouse’s care.

The decision, issued last month in the case of Josephine James, is significant because it reaffirms prior court rulings, said James’s attorney, Matthew Parker of Williamsport. It will affect all residents in the states covered by the Third Circuit – New Jersey, Pennsylvania and Delaware.

But Jason Manne, chief deputy counsel for DPW, said the court’s ruling is fact-specific to the James case. Even though the department lost, Manne contends the legal reasoning the court employed will help DPW challenge the use of annuities in calculating Medicaid benefits.

The ruling is being closely monitored by attorneys on both sides of the issue as the stakes are huge. The average annual cost of nursing home care for one person is $60,000, according to DPW. Last year, Pennsylvania’s Medicaid fund paid out more than $3 billion to nursing homes.

While providing health care coverage to all persons is a laudable goal, DPW says, it has an obligation to ensure that Medicaid is utilized for those who truly need it.

“This does not involve poor people or people of modest means,” Manne said. “The problem is you have individuals who have hundreds and hundreds of thousands of dollars, sometimes even millions, who, rather than use their money for their nursing home care, want the taxpayers to pay for that care.”
A legal loophole

But Parker and other elder-law attorneys say couples such as the Jameses are simply availing themselves of all options to ensure the non-institutionalized spouse is left with sufficient income to support him or herself.

They note that amendments to the law that went into effect in 2006 now require DPW be listed as a lien holder on annuities in which a person or the person’s spouse is receiving Medicaid benefits. That does not affect Josephine James, whose case started in 2005. For all subsequent cases, it allows DPW to recoup all money spent on caring for the institutionalized spouse from the estate of the non-institutionalized spouse after their death.

They also note that regulations are in place to ensure the process is not abused. Welfare officials, they say, are trying to use the courts to circumvent a law they don’t like.

“If in fact there are any alleged loopholes, they were created by Congress. It is not for DPW ... to determine what public policy is when Congress has spoken,” said attorney Shirley Berger Whitenack of New Jersey, a member of the National Academy of Elder Law Attorneys. “If DPW doesn’t like it, they can certainly lobby Congress” to change the law.

The key issue focuses on the structure of an annuity – a contractual agreement in which the buyer gives the seller, typically an insurance company or bank, a lump sum of money. The company or bank then pays the purchaser a consistent monthly amount, or an “income stream,” over a given period of time.

In determining whether an institutionalized spouse will qualify for Medicaid assistance, states consider a married couple’s assets – including cash, stocks, bonds and property. The law prohibits the state from considering the income of the non-institutionalized spouse – known as the community spouse – in that calculation.

The community spouse is afforded a percentage of the assets to live on. Any excess is deemed an “available asset” that can be used to pay nursing home costs. Medicaid kicks in once that money has been exhausted.

The key benefit of an annuity is that it allows couples to convert joint assets that otherwise would be deemed available into an “income stream” for the community spouse. Because that money is now considered to be the income of the community spouse – not an asset – it cannot be counted when determining the institutionalized spouse’s Medicaid eligibility.
How it worked

In the James case, Robert James, now deceased, was admitted to a Wilkes-Barre nursing home on Aug. 10, 2005. At that time, he and his wife had total assets of $381,443, of which roughly $278,000 was deemed “available assets” that could be used to pay for Robert’s care.

In order to qualify Robert for Medicaid, Josephine James purchased a $250,000 annuity on Sept. 12, 2005 – about a month after her husband entered the home. She also spent about $28,000 on a new car, leaving no available assets to pay for her husband’s care under Medicaid rules.

Robert James then applied for Medicaid benefits, but was denied by DPW.

The department did not allege Josephine James did anything improper when she converted the couple’s assets into an annuity for herself or when she purchased the car, both of which are allowed under the rules.

Rather, it argued the annuity was an asset because Josephine James could, if she chose, sell the “income stream” it generated to a firm such as J.G. Wentworth, a company that purchases annuities and other types of structured payments for a lump sum.

The Jameses’ filed a federal court action that challenged the department’s interpretation. A federal judge ruled in their favor, saying nothing within the Medicaid Act says DPW can force a person to sell an annuity to a second party.

DPW appealed to the Third Circuit, which also sided with the Jameses.
More tests ahead

In its ruling, the court said Medicaid rules state that an asset can only be deemed “available” if the owner has the ability to liquidate it without incurring legal liability.

In the James case, her annuity was non-transferable and non-revocable, meaning she could not access the principal and could not sell it. If she did, she would be breaking the contract, subjecting her to legal liability. The court said it therefore could not be considered an asset.

While the ruling benefits James, Manne said it will not benefit persons who purchase annuities today because Pennsylvania in 2005 amended its law to forbid sellers of annuities from including a clause that makes them non-transferable. That would allow annuities to be sold without legal liability, he said, and allow the state to consider them an asset.

Manne acknowledged that others have interpreted the Third Circuit’s decision differently. There are also other complex legal issues that still must be resolved, he said.

Given that, the true significance of the ruling won’t be known until other courts apply the decision to pending cases that raise issues similar to the James case, he said.

Terrie Morgan-Besecker, a Times Leader staff writer, may be reached at 570-829-7179.

Variable - Insurers Abandon Rosy View of Variable Annuities

Insurers Abandon Rosy View of Variable Annuities at SmartMoney.com

Insurers Abandon Rosy View of Variable Annuities

For the last few years, insurance companies have been luring investors with an irresistible product: an investment that guaranteed market gains, with no risk, and generous income payments for life. Surprise of surprises, that pitch has worked, reviving the lackluster variable annuity and attracting about $140 billion a year in investor assets.

But the guarantees on these variable annuities sounded too good to be true, and a few months ago SmartMoney asked insurance company executives to explain how, exactly, they planned to keep them.

As it turns out, it’s not so easy. A variable annuity is basically an investment portfolio with an insurance overlay – investors got tax-deferral and, usually, a death benefit, but paid high fees and big withdrawal penalties. But in the last few years, insurance companies have started marketing the investments as safe havens for people in retirement or close to it: a typical product lets investors stay in the market, but promises a lifetime income stream based on an account value that can only go up, often by as much as 7% per year. That means investors’ potential income rises regardless of what happens in the market.

How’s that possible? Apparently, it’s not. When we asked earlier this year, the insurance companies told us they had it all under control, guaranteeing the benefits with sophisticated models and elaborate hedging strategies that would hold up even in a severe market downturn. But now that we’ve had that severe downturn, several companies have stopped selling their most generous variable annuities or raised fees, citing “prudence in light of current market conditions” – code for “we didn’t expect this.”

MassMutual has stopped selling an annuity that guaranteed a 6% annual return; AXA-Equitable has taken a product with a 6.5% guarantee off the shelf and raised the prices on its existing product; other companies are doing the same. “In today’s market, a 6.5% guarantee just is not prudent,” said Steve Mabry, senior vice president of product development at AXA-Equitable.

In theory, investors who already own one of these annuities are still entitled to the benefits for as long as they hold their contracts. And lucky them: in today’s markets, a 6.5% annual return looks downright spectacular. The problem is, the guarantees are still only as good as the companies that insure them. And this most recent move – discontinuing products, raising fees – acknowledges that the companies’ models and hedging strategies aren’t as stable as they thought. The financial crisis has hurt insurance companies across the board -- AIG has already received federal bailout funds; the Hartford has taken steps to apply for them – and the question policyholders need to ask is, “Will my company be around in four or five years, when I want to exercise that benefit,” says John McCarthy, vice president at Advance Sales, an annuity research company.

There are backstops in place, of course, but if companies go out of business, it won’t look good for investors. “You may be able to collect your account value,” said McCarthy. “But you’ve paid for a guarantee that you’ll never get.” The insurance companies say that won’t happen. They point to the rules and regulations that require them to keep a certain amount of money in reserve. Also, most states require insurers to guarantee at least $100,000 in annuity benefits, but it’s not clear whether these variable annuity benefits qualify. “They might be covered today, and they might not be, and that might not mean anything five or 10 years from now,” says Mike Surguine, the executive director of the Arizona Life and Disability Guaranty Fund. “The laws could change.” And, says AXA’s Mabry, the company discontinued its most generous guarantee precisely to insure the financial health of the parent company.

But some companies are showing no sign of retreat, at least not yet. Prudential is still selling its most generous annuity, which guarantees a 7% annual rate of return under any market conditions. It’s not cheap – the all-in cost for an annuity with the guarantee is well over 3% per year – but in this market, it’s selling like crazy: In the third quarter of 2008, 75% of Prudential annuities carried the benefit. The company says it has no plans to raise its prices or reduce the benefit, and says it’s confident it can handle these commitments. In any case it’s a big guarantee – as long as they’re around to keep it.

SEC to hear more on fixed index annuity regulation

SEC to hear more on index annuity regulation - InvestmentNews

By Darla Mercado
October 13, 2008, 3:47 PM EST


The Securities and Exchange Commission has reopened the comment period for its proposed rule on federal regulation of index annuities.

The Washington-based regulator made the announcement on Friday, giving the public thirty days from the publication of the extension in the Federal Register.

The rule, known as 151 A, would define the terms “annuity contract” and “optional annuity contract” under the Securities Act of 1933, clarifying index annuities’ status under the federal securities laws.

Were the rule to be approved, the products would come under the jurisdiction of the SEC and the Financial Industry Regulatory Authority Inc. of New York and Washington.

Comments may be submitted here.

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AMEB,AEL American Equity: Year-to-Date Annuity Sales Up 6% From Year Ago

American Equity: Year-to-Date Annuity Sales Up 6% From Year Ago

WEST DES MOINES, Iowa, Oct 07, 2008 (A. M. Best via COMTEX) -- AEL | Quote | Chart | News | PowerRating -- American Equity Investment Life Holding Co., a top seller of equity-indexed annuities in the United States, said year-to-date annuity sales rose 6% from the same period a year ago.

Ahead of releasing its third-quarter earnings next month, American Equity (NYSE: AEL | Quote | Chart | News | PowerRating) on Oct. 3 said annuity sales for the quarter totaled $571.8 million, bringing year-to-date sales to $1.7 billion for the first nine months of this year, up from $1.6 billion in the same period in 2007.

At the end of trading Oct. 6, American Equity Investment Life led the A.M. Best Global Insurance Composite Index -- up 17.93% from the previous close. The A.M. Best Global Index closed at 859.99 -- down 6.72%.

The West Des Moines, Iowa-based company will release third-quarter earnings Nov. 5 after the market closes. For year-end 2007, American Equity's net income declined 61.6% to $29 million, while total revenues dropped to $915.9 million, a decrease of 22%.

Debate surrounds indexed annuities. Back in June, the U.S. Securities and Exchange Commission proposed a rule, 151A, that would define certain indexed annuities as securities products. Under the rule, these annuities ? currently regulated as insurance products ? would be treated as securities if amounts payable by the insurer are more likely than not to exceed amounts guaranteed under the contract.

Insurance carriers would need to refile the products with the SEC and offer them via a prospectus. Agents who wish to continue selling them would need to become registered representatives overseen by the Financial Industry Regulatory Authority, a status held by only about 55% of those who currently sell the products (BestWire, Sept. 8, 2008).

The comment period for the SEC's proposal ended Sept. 10. As of that day, 2,400 comments were sent to the SEC and about 90% were in opposition, American Equity said. The SEC has continued to accept comments received after the deadline, it said.

American Equity said it co-hosted a Congressional "fly-in" in Washington, D.C., on Sept. 23 in which the Coalition for Indexed Products, made up nine companies and a group of national marketing organizations representing the coalition, met with nearly 80 members of Congress. They urged members to tell the SEC the measure isn't needed because indexed annuity sales "are already heavily regulated by state insurance departments and would restrict consumer choice at a time when access to principal-protected products like fixed-index annuities should be carefully guarded," American Equity said.

The SEC, which adopted the proposed rule unanimously, has pointed to allegations of abuses in the marketing of indexed annuities to seniors, and has sought supervision by the Financial Industry Regulatory Authority of those who sell the products. According to the SEC, among complaints made to state securities regulators, cases involving annuities represented 65% of the caseload in Massachusetts, and 60% of the caseload in Hawaii and Mississippi (BestWire, July 28, 2008).

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)

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Immediate Annuities - Women's financial security in retirement

Advice for men and women about women's financial security in retirement - The Boston Globe

I've thought about dying before my wife Georgina after reading two recent studies on women and retirement.

"Compared with men, women will likely have lower retirement savings yet they'll need to make those savings last longer and plan on being on their own at some point," concludes "Why Women Worry," part of ongoing research on retirement issues by the financial firm The Hartford and MIT's AgeLab.

On average, a woman, 65, can expect to live to 85, about three years longer than men, and has a 23 percent chance of living past 95, based on mortality tables.

"When a woman outlives her husband, her income decreases by 50 percent on average yet expenses only decrease by 20 percent," the study said.

The second study, "Lifetime Income for Women: A Financial Economist's Perspective," was authored by David Babbel, a professor at the Wharton School of Business, and cosponsored by New York Life Insurance Co.

Babbel argues women should allocate substantially less money to stocks and stock mutual funds in retirement and more to immediate annuities that guarantee an income for life in return for a lump-sum premium.

"Annuities are even more important for women because their risks are compounded by longer life expectancy as well as potentially outliving husbands by six years or more (wives tend to be younger than their husbands)," said Babbel. He concludes that income annuities from top-rated insurance companies can provide secure lifetime income for 25 to 40 percent less money than it would take an individual.

That's because insurance companies base their payouts on average life expectancies (premiums from those who die early subsidize payments to those who live longer). When we invest on our own, we must plan for our money to last several years beyond life expectancy, just in case.

For this reason, financial planners often recommend retirees withdraw no more than 4 percent of savings the first year of retirement, increasing the amount by 3 percent a year to counteract inflation.

But, several top-rated insurance companies offer lifetime annuities with payout rates of 5 percent or more the first year for a 65-year-old couple, raising the amount 3 percent a year and with a "refund" feature (if both spouses die before income payments equal the premium, a beneficiary gets the difference).

But with income annuities, we typically give up our principal and can't access it beyond the scheduled income payments. Some contracts allow exceptions at the cost of lowering income.

In all states, guaranty associations belonging to the National Organization of Life and Health Guaranty Associations back income annuity obligations up to a limit ($100,000 or more per company depending on the state) per policyholder if an insurance company goes bankrupt.

Humberto Cruz is a syndicated columnist. He can be reached at askhumberto@aol.com.

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Life Insurance - Caution About The Lowest Rates!

Distinguish Where You Fit Before You Pre-Apply!

Please read this section before you apply for insurance expecting a particular rate. Almost all companies have a super preferred, preferred, and standard rate. Although the requirements for super preferred are similar for the term companies with the lowest rates, Our agency knows these differences and would like to put you with the one with the lowest rate but also the more feasible. Some companies only have 10-15% of their applicants come back with the super preferred. Others are less strict and that percentage is closer to 50%. The following are some general guidelines for super preferred: (unisex)

Height
Weight

•Each company is slightly different, and most allow 5lbs leeway.
•No tobacco usage last 2 years.
•Cholesterol 180-220 (A couple of our companies will go as high as 230 to 250).
•Blood Pressure 140/90 (untreated).
•Family history (No deaths before age 60, siblings or parents) (sometimes one allowed) of cancer or cardiovascular disease.
•Aviation-No super preferred.
•Avocation (hazardous) -No super preferred.
•Driving- No more than 3 moving violations in last 2 years.
•Travel- No extensive travel to underdeveloped or politically unstable countries.
•If one or more of these variables are out of the guidelines, it can move you from super preferred to preferred. Even if moved to preferred these are still very competitive rates and only 5% to 10 % higher. Again, the preferred rates vary between companies so it is important to try to find which company will consider you preferred. That's where we can help! The requirements vary between companies but here are some general preferred guidelines:

•Height and weight is the same as super preferred but with more leeway sometimes up to 20-25 pounds.
•Cholesterol 250 to 280.
•Blood pressure 150/90 (treated or untreated).
•Family history cannot have both parents or one parent and one sibling die before age 60 of cancer or cardiovascular disease.
•Aviation-Sometimes depending on situation.
•Avocation-Sometimes depending on how hazardous.
•Driving- Same as super preferred.
•Travel- Similar to super preferred but not as strict.
•These are general guidelines and will vary more from company to company than the requirements for super preferred.
•If after seeing your quote, you would like to discuss this with our office by e-mail, phone or fax, our office will be glad to advise. Click here.

Other factors that may or may not exclude someone from preferred are:

•Current or history of alcohol/drug abuse.
•Rheumatoid arthritis.
•Asthma (current treatment).
•Personal history of cancer or cardiovascular disease.
•COPD
•Crohn's disease.
•Current treatment for depression.
•Diabetes (oral diabetics can get standard rates, others can get a slightly higher premium.
•Epilepsy
•Kidney/liver disease
•Mental illness

What if an instant quote is not right for me because of my special medical history?

Using the same diligence we use to find the lowest preferred rates for our customers, we will prepare a custom quote. Of course we need to know the medical condition, its duration, treatment and prognosis.

Can I apply at my age?

Our agency works with individuals 18 to 85! A few companies provide policies to age 85 for term, second to die or Disclaimer insurance. Occasionally Disclaimer is available past 85.

FDIC May Need $150 Billion Bailout as More Banks Fail

FDIC May Need $150 Billion Bailout as More Banks Fail (Update3)

By David Evans
More Photos/Details

Sept. 25 (Bloomberg) -- Deborah Horn tugs on the handle of the glass-paned entrance of the IndyMac Bancorp Inc. branch in Manhattan Beach, California. The door won't budge. The weekend is approaching, and Horn, 44, the sole breadwinner in a family of three, needs cash.

A small notice taped to the window on this Friday afternoon in mid-July tells her why she's been locked out. IndyMac has failed, the single-spaced, letter-sized paper says; the bank is now in the hands of the Federal Deposit Insurance Corp.

``The Receiver is now taking possession of the Bank,'' the sign says.

``I'm physically shaking,'' says Horn, an academic tutor, as she peers into the bank. Inside, an FDIC examiner is talking to six stone-faced IndyMac employees. ``I don't know when I'm going to be able to get my money,'' Horn says. ``I'm a single mom. This is the money I live on.''

Don't worry about Horn. She'll be all right, as will most of Pasadena, California-based IndyMac's 200,000-plus customers.

That's because the FDIC, created in 1934, insures all accounts up to $100,000 at its member banks, and it has never failed to honor a claim. The people to worry about are U.S. taxpayers.

The IndyMac debacle is taking a large bite out of FDIC reserves, and if scores of other banks fail in the year ahead, the fund will be depleted. Taxpayers will have to step in.

Worst Wave

Americans had gotten used to the idea that bank failures were as rare as a category five hurricane. No banks went bust in 2005 or 2006. Seven collapsed in 2007 as the credit crisis began to exact a toll. So far in 2008, 12 more, with total assets of $42 billion, have fallen -- that's the worst wave of bank failures since 1992.

IndyMac, which had $32 billion in assets when it went into receivership, is the most expensive bank failure the FDIC has ever covered. And that record may not stand for long.

By the end of 2009, about 100 U.S. banks with collective assets of more than $800 billion will fail, predicts Christopher Whalen, managing director of Institutional Risk Analytics, a Torrance, California-based firm that sells its analysis of FDIC data to investors.

``It's not going to be Armageddon,'' says Mark Vaughan, a financial economist at the Federal Reserve Bank of Richmond, Virginia and a senior lecturer in economics at Washington University in St. Louis. ``But it's going to be bad.''

FDIC's Secret List

The FDIC knows which banks are at risk; it has a watch list with 117 institutions. The agency won't disclose their names because doing so could cause depositors to panic and pull out all of their funds.

It won't take many more failures before the FDIC itself runs out of money. The agency had $45.2 billion in its coffers as of June 30, far short of the $200 billion Whalen says it will need to pay claims by the end of next year. The U.S. Treasury will almost certainly come to the rescue by lending money to the FDIC.

Regardless of who wins control of the White House and Congress in November, no politician is likely to vote in favor of leaving federally insured depositors out in the cold.

A taxpayer bailout of the FDIC would come on the heels of intervention by the U.S. Treasury Department and Federal Reserve to save investment bank Bear Stearns Cos., mortgage giants Fannie Mae and Freddie Mac and the world's largest insurer, American International Group Inc.

Uninsured Deposits

Emergency federal lending to the FDIC could swell the cost of government rescues of failed financial institutions to more than $400 billion -- not including the $700 billion general Wall Street bailout now under discussion in Congress. Under federal statute, the FDIC must pay back any loans from the Treasury.

That number would be even higher if the government were on the hook for uninsured deposits -- which amount to $2.6 trillion, 37 percent of the total of $7 trillion held in the U.S. branches of all FDIC member banks.

The subprime crisis -- which started in the suburbs of California and Florida and migrated through the alchemy of securitization to Wall Street investment banks -- has come almost full circle, spreading its toxins to the very lenders who first extended those teaser-rate, no-document mortgages to homeowners.

In 2006, IndyMac was the largest provider of mortgages that didn't require borrowers to provide proof of their incomes. And as of mid-September, investors were worried that Washington Mutual Inc., the biggest thrift in the U.S., would be the next bank to go belly up.

A federal takeover of Washington Mutual, which has assets of $310 billion, could cost taxpayers $24 billion more, according to Richard Bove, an analyst at Miami-based Ladenburg Thalmann & Co.

Slower To Hit

The reckoning that has run through Wall Street, claiming investment banks Lehman Brothers Holdings Inc. and Bear Stearns among its victims, has been slower to hit Main Street. In mid- 2007, Wall Street firms began disclosing losses on their packages of securitized home loans.

From August 2007 to September 2008, banks worldwide wrote down more than $500 billion. Regional banks, by contrast, have waited to write off their bad mortgages, hoping the housing market would improve and defaults would level off. Instead, they've risen.

FDIC-insured banks charged off $26.4 billion of bad loans in the second quarter of 2008, the most since 1991.

U.S. lenders, in their embrace of subprime lending, committed the same analytical fallacy as their Wall Street counterparts. When it came to assessing risk, they relied on the recent past to predict the near future.

Living in the Past

They were blinded by years of rising home prices and low mortgage default rates.

The FDIC fell into the same trap. As recently as March, an internal FDIC memo estimated the cost to cover bank collapses in 2008 would be just $1 billion, dropping to $450 million in 2009. It wasn't even close.

The IndyMac failure alone, which happened four months after that memo was circulated, will cost the FDIC $8.9 billion -- and the bill for all 12 collapses will be about $11 billion, the FDIC says.

FDIC Chairman Sheila Bair says the agency's forecast was based on models using data from the past 20 years, which included long periods with few bank failures.

``Given the change in economic conditions, we need to weight the more recent data more heavily,'' Bair says. ``You also need a good dose of common sense.''

Bair says depositors shouldn't fret about their banks. ``We do have a handful with some significant challenges,'' she says. ``Overall, banks are quite safe and sound.''

Bair is duty bound to say that, says Joseph Mason, an economist who worked for the Treasury from 1995 to 1998. Part of the FDIC's job is to reassure the public and prevent runs on banks. Mason says Bair's rhetoric masks the agency's inability to grasp the scope of the coming crisis.

`Ignoring the Problem'

``The FDIC and the banking regulators are ignoring the problems, hoping they'll go away,'' he says. ``They won't.''

The quake that shook markets in September may make the FDIC's task more complicated and expensive. With investment banks in eclipse, deposit-taking institutions will now play a larger role in financing the economy.

Earlier this month, Bank of America Corp. agreed to buy Merrill Lynch & Co. for $50 billion, and Wachovia Corp. and Morgan Stanley were in talks about a potential merger.

'Would Be Miraculous'

From 2002 to 2007, U.S. lenders made a total of $2.5 trillion in subprime mortgages, according to the newsletter Inside Mortgage Finance. ``Given the magnitude of the bad loans still on bank balance sheets, it would be miraculous for the FDIC to squeak by with losses of less than $200 billion,'' Whalen says.

On Sept. 18, in yet another stunning turn of events, Paulson proposed a plan that would cost the government, if not necessarily the FDIC, hundreds of billions of dollars more.

The Treasury secretary says the government will purchase toxic mortgage debt from banks in an effort to cleanse the financial system. In an unprecedented move, the Treasury also pledged $50 billion to insure nonbank money market funds.

Bair says Paulson's plan won't reduce the number of banks on the FDIC's watch list.

One reason the rolling financial crisis is hitting regional banks later than it walloped Wall Street is because the very system that is meant to protect depositors -- federal insurance -- has also served to prop up weak lenders. So has the ready supply of credit extended to banks by another government-chartered group, the Federal Home Loan Banks.

Because all deposits up to $100,000 are insured, most savers can be agnostic about where they put their money. They don't have to know -- or care -- whether a bank is making sound or foolish loans.

Unlike buyers of stocks or bonds, people who put their money in banks rarely do research about the soundness of the institution. That makes it easy for banks -- both prudent and reckless ones -- to raise cash.

Brokered Deposits Loophole

Banks have taken the FDIC's protection and run with it, thanks to the phenomenon of brokered deposits -- and a giant loophole in federal regulations.

As of June 30, Whalen says banks held $644 billion from brokers who offer customers a way to gain FDIC insurance for multiple accounts.

Promontory Interfinancial Network LLC, an Arlington, Virginia-based company founded in 2002 by former federal officials --including some from the FDIC itself -- has figured out how to help wealthy clients insure as much as $50 million each by putting their money into separate accounts at 500 different banks.

While the law does limit insurance to $100,000 per account, it places no ceiling on the number of different banks where an individual can hold accounts -- a loophole Congress failed to close even after the savings and loan debacle of 1984-1992.

Missing Discipline

Bair says brokered deposits can provide quick cash but also create potential danger.

``It is quite easy to get brokered deposits, and there's not a lot of market discipline with the brokered deposits,'' she says. ``When there's excessive reliance on them, particularly to fuel rapid growth on the balance sheet, that's definitely a high-risk factor.''

The other big source of money for banks is the FHLB, an under-the-radar network of 12 regional banks created by Congress in 1932 to help lenders finance mortgages. Lenders had borrowed a total of $840.6 billion from the FHLB system as of June 30, up 38 percent from $608 billion in the same period a year earlier.

Treasury Secretary Henry Paulson, in a little-noticed action on Sept. 7, the day after he announced the bailout of Fannie and Freddie, extended a secured credit line to the FHLB to provide an emergency source of funding if needed.

FHLB Advances

Vaughan says credit from the FHLB is keeping some sick banks afloat and postponing the inevitable.

`What's going to happen,'' he says, ``is that weak banks will use FHLB advances to avoid discipline from funding markets. In some cases, that will keep their doors open longer than they otherwise would, all-the-while offloading more and more potential losses onto the FDIC and taxpayers.''

Normally, the FDIC is no more than four initials customers see when they walk into their banks. In recent years, the agency hasn't had to close many banks, as it collected small amounts of insurance premium payments.

President Franklin D. Roosevelt signed the law creating the FDIC in the middle of the Depression. As part of the New Deal, Congress created a system of federal insurance to end bank runs by reassuring the public that depositing money in banks was safe. All banks paid the same rate for insurance.

Wave of Failures

The FDIC shares regulatory authority with other agencies. The Office of Thrift Supervision oversees federally chartered savings and loans, the Comptroller of the Currency monitors national banks, and state banking regulators review state- chartered banks.

The FDIC is the only one of these agencies that insures deposits.

By and large, the government's insurance system worked until the 1980s, when thrifts went on a commercial real estate lending binge, triggering a wave of failures and consolidation that lasted from 1984 to 1992.

In 1991, Congress changed the way FDIC premiums were assessed, requiring banks to pay rates based on how well capitalized they were for the risks they faced. As bank failures subsided to less than a dozen a year by 1995, the FDIC's reserves began to swell.

As a result, the agency cut to zero the premiums it charged to the 90 percent of the banks deemed safest. That free ride continued for 10 years.

`No Good Way'

In 2006, Congress increased insurance payments for most banks, averaging $5-$7 per $10,000 of deposits.

The insurance premiums imposed by the FDIC on the riskiest banks -- running as high as $43 per $10,000 -- are still far below the rates private insurers would charge, says Sherrill Shaffer, former chief economist of the Federal Reserve Bank of New York.

At the same time, charging struggling banks a fair price for insurance premiums may drive them into insolvency, he says.

``That can be destabilizing,'' says Shaffer, who's now a professor of banking at the University of Wyoming in Laramie. ``There's really no good way around that. It's an issue that policy makers and analysts have wrestled with for decades.''

Bair says the FDIC is gearing up for the coming wave of bank failures. She says she's developing a plan to raise insurance premiums.

The agency's Division of Resolutions and Receiverships has boosted authorized staffing levels by 48 percent, to 331, this year. It has hired 178 new financial specialists and called up 65 retirees for temporary service under a special program.

Bair vs. Enron

Bair, 54, an attorney who graduated from the University of Kansas School of Law, has challenged financial institutions as a regulator for more than a decade. President George W. Bush nominated her as chairman, and she was sworn in on June 26, 2006.

She replaced Donald Powell, a former Texas banker. In 1992, as a member of the Commodity Futures Trading Commission, Bair cast the lone vote against Enron Corp.'s effort to exempt certain energy contracts from the agency's anti-fraud and anti- market manipulation enforcement powers.

Nine years later, Enron blew up in one of the biggest financial scandals in U.S. history.

As assistant secretary of the Treasury for financial institutions in 2002, Bair criticized abusive subprime mortgage brokers.

``Lenders have made loans with little or no regard for a borrower's ability to repay and have engaged in multiple refinance transactions that result in little or no benefit to a borrower,'' she told the Pittsburgh Community Reinvestment Group on March 18, 2002.

`Rock and Brock'

Bair has published two children's books. One of them, ``Rock, Brock, and the Savings Shock'' (Albert Whitman, 2006) is a tale of two twins -- Rock the Saver and Brock the Spender

To contact the reporter on this story: David Evans in Los Angeles at davidevans@bloomberg.net
Last Updated: September 25, 2008 19:54 EDT

Fixed Annuity Definition

Do insurance companies treat all tobacco users the same?

Do insurance companies treat all tobacco users the same?

Cigarette smokers that smoke less than a pack a day have a chance to get a non smoker rate with one company. Other companies treat pipe smokers, chewers, and cigar smokers as non smokers. Still another company gives almost all tobacco users a non smoker rate for the first 3-4 years! This same company gives a preferred rate if you use tobacco less than three to four times a year. They look at the amount of nicotine in your system.

Life Insurance - What if I don’t fit into any of these categories?

What if I don’t fit into any of these categories?

If an individual has one or more of these risk factors, they may still qualify for preferred or standard. If even standard is out of the question, there are some highly rated companies that will still take the risk. Insurance companies fear the unknown. If they can identify what those risk factors are, there is a greater chance they will offer a policy. For example, someone just finds out he has a blood pressure problem and his doctor is trying different medications to bring it under control. Until the blood pressure is under control, this remains an unknown to the insurance company. Once under control it could be a preferred with some companies, standard to others.

Failures of SEC Chairman Cox

5 Failures of SEC Chairman Cox - Seeking Alpha

5 Failures of SEC Chairman Cox
by: Mark Sunshine

Almost all paths of incompetence in the current crisis run through the office of the Chairman of the SEC, Chris Cox. McCain’s solution to fire Cox isn’t tough enough. Exile is better. Fortunately for Cox this isn’t the Stalinist Soviet Union or his fate could be a lot worse.

Cox’s failures are too numerous to count. However, I’ll give it a try. Below are what I think are his top 5 failings.

1.

Failure to enforce disclosure laws and regulations.

Disclosure rules and regulations protect investors by requiring companies to disclose everything that is needed for informed investment decisions. And, CEOs and CFOs are required to sign certifications that such disclosure is materially accurate, complete, and that their companies have adequate internal controls to ensure such accuracy and completeness.

Enforcement of disclosure rules and regulations has been a joke. CEOs lie to shareholders with impunity and without fear of SEC enforcement. It is impossible to conclude that SEC filings for Freddie, Fannie, AIG, Lehman, or Bear Stearns complied with SEC rules and regulations.

However, instead of enforcement by the SEC, there is silence. While not all management actions are criminal, why hasn’t the SEC used its civil enforcement authority, i.e., assessing fines and penalties? How about protecting future investors by banning failed executives and boards of directors from serving in executive management at other public companies?
2.

Failure to enforce accounting standards.

When Cox states that the SEC doesn’t have regulatory authority over capital adequacy of financial services companies, he isn’t telling the truth. The SEC has regulatory authority over the financial statements of ALL publicly traded companies in the U.S. which of course includes the financials. If Cox had required greater reserves and transparency of financial services companies it would have happened.

Every quarter all publically traded companies file reports with the SEC that are provided to shareholders and the SEC has review and comment authority. If the SEC deems financial disclosure inadequate, incomplete or opaque it has the authority to force the company to amend its filings. It also has authority to establish accounting standards for publically traded companies which means it can have different requirements than GAAP.

So when the AIG filed its last quarterly report and decided that it didn’t need to have loan loss reserves against defaulting mortgages and securities, the SEC had the ability to require additional loan loss reserves. When Freddie and Fannie decided to pretend that defaulted mortgage were good assets because it changed its accounting standards, the SEC could have just said “no”. When Lehman manufactured $2.4 billion of pre-tax income by pretending that it wasn’t going to repay its debts (one of the dumber aspects of mark to market accounting), the SEC should have protected investors with disclosure.
3.

Failure to supervise the rating agencies.

Cox wants everyone to believe that despite being the rating agency’s only regulator, the SEC has no oversight or enforcement authority and cannot influence their performance. Once again, the SEC’s statements are false. Cox assumes that no one will take the time to read the Credit Rating Agency Reform Act of 2006 which states that the SEC has the right to suspend or revoke the license of any of rating agency for a wide range of reasons. Rating agency regulation and reform is Cox’s responsibility.
4.

Failure to investigate and prevent market manipulation, i.e., naked short selling.

Free markets are supposed to be honest markets. The naked short selling issue isn’t new and the SEC’s knee jerk emergency response is an embarrassment. The ban on short selling of 799 stocks is very similar to Putin’s actions this week to manipulate the Russian stock market. I haven’t a clue whether or not the uptick rule works, but I know that enforcing rules on naked short selling shouldn’t have required destructive and ill thought out emergency orders. In the middle of the 1800’s the legendary financial scoundrel, Daniel Drew, understood naked short selling was bad (as he lost his fortune covering a short squeeze) when he said, “He who sells what isn’t his’n, Must buy it back or go to prison.” Too bad Cox never took economic history in school (or googled economic trivia).
5.

Failure to protect small investors.

It is no coincidence that according to the FT, stock ownership by individual investors is at an all-time low. The average individual investor knows that his chances in the market aren’t good. And the SEC doesn’t seem to care if the average guy is disenfranchised from the economic future of America. In addition to the above failures, Cox forgot that it was his job to make sure that brokers shouldn’t engage in deceptive sales practices (like in the sale of auction rate securities and the sale of Freddie and Fannie common and preferred stock to small investors because they were “guaranteed” by the government). Cox refuses to support private litigation by individual investors who were ripped off in the stock and bond market. If the SEC doesn’t protect the little guy, who will?

It is hard to think of how anyone could have done a worse job than Chris Cox (other than engaging in illegal conduct). But if anyone can think of things that I have missed, please feel free to tell everyone reading this by commenting. I doubt that my list is complete.

Fixed Annuities

How stable are life insurance companies?

Are these stable companies?

Every company our agency uses has a strong financial rating as determined by the various rating agencies such as A. M. Best, Standard and Poor's and Moody's Bond Ratings.

What is "Preferred Plus", "Preferred", and "Standard"?

Insurance companies are learning more and more about identifying their risks. Since cancer and cardiovascular disease are the two leading causes of death where the risk can be lessened by the individual, companies zero in on these risks. Those that qualify for the super preferred would be less at risk, then the preferred, then the standard. These companies look at height and weight, blood pressure, cholesterol(good and bad), family history(relatives dying before 60 of CV disease or cancer), personal history of cancer and CV disease, and smoking history.

nsurance industry; AIG insurance policy, annuity holders shouldn't worry

Insurance customers of AIG shouldn't worry yet

Insurance customers of AIG shouldn't worry yet
Insurance industry; AIG insurance policy, annuity holders shouldn't worry
September 17, 2008: 05:27 PM EST

NEW YORK (Associated Press) - The financial problems at American International Group Inc. may be causing you great concern today if you hold an AIG life, health, home or auto insurance policy, or have an annuity with the company.

Insurance industry officials and analysts say there's little for policyholders to worry about today, but they say they're watching the situation carefully.

They're keeping a close eye, because the potential impact in the United States for insurance policy holders is significant. The Insurance Information Institute says AIG ranks in the top 10 of insurance companies in fixed annuities sold through banks. Fixed annuities guarantee the principal and fixed payments to the buyer for a specified period of time, usually until death. AIG also ranks among the top writers of auto insurance, commercial insurance and life insurance. It led the nation in fixed annuities sold through banks, writing more than $5 billion in 2007. AIG also led in commercial insurance writing $24 billion in policies in 2007.

Here are the answers to some key questions about where AIG's insurance businesses stand and how it may effect you.

Q: What is going to happen to the insurance businesses owned by AIG?

A: The infusion of $85 billion into AIG offers financial stability so the company will have time to decide which assets or business segments it should sell and to whom. It hasn't been disclosed whether the insurance segment, or portions of it, would be sold.

"We believe the insurance subsidiary to be financially sound and continues to be sound today," said analyst Joyce Sharaf of A.M. Best Co., one of the nation's main insurance ratings companies. She said Wednesday that AIG holds major insurance businesses that "are enviable franchises that could be sold in whole or in part."

A.M. Best analyst Marc Steinberg said he's continuing to review AIG's ratings and analysts are closely monitoring the situation as it unfolds. Analysts believe, however, that insurance policyholders are safe for now, he said.

Insurance regulators in New York, which have regulatory oversight over New York-based AIG, and the National Association of Insurance Commissioners said the company's insurance operations remain solvent and can pay claims.

Insurance companies in the United States are closely regulated by government agencies established by the states in which they are based.

The company released a statement Tuesday evening which said: "Policyholders of AIG companies around the world can rest assured that AIG's commitments will continue to be honored."

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Q: Should I be worried if I have health or life insurance policies with AIG and what if I have a retirement annuity?

You should first keep in mind that AIG continues to operate, it has not filed for bankruptcy protection and has not been declared insolvent. Even if the insurance portion of the business was for some reason declared insolvent, there are protections in place similar to the FDIC insurance that backs up your bank deposits.

Life and health insurance, and products like annuities are covered by insurance guarantee associations that have been established in every state, said Peter Gallanis, president of the National Organization of Life and Health Insurance Guaranty Associations. The associations step in when insurance regulators in your state declare an insurance company insolvent and it's placed in receivership.

The level of coverage may vary by state, but every state association provides withdrawal and cash value coverage for annuities of at least $100,000. About a dozen states offer up to $300,000 and a few others offer up to $500,000.

Life insurance policies are backed up with at least $300,000 in life insurance death benefits and $100,000 in cash surrender or withdrawal value. States offer at least $100,000 in health insurance policy benefits.

In the past 25 years more than $20 billion in coverage benefits have been provided by the state associations for policyholders and annuity clients of dissolved insurance companies. In that time, the associations have provided protection for more than two million policyholders and worked on more than 60 multistate insolvencies.

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Q: What should I do if I hold a homeowner's or car insurance policy with AIG?

Every state, the District of Columbia, Puerto Rico and the Virgin Islands have established property guarantee funds similar to those established to protect against losses in life and health insurance.

Guaranty funds generally pay the amount of coverage stipulated by the policy or $300,000, whichever is less. Each state has a law that places a cap on the coverage and some have higher amounts. New York, for example, has a property/casualty cap of $1 million.

Most state guarantee funds pay all of their state's workers' compensation benefits.

Since the late 1960s, the property/casualty guaranty system has paid out about $21 billion in claims on behalf of insolvent insurers. About $10 billion disbursed in the last six years, largely because of the frequent and severe hurricanes that have struck the Gulf Coast.

Since 1976, there have been about 600 insolvencies of property and casualty insurers. There are 2,648 property casualty insurers licensed to do business in the United States.

AIG life Insurance

AIG collapse would have cost N.C. $1B - Charlotte Business Journal:

If the federal government had allowed insurance colossus American International Group Inc. and its subsidiaries to fail, N.C. regulators — and ultimately state taxpayers — would have been left with a mess that would have cost, according to a conservative estimate, more than $1 billion to clean up.

That’s the back-of-the-envelope number that officials at the Raleigh-based N.C. Insurance Guaranty Association came up with as they monitored this week’s developments on Wall Street, including the $85 billion federal loan guarantee that’s supposed to save AIG.

“We wanted to see what our exposure would be,” says Mike Newton, the association’s guaranty director. “And the more we looked at it, the wider our eyes got.”

The federal government now controls almost 80 percent of AIG.

Insurance companies, large and small, don’t file for bankruptcy in the way most businesses do. When they topple, they go into a liquidation process in which regulators try to make sure policyholders are protected ahead of other creditors.

On the state level, industry groups such as NCIGA enter the picture to ensure all outstanding policy claims are paid — on auto crashes, for example — and to refund customers any premium dollars paid for coverage that won’t be coming.

The industry groups get the funds to do that by passing the hat among the other insurance companies doing business in the state. In North Carolina, contributions come from 700 firms that, in 2007, had $6.5 billion in premiums in force. Any cleanup money those firms pay can then be deducted from their N.C. tax bills, which means the taxpayer ultimately picks up the tab.

As news of AIG’s chances of survival went from bad to worse, Newton searched the records of the 13 AIG property and casualty companies writing business in North Carolina. Those firms include American Home Assurance, National Union Fire and Granite State Insurance.

Outstanding claims and refundable premiums — the tab NCIGA would be held liable for refunding in case of a collapse — totaled $785 million. Of that total, $359 million was in the workers’ compensation arena, $43.6 million in auto insurance and $383.4 million in “all other categories, including fire, marine and similar types of policies.”

“These numbers we were looking at were just huge,” says Newton.

And that was just in North Carolina.

“Obviously, these numbers are the reason why the feds had to move,” says state Rep. John Blust of Greensboro, a member of the House Insurance Committee.

An AIG failure would have dwarfed the cost of any previous insurance collapse in the state. The most costly to date came after the demise of workers’ comp writer Reliance Insurance. That tab was $80 million.

In an AIG meltdown, the cost of a North Carolina cleanup would have gone even higher than Newton’s initial estimate, to perhaps $1 billion or more.

That’s because seven AIG subsidiaries also write life and health policies and various annuity plans in North Carolina. On the annuity front alone, AIG’s Sun America, at the beginning of 2007, was the state’s third-largest annuity writer at $331 million, giving it a market share of nearly 6 percent. Another subsidiary, AIG Annuity Insurance, had $46 million on its books, for a market share of nearly 1 percent.

The total North Carolina market is about $6 billion. The figures were complied by the state Department of Insurance.

If AIG’s subsidiaries firms had been caught up in the failure of their holding company, a second state group, the North Carolina Life & Health Insurance Guaranty Association, would have activated a procedure to pay consumer refunds of up to $300,000 per policyholder for claims and premium refunds.

That agency’s head, Lowell Miller, declines to put a figure on the possible cleanup costs. “But it would have been pretty significant,” he says. “The life and health numbers are big, and they generally are long-term contracts.”

Kristin Milam, a spokeswoman for the N.C. Department of Insurance, says the department routinely monitors the economic health of all the firms doing business in the state, including those under the AIG umbrella.

She notes it was the AIG holding company, not the insurance subsidiaries, that was in crisis. And Newton says all the AIG firms doing business in the state are well-capitalized and “doing fine.”

But because of the turmoil on Wall Street, he says it’s impossible to say for certain if the damage would have been limited to the holding company if AIG had gone under.

Annuity

Regulatory Safeguards Offer ‘Insurance Policy’ in Times of Crisis

Insurance Consumers Protected by Solvency Standards (NAIC)

FOR IMMEDIATE RELEASE

INSURANCE CONSUMERS PROTECTED BY SOLVENCY STANDARDS
Regulatory Safeguards Offer ‘Insurance Policy’ in Times of Crisis

KANSAS CITY, Mo. (Sept. 16, 2008) — National Association of Insurance Commissioners (NAIC) President and Kansas Insurance Commissioner Sandy Praeger today issued the following statement in response to the financial issues facing American International Group (AIG):

“We have a very strong message for consumers: If you have a policy with an AIG insurance company, they are solvent and have the capability to pay claims. Our job is to ensure that they continue to have the ability to pay.

“In this particular instance, AIG’s insurance subsidiaries are being asked to provide liquid assets to the financially distressed non-insurance parent company in exchange for non-liquid assets. The New York State and Pennsylvania Insurance Departments are working with AIG to review the transaction. State insurance regulators will only approve this type of action if they are assured it is part of a total resolution of the liquidity issue at the parent company and fairly compensates its insurance company subsidiaries.

“As a holding company, AIG is a separate, federally regulated legal entity that is distinct and apart from its subsidiary insurers. The subsidiary insurers are governed by state laws designed to protect the interest of policyholders. State insurance regulators are committed to protecting the interest of policyholders and will work closely with AIG management and other regulators to fulfill this commitment.

“The No. 1 job of state insurance regulators is to make sure insurance companies operate on a financially sound basis. If needed, we immediately step in if it appears that an insurer will be unable to fulfill the promises made to its policyholders. This includes taking over the management of an insurer through a conservation or rehabilitation order, the goal being to get the insurer back into a strong solvency position.

“State regulators have numerous actions they can take to prevent an insurer from failing. Claims from individual policyholders are given the utmost priority over other creditors in these matters — and, in the unlikely event that assets are not enough to cover these claims, there is still another safety net in place to protect consumers: the state guaranty funds. These funds are in place in all states. If an insurance company becomes unable to pay claims, the guaranty fund will provide coverage, subject to certain limits.

“It is a state insurance regulator’s responsibility to protect policyholders and ensure a healthy, competitive market for insurance products. Strict solvency standards and keen financial oversight — based on conservative investment and accounting rules — continue to be the bedrock of state-based insurance regulation.”

About the NAIC

Headquartered in Kansas City, Mo., the National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and five U.S. territories. The NAIC’s overriding objective is to assist state insurance regulators in protecting consumers and helping maintain the financial stability of the insurance industry by offering financial, actuarial, legal, computer, research, market conduct and economic expertise. Formed in 1871, the NAIC is the oldest association of state officials. For more than 135 years, state-based insurance supervision has served the needs of consumers, industry and the business of insurance at-large by ensuring hands-on, frontline protection for consumers, while providing insurers the uniform platforms and coordinated systems they need to compete effectively in an ever-changing marketplace. For more information, visit www.naic.org/press_home.htm.

Annuity

INSURANCE CONSUMERS PROTECTED BY SOLVENCY STANDARDS

Insurance Consumers Protected by Solvency Standards (NAIC)

FOR IMMEDIATE RELEASE

INSURANCE CONSUMERS PROTECTED BY SOLVENCY STANDARDS
Regulatory Safeguards Offer ‘Insurance Policy’ in Times of Crisis

KANSAS CITY, Mo. (Sept. 16, 2008) — National Association of Insurance Commissioners (NAIC) President and Kansas Insurance Commissioner Sandy Praeger today issued the following statement in response to the financial issues facing American International Group (AIG):

“We have a very strong message for consumers: If you have a policy with an AIG insurance company, they are solvent and have the capability to pay claims. Our job is to ensure that they continue to have the ability to pay.

“In this particular instance, AIG’s insurance subsidiaries are being asked to provide liquid assets to the financially distressed non-insurance parent company in exchange for non-liquid assets. The New York State and Pennsylvania Insurance Departments are working with AIG to review the transaction. State insurance regulators will only approve this type of action if they are assured it is part of a total resolution of the liquidity issue at the parent company and fairly compensates its insurance company subsidiaries.

“As a holding company, AIG is a separate, federally regulated legal entity that is distinct and apart from its subsidiary insurers. The subsidiary insurers are governed by state laws designed to protect the interest of policyholders. State insurance regulators are committed to protecting the interest of policyholders and will work closely with AIG management and other regulators to fulfill this commitment.

“The No. 1 job of state insurance regulators is to make sure insurance companies operate on a financially sound basis. If needed, we immediately step in if it appears that an insurer will be unable to fulfill the promises made to its policyholders. This includes taking over the management of an insurer through a conservation or rehabilitation order, the goal being to get the insurer back into a strong solvency position.

“State regulators have numerous actions they can take to prevent an insurer from failing. Claims from individual policyholders are given the utmost priority over other creditors in these matters — and, in the unlikely event that assets are not enough to cover these claims, there is still another safety net in place to protect consumers: the state guaranty funds. These funds are in place in all states. If an insurance company becomes unable to pay claims, the guaranty fund will provide coverage, subject to certain limits.

“It is a state insurance regulator’s responsibility to protect policyholders and ensure a healthy, competitive market for insurance products. Strict solvency standards and keen financial oversight — based on conservative investment and accounting rules — continue to be the bedrock of state-based insurance regulation.”

About the NAIC

Headquartered in Kansas City, Mo., the National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and five U.S. territories. The NAIC’s overriding objective is to assist state insurance regulators in protecting consumers and helping maintain the financial stability of the insurance industry by offering financial, actuarial, legal, computer, research, market conduct and economic expertise. Formed in 1871, the NAIC is the oldest association of state officials. For more than 135 years, state-based insurance supervision has served the needs of consumers, industry and the business of insurance at-large by ensuring hands-on, frontline protection for consumers, while providing insurers the uniform platforms and coordinated systems they need to compete effectively in an ever-changing marketplace. For more information, visit www.naic.org/press_home.htm.

Annuity