{"id":21357,"date":"2024-02-05T18:23:51","date_gmt":"2024-02-05T18:23:51","guid":{"rendered":"https:\/\/www.thinkadvisor.com\/2024\/02\/05\/yes-annuity-issuers-can-fail\/"},"modified":"2024-02-05T18:23:51","modified_gmt":"2024-02-05T18:23:51","slug":"yes-annuity-issuers-can-fail","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2024\/02\/05\/yes-annuity-issuers-can-fail\/","title":{"rendered":"Yes, Annuity Issuers Can Fail"},"content":{"rendered":"<div class=\"media_block\"><a href=\"https:\/\/feeds.feedblitz.com\/-\/868641029\/0\/thinkadvisor\/\"><img decoding=\"async\" src=\"https:\/\/images.thinkadvisor.com\/contrib\/content\/uploads\/sites\/415\/2021\/10\/08_Businessman_Umbrella_Storm_Adobe_640x640.jpg\" class=\"media_thumbnail\"><\/a><\/div>\n<div><img decoding=\"async\" src=\"https:\/\/images.thinkadvisor.com\/contrib\/content\/uploads\/sites\/415\/2021\/10\/08_Businessman_Umbrella_Storm_Adobe_640x640.jpg\" class=\"ff-og-image-inserted\"><\/div>\n<div class=\"the-advisor bullet-summary\">\n<h3>What You Need to Know<\/h3>\n<ul>\n<li>Rating agencies believe most large issuers are well-capitalized.<\/li>\n<li>One characteristic that may seem like a strength could be a red flag.<\/li>\n<li>The life and annuity safety net system is complicated.<\/li>\n<\/ul>\n<\/div>\n<p id=\"first-para\">One of the most important jobs an annuity advisor can perform is to help clients assess the soundness of the annuities being considered.<\/p>\n<p>Analysts at rating agencies like <a href=\"https:\/\/www.thinkadvisor.com\/2024\/02\/01\/u-s-office-price-slump-may-be-bottoming-out-fitch-analyst\/\" target=\"_blank\" rel=\"noopener\">Fitch<\/a> and <a href=\"https:\/\/www.thinkadvisor.com\/2024\/02\/02\/why-life-insurance-assets-might-still-be-safe-from-congress\/\" target=\"_blank\" rel=\"noopener\">S&amp;P Global Ratings<\/a> say that the annuity issuers they rate are some of the strongest, best-capitalized companies that their firms track. During recent quarterly review sessions, the analysts struggled to add some drama to their presentations.<\/p>\n<p>But Michelle Richter-Gordon, co-founder of Annuity Research &amp; Consulting, a firm that helps retirement plan fiduciaries vet annuities, notes that some of the life insurers that write annuities, including Executive Life Insurance Co., have run into problems in the past, and that federal guidance calls for retirement plan fiduciaries operating under the Employee Retirement Income Security Act to look for the safest annuity available, not the cheapest annuity available.<\/p>\n<p>Her firm will present a free <a href=\"https:\/\/us06web.zoom.us\/webinar\/register\/WN_bSSHbCriTgW1M_bO07oQhg#\/registration\" target=\"_blank\" rel=\"noopener\">live webinar<\/a> featuring Tom Gober, a forensic accountant who provides life and annuity issuer soundness assessments, at 3 p.m. Eastern time Feb. 14. The firm has already posted a video of <a href=\"https:\/\/www.youtube.com\/watch?v=GClEFX6ITmM\" target=\"_blank\" rel=\"noopener\">a prerecorded version of the webinar<\/a>.<\/p>\n<h2>The Standard of Care<\/h2>\n<p>Richter-Gordon \u2014who has worked as a hedge fund advisor, the chief operating officer at a reinsurer based in the Cayman Islands and a managing director for retirement enhancement solutions at Milliman \u2014 emphasized in introductory remarks that she is an advocate for insured retirement income solutions, not an opponent.<\/p>\n<p>\u201cI am an advocate for fiduciary behavior, and I am an advocate for insured solutions,\u201d Richter-Gordon said. \u201cInsurance can be very useful, and a person who is acting as an ERISA investment advice fiduciary must do creditworthiness analysis.\u201d<\/p>\n<p>Even if an advisor is not formally a fiduciary, is talking about annuity options from a well-known marketplace, like Fidelity\u2019s new <a href=\"https:\/\/www.thinkadvisor.com\/2024\/01\/25\/fidelitys-401k-plan-annuity-platform-goes-live\/\" target=\"_blank\" rel=\"noopener\">Guaranteed Income Direct platform<\/a>, and is discussing annuity options from well-known life insurers with high ratings, the advisor should still try to do some separate due diligence, she said.<\/p>\n<p>In the future, in the retirement investment advice market, \u201c\u2018fiduciary\u2019 will be the bare minimum standard,\u201d she said. \u201cA fiduciary is still not the same thing as a steward. Stewardship is a higher level to which we can choose to hold ourselves.\u201d<\/p>\n<h2>The Backdrop<\/h2>\n<p>Gober, who has been working as a fraud investigator for decades, has developed <a href=\"https:\/\/thetsrratio.com\/\" target=\"_blank\" rel=\"noopener\">The TSR Ratio program<\/a> for helping subscribers track life and annuity issuers\u2019 financial strength.<\/p>\n<p>He computes the ratio by adding the value of an insurer\u2019s relatively high-risk assets to the value of its potentially high-risk reinsurance arrangements, then dividing the sum by the insurer\u2019s level of surplus, or total assets minus total liabilities.<\/p>\n<p>Gober said during the recorded version of the Annuity Research &amp; Consulting webinar that analyzing life and annuity issuers\u2019 financial statements is more difficult than it used to be because the financial statements are now more complicated and more opaque, and some are more than 3,000 pages long.<\/p>\n<p>But annuity advisors should try to go beyond relying on what distributors and credit rating agencies say, because client attorneys are sure to ask why advisors who recommended annuities from shaky companies failed to notice the information about low surplus levels and easily identified high-risk practices reported in the companies\u2019 annual statements, according to Gober\u2019s TSR Ratio website.<\/p>\n<h2>Risk Indicators to Watch<\/h2>\n<p>Here are five items that Guber and Richter-Gordon consider when they\u2019re looking at life and annuity issuers\u2019 finances.<\/p>\n<p><strong>1. Surplus:<\/strong> An insurer\u2019s surplus, or level of excess capital, is the single most important number in&nbsp;its annual statement, Gober said.<\/p>\n<p>\u201cSurplus is literally the only buffer between a very viable insurer and an insurer in receivership,\u201d he said.<\/p>\n<p>If claims spike or the issuers of the bonds in an insurer\u2019s investment portfolio default, the surplus can keep those problems from eating away at the insurer\u2019s capital, Gober said.<\/p>\n<p>He presented an analysis showing the ratio of surplus to liabilities at typical policyholder-owned mutual insurers is over 5% and might be under 2% at other insurers that he believes to be riskier.<\/p>\n<p><strong>2. Growth:<\/strong> Gober noted that, for a life and annuity issuer, the kind of rapid growth that looks good to stock analysts might be dangerous for the customers.<\/p>\n<p>\u201cLife insurers must balance premium growth with surplus adequacy,\u201d Gober said. \u201cWith new premiums come immediate and heavy initial expenses.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What You Need to Know Rating agencies believe most large issuers are well-capitalized. One characteristic that may seem like a strength could be a red flag. The life and annuity safety net system is&#46;&#46;&#46;<\/p>\n","protected":false},"author":1,"featured_media":21358,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[1],"jetpack_featured_media_url":"https:\/\/blog.lifeinsurance-orleans.ca\/wp-content\/uploads\/2024\/02\/yes-annuity-issuers-can-fail.jpg","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/21357"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=21357"}],"version-history":[{"count":0,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/21357\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media\/21358"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=21357"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=21357"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=21357"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}