Ratings Updates

Entries for May 2011

One downgrade this month of note - otherwise, the ratings were stable.• Mutual of Omaha S&P AA- to A+

A few news notes:

• Once again, the tax advantages of the life insurance product (tax-free death benefit and tax-deferred internal cash value build-up) are under scrutiny in Washington in their search for revenues. Interestingly, the United Kingdom is having similar conversations. The industry has significant lobbying capacity – will be interesting to see how the debate emerges and progresses.

• Controversy brews around reserving techniques for some of the newer versions of universal life with secondary guarantees, especially when the universal life chassis is used to replicate a term like product. The issue is reserve adequacy for the long term guarantees inherent in these products. We will continue to watch the debate.

• Long Term Care

o Prudential has announced a rate increase of 22% in our state for their core product.

o California passed a law that might require insurers, among other provisions, to wait 5 or 10 years for rate increases, severely limiting their flexibility in increasing prices.

• A few states are probing insurance company practices and diligence in seeking to confirm policyholder deaths, paying in a timely manner and ultimately turning funds over to the states under unclaimed property laws.

• States are also examining company practices where death claims are paid, not as a lump sum, but in the form of a “checkbook” – often called a “retained asset account.” The core issue seems to be one of adequate disclosure so beneficiaries fully understand their options under the practice.

A recent case involved buying an annuity with an inflation rider to match the expected living costs in an independent living facility – an appealing approach to dramatically reduce the risk of running out of money. By freeing the value in the home, total income actually increased and living expenses decreased while reducing long term inflation risks. 

If you have clients with similar concerns please contact us (205.414.9955) and we can help review their situation to see if this approach might be useful.