Ratings Updates

Entries for May 2012

There were no ratings changes of note in May. However, two recent court cases may be of interest to professionals:

  • French v. Wachovia Bank: Wachovia as Trustee exchanged two trust-owned whole life policies for two no-lapse guaranteed universal life policies through an affiliate, Wachovia Insurance Services. They were challenged, in part, because of the significantly lower cash values in the new policies. We encourage you to review the details of the case but the bank won the case and these were contributing factors:
    • disclosed both advantages and disadvantages of the life insurance recommendation,
    • had a disinterested third party review the recommendation,
    • followed a rational process to help assure the recommendation was in the best interest of the trust, and
    • disclosed the potential conflict of interest.
  • Florida Bar v. Doherty: An attorney was disbarred for selling an elderly couple an annuity because he failed to
    • Fully disclose terms of the transaction to the client,
    • Advise the client to seek independent counsel and
    • Have the client give informed and written consent as to the attorney's role in the transaction, including whether the attorney was representing the client in the transaction.

In both situations objective third party counsel would have been appropriate and helpful to the client. Our service is objective third party advice -- Petra Life Services is available to assist when such a situation arises, so please feel free to contact us if we can be of help.


Other news notes:

  • The top 20 life insurance companies had a rough year in 2011. Weiss Ratings reported a drop in net income (statutory, not GAAP) of 84% for that group with John Hancock leading with a loss of $2.9 billion and Transamerica with a loss of $2.5 billion.
  • The hot products in the life insurance market today are indexed products--sales increased 38% last year. The interest crediting strategy provides minimum floors and upside participation in the equity markets, depending on the index. Caution: Projections may be based on relatively high rates (in our opinion) when compared to today's fixed rate alternatives; therefore the products appear to perform well over time. If we can assist in reviews of such alternatives, please give us a call.
  • Met Life is scaling back, but not exiting, the variable annuity business.
  • A recent study by Fidelity indicates that elderly couples can expect their medical bills through retirement to be around $240,000--without the cost of long-term care or most dental services. Planning for these costs as well as the possibility of needing long-term care is essential.
  • The trading loss at JP Morgan is troubling, coming at a time when there is already increased incentive for additional regulation which serves to increase costs to consumers-- often without the intended protection being very effective.
    • Our concern is that expanded governmental oversight will reach deeper into the life insurance industry as well.
    • Our philosophy here is simple: Don't buy what you don't understand. The same is true for products being designed and sold (such as variable annuities with living benefits that could not be properly hedged) which ultimately helped put mighty Hartford out of the life insurance business.
  • Just an interesting personal item: For those wondering about college and careers for your children, a recent study by the National Bureau of Economic Research found the following:
    • Average in-state tuition at a public university is $8,244; average out-of-state is $20,770.
    • Best paying degree? Economics, followed by electrical engineering, mechanical engineering, finance and mathematics. Having a math degree, I found this gratifying . . . but a bit late!