Structured Settlements 4Real™ Blog: Structured Settlements | Settlement Planning News and Commentary

Impact of Low Interest Rates on Life and Annuity Insurers: A.M. Best

A.M. Best's Life/Health Rating Division will review new research on the effects of the ongoing historic low interest rate environment on life and annuity insurers in a one-hour webinar on Wednesday, November 9 at 2 p.m. ET. Panelists will discuss:

• Challenges life insurers face in achieving target interest spreads
• How reserve adequacy testing of interest-sensitive bushiness could influence statutory reserving
• The impact of reduced investment income on writers of long-term  care and long-term disability business
• How the low-return environment is affecting variable annuity hedging programs
• The impact on earnings as companies unlock assumptions, resulting in increases in write-offs for deferred acquisition costs
 Challenges life insurers face in achieving target interest spreads
• How reserve adequacy testing of interest-sensitive bushiness could influence statutory reserving
• The impact of reduced investment income on writers of long-term  care and long-term disability business
• How the low-return environment is affecting variable annuity hedging programs
• The impact on earnings as companies unlock assumptions, resulting in increases in write-offs for deferred acquisition costs

This seems like an important webinar for my industry colleagues to attend.

"Sym's Excellent" Remarks A.M.Best

A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of "a+" of Symetra Life Insurance Company and its subsidiary, First Symetra National Life Insurance Company of New York (New York, NY) in an October 28, 2011 press release.

A.M. Best notes that Seattle based Symetra is primarily an annuity company. They said nearly 85% of the Symetra's general account reserves are comprised of individual annuities, and over one-third of that amount represents income annuities (i.e., structured settlements and payout annuities). Income annuities have limited pricing flexibility and generate narrow spreads relative to traditional fixed deferred annuities. Additionally, due to the long-tailed nature of the liabilities, it is difficult to find assets with similar durations. Hence, the financial performance of this line is particularly sensitive to certain interest rate scenarios. While A.M. Best believes that Symetra will be challenged to maintain or improve its investment portfolio yields without materially increasing credit risk, it also believes that Symetra's relatively strong risk-adjusted capital position and fairly liquid, high-quality investment portfolio essentially mitigates the potential degradation in operating performance should low interest rates persist.

A,M. Best Insurance Facts and Stats 2011: How Secure is Insurance Company?

A.M.Best's Insurance Facts and Stats: an introduction to the insurance industry, contains loads of useful information for individual and business consumers of insurance, including structured settlement annuities.

A common question asked by consumers of structured settlement annuities is "how secure is my insurance company?" The supplement to the November 2011 edition of Best's Review contains an excellent section on "Fiscal Fitness" which helps answer the question and underscores the fact that the U.S. bankruptcy code excludes insurance companies. The supplement discusses how insurance companies are monitored and regulated by state insurance departments.

It is also important to observe that despite the current financial crisis, the number of financially Impaired life and health insurance companies is WELL BELOW the historical average of 25  (the peak was 80 during the 1987-1993 time frame). In 2009 the number was between 10 and 20, yet the number reduced to less than 10 in 2010, although A.M. Best says that there is a time lag in reporting due to the reluctance of state regulators to publicly disclose impairments until they have exhausted all avenues to rehabilitate the insurers or facilitate a sale or merger Source: A.M. Best Special Reports

Top cause of impairment: Inadequate pricing/ loss reserves (as opposed to a catastrophic event).  Covers period 1976-2010.

On a positive note, A.M. Best gives a nod to the life insurance industry's strong capital and surplus (emphasis ours). Structured settlement annuities are issued by life insurance companies.

The following insurance groups include current and former structured settlement annuity issuers and are part of A.M. Best's list of the World's Largest Insurers (based on 2009 assets)

3. American International Group, Inc.

6. Aviva plc

7. Met Life Inc.

8. Prudential Financial, Inc.

13.Aegon NV

14. Manulife Financial Corp.

15. ING

20. Hartford Financial Services Group, Inc.

22. Berkshire Hathaway, Inc.

 

 

Structured Settlement Annuities Mainly Issued by Largest Insurance Groups

Structured annuities tend to be issued by companies in the largest insurace groups as July 2011 Best's Review shows. The following table shows those insurance groups that made the top 20 in assets and included companies that issued or fomerly issued structured annuities. Al of those companies had assets exceeding $100 billion at the end of 2010.

Life/ Health Insurers                                    2010 Assets (000)   Growth Rate

1. Metropolitan Life and Affiliated Companies   $575,062,104      9.1%

2. Prudential of America Group                       $403,755,468      9.9%

3. Manulife (incl John Hancock & NY affiliate)  $237,477,486      9.3%

4. Sun America Financial (incl Am.Gneral)        $230,208,221      4.2% @

5  Hartford Life Group                                    $228,628,548       4.2%

7. New York Life Group                                   $214,437,508       6.3%

8  AEGON USA Group                                      $187,622,590       4.3%*

9. ING USA Life Group                                    $185,172,540       3.8%*

13. Mass Mutual Financial Group                     $141,142,242       6.1%*

15. Pacific Life Group                                     $102,642,324       4.8%

* life insurance companies in the group formerly issued structured annuities

@ includes both current and former structured annuity companies

Source: A.M. Best Best's Review July 2011 p 28-29

The 2010 results suggest that "bigger is better" as the top 3 grew their assets by over 9%. The industry average  was 7.1% according to A.M. Best.

Compare the size of these life insurance groups to some well known companies in other industries

JP Morgan  2.12T

Exxon Mobil  $302.51B

Microsoft Corporation $99.73 B

Apple $86.74B

Coca Cola $72.92B

Disney  $70.95B

Pepsi  $68.15B

Google $57.85B

McDonalds $31.98B

American Airlines $25.09B

Source: Y Charts (Dec 2010 Balance Sheet Assets)

Disclaimer: The purpose of the above table is to show that life insurers are among the largest U.S. companies in the United States and offer a means of comparison to thsoe unfamiliar with insurance. Note that there are generally three primary elements to a balance sheet (assets, liabilities and shareholder's equity). Some insurers listed are mutual companies which are regulated, but not poblicly traded and are owned by policyholders not shareholders.

 

 

 

Pacific Life Structured Annuity Issuer and Guarantor: Outlook Stable- A.M. Best

With a sign of increasing stability of the structured annuity market,  A.M. Best has affirmed an A+ (Superior) for structured annuity issuer Pacific Life and Annuity Company, as well as the guarantor of structured settlement obligations assigned to Pacific Life and Annuity Services, Inc., Pacific LifeCorp. Moreiver the outlook on these companies has been upgraded to stable!

Read June 28, 2011 A.M. Best Press Release on Pacific Life here

New York Life Insurance Company Affirmed Top Ratings by A.M. Best

On June 16, 2011 A.M. Best Co. has affirmed the financial strength rating  of A++ (Superior) and issuer credit ratings (ICR) of “aaa” of New York Life Insurance Company and its wholly owned subsidiaries, New York Life Insurance and Annuity Corporation (the company that is used for qualified assignments)

Best says that "New York Life’s ratings continue to reflect its leading market position in the U.S. life insurance industry, its highly productive career agency force and superior risk-adjusted capitalization. The ratings also consider the company’s favorable liability profile, stable operating earnings and commitment to mutuality"

Structured Settlement Annuity: What Does an A+ Rating Mean?

You've just been told that the insurance company you are considering for your structured settlement or retirement annuity is rated A+. What exactly does that mean?

Generally when one hears "it's an A+ rated company" the speaker is referring to the financial strength rating of A.M Best & Company.

According to its April 18, 2011 Ratings Guide "a Best's Financial Strength Rating is an independent opinion of an insurer's financial strength and ability to meet its ongoing insurance policy and contract obligations. It is based on a comprehensive quantitative and qualitative evaluation of a company's balance sheet strength, operating performance and business profile".

Other companies such as Standard & Poors, Fitch , Moodys and Weiss, also assess and publish ratings of an insurance company for financial strength and/or claims paying ability. It should be noted that with the exception of Weiss, an insurance company must pay a fee to the rating agency in order to be rated. Further it should be noted that, with the exception of Weiss, for the other rating agencies, with the exception of Weiss, an A+ rating is not one of its superior ratings.

Whie traditionally the A.M. Best ratings are stated first, be aware that some companies are creative in "window dress" their ratings so that for exmaple an A+for Fitch appears on the top, while a lower A (Excellent) rating from Best appears last

Link to A.M. Best Ratings Guide

Give Me Life But Don't Give Me Their Best (Rating)

Recent press that A.M. Best downgraded Liberty Life Insurance Company has not gone down well in Boston. The Greenville, SC company is headquartered in Greenville, SC,  was downgraded from A- (Excellent) to B++ (Good).  HOWEVER... we can settle the resulting confusion by telling you, categorically,

Liberty Life Insurance Company (of South Carolina) IS NOT a member of Liberty Mutual Group, parent of structured settlement annuity issuer Liberty Life Assurance Company of Boston.  Both Liberty Life Assurance Company of Boston’s and Liberty Mutual Insurance Company’s current financial strength rating is ‘A’ (Excellent – according to A.M. Best’s published ratings definitions). 

 

 

 

Leave it to a notable Virginian to settle the differences between "The Patriots" and "The Gamecocks", albeit in a paraphrase

 

 

 

 

  "The Virginian Patriot"    Patrick Henry

Life/Health Insurer Assets and Asset Growth Rates for Structured Annuity Issuers

 
The companies that issue structured settlement annuities are among the biggest financial institutions in the United States, if not the world.  Not only are they the biggest but the majority of companies are also growing, according to an A.M.Best survey of the top 100 US Life/Health Writers in terms of 9-month 2010 admitted assets* that was published in the March 2011 Best's Review.  The industry average growth rate was 4.4% while the average for the top 25 was 4.8%**

1. $472.84B  Metropolitan Life & Affilated Companies +8.4%

2. $391.07B  Prudential of America Group  +6.5%

3. $231.25B  Manulife Financial (includes John Hancock Life (USA) and its NY subsidiary) +1.7%

5. $226.33B  Hartford Life Group +2.7%

7. $211.53B  New York Life Group +4.8%

9. $179.91B  AEGON USA Group (Transamerica Life, Peoples Security, Monumental among others)  0.0%

13.$138.99B Mass Mutual Financial Group +4.8%

15.$100.83B Pacific Life Group +3.0%

21.$  69.71B Allstate Financial -5.9%

23.$  63.39B Genworth Insurance Group +0.4%

27.$  46.22B Aviva USA Group +6.6%

39.$  22.92B Symetra Life Group +7.7%

43. $ 18.97B Mutual of Omaha Group +3.9%***

48. $ 16.93B USAA Life Group  +11.6%

57. $ 13.98B Liberty Life Assurance of Boston +7.6%

86. $   3.64B Presidential Life Insurance Company +0.7%

91. $   3.29B Continental Assurance Company

* as of January 7, 2011

Companies listed in bold are current structured annuity issuers.

Note that while American General and United States Life Insurance Company in the City of New York were not listed in the Best's Review survey this author believes their assets would put them in the Top 100 and has requested numbers from the companies.

** by comparison 2003 industry average growth was 12.7%

*** purported to be re-entering the structured settlement market in Q2 2011

 

 

 

 

 

 

AIG ratings affirmed by A.M. Best at "A" (Excellent)

A.M. Best Co. has affirmed the financial strength ratings and issuer credit ratings of the property/casualty and life/health subsidiaries of American International Group, Inc. ("AIG") on December 20, 2010,  at "A" (Excellent). The arting AIG's current structured settlement annuity issuing companies are:

• American General Life Insurance Company
• United States Life Insurance Company in The City of New York (as of 12/31/2010)*

Subsidaries that are former structured annuity issuing companies are:

• The Variable Annuity Life Insurance Company  (" VALIC")
• Western National Life Insurancee Company

Also included in the rating action is AGC Life Insurance Company, an upstream holding company that currently serves as guarantor on non New York structured settlements  where there has been a qualfied assignment of periodic payment obligation to American General Annuity Service Company. For  abrief period of time, when The Variable Annuity Life Insurance Company was the New York structured annuity issuer for American General, AGC LIfe Insurance Company also served as guarantor on that program.

*United States Life Insurance Company in the City of New York, a subsidiary of AIG company, American General, is a 160 year old insurance company that will be the surviving company of the 12/31/20110 merger between it and American Intrernatioanl Life Assurance Company of New York.