by John Darer® CLU ChFC MSSC RSP CLTC
In the August 17, 2009 article R. James Lore, a Cary, NC attorney is quoted as saying that "many of the structured settlement companies were selling these annuities and telling people they had coverage from the guaranty fund, and meanwhile, the guaranty fund was saying there was no coverage here.
I asked at the time "Who are these structured settlement companies? If what Lore said is true, the behavior of these "structured settlement companies" appears to violate the following North Carolina statute":
N.C. GS 58-62-96 (a) No person shall make, publish, disseminate, circulate, or place before the public, or cause directly or indirectly to be made, published, disseminated, circulated, or placed before the public, in any newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio station or television station, or in any other way, any oral or written advertisement, announcement, or statement that uses the existence of the Association or this Article for the purpose of sale or solicitation of or inducement to purchase any kind of insurance covered by this Article.
North Carolina Life & Health Guaranty Association prohibition on advertising (N.C. GS 58-62-96)
Despite this prohibition, It has come to my attention that financial advisor Patrick Munro of Northstar Financial Advisors Wilmington, NC discusses the state guaranty funds in a video posted on the Internet entitled " Why Invest in Annuities" (below) According to his biography he solicits business in North Carolina and South Carolina. He shows an active life insurance license in both states North Carolina.
I target Mr. Munro because he also has a video about "structured settlement annuity".
Munro inaccurately claims the Insurance company will invest your money under government guidelines so you cannot lose principal
- An annuity is a contract which is backed by the full faith and credit of the annuity issuing life insurance company.
- Despite recent calls for federal regulation, annuity issuing life insurance companies are not federally regulated. They are regulated by each state in which they do business. An explicit liability reserve is established, pursuant to statutory accounting, for all invested asset classes of the insurer with the aim of providing protection to a company's surplus against potential losses in equities and credit markets. Realized or unrealized losses are credited or debited against the reserve. In 1991 the old Mandatory Securities Valuation Reserve was replaced with the Asset Valuation Reserve (AVR) which added mortgage loss reserves to the formula.
- A classic recent example is the effect of guarantees on variable annuities that were so popular but proved to be an albatross around insurers necks during the recent financial crisis. Actuaries priced these under a set of assumptions for a worst case scenario that were exceeded by the financial conditions which ensued. Fortunately the companies only saw ratings drops.