Insurance Companies Have Been Exiting Selling Variable Annuities

[vt]

http://www.annuitydigest.com/b/what-...e-annuity-exit

Is this rational risk reduction or a symptom of a deeper financial system problem?

[dcarrigg]

Re: Insurance Companies Have Been Exiting Selling Variable Annuities

http://www.annuitydigest.com/b/what-...e-annuity-exit

Is this rational risk reduction or a symptom of a deeper financial system problem?

Probably just them betting the fed will raise interest rates. Better to sell fixed rate annuities if you think the rates are at a bottom and going up.

[vt]

Re: Insurance Companies Have Been Exiting Selling Variable Annuities

Yes, sticking the buyers with low returns forever and declining buying power when inflation comes back.

[jk]

Re: Insurance Companies Have Been Exiting Selling Variable Annuities

variable annuities are mostly tied to equities, not debt instruments. the purchaser makes the allocations. the guaranteed living benefits, says the article at the link, are getting increasingly expensive to hedge and fund. you folks are mixing up variable and fixed MORTGAGES with variable and fixed annuities. they are NOT analogous.

[vt]

Re: Insurance Companies Have Been Exiting Selling Variable Annuities

I'm fully aware of these differences.

Variable annuities as sold by many have excessive costs and are not a good deal in a low return environment.

Fixed annuities have their own set of problems. DC and I are correct in pointing out the rof these also.

It's all part of FIRE and how investments like these are not good for retirees.

[jk]

Re: Insurance Companies Have Been Exiting Selling Variable Annuities

investments like these are not good for retirees.

i disagree with such a sweeping statement. for those with adequate but not huge resources, putting a chunk of one's portfolio in immediate annuities allows a withdrawal rate significantly higher than any safe withdrawal rate associated with an investment portfolio, and also provide more security than a bond ladder with its pre-defined duration. mortality credits and the law of large numbers are the benefit of not having to crystal-ball an annuitant's life expectancy. further, the defined income stream allows the rest of the portfolio to be invested more aggressively to deal with the very real inflation risks you point out.

see books by zwecher, katz and evensky, and - more popularly- quinn, as well as articles by pfau and others.

[vt]

Re: Insurance Companies Have Been Exiting Selling Variable Annuities

i spoke too broadly. Investments with high fees are never good. The industry makes it difficult to find low cost alternatives; they do exist.

The concept of immediate annuities is sound. If I were to invest now I'd be concerned about locking in a low return and the lack of inflation protection.

[jk]

Re: Insurance Companies Have Been Exiting Selling Variable Annuities

i spoke too broadly. Investments with high fees are never good. The industry makes it difficult to find low cost alternatives; they do exist.

The concept of immediate annuities is sound. If I were to invest now I'd be concerned about locking in a low return and the lack of inflation protection.

don't expect a single element in a portfolio to protect you from every contingency. that's why we diversify.

[vt]

Re: Insurance Companies Have Been Exiting Selling Variable Annuities

http://www.thinkadvisor.com/2016/02/..._LID=173612844

[jk]

Re: Insurance Companies Have Been Exiting Selling Variable Annuities

http://www.thinkadvisor.com/2016/02/..._LID=173612844

any annuity with bells and whistles, any variable, fixed index, living benefit and so on, generates more benefit for the sales person than the buyer. such products are sold with hocus pocus and false promises.

if insurance companies are backing away from variable annuities, i would imagine it is to their salesmen's regret.

mortality credits, however, are valuable and not available via any product other than an annuity. mortality credits are captured by immediate and deferred fixed annuities, simple products with much lower sales commissions. such annuities are not really investments; they are risk management tools.

we have always focused on accumulation and asset protection and growth here at itulip. this subject, however, applies solely to deccumulation.

[shiny!]

Re: Insurance Companies Have Been Exiting Selling Variable Annuities

vt : Thanks for the link to www.thinkadvisor.com . Good site!

Thanks to jk I've been reading a lot about annuities this week, particularly immediate and deferred fixed annuities. They sound like a good fit for my situation but low interest rates and long-term stability are concerns. My questions are:

Where are interest rates going? With PCO seemingly delayed, are we in for decades of ZIRP or NIRP or is a POOM likely to happen within the next few years?

We're told to go with insurance companies that have A+ and A++ ratings. Given the propensity of Moody's, Best, Fitch and S&P (but not so much TheStreet) to give A+ ratings to insurance companies that in no way deserve them, how much can we trust the ratings? And what if you go with an A+ or A++ company only to have it go into decline later? I guess this is a risk buying any insurance policy; I just never worried about it until I thought of handing my savings over.

I know this sounds like a tinfoil hat question, but hasn't iTulip discussed the possibility of a total collapse and reset of the International Monetary System? What happens to long-term annuity contracts that are paid in dollars if the dollar ever becomes something else?

just musing...

[vt]

Re: Insurance Companies Have Been Exiting Selling Variable Annuities

Shiny,

We are at the lowest interest rates in our lifetime. Immediate annuities (those you are going to start taking an income from now) are purchased at the prevailing interest rate on purchase.

If you believe there may be increasing inflation during the rest of your life (I believe EJ does expect some inflation starting in the next few years) then these annuities will be lock in a fixed monthly payment that will give you decreasing purchasing power going forward.

This is the opposite of Warren Buffett buying blue chip stocks with rising dividends and solid business that can grow and increase returns and increasing income for investors.

One would think Buffett's approach would be better

[shiny!]

Re: Insurance Companies Have Been Exiting Selling Variable Annuities

Shiny,

We are at the lowest interest rates in our lifetime. Immediate annuities (those you are going to start taking an income from now) are purchased at the prevailing interest rate on purchase.

If you believe there may be increasing inflation during the rest of your life (I believe EJ does expect some inflation starting in the next few years) then these annuities will be lock in a fixed monthly payment that will give you decreasing purchasing power going forward.

This is the opposite of Warren Buffett buying blue chip stocks with rising dividends and solid business that can grow and increase returns and increasing income for investors.

One would think Buffett's approach would be better

The only annuity I would consider is an immediate, fixed annuity. If we're ever going to have high inflation, the thought of getting locked in to historically low interest rates for the rest of my life worries me. I hope something happens within the next two years or so to give us a clear indicator of which way things are going to go.

[BK]

Re: Insurance Companies Have Been Exiting Selling Variable Annuities

Shiny,

If I were considering annuities I would investigate the company offering the Annuity.

All the Insurance companies seem to be under great financial stress. The last 30 years Insurance companies made a fortune buying long Bonds as interest rates fell.

In our new world the Insurance companies will no longer have falling interest rates to generate Cash to meet their needs. I've seen a couple of friends leave Insurance company jobs as the Insurance companies have embarked on massive costs savings. Look at the stock charts of MFC or MET.

I'm not sure you can safely choose an annuity as a safe reliable way to generate cash flow when interest rates are flat or rising. Insurance companies will be force to pick stocks or rely completely on taking in more cash than they hand out.

It's a 'BRAVE NEW WORLD" and financial schemes that worked for the last 30 years are likely to no longer work.

[jk]

Re: Insurance Companies Have Been Exiting Selling Variable Annuities

Shiny,

We are at the lowest interest rates in our lifetime. Immediate annuities (those you are going to start taking an income from now) are purchased at the prevailing interest rate on purchase.

If you believe there may be increasing inflation during the rest of your life (I believe EJ does expect some inflation starting in the next few years) then these annuities will be lock in a fixed monthly payment that will give you decreasing purchasing power going forward.

This is the opposite of Warren Buffett buying blue chip stocks with rising dividends and solid business that can grow and increase returns and increasing income for investors.

One would think Buffett's approach would be better

do you expect every single investment of yours to perform well under every possible economic scenario? i don't.

i recently purchased some spia's with a portion of my liquid assets. they provide "flooring" [see michael zwecher] to offset fixed expenses. they also provide deflation hedging in a non-apocalyptic deflationary scenario [see gary shilling]

a greater part of my portfolio will be directed toward inflation hedging.