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 January 1, 2006
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2005 LARGEST CATASTOPHIC LOSS YEAR -
Estimated worldwide insurance and reinsurance losses related to the
three major hurricanes that hit the United States last year would
amount to $57.6 billion, making the cumulative catastrophe losses the
largest on record. Advisen projects pre-tax insured losses per
hurricane to be $40.4 billion for Katrina, $6.4 billion for Rita, and
$10.8 billion for Wilma. However, flood losses could elevate the
estimates by billions if lawsuits to force insurers to cover flood
damage related to Hurricane Katrina are successful.
NASD COLLECTS RECORD
$125 MILLION - The NASD collected a record $125.4 million of
disciplinary fines in 2005 (up 21% from 2004) on 1,412 enforcement
actions (up just 1%). They also barred or suspended 737 people, which
was down 12%.
AXA AIMS BIG
– According to the head of its U.S. operations, French insurer
AXA wants to play a leading role in the consolidation in the global
life insurance industry. "There are some good fits for us that we would
love to do."
TORT TAX AND HEALTH
COST - According to U.S. Centers for Medicare and Medicaid
Services, health care represents over 15% of the U.S. economy, up from
only 5% in 1961. "While the excesses of the litigation industry alone
cannot explain America's mounting medical costs, litigation is a large,
and growing, contributor to our health-care bill." The "tort tax"
continues to rise in all sectors. Medical malpractice liability alone
constitutes more than 10% of the U.S. tort tax, which by 2003
represented more than $3,300 for the average family of four, according
to Tillinghast-Towers Perrin. The drug maker Wyeth has set aside a
reserve of $21 billion to deal with litigation related to the obesity
medication Fen-Phen. Merck's exposure to Vioxx lawsuits may total as
much as $50 billion.
HEALTH/PENSION
TRENDS TO WATCH - Defined benefit pension plans and subsidized
retiree medical benefits are on the way out. Emphasis will
continue to be placed on workers fending for themselves on retirement
and medical care issues. A continued focus on "consumerism,"
where employees are asked to make responsible decisions about spending
health-care dollars.
FED RATES FOR 2006
- Some say that they will continue to rise, some say they will stay the
same and others believe they may even go down. So, there you have
it! Actually, the Federal Reserve is expected to raise rates for
a 14th straight time in January to 4.5%.
HELP WANTED -
The American College wants former students to offer free seminars and
other educational programs in their local communities on National
Financial Awareness Days (March 6). More information is available
at http://www.TheAmericanCollege.onlinecommunity.com.
TRIA EXTENSION SIGNED
- President Bush signed without comment a 2-year extension of the
Terrorism Risk Insurance Act. The extension scales back the
original scope of TRIA's coverage and does not include group life
insurance. In addition, commercial auto, burglary theft, surety,
professional liability and farm owners multiple peril are no longer
covered.
ACQUISITION COMPLETE
- UnitedHealth has completed its acquisition of PacifiCare Life and
Health Insurance Company after UnitedHealth agreed to certain
provisions required by the Department of Justice and California
regulators.
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DOLLAR UP 15% IN 2006 - The dollar
ended 2005 up almost 15% versus the euro and the yen...its best annual
gain in eight years. The dollar had a shot in the arm this year from a
steady stream of U.S. interest rate increases. The Federal Reserve is
expected to raise rates for a 14th straight meeting in January, taking
its key rate to 4.5 percent, and more rises are seen as possible.
The greenback has rebounded after a three-year, 30% decline, driven by
worries about U. S. ability to finance its growing trade deficit.
FUND PREDICTIONS FOR
2006 – MarketWatch says to look for the following from
mutual funds for 2006: A huge boost in performance advertising; The
bull market to continue, however, there will have to be some change in
the hot sectors, because a bull market can't be sustained indefinitely
on the strength of energy, gold, metals and mining, and real estate;
Very little action from the SEC; Merger mania, including at least one
big name...maybe Putnam; The approval of the independent-chairman rule;
Fund tax reform that falls short...again; Investors getting checks from
the fund-scandal fines; Public pension tensions rise and the biggie for
most of our readers, extra disclosures when buying through a financial
adviser
PUBLIC PENSION
TENSION – As predicted here, tensions over government
pensions, like those in the New York transit strike, aren't going away.
Similar concerns will likely surface in other cities, states and other
government entities as they realize they simply can't afford the
lucrative defined benefit retirement plans of the past.
OPPENHEIMER FINE – The NYSE,
with the Treasury's Financial Crimes Enforcement Network, fined
Oppenheimer $4.15 million for failing to establish an adequate
anti-money laundering compliance program and system failures for
transfers and conversions of acquired brokerage accounts, NYSE said.
RECESSION SIGNAL – Although
many analysts are ignoring it, yield curve (the spread between short-
and long-term interest rates) may be signaling that a recession is on
the horizon. The spread between yields on 2-year and 10-year Treasury
notes is negative for the first time in five years, a classic signal of
slower economic growth ahead.
CHRISTMAS SPENDING
- Visa USA reports its cardholders spent $32.2 billion in the week
leading up to Christmas, 26.9% more than in the same period in 2004.
Wal-Mart reported that the Friday before the holiday weekend was its
biggest shopping day of the year, as more people than expected took off
from work to buy last-minute gifts. Overall sales were 3-5% above last
year.
GLOBAL HEALTH COSTS – This is
really scary but PricewaterhouseCoopers is predicting that global
spending for health care will triple over the next 15 years to $10
trillion dollars. Further, U.S. health spending will consume 21% of our
gross domestic product, with average spending of $5,635 per person. The
U.S. spending per person is more than twice the average of $2,192 for
other developed nations.
GOLDMAN CEO GETS $38 MILLION -
Goldman Sachs posted its second straight year of record profit and paid
CEO "Hank" Paulson about $38 million in salary, restricted stock and
options for 2005. That is up about 20% from the $30 million or so he
made last year.
FOURTH LARGEST
ECONOMY – China recently announcement that its economy was
far bigger than previously estimated. The new figures put China ahead
of France, Italy and Britain to become the world's fourth-largest
economy. With the new economic figures, some experts said China could
overtake the U.S. as the largest economy in 2035, instead of 2040.
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BIG CHANGES PREDICTED - Impact
Technologies is predicting big changes for financial advisors in 2006,
including federal tax reform, changes to the estate tax, expected new
retirement savings options and the first wave of baby boomer
retirements.
EXPIRED TAX
PROVISIONS - Expect Congress to take action early this year on
certain tax provisions that expired in 2005. These include higher
AMT exemptions, state sales tax deduction, R&D income tax credit
and credits for hiring the disadvantaged.
SEC AND VARIABLE
ANNUITIES - Financial advisers can expect additional rules from
the SEC regarding variable annuities. Proposed rule 2821 requires firms
and their sales forces to consider a customer's age, whether he or she
has a need for a variable annuity, and whether the amount of money
invested exceeds a stated percentage of the client's net worth. "It's
cheaper to buy the underlying investments in some cases. We think it's
very important that the investors are matched up with the correct
product."
AMERICANS PLAN TO
SAVE MORE – According to Alexander Investments, the top
New Year's resolution is to save money (cited by 80% of respondents).
The second place resolution was paying off credit card debt (cited by
56%), while number three was paying off other debt such as mortgages,
home equity loans, car loans (cited by 32%). Unfortunately, all will
probably go the way of most New Year's resolutions.
FINANCIAL SERVICES
ADVERTISING INCREASES - USAToday
reports that the financial services category is up $3.8 billion for the
first half of 2005. Financial services broke into the top five
advertising categories in 2002 and currently ranks third behind
domestic and foreign auto brands. ADVERTISERS: FSO publications are
still the best-kept secret in the industry...inexpensive and effective.
E-mail Bill O'Quin, CLU, ChFC, RFC at boquin@ix.netcom.com or call at
225-387-9845.
TOP OF THE CHARTS
- According to a survey on executive benefits published by Clark
Consulting, nonqualified deferred compensation plans funded by
corporate-owned and trust-owned life insurance continue to remain
popular among Fortune 1000 companies. Making a big gain in 2005
was the use of supplemental disability benefits, with 81% of
respondents offering this benefit, up from 39% in 2004.
GOVERNMENT GIVETH
AND TAKETH - For 2006 elderly Americans on Social Security, for
example, will get an automatic cost-of-living increase of 4.1%, but
about 25% of the increase will be taken back to pay for higher monthly
premiums for Medicare's Part B. This is typical of a host of new tax
provisions. More tax benefits are on the way to high-income Americans,
as well as an increase in tax breaks for the working poor. Meanwhile,
more than 11 million upper-income taxpayers will see an increase of
$260.40 in their Social Security taxes due to the 6.2% tax levied on
$94,200, up from the current $90,000.
DO NOT CALL?
- The Federal Trade Commission says there have been about 1.4 million
consumer complaints alleging violations of the do-not-call policy since
it began in October 2003. However, the agency points out that these
complaints represent just 1.4% of the more than 110 million phone
numbers registered. "It has been exceptionally successful," says Lois
Greisman, an associate director in the FTC's Bureau of Consumer
Protection.
WHAT THEY LOOK FOR
- A Matthew Greenwald & Associates survey, commissioned by The
Hartford, found that affluent baby boomers between the ages of 50 and
65 are primarily looking for three things from a financial
advisor: making sure they don't outlive their assets, helping
allocate assets and choosing investments that will perform well.
What the survey revealed is that this group is looking for a
"retirement income advisor" as opposed to strictly an asset
allocator/stock picker.
S CORP TAX CHANGE? -
A recent Treasury Department study suggests that one-person S
corporations have become a major tax shelter. Under current tax
law, sole proprietors are required to pay self-employment taxes on
their entire operating income, while owners of S corporations who set
their own salary level pay self-employment taxes on that salary
only. The Treasury Department may recommend that individuals who
operate one-person S corporations be required to pay self-employment
taxes on their entire operating income instead of on a salary amount
alone.
BUYING A HOUSE
EASIER THAN 20 YEARS AGO - Despite a widespread sense that real
estate has never been more expensive, families in the vast majority of
the country can still buy a house for a smaller share of their income
than they could have a generation ago. A sharp fall in mortgage rates
since the early 1980s, a decline in mortgage fees and a rise in incomes
have more than made up for rising house prices in almost every place
outside of New York, Washington, Miami and the coast in California.
LTC FOR 2006
- Insurers are ramping up efforts to sell long term care insurance,
offering new products and forging alliances with employers to make the
policies more widely available in the workplace. Congress helped
strengthen those efforts last week when it passed new rules that
tighten eligibility for Medicaid coverage of nursing-home costs. That
means that more middle-class Americans will likely be on their own
later in life when it comes to paying for long-term-care needs.
Genworth is planning to offer a "combination" product (similar to that
piloted by Golden Rule) that marries a long-term-care contract with an
annuity. With the combination contract, money not used for long-term
care is paid out as part of the annuity distribution.
INVESTOR OPTIMISM
HIGHEST IN 10 MONTHS - UBS and Gallup report that investor
optimism in December was the highest since February. The index rose to
79, up 29 points from November. Big reason cited was the average price
of a gallon of gas for December was $2.18, down $.75 from the average
price in September.
LIFE APPS DOWN
– At the end of November, MIB reports U.S. life apps were off
3.1% year to date for the last 11 months over the same period last
year.
HSA SALES GROWING
– Not only are HSA sales increasing but more players are also
joining the fray...mainly banks. American Bankers Association has
created a consortium of banks, insurers and technology companies to
increase the distribution of HSAs through banks.
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