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 February 15, 2006
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AIG FINAL TAB? - AIG
will pay $1.64
billion to settle state and federal charges for fraud, bid rigging and
failure to pay proper contributions to various state workers'
compensation funds. We'd like to say that will be it, but don't count
on it since lawyers are still circling and the company is still
embroiled in conflict with former CEO Hank Greenberg.
Greenberg
and Howard Smith, AIG's former chief financial officer, still face New
York State civil fraud charges. In addition, the billion-dollar
settlement covers wrongdoing on the property-casualty side of the
business only. There are ongoing investigations of the life
side
of the business.
INSURERS
AND CAPITAL
MARKETS – National
Underwriter reports that Moody's sees the life settlement
market
as the beginning of an intersection between the life insurance industry
and capital markets. For example, companies could start trading in
variable annuity product guarantees and insurers that undervalue VA
guarantee options could suffer as a result.
SETTLEMENT
CONCERNS
– Moody's also reports that the rise in life settlements may
be a
factor in future company ratings. Fewer than 1% of life policies in
force may fit life settlement companies' purchase criteria, but they
are usually at least $750,000 in face amount on an insured at least age
65. This means that a significant percentage of total outstanding
policy cash surrender value is at risk. Insurers that issue or have
issued lapse-supported products are at most risk.
MORE ON
PENSIONS,
WHAT PENSION? - The IBM pension freeze is a harbinger of
the
disappearance of almost all retirement pensions in the private sector.
"Public sector employees are not safe from worry but, since they are
usually organized and pull some political weight, their pensions should
last a little longer. Everybody else in the private sector had best get
ready to wave bye-bye to the idea of a reasonably carefree retirement
during which the check comes in once a month and the big problem is
whether to spend it on a long vacation or treat the kids to a new car.
That's over, folks."
ACQUISITIONS
- JPMorgan will sell Chase Insurance, its life insurance and annuity
underwriting business, to Protective Life for about $1.2 billion in
cash. "With the merger of Chase and Bank One, we reviewed all our
businesses and concluded that insurance underwriting does not have the
same scale as our core banking businesses." In other
acquisition
news, Merrill Lynch is in talks to acquire a large stake in BlackRock,
Inc., a major money manager.
WAL-MART
BANK
OPPOSITION – Apparently few people want Wal-Mart
to enter
the banking business. The latest to voice their opposition to the
Treasury Department is the National Association of Realtors. The
Realtors are in agreement with the banking industry and say that a
Wal-Mart bank would set a precedent that inevitably erodes the historic
separation of banking and commerce in the United States. "However, the
banking industry is taking hypocritical positions by opposing
commercial companies entering the banking business while at the same
time seeking to expand permissible bank activities into real estate
brokerage and real estate development -- activities which by their very
nature are commercial."
AIG
VERSUS GREENBERG
- A New York judge granted AIG a preliminary injunction that bars a
brokerage agency run by former Chairman "Hank" Greenberg from writing
insurance policies for AIG customers on behalf of anyone other than the
insurer and also bars the agency from entering into reinsurance
contacts with Warren Buffett's Berkshire Hathaway. The ruling is a
victory for AIG in its complex divorce with Greenberg, who resigned
under pressure last spring from the company he built over nearly four
decades.
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ACOUNTING
BOBBLES - Prudential will
restate 1-1/2 years of cash flow, but said the restatements will not
affect earnings per share or operating income for any previously
reported period. BISYS said it expects a financial restatement to
result in an 8% to 8.5% decline in consolidated shareholder equity as
of Dec. 31, 2004.
GREED
AT THE TOP - John Bogle,
founder of Vanguard Inc., has some tough things to say about the mutual
fund industry. Click here
to read the article in The Pittsburgh Tribune-Review.
ALLSTATE
BUY BACK – Despite
all the hurricanes, Allstate's CEO says the company will buy back $1.5
billion of its shares in 2006.
AARP'S
FEDERAL FUNDING - In case you
didn't know it, federal funding accounted for $83 million, or about
10%, of AARP's annual revenue of $878 million. The large majority of
AARP's federal money, $75 million, comes from a Department of Labor
job-training program called the Senior Community Service Employment
Program (SCSEP), which has a checkered history of wasteful spending and
unaccountability.
MOST
OPPOSED TO NATIONALIZED HEALTH SYSTEM
– Conventional wisdom has it that a large majority in the
U.S.
support the idea of establishing a system that would provide health
coverage for all Americans; however, there is some confusion as to how
it should be accomplished. The American Consumer Institute asked 1,000
people if they would support "a nationalized health plan in which
doctors and hospitals would be under federal government control." Only
43% said they would.
MICHAEL
MOORE'S LATEST –
Michael Moore's latest documentary will be based on "health care horror
stories." He needs help from consumers and is asking for it via his Web
site..."If you have been abused in any way by this sick, greedy, grubby
system and it has caused you or your loved ones great sorrow and pain,
let me know." "Oh," he adds, "and if you happen to work for an HMO or a
pharmaceutical company or a profit-making hospital and you have simply
seen too much abuse of your fellow human beings and can't take it any
longer – and you would like the truth to be told –
please
write me."
LOUISIANA
BREAKS RECORD - Louisiana
Insurance Commissioner Robert Wooley will resign to go to work in the
private sector. The resignation breaks the state's losing streak of
three consecutive insurance commissioners indicted for criminal
activity.
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DRA
2005 - President Bush signed the
Deficit Reduction Act of 2005 into law on February 8. A
couple of
provisions are of interest to our industry. FDIC insurance on
IRAs and Keogh accounts will jump from $100,000 to $250,000.
In
addition, FDIC insurance on all federally insured accounts will be
inflation-adjusted beginning in 2011. In regards to long-term
care, the legislation will extend the Long Term Care Insurance
Partnership Program from the current five states to all 50 states and
the District of Columbia. In addition, the Deficit Reduction
Act
places additional restrictions on asset transfers in order to qualify
for Medicaid. The look-back period for the transfer of assets
is
increasing from three to five years. Finally, people will be
ineligible for Medicaid if they have more than $500,000 in home equity
(an amount the states can increase to as high as $750,000 if they
choose to do so). Makes sense to us.
RETIRE
RETIREMENT -
The whole concept of retirement is fairly recent, an experiment that
began with the creation of Social Security in 1935, observes Ken
Dychtwald, a gerontologist and authority on aging in the U.S.
With the country facing massive unemployment during the Great
Depression, Social Security was a way of providing older workers with
guaranteed income so that they could leave their jobs, freeing up slots
for younger workers. "No one considered whether a life without work
would be satisfying or sustainable," says Dychtwald. Even when
traditional pension plans were at their peak in 1985, fewer than half
of Americans working for private companies were covered. As
the
leading edge of the baby-boom generation turns 60 this year, "it's time
to retire retirement."
SAVING
LESS BUT
GETTING RICHER? - As we reported in the last issue, the
U.S.
savings rate has dipped to a negative (minus 0.5%) for the first time
since the Great Depression. However, some experts feel that the talk of
fiscal misery might be overblown. Reason? Much of an
individual's
savings are tied up in homes and other assets that are increasing in
value. They point out the Federal Reserve reports that American
households have a total net worth of about $51 trillion, compared to
$40.7 trillion in 2001. Regardless of what "they" say, we say that our
fellow citizens are not saving enough.
LONG
TERM CARE
PROBLEM – According to a WSJ/Harris poll, only
26% of
adults think they have or will have saved enough money to finance their
own potential long-term care costs. Another 41% are certain
they
will have enough money to cover their expenses as they age, while 33%
are uncertain.
RETIREMENT
KNOWLEDGE
– The AXA Equitable Retirement Scope Survey reports that one
of
five workers actually knows what his or her retirement income will be
upon retirement. At the same time, knowing that Social
Security
is an important income element for retirees, 90% view it as "in
trouble" or "in crisis." U.S. retirees report an average
$4,243
in monthly income, which is more than any other country's average in
the study. Surprisingly, Americans are ahead of the whole world in
preparing for retirement, as 85% of working Americans have already
started planning for it.
RETIREMENT
RULE OF 25
- A conservative rule of thumb suggests that if you withdraw only 4%
(or one twenty-fifth) of your retirement nest egg during the first year
and adjust subsequent annual withdrawals to compensate for inflation,
you'll never outlive your money. This means that in order to estimate
how much you'll need to fund your retirement, you should multiply the
annual amount you will need by 25 to determine how much you need to
accumulate (e.g., $12,000 annually requires a $300,000 accumulation).
DISCONNECT?
-
The House and Senate are preparing to resolve differences over a bill
that would provide $70 billion in tax cuts over the next five
years. The main sticking points are a Senate focus on
providing
AMT relief in 2006, while the House wants to extend until 2010 lower
rates on capital gains and dividends, a provision not included in the
Senate version of the bill. Meanwhile, the Treasury
Department
announced on Monday that the U.S. government is expected to hit its
debt ceiling of $8.18 trillion by mid-February. Treasury can
draw
funds from other areas until around mid-March, by which time it will
need Congressional approval of an increase in its debt limit in order
to avoid a default. To put another spin on this, AARP
estimates
that the national debt translates to $156,000 for every American.
MORTGAGE
CANCELLATION
– Many old-time life insurance agents established their
client
bases with mortgage cancellation plans and, with the size of mortgages
today, it would appear to be appealing to all producers. In fact,
Genworth has just introduced a return-of-premium term life insurance
product directed at middle-income homeowners. While this policy caps at
$175,000, it would seem to us that a first-to-die policy with a cap at
a million or more might be appropriate for today's affluent dual income
families.
HORSESMOUTH
REFERRAL
BLOG - For financial advisors unhappy and unsuccessful
with
their referral marketing, finding information to help them get more
prospects through client referrals may now be easier. Horsesmouth has
launched its Automatic Referrals blog and resource site, located at http://www.automatic-referrals.com.
"Our research shows that advisors need help getting referrals and that
implementing a referral strategy is the fastest, most cost-effective
way to get new clients. The Automatic Referrals blog site will be
advisors' first stop on the Internet when searching for ideas, tactics
and tips that will help them build a referral-based business."
RELATIVE
VALUES
DISCLOSURE - Pension plan sponsors must now comply with a
new
IRS regulation that requires a plan to disclose to retiring employees
the relative actuarial values of the optional payment forms available
to them from the plan. Employee Benefit News has an article
providing a complete discussion of this new requirement.
Click here
for the
article.
HSA'S
CUT CLAIMS
- CIGNA HealthCare reports total medical costs (excluding drugs) rose
4% for members of traditional CIGNA plans in 2005, but fell 8% for
members of the health savings plans. The question is whether
this
short-term savings will translate into long-term savings, or whether
HSA participants are neglecting to get needed current health care,
which could result in higher long-term health care costs.
PARTIAL
LIFE
SETTLEMENTS – Want to sell some but not all of a
large
policy? Policyholders can now sell policies, but keep some
life
insurance coverage without paying additional premiums.
529
SAVINGS LIMITS
FINANCIAL AID? - Yes, but not much. Investments in 529
savings
plans and Coverdell ESAs (previously called education IRAs) are treated
as parental assets and reduce a child's eligibility for federal student
aid by a maximum 5.64% of their value at the time of application.
That's a lot better than assets in Uniform Transfers to Minors Act,
which are assessed at 35% in the aid formula.
GUM
DISEASE AND
PREGNANCY – National
Underwriter reports that Blue Shield of California is
beefing up
small group dental benefits for members who are expecting. Reason?
Studies show that gum disease may dramatically increase the likelihood
that pregnant women will give birth prematurely. In fact, one study
found that simply providing periodontal scaling and root planning could
lead to an 84% reduction in premature births. Money well spent!
SOME
IRS TAX SCAMS
– Here are a few of the ones the IRS lists as the top scams
of
2006:
- Phishing:
Identity thieves posing as the IRS representatives in an effort to
obtain personal information.
- Zero
return: Promoters tell taxpayers that they can enter zero income on
their federal income tax form and write "nunc pro tunc," a Latin phrase
meaning "now for then," and that the IRS will disregard their original
return that included wages and other income.
- Return
preparer fraud: Be wary of tax preparers who promise large refunds.
Remember that the taxpayer is ultimately responsible for the accuracy
of their return.
- Credit
counseling agencies: Not all are there to help reduce debt.
- Zero
wages: Submitting a false Form 4852 or a "corrected" 1099 claiming that
he or she did not receive as much as an employer originally reported.
- Form
843 tax abatement: Individuals claiming they have never filed a tax
return before or that an older return was sent but never received,
hoping that the IRS will lower their estimated tax bill.
- Frivolous
arguments: Trying to maintain that filling out a Form 1040 goes against
both the Fourth Amendment right to privacy and the Fifth Amendment
right against self-incrimination will not work.
- Abuse
of charitable organizations and deductions.
- Offshore
transactions
- Trust
misuse: Putting your assets into a trust will not necessarily result in
lower income taxes, deductions or reduced estate or gift taxes.
- Employment
tax evasion: Keeping employee withholdings will get you in serious
trouble.
- 'No
Gain' deduction: Claiming deductions that equal adjusted gross income
usually propped up by phony court documents.
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