© Copyright 2006
US FlagApril 1, 2006 Edition
1stLifeSettlements


SCARY THOUGHT - General Motors is the world's largest automaker.  It also carries debt that is close to the GDP of Belgium, lost more than $10 billion last year, provides health benefits to 1.1 million people at the rate of about $1,500 per vehicle produced and is being investigated by the SEC.  Predictions are that a GM bankruptcy would cause major financial market upheavals.  Here's the concern: auto parts maker Delphi, currently in bankruptcy, is in talks to void its labor deals and unprofitable contracts with GM, its former parent.  Let's hope those talks go well...if Delphi strikes, it shuts down GM production and, according to one analyst, "it would all be over."

KEY INDEX ANNUITY CASE - The industry is closely watching a case in which Massachusetts securities regulators allege that Investors Capital Corp., a Lynnfield, Mass. independent-contractor firm, should have supervised sales of equity index annuities made by its representatives since 2001.  The industry contends that EIAs are not securities, meaning that broker-dealers are not required to supervise their sales.  A negative outcome in this particular case could mean 50 different state regulatory agencies imposing supervisory requirements for EIAs in what is described as a "nightmare scenario."

NASDAQ AT 10 YEAR HIGH - Tech shares and broad optimism about economic growth and business spending drove the Nasdaq to a five-year high...2340 as of 3/30/2006.

WAL-MART BANK - In an effort to head off growing opposition, Wal-Mart has offered to modify parts of its application to start limited banking operations.  One proposed change is to drop its proposed exemption from the Community Reinvestment Act, which places requirements on banks and savings institutions to help meet the credit needs of low- and moderate-income neighborhoods.

DISCRETIONARY CLAUSES – NY and CA insurance departments have sent word to insurers that they will no longer allow discretionary clauses in health and disability insurance policies and subscriber contracts. Discretionary clauses are contract provisions that grant a carrier the unrestricted authority to determine eligibility for benefits and to interpret terms and provisions of the policy or contract. Expect other states to follow and you might also expect premiums to rise.

ATTACK ON NY COULD COST $3/4 OF A TRILLION – Now here is a cheery projection. According to the American Academy of Actuaries, a major terrorist attack on New York City using chemical, biological or radioactive weapons could cost $778 billion in insured losses...not to mention that it "could make rehabilitation difficult or impossible." Other cities? $171.2 billion for San Francisco and $42.3 billion for Des Moines.

LINCOLN/JP - Lincoln National has received all of the regulatory approvals needed to acquire Jefferson-Pilot.  Closing is expected on April 3.

OUTSOURCING HEALTH CARE - Here's an interesting twist...two researchers writing for Health Affairs, a health finance journal, propose that U.S. insurers save a bunch of money by encouraging policyholders to seek nonemergency medical care in other countries.  For example, the average inpatient cost for a knee replacement in the U.S. is $10,335, while the average foreign cost, including airfare, is $1,321.
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BONUSES IN LINE? - Prudential CEO Art Ryan saw his bonus double in 2005 because Pru achieved his goal of reaching a 12% ROE, while Allstate CEO Edward Liddy's was cut back to a fraction of his 2004's bonus because earnings fell almost 9%. FYI, Ryan made $15.8 million and Liddy made about $5.2 million.

LIFE APPS UP WITH "YOUNGER" BUYERS - MIB reports a slight increase in life applications for January and February over the same period last year. However, applications fell 3.4% for applicants age 60 and over while application rose 0.2% for ages 0 to 44, and 2% for consumers ages 45 to 59.

FED BOOSTS INTEREST RATE - Ben Bernanke, sticking with the Federal Reserve's playbook in his first meeting as chairman, boosted borrowing costs to a five-year high of 4.75% and hinted that an additional interest rate increase could be in store.

BIRD FLU COST – Fitch predicts that a pandemic of avian influenza might cost the U.S. insurance industry up to $18 billion and as much as $53 billion internationally.

BAD NEWS FOR US COAST - According to Risk Management, insured property losses from hurricanes in the Gulf Coast are likely to be 40% higher and losses for the Mid-Atlantic and Northeastern coast will be 25% to 30% higher for the next five years. The hurricane season runs from the beginning of June to the end of November.

ZURICH BID RIGGING - Zurich Financial Services has agreed to pay $153 million to settle insurance bid-rigging charges by New York, Connecticut and Illinois, bringing to about $325 million in such settlements it has made with 12 U.S. states.

ST. PAUL/ZURICH MERGER? - Rumors have it that Zurich Financial is discussing a possible merger with St. Paul Travelers. Zurich shares jumped 8.4% on the news.

H&R BLOCK VS. SPITZER - New York State Attorney General Eliot Spitzer has charged H&R block with fraudulently marketing retirement savings plans that caused hundreds of thousands of mostly low-income clients to lose money. The suit seeks $250 million in fines plus refunds after H&R Block steered roughly 500,000 tax return customers to invest in individual retirement accounts, but failed to disclose high hidden fees that actually outpaced interest earned on the accounts.

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NASD LOOKING FOR SENIOR SCAMS - The NASD is "sweeping" for suitability of recommendations to exchange, withdraw funds or take other distributions from variable insurance products in order to fund investments in equity-indexed annuities. Seminar sales to seniors are particular targets.  The suitability of annuities being sold to seniors, particularly through free-meal seminars, was also a hot topic of a March 29 Senate Committee on Aging hearing.  Another target was "senior specialist" designations that "provide little but limited sales training."

LONG-TERM CARE COSTS - According to a Genworth Financial survey, the national average cost for a private room in nursing home is now $70,912 a year. For in-home assistance, the national average cost is $22.15 per hour, or $46,072 per year for 40 hours of help per week. At an assumed 5% inflation rate, a year in a nursing home, based on national averages, could cost over $110,008 in 2015 and over $179,191 in 2025 and the cost per year of in-home care, for 40 hours of help per week, would be more than $71,473 in 2015 and almost $116,422 in 2025.

AGENTS WANT 24/7 SUPPORT – According to research firm Celent, more than 90% of insurance agents want 24/7, Web-based access to the information technology systems from insurance carriers.  "Independent insurance agents tools that enhance communications and that help them work more efficiently." Further, agents want and deserve sales support 24/7 from any computer in the world. National Underwriter's Virtual Sales Assistant has been providing this for years. Home office folks should contact Bill O'Quin, CLU, ChFC, RFC at 225-387-9845 for details on how to provide your producers with more of what they need.

LTC CLAIMANTS LIVING TOO LONG - Penn Treaty (and maybe other LTC carriers) have a problem...their LTC insureds are living about 3 years too long. In fact, Penn Treaty may have to add $30 million to its long term care insurance claim reserves as a contingency.  In other LTC news, the Florida Senate is proposing legislation that would cap permitted increases in LTC premiums and require that current policyholders be given the option of keeping premiums stable by taking a reduced package of benefits.

STALLED - The final version of a pension reform bill is stalled in House-Senate negotiations, with completion now not expected until sometime after Congress returns from its Easter recess.  The big hang-up is reportedly a provision that would require companies with poor credit ratings, such as GM and Ford, to put more money into their pension plans, thus relieving some of the financial pressure on the PBGC if a company ultimately declares bankruptcy.  The other side of the coin, of course, is that an increased funding requirement could "further push troubled companies toward bankruptcy."  To be sure, an extremely complex issue!

WHY LIFE INSURANCE - Here is a great PowerPoint presentation for you to review. While some of it is directed toward marketing to the middle class, it also contains some powerful information about our country's saving habits and the value of permanent life insurance. Check it out by clicking here.

SEP IS GOOD AND STILL AVAILABLE - In the waning weeks of the tax filing season, small-business owners can get a huge deduction by setting up a Simplified Employee Pension. Creating a retirement plan is one of those tasks that many small-business owners keep putting off. A SEP is a procrastinator's dream, because the deadline for setting one up, or making your prior-year contribution to one, is the due date of your tax return, April 17 this year.  The payoff of creating a SEP is huge. For the 2005 tax year, an employer can deduct up to 25% of an employee's compensation, or up to $42,000.

ADVISERS BEHIND THE 8-BALL? - That's the conclusion of a financial advisers' round table moderated by Investment News...as the first of 76 million baby boomers turn 60 this year, many financial planners and advisers are unprepared to help clients develop and manage retirement income plans.  Baby boomers have an estimated $8.5 trillion in assets to invest, and stand to inherit another $7 trillion over the next 40 years. For advisers, the risk of underestimating a client's life expectancy is perhaps the most daunting - and least understood - variable in retirement income planning, the panelists agreed.  Also, inflation risk is another huge variable with which advisers must contend.

FIDELITY ON AMAZON - Fidelity is turning to Amazon.com's 55 million active customers in its fight to maintain its leadership position in the mutual funds industry. Fidelity becomes the first vendor on Amazon's new financial services store.

NATIONAL UNDERWRITER AND NAILBA TEAM-UP FOR PRODUCERS -  NAILBA is teaming up with The National Underwriter and Hoopis Institute to let producers know about The Sales Mastery Forum. The third annual Sales Mastery Forum will take place Sept. 27-29 at the Atlanta Hyatt Regency. AgentResources.com, a service aimed at middle-market agents, now reaches more than 100,000 agents through the Web site and through the business relationships of the 351 NAILBA member agencies. NAILBA members will receive a significant discount on the Sales Mastery Forum registration fee when they sign up by going to www.agentresources.com.

ROTH RULES – That is, like we mean, Roth rocks. Given the fiscal and tax trends, the Roth IRA should be a no-brainer for younger savers. In terms of the potential value of its tax benefits, the Roth towers over the traditional tax-deferred IRA. However, it is still undersold as a savings option.

POST-CLAIM UNDERWRITING - WellPoint is being sued for violating a California law banning "post-claim underwriting" by canceling policies after claims were made. The lawsuits accuse WellPoint of trying to avoid paying claims by retroactively reviewing policyholders' applications for discrepancies, then rescinding the policies. (If the insured lied, what is wrong with that?) WellPoint says its practices "are compliant with state laws and regulations."

FINANCIAL ORGANIZER – Frankford Financial offers the Financial Organizer...a multi-purpose software tool that creates a foundation for personal, financial and estate planning matters. Developers say the Financial Organizer was "inspired by Hurricane Katrina...We heard so many stories from friends, family and customers who, because they weren't organized and prepared, lost all of their vital information. They are now faced with the nightmare of having to start over and re-do all their financial, personal, medical and insurance information...this digital document is a solution for always being prepared.

PROSTATE CANCER – Well, this is "near and dear to my heart." Hartford Financial says prostate cancer survivorship has improved so much it is offering life insurance at standard rates to many men who have had the disease. In fact, improved screening and treatment have improved results to the point that 93% of men with prostate cancer can expect to live at least 10 years. Just 20 years ago, 1 out of every 2 men diagnosed with prostate cancer could expect to die within 10 years.

MORE MILLIONAIRES - The number of American households with a net worth of $1 million or more, excluding their principal residence, grew to a record 8.9 million last year. The number of millionaire families rose to 7.1 million in 1999 but, after the Internet bubble burst, dropped steadily to 5.5 million by 2002. The ranks of millionaire households rose to 6.2 million in 2003 and 8.2 million in 2004. Millionaire households had an average net worth, excluding principal residence, of nearly $2.2 million, of which more than $1.4 million was in liquid assets. 29% of the millionaire households did not own stocks or bonds and 32% did not own mutual funds.

COMPETITION FOR AARP - One size doesn't necessarily fit all and that is why John L. Green, 76, founded Americans50Plus. "We are a conservative-to-moderate alternative to the current market leader," Green said, referring to AARP, which has 35 million members. Americans50Plus is designed to provide members with access to health, long-term care, life, travel, car and other kinds of insurance and discounts on car rentals, hotels, vacation packages and other services. Unfortunately, Green only has about 35 million fewer members than AARP. See details at americans50plus.org/home.htm.

FAKE HEALTH INSURANCE - The National Association of Insurance Commissioners is warning businesses and employees to beware of frauds offering fake health insurance. A 2004 study by the GAO found more than 15,000 businesses and 200,000 employees were victimized in a period from 2000 through 2002, and at least $252 million in claims went unpaid.

"MURDERBALL" – This is a strange name of an Oscar-nominated independent documentary that Hartford Financial will use to explain the importance of disability insurance. Hartford is to create a special DVD version of "Murderball" that includes a 4-minute discussion of disability and disability insurance. "Murderball" tells the story of the U.S. quadriplegic rugby team and its effort to win the 2004 Paralympic games.

POOR INDEX ANNUITY RESULTS - An annuity expert says that many of the products of the industry's top company have performed poorly.  "Many [equity index annuities] sell the sizzle and don't deliver the steak," said Mitchell Maynard, CEO of MCP Software. According to MCP's tool, equity index annuities of the industry's dominant company, Allianz, are almost all poor performers.

FINANCIAL PLANNING AND RISK MANAGEMENT - Property/casualty insurance and risk management increasingly play a role in financial planning, according to a survey by the Chubb Group of Insurance Companies. 57% of the 102 financial planners surveyed indicated that they evaluate their clients' asset protection through property/casualty insurance. An even higher number, 72%, said they determine if their clients have an appropriate level of liability insurance.