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 June 15, 2006
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INDIVIDUAL
LIFE SALES SOAR - According to LIMRA, first quarter 2006
individual life insurance sales rose 15% in new annualized premium,
compared with the first quarter of 2005. The strongest increases were
in universal life (UL) and variable universal life (VUL) products. The
number of policies sold remained even with the same period last year,
while face amount showed a 4% increase. Fixed premium term and whole
life products also showed premium increases of 5% and 3% respectively.
NAILBA
DOES THE
RIGHT THING – The National Association of
Independent Life
Brokerage Agencies (NAILBA)
has
always held one of the industry's premier annual meetings and this year
their FOCUS meeting was something special. The presentations and
information sharing were as good as ever but, to us, the most important
thing was that it was held in New Orleans. Since Katrina, the Queen
City is not what it used to be and it would have been easy for the
NAILBA Board and Executives to have moved this year's FOCUS meeting.
However, they elected to stand with and support New Orleans in its
effort to survive. Being from Louisiana, I want to personally thank
NAILBA for "doing the right thing." By the way, the NAILBA Annual
Meeting will be in Dallas on Nov. 2 - 4. If you are involved in
independent distribution of life products in any capacity, you will do
yourself a favor by attending.
ING
TROUBLE IN NEW
HAMPSHIRE - New Hampshire security regulators allege that
ING
accepted fees from poorly performing mutual funds that were included
among investments offered in state-employee retirement plans between
2001 and 2004. The state also alleges that ING was involved in market
timing with regard to the approximately $180 million in assets.
GROWING
STOCK OPTION
SCANDAL? - A new study by Merrill Lynch indicates that
questionable timing of stock option grants may be a far bigger problem
than first suspected. The SEC is looking at stock option grants at 20
companies, but an analysis by Merrill Lynch indicates problems may be
spread across the entire S&P 500. The issue revolves
around
the backdating of stock options to a date when share prices were lower,
allowing executives to benefit by exercising the options later, when
the price is higher.
STILL
GROWING
- U.S. household debt continued to rise, despite higher interest
rates. Household debt rose at an 11.6% annual rate in the
first
quarter, compared to 11.1% in the last quarter of 2005.
WACHOVIA
CHARGED
WITH "SWEEPING" – A suit was filed in Federal
Court
against Wachovia and several subsidiaries, alleging that the bank
improperly placed trust account assets in its own mutual funds and
charged "sweep fees."
The suit claims that the bank purchased shares of Wachovia's Evergreen
funds, instead of better-performing funds with lower expenses, and
charged improper "sweep" fees for transferring from cash into
short-term investments.
PRU/ALLSTATE
DEAL
DONE - Prudential has completed its acquisition of
Allstate's
variable annuity business through a reinsurance transaction and has
received exclusive distribution rights to sell variable annuity
products through Allstate's distribution force of approximately 13,700
as part of the transaction.
CONSECO
TO PAY $9.5
MILLION - Minnesota regulators have fined Conseco $2.5
million
and ordered it to pay up to $7 million in restitution to about 5,000
annuity policyholders. The alleged violations included: sales made by
unlicensed agents, inadequate supervision of whether certain products
were "suitable" for customers, miscalculating certain life insurance
and long-term care policy benefits and not disclosing enough
information to consumers.
NYSE
EURONEXT
- NYSE and Euronext will merge in a deal valued at about $10 billion
that creates the world's largest stock exchange. The combined
exchanges, to be called NYSE Euronext, will have a market cap of $20
billion and trade securities totaling $27 trillion in market
capitalization.
MDRT
REPORT
– From all accounts, the MDRT meeting for 2006 was one of the
very best in years. Membership in "The Premier Association of Financial
Professionals" has grown steadily for the past 10 years and now stands
at 33,000 in 74 different countries...about 15,000 from the U.S. and
18,000 from other countries. The top 10 countries in membership are:
U.S., South Korea, Japan, Hong Kong, Taiwan, China, Canada, Malaysia,
Singapore and India. Nearly 7,000 attended this year's event in San
Diego. If you are a qualifying MDRT member, we urge you to attend the
next annual meeting in Colorado. We talked to too many producers who
had qualified for years but never attended until recently...they all
regretted not attending sooner!
MDRT
REQUIREMENTS
FOR 2007 MEETING – Membership for the 2007 Round
Table
will require a minimum of $75,700 in eligible first year commissions or
$151,400 in eligible premium. Court of the Table (currently 4,617
qualifiers) will require 3 times this amount and Top of the Table will
require 6 times. FYI, there are currently 1,752 Top of the Table
Producers and they earn just under $500,000 first year commissions a
year.
CFP
APPLICANTS JUMP
– Facing a January deadline requiring a bachelor's degree in
order to sit for the CFP exam, applicants are up significantly. The new
rule will not affect the 51,000 current CFPs, but only about 7% of them
do not have a bachelor's degree anyway. In addition, later
this
year the CFP Board of Standards is expected to unveil new guidelines to
better protect the mark's code of ethics, as well as new practice
standards that include stronger sanctions and fines for violating those
standards.
EXECUTIVE
PAY
DISCLOSURE – The SEC and members of Congress are
calling
for more detailed disclosure of total executive compensation.
SEC
Chairman Christopher Cox summed it up best: "I have a feeling that when
people are forced to undress in public, they'll pay more attention to
their figures."
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AL
GORE IN DISGUISE? - That's the
charge being levied by a few conservative groups that oppose President
Bush's Treasury Secretary nominee, Henry Paulson.
Why? Mr.
Paulson serves as chairman of the Nature Conservancy and supports the
Kyoto Protocol, designed to limit global warming emissions.
ACT ON
CLIMATE CHANGE
- So says Lloyd's of London, warning that insurers must do more to
understand the implications of climate change and base more of their
decision-making on what is likely to happen in the future, rather than
on historical weather patterns.
INTERSTATE
COMPACT COMMISSION -The
National Association of Insurance and Financial Advisors (NAIFA) has
announced its support of the Interstate Insurance Product Regulation
Compact. The Interstate Compact is designed to improve speed-to-market
conditions for life insurance, annuity, disability income and long-term
care products by establishing a single point-of-contact for product
review. Adoption of the compact was required by 26 states before the
commission could become operational — that goal was reached
last
month. So far 27 state legislatures have adopted the National
Association of Insurance Commissioners (NAIC) model law.
EDWARD
JONES WINS IN CALIFORNIA -
The California attorney general sued Edward Jones alleging fraud for
failure to disclose revenue-sharing deals with mutual fund companies.
However, a superior court ruled that federal regulators had sole
authority to set disclosure standards.
AXA
BUYS WINTERTHUR
– AXA will pay Credit Suisse over $10 billion for its
Winterthur
subsidiary. AXA hopes the purchase will increase its presence in Europe
and emerging markets.
SMOKING
BABIES - AXA Equitable Life
may be facing a class action lawsuit involving more than 100,000
policyholders who bought insurance for children, including
babies. Why the suit? AXA supposedly charged
"smoker"
rates, which can be considerably higher than the non-smoking rates for
which these children would presumably qualify. The insurer's
rationale for charging the smoker rates reportedly is that these
children might smoke sometime in the future. Sounds pretty
off-the-wall to us.
NASD
MAKES BIG MONEY
VIA FINES – The regulation business is booming.
NASD
reported income of $72 million in 2004, but $291.2 million for 2005
with fines of member broker-dealers increasing 29.8% to $148.5 million.
The self-regulatory organization oversees more than 5,100
broker-dealers and nearly 660,000 registered representatives.
TOP
EXCUTIVES BEARISH
– According to separate studies by the Business Roundtable
and
the Duke University Roundtable, top U.S. executives are concerned that
rising oil prices, interest rates and possible easing in consumer
spending could bring slower economic growth. The Duke study showed that
46% of CFOs of U.S. companies had grown less optimistic about the
economy during the quarter ended June 1, compared with 25% who had
reported a loss of confidence three months earlier.
HOMELESS
MEN AND DIABOTICAL OLD LADIES
- A pair of Los Angeles women (ages 75 and 73) are charged with
insuring the lives of homeless men, then arranging hit-and-run
"accidents" to collect the death benefits. The two are said to have
collected $2.2 million in life insurance death benefits by getting the
men to sign applications in payment for room and board. The Los Angeles
police are asking insurance company employees and others who believe
they have relevant information to call Detectives Dennis Kilcoyne or
Rosemary Sanchez at (213) 485-2129.
EX-TYCO
CEO WANTS INSURER TO PAY LEGAL FEES
- Jailed ex-Tyco CEO Dennis Kozlowski wants an insurance company to
cover the almost $17.8 million he spent defending himself under a
"officer and director" liability policy. Kozlowski was convicted last
year of stealing more than $150 million from the company he
founded. The insurance company has rejected the claim.
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SENATE
BLOCKS ESTATE TAX REPEAL
– With the insurance industry lobbying against the bill, the
Senate has blocked repeal of the estate tax law. As Frank Keating,
president of the American Council of Life Insurers, puts it, "I am
institutionally and intestinally against huge blocks of inherited
wealth. I don't think we need the Viscount of Enron or the Duke of
Microsoft." The failure of the repeal measure may lead to a
compromise on estate tax reform.
STUDENT
LOAN
INTEREST RATES - On July 1st, interest rates of existing
federal
Stafford and PLUS loans will increase nearly 2% to 7.14% and 7.94%
respectively, meaning that borrowers who are currently repaying their
student loans will see an increase in their monthly payments.
Loan consolidation may, however, limit the increase and enable
borrowers to lock in a fixed rate. Consolidations must take
place
prior to July 1, 2006.
GEN X
LESS SECURE
THAN BOOMERS – A Boston College study shows Gen
Xers more
at risk than Boomers for an insecure retirement. Almost half of
American families are unprepared for cuts in pension and Social
Security income and will have a financial struggle in
retirement.
Baby boomers born between 1946 and 1964 are generally in better shape
than members of Generation X, born between 1965 and 1972, the report
said. That's primarily because these younger workers face the prospect
of diminished Social Security income, and fewer of them will have
defined-benefit pensions. More information on the report is
available here.
VALUE
OF HEALTHCARE
IN RETIREMENT – This from Fidelity
Investments...you need
to include about $200,000 to cover your out-of-pocket medical costs
after retirement. That is Fidelity's estimate of how much a typical
retired couple will spend on prescriptions, deductibles and Medicare
premiums. The amount does not include expenses such as over-the-counter
medications, most dental services and long-term care. Offering your
clients an HSA might help provide a solution...putting away up to
$5,450 pretax per year is possible, but they have to buy a qualified
high deductible health insurance policy.
TERM
PREMIUMS COMING
DOWN - Term insurance premiums continue to
decline.
Reasons: longer life expectancies, enhanced use of technology in
underwriting risks and the Internet as a competitive
"engine."
Healthy insureds may be able to save money by replacing existing term
policies with new ones.
NYSE
FINES PRU OVER
E-MAILS - Prudential Equity will have to pay the NYSE
$800,000
for failing to oversee or store e-mails between brokers and customers.
MORE ON
E-MAIL
COMPLIANCE - Sarbanes-Oxley compliance has created
opportunities
for software companies, especially in the e-mail arena. SOX requires
that all electronic communications be saved and a number of software
companies are marketing active e-mail archiving and retrieval products.
RECORD
529 SALES
- Net sales for 529 college savings plans in the first quarter exceeded
$5 billion, the largest single quarter net sales total on record,
according to data compiled by Boston-based Financial Research
Associates. Perhaps not so coincidently, a new SEC rule
dealing
with 529 disclosure and suitability requirements goes into effect on
August 7. Customers must be told the tax consequences of
buying
an out-of-state 529 plan and broker-dealers must "make reasonable
efforts to obtain information concerning the customer's financial
status, tax status and investment objectives" before selling a 529
plan.
COSTS
TO LEAVE
BROKERAGE FIRMS UP - Investors are paying more to escape
the
clutches of brokerage firms. Costs to use the automated customer
account transfer (ACAT) system and non-ACAT termination fees have both
gone up over the past several years. It can cost between $10,000 and
$20,000 to move a book of business between firms and much of that cost
is being shifted to customers. In March, the NYSE warned investors
about potential transfer problems, saying that hassles can be made
worse with an increase in the number of products customers own.
INHERITANCE
MYTH?
- An AARP study suggests that baby boomer planning to fund their
retirements from an inheritance may be in for a rude
awakening.
Only 19% of boomers received inheritances by 2004 for a median amount
of only $49,000.
CAPPING
OPEBs
- Few companies set aside much cash to fund other post-employment
benefits (OPEBs), such as retiree health benefits. New
accounting
rules could require companies to recognize both pension and OPEB
obligations on corporate balance sheets. The new rules,
coupled
with longer life expectancies and increasing health care costs, are
motivating employers to consider limiting or dropping benefits such as
retiree health insurance.
FED
RATES TO
CONTINUE TO RISE - The Federal Reserve is making it pretty
clear
that rates will continues to go up, thus putting an end to past mixed
messages that the steady rate increases might end.
LTC
SALES TO
CONTINUE UPWARD – A Claritas report estimates
that
households owning LTC insurance will increase to 18% from 16.5% in the
next 5 years. Major reason would appear to be more
recognition of
the value of the product by Boomers.
SOCIAL
SECURITY
ALTERNATIVES - The Employee Benefit Research Institute
(EBRI)
has published another in a series of studies examining the potential
impact of possible changes in Social Security. For more
information, go to www.ebri.org.
TAX ON
SOCIAL
SECURITY - The Social Security benefits tax is really a
tax on
all retirement income and it inflicts some of the highest marginal tax
rates in the entire federal tax code. The federal government imposes
taxes on up to half the benefits of single retirees with incomes higher
than $25,000 ($32,000 for couples) and retirees must add 50 cents in
benefits to their taxable income for every dollar of income above the
threshold until half their benefits are subject to the income tax.
Thus, when retirees receive $1.00 of income, they must pay taxes on
$1.50. Single retirees with incomes above $34,000 ($44,000
for
couples) must add 85 cents to every dollar of income until 85% of their
benefits are taxed. Thus, when these retirees receive $1.00, they must
pay taxes on $1.85. As a result, their marginal tax rate is 85% higher
than for young people with the same income. Bottom line, the Social
Security benefits tax makes the effective rate on retirement saving
such as IRA, 401(k), etc. much higher: 15% income tax bracket
—
and subject to the 50% benefits tax — pay an effective rate
of
22.5% (15% x 1.50). 25% tax bracket — and subject to the 85
percent benefits tax — pay an effective rate of 46.25% (25% x
1.85).
RETIREMENT
FUNDS JUMP
- Fidelity Investments reports that investors sent 62% more money to
mutual fund retirement accounts in early 2006. The sharp jump comes at
a time when research studies show that Americans, who long had relied
on increasingly scarce company pensions for retirement income, face
gloomy prospects because many have not saved enough to live comfortably
after leaving their jobs.
GLOBAL
AGING PROBLEM – Most everyone is aware of how
the
aging of America will place burdens on the nation's financial, labor
and health systems, but we still face the future in much better shape
than most other countries. Consider China. According to reports by the
Center for Strategic & International Studies and Prudential,
Chinese life expectancy has surged at the same time the fertility rate
has plunged, largely because of a strict one-child policy. The result
is a demographic shift that could result in two elderly Chinese for
every child in just 35 years.
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