© Copyright 2005
US FlagSeptember 15, 2005 Edition
1stLifeSettlements



KATRINA & INSURERS – Just days after saying that Katrina's insured loses would probably not impact the ratings of insurance companies, Moody's, S&P and other rating companies are changing their tune. Losses are worse than previously expected and S&P may downgrade 10 large insurance groups. Current estimates range from about $25 billion to as high as $60 billion and are likely to exceed the largest natural disaster to date (Hurricane Andrew in 1992), which cost $20 billion to $23 billion.

KATRINA HELP FROM THE INSURANCE COMMUNITY – Americans in general and the insurance community in specific are really stepping to the plate with private aid for the victims of Katrina. National Underwriter has compiled a list of what various companies, agencies and associations are doing. Be sure to check out the "matching fund" opportunities offered by several major carriers...click here.

REINSURANCE PRICES TO RISE – File this under, "No Kidding." Munich Re, the world's largest reinsurer, says price increases are inevitable across the reinsurance business in the wake of Hurricane Katrina.

BLOWN AWAY – The National Association of Insurance Commissioners (NAIC) was forced to cancel its quarterly meeting scheduled to start on September 10.  Bet you can guess the reason...the meeting was scheduled for New Orleans.  Also, Senate debate on estate tax repeal, scheduled to begin this month, has been delayed.

U.S. ECONOMY STABLE DESPITE KATRINA – The Congressional Budget Office (CBO) says the overall effects of Hurricane Katrina on the U.S. economy will be "significant but not overwhelming." CBO's September 6 report said the disaster could dampen by 0.5 percent to 1 percent the real, or inflation-adjusted, growth that most economists expected to be in the 3 percent to 4 percent range in the second half of 2005 and reduce employment by 400,000.

AXA SALE – AXA Financial has agreed to sell The Advest Group, a regional investment firm, to Merrill Lynch for an undisclosed price.  Merrill is making the purchase to gain access to Advest's wealthy client base and AXA is selling in order to "reinvest in our strong core businesses of life insurance and annuities."

GREENSPAN RETIREMENT - The Federal Reserve dropped a clear hint that Chairman Alan Greenspan will retire as planned on January 31, 2006, reinforcing a sense in financial markets that time is running out to name his successor.
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NEBRASKA LIFE? – Pacific Life Insurance Company has "redomesticated" its operations from California to Nebraska.  Reason:  California premium taxes are 2.35%, compared to a maximum rate of 1% in Nebraska.

LINCOLN FINANCIAL, PROS AND CONS – Restructuring, also known as compensation changes, is resulting in a loss of advisors at Lincoln Financial. However, the company was just selected as one of the best 100 companies for which to work.

$850 MILLION NOT ENOUGH FOR MARSH - Marsh & McLennan, which agreed to pay $850 million to settle a bid-rigging probe, is now saying that regulators want more.  Several state attorneys general and insurance commissioners are still probing the company and seeking additional money from the insurance broker for alleged bid rigging. 

ALLSTATE SETTLES FOR $120 MILLION – Allstate will pay $120 million for a class-action lawsuit concerning unpaid overtime pay, pay for meal and rest break violations, and other fees and costs related to the suit.

MASTERCARD TO GO PUBLIC - MasterCard will go public early next year, ending four decades as a private association owned by card-issuing banks.

FEWER HAVE EMPLOYER PROVIDED HEALTH BENEFITS – No surprise here, but the Census Bureau reports that a smaller percentage of Americans are being covered by employer-based insurance. The figures also show 45.8 million uninsured in 2004, up from 45 million in 2003, but the percentage that lacked insurance remained steady, at 15.7%. Other facts: Government programs covered 79.1 million people in 2004, or 27.2% of the population, up from 26.6% in 2003.

FLOOD BORROWING - Congress has passed legislation increasing the government's flood insurance borrowing authority from $1.5 billion to $3.5 billion in order to cope with Katrina-related claims.  As with most everything Katrina-related, experts are saying the tab could be much higher, with predictions of up to $10 billion in claims paid by the National Flood Insurance Program.

ACCURATE PREDICTION - If you have a few minutes, read the National Geographic article located here.  As you read it, you may think it was written in the last week or two, but it wasn't.  This remarkably accurate prediction of the fate awaiting New Orleans was written about a year ago.
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TAX BREAKS FOR HELPING VICTIMS – To help the recovery effort, people who provide housing to Hurricane Katrina victims for at least 60 days will get a $500 per person tax deduction (maximum of $2,000) under a Senate proposal. Other tax breaks will help employers in the disaster zone keep workers on their payrolls and encourage businesses to hire victims of the catastrophic storm.  Legislation would also free up retirement plan assets by waiving the 10% premature distribution penalty for residents of the disaster area, exclude IRA assets rolled over to qualified charitable organizations from taxable income and raise the cash contribution charitable limit from 50% to 60% of adjusted gross income for 2005.

UNUSED BENEFITS TO KATRINA CONTRIBUTIONS - The IRS has created a new program to encourage workers to give up unused vacation time and sick days that could be turned into charitable contributions to aid the victims of Katrina. In essence, employers convert the donated time into cash contributions to charities and workers (including those who do not itemize) would be able to deduct the amount donated from their federal tax return. Also, the IRS is extending certain tax deadlines for people living Louisiana, Mississippi, Alabama and three counties in Florida.  The IRS has also set up a toll-free disaster hotline (866-562-5227) and an area on the IRS website for those needing Katrina information.

NEW ANNUITIES - As defined benefit pension plans continue to fall from favor, expect a host of new annuity products that more closely resemble mutual funds normally found in a 401(k) plans to develop. The newer generation product will have reduced fees and early-withdrawal penalties...possibly resulting in lower commissions. MetLife and Pru are working on new products that lock in a payout interest rate at the time of investment. (With a traditional fixed annuity, the return would be based on the rate at the time of conversion.) TIAA-CREF and perhaps others are said to be working on no-load products.

IMPARED RISK ANNUITIES – Here is good news (?)...expect to see more medically underwritten annuities. The reason is pretty simple. A traditional annuity isn't such a hot deal for someone with physical impairments that reduce life expectancy. A person with a life expectancy of 10 yours should expect to receive more in payments than someone with an expectancy of 20 years.

FINANCIAL RATINGS TOP CONCERN – Investment News reports that the top consideration by financial advisers when recommending insurance products is the financial rating of the insurer. Price was listed as the second consideration. For VAs, guarantees and investment options were the top two considerations.

BOOST FROM SPLIT ANNUITIES - Retirees facing the choice between a low-yielding safe CD or higher-yielding investments that carry higher risk may want to consider a split annuity.  A split annuity consists of an immediate annuity and a deferred annuity.  The immediate annuity pays a guaranteed monthly income, generally a larger amount than would be available from a CD.  The funds in the deferred annuity grow tax deferred, eventually replacing the money used to purchase the immediate annuity.

RECORD QUARTERLY HOME PRICE INCREASE - The Office of Federal Housing and Enterprise Oversight said home prices rose 13.4% in the 12 months ended in June, the fastest rate since 1979. Appreciation was 3.2% from April to June 2005, 12.8% on an annual basis. Prices have risen more than 53% in the past five years. To see how your area did, check out the USA Today chart here.

BUT IS THE BUBBLE HERE? - Some experts predict the red-hot housing market may be nearing its peak, which could be a problem for those homeowners who bought at the top...especially those with ARM mortgages. They seem to have been projecting this "cool down" for several years now, but it will definitely happen sooner or later. FYI, the nationwide median price is at a record $218,000.

IRS BUMPS MILEAGE RATE - The Internal Revenue Service, reflecting higher prices at gas pumps nationwide, increased the mileage reimbursement rate from $40.5 to $48.5 a mile for the last four months of the year. Many businesses use the IRS rate as a benchmark for reimbursing employees for travel costs. The tax agency said the decision to temporarily increase the rate $.08 in the middle of the year marked the largest single increase on record.

AUTOMATIC INVESTMENT PLAN (AIP) – Just read a nice article about a simple, but tried and true, method of accumulating wealth...automatically pay yourself first. This is made easy with an "Automatic Investment Plan" (AIP) for mutual funds. You automatically pay a specific amount of funds from your checking account or paycheck, and invest it in a mutual fund. You will get "triple compounding"...you add to your account every month; the funds net asset value is likely to grow; and all dividends and distributions are automatically reinvested. However, you can get an additional "compounding" with a VA, VAL or just plain old whole life insurance...the taxes on all your gains are deferred!

BABY BOOMER RETIREMENT - AARP reports that 80% of the boomers plan to work past age 65, and Merrill Lynch says 13% plan to start a business in their golden years. For some the issue is having the necessary funds to retire, but for many the question seems to be, "What will I do with all that free time?" However, continuing to work may not be that easy. Many companies want to see the older work force move on and make way for younger workers.

RETIREMENT HABITS - The WSJ provides us with the "Seven Habits of Highly Successful Retires." 1. Value your time (It is all you have.) 2. Think ahead (Folks who plan for retirement are happier.) 3. Expect less. (Look for a lifestyle you can afford.) 4. Pick your neighbors (People care deeply about how their standard of living compares to their neighbors.) 5. Buy yourself income. (Retirees who receive traditional company pensions are happier than those who have to rely solely on the savings they have amassed. If you don't have a pension, buy an immediate annuity.) 6. Work at retirement. 7. Invest in friendship.

SENIORS BEWARE MEDICARE SCAM - Scammers are using the Medicare prescription drug program that participating companies cannot start marketing until Oct. 1 to attempt to get financial information over the telephone. The callers threaten seniors that they will lose Medicaid benefits if the information isn't provided...NOT TRUE!

MORNINGSTAR DEBUNKS THREE MYTHS – Specifically: 1. There's No Risk in Value Stocks (Hogwash) 2. It Costs More to Run a Growth Fund (Why?) 3. International Stocks Are Riskier than Domestic Stocks (Not really. We are just more comfortable with domestic stocks).

RELATIVELY FEW SUPPORT PARENTS - A WSJ/Harris Poll shows that only about 4% of U.S. adults provide financial assistance to their parents, but among this group, about 70% say it impacts their personal finances.