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 October 15, 2005
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LINCOLN
NATIONAL ACQUIRES JP – In what is described as a "merger
of equals," Lincoln National will acquire Jefferson-Pilot for $7.5
billion in cash and stock to create the fourth-largest U.S. life
insurer with $151.3 billion in assets, behind Pru, Met, TIAA-CREF and
ahead of New York Life.
MORE MERGERS?
- Analysts say companies are trying to extend their geographic reach,
diversify their products and, most important, achieve larger scale.
Manulife's purchase of John Hancock and Met's purchase of Travelers
Life has put pressure on smaller carriers to combine. Mid-sized life
companies are also feeling the pressure of increasing scale and
regulatory issues. Most likely buyers are AXA and Manulife, with
Nationwide Financial mentioned as a likely target.
KATRINA INSURED
LOSSES – Towers Perrin estimates now put Katrina loses
between $40-55 billion, making the hurricane far and away the most
costly catastrophe in U.S. history, eclipsing the Sept. 11 terrorist
attacks and Hurricane Andrew. The storm may cost commercial insurers
$20 billion to $25 billion, while personal lines insurers could face
$15 billion to $19 billion in losses. Unlike earlier natural
catastrophes, business-interruption losses are significant...claims
could cost $6 billion to $9 billion, about a quarter of the total
losses commercial insurers face.
LIFE PREMIUMS DOWN
- Premium rates for individual life insurance — both term life
and "permanent" insurance — are expected to drop by 3% in 2006,
driven largely by significant mortality improvements and increased
competition, according to the Insurance Information Institute. Rate
reductions for the best risks were even steeper, thanks largely to
underwriting and pricing refinements. The effect of these forces drove
the lowest rates available in 2005 to less than half of what they had
been ten years earlier.
BANK ANNUITY SALES UP
– According to Kenneth Kehrer Associates, banks have tripled
their equity indexed annuity sales this year compared to last year.
Banks sold $495 million worth of EIAs in the second quarter, compared
to $181 million a year earlier.
MORGAN, MORGAN MERGER
– Analysts are predicting a merger of JPMorgan and Morgan
Stanley. Reasons are to cut costs and compete against bigger players.
HEALTH ACCESS OVER
QUALITY - The National
Underwriter reports that a new survey backed by Ceasefire on
Health Care found that survey participants were far more worried about
the cost of health coverage and access to basic health care coverage
than they were about provider choice or health care quality.
Interesting side note is that Ceasefire was founded by John Breaux, the
former Democratic Senator from Louisiana, who "now appears to be
positioning himself for a run for the White House in 2008."
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MORE HEALTH INSURANCE NEWS - The
National Committee for Quality Assurance and U.S. News and World
Reports have issued HMO rankings based on effective clinical care and
member satisfaction. According to these rankings, non-profit HMOs
form a larger percentage of the top-quality plans, as compared to their
for-profit counterparts. In other news, the Kaiser Family
Foundation reports that, as the cost of health insurance continues to
increase, the percentage of businesses offering health insurance to
their employees continues to decrease...down from 69% in 2000 to 60% in
2005. The drop in coverage comes almost exclusively from small
businesses, with large firms compensating for escalating health benefit
costs by requiring employees to pick up a larger portion of the
cost..."workers are now paying on average $1,094 more in premiums for
family coverage than they did in 2000." In addition, the average
annual premium for family coverage in 2005 - $10,880 - exceeds the
gross earnings of a full-time minimum-wage worker - $10,712.
LIFE BROKER-DEALERS FINED –
The NASD has levied $7.75 million in fines against life insurance
company broker-dealers and others for violations of the Anti-Reciprocal
Rule. The rule prohibits brokers from recommending funds on the basis
of commissions paid. Fines were levied on broker-dealers from Jackson
National and Lincoln National.
THE BATTLE FOR THE SOUL
OF CAPITALISM - That's the title of a new book by John Bogle,
former Vanguard top executive. The author believes, "The business and
ethical standards of corporate America, of investment America, and of
mutual fund America have been gravely compromised." Further, since
neither Congress, the SEC nor the White House are interested in reform,
the battles in 2006 will be fought in courtrooms by plaintiffs' lawyers
who smell fresh blood in the weakness of the fund industry's claims
that it represents the best interests of shareholders.
FEDERAL CHARTER - According to ACLI
president Frank Keating, the question is not "whether there will be an
optional federal charter for life insurance companies, but when."
SPIN-OFF COMPLETE - The American
Express spin-off of its brokerage, asset management and insurance unit,
now known as Ameriprise, is complete.
MORTGAGE FRAUD – The FBI
reports that "Mortgage fraud is pervasive and growing." Lenders
last year reported to the FBI 17,000 suspected incidents of mortgage
fraud, and the FBI's cases have grown from 534 in 2004 to 642 in the
first half of 2005. At the IRS, criminal investigations of mortgage
fraud from 2001 to 2004 have nearly doubled to 194 cases.
NASD MARKET TIMING
FINES – The NASD has fined ING, First Allied Securities
and Penn Mutual $3.1 million and ordered them to pay restitution
totaling $2.7 million for market-timing transactions and other
violations.
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BANKRUPTCY SURGE – Not
surprisingly, bankruptcy filings have surged in the first half of
October, prior to the change in the law which takes effect on October
17, making it more difficult for people to discharge credit card
debt. Life for those who live on the financial edge is getting
tougher. In addition to the new Chapter 7 bankruptcy laws, credit
card companies have to increase their minimum payment requirements by
January 1, Americans are paying about 20% more in energy costs than a
year ago and home heating costs are predicted to soar this winter.
YEAR-END PLANNING
PITFALLS – Here are the four big ones: 1. Blowing your bonus. 2. Blowing your retirement by
"playing Santa Claus." 3. Giving
gifts without cutting your taxes. 4.
Not understanding the Alternative Minimum Tax (AMT). This element of
the tax law can really bite you. Understanding the AMT will help you
know if you should accelerate or postpone deductions or income.
BOOMERS WORRIED
- According to a new MetLife survey, the closer baby boomers get to
retirement, the less they like what they see. Compared to the
same survey conducted in 2001, the number of baby boomers who are
worried about retirement has doubled. A primary concern expressed
is the possibility of outliving their retirement savings. In
2001, most boomers thought they would retire between the ages of 55 and
64; that's now increased to between 65 and 70. While boomers are
increasingly worried about retirement, fewer are saving at a rate
needed to maintain their lifestyle in retirement...66% this year
compared to 77% in 2001.
LIMIT ON TAX
DEDUCTIONS FOR HEALTH BENEFITS? – That's reported to be
one of the expected recommendations from the panel appointed by
President Bush to make the U.S. tax system simpler, fairer and
friendlier. In addition to capping health insurance deductions,
another reported proposal is to cap mortgage interest deductions.
The objective is to replace revenue lost by repealing the alternative
minimum tax. The report of the tax reform panel is due by October
31. Don't expect a plan from the Bush administration until
sometime next year though.
ALZHEIMER'S GUIDE
- Thanks to MetLife for the wonderful resources they make available to
the public through their Mature Market Institute. The latest in
their "Since You Care" series is Alzheimer's Disease: Caregiving
Challenges, which offers information and resources to families caring
for a loved one with Alzheimer's. This guide is available by
clicking here.
REAL REASON FOR LTCI
– Maybe the best reason for purchasing LTCI isn't just financial.
Consider this from Jeffrey D. Voudrie, CFP. "The physical impact
of caring for a sick loved one is enormous. Everyday tasks that we
often take for granted, such as eating, bathing, or going to the
bathroom, become major chores. As my family found out, trying to
provide all of the care within the family quickly became unmanageable.
The additional duties significantly impacted all the relatives involved
physically, financially and emotionally. For many, the cost of
insurance that provides help with long-term care seems prohibitive. But
the cost of not having it is far greater. You can't underestimate the
emotional impact a long-term illness will have on a family. It is like
a heavy, dark cloud that can't be lifted. The assistance paid for by a
long-term care insurance policy provides the family the ability to deal
with the emotional issues instead of focusing on meeting the physical
needs."
LIFE INSURANCE
KNOWLEDGE GAP – Recent studies by Hartford and MetLife
show similar results...most people have a limited and conflicting
understanding about life insurance. For example: most people think life
insurance is important, but they're not in a big rush to buy it. In the
Hartford survey, two-thirds of the survey participants said life
insurance is "extremely" or "very important," but only half of them had
more than $130,000 in life insurance coverage. The MetLife survey
revealed that although 68% of employees with children under 18 worry
about having financial security for their family in the event of their
death or their spouse's death, 43% have not yet tried to determine how
much life insurance their household needs, and 30% of those with life
insurance are not sure how much insurance they have.
MEDICARE PREMIUM
INCREASES - The monthly Medicare Part B premium will increase
from $78.20 to $88.50 beginning January 1, 2006, a 13% increase. The
Part B deductible will increase from $110 to $124, and the Part A
deductible will increase from $912 to $952.
ANNUITY INCOME
ADJUSTMENT - New York Life has introduced a Changing Needs
Option, which allows purchasers to increase or decrease annuity income
payments by as much as 50% at a scheduled date in the future.
ANNUITY SUITABILITY
– The California Insurance Commissioner sent a letter to life
insurers doing business in the state asking them to adopt suitability
standards for selling annuities to seniors. "Insurers, brokers and
agents owe it to their clients to deal from a position of honesty, good
faith and fairness."
NON-SAVERS BLAME
ECONOMY, PAY – The current Allstate "Retirement Reality
Check" survey found many Americans financially stretched and reporting
that if they are to save more money, they need a pay raise and a better
economy. However, respondents said they are disciplined (87%), educated
about investments (71%) and good savers (78%). Unfortunately, 56%
reported savings and investments of less than $100,000, not including
their home. This is pretty scary.
LOW COST INVESTING
ABROAD - Traditionally, most small investors have opted for
actively managed mutual funds as a springboard for entering global
markets. In the past year, however, index funds, notably
exchange-traded funds or ETFs, have climbed into the spotlight with
their strong performance, cost efficiency, and a widening investor
appreciation of their precision as asset-allocation vehicles.
SERVICE, NOT PRICE
– A recent survey conducted by Prudential found that service is
the key for plan sponsors, with 77% saying they prefer superior service
at a competitive price to lowest possible premiums. In addition, only
23%of those polled "strongly agree" that insurance carriers are
delivering that value and adapting quickly with products and services
to meet ever-changing plan sponsor needs. Alarmingly, 58% of those
polled say that group insurance products are commodities and are "all
basically the same." Another 53% believe that all large group insurance
carriers are alike and "nothing really sets them apart."
RETURN-OF-PREMIUM
RIDERS - We're starting to see some life insurers promoting
return-of-premium riders on term life policies as a way to boost
sales. At the end of the term period, the riders return the
premiums paid, sometimes with interest. The downside is that the
cost of a return-of-premium rider can just about double the term life
premium which is, however, still considerably less than permanent life
insurance.
CALIFORNIA
AFFORDABILITY - For those of us who don't live in California,
these statistics on California home affordability are shockers:
home prices have more than doubled since 2001, only 14% of households
can afford the typical home and large numbers of households are
dedicating a whopping 40% to 50% of income to monthly home costs
(compared to 30% on a national basis).
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