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 November 15, 2005
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PRU EYES LINCOLN NATIONAL - Lincoln
National shares rose sharply on the rumor of a possible buy-out by
Prudential. No comment from either company, but Pru is adding to its
"war chest" of about $3.5 billion of excess capital with plans to
privately sell $2 billion in bonds and may also have its eyes on Sony
Life or ING's US operations. Not sure how this move would affect
Lincoln's previously announced $7.5 billion takeover of
Jefferson-Pilot.
STOCK OWNERSHIP UP
– In the last 20 years, the number of U.S. households with
investments in the stock market has tripled. Major driving factor has
been the use of equities as the vehicle of choice for retirement
savings. Either directly or via mutual funds, one in three Americans
now has a stake in the stock market.
SOCIAL SECURITY
OVERHAUL AND PUBLIC PENSIONS - The chairman of the Senate
Finance Committee says that overhaul of the Social Security system is
not likely before 2009. President Bush made Social Security
investment accounts a top domestic priority, but when support for the
idea fell, so did the chances for any reform. We certainly don't
pretend to have a solution, but we do know another problem that
deserves as much attention...this country does not have enough money to
prop up traditional pension plans for failing companies, as well as to
pay the retirement benefits provided by local, state and federal
entities. And then there's Medicare funding!
METLIFE 529 PLAN
PROBE – The NASD recently forced Ameriprise (formerly
American Express Financial Advisors) to pay fines and restitution for
violations involving sales of 529 plans and it looks like they now have
MetLife in their sights. Basic charge is "failure to adopt, maintain
and enforce written supervisory procedures reasonably designed to
achieve compliance with suitability requirements regarding the sale of
college savings plans."
CRIMINAL CONDUCT
- The Bank of New York, one of the oldest U.S. financial institutions,
"has admitted its criminal conduct" in a Russian money laundering
conspiracy and will pay $38 million in penalties and
restitutions. Two bank executives have also pleaded guilty to
helping two Russian banks conduct illegal activities in the United
States. Pretty disgusting!
SMALL BUSINESS
OUTLOOK GOOD FOR 2006 – An Administaff survey of small to
middle-sized business owners reveals optimistic expectations for next
year...64% of business owners plan to raise wages and 66% intend to add
employees. Biggest concerns, in order: Health-care, rising energy
costs and taxes.
INSURED LOSSES $40.8
BILLION IN 3Q - ISO's Property Claim Services reports U.S.
insurers paid an all-time record $40.8 billion to homeowners and
businesses for losses in 14 states during the third quarter, making
2005 already the costliest year for catastrophe damage.
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U.S. DISASTER FUND - Gulf coast
state insurance commissioners urged lawmakers to create a national
catastrophe insurance fund, saying it was needed to backstop insurers
against future devastating losses and preserve coverage. Lawmakers in
Congress are discussing whether to create such a fund to keep insurers
from withdrawing coverage from certain areas and reduce the risk that
taxpayers would be saddled with billions of dollars in emergency
spending after major disasters like Hurricane Katrina.
BILL ON CEO PAY – Alarmed by
"runaway" executive compensation, House Democrats are proposing a bill
that would require companies to fully disclose what they pay top
management. The legislators point out that the percentage of profits
that go to the top five executives at U.S. public companies had more
than doubled from 1993 to 2003...from 4.8% to 10.3%. The
legislation would make public companies disclose all compensation paid
to top executives, including pensions, private jets, and other often
hidden benefits.
WORKERS LOSE
- A Government Accountability Office (GAO) study says that workers
generally lose retirement benefits when employers switch from
traditional pensions to cash balance plans. Unfortunately, when
workers do lose pension benefits, older employees, who have less time
to save for retirement, suffer the highest loss in benefits.
JPMORGAN CHASE INSURANCE UNIT ON BLOCK
- In a move by the third largest bank in the U.S. to shed a smaller
noncore business, JPMorgan Chase is said to be talking to Genworth
and/or Protective as possible buyers for their life insurance and
annuity unit. Price should be around $550 million to $650 million.
CONSECO FOUNDER MUST
PAY LOANS – The Indiana Court of Appeals upheld a lower
court's ruling ordering Stephen Hilbert to pay $72 million to his
former company. The debt stems from company-backed loans Hilbert was
granted to buy Conseco stock...such loans are now illegal. Hilbert has
repaid little of the more than $240 million in principal and interest
the company alleges he owes.
PRU TO BUY-BACK $2.5 BILLION OF SHARES
– Prudential's board of directors authorized the repurchase of
about 6.7% of Prudential's common shares for $2.5 billion in 2006.
ONLINE ID THEFT UP
– Despite the best efforts of banks and regulators, ID theft
online is still rising. The FTC reports that 10 million Americans are
ID theft victims each year and they spend an average of 90 hours and
$1,700 resolving the problem. "Phishing," where criminals send e-mails
asking prospective victims to verify personal information, continues to
be a problem, but experts also have seen a surge in "pharming." This is
where criminals redirect user traffic at legitimate Web sites to
fraudulent sites or proxy servers, without any overt indication they
are doing so.
BIRD FLU KATRINA? – The
National Underwriter reports that insurance industry experts are
counting on increased government activities against influenza to reduce
the risk that avian influenza will lead to significant mortality
losses...a life insurance version of Katrina. However, to pose a
pandemic threat, an avian flu strain must be able to jump to humans, be
lethal and move easily from human to human. The avian flu has two of
the requirements, but has not yet mutated to the point where it easily
spreads from one human to another.
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CONFUSION REIGNS - That's the
consensus concerning enrollment in the new Medicare drug benefit, which
begins today. Many older Americans appear to be overwhelmed and
confused by the choices they have to make. In most states,
Medicare beneficiaries have to choose from among some three dozen
plans, among which premiums, deductibles, co-payments and covered drugs
vary widely. Along with other information on the new Medicare
Part D benefit, the government has a "plan finder" online at http://www.medicare.gov.
Another resource...AARP has published a special report on how the
Medicare drug program works, how to choose a plan and how to sign
up. A copy is available by clicking here.
SINGLED OUT -
In a speech to a Securities Industry Association group last week,
Robert Glauber, NASD chairman, complained about the EIA sales process,
saying that too many equity-indexed annuity sellers are portraying them
as no-risk products. A copy of the speech is available at http://www.nasd.com.
TAX DANCE -
It's a pretty safe bet that we'll have a tax bill before the end of the
year, but other than extending some expiring tax provisions, it's not a
safe bet to predict what will be in it. Moderate Republicans have
joined most Democrats in opposing current tax legislation making its
way through both the House and the Senate, resulting in the
postponement of several votes.
ESTATE TAX AND LIFE
SETTLEMENTS – The current tax law probably has prompted
some to consider they do not need as much life insurance as in the past
for estate tax and settlement cost purposes. Policy evaluation is
probably a good idea, but you might want to suggest that your clients
at least hedge their bets. Considering the current national debt, no
one should seriously believe that the "death tax" will ever be
permanently repealed.
ASSISTED LIVING
COSTS RISE - The MetLife Mature Market Institute reports the
average base cost of assisted living increased 15% last year, to
$34,860 a year. Assisted living is housing for older adults who need
help with daily living. The most expensive town in the survey was
Boston, where the costs exceed $55,000 per year, and the least
expensive was Jackson MS at less than $20,000. The complete
survey is available by clicking here.
DEBT DENIAL -
"The road to financial ruin is paved with plastic. More than ever
before Americans are racing along this highway to hell -- saving less
than ever, draining cash from home equity and continuing their
unrelenting pursuit of the good life." It's an addiction and,
like all addictions, those who are hooked are in denial -- debt denial.
As a result, we're in it up our eyeballs; more than $21.5 trillion as
of August 2005, according to the Federal Reserve. All those zeroes
translate to nearly $7,700 for every man, woman and child in the United
States.
CHRISTMAS AND
CHARITABLE GIVING - Americans spent almost as much in two months
on holiday items as they did all year on charitable giving in 2004.
Holiday retail sales for November and December 2003 totaled roughly
$229 billion, while charitable giving for 2004 topped $248 billion. "I
started the Holiday For Charity program in 2002 because I wanted to
give more to charity and encourage others to give as well," says Harry
Hoover, managing principal of Hoover ink PR.
"Fortunately, I am blessed with a comfortable life. I really don't need
Christmas gifts. So, I asked everyone who might give me a gift to
donate to charity in my name instead." Hoover says the program is
an easy way for individuals and companies to help their favorite
charities. Here's how Holiday For Charity works:
1. ask friends, family and business associates to donate to a charity
instead of buying you holiday gifts
2. sell your gifts online at eBay's GivingWorks, http://pages.ebay.com/givingworks/,
and donate the proceeds to charity
3. register and shop at http://iGive.com,
whose merchants donate a portion of each transaction to the charities
of your choice
4. offer to do volunteer work in lieu of buying holiday gifts
5. donate directly to charity in lieu of buying holiday gifts for
clients and customers
EXECUTIVE BENEFITS
SURVEY - Clark
Consulting has released its 12th annual survey of executive
benefits. Non-qualified deferred compensation plans continue to
be popular and informally funding these plans with life insurance is on
the rise.
SMALL GROUP
DOMINATION - GAO researchers have published a report documenting
the lack of competition in many small group health insurance markets,
which are becoming increasingly dominated by a single carrier, such as
Blue Cross and Blue Shield companies and UnitedHealth Group. As
explained by the National Underwriter, "Business owners with fewer than
50 employees in some states may feel as if they already buy health
coverage through a single-payer health care system."
BROKERS VERSUS
INSURANCE AGENTS – Investment
News reports a dispute brewing between brokers and insurance
agents over sales of equity index annuities. "Brokers are hot about
losing annuity customers to insurance agents and are accusing agents of
misrepresenting the products." Insurance industry supporters dismiss
the broker complaints as "whining."
THE NET AND HEALTH
CARE – A survey by UICI, a health savings account
provider, indicates that consumers will not "shop" for health care
online. About 56% of the car buyers and 44% of the computer buyers used
the Web for research, but only 22% do so to choose new doctors, and
only 12% of hospital patients used the Web to compare hospitals.
MORE IRS AUDITS
- More corporations and wealthy taxpayers had their tax returns audited
by Internal Revenue Service examiners this year, helping the agency
haul in a record $47.3 billion in unpaid taxes. Last year, the IRS
audited 1 in 63 individuals and families reporting $100,000 or more in
earnings. Overall, about 1 out of every 107 individuals and families
faced an audit, more than last year when about 1 in 129 taxpayers were
audited.
LAW SITE -
ChooseLaw.com is a new, informative legal website, providing resources
to attorneys, businesses, financial advisors and anyone else interested
in law. Currently it is free and apparently paid for by attorney
referrals. Check it out at http://www.chooselaw.com.
YOUNG ADULTS LACK
HEALTH INSURANCE – A study by eHealthInsurance reveals
that while Americans ages 18 to 34 make up only 23% of the U.S.
population, they make up 31% of the uninsured U.S. population. Despite
the fact that they would have the least expensive premiums, it is
likely that perceived invincibility is the cause.
REVERSE MORTGAGES UP
– The Federal Housing Administration reports that standard
reverse mortgages increased 14% last year. Most common uses of the
funds generated are for retirement or to pay for home-based care. Note:
Federal law requires that reverse mortgage applicants receive mandatory
counseling.
HIRING THE HEALTHY
– Health-care costs are soaring and employers are becoming aware
that a relatively few workers are responsible for a significant part of
those costs. Federal law prohibits not hiring workers because of
disabilities, age or race, but many employers are considering how to
push the issue of hiring a healthy work force. This is going a lot
further than trying to change the lifestyle of current employees.
SAVE FOR THE MILES
– You would think saving for retirement is a worthy goal on its
own, but PensionOnline has developed an Internet-based 401(k) program
that uses frequent flyer miles and other incentives to encourage
contributions.
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