© Copyright 2005
US FlagDecember 15, 2005 Edition
1stLifeSettlements


BROKER-DEALERS TIGHTEN GRIP - National Planning is telling its registered representatives that they must register with the firm as investment adviser reps when discussing or selling any financial planning products - such as life insurance. Many reps sell such products without registering in order to avoid splitting fees with their broker-dealers. The SEC's recent "Merrill Lynch rule" seems to be at the root of National Planning's decision. This move could be a trend and cost some reps a portion of their fees and commissions.

NASD "RISK SCORES" - NASD plans to assign broker-dealers and individual registered representatives "risk scores" based on "customer complaints, arbitrations, civil and criminal litigation, regulatory actions, etc."

MORNINGSTAR BUYS IBBOTSON – Morningstar, the mutual fund analyst, has purchased Ibbotson, the chart and historical data people, for $83 million. Morningstar just completed an IPO in May and the deal should add additional clout to its equity research department.

GM AND FORD – S&P has downgraded GM's bonds and stated that bankruptcy is not "far-fetched" if present trends continue. At the same time, Ford is preparing to lay off about 30,000 employees and close at least 8 plants.

TRIA UPDATE – The House and Senate have both passed legislation extending the Terrorism Risk Insurance Act (TRIA), which expires on December 31.  The problem is that the House extension is considerably more expansive than the Senate version.  It remains to be seen what compromise can be worked out prior to the end of the year.

NAME CHANGE - Allmerica Financial Corporation has changed its name to The Hanover Insurance Group and now trades on the NYSE under the symbol "THG."
 

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NEXT RETIREMENT TIME BOMB – We are finally seeing the mainstream financial press addressing what we have said is a very serious problem for years now. Municipal, state and federal defined benefit retirement programs and retirement health benefits are seriously underfunded. Actuaries just discovered that the health benefits promised to retirees of Duluth, MN (lifetime health care to all of its retired workers, their spouses and their children up to age 26) will cost about $178 million, or more than double the city's operating budget. And the bill was growing. The mayor put it this way, "We can't pay for it. The city isn't going to function because it's just going to be in the health care business." This scary scenario is about to be repeated across the country in thousands of government bodies, including states, cities, towns, school districts and water authorities.

FURTHER EVIDENCE OF THE "BOMB" – The state of Alaska recently "discovered" its future combined obligations for pensions and retiree health care were underfunded by $5.7 billion. Michigan estimates its underfunding at $30 billion and Maryland at $20.4 billion. Actuaries say that about 5.5 million retired public employees have health benefits of some kind and that there are not enough actuaries in the country to do all the calculations necessary to estimate how much all these retirees have been promised. FYI, only one in 20 private companies still offers retiree benefits.

INSIDE BUILDUP – The President's Advisory Panel on Federal Tax Reform has recommend a low cap on mortgage interest payment deductions, but another section of the panel's recommendations is more onerous to the insurance industry. The panel would put life insurance and annuities in a category that would include investment products, such as mutual funds, and allow a maximum of $10,000 per year in tax-free inside buildup of investments in these products. This could be disastrous to the insurance industry and, needless to say, virtually all industry associations are lobbying vigorously against the proposal.

AMERIPRISE SETTLES - Ameriprise Financial (formerly American Express Financial Corporation) settled market-timing charges with regulators by agreeing to pay $15 million to the SEC. Additionally, Ameriprise will make annual presentations before the funds' board of directors, specifically about its policies and procedures to prevent market-timing and hire an "independent distribution consultant" to determine how the penalty should be distributed among shareholders adversely affected at the market-timed funds.

ECONOMIC OPTIMISM - Corporate America is about to start spending.  Two-thirds of the companies participating in the fourth quarter "CFO Outlook" survey plan to increase capital spending over the next twelve months, and the average change is expected to be up 9%. The CFO economic optimism index, which had been dropping since June 2004,is now at its highest level since that date.

USPS IS OUT OF DEBT - The U.S. Postal Service reported it was out of debt in the 2005 fiscal year ended Sept. 30 and that it delivered a record 212 billion pieces of mail during the period. "Financially, we are in the best position we've been since the 1970s," said Postmaster General John Potter. However, rates for sending a first class letter will increase two cents to 39 cents, or by 5.4%, in January. Wonder what financial position the Postal service would be in if we knew the extent of underfunding of retiree health and retirement benefits?

DEERE SELLS HEALTH UNIT - Tractor manufacturer, John Deere, is selling Deere Health Care to UnitedHealth for $500 million. The unit now manages health care for Deere employees, retirees, surviving spouses and dependents.

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DISABILITY COULD JEOPARDIZE RETIREMENT – A MetLife survey of 401(k) participants indicates that only 43% have individual or group disability insurance and 59% have less than $5,000 in personal savings. As a follow-up question, researchers asked what participants would do if they needed $10,000 to $35,000 for a major illness. 27% said they would get the needed money from savings and investments; 21% said they would have to use home equity; 25% said they would have to tap into their retirement and 26% had no clue.  More survey results are available by clicking here.

RECENT FIGURES - The Social Security Administration (SSA, 2003) estimates that three in 10 of today's 20 year olds will suffer a disability before reaching age 67. In another sobering statistic, the SSA reports that 75 percent of people working in the private sector have no long-term disability insurance. Essentially, three of four workers would have to rely on their own personal savings, limited state-run insurance and Social Security for replacement income in the event they could not work because of a disability. In August 2004, the average monthly Social Security benefit for disabled workers was $867. Over the course of a year, that totals approximately $10,400, and for many workers and their families, that is significantly less than their annual expenses.

RETIREMENT PLANNING RESOURCE - National Association for Variable Annuities (NAVA) has produced a very nice educational website for consumers that could help advisors working in the retirement market. Check it out at www.RetireOnYourTerms.com.  AXA has also unveiled a "VA education service" at www.variableannuityfacts.org.

IRS RAMPS UP TO FIND CHEATERS - According to the Internal Revenue Service Oversight Board, the federal government is cheated out of $300 billion a year in unpaid taxes. Further, about one in five taxpayers believe that it is "acceptable" to cheat on their taxes. However, things may change soon since Congress recently increased IRS money earmarked for enforcement activities. The plan is for the agency to focus more of its resources on investigating taxpayers with incomes of $100,000 plus and those using abusive tax shelters.

INDEX ANNUITIES OUT PERFORM CDs – According to Advantage Compendium, over the last 5 years the worst performing index annuity beat the total return of the average stock mutual fund by over 4% and the average "Index Annuity" return was 70% higher than the average CD. The reality is index annuities performed reasonably, but not exceptionally, in a difficult five-year timeframe. The average index annuity total return was 24%.

SMOKING AND EATING - The America's Health Rankings report claims that 23.1% of the U.S. population is obese...twice the level in 1990. Further, while the number of smokers has fallen about 30% since 1990 (to 20.8% of the population), most of that decline came in the early 1990s with no significant drop between 1993 and 2003. Bottom line: With more people getting fat and fewer giving up smoking, the improvement in the overall health of Americans has stalled. This article claims that life expectancy in the U.S. is less than 70 years...less that 28 other countries, but see the next abstract.

LIFE EXPECTANCY AT ALL-TIME HIGH - U.S. life expectancy has hit an all-time high at 77.6 years. But, the march of medical progress has taken a worrisome turn: Half of Americans in the 55-to-64 age group have high blood pressure, and two in five are obese. That means they are in worse shape in some respects than Americans born a decade earlier were when they were that age. The health of this large group of the near elderly is of major concern to American taxpayers, because they are now becoming eligible for Medicare and Social Security.

REJECTED - The National Association of Insurance Commissioners has rejected the proposal to issue a special license for those who sell term life insurance only.

TIPS, AN INFLATION HEDGE - Treasury Inflation Protected Securities (TIPS) are issued by the Treasury, backed by the full faith and credit of the U.S. government and are the most common (but still relatively unknown) U.S. inflation-indexed security available to investors. The principal of TIPS adjusts for changes in inflation based on the Consumer Price Index (CPI). When TIPS mature, the investor receives the original value of the bond plus an additional amount to account for inflation. TIPS pay a fixed rate of interest twice each year. The interest rate is applied to the adjusted principal, so interest payments rise with inflation and fall with deflation.

TAX GUIDE AVAILABLE - Deloitte has published "Essential Tax & Wealth Planning Guide for 2006," a roadmap that helps individuals navigate traditional tax, wealth planning and financial planning issues, as well as potential hazards, such as the alternative minimum tax, repeal of the estate tax, the new tax law, hurricane relief and other issues.  The guide is free and available by visiting Deloitte's Web site.

GOOD NEWS/BAD NEWS - The good news is that, according to the Federal Reserve, the net wealth of American households rose to $51.09 trillion in the third quarter, up from $49.77 trillion in the third quarter.  The bad news is that household debt grew at the fastest rate since 1987...an annual rate of 11.6%.

FREE EIA PERFORMANCE RATINGS - A new, free online service from MCP Premium software removes the guesswork about how different equity-indexed annuities may perform in different markets. Advisors can now easily see which EIA products are more likely to consistently perform better than their peers. It is the industry's first service of this kind. This free site, located at http://mcppremium.com/mcp_adv_ratings.htm, gives letter grades for dozens of equity-indexed annuities, rating their performance in bear and bull markets and over the last 10 years.

MEDICARE PART D – The new Medicare Part D prescription drug benefit continues to suffer criticism concerning its complexity.  Retirees with company-provided health care coverage, however, need to be especially careful.  Some companies providing retiree coverage have indicated that retirees who enroll in Part D will lose the company's drug coverage, while other companies say that such retirees will lose ALL company-provided health care coverage.  Buyers beware!

LESS SATISFIED – Research from the Employee Benefit Research Institute indicates that Americans enrolled in high-deductible health plans are less satisfied with their health plan those people who have comprehensive health insurance.  They are also less likely to recommend the high-deductible plans (i.e., HSAs/HRAs) to friends and family.  More information on the survey is available here.

SPEAR-PHISHING – You have heard about phishing, but now there is spear-phishing, which targets specific victims instead of casting a broad net across cyberspace hoping to catch victims. By targeting specific individuals, the spear-phisher can produce Bogus e-mail messages and Web sites that not only look like near perfect replicas of communiques from e-commerce companies like eBay or its PayPal service, banks or even a victim's employer, but are also targeted at people known to have an established relationship with the sender being mimicked. Be careful!

PHISHERS USING TAX REFUND AS BAIT - A spam e-mail tells people they are eligible for a $571.94 tax refund from the IRS and, due to some very bad programming by the government, it actually links directly to the government.  "This is more advanced than the typical phish, because the Web link really does--at first--take you to the real tax benefit Web site. Unfortunately the way the government Web site has been configured allows the phishers to bounce the unwary in their direction." The link in the phishing e-mail goes to a forged IRS Web site that asks for a Social Security number, tax return filing code and credit card details including security code and PIN.