Protections for AIG Policyholders - WSJ.comPeople with an annuity or a life-insurance, auto or homeowners policy through American International Group are no doubt mighty worried right now as they watch that company struggling.
But policyholders don't need to panic, experts say. For one thing, while the holding company is in financial distress, AIG's insurance subsidiaries are separate entities that are financially sound, regulators and others say.
AIG's insurance subsidiaries "did not receive a bailout; they are financially solvent," Sandy Praeger, president of the National Association of Insurance Commissioners, said in a statement last week. She added in an interview that "state insurance laws regulate the AIG subsidiaries to assure that the assets are preserved to protect the interests of policyholders."
Further, if an insurance company were to fail, each state runs an insurance guaranty association to protect policyholders. Insurers ante up fees to ensure customers of failed firms are protected. Still, those state guarantees are limited -- and that potentially could mean problems for some policyholders if an insurer becomes insolvent.
Your best bet now is to take a measured approach. Find out whether you're fully protected by state guarantees. Contact your state insurance department, or look up your state's rules at www.nolhga.com.
If you're not, weigh your options. Talk to your insurance broker about possible surrender charges or other penalties for exiting your policy or annuity, and determine the cost of purchasing similar products elsewhere. Remember that even consumers with policies worth more than their state's guaranteed limit may have nothing to worry about given that these insurers are solvent.
Life-Insurance Protections
State guaranty associations protect life-insurance policyholders for at least $100,000 in cash surrender or withdrawal value and at least $300,000 ($250,000 in California) in death benefits, says Peter Gallanis, president of the National Organization of Life and Health Insurance Guaranty Associations in Herndon, Va. Some states provide protection up to $500,000.
For policyholders within their state's limits, if a company fails, "there is a very good chance that your policy will be transferred [to a different insurer] and you'll never miss a beat," Mr. Gallanis says.
For fixed annuities, states generally cover up to $100,000, though some guarantee $300,000 or more.
Variable annuities are investment products. Generally your money is invested through a subaccount that is separate from the insurer's assets and not covered by state associations. However, the portion of the contract that promises a payout from the insurer usually is covered.
Usually a failed insurer's business is taken over by another company in what can be a seamless transition for policyholders, Mr. Gallanis says.
"Typically the new insurer will provide all of the protection that would have been provided under the old policy," he says.
But it is possible in some situations that people with life-insurance policies worth more than the state limits may find they're on the hook for a higher premium or a reduced death benefit, Mr. Gallanis says.
Similarly, it's possible an annuity contract might be modified by an acquiring company; for instance, if the promised interest rate is deemed too high. But that's a rare event, requires approval by regulators, and is much likelier when an insurance company's failure is rooted in its policy-writing practices.
Auto, Home Policies
There are similar state guaranty associations protecting consumers with homeowners and auto-insurance policies. If you have a claim filed with a company that then fails, "the guaranty fund steps into the shoes of the insurance company from a claims-paying perspective," says Roger Schmelzer, chief executive of the National Conference of Insurance Guaranty Funds in Indianapolis. Most state guaranty associations cover homeowners- and auto-policy claims up to $300,000, he says.
If you've prepaid a premium, that is also usually recoverable through the guaranty association, says Barb Cox, the group's vice president of legal and regulatory affairs, though the limit may be $10,000 or $25,000.
Meanwhile, if you're simply holding a policy, with no claims in process, then consider shopping around, Mr. Schmelzer says.
Read more at marketwatch.com
Write to Andrea Coombes at andrea.coombes@dowjones.com
Fixed Annuity
5 Failures of SEC Chairman Cox - Seeking Alpha5 Failures of SEC Chairman Cox
by: Mark Sunshine
Almost all paths of incompetence in the current crisis run through the office of the Chairman of the SEC, Chris Cox. McCain’s solution to fire Cox isn’t tough enough. Exile is better. Fortunately for Cox this isn’t the Stalinist Soviet Union or his fate could be a lot worse.
Cox’s failures are too numerous to count. However, I’ll give it a try. Below are what I think are his top 5 failings.
1.
Failure to enforce disclosure laws and regulations.
Disclosure rules and regulations protect investors by requiring companies to disclose everything that is needed for informed investment decisions. And, CEOs and CFOs are required to sign certifications that such disclosure is materially accurate, complete, and that their companies have adequate internal controls to ensure such accuracy and completeness.
Enforcement of disclosure rules and regulations has been a joke. CEOs lie to shareholders with impunity and without fear of SEC enforcement. It is impossible to conclude that SEC filings for Freddie, Fannie, AIG, Lehman, or Bear Stearns complied with SEC rules and regulations.
However, instead of enforcement by the SEC, there is silence. While not all management actions are criminal, why hasn’t the SEC used its civil enforcement authority, i.e., assessing fines and penalties? How about protecting future investors by banning failed executives and boards of directors from serving in executive management at other public companies?
2.
Failure to enforce accounting standards.
When Cox states that the SEC doesn’t have regulatory authority over capital adequacy of financial services companies, he isn’t telling the truth. The SEC has regulatory authority over the financial statements of ALL publicly traded companies in the U.S. which of course includes the financials. If Cox had required greater reserves and transparency of financial services companies it would have happened.
Every quarter all publically traded companies file reports with the SEC that are provided to shareholders and the SEC has review and comment authority. If the SEC deems financial disclosure inadequate, incomplete or opaque it has the authority to force the company to amend its filings. It also has authority to establish accounting standards for publically traded companies which means it can have different requirements than GAAP.
So when the AIG filed its last quarterly report and decided that it didn’t need to have loan loss reserves against defaulting mortgages and securities, the SEC had the ability to require additional loan loss reserves. When Freddie and Fannie decided to pretend that defaulted mortgage were good assets because it changed its accounting standards, the SEC could have just said “no”. When Lehman manufactured $2.4 billion of pre-tax income by pretending that it wasn’t going to repay its debts (one of the dumber aspects of mark to market accounting), the SEC should have protected investors with disclosure.
3.
Failure to supervise the rating agencies.
Cox wants everyone to believe that despite being the rating agency’s only regulator, the SEC has no oversight or enforcement authority and cannot influence their performance. Once again, the SEC’s statements are false. Cox assumes that no one will take the time to read the Credit Rating Agency Reform Act of 2006 which states that the SEC has the right to suspend or revoke the license of any of rating agency for a wide range of reasons. Rating agency regulation and reform is Cox’s responsibility.
4.
Failure to investigate and prevent market manipulation, i.e., naked short selling.
Free markets are supposed to be honest markets. The naked short selling issue isn’t new and the SEC’s knee jerk emergency response is an embarrassment. The ban on short selling of 799 stocks is very similar to Putin’s actions this week to manipulate the Russian stock market. I haven’t a clue whether or not the uptick rule works, but I know that enforcing rules on naked short selling shouldn’t have required destructive and ill thought out emergency orders. In the middle of the 1800’s the legendary financial scoundrel, Daniel Drew, understood naked short selling was bad (as he lost his fortune covering a short squeeze) when he said, “He who sells what isn’t his’n, Must buy it back or go to prison.” Too bad Cox never took economic history in school (or googled economic trivia).
5.
Failure to protect small investors.
It is no coincidence that according to the FT, stock ownership by individual investors is at an all-time low. The average individual investor knows that his chances in the market aren’t good. And the SEC doesn’t seem to care if the average guy is disenfranchised from the economic future of America. In addition to the above failures, Cox forgot that it was his job to make sure that brokers shouldn’t engage in deceptive sales practices (like in the sale of auction rate securities and the sale of Freddie and Fannie common and preferred stock to small investors because they were “guaranteed” by the government). Cox refuses to support private litigation by individual investors who were ripped off in the stock and bond market. If the SEC doesn’t protect the little guy, who will?
It is hard to think of how anyone could have done a worse job than Chris Cox (other than engaging in illegal conduct). But if anyone can think of things that I have missed, please feel free to tell everyone reading this by commenting. I doubt that my list is complete.
Fixed Annuities
