Tom Cochrane

How Investors Can Lose with Annuities and Whole Life Policies

Why doesn't someone develop an empirical measure of credit risk that is based on historical insurer defaults and the actual damage (net of state guarantee funds) that has been done to annuity owners?

AM Best, Fitch, etc solvency ratings are fine, but really falls short in addressing the sort of catch-all and extraordinarily common refrain that "the annuity is only as safe as the insurer providing it."

There really has not been much actual $$ damage to policyholders over the years on an aggregate basis--particularly when compared to the damage that has resulted from capital markets risk.

Would be great to simply point to a single probability that captures the potential risk that insurer default presents to annuity owners.

Maybe something like this exists? If so, please provide a link.

How Investors Can Lose with Annuities and Whole Life Policies

I think the article is outstanding Bruce.

The info about dealing with lack of transparency/credit risk of privately held insurers such as Standard Life of Indiana is great.

I also thought the comments regarding other vulnerable players such as Hartford were very worthwhile.

There were a couple follow-ups commenting on state guarantee funds. Not sure all states cover and not all of those that do up to $100K.

Might be worth noting that diversification among insurers (e.g. spreading a $300K annuity among 3-4 insurers) and time diversification (e.g. laddering annuity purchasing over time) are worthwhile risk mitigation approaches.