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Life Insurance Lessons to Take from this Week & a SPECIAL OFFER for AIG Policyholders
If you(r clients) do not know what they are paying for cost of insurance charges (COIs), fixed administration expenses (FAEs), cash-value-based “wrap fees” (e.g., M&Es) and premium loads in their life insurance policy holdings, then now is the time to find out (see special offer below for clients who have AIG policies in their portfolios). As reported in the NY Times earlier this week, when insurance companies sell-off or transfer higher-yielding assets and replace them with stable value assets that produce less income to strengthen its capital structure, “the insurer would probably have to make up the difference by charging more for its life insurance policies …”.
For instance, Confederation Life was among the largest and fastest growing (in premiums sold) life insurers in the early 1990s. However, in 1994 Confederation Life required intervention by regulators and subsequently sold-off their assets. Phoenix Life Insurance Company was among the insurers who purchased a block of life insurance policies originally issued by Confederation Life. While these Confederation Life policies were well-priced at the time of purchase (as evidenced by high premium sales), Phoenix subsequently increased cost of insurance charges (COIs) and expenses by as much as 90% (ninety percent – that is not a typo) and decreased the rate of return credited to policy cash values by as much as 400 bps.
Yesterday, the Federal Reserve announced they were making an $85B bridge-loan to AIG for 2-years which is secured by and expected to be repaid by the sale or transfer of unspecified higher-yielding and/or higher-value assets. “In fact, it will likely be the insurance subsidiaries – or their valuable blocks of business and high-quality assets – that will be sold in an attempt to return the AIG parent company to a more stable financial condition”, says Sandy Praeger, President of the National Association of Insurance Commissioners (NIAC) – the organization of chief insurance regulators in each state.
This is not to say AIG will charge more in its life insurance policies. This is also not to say that AIG policies should be surrendered or replaced in response to events earlier this week. According to NIAC President Sandy Praeger, “The insurance subsidiaries are solvent and able to pay their obligations.” However, because AIG has to repay the bridge-loan, pay above-market interest in the interim, and strengthen their balance sheet, there is certainly economic pressure to collect more from policyholders in the form of policy expense and/or pay less in the way of policy interest.
As such, if you(r clients) do not know what they are paying for cost of insurance charges (COIs), fixed administration expenses (FAEs), cash-value-based “wrap fees” (e.g., M&Es) and premium loads in their life insurance policy holdings, then there will be no way to know if or when such policy expenses are increased. As such, now is the time to measure pricing, performance and suitability so that future pricing and performance and ongoing suitability can be monitored. In response, THEInsuranceAdvisor.COM is offering special pricing on Confidential Policy Evaluator (CPE) Research Reports for any AIG policy holding for a limited time, as follows:
Subscribers: FREE. Click Here to submit your request.
Non-Subscribers: $125 (i.e., the subscriber rate and a 75% discount off the $500 per CPE Research Report fee paid by non-subscribers). Click Here to register for this special offer to help advisors counsel those clients who have AIG policy holdings in their portfolio. Registration is FREE. (be sure to un-click on NO-Risk Trial Subscription if you choose not to subscribe)
This special offer is available for all AIG policy holdings submitted on or before 10/18/2008.
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