Regulators Raise Solvency Concerns Over Increasing Annuity Exposure
Last week, Alliance members licensed to do business in New York received a Bulletin alerting them to some concerns expressed by New York regulators about the potential negative on an organization’s financial health as a result of rapid growth in annuity sales. I thought some of these regulators’ comments were worth passing on to a broader audience of Alliance members, because these concerns are no doubt shared by others in the relatively small regulator community. Here is a summary of the key points raised by New York regulators:
- Regulators indicated that the societies about which they are most concerned are those that have seen significant growth in annuities with high guaranteed rates of return. Those that have attracted the most regulatory attention are societies whose new annuity premium exceeds their surplus.
- Regulators are especially concerned because better-capitalized commercial insurers are not taking on such risks at the same accelerated pace of fraternals. Regulators report that most commercial insurers have slowed their growth in annuities by reducing their guaranteed rates of return to 1%.
- Regulators have contacted the societies they are most concerned about regarding their annuity exposure. Regulators are encouraging these societies to reduce their guaranteed rate of return on annuities, mirroring the action taken by commercial insurers. Regulators have found that those societies using outside investment advisors are more aware of the threat that overexposure to annuities can have on the organizations’ financial condition, and are voluntarily taking action to slow down the growth in annuity business.
- During these meetings with society leaders, regulators are challenging the actuarial assumptions the society uses to establish rates of return and business retention. Regulators believe that many of these assumptions – particularly those about the retention rates of these certificates should interest rates rise rapidly – are overly optimistic.
- Regulators expressed concern about the awareness that these new annuity certificate holders have regarding the fraternals’ social mission or the ability of societies to assess members for any financial shortfalls.
- Regulators are more concerned about the risk of “pop-up” interest rates – a rapid jump in rates that could result in the rapid loss of much of this newly written annuity business. Such a development could leave societies insolvent or require them to assess members, presenting a significant risk to the society, its members, and the fraternal system.
Something for society executives and board members to keep in mind when developing strategic plans and examining their organization’s risk profile… Want to learn more about regulators concerns about annuities? You can participate in an NAIC discussion on the topic on March 2. Check out the following link…
Foresters launched its new brand in North America on January 25. You can learn more about it here. Congratulations on this bold and progressive effort to reinvent the organization (and, by extension, the fraternal business model) for the next generation of members.
Catholic Life Insurance had a heck of a celebration to commemorate Catholic Schools Week. This is the fifth year of CLI’s “Catholic Schools Sweepstakes” program that helps Catholic schools raise money. This year the society helped 55 schools raise $781,905 with 100% of the proceeds going to the school. This brings CLI’s 5-year total to $2.3 million. Check out the organization’s YouTube video below – where else can you see an Archbishop and a Bishop in a dump truck!
Got news from your society? Post it to my blog or, better yet, to the Alliance’s Facebook page…
There are many moving parts on seemingly unrelated topics that affect the outcome of the larger debate on issues that affect the tax status of fraternals – and the fiscal health of the nation. The Alliance’s federal advocacy firm – McBee Strategic Consulting – prepares periodic assessments of these developments for their clients. The attached report focuses on transportation funding, but I thought you might find it interesting as Congress prepares to debate the overhaul of the tax system following the November elections…
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