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Old 10-09-2011, 07:41 AM   #21
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Insurance companies are financial institution much like banks. We don't even need a black swan to severely hurt the whole sector just a decade or so of sub-par par investment performance. I have no confidence that state regulators do a better job watching them than the Feds did with banks, and brokerages. Which is why I think SPIA should be treated as a fixed income, annuities should purchased from multiple companies and the total should not exceed the 25-35% of assets.
Thanks-- I'm pretty sure I never would have gotten this far in my ponderings!

One out of 42. Even five out of 42 would have been a lot lower than I expected.

Looks like buying SPIAs from as few as two different companies would be enough diversification. Or keeping their total from any one company under $100K.
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Old 10-10-2011, 02:55 PM   #22
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Thanks a lot for the info and interesting read clifp. One question I have relates to following two statements:

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... only one companies failure resulted in loss to annuity holders and that was only for policy above 100K (which is the minimum for state guaranty associations.)

... it does appear that most Exec Life annuity holders, and structured settlement beneficiary saw a 30-50% reduction in their monthly payments after all of the lawsuits were done.
So, for those that had under 100k, did they also see 30-50% reduction or did any reductions only apply to amounts over 100k?

(P.S. I assume 100k would become 300k for states with those higher limits...)
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Old 10-10-2011, 05:45 PM   #23
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Thanks a lot for the info and interesting read clifp. One question I have relates to following two statements:



So, for those that had under 100k, did they also see 30-50% reduction or did any reductions only apply to amounts over 100k?

(P.S. I assume 100k would become 300k for states with those higher limits...)

I am not sure. Most of the specifics I found by skimming a couple hundred pages of Congressional testimony, lead by Congressmen Waxman. Congressional testimony tends to be long on anecdotes and short on actual data. One of the anecdotes was person who's disability payment was reduced from $2,000 to $1,300/month. Making some interest rate and life expectancy assumptions (both of which could be way off) this is equivalent to a annuity in the 200K range more than 100K but less than the CA limit of 250K. The Exec life situation was unusual (but then I think all failure of financial institutions are unusual) in that the State guaranty step it to make the policy holders whole, but then 1/2 dozen years latter the settlement started to fall apart.

One huge difference between the state insurance guaranty associations and the FDIC is that the FDIC collects a portion (~.5% to 1%) of all deposits so when a bank fails the FDIC has money to make depositor whole. The association assess its member after an insurance companies fail, so think about them the same way as the EU is funding the Greek bailout a lot of pleading, cajoling, and threatening.
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Old 10-10-2011, 05:57 PM   #24
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I also look at annuities as a fixed bucket, but I have not decided yet on the % of my assets I am going to annuitize. At the moment I am thinking in the 25%-50% range since annuities are not FIDC insured...
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I look at it as part of a fixed bucket.
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