Who protects annuities if the insurer fails?

al_bundy said:
every time some company is in trouble there is always a rumor that Buffet is coming to the rescue. i bet they are started just so the pro's have a supply of suckers willing to buy the stock on hope and dreams
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Well,if I wanted to get some money, and the Fed tapped me out, Buffett seems like a likely choice........;)
 
CNBC is reporting that 'buffet is no longer interested' in AIG. Which means maybe he just wants a better price.

I'd see no reason for the rest of the insurance business to bail out AIG to maintain the pristine image of the annuity business. They'd rather spend 1/100th as much to heavily advertise about how when you choose one, you should make sure to select a company that wont fail like those other guys did...like US!
 
OAG said:
Opps: Just saw this at MSN Money: "NY Gov. Paterson says state will effectively lend AIG $20 billion and urges Fed to step up as well. More soon." Wonder what the interest rate is?
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Hey, no fair! I don't remember voting on that...
I'm gonna write a letter to Albany!:rant:

seriously, though, if it saves folks from losing their annuity, i'm all for it. i receive an annuity from MetLife and believe me, i've been checking their health a lot lately.

FB
 
freebird5825 said:
Hey, no fair! I don't remember voting on that...
I'm gonna write a letter to Albany!:rant:

seriously, though, if it saves folks from losing their annuity, i'm all for it. i receive an annuity from MetLife and believe me, i've been checking their health a lot lately.

FB
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MetLife has a LOT more life insurance business than annuity business, AIG is almost the antithesis of that. NML does it right, offer nothing but a death benefit and vanilla Russell funds in their VAs....no promises means No surprises.........;)
 
OAG said:
Opps: Just saw this at MSN Money: "NY Gov. Paterson says state will effectively lend AIG $20 billion and urges Fed to step up as well. More soon." Wonder what the interest rate is?
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I just finished explaining this to my wife. I was watching the talking heads on cnbc with their hair on fire. She said "Whats the big deal? It sounds like most of these companies are getting more money and its all loans, so it wont cost anyone anything..."

I explained that while the companies are getting plenty of loans and 'liquidity' pumped into them, that its at an interest rate that is ridiculously attractive, and that the difference between that rate and the rate that could be gotten was pretty large. And that it was OUR money that was being thrown around.

I finally arrived at a workable analogy. "If everyone in your family was teetering on bankruptcy, and we loaned them a total of a million bucks to keep them from falling in, at an interest rate of a percent or two, thats what we have here in this financial mess. We're not solving the problems of the spend-like-theres-no-tomorrow, bad financial decisions or assuring it wont happen again. We're just temporarily alleviating the syptoms. Oh, and we'd be selling 6.25% cd's to make those 1-2% loans. Which may never be paid back. Oh, and they're all going to go on a spending spree tomorrow and get paid big bonuses."

She's got it now.
 
cute fuzzy bunny said:
I just finished explaining this to my wife. I was watching the talking heads on cnbc with their hair on fire. She said "Whats the big deal? It sounds like most of these companies are getting more money and its all loans, so it wont cost anyone anything..."

I explained that while the companies are getting plenty of loans and 'liquidity' pumped into them, that its at an interest rate that is ridiculously attractive, and that the difference between that rate and the rate that could be gotten was pretty large. And that it was OUR money that was being thrown around.

I finally arrived at a workable analogy. "If everyone in your family was teetering on bankruptcy, and we loaned them a total of a million bucks to keep them from falling in, at an interest rate of a percent or two, thats what we have here in this financial mess. We're not solving the problems of the spend-like-theres-no-tomorrow, bad financial decisions or assuring it wont happen again. We're just temporarily alleviating the syptoms. Oh, and we'd be selling 6.25% cd's to make those 1-2% loans. Which may never be paid back. Oh, and they're all going to go on a spending spree tomorrow and get paid big bonuses."

She's got it now.
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Sounds like you need to be a guest speaker at the RNC.........;):D
 
Buffett is still cleaning house at General Re of all the muck they raked in from AIG. From what he's learned during depositions, I don't think he'd buy anything from AIG even if it was part of a bankruptcy liquidation.

Buffett had so much fun with [-]Goldman Sachs[/-] Salomon in the 1990s that I doubt he'd ever touch a brokerage or an investment bank again.

But I've read persistent rumors about him adding more American Express stock, and I bet he's been backing up his dumpster to load consumables stocks like Kraft. I suspect that next year we'll find out that a lot of orphaned bonds have been sold to him for 50-75 cents on the dollar.

And none of this matters a bit. Stocks are far in the minority of Berkshire's holdings these days, so what Buffett is presumably [-]waiting[/-] working on is some foreign company hoping that he can help out with their own liquidity or succession problems. It'd be great to see Berkshire welcome a $10B acquisition to the family.
 
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Hmmm...AMEX is in second place on the shorts list on vanguards market neutral fund, right behind AIG.

Of course, that data is a few months old and we have no idea when they took the positions or if they've divested themselves of them yet.
 
Nords said:
And none of this matters a bit. Stocks are far in the minority of Berkshire's holdings these days, so what Buffett is presumably [-]waiting[/-] working on is some foreign company hoping that he can help out with their own liquidity or succession problems. It'd be great to see Berkshire welcome a $10B acquisition to the family.
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Well, he has the war chest to do it. I wonder what its like having money that you DON'T HAVE TP PRINT to work with, must be refreshing.......;)
 
One other thing to keep an eye on with regards to some of these insurers is that they're about to get nailed with claims from the hurricanes. I dont know what AIG's exposure is to home policies, but it could be significant.

All that might be making Warren decide to hold onto his pennies a while longer.

I guess the good news is that AIG is not without assets. Bond holders and annuitants will in line ahead of the equity holders. I'm pretty sure that you'd just get a lump sum based on how much you put in and how many years you'd drawn on it...not continued payments.
 
cute fuzzy bunny said:
One other thing to keep an eye on with regards to some of these insurers is that they're about to get nailed with claims from the hurricanes. I dont know what AIG's exposure is to home policies, but it could be significant.
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I would bet it is.............:p

I guess the good news is that AIG is not without assets. Bond holders and annuitants will in line ahead of the equity holders. I'm pretty sure that you'd just get a lump sum based on how much you put in and how many years you'd drawn on it...not continued payments.
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Large shareholders are known to get cranky when you start taking out high interest collateralized loans, which is why they are talking to the Feds. I think continuing the income streams promised would be way cheaper than settling lump sum to all annuitants, while at the same time spending $200 million defending yourself against numerous class action lawsuits..........;)
 
Some reports this morning said the annuity 'division' was safely separated from the holding company, but it seems that the holding company has been given permission to raid the subsidiaries assets for collateral.
 
Look, you can get an AIG corporate bond with a 24% yield on the secondary market!

AIG bonds Anyone? ;)

Edit: ILFC (part of AIG ) bonds available for 30+% yield.
 
Tough call. I could buy some ISM and get a CEO that wants to kill all the journalists, or an AIG bond and run with the big dogs of wall street....hmmmm....
 
Maurice said:
You mean Salomon Brothers?
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Thank you, I do mean Salomon. The one Gutfreund was eventually driven out of...

Too many brokerages & investment banks in too much trouble to keep the scandals straight anymore.
 
I guess this thread explains why Berkshire was up today. 50 plus holdings and 3 up not sure why the other stocks were up.
 
So if I were thinking of annuitizing some part of my retirement savings, is there any kind of guarantee beyond the insurance company itself? For banks there's FDIC (FSLIC) for brokerage SIPC plus some private insurance, for pensions PBGC with low limits. What about annuities? Is there some backing minimal agency with low limits I could keep below? Should I spread several annuities over several insurers? I would guess costs go up as I buy smaller annuities, so I'd like to make as few chunks as possible yet stay "insured" Anyone know how this works?
 
Each state seems to offer some 'insurance', although they go out of their way to tell you that its not insurance. New York is IIRC 500k, some states are 300k, most are 100k. Most of them are only 'insuring' the present value of the annuity, so the amount goes down over time.

For many states, that limit is a per policy/per insurer, so if you follow Rich's example and buy several annuities over time from different insurers, you should be protected even if several of them blink out.

I thought that insurers selling annuities rarely went out of business, but I guess theres been about a hundred or so over the last 30 years that went south. Who knew?

What isnt clear is how many hoops you have to jump through and how long it'd take to get your money. My guess is 'lots' and many months. I heard a few people say it took them years to get their money.

BTW, AIG was carrying super high ratings from all the insurance and bond rating companies just a month or so ago. So much for indicators you can use to identify problem children before you buy.
 
cute fuzzy bunny said:
BTW, AIG was carrying super high ratings from all the insurance and bond rating companies just a month or so ago. So much for indicators you can use to identify problem children before you buy.
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Are you saying the rating agencies don't keep up with all the issues and alert the companies before they get into problems? :angel:
 
Hey, what happened to Brewer? All of this insurance company talk made me realize I haven't seen any posts from him in a while.
 
donheff said:
Hey, what happened to Brewer? All of this insurance company talk made me realize I haven't seen any posts from him in a while.
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Trying not to think about the possibility of AIG going down. I've always despised the company and the people who run it, but if they go poof it will make Lehman look like peanuts and popcorn.

As for the annuities and other policyholder claims, your counterparty is the regulated insurance company, not the holding company. Insurance entities must hold assets to back claims plus put up lots of capital on top of that. I would not run for the hills as a policyholder, assuming you ignored my suggestions over the years and did business with these people. If the holdco goes BK, the insurance entities won't be going with it. Yes, the holdco is getting to borrow from the insurance entities, but I believe it is on a secured basis which means that the holdco won't be allowed to just rape and pillage policyholders.

As for hurricane claims, generally speaking property casualty business (homeowners, business insurance and other stuff that would be hurricane exposed) is written out of different subsidiaries (with their own assets, capital, etc.) than the life and annuity business. So even if AIG absorbed a catastrophic blow from Ike that rendered is P&C entities insolvent (very unlikely, IMO), the life and annuity companies should be OK.

My guess is that AIG gets bridge loans now at punitive cost and then sells assets over time to pay it down. What Berkshire was interested in was one of two things: either offering very expensive financing to AIG, or offering to buy a unit or a block of policies at firesale prices. Even if you think AIG as a whole is a donut, thereare lots of individual businesses that would be very, very attractive to a number of buyers.
 
brewer12345 said:
Even if you think AIG as a whole is a donut, thereare lots of individual businesses that would be very, very attractive to a number of buyers.
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So these individual business units are sort of like the sprinkles on the donut?

I'm trying to work up some better financial analogies to explain whats going on to my wife...
 
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