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|Subject: Re: Variable Annuities beware of broken promises||Date: 6/25/2013 5:01 PM|
|Author: aj485||Number: 72514 of 75528|
The industry claims that so far they have always been able to rescue any failing company--usually a stronger company acquires the assets and contracts of the failing company--and make good on their contracts.
Assuming that 'make good on ther contracts' means that the original terms of the annuity contract were honored, the claim that the industry is making is false. Executive Life failed when their junk bond portfolio collapsed in 1991. Now, 15% of annuity holders have had their payouts cut, some by more than 50%: http://www.post-gazette.com/stories/business/news/broken-pro...
Mrs. Lawley, whose payout has been reduced to 47 percent of its original value, is one of 62 Pennsylvania residents who will lose a total $32 million in annuity policy payments in the Executive Life case. Nationwide, about 1,500 policyholders will lose a total of $920 million, highlighting potential weaknesses in the risk-free guarantee that many insurance companies emphasize when marketing annuities.
The annuity industry is based on people trading large sums of nonrefundable cash immediately or over an extended period of time in exchange for the promise of pre-defined monthly payments for the rest of their lives or for a specified period of time.
But Executive Life Insurance Co. fell on hard times in 1991 when its parent company -- Executive Life Insurance Co., Los Angeles -- collapsed. Although it was taken over by the superintendent of insurance in the state of New York and handed to the New York Bureau of Liquidation, the company's losses continued to mount over the years and it now faces a $2 billion shortfall.
Under a court ruling, 85 percent of the policyholders will receive 100 percent of what they are owed by Executive Life. The other 15 percent of policyholders -- including Mrs. Lawley -- will absorb $920 million in losses in the form of reduced annuity payments.
If 'making good on their contracts' means that everyone gets something, but maybe not what they were originally promised, then yes, the industry has lived up to that claim.
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