No. of Recommendations: 7
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%:

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.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.