As though this market wasn’t bad enough, now we are learning that insurers who took our money and were supposed to give us a guaranteed return as good as the stock market—with no downside—may not pay up when we need it most. I didn't think this was possible until now.
I figured a promise was a promise and, if bought, an annuity was supposed to match the stock market and not lose money. It was pretty much a sure thing. Now, people who invested in annuities are beginning to wonder if they made a huge mistake in believing that their insurer would be able to give them good returns in this miserable bear market.
That's got me wondering if you shouldn't pull out right now, before others do, if you have a stock-based annuity. Now, if you've been reading my column, I have expressed serious concern about whether your money is safe with companies whose stock seems to go down every day. So far, thankfully, everyone who has had to pay off, has been money good. That's why my jaw dropped the other day when I read a little item in The Washington Post about Shenandoah Life. This small life insurance company was placed in receivership by the state - meaning the state of Virginia took it over - a move that could very well trigger the annuity apocalypse I've been writing about (where insurers didn't hedge their stock portfolios against the downside).
Now, they can't make good on their promises.
This one seemingly dropped out of the sky, with the major ratings agencies - on a string of bad performances of their own lately - showing up late to the Shenandoah intervention.
Here's the back story: Virginia insurance regulators hit Shenandoah with a receivership notice last February 12, but most ratings agencies hadn't given policyholder's sufficient notice. Sure, A.M. Best, the "famous" rater of insurers, had downgraded Shenandoah last September from "A-" (Excellent) to "B++" (Good), but Best was lulled into complacency as the insurer began touting a potential merger with Indianapolis-based OneAmerica Financial Partners. Shenandoah even signed a letter of intent to merge with OneAmerica, signifying a smooth road, it hoped, to buy time to get its financial feet back on the ground and keep the credit rating agencies at bay.
Well, the first goal didn't work out - Shenandoah lost $50 million betting on the preferred stock of Fannie Mae (Stock Quote: FNM) and Freddie Mac (Stock Quote: FRE) last year, and the company is finding it tough to pay off on its claims. It wasn't Shenandoah's fault. Many insurers owned that paper - in fact it was a staple for them - but it was just too much for a small insurer like Shenandoah.
