Annuity concerns with Bermuda reinsurance [A-CAP (Sentinel Security and Atlantic Coast) policies at risk]

[cvn74n2]

In today's Washington Post is an article discussing reinsurance of retirement and structured settlement annuities by companies based in Bermuda https://www.washingtonpost.com/opinions ... e-bermuda/ along with the potential pitfalls of investment issues underpinning the annuities using 777 Re as the example (i.e. soccer teams) https://substack.news-items.com/p/a-huge-trend.

What I find troubling besides the investing component is the ability of companies to offload pension benefit risk to insurance companies who in turn offload risk to the non-US based reinsurance companies that avoid ERISA protections.

State insurance commissions are "supposed" to look out and guard against systemic risks; but, at least in the case of Sentinel Security Life (Utah) and Atlantic Coast (South Carolina), I suspect they are understaffed to follow the money. A.M. Best may be the last line of defense when it re-rates life insurers to alert the commissions (and annuitants) of the risk(s).

Unless some additional regulatory oversight is established or legal framework to prevent off-shoring of annuity reinsurance, I would advise thinking long and hard about working with insurance companies who do this.

Does anyone (especially Stinky) know if there is a list of insurance companies beyond the ones cited who regularly off-shore annuity reinsurance?

[Stinky]

In today's Washington Post is an article discussing reinsurance of retirement and structured settlement annuities by companies based in Bermuda https://www.washingtonpost.com/opinions ... e-bermuda/ along with the potential pitfalls of investment issues underpinning the annuities using 777 Re as the example (i.e. soccer teams) https://substack.news-items.com/p/a-huge-trend.

What I find troubling besides the investing component is the ability of companies to offload pension benefit risk to insurance companies who in turn offload risk to the non-US based reinsurance companies that avoid ERISA protections.

State insurance commissions are "supposed" to look out and guard against systemic risks; but, at least in the case of Sentinel Security Life (Utah) and Atlantic Coast (South Carolina), I suspect they are understaffed to follow the money. A.M. Best may be the last line of defense when it re-rates life insurers to alert the commissions (and annuitants) of the risk(s).

Unless some additional regulatory oversight is established or legal framework to prevent off-shoring of annuity reinsurance, I would advise thinking long and hard about working with insurance companies who do this.

Does anyone (especially Stinky) know if there is a list of insurance companies beyond the ones cited who regularly off-shore annuity reinsurance?

I agree that offshore reinsurance of annuity liabilities is practiced by many companies.

The two companies mentioned in the article, Sentinel Security and Atlantic Coast, have ratings of B++ from AM Best. Their ratings have been placed “under review” for possible downgrade, pending review of year end 2023 financials and surveys, due to issues with reinsurance.

Another insurer, SILAC, has also been placed under review by Best, and I believe that also relates to reinsurance with 777. SILAC’s rating is already a low B+.

I believe that many of the life insurers operating in the MYGA and indexed annuity markets, especially those who entered the space within the last decade, are using offshore reinsurance. But I am not aware of a list of all companies that reinsure offshore.

I know that the state insurance regulators, operating through the NAIC, are monitoring the situation. But I’m not familiar with any major steps taken by the regulators as of this time to strengthen reinsurance regulation.

It’s all got an uncomfortable feeling to it…..

[Rocinante Rider]

[Merged into existing discussion - moderator oldcomputerguy]

An opinion piece in WAPO on 4/12/24 by investigative financial journalist Mary Williams Walsh raises safety concerns about retirement annuities bought from life insurance companies (and about defined benefit pension plans that have been sold to insurance companies). https://www.washingtonpost.com/opinions ... e-bermuda/

From the article: "Countless Americans now depend on the skill and dedication of the Bermuda Monetary Authority, and they don’t even know it...It’s not just pensions. Life insurers are also reinsuring the annuities they’ve sold to retirees directly. They package the contracts into “blocks,” then reinsure the blocks, often in Bermuda...Reinsuring offshore adds leverage that the annuitants know nothing about. The reinsurers can remove some of the capital that life insurers in the United States are required by their state insurance commissioners to hold. There are also big tax advantages. And, offshore, asset managers don’t have to load up on conservative bonds; they can make complex custom securities, such as collateralized loan obligations...In Bermuda, the investments are secret...When a reinsurer is in trouble, the problem can spread. Its life-insurer counterparties can’t very well leave their blocks of business there, so they take them back — if they can without being swamped. If they are swamped, a state insurance regulator can close them."

For those of you who have bought, or are considering buying, a SPIA, do you have safety concerns? What, if anything, can you do to lessen the risk that even a high-rated insurer could exacerbate risk through reinsurance? I'm uneasy about purchasing one of these products if there's no way to look under the hood.

[Stinky]

For those of you who have bought, or are considering buying, a SPIA, do you have safety concerns? What, if anything, can you do to lessen the risk that even a high-rated insurer could exacerbate risk through reinsurance? I'm uneasy about purchasing one of these products if there's no way to look under the hood.

If I was to buy a SPIA, I’d probably stick with an extremely highly rated mutual company like New York Life or Mass Mutual.

I think that companies like those are least likely to do the Bermuda reinsurance shenanigans.

[Rocinante Rider]

For those of you who have bought, or are considering buying, a SPIA, do you have safety concerns? What, if anything, can you do to lessen the risk that even a high-rated insurer could exacerbate risk through reinsurance? I'm uneasy about purchasing one of these products if there's no way to look under the hood.

If I was to buy a SPIA, I’d probably stick with an extremely highly rated mutual company like New York Life or Mass Mutual.

I think that companies like those are least likely to do the Bermuda reinsurance shenanigans.

Thanks for your response - much appreciated.

If I recall correctly, AIG had a AAA rating prior to its implosion in 2008. As you imply, one can lessen but not eliminate risk, and it sounds like there's no reliable way to know whether an otherwise top-rated insurer is engaging in risky forms of reinsurance. Fortunately, my wife and I can continue to self-insure against longevity so that's what we'll continue to do. I hope that regulatory shortcomings don't result in a financial crisis for millions of less fortunate/more vulnerable retirees. But then I have a state pension in a system that like most states uses private equity to manage a chunk of assets, and that's a whole different underappreciated risk. Our pension system likes to tout its superior returns, some of which may be illusions.

[Stinky]

If I recall correctly, AIG had a AAA rating prior to its implosion in 2008.

Just to be clear, the AIG life insurance companies were not the problem in 2008. Rather, the problem was with the entities writing the credit default swaps.

See this recent thread for information about the AIG situation in 2008.

viewtopic.php?t=428829

[cvn74n2]

I think the 777 Re / 777 Partners situation is more akin to Lindberg's Bankers Life / Colorado Bankers Life where the principals are using the insurance companies as a cash cow to fund other activities (i.e. speculative activities in the former and a fraudulent lifestyle in the latter) under the radar of regulators.

I agree with Stinky in avoiding low rated insurance companies for any product; but, I think there will come a time when many folks' pensions will be at risk due to speculative losses and be outside the PBGC purview.

In another thread, I mentioned the Lanclos v US lawsuit (https://cafc.uscourts.gov/opinions-orde ... 978437.pdf that held the original purchaser of the annuity was liable to make up shortfalls should the insurance company (Executive Life in this case) default. That precedent may be an interesting backstop for Bermuda shenanigans which many businesses are not taking into account.

[Stinky]

I think the 777 Re / 777 Partners situation is more akin to Lindberg's Bankers Life / Colorado Bankers Life where the principals are using the insurance companies as a cash cow to fund other activities (i.e. speculative activities in the former and a fraudulent lifestyle in the latter) under the radar of regulators.

I’m not an insider, but it sure seems to me that the 777 Re and Lindburg situations are two different things.

In 777 Re, the malfeasance appears to have happened in the Bermuda company. I wouldn’t know if the US ceding companies were in on the scheme, but the fact that two different US company groups (A-Cap and SILAC) were “victims” makes me think that the Bermuda company was the problem.

Lindburg is entirely different. He absconded with company funds, and is an accused felon. He’s also prolonged the agony for his company’s policyholders by engaging in protracted litigation to slow down the rehabilitation process. It sure looks like he’s the villain here.

[PrudentInvestor]

For those of you who have bought, or are considering buying, a SPIA, do you have safety concerns? What, if anything, can you do to lessen the risk that even a high-rated insurer could exacerbate risk through reinsurance? I'm uneasy about purchasing one of these products if there's no way to look under the hood.

If I was to buy a SPIA, I’d probably stick with an extremely highly rated mutual company like New York Life or Mass Mutual.

I think that companies like those are least likely to do the Bermuda reinsurance shenanigans.

MassMutual have been passing their annuity policies to Bermuda for years. You’ll struggle to find an annuity provider that DOESN’T send their business to Bermuda in some way.

I think there’s a lot of misunderstanding of what insurers are using Bermuda for though. It’s not necessarily making your policy any less safe than it would be if it remained onshore.

Take MassMutual for example. There’s probably demand in the market for $100b of annuities a year right now. Can MassMutual cover that demand alone? Consider that to sell $100b in annuities, you need to inject $10b of your own money to meet regulatory requirements. The regulator makes you set aside ~10% of the premium to ensure you have enough to pay your polocyholder in an adverse scenario. Do MassMutual have $10b sitting around that they can’t find a use for? No. So should they just let the demand go unfilled and leave profit on the table?

What MassMutual did 2 years ago is set up a new company (Martello Re), and together with a bunch of other investors, injected $1.5billion into it. They put in ~500m of their own money and got the investors to put in $1b. MassMutual therefore own ~30% and third party investors own the rest. This new company now had the capacity to reinsure $15b of annuity business.

MassMutual then write business through their annuity selling pipeline in the US, and reinsure their business to Martello. They can now write an additional $15b a year, even though they only get to keep 1/3 of the profits of the business they give away, and the other investors get 2/3 (but Martello will be charging them a fee to manage it). They also free up some of their capital to use on other things.

This model has been followed by many. Athene, Global Atlantic, MassMutual, Prudential, AIG, RGA are some big name examples.

Now if you’re one of these third party investors, being approached to set up a new reinsurer, where do you want to set it up? There are various things you want to consider, taxes, regulations, politics are three big ones. If you’re a Middle Eastern sovereign wealth fund, do you want to set up a company in the US and voluntarily pay US tax? Or do you set up in a more tax efficient jurisdiction? If you want low tax, do you go for somewhere like Cayman, BVI? Or do you choose somewhere that has a robust regulatory framework and a thriving reinsurance market? This is where Bermuda comes in.

You set up in Bermuda, you have a strong pragmatic regulator who can get you your licence in the space of a few months. You have easy access to the talent needed to run your new company. You have the ability to write policies in the US, Europe and Asia, and the regulatory framework is recognised world wide as being equivalent to other regimes such as the European Solvency II.

So now you see a bunch of new reinsurance companies setting up in Bermuda, partly owned by US insurers who have a ready made pipeline so they can write business at scale with low marginal cost.

The US state regulators have to approve all of these transactions, they’re comfortable with the level of risk. In most cases, the assets remain onshore and the companies are holding as much “just in case” capital as they would onshore, but now the economics of the deal get passed to third party investors through the Bermuda company. The Bermuda regulatory framework is robust and has very strict requirements. It’s a market based regime that means reserves reflect current market conditions, unlike the book value regimes of the US. If interest rates fall, you have to increase your reserves to reflect the fact that it would cost more to service your future liabilities in an environment of lower returns. The policy being passed to Bermuda doesn’t result in any more risk to you as the policyholder.

Now companies like 777 Re are the exception. They thought they saw some holes in the regulations and have tried to take advantage. This became clear to the Bermuda regulator in the normal course of business, who took action and forced 777 Re to fix things. The deficiencies were picked up on by ratings agencies and the company’s rating was dropped to C, and it looks the company won’t exist for much longer. If anything this reflects the strength of the regime.

Note, even in this case of a bad apple, the policyholders’ money is still safe. The insurers who sent the business to 777 Re have taken it back along with all their money. Note the reinsurance transaction, along with most others in Bermuda was what’s called a ModCo transaction. The policy reserves and all the assets remained onshore in an account owned by the ceding company, ACAP, so it’s not like 777 Re could ever have just taken them and started doing whatever they want with them.

I’ll write more later when I have time, but my key message is that annuities being reinsured to Bermuda is not necessarily a bad thing, but bad companies are bad companies whether they’re in the US, Bermuda or anywhere else in the world.

[Charles Joseph]

In today's Washington Post is an article discussing reinsurance of retirement and structured settlement annuities by companies based in Bermuda https://www.washingtonpost.com/opinions ... e-bermuda/ along with the potential pitfalls of investment issues underpinning the annuities using 777 Re as the example (i.e. soccer teams) https://substack.news-items.com/p/a-huge-trend.

Whether based in Bermuda or Parsippany, New Jersey, annuities en totale are a complete rip-off, in my opinion.

No insurance company is getting a nickel of my money for a high-commission, high-fee, hidden-cost annuity. Within the next few years I will already have the best lifetime, inflation-indexed annuity that money can buy.

Watch your wallet around these insurance people. Avoid annuities.

[Stinky]

Now companies like 777 Re are the exception. They thought they saw some holes in the regulations and have tried to take advantage. This became clear to the Bermuda regulator in the normal course of business, who took action and forced 777 Re to fix things. The deficiencies were picked up on by ratings agencies and the company’s rating was dropped to C, and it looks the company won’t exist for much longer. If anything this reflects the strength of the regime.

Note, even in this case of a bad apple, the policyholders’ money is still safe. The insurers who sent the business to 777 Re have taken it back along with all their money. Note the reinsurance transaction, along with most others in Bermuda was what’s called a ModCo transaction. The policy reserves and all the assets remained onshore in an account owned by the ceding company, ACAP, so it’s not like 777 Re could ever have just taken them and started doing whatever they want with them.

I’ll write more later when I have time, but my key message is that annuities being reinsured to Bermuda is not necessarily a bad thing, but bad companies are bad companies whether they’re in the US, Bermuda or anywhere else in the world.

Welcome to the Forum!

And thank you for your very thoughtful post. It’s clear that you’re quite knowledgeable about the offshore reinsurance market. I hope that you continue reading and posting here.

I’m clearly as not up to speed on these offshore transactions as you are. That being said, I’m a bit confused about the counterparty risk posed by 777 Re.

I’ve seen in the press that 777 Re has been considerably downgraded by AM Best, and you note that the company might not survive. I understand that.

What I don’t fully grasp is the risk posed by 777 Re to their reinsurance counter parties, the A-CAP companies and SILAC. Each of those domestic companies has also been placed on downgrade watch by AM Best, due (I believe) to their reinsurance exposure to 777 Re.

Are you saying that those domestic companies aren’t facing the risk of the loss of their assets backing the reserves? If that’s true, then is the risk that the domestic companies are facing merely the loss of the capital supporting their ceded business?

Again, I very much appreciate your post.

[adamthesmythe]

In today's Washington Post is an article discussing reinsurance of retirement and structured settlement annuities by companies based in Bermuda https://www.washingtonpost.com/opinions ... e-bermuda/ along with the potential pitfalls of investment issues underpinning the annuities using 777 Re as the example (i.e. soccer teams) https://substack.news-items.com/p/a-huge-trend.

Whether based in Bermuda or Parsippany, New Jersey, annuities en totale are a complete rip-off, in my opinion.

No insurance company is getting a nickel of my money for a high-commission, high-fee, hidden-cost annuity. Within the next few years I will already have the best lifetime, inflation-indexed annuity that money can buy.

Watch your wallet around these insurance people. Avoid annuities.

Since the Post article doesn't seem to say, I was wondering whether they were talking SPIAs or the other (undesirable) kind.

This post further confuses the issue it seems to me.

[ResearchMed]

In today's Washington Post is an article discussing reinsurance of retirement and structured settlement annuities by companies based in Bermuda https://www.washingtonpost.com/opinions ... e-bermuda/ along with the potential pitfalls of investment issues underpinning the annuities using 777 Re as the example (i.e. soccer teams) https://substack.news-items.com/p/a-huge-trend.

Whether based in Bermuda or Parsippany, New Jersey, annuities en totale are a complete rip-off, in my opinion.

No insurance company is getting a nickel of my money for a high-commission, high-fee, hidden-cost annuity. Within the next few years I will already have the best lifetime, inflation-indexed annuity that money can buy.

Watch your wallet around these insurance people. Avoid annuities.

[emphasis added]


Would you care to distinguish between types of annuities?
SPIAs are simply "owner-made pensions". Yes, there are fees. Do you think "company-made" pensions are provided without fees?

SPIAs are completely different from the variable annuities with all sorts of hidden and complicated <whatevers> and extra ways to extract money.

WIth an SPIA, if it is set up to provide, say, $$,000 per month for life, that's what you get: $5,000 per month for life. (There may be a co-annuitant, and that person may get 100% or something like 75%/etc., when the first annuitant passes.)
These are very competitive, because they are not "complicated financial products". This also keeps fees down, given the competition from other large insurers.
For the complicated "stuff", it's almost impossible to understand some of the products, much less compare them.

It's a real shame that the word "annuity" has so many different meanings and uses, and some are good (at least for many purposes), and others... er, "not so much...."

And then there is the twisted word usage of "annuitizing an annuity", but I digress...
That certainly doesn't help!


RM

[Johm221122]

In today's Washington Post is an article discussing reinsurance of retirement and structured settlement annuities by companies based in Bermuda https://www.washingtonpost.com/opinions ... e-bermuda/ along with the potential pitfalls of investment issues underpinning the annuities using 777 Re as the example (i.e. soccer teams) https://substack.news-items.com/p/a-huge-trend.

Whether based in Bermuda or Parsippany, New Jersey, annuities en totale are a complete rip-off, in my opinion.

No insurance company is getting a nickel of my money for a high-commission, high-fee, hidden-cost annuity. Within the next few years I will already have the best lifetime, inflation-indexed annuity that money can buy.

Watch your wallet around these insurance people. Avoid annuities.

Should I avoid CDs and bonds also?

I like guaranteed income for some of my money and if an annuity meets that goal it's no different to me than a bank, corporation, municipality, federal agency or federal government bonds

[Rex66]

In today's Washington Post is an article discussing reinsurance of retirement and structured settlement annuities by companies based in Bermuda https://www.washingtonpost.com/opinions ... e-bermuda/ along with the potential pitfalls of investment issues underpinning the annuities using 777 Re as the example (i.e. soccer teams) https://substack.news-items.com/p/a-huge-trend.

Whether based in Bermuda or Parsippany, New Jersey, annuities en totale are a complete rip-off, in my opinion.

No insurance company is getting a nickel of my money for a high-commission, high-fee, hidden-cost annuity. Within the next few years I will already have the best lifetime, inflation-indexed annuity that money can buy.

Watch your wallet around these insurance people. Avoid annuities.

Should I avoid CDs and bonds also?

I like guaranteed income for some of my money and if an annuity meets that goal it's no different to me than a bank, corporation, municipality, federal agency or federal government bonds

its certainly fine to purchase an annuity but thats just not true

those other items are backed by the federal government.

insurance is primarily backed by the company then the state insurance guaranty assoc will try to make you whole. When a company has gone under (which is uncommon), they have historically been successful around 94% of the time for annuities and 96% for life insurance. If under the state limits it appears to be near 100% but trying to there if i recall there was only one link to the state assoc results years ago about that so it isnt easy to investigate. Now sometimes it has taken years so that has to also be considered. If you go over to the insurance agent forum you will see posts from unhappy people when that happens (which is rare).

[Johm221122]

In today's Washington Post is an article discussing reinsurance of retirement and structured settlement annuities by companies based in Bermuda https://www.washingtonpost.com/opinions ... e-bermuda/ along with the potential pitfalls of investment issues underpinning the annuities using 777 Re as the example (i.e. soccer teams) https://substack.news-items.com/p/a-huge-trend.

Whether based in Bermuda or Parsippany, New Jersey, annuities en totale are a complete rip-off, in my opinion.

No insurance company is getting a nickel of my money for a high-commission, high-fee, hidden-cost annuity. Within the next few years I will already have the best lifetime, inflation-indexed annuity that money can buy.

Watch your wallet around these insurance people. Avoid annuities.

Should I avoid CDs and bonds also?

I like guaranteed income for some of my money and if an annuity meets that goal it's no different to me than a bank, corporation, municipality, federal agency or federal government bonds

its certainly fine to purchase an annuity but thats just not true

those other items are backed by the federal government.

insurance is primarily backed by the company then the state insurance guaranty assoc will try to make you whole. When a company has gone under (which is uncommon), they have historically been successful around 94% of the time for annuities and 96% for life insurance. If under the state limits it appears to be near 100% but trying to there if i recall there was only one link to the state assoc results years ago about that so it isnt easy to investigate. Now sometimes it has taken years so that has to also be considered. If you go over to the insurance agent forum you will see posts from unhappy people when that happens (which is rare).

I meant I feel no better about the companies or government entities. They all have issues with trust and ethics.

But CD's have coverage limits, municipal bonds have many problems and Corporate bonds have no guarantees at all.

All else being equal I would choose a Federal government Bond but everything being equal is not what the different investments I mentioned offer.

[Stinky]

No insurance company is getting a nickel of my money for a high-commission, high-fee, hidden-cost annuity.

Sounds like a smart decision to me. Nobody should want the particular annuity that you describe.

Just realize that not all annuities are like the product you describe.

[PrudentInvestor]

Now companies like 777 Re are the exception. They thought they saw some holes in the regulations and have tried to take advantage. This became clear to the Bermuda regulator in the normal course of business, who took action and forced 777 Re to fix things. The deficiencies were picked up on by ratings agencies and the company’s rating was dropped to C, and it looks the company won’t exist for much longer. If anything this reflects the strength of the regime.

Note, even in this case of a bad apple, the policyholders’ money is still safe. The insurers who sent the business to 777 Re have taken it back along with all their money. Note the reinsurance transaction, along with most others in Bermuda was what’s called a ModCo transaction. The policy reserves and all the assets remained onshore in an account owned by the ceding company, ACAP, so it’s not like 777 Re could ever have just taken them and started doing whatever they want with them.

I’ll write more later when I have time, but my key message is that annuities being reinsured to Bermuda is not necessarily a bad thing, but bad companies are bad companies whether they’re in the US, Bermuda or anywhere else in the world.

Welcome to the Forum!

And thank you for your very thoughtful post. It’s clear that you’re quite knowledgeable about the offshore reinsurance market. I hope that you continue reading and posting here.

I’m clearly as not up to speed on these offshore transactions as you are. That being said, I’m a bit confused about the counterparty risk posed by 777 Re.

I’ve seen in the press that 777 Re has been considerably downgraded by AM Best, and you note that the company might not survive. I understand that.

What I don’t fully grasp is the risk posed by 777 Re to their reinsurance counter parties, the A-CAP companies and SILAC. Each of those domestic companies has also been placed on downgrade watch by AM Best, due (I believe) to their reinsurance exposure to 777 Re.

Are you saying that those domestic companies aren’t facing the risk of the loss of their assets backing the reserves? If that’s true, then is the risk that the domestic companies are facing merely the loss of the capital supporting their ceded business?

Again, I very much appreciate your post.

There’s still a risk of losing the assets, just as there’s a risk even without reinsurance, if there’s a problem with the investment strategy.

In 777 / ACAP’s case, as they used Modified Coinsurance Funds withheld, the assets remained on ACAP’s balance sheet in a trust owned by ACAP. ACAP had ownership of the assets and could see at all times what was happening with the assets. 777 will have been selecting the investments but they couldn’t just go away and start buying whatever they want, they’re restricted by ACAP’s investment guidelines. 777 re just had the rights to the profits from the investments.

ACAP likely have had a “recapture” clause in the treaty, for example, they have the right to cancel the contract if 777 re is downgraded or if capital falls below a certain level (which they did. The problem with recapturing though means ACAP now have to find that additional capital that they need to hold on the side to support the business (which they seemed to have no problem finding). They’ll likely just look to find a new reinsurer to take on the deal to free up the capital again.

[Stinky]

Are you saying that those domestic companies aren’t facing the risk of the loss of their assets backing the reserves? If that’s true, then is the risk that the domestic companies are facing merely the loss of the capital supporting their ceded business?

There’s still a risk of losing the assets, just as there’s a risk even without reinsurance, if there’s a problem with the investment strategy.

In 777 / ACAP’s case, as they used Modified Coinsurance Funds withheld, the assets remained on ACAP’s balance sheet in a trust owned by ACAP. ACAP had ownership of the assets and could see at all times what was happening with the assets. 777 will have been selecting the investments but they couldn’t just go away and start buying whatever they want, they’re restricted by ACAP’s investment guidelines. 777 re just had the rights to the profits from the investments.

ACAP likely have had a “recapture” clause in the treaty, for example, they have the right to cancel the contract if 777 re is downgraded or if capital falls below a certain level (which they did. The problem with recapturing though means ACAP now have to find that additional capital that they need to hold on the side to support the business (which they seemed to have no problem finding). They’ll likely just look to find a new reinsurer to take on the deal to free up the capital again.

Thank you again for your further clarification. I do understand modified coinsurance - I just hadn’t known the particulars of the A CAP transaction.

I’m certainly hopeful that A CAP is able to get new reinsurance, new external capital, or both.

The alternative, which could be a technical insolvency by either of the A CAP companies, would be a huge black eye for the insurance industry.

[Johm221122]

Within the next few years I will already have the best lifetime, inflation-indexed annuity that money can buy.

Watch your wallet around these insurance people. Avoid annuities.

We call Social Security the best annuity and I'm guilty of this also. But can you imagine if an insurance company put on their website because we promised you too much we're going to cut your payments by 20%.

Can you imagine the uproar if the insurance company did that with an annuity or a bank did that for a CD (and FDIC didn't step in). Not to be political but they took our money and it was implied we would get a certain amount and I was actually planning on getting that and we call that the best "annuity"

[AlwaysLearningMore]

Within the next few years I will already have the best lifetime, inflation-indexed annuity that money can buy.

Watch your wallet around these insurance people. Avoid annuities.

We call Social Security the best annuity and I'm guilty of this also. But can you imagine if an insurance company put on their website because we promised you too much we're going to cut your payments by 20%.

Can you imagine the uproar if the insurance company did that with an annuity or a bank did that for a CD (and FDIC didn't step in). Not to be political but they took our money and it was implied we would get a certain amount and I was actually planning on getting that and we call that the best "annuity"

You make a good points.

[GermanHinton]

Reinsurance of annuities abroad may pose risks to investors, especially in the absence of effective regulatory controls. The need for additional oversight and protection to prevent such situations is critical. A list of insurance companies that regularly reinsure offshore annuities can be a useful tool for investors looking to minimize risk.

[GA Dawg 78]

For those of you who have bought, or are considering buying, a SPIA, do you have safety concerns? What, if anything, can you do to lessen the risk that even a high-rated insurer could exacerbate risk through reinsurance? I'm uneasy about purchasing one of these products if there's no way to look under the hood.

If I was to buy a SPIA, I’d probably stick with an extremely highly rated mutual company like New York Life or Mass Mutual.

I think that companies like those are least likely to do the Bermuda reinsurance shenanigans.

MassMutual have been passing their annuity policies to Bermuda for years. You’ll struggle to find an annuity provider that DOESN’T send their business to Bermuda in some way.

I think there’s a lot of misunderstanding of what insurers are using Bermuda for though. It’s not necessarily making your policy any less safe than it would be if it remained onshore.

Take MassMutual for example. There’s probably demand in the market for $100b of annuities a year right now. Can MassMutual cover that demand alone? Consider that to sell $100b in annuities, you need to inject $10b of your own money to meet regulatory requirements. The regulator makes you set aside ~10% of the premium to ensure you have enough to pay your polocyholder in an adverse scenario. Do MassMutual have $10b sitting around that they can’t find a use for? No. So should they just let the demand go unfilled and leave profit on the table?

What MassMutual did 2 years ago is set up a new company (Martello Re), and together with a bunch of other investors, injected $1.5billion into it. They put in ~500m of their own money and got the investors to put in $1b. MassMutual therefore own ~30% and third party investors own the rest. This new company now had the capacity to reinsure $15b of annuity business.

MassMutual then write business through their annuity selling pipeline in the US, and reinsure their business to Martello. They can now write an additional $15b a year, even though they only get to keep 1/3 of the profits of the business they give away, and the other investors get 2/3 (but Martello will be charging them a fee to manage it). They also free up some of their capital to use on other things.

This model has been followed by many. Athene, Global Atlantic, MassMutual, Prudential, AIG, RGA are some big name examples.

Now if you’re one of these third party investors, being approached to set up a new reinsurer, where do you want to set it up? There are various things you want to consider, taxes, regulations, politics are three big ones. If you’re a Middle Eastern sovereign wealth fund, do you want to set up a company in the US and voluntarily pay US tax? Or do you set up in a more tax efficient jurisdiction? If you want low tax, do you go for somewhere like Cayman, BVI? Or do you choose somewhere that has a robust regulatory framework and a thriving reinsurance market? This is where Bermuda comes in.

You set up in Bermuda, you have a strong pragmatic regulator who can get you your licence in the space of a few months. You have easy access to the talent needed to run your new company. You have the ability to write policies in the US, Europe and Asia, and the regulatory framework is recognised world wide as being equivalent to other regimes such as the European Solvency II.

So now you see a bunch of new reinsurance companies setting up in Bermuda, partly owned by US insurers who have a ready made pipeline so they can write business at scale with low marginal cost.

The US state regulators have to approve all of these transactions, they’re comfortable with the level of risk. In most cases, the assets remain onshore and the companies are holding as much “just in case” capital as they would onshore, but now the economics of the deal get passed to third party investors through the Bermuda company. The Bermuda regulatory framework is robust and has very strict requirements. It’s a market based regime that means reserves reflect current market conditions, unlike the book value regimes of the US. If interest rates fall, you have to increase your reserves to reflect the fact that it would cost more to service your future liabilities in an environment of lower returns. The policy being passed to Bermuda doesn’t result in any more risk to you as the policyholder.

Now companies like 777 Re are the exception. They thought they saw some holes in the regulations and have tried to take advantage. This became clear to the Bermuda regulator in the normal course of business, who took action and forced 777 Re to fix things. The deficiencies were picked up on by ratings agencies and the company’s rating was dropped to C, and it looks the company won’t exist for much longer. If anything this reflects the strength of the regime.

Note, even in this case of a bad apple, the policyholders’ money is still safe. The insurers who sent the business to 777 Re have taken it back along with all their money. Note the reinsurance transaction, along with most others in Bermuda was what’s called a ModCo transaction. The policy reserves and all the assets remained onshore in an account owned by the ceding company, ACAP, so it’s not like 777 Re could ever have just taken them and started doing whatever they want with them.

I’ll write more later when I have time, but my key message is that annuities being reinsured to Bermuda is not necessarily a bad thing, but bad companies are bad companies whether they’re in the US, Bermuda or anywhere else in the world.

Thank you for this explanation. Very helpful. I'm reading Kenneth King's February webinar about the 777 Re issue. He says this:

If we go to the next part of the discussion, you know, specifically 777 and the downgrade, I just wanna reiterate or point out a couple of. of important things that we need to think about relative to our reinsurance relationships.

There was no, and there is no financial impact to the A-CAP affiliates related to AM Best downgrading 777 Re. from A- to C-. And that’s because the exposure, the reinsurance exposure is fully supported not only by collateral that’s kept on our accounts or the investments that are made by 777 Re are already held in our account, but we also have set aside additional capital that I pointed out previously to support it. So there’s absolutely no risk, financial risk associated with the performance of 777 Re because we’ve effectively removed it all from our rated carriers.

Out of prudence though, and really to take candidly some of the noise off of us, we are in the process, and began the process of recapturing 777 Re’s business and moving the business to a A- or better rated company. And we’re doing that in three specific scenarios. One for our MIGA business at Haymarket, and then two more times for our app products, both in Sentinel Security Life and Atlantic Coast life.


Probably a very novice question, he is saying the reinsurance exposure at 777 Re is fully supported by capital that ACAP has on the books? It's a confusing statement to me. Appreciate any insight you can provide.

[Stinky]

Probably a very novice question, he is saying the reinsurance exposure at 777 Re is fully supported by capital that ACAP has on the books? It's a confusing statement to me. Appreciate any insight you can provide.

Here’s something I posted in another thread about the King companies

The companies I alluded to above are Sentinel Security Life and Atlantic Coast Life. The two companies share a common parent, named A-Cap. The companies and A-Cap have a relationship with a troubled Bermuda reinsurer named 777 Re, which is affiliated with 777 Partners, a firm that has been in the news recently as the potential buyer of the Everton soccer team.

Back in February 2024, AM Best placed the B++ "Insurer Financial Strength" ratings of Atlantic Coast and Sentinel Security under "negative outlook", and downgraded the "Long-Term Issuer Credit Rating" (which is not commonly referred to in the media) of the two companies by one notch. A "negative outlook" sometimes, but not always, precedes a ratings downgrade. Here's the AM Best press release on the ratings action: https://news.ambest.com/newscontent.asp ... My4wLjAuMA..

Then, in April 2024, it appears that AM Best was planning to downgrade the Insurer Financial Strength Ratings of the Atlantic Coast and Sentinel Security by three notches, from B++ to B-. The companies filed a lawsuit in New Jersey court to stop the downgrade, and the downgrade has not yet been announced by AM Best. Here's a news article on this action: https://www.insurancebusinessmag.com/us ... 88008.aspx

It appears that Blueprint Income removed Atlantic Coast and Sentinel Security products from its platform within the last two weeks or so. However, products from the two life insurers remain available on other sites, including Stan the Annuity Man and Annuity Advantage.

[Harmanic]

New investigation by Barron's.
https://archive.ph/6Wz6C#selection-399.24-399.42

Exerpt:

Life insurers have increasingly invested in so-called private placements, generally higher-yielding securities that are exempt from federal reporting requirements and lack active secondary markets, said the Federal Reserve Bank of Chicago in a June 3 report.
“The growing investment in this less liquid asset class therefore increases the risk of fire sales during times of crisis,” wrote the Fed analysts.
Private placements grew to about 20% of all life insurers’ bondholdings in 2022, according to the report, from about 15% five years earlier.
A-CAP is more reliant on private placements than others. They consisted of about 50% of all investments across its three key insurance units, Sentinel, Atlantic Coast, and Haymarket, according to a Barron’s analysis of their most recent filings.

[cvn74n2]

Quick updates:

- A-CAP's lawsuit against AM Best's ratings downgrade remains on hold
- 777 Partners forced into bankruptcy by UK High Court
- Numerous creditors going after 777 Partners alleging double/triple pledging of assets for loans
- 777 Re's insurance license revoked by Bermuda Monetary Authority
- Utah and SC regulators bar A-CAP insurance subsidiaries from writing new policies after 31 Dec

I do not have any annuities written by A-CAP subsidiaries; but, if I did, I would consider withdrawing with the attendant penalties to avoid any prolonged disruption that may ensue from the fallout.

[Stinky]

Quick updates:

- A-CAP's lawsuit against AM Best's ratings downgrade remains on hold
- 777 Partners forced into bankruptcy by UK High Court
- Numerous creditors going after 777 Partners alleging double/triple pledging of assets for loans
- 777 Re's insurance license revoked by Bermuda Monetary Authority
- Utah and SC regulators bar A-CAP insurance subsidiaries from writing new policies after 31 Dec

I do not have any annuities written by A-CAP subsidiaries; but, if I did, I would consider withdrawing with the attendant penalties to avoid any prolonged disruption that may ensue from the fallout.

Unfortunately, I have policies with A-CAP.

After looking at my current account values and surrender values, I’ve decided to stay the course. The attractive rate of return that I’ll make in growing from my current surrender value to the account value when the surrender charge is gone offsets the inconvenience that I might have if I can’t get my funds out immediately when the initial interest guarantee period expires.

Other folks might have different views on the actions that are best for them.

Anyone who wants to surrender their policy should get their request in NOW. I would expect that it is only a matter of days or weeks until the regulators move in and temporarily suspend all voluntary surrenders. For all I know, they might already be invoking the clause in most annuities that allows the insurer to delay surrender payments for up to six months in their sole discretion.

[jimtheinsuranceguy29]

Bumping this thread about ACAP up. The South Carolina and Utah regulators have deemed all of the ACAP insurers (Atlantic Coast Life, Sentinel Security Life, Haymarket, Jazz Re, and Southern Atlantic Re) to be in a "hazardous financial condition" and have ordered them to stop writing new business by December 31, 2024. Quotes from the Utah and South Carolina orders below, which appear to say that ACAP was using premiums from new policies to pay off obligations on old policies and was misleadingly telling customers not to worry. What is likely to happen to the ACAP businesses and their policyholders here?

Utah Order

The Companies are in a Hazardous Financial Condition for the following reasons:

a. With negative capital and surplus in the hundreds of millions of dollars, the Companies’ admitted assets are less than their liabilities; and

b. The Companies are using funds from new premiums and/or liquidating investments other than the impaired investments to pay their obligations as they become due.

South Carolina Order

On December 11, 2024, I issued a confidential Order Amending Confidentiality of Certain Provisions of Confidential Order Imposing Administrative Supervision and Appointing Supervisor making public, among other things, that the Licensees had been directed to cease writing all new business effective December 31, 2024.

Since the issuance of the December 11, 2024, order, the Department has received a report that at least one of the Licensees is circulating information stating that its “financials are strong” and “is closing out a profitable” year and which expressly refers to the issuance of an unspecified “Order” by the Department.

Such statements clearly contradict the Supervisor, are inconsistent with the circumstances justifying ongoing regulatory action and are otherwise confusing, inaccurate and misleading.

Additionally, A-CAP and/or at least one of the Licensees have made other misleading assertions regarding the directive to cease writing new business.

In the days since my December 11, 2024 Order providing for the limited release of information, the Department has received numerous inquiries from interested parties requesting additional information and seeking clarification regarding the status of the Licensees.

[LadyGeek]

Welcome! I found the Utah order here: Emergency Order Docket No: 2024-4699

Also, these articles:
- South Carolina bars A-Cap insurers from writing new policies in 2025 - Insurance News | InsuranceNewsNet
- Utah issues order for A-Cap insurers to stop doing business due to reserving concerns - Insurance News | InsuranceNewsNet

Can you please supply a link to the South Carolina order?

To keep this as an actionable discussion, what should policy holders do about this?

A simple summary for those not familiar with the terminology would be helpful.

[AllMostThere]

This thread and its associated concerns of offshore reinsurance of annuities has just pushed me back to the anti-annuity side of the fence. It just reinforces my concern that products "sold" as investments are too complex and not worth the effort of my time. I have been chastised many times by others on this forum for my thoughts on annuities, but at this point my mind is solid in the NO column. Actionable item for me is continued annuity avoidance and stay with what I know - Equity and Bond Index funds with a sprinkle of individual Treasury and Agency Bonds. In the immortal words of Dirty Harry - "A man’s got to know his limitations".

[ncdcpa]

This thread and its associated concerns of offshore reinsurance of annuities has just pushed me back to the anti-annuity side of the fence. It just reinforces my concern that products "sold" as investments are too complex and not worth the effort of my time. I have been chastised many times by others on this forum for my thoughts on annuities, but at this point my mind is solid in the NO column. Actionable item for me is continued annuity avoidance and stay with what I know - Equity and Bond Index funds with a sprinkle of individual Treasury and Agency Bonds. In the immortal words of Dirty Harry - "A man’s got to know his limitations".

Isn't there also concern that some of the products with concerning backing also being sold as income products? For instance, it is my understanding that more aggressive investment by the insurer allows some products to offer high annuitized payout than SPIAs from less aggressive companies.

[Stinky]

Can you please supply a link to the South Carolina order?

To keep this as an actionable discussion, what should policy holders do about this?

A simple summary for those not familiar with the terminology would be helpful.

Here’s a press release from the South Carolina department, with embedded links to the actual orders. https://www.doi.sc.gov/DocumentCenter/V ... ss-release

As to what policyholders could do about this -

I don’t believe that the regulators have formally taken control of Sentinel Security and Atlantic Coast as of today. Policyholders who desire to surrender their policies should probably move RIGHT NOW to surrender, before the regulators put the companies into "receivership" (that is, take control of the companies) and probably temporarily suspend further policy surrenders.

However, I believe that most all annuity contracts have a clause allowing the insurer to delay payments for up to six months, and I wouldn’t be surprised if a surrender requested right now would be delayed for up to six months.

Given that the companies have already been under close scrutiny by the regulators, and can't sell any new policies after today, I expect that it's only a matter of time before the states put the companies into "receivership". Maybe that will happen in a few days, maybe it will happen in a few weeks, or maybe it will be a short number of months, but I believe that receivership will happen. During receivership, the state insurance regulators take formal control of the company, and can petition the courts to modify or suspend certain policy provisions. I expect that regular payments of death claims and SPIA payments will continue during receivership, but I would expect that policyholders won't be able to surrender their policies so long as the company is in receivership, even annuities at the end of their interest guarantee period.

After a period of receivership, the companies will likely go one of two ways -

--- The better outcome for policyholders would be that the companies are "rehabilitated", and will exit receivership. Maybe the companies can restart operations on their own. Maybe a buyer can be found for the companies that will make policyholders whole. This does happen sometimes. In that case, all that policyholders will have lost is access to their funds while the receivership was in place.

--- The other outcome is that the companies are "liquidated". That is, the state guaranty funds are asked to step in, and the company goes through a formal liquidation process. Annuity and life insurance policies are covered by guaranty funds up to the lesser of their surrender value as of the effective date of the liquidation or the state guaranty fund limit. Those with contracts in excess of the guaranty fund coverage might not collect any of the excess amount.

It's currently entirely unclear as to how fast this whole process will move, and how it will proceed. I'll continue to post in the larger "Purchasing MYGAs" thread as the process unfolds. Here's a link to that thread. viewtopic.php?p=8182091#p8182091

[Valuethinker]

Can you please supply a link to the South Carolina order?

To keep this as an actionable discussion, what should policy holders do about this?

A simple summary for those not familiar with the terminology would be helpful.

Here’s a press release from the South Carolina department, with embedded links to the actual orders. https://www.doi.sc.gov/DocumentCenter/V ... ss-release

As to what policyholders could do about this -

I don’t believe that the regulators have formally taken control of Sentinel Security and Atlantic Coast as of today. Policyholders who desire to surrender their policies should probably move RIGHT NOW to surrender, before the regulators put the companies into "receivership" (that is, take control of the companies) and probably temporarily suspend further policy surrenders.

However, I believe that most all annuity contracts have a clause allowing the insurer to delay payments for up to six months, and I wouldn’t be surprised if a surrender requested right now would be delayed for up to six months.

Given that the companies have already been under close scrutiny by the regulators, and can't sell any new policies after today, I expect that it's only a matter of time before the states put the companies into "receivership". Maybe that will happen in a few days, maybe it will happen in a few weeks, or maybe it will be a short number of months, but I believe that receivership will happen. During receivership, the state insurance regulators take formal control of the company, and can petition the courts to modify or suspend certain policy provisions. I expect that regular payments of death claims and SPIA payments will continue during receivership, but I would expect that policyholders won't be able to surrender their policies so long as the company is in receivership, even annuities at the end of their interest guarantee period.

After a period of receivership, the companies will likely go one of two ways -

--- The better outcome for policyholders would be that the companies are "rehabilitated", and will exit receivership. Maybe the companies can restart operations on their own. Maybe a buyer can be found for the companies that will make policyholders whole. This does happen sometimes. In that case, all that policyholders will have lost is access to their funds while the receivership was in place.

--- The other outcome is that the companies are "liquidated". That is, the state guaranty funds are asked to step in, and the company goes through a formal liquidation process. Annuity and life insurance policies are covered by guaranty funds up to the lesser of their surrender value as of the effective date of the liquidation or the state guaranty fund limit. Those with contracts in excess of the guaranty fund coverage might not collect any of the excess amount.

It's currently entirely unclear as to how fast this whole process will move, and how it will proceed. I'll continue to post in the larger "Purchasing MYGAs" thread as the process unfolds. Here's a link to that thread. viewtopic.php?p=8182091#p8182091

Just to thank you for taking the time and effort to write this.

Your expertise is invaluable at a time like this, when the average policyholder will have no clue what to do.

I am hoping this is not another Executive Life. That one left a very deep and wide scar, that went on for years.

[LadyGeek]

As to what policyholders could do about this -

I want to add my thanks for the clear explanation. I also retitled the thread.

[nisiprius]

...If I recall correctly, AIG had a AAA rating prior to its implosion in 2008...

But it's complicated. AIG was a holding company that owned life insurance companies and also issued credit default swaps. The insurance companies were fine, the credit default swaps were not. The AIG Life Insurance Company, now discreetly renamed back to American General, was one of the sound assets held by the collapsing holding company. One of the reasons the AIG Life Insurance Company's ratings fell was because of uncertainty about the possibility of AIG managing to raid the assets of those companies, and at one point a regulator issued a ruling that sounded like maybe they could.

Of course, if the rating fell to A-, it doesn't really matter why.

I once did an informal search--the four big ratings companies let you establish no-cost accounts that give you some access and search capability--and found that more than three quarters of all life insurance companies had ratings within the "A" range. In other words, any rating in the B range means that the insurer is in the bottom quarter.

[CletusCaddy]

...If I recall correctly, AIG had a AAA rating prior to its implosion in 2008...

But it's complicated. AIG was a holding company that owned life insurance companies and also issued credit default swaps. The insurance companies were fine, the credit default swaps were not. The AIG Life Insurance Company, now discreetly renamed back to American General, was one of the sound assets held by the collapsing holding company. One of the reasons the AIG Life Insurance Company's ratings fell was because of uncertainty about the possibility of AIG managing to raid the assets of those companies, and at one point a regulator issued a ruling that sounded like maybe they could.

Of course, if the rating fell to A-, it doesn't really matter why.

I once did an informal search--the four big ratings companies let you establish no-cost accounts that give you some access and search capability--and found that more than three quarters of all life insurance companies had ratings within the "A" range. In other words, any rating in the B range means that the insurer is in the bottom quarter.

Why is that relevant? The bottom quarter of NBA players can still beat you and me in basketball.

And is there a difference in kind between A- and B++?

[nisiprius]

...As to what policyholders could do about this...

One thing in general that all policyholders can do is go to this page on the NOLHGA website, scroll to their state, thence to your state guaranty association's web page--e.g.

https://www.ctlifega.org for Connecticut--

find the FAQ, and familiarize themselves with the basics about what kind of protections are and are not provided by their state's guaranty association.

Briefly: it's different in every state but most states follow a similar pattern (a "model code.") There IS some protection. The insurance companies want you to believe that your only protection is their claims-paying ability, but that's just not true. But the guaranty associations are NOT state agencies and aren't backed by the state or by any reserved pot of money.

1. What happens when my insurance company goes out of business?
2. How is policy coverage determined?
3. What is the Connecticut Life and Health Insurance Guaranty Association?
4. Who is protected?
5. If I move to another state after purchasing insurance, will I still have guaranty association coverage? If so, who will provide it?
6. What contracts are covered?
7. Are all policies fully protected?
8. For example, if I own three annuities worth $200,000 each and my insurance company fails, how much is protected?
9. What will happen to my insurance coverage if the guaranty association becomes liable for my policy?
10. When might the guaranty association provide benefits?
11. What is NOT protected by the guaranty association?
12. How will I know if my life or health insurance company has failed or is unable to fulfill its obligations to its policyholders?
13. How can I find out if my company is licensed in Connecticut?
14. Why hasn't my agent or company told me more about the Connecticut Life and Health Insurance Guaranty Association?
15. Where can I get advice on purchasing life, health, or annuity products?
16. Are you a State agency?
17. How can I determine the financial soundness of my insurance company?
18. If my company is in the process of rehabilitation/conservation and I have an emergency and need to withdraw monies from my annuity, what is the process?
19. Is long-term-care insurance covered by the guaranty association?
20. Are variable annuities covered by the guaranty association?
21. f my company is liquidated, do I have to file a claim with the association?
22. Should I continue to pay my premiums?
23. Is my company covered by the guaranty association?
24. What happens if the benefits promised in my policy are greater than the coverage limits provided by the guaranty association?

[nisiprius]

...I once did an informal search--the four big ratings companies let you establish no-cost accounts that give you some access and search capability--and found that more than three quarters of all life insurance companies had ratings within the "A" range. In other words, any rating in the B range means that the insurer is in the bottom quarter.

Why is that relevant? The bottom quarter of NBA players can still beat you and me in basketball.

And is there a difference in kind between A- and B++?

It's relevant that the vast majority of insurers do have ratings in the A's. It means limiting one's search to companies in the A's isn't much of a restriction. Why bother even wondering about whether B++ companies are OK, when it is so easy to find companies in the A range?

That may not be fair to B++ companies, but you have to draw the line somewhere. I don't know what the difference is between A- and B++, but the ratings agencies have drawn a line there.

[CletusCaddy]

Why is that relevant? The bottom quarter of NBA players can still beat you and me in basketball.

And is there a difference in kind between A- and B++?

It's relevant that the vast majority of insurers do have ratings in the A's. It means limiting one's search to companies in the A's isn't much of a restriction. Why bother even wondering about whether B++ companies are OK, when it is so easy to find companies in the A range? That may not be fair to B++ companies.

I don't know what the difference is between A- and B++, but the ratings agencies are obviously drawing a line there.

You would bother because B++ pays more.

The B++ insurer I am familiar with is Canvas which pays 6.05% for a 7 year MYGA.

Compared with Gainbridge, an A- insurer, which pays only 5.7%

[jimtheinsuranceguy29]

Do we really think the ACAP insurers are still actually B++ rated? AM Best tried to downgrade all of them in early 2024 and ACAP sued to block the downgrade (https://insurancenewsnet.com/innarticle ... ment-talks).

Now AM Best has has just declined to update that old B++ rating, possibly because it is still facing a threat of a lawsuit, and you have ACAP's regulators determining that its insurers are all in a "hazardous financial condition."

Does anybody know what is going on here?

[Stinky]

But the guaranty associations are NOT state agencies and aren't backed by the state or by any pot of money.

It’s true that state guaranty associations are not backed by the state government. Nor are they backed by any dedicated tax revenue.

What the guaranty associations ARE backed by is the ability of the guaranty association to assess levies against all companies licensed in its state. For example, the state guaranty association of (say) Connecticut will levy an assessment against (say) New York Life, proportionate to NYL’s share of business in CT.

Let’s put some numbers to this. Say that the total cost to the CT guaranty association of a particular insolvency is $1 million. Let’s further say that NYL’s share of the total business in CT is 1%. Then the CT guaranty association would assess NYL $1 million times 1%, or $10,000, for its share of the cost to the CT guaranty association.

This is repeated across all states. So (say) NYL will likely pay assessments to the guaranty associations of all states, DC, etc.

These guaranty association assessments are mandatory, not voluntary. Any company that “chose” not to pay would face pretty severe sanctions.

[Stinky]

Do we really think the ACAP insurers are still actually B++ rated? AM Best tried to downgrade all of them in early 2024 and ACAP sued to block the downgrade (https://insurancenewsnet.com/innarticle ... ment-talks).

Now AM Best has has just declined to update that old B++ rating, possibly because it is still facing a threat of a lawsuit, and you have ACAP's regulators determining that its insurers are all in a "hazardous financial condition."

Does anybody know what is going on here?

As of this morning, the AM Best website shows them as still rated B++.

Incredible, isn’t it!!!!

I believe that AM Best was cowed/bullied by the lawsuit you mention to keep the ratings unchanged as the company deteriorated.

Since AM Best has kept the ratings unchanged for so long, even as the company was instructed to stop accepting new business, I think that the next rating change will happen when the company is put into receivership.

[newtoseattle]

Although I am thankfully not affected by issues with this company - it brings up questions re: state guarantee that I wonder if someone (ie Stinky!) can answer. (I did follow the link but don't think it answered these particulars)
1) in general will the final payment include ongoing interest? Or does it "freeze" value at some point and then just sit there while it all gets sorted out?
2) if you have a guaranteed life benefit (GLWB) that you haven't activated and another company picks up the policy - can you still activate in the future? Or do you just get the Surrender value (which is often quite low b/c ongoing fees for the rider)?
3) if you just gets surrender value - does that "include" the loss from any fees for early surrender?

thanks - hope these questions "make sense"

[Stinky]

Although I am thankfully not affected by issues with this company - it brings up questions re: state guarantee that I wonder if someone (ie Stinky!) can answer. (I did follow the link but don't think it answered these particulars)
1) in general will the final payment include ongoing interest? Or does it "freeze" value at some point and then just sit there while it all gets sorted out?
2) if you have a guaranteed life benefit (GLWB) that you haven't activated and another company picks up the policy - can you still activate in the future? Or do you just get the Surrender value (which is often quite low b/c ongoing fees for the rider)?
3) if you just gets surrender value - does that "include" the loss from any fees for early surrender?

thanks - hope these questions "make sense"

I’m glad that you’re not affected by the A-CAP mess.

I found a document - “Frequently Asked Questions” from the Colorado Bankers insolvency - which help to inform my responses to your questions. Here’s a link to that document, which gives a look inside a real live insolvency. https://members.nolhga.com/resource/cod ... 68CFA6101E

Now, to your questions.

1. Yes, the final payment will include ongoing interest. In general, interest should follow contractual terms. However, I believe that there may be provision for the regulators to adjust contractual interest rates downward if they exceeded the parameters laid out in the guaranty association law.

2. That's a good question about GLWB riders. Generally, I would expect that they would remain in place unchanged. But I do know that liquidators have broad powers to "reform" (that is, change) contracts, as approved by the courts, if there were contractual provisions that were unreasonably generous.

3. Generally, "surrender value" is equal to account value minus surrender charges and market value adjustments (if either or both exist).

[cvn74n2]

While the A-CAP story is ongoing, the initial point of this thread was focused on the regulatory structure of reinsurance in Bermuda and its ability to monitor and enforce its regulations.

A 08 Sep 24 article in the Financial Times by Ian Smith quotes the Bermuda Premier / Finance Minister David Burt "“You can never prevent all problems from occurring, and I think that everyone accepts that,” Bermuda premier David Burt told the Financial Times, in an interview at its office in London. “What matters is how you deal with [them].”

He goes on to say “It is accepted that we have a very strong and robust regulatory system,” Burt said, “where we have made sure to tighten the rules . . . to make sure that our international regulators, who may have expressed these particular concerns, know that we are taking these matters seriously.”

Finally, in the FT article, Burt mentions Bermuda had a “long history of being a co-operative and transparent jurisdiction”, will be adopting the global minimum tax rate on multinationals of 15 per cent from January [2025]. [Of note, Insurance] Industry insiders and analysts expect that Cayman Islands, which is outside of Solvency II, might begin to lure more life reinsurance business its way.

If the prediction that some/many reinsurance companies will move from Bermuda to the Cayman Islands due to Bermuda's imposition of a global minimum tax of 15%, then it will be incumbent on US state insurance regulators and we, the consumer, to adequately judge if the Cayman Islands regulatory structure is up to the task.

[Stinky]

It looks like the A-CAP companies are fighting the recent regulatory orders that the companies cease writing new business.

Sentinel Security has a court trial set for March 2025 to dispute the Utah Department of Insurance order, while Atlantic Coast Life has gotten a judge to (at least for now) pause the order from the South Carolina Department of Insurance.

https://insurancenewsnet.com/innarticle ... coast-life

[friendlydave]

I purchased several fixed annuities to help me with cash flow in early retirement. Two of the companies have had financial issues (Colorado Bank and Atlantic Coast). Fortunately, I surrendered the Atlantic Coast policy in September 2024 at the end of its guarantee period. I am still waiting to receive the proceeds from my Colorado Bank annuity from the Virginia Insurance Guarantee Association. Based on my experiences, I could not recommend purchasing any insurance product for income.

[Stinky]

I purchased several fixed annuities to help me with cash flow in early retirement. Two of the companies have had financial issues (Colorado Bank and Atlantic Coast). Fortunately, I surrendered the Atlantic Coast policy in September 2024 at the end of its guarantee period. I am still waiting to receive the proceeds from my Colorado Bank annuity from the Virginia Insurance Guarantee Association. Based on my experiences, I could not recommend purchasing any insurance product for income.

I’m glad that you were able to get out of Atlantic Coast before the recent turmoil. Good move on your part!

I expect that you’ll be hearing from the Colorado Bankers team within the next week or two, if you haven’t already. The logjam holding up payments has finally been broken, after about 5.5 (long) years of litigation by the owner, a convicted felon.

[grok87]

I purchased several fixed annuities to help me with cash flow in early retirement. Two of the companies have had financial issues (Colorado Bank and Atlantic Coast). Fortunately, I surrendered the Atlantic Coast policy in September 2024 at the end of its guarantee period. I am still waiting to receive the proceeds from my Colorado Bank annuity from the Virginia Insurance Guarantee Association. Based on my experiences, I could not recommend purchasing any insurance product for income.

how long have you been waiting? i.e. i'm curious to know, as a data-point to my own annuity purchase decision, how long the state guarantee fund system takes
cheers,
grok

[friendlydave]

The Virginia Insurance Guarantee Assciation only got the final go ahead from the state a few weeks ago. We are supposed to receive a letter within the next 2 weeks telling us how to process our claim.

Hopefully it won't take too long now.