In The Wall Street Journal, Heather Gillers explains the connection between private asset managers and indexed annuities that allows the insurance company to change the amount of return guaranteed to the owner each year. She writes:
After the financial crisis, private-asset managers began buying up insurers to access their huge pools of policyholder premiums.
Indexed annuities were particularly attractive. Payouts follow a relatively predictable timetable, and the policies typically last about a decade, compared with about three to five years for fixed-rate annuities. That gives asset managers flexibility to put the money into riskier, less-liquid private-credit investments like collateralized loan obligations or asset-backed securities.
If their investments do poorly, the insurer can cushion against loss by lowering the caps on policyholder gains, and if their investments do well they can fatten their profits the same way, said Larry Rybka, chief executive of Valmark Financial Group, which sells life insurance, annuities and investment products.
“That’s why private equity likes this, because they can change the deal on the consumer,” Rybka said.
Indexed annuities now account for nearly $200 billion in reserves at private asset manager-owned insurers, according to insurance ratings firm AM Best, more than any other type of life or annuity policy.
You know I’m not a fan of annuities. They’re more often sold than bought. And I’ve warned you about private equity and credit coming to your 401(k). The combination of both private asset managers and annuities is something you should consider with eyes wide open and with the utmost scrutiny.
Action Line: Please perform proper diligence on any investment product you consider purchasing. When you want to talk to a fiduciary legally obliged to put your interests first, email me at ejsmith@yoursurvivalguy.com. And click here to subscribe to my free monthly Survive & Thrive letter.
