Not much going on from the ratings world as to specific companies but AM Best, the world’s oldest insurance rating company, is considering a revision in the rating outlook for the life and annuity sector to negative from stable. Global economic uncertainty and the debt crisis domestically are the leading reasons for the potential shift in outlook.
· A new report from the Government Accountability Office (GAO) highlights income annuities from life insurance companies as “an alternative to self-managing periodic distributions from savings.” The report came from inquiries from the White House and the Departments of Labor and Treasury.
· State insurance departments are reviewing claim practices of life companies for deceased policyholders. Moody’s indicated in a report that the cost to the industry could be hundreds of millions of dollars.
· IRS is removing direct references to credit rating agencies from the regulations implementing the Internal Revenue Code. I wonder how they will react if US debt is downgraded?
· We have mentioned the possibility of an attack on the tax-favored aspects of the life insurance contract. A recent article from the internet (that does not guarantee accuracy!) lists the top 10 “tax expenditures” – government speak for tax breaks – and now that there is a committee to be appointed to find further cuts in government spending the topic is bound to reemerge as a way to increase revenues without technically increasing taxes. Life insurance did not make the top 10. The charitable contributions deduction is #10. The capital gains exclusion at death is #9. #2 is the home mortgage deduction and #1 is the exclusion for employer sponsored health insurance. If you want to know the others send me a note and we will send them to you.
Hope you are staying cool. We just completed the work on a cool project – a no longer needed life insurance policy where we were able to show the owner how the policies could be managed and viewed as an investment yielding almost a 7% return over the next 12 years, almost entirely tax-free, and with some limited but manageable risk. The circumstances admittedly were somewhat unique that created such an opportunity but the outcome of the project reflects the value of an objective opinion when reviewing life insurance holdings.
Let us know if we can be of assistance on any life insurance concerns you may have for you or your clients.