by Guest » Sat Mar 14, 2009 10:49 am
I was recently contacted for life insurance by an old friend who is currently an agent with shenandoah life insurance company. The plans sound good but I've also heard that things went really bad with the company in the present market crisis.
Its difficult to decline a friend but at the same time I don't want to waste my money as well. Any suggestions? Is it or is it not right to purchase policy from shenandoah life insurance company?
Its difficult to decline a friend but at the same time I don't want to waste my money as well. Any suggestions? Is it or is it not right to purchase policy from shenandoah life insurance company?
Posted: Mon Oct 04, 2010 12:31 pm Post Subject:
you are too knowlegeable to be posting the amount of incorrect information that you post. For instance, California's "80% up to $xxx" language", is the exception and not the rule. Most do not have this percentage limit.
Sorry if you believe that when I wrote "for example", and used California's guarantee association as the example, that what I posted is incorrect information. It is entirely correct for California. It is not dissimilar compared to other states, other than the actual amounts a state chooses to cover.
What is also correct about other states is that they all place a limit on the amount any guarantee association covers. California is certainly on the low side compared to most other states.
It doesn't matter on the size of the annuity. Let's assume that it is $1,000,000.
When an insurance company becomes insolvent, the worst case scenario is liquidation. Prior to that, the first responsibility of the insurance commissioner, superintendent, or whatever title the person has in a particular state, is to prevent losses to any policyowner. It cannot be prevented 100%, and that's when the Guarantee Association becomes involved, not before. Insurance companies do fail. Not in huge numbers, but several each year nationwide. So from that perspective, "not likely" is a correct answer. But that's not what the OP is asking.
If you think THAT the "size" of an insurance contract doesn't matter when an insurer becomes insolvent, you are SADLY MISTAKEN. Especially when annuities are concerned. Few, if any, insurance companies are going to buy from an insolvent insurer [/i]any annuity that has already been annuitized[/i] -- there is no money to back up the guaranteed stream of income it represents.
Annuities in the accumulation phase other than variable annuities (in which the money resides in the "separate account" and has different protections, but NO GUARANTEES), are also more difficult to sell as "distressed assets" of the insurance company unless there is an equivalent amount of cash to accompany the cash value the new insurer must assume. Compared to life insurance, annuities from insolvent insurers are more likely to fall victim to insurer insolvency.
A $1,000,000 annuity with no corresponding cash value to accompany it will be INFINTELY more difficult for the liquidator to sell than a $100,000 annuity in the same situation.
As to amounts of coverage guarantee available, here are two other examples from FAQs on the respective websites.
From the Life Insurance Guaranty Company of New York (one of the most generous limits):
For example, if I own three annuities worth $200,000 each and my insurance company fails, how much is protected?
The total protection per owner per member company is $500,000 for all annuity contracts. As a result, if an individual owned three $200,000 annuities with the same insolvent insurance company, the individual would have total guaranty corporation coverage of only $500,000. The value in excess of this statutory coverage limit would be eligible for submission as a creditor claim in the receivership, and the annuity holder may receive distributions as the company's assets are liquidated by the receiver.[justify]
(( understand that the word "may" is not a promise, only a remote possibility. Other creditors with higher claims have a superior position ))
From the Montana Life & Health Guaranty Association:
[b]Are all policies fully protected?
[justify]Not always. If your insurance company fails, the maximum amount of protection provided by the Montana Guaranty Association for each type of policy, no matter how many of that type of policy of your company provides protection for you, is:
Life Insurance
* Death Benefits: $300,000 per insured life
* Cash Surrender Values: $100,000 per insured life
Health Insurance
* Long Term Care Insurance Benefits: $300,000 per insured life
* Disability Insurance Benefits: $300,000 per insured life
* Hospital, Medical, Surgical Benefits: $500,000 per insured life
* Other Health Insurance Benefits: $100,000 per insured life
Annuities
* Annuity Benefits (Present Value): $100,000 per owner
* Allocated Group Annuity Benefits: $100,000 per certificate holder
* Structured Settlement Annuity: $100,000 per payee
There are also aggregate limits on the total amount of protection provided in respect to one individual resident in the insolvency of a company. The basic limit is $300,000 in protection in the aggregate for all types of contracts and benefits described above. However, that limit is increased to a maximum of $500,000 in situations where covered health insurance claims exceed $300,000.
Notice the annuity limits in Montana are exactly the same as in California, just no mention of the 80% factor that applies in California.
Don't go throwing stones when your own statements are wrong.
Posted: Mon Oct 04, 2010 12:36 pm Post Subject:
I'm saying that it isn't likely. I think that you'll be hard pressed to find a single example of someone losing most of their money in an annuity due to an insurance company's insolvency.
Executive Life Insurance Company, 1991. Many policies were assumed by Aurora National Life Assurance. Virtually none were annuitized annuity contracts which fell to the various guarantee associations around the country.
There is still money being recovered from some of the insurance companies that were involved in the liquidation proceedings.
Enough said.
Posted: Mon Oct 04, 2010 07:58 pm Post Subject:
Throwing stones when my statements are wrong? You might want to reread my post. I was explicitly talking about the 80% limitation.
You said, "they generally all follow, California's "80% up to $xxx" language."
I'm pointing out that other states don't have this language. You just pointed to two states that don't have this percentage limitation.
Can you please just admit that you are wrong? The California % limitation is atypical. I am not and was not referring to the dollar amount.
Posted: Mon Oct 04, 2010 08:13 pm Post Subject:
I don't care about the state guarantee associations. What I care about is what actually happens.
Like I said, it is not a likely outcome that she'll lose her money if they become insolvent. Use Executive Life as an example. According to NOLHGA, all of their contracts went to Aurora National.
You can't find a single example of a U.S. citizen losing all of their money in an annuity in a U.S. company due to company insolvency. You can't even find an example of someone losing most of their money or lots of their money. If you can find one specific example, I'll apologize.
It's simply incorrect to tell someone that she's likely to lose her money if her company becomes insolvent. It isn't true. I'm not saying that it is impossible. I'm saying that it certainly isn't likely.
Posted: Wed Oct 06, 2010 10:22 am Post Subject:
According to NOLHGA, all of their contracts went to Aurora National.
WRONG! It states "most" not "all". Most annuity contracts were not included, and there are still MILLIONS of dollars in policyholder restitution still unpaid -- which, to me, says people lost money.
Posted: Wed Oct 06, 2010 11:57 am Post Subject:
Max, I don't know where on the site you read "most". I was on the site and it said "all". I don't know what is correct. I'm just telling you what I read. I'll fully admit that what I read could be wrong, but it is what I read.
I did not say that people didn't lose money. I know that some did lose money. Most did not.
As for Shenendoah Life, I'm simply disagreeing with your statement that it is likely that she'll lose her money if they are insolvent. She might, but it isn't likely.
Posted: Wed Oct 06, 2010 12:05 pm Post Subject:
It is interesting because it says that "most" policies were transferred to Auroa Life. It then says that the policy and claims administration for "all policies" were transferred to Auroa Life. There is then a note about residents of Michigan. It appears to me that everything was transferred to Aurora except for some in the state of Michigan.
Posted: Sat Oct 09, 2010 12:36 am Post Subject:
This reminds me, I need to track down information about Aurora as I believe they are the company that took over a pension plan a client of mine was in from a former employer.
Posted: Sat Oct 09, 2010 05:39 am Post Subject:
Company Overview
Executive Life Insurance Company (ELIC) was a large issuer of life insurance, structured settlement annuities, group annuities, and guaranteed investment contracts (GICs) issued to pension plans and municipalities. A conservation order was issued for ELIC on April 11, 1991, and a liquidation order was entered on December 6, 1991. Most of the company's policies were assumed by Aurora National Life Insurance Company in 1993 (see below).
http://www.nolhga.com/companies/public/main.cfm/NAICCode/63010/GAID/100
The conservation and liquidation of ELIC occurred in 1991, and is STILL the subject of some unresolved litigation, and there are former ELIC policyholders who have not received full restitution for their policies.
The CA Dept of Insurance's Conservation and Liquidation Office posted the following:
On August 13, 1993, after an extensive period of intense litigation by the parties interested in the assets of ELIC, the Los Angeles Superior Court approved the terms of the modified Rehabilitation/Liquidation Plan of ELIC. The Plan went into effect on September 3, 1993. Effective February 15, 1994, Policyholders were given the opportunity to either opt out of the rehabilitation plan and receive the liquidation value of their existing ELIC contracts or opt in to a new restructured contract with the newly formed company, Aurora National Life Assurance Company, Inc. (Aurora), a wholly owned subsidiary of New California Life Holdings, Inc. The restructuring of ELIC policies permanently adjusted the account value or benefit payment of each contract on the basis of Conservation Date Statutory Reserves ("CDSR"). Opt out and opt in policyholders however, were entitled to participate in future distribution from the remaining assets of the ELIC estate. In addition, opt in policyholders were promised to receive enhancements to their policy values from the Guaranty Associations and Aurora. Since January 1995, the Rehabilitator has distributed $1,682,047,492 to/or for the benefit of former ELIC policyholders.
That Aurora took over many of the policies is not in dispute. They did not take over policies at 100% of their former values. People LOST MONEY. That commonly happens in a liquidation proceeding. ELIC was the largest such insurance company failure in "modern" history.
In 1999, the CLO posted the following:
Executive Life Insurance Company ("ELIC") was placed into conservatorship partly due to a decline in value of its multi-billion dollar investment in "junk bonds". A comprehensive rehabilitation plan was adopted and became effective on September 3, 1993. As a part of the plan, ELIC policyholders either elected to accept new coverage ("Opt-In") from Aurora National Life Assurance Company ("Aurora") or elected to opt-out and surrendered their policies for cash. Over the years, enhancement trusts were established as a part of the liquidation of ELIC collected assets, which at various times have been distributed to policyholders that opted-out, or to Aurora to enhance the policy values of the ELIC policyholder that opted-in. Additional funds will become available for future distributions, including funds related to First Executive Corporation Trust. There is ongoing work related to the rehabilitation plan. The FEC distribution occurred on October 31, 2002.
As recently as July 2010, the CLO posted the following "Opt-Out Trust Update":
The Opt-Out Trust receives approximately 33% of Executive Life Insurance Company ("ELIC") assets which are distributed to approximately 27,300 former ELIC policyholders ("Opt-Outs") who elected to terminate their policies.
A distribution of $211 million of Altus Litigation Funds was made to Opt-Out policyholders in February 2006. Presently the remaining assets of the Opt-Out Trust consist of (1) distributions allocated to policyholders with whom contact has been lost, in most cases due to bad addresses (funds for those for whom contact has been lost will be escheated to the last known state of residence), and (2) the settlement proceeds of Mutuelle Assurance Artisinale De France ("MAAF") (one-third of the recovery of a default judgment in the name of defendant, MAAF) which became available for distribution to Opt-Out policyholders.
As the costs to effect a distribution of this size outweigh the benefits to the Opt-Outs, the Commissioner determined that MAAF funds would be distributed when the new damages phase of the NOLHGA Premise including punitive damages, if any, is concluded. The trial court had initially set a hearing on November 3, 2009 but the court vacated that date with the understanding that a new trial date would be set. The Commissioner anticipated that if the hearing was held on the date it was originally set, a distribution of the MAAF funds would have occurred together with any new awards that the Commissioner would have received. Because the date of the trial was vacated and a new date has not yet been set, the Commissioner intends to distribute the MAAF funds in the third quarter of 2010. This trust however, continues to remain open to effect distributions to Opt-Out policyholders if the Commissioner is successful in the retrial.
All of the "Opt-Outs" lost money at the time. It is clear that these former ELIC policyholders may never recover 100% their losses. Those who "opted-in" and received new contracts from Aurora agreed to accept reduced value policies compared to what they had.
I never said that a policy with Shenandoah WOULD lose money in a liquidation, but that it COULD lose money in that worst case scenario. It all depends on the quantity of assets available at the time of a liquidation. But you have to understand that if the situation devolves from rehabilitation to liquidation, the situation is one of truly impaired assets. Annuities in the PAYOUT phase are most vulnerable to not being fully covered.
they all generally follow the same "80% up to $xxx" language.
My inclusion of the "80%" was incorrect. The statement "up to $xxx" is correct.Posted: Sat Oct 09, 2010 09:10 am Post Subject:
As of February 2009, Shenandoah Life Insurance Company is currently in "Pre-Liquidation", and is the basis of the OP's concern (I was not aware of that when first responding). According to the latest spreadsheet from the NOLHGA, the exposure of the Guaranty Associations is still unknown.
All state guaranty associations cover at least $100,000 of annuity cash values. If a person owns an annuity with more than $100,000 of cash value (or in the present value of annuity benefits being paid), the excess of the guaranteed amounts will not be covered by the Guaranty Associations. Annuities in the payout phase that have a likelihood of exceeding $100,000 in total annuity benefits are most vulnerable, along with any annuity in the accumulation phase with more than $100,000 of current cash surrender value.
The Guaranty Associations attempt to find other insurance companies willing to assume the contracts at full value. In most cases, there are sufficient assets to cover at least 70%-90% of the Guaranty Association's statutory obligation, and by agreeing to pay this amount to a new insurance company, they "encourage" other companies to acquire the policies of failed insurers. When assets have been "looted by company management", it becomes more difficult to promise the original contract benefits or to find willing buyers of a failed insurer's assets (the cash flow, invested reserves, etc.).
Executive Life Insurance Company operated two different companies -- one chartered in California and one chartered in New York (since NY does not generally admit "foreign" insurers -- those chartered outside NY state). Executive Life's combined failures are the largest in the history of life insurers, resulting in more than $5.6 Billion in total Guaranty Association obligations for the California insurer alone (and not including the NY company's amounts, which have not yet fully been established -- almost 20 years after the fact!)
Because the losses to insureds was so massive (and uncharacteristic of most insurer insolvencies), policyholders were given an opportunity to "opt in" to a plan to receive new policies with "liquidated" values lower than their original ELIC/ELNY policies, or to "opt out" and receive whatever values could be obtained on their behalf by the various state regulators, led by California (and NY). The opted out policies are still receiving payments as litigation against the successor companies continues.
Those who opted in definitely lost value, even though they received new policies from the newly created Aurora National Life Insurance Company. Those who opted out, are still, occasionally, receiving payments for the values of their former contracts, but are far from being indemnified 100%, and are not likely to ever be indemnified 100%. Some even are owed money because the Guaranty Association Trust Funds cannot locate the individuals and are holding money that needs to be paid.
We'll have to wait and see what happens to Shenandoah -- whether anyone will lose amounts beyond the guaranteed amounts or not, whether their policies are assumed by other insurers or not.
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