Insurers May Be in for More Misery (Update)

The guaranteed payment from an insurer is only as good as the strength of the company paying it. If that insurer becomes insolvent and is taken over by regulators, policy holders likely will be paid in the end, but regulators could restructure the terms of the contract, potentially making them less attractive. So it's important to know how financially sound a company is before you purchase an EIA or any other retirement product.

TheStreet.com Ratings issues financial strength ratings on each of the nation's 8,600 banks and savings and loans which are available at no charge on the Banks & Thrifts Screener. In addition, the Financial Strength Ratings for 4,000 life, health, annuity, and property/casualty insurers are available on the Insurers & HMOs Screener.

Response from Aviva

A response to this article, submitted by John Currier, executive vice president and chief product officer of Aviva USA, is below.

In her Nov. 5 article, Ms. Gannon not only grossly mischaracterizes equity index annuities by implying that the indexed interest credits of these products create financial strain on insurers in the same way the guarantees on variable products do, she unfortunately has most of her facts wrong.

First and foremost, traditional fixed annuities are insurance products -- not securities that are tied to an index as Ms. Gannon asserts. In addition, equity index annuities provide customers with protection against downturns in markets, such as the one we are now seeing. These policyholders enjoy peace of mind knowing that their assets are protected and growing -- even with declines in the overall market.

Fixed indexed annuities (FIAs) are almost identical to traditional fixed annuities -- both products are backed by the insurer's general account portfolio, consisting mostly of high quality bonds. However, the credited interest formula of the fixed indexed annuity is tied to a specific securities index where a traditional fixed annuity uses a declared rate. However, contrary to Ms. Gannon's assertions, because FIAs are insurance products, the investment risk is placed firmly on the issuer, who backs up, or guarantees, the product. This enables FIAs to provide a guaranteed principal protection and minimum cumulative rate of return. In fact, these returns may be even higher, depending upon the performance of that specified index. The underlying guarantees are met by the general account investments and do not rely on a long-term equity hedge, as the article seems to imply.