Mar 28, 2023
In this episode, The Annuity Man and John Lenz discuss:
Required capital level of annuity companies
Market value adjustment, surrender penalty, and pivoting with annuities
What state-guaranteed funds are for
Exposure and liabilities in the insurance industry
When the annuity company invests their client’s money, they make sure to add capital over and above the asset to provide a safety net. That’s called a required capital level; insurance companies add multiples of that.
The market value adjustment and the surrender penalty help protect the insurance company and its policyholders. However, you could buy an annuity without market value adjustment and guarantees a full refund.
State guaranteed fund was an attempt by the insurance industry to create another additional layer of security for the policyholder. In an unusually catastrophic event where all redundancies had been found insufficient, the state insurance commissioner can order the company to be rehabilitated and strengthened.
Reinsurance is complicated; an insurance company will take part of their liabilities and transfer those to another company. Most importantly, the company that issues the policy is still on a hook even if they reinsure.
"There are layers of redundancy to try to keep insurance companies healthy, and it really works." — John Lenz
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