Retirement plan executives are worried that some big insurance companies wont be able to pay claims on the annuity products sold to benefit plans.
One big issue is the safety of guaranteed annuities, said Thomas Woodruff, director of the retirement and benefits division at the Office of the Connecticut State Comptroller, Hartford. I believe that a fresh look needs to be taken at the insurance industry that backs up these guarantees. The nature of these guarantees is very important to the future of the DC system.
Connecticut has $2.15 billion in defined contribution assets, comprising a $250 million 403(b) plan, a $1.5 billion 457 plan and a $400 million 401(a) plan. All three plans offer annuities.
Several large insurers Prudential Financial Inc., Newark, N.J.; Metropolitan Life Insurance Co., New York; The Hartford Life Insurance Co., Hartford, Conn. have been hit by the crippling effects of the ongoing liquidity crisis. The three companies constitute 20% of the individual variable annuity market, according to Craig Buck, U.S. life actuarial leader at Watson Wyatt Worldwide in Philadelphia.
These companies are stepping up their emphasis on annuities as a way to meet the need for more secure retirement funds and increasingly are marketing annuities to both defined benefit and defined contribution plans.
James Langenkamp, vice president at Corpus Christi, Texas-based Whataburger Inc., said he was watching the health of the insurance industry prudently, given the stressed conditions in the financial markets. Mr. Langenkamp oversees the companys $63 million defined contribution plan. The worry over the health of the insurance industry dates to the early 1990s, when Los Angeles-based Executive Life Insurance Co. suffered heavy losses and was unable to pay its annuity claims as a result of huge junk bond investments. When the junk bond prices plummeted, policyholders fled Executive Life and Californias insurance commissioner seized control of the companys unit in the state, triggering other state commissioners to follow suit. The company eventually was liquidated and some claims were honored while others remain in litigation.