From the May 2009 issue of Boomer Market Advisor • Subscribe!

More to fear than fear itself

WSJ.com reports more than 70 percent of financial advisors in a recent survey said they were concerned about the risks insurers have taken on with guaranteed-minimum variable annuities. Nearly one-third said they doubted the insurers themselves understood those risks.

These are among the key findings of the fourth annual survey of Merrill Lynch advisors (they're still around?).

"The advisors were polled amid a steady drumbeat of ratings downgrades for some of the biggest names in the U.S. life-insurance industry. About two dozen insurers saw their financial-strength ratings fall one or two notches during the first quarter, although most remain at least for now in categories denoting capitalization that is 'strong' to 'very strong.' The ratings firms assigned a negative outlook to many of the insurers for the next 12 to 18 months and put some on watch for possible additional downgrade over the next few months."

Larger players have suspended sales of certain guarantees, reduced benefit levels or made other changes to reduce their risk. These include units of Allianz and AXA, as well as Fidelity Investments and Pacific Life Insurance Co, according to the article. In general, the insurers cite the need to maintain a balance between guarantee features and their cost to provide that protection under the tough capital-market conditions.

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