In the current recession, fixed annuities have once again come into favor. Not only are the rates on these policies better than certificates of deposit, money market funds and treasuries, but all taxes are deferred for as long as you wish. Some have shown reluctance to purchase fixed annuities because of a concern about the financial strength of the insurance company.  This makes sense in light of the AIG failure. It is important to understand that there are two kinds if insurance companies: stock and mutual. Stock companies re owned by their shareholders and strive to increase both dividends and share price to benefit their owners. These are the firms that have suffered price declines and writedowns of assets, in some cases just like the major banks. In looking at the annuity offerings of stock companies, it is imperative that you look hard at the companies financial position. If the interest rate on the annuity offering is unusually high, extreme caution and due diligence is a requirement.

The mutual insurance companies are owned by the policyholders. They do not have to impress stock analysts nor do they have to deliver stock price increases to their owners.  Mutual companies operate in a highly regulated environment, and have stringent reserve requirements. The requirements dictate the amount of reserves that a company has to hold to ensure that they can pay claims.  There are also specifics as to the types of securities that have to make up these reserves, primarily quality bonds, mortgages and government securities.

Many of the stock companies have declined in value due to reductions in their stock prices and losses on questionable investments.  At the same time, the reserves and the financial strength of many of the mutual companies have actually increased in these difficult financial times. A number of the stock companies are requesting a share of the federal bail out and reducing dividends.

At the same time, mutual companies have not asked for any relief. A number of them have shown increases in their reserves. Several have announced plans to increase the dividends that they pay to their policy holders.

We are looking for safety and security. Fixed annuities are conservative, tax favored investments. It only makes good sense to be sure that you are dealing with a financially solid insurance carrier.  We are happy to provide a list of the mutual companies who have maintained, even increased their financial strength.  Pease request this at www.associatesgroupinc.com