When Was the Last Time an Annuity Carrier Failed?

Standard Life of Indiana Crashed and Burned in 2008-No Premiums Were Lost
Standard Life of Indiana Crashed and Burned in 2008-No Premiums Were Lost. By: Mark Stevenson/Stocktrek/Getty Images

Standard Life of Indiana Failed in 2008

A question that I get asked all the time is, "When was the most recent failure of an annuity company?", and "Who failed?" The answer to those 2 questions is Standard Life of Indiana in 2008. We all remember the financial turmoil that happened during the 2008 time period, with the housing and mortgage market decline triggering a tsunami of financial problems. Life insurance and annuity companies are subject to their own financial decisions, so issues can arise during tumultuous times.

 This gives us a great opportunity to look deeper into how annuity companies actually protect your hard earned money, and what specifically happened with Standard Life of Indiana when it failed.

The Standard in Oregon is a Stable and Strong Carrier

It’s important to point out the there is another life insurance company with a similar name that is very strong and has had no financial issues. That carrier’s name is The Standard, and they are based in Oregon and unfortunately get mistaken with Standard Life of Indiana. The Standard is a strong, well-run company. Don’t be confused by the similar names. There is nothing similar when compared. There is nothing similar when compared.

Indiana Department of Insurance Ordered Rehabilitation of Standard Life of Indiana

In December of 2008, Standard Life of Indiana was ordered into what’s called “rehabilitation.” Because annuities are regulated at the state level, not federal, the Indiana Department of Insurance took the lead role in protecting the policy holders of this troubled carrier.

At the time of the rehabilitation, Standard Life of Indiana had close to 40,000 individuals that owned annuity contracts.

According to the Indiana Department of Insurance, what got Standard Life of Indiana in trouble was “a high concentration of sub-prime debt” which severely deteriorated during the 2008 crisis.

When an annuity company goes into rehabilitation, it’s obviously a serious matter and the courts get involved.

Guggenheim Life & Annuity Company

I’ll cut to the end of the story without boring you with the legal details of this recent situation. What happened to Standard Life of Indiana is what I predicted would happen at the time. That prediction was that the annuity industry would take care of itself, and that’s exactly what happened. Guggenheim Life & Annuity Company came in and re-insured all of the policies that were originally issued by Standard Life of Indiana. The golden goose in the annuity industry is that no policy holder has had a missed payment, and that claim is protected vigilantly by all carriers for not wanting the premium inflow to be interrupted.

No Policy Holders Lost Money or Missed Receiving a Payment

In essence, the rehabilitation became a reorganization under the approval of the Circuit Courts and under the guidance of Guggenheim Life & Annuity Company. This transition went relatively smoothly according to all of us out here that were watching, and no policy holders lost a penny or missed a payment. The only casualty that I know of, is that some fixed rate annuity (MYGA) holders received a lower annual rate than what was signed up for under the Standard Life of Indiana banner.

For example, some fixed rate guarantees went from 5.00% to 3.5%, etc. This had to be done from a pragmatic financial standpoint, and Guggenheim easily absorbed and backed all of the old policies.

Annuity Carriers Shoulder Higher Regulations than Banks

I always tell people that life insurance and annuity companies are not smarter than banks, they are just more regulated from an investment standpoint. That fact alone is reason to consider transferring some risk to an annuity strategy. Historically, annuity companies have proven themselves to be able to handle it, and the industry itself provides a solid safety to all policy holders.

It Is Still Your Responsibility to Understand the Carriers Strength (or Weakness)

With that being said, it is always a smart move to remember that annuity guarantees are only as good as the company backing them up.

That’s a common sense thought, but too often forgotten by consumers and agents alike.