A Revolt Against PE-Led Annuity Issuers

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Matt Zagula is an annuity wholesaler and fixed indexed annuity (FIA) designer. He and forensic accountant Tom Gober created the TSR ratio, a scale for rating FIA issuers. Mutual and fraternal insurers score best; private equity-led life insurers score worst. This article originally appeared in the Retirement Income Journal and is reprinted with the permission of its publisher.

A Pittsburgh insurance broker and a Richmond, Virginia forensic accountant have developed an alternative rating system for measuring the ability of life/annuity companies to keep their promises even in market crises. They call it the transparency, surplus and riskier assets ratio, or “TSR” for short.

The TSR ratio is counterintuitive: It gives the poorest grades to the private equity-affiliated companies that have grabbed such a big share of fixed indexed annuity (FIA) sales in recent years. The best TSR scores go to mutual and fraternal insurers, which are owned by and serve only their policyholders.

Matt Zagula, the broker, and Tom Gober, the accountant, are bucking a major trend. The PE-affiliated life/annuity companies claim to have increased their solvency by using offshore reinsurance and by investing in sophisticated structured securities. Their FIA sales have grown apace. But Zagula and Gober say that such practices would actually weaken the ability of these insurers to pay their annuity owners in the next financial crisis. The TSR is designed to reveal the weaknesses.

Zagula has set up Smart Advisor Network, which he calls the first field marketing organization (FMO) to offer only annuities issued by mutual and fraternal insurers. He’s already launched a consumer-friendly FIA contract with a fraternal insurer. It’s called Aquila X.