According to LifeHealthPro, a website dedicated to insurance industry news and sales ideas, AIG (American International Group) had a record quarter due largely to equity indexed annuity sales. (Indexed annuity sales drive AIG to record quarter: August 5th, 2014 – Arthur D Postal)
A big factor in the profitability was the fact that nearly half of the annuity sales included the sale of guaranteed lifetime income riders. What is wrong with this picture?
You may recall that AIG was one of the big financial entities that received assistance in the form of loans from the US government (taxpayers) due to bad investments that jeopardized the company’s financial well-being.
What I find odd is that the website article seems to be applauding this news as a good piece of information for the sales force to trumpet in their product sales presentations. As one paragraph states: “The report marked another step away from the crisis mode the former insurance industry behemoth endured as it and the federal government dealt with an ill-advised move the company made away from its core insurance business with a huge investment in credit default swaps that sent into the hands of the taxpayer from 2008 until 2012.”
If you look at the company history timeline on the website, you see this: “2010-present. AIG restructures itself, fully repays its assistance from the U.S. government plus a profit, restores its reputation, and relaunches its brand”
I don’t have a problem with companies making profits…quite the opposite. I just think that it’s important that my listeners and clients don’t get pulled in by what they are selling if it’s not in their best interest. Think of it. What got the company back on solid ground? Great investing? No. Selling a product that appeals to people’s desires to make money while avoiding (or so the promise goes) risk. Everybody loves the idea of losing weight with no exercise, getting rich through the lottery (or without work) or tastes great/less filling (or whatever). The indexed annuity product simply appeals to the desire to have higher rewards without the volatility. Return without risk is a pipedream.
Another important point to consider is who they are talking about in this quote. Is it focused on how well served the investor is? Yes, in the stock of the company, but not the buyer of the product. The product buyer was simply the means to the end for the corporation. This approach to business usually backfires, but very well may not in this case? Why? Investors aren’t typically well versed in how to determine what the real cost is of choosing an investment that performs poorly during their time of ownership. They merely look to see if they made or lost money. As long as it goes up, they are okay. The problem is relative loss and how it causes the investor to be more exposed to inflation. Inflation is a silent and invisible tax on investment earnings. That makes it all the more dangerous.
My advice to investors is to not become another statistical notch in the insurance industry’s belt. There aren’t many products that I have no use for in the financial world. Indexed annuities just happen to be one of them.
What does rats pushing a red and green button have to do with investing?