What are the advantages and disadvantages of an Equity-Indexed Annuity?

What are the advantages and disadvantages of an Equity-Indexed Annuity?

The major advantage of an equity-indexed annuity over other types of deferred annuity products is potentially higher interest rates available from links to equity indexes, which historically have provided significantly higher yields than fixed interest rate products. The major advantage, of course, may be the major disadvantage also, particularly in periods of index volatility. However, all equity-indexed annuities have an underlying minimum interest rate guarantee which guarantees you will never lose your premium due to index fluctuations or volatility. Thus the equity-indexed annuity provides the best of both worlds-linkage to equity indexes with no risk due to index volatility and safety of premium.

Annuity Guide

Fixed Annuity

What are the advantages and disadvantages of a Variable Annuity?

What are the advantages and disadvantages of a Variable Annuity?

The advantage of a Variable Annuity is the ability to place your annuity
premium into equity investments such as stocks, bonds or mutual funds
and participate in the potentially higher increases available
historically in the equity or bond markets.
Increases in your Variable
Annuity are tax deferred until they are actually withdrawn from the
contract or annuitized. All increases in a Variable Annuity are taxed
as ordinary income the year the money is withdrawn.
The major
disadvantage of a Variable Annuity is that your assets, including your
premium, are subject to market risk, i.e. loss in value based upon poor
performance of the markets. As with a fixed deferred annuity, your
purchase of a Variable Annuity should be viewed as a means to fund your
long-term retirement goals.
Historically, products in the equity
markets have resulted in higher increases than fixed rate products. Of
course, many factors are important in determining whether a Variable
Annuity is right for you, including your age, retirement goals and
aversion to risk. If you are young and looking to preserve significant
funds for your long-term retirement needs, a Variable Annuity is an
excellent way to do so.
If you are older and closer to retirement, or
simply desire to preserve your accumulated assets by purchasing a
secure vehicle, a fixed deferred annuity may be the best choice.

Annuity Surrender Charges and How To Avoid Them.

Is there any way to avoid the annuity surrender or early withdrawal charges?





Yes.
With most fixed deferred annuities, surrender or withdrawal charges are
waived if you (1) die;
(2) become confined to a hospital or nursing
home for a specified period; or
(3) you choose to take a guaranteed
income stream. In addition, most fixed deferred annuities allow you
take up to 10% of your annuity contract value each year without incurring a
surrender or withdrawal charge.
See tax consequences of early
annuity withdrawals. Annuity rollover.

There
are no penalties on distributions if:
(1) You are older than age 59 ½ (2) Distributions are made on or after
the death of the owner of the annuity (3) Become disabled
(4) Distributions are made as a series of substantially equal periodic
payments (not less than annually) for your life or your life expectancy
or joint life expectancies of you and your designated beneficiary
(5) Distributions are made under a single premium immediate annuity
with a starting date no later than one year from the date you purchase
the annuity.
(6) If the distributions are made under certain annuities issued as a
part of a structured settlement agreement.
There are additional exceptions in the case of IRAs. Please contact
your tax advisor for more details.

401k Annuity

Annuity Rate

Advantages and Disadvantages of a Fixed Annuity?

What are the advantages and disadvantages of a Fixed Deferred Annuity?

The
major advantages of a fixed deferred annuity are guarantee of premium
and tax deferral. Generally, fixed deferred annuities appeal to the
risk averse who are looking to preserve funds for retirement with
guarantee of premium, competitive fixed rate interest guarantees and no
risk to premium. The major disadvantage of a fixed rate deferred
annuity is that fixed rate guarantee-type products have provided lower
growth than those available historically in the equity markets. Of
course, many factors are important in determining whether a fixed rate
deferred annuity is right for you, including your age, retirement goals
and aversion to risk. If you are older and closer to retirement, or
simply desire to preserve your assets in a secure vehicle, a fixed
deferred annuity may be the best choice. If you are younger and looking
to preserve significant funds for your long-term financial needs and
are willing to take greater risk, an Equity-Indexed or Variable Annuity
might be a better alternative at the present time.

What is a Fixed Deferred Annuity?

A Fixed Deferred Annuity is a contract between you and the insurance company which pays a guaranteed current interest rate.
The interest rate may be guaranteed for one or more years and earns compound interest. The interest earnings compound on a tax-deferred basis.
Fixed deferred annuities are offered either on a single premium basis, i.e. you give the insurance company a lump sum premium payment, (typically $5,000 or more) or on a flexible premium basis, i.e. you pay a lower re-occurring premium payment on a monthly, quarterly, or annual basis. In addition to tax deferral, fixed deferred annuities offer safety of your premium.
Fixed deferred annuities offer a current interest rate which may never be less than a lifetime minimum guaranteed interest rate (typically 3%).
The current interest rate is declared and guaranteed by the insurance company. Thus your premium in a fixed deferred annuity is not subject to market risk associated with volatile financial markets.
Fixed deferred annuities have penalties for early withdrawal called surrender charges or withdrawal charges. These charges typically decline over the length of the surrender charge period.

Opening Remarks and Dissent Regarding Final Rule 151AIndexed Annuities and Certain Other Insurance Contracts

SEC Speech: Opening Remarks and Dissent Regarding Final Rule 151A: Indexed Annuities and Certain Other Insurance Contracts;(Troy A. Paredes) Washington, D.C.: December 17, 2008

Speech by SEC Commissioner:
Opening Remarks and Dissent Regarding Final Rule 151A
Indexed Annuities and Certain Other Insurance Contracts
by
Commissioner Troy A. Paredes
U.S. Securities and Exchange Commission
Open Meeting of the Securities & Exchange Commission
Washington, D.C.
December 17, 2008

Thank you, Chairman Cox.

I believe that proposed Rule 151A addressing indexed annuities is rooted in good intentions. For instance, at the time the rule was proposed, the Commission watched a television clip from Dateline NBC that described individuals who may have been misled by seemingly unscrupulous sales practices into buying these products. Part of our tripartite mission at the SEC is to protect investors, so there is a natural tendency to want to act when we hear stories like this.

However, our jurisdiction is limited; and thus our authority to act is circumscribed. Rule 151A is about this very question: the proper scope of our statutory authority.

In our effort to protect investors, we cannot extend our reach past the statutory stopping point. Section 3(a)(8) of the Securities Act of 1933 ('33 Act) provides a list of securities that are exempt from the '33 Act and thus, by design of the statute, fall beyond the Commission's reach. The Section 3(a)(8) exemption includes, in relevant part, "[a]ny insurance or endowment policy or annuity contract or optional annuity contract, issued by a corporation subject to the supervision of the insurance commissioner . . . of any State or Territory of the United States or the District of Columbia." I am not persuaded that Rule 151A represents merely an attempt to provide clarification to the scope of exempted securities falling within Section 3(a)(8). Instead, by defining indexed annuities in the manner done in Rule 151A, I believe the SEC will be entering into a realm that Congress prohibited us from entering. Therefore, I cannot vote in favor of the rule and respectfully dissent.

Rule 151A takes some annuity products (indexed annuities), which otherwise may be covered by the statutory exemption in Section 3(a)(8), and removes them from the exemption, thus placing them within the Commission's jurisdiction to regulate. If the Commission's Rule 151A analysis is wrong — which is to say that indexed annuities do fall within Section 3(a)(8) — then the SEC has exceeded its authority by seeking to regulate them. In other words, the effect of Rule 151A would be to confer additional authority upon the SEC when these products, in fact, are entitled to the Section 3(a)(8) exemption.

The Supreme Court has twice construed the scope of Section 3(a)(8) for annuity contracts in the VALIC and United Benefit cases.1 I believe the approach embraced by Rule 151A conflicts with these Supreme Court cases. Although neither VALIC nor United Benefit deals with indexed annuities directly, the cases nevertheless are instructive in evaluating whether such a product falls within the Section 3(a)(8) exemption. And despite the adopting release's efforts to discount its holding, at least one federal court applying VALIC and United Benefit has held that an indexed annuity falls within the statutory exemption of Section 3(a)(8).2

When fixing the contours of Section 3(a)(8), the relevant features of the product at hand should be considered to determine whether the product falls outside the Section 3(a)(8) exemption. Rule 151A places singular focus on investment risk without adequately considering another key factor — namely, the manner in which an indexed annuity is marketed.

Moreover, I believe that Rule 151A misconceptualizes investment risk for purposes of Section 3(a)(8). The extent to which the purchaser of an indexed annuity bears investment risk is a key determinant of whether such a product is subject to the Commission's jurisdiction. Rule 151A denies an indexed annuity the Section 3(a)(8) exemption when it is "more likely than not" that, because of the performance of the linked securities index, amounts payable to the purchaser of the annuity contract will exceed the amounts the insurer guarantees the purchaser. This approach to investment risk gives short shrift to the guarantees that are a hallmark of indexed annuities. In other words, the central insurance component of the product eludes the Rule 151A test. More to the point, Rule 151A in effect treats the possibility of upside, beyond the guarantee of principal and the guaranteed minimum rate of return the purchaser enjoys, as investment risk under Section 3(a)(8). I believe that it is more appropriate to emphasize the extent of downside risk — that is, the extent to which an investor is subject to a risk of loss — in determining the scope of Section 3(a)(8). When investment risk is properly conceived of in terms of the risk of loss, it becomes apparent why indexed annuities may fall within Section 3(a)(8) and thus beyond this agency's reach, contrary to Rule 151A.

Not only does Rule 151A seem to deviate from the approach taken by courts, including the Supreme Court, but it also appears to depart from prior positions taken by the Commission. For example, in an amicus brief filed with the Supreme Court in the Otto case,3 the Commission asserted that the Section 3(a)(8) exemption applies when an insurance company, regulated by the state, assumes a "sufficient" share of investment risk and there is a corresponding decrease in the risk to the purchaser, such as where the purchaser benefits from certain guarantees. Yet Rule 151A denies the Section 3(a)(8) exemption to an indexed annuity issued by a state-regulated insurance company that bears substantial risk under the annuity contract by guaranteeing principal and a minimum return.

In addition, Rule 151A seems to diverge from the analysis embedded in Rule 151. Rule 151 establishes a true safe harbor under Section 3(a)(8) and provides that a variety of factors should be considered, such as marketing techniques and the availability of guarantees. The Rule 151 adopting release even indicates that the rule allows for certain "indexed excess interest features" without the product falling outside the safe harbor.

An even more critical difference between Rule 151 and Rule 151A is the effect of failing to meet the requirements under the rule. If a product does not meet the requirements of Rule 151, there is no safe harbor, but the product nevertheless may fall within Section 3(a)(8) and thus be an exempted security. But if a product does not pass muster under the Rule 151A "more likely than not" test, then the product is deemed to fall outside Section 3(a)(8) and thus is under the SEC's jurisdiction. In essence, while Rule 151 provides a safe harbor, Rule 151A takes away the Section 3(a)(8) statutory exemption.

I am not aware of another instance in the federal securities laws where a "more likely than not" test is employed, and for good reason. A "more likely than not" test does not provide insurers with proper notice of whether their products fall within the federal securities laws or not. If an insurer applies the test in good faith and gets it wrong, the insurer nonetheless risks being subject to liability under Section 5 of the Securities Act, even if the insurer had no intent to run afoul of the federal securities laws. In addition, under the "more likely than not" test, the availability of the Section 3(a)(8) exemption turns on the insurer's own analysis. Accordingly, it is at least conceivable that the same product could receive different Section 3(a)(8) treatment depending on how each respective insurer modeled the likely returns.

Further, I am concerned that Rule 151A, as applied, reveals that the "more likely than not" test, despite its purported balance, leads to only one result: the denial of the Section 3(a)(8) exemption. In practice, Rule 151A appears to result in blanket SEC regulation of the entire indexed annuity market. The adopting release indicates that over 300 indexed annuity contracts were offered in 2007 and explains that the Office of Economic Analysis has determined that indexed annuity contracts with typical features would not meet the Rule 151A test. Indeed, the adopting release elsewhere expresses the expectation that almost all indexed annuity contracts will fail the test. If everyone is destined to fail, what is the purpose of a test? Further, there is at least some risk that in sweeping up the index annuity market, the rule may sweep up other insurance products that otherwise should fall within Section 3(a)(8).

The rule has other shortcomings, aside from the legal analysis that underpins it. These include, but are not limited to, the following.

First, a range of state insurance laws govern indexed annuities. I am disappointed that the rule and adopting release make an implicit judgment that state insurance regulators are inadequate to regulate these products. Such a judgment is beyond our mandate or our expertise. In any event, Section 3(a)(8) does not call upon the Commission to determine whether state insurance regulators are up to the task; rather, the section exempts annuity contracts subject to state insurance regulation.

Second, as a result of Rule 151A, insurers will have to bear various costs and burdens, which, importantly, could disproportionately impact small businesses. Some even have predicted that companies may be forced out of business if Rule 151A is adopted. Such an outcome causes me concern, especially during these difficult economic times. Even when the economy is not strained, such an outcome is disconcerting because it can lead to less competition, ultimately to the detriment of consumers.

Third, the Commission received several thousand comment letters since Rule 151A was proposed in June 2008. Consistent with comments we have received, I believe that there are more effective and appropriate ways to address the concerns underlying this rulemaking. One possible alternative to Rule 151A would be amending Rule 151 to establish a more precise safe harbor in light of all the relevant facts and circumstances attendant to indexed annuities and how they are marketed. A more precise safe harbor would provide better clarity and certainty in this area — regulatory goals the Commission has identified — and would preserve the ability of insurers to find an exemption outside the safe harbor by relying directly on Section 3(a)(8) and the cases interpreting it. I believe further exploration of alternative approaches is warranted, as is continued engagement with interested parties, including state regulators.

In closing, I request that my remarks be included in the Federal Register with the final version of the release. My remarks today do not give a full exposition of the rule's shortcomings, but rather highlight some of the key points that lead me to dissent. I wish to note that these dissenting remarks just given represent my view after giving careful consideration to the range of arguments presented by the Commission's staff, particularly the Office of General Counsel, the commenters, and my own counsel, as well as those of my fellow Commissioners. Although I cannot support the rule, I nonetheless thank the staff for the hard work they have devoted to its preparation.

Endnotes

1See generally SEC v. Variable Annuity Life Ins. Co. of Am., 359 U.S. 65 (1959); SEC v. United Benefit Life Ins. Co., 387 U.S. 202 (1967).

2See Malone v. Addison Ins. Mktg., Inc., 225 F. Supp. 2d 743 (W.D. Ky. 2002).

3Otto v. Variable Annuity Life Ins. Co., 814 F.2d 1127 (7th Cir. 1987). The Supreme Court denied the petition for a writ of certiorari.

http://www.sec.gov/news/speech/2008/spch121708tap.htm
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Modified: 12/17/2008

Index Annuity Regulated As A Security - Rule 151a Adopted by the SEC

12-17-08

The Securities And Exchange Commission approved Rule 151a by vote of four to one.

Traditional fixed annuities will not be regulated as securities.

There was no noticeable index annuity industry representative opposing the
,SEC’s proposed rule 151A which now turn fixed indexed annuities
(FIAs) into securities products.

www.annuitydefinition.com

Traditional Fixed Interest Rate Annuities

American Equity - Products for Today - Fixed Rate Annuities

Traditional Fixed Interest Rate Annuities
A traditional fixed annuity is a contract between you and American Equity. Your annuity earns a competitive interest rate, which is declared by the board of directors at American Equity and is guaranteed for a specified period of time. It also contains a guaranteed minimum interest over the term of the contract. Taxes are not due on earnings until withdrawn.

The benefits and features of American Equity�s traditional fixed annuities include:

* Tax-Deferred Growth.
* Competitive current and renewal interest rates.
* First year additional interest rate bonuses or Multi-Year Guaranteed Interest Rates.
* Single or Flexible Premium.
* No up front sales charges or fees.
* Systematic Withdrawals of interest or amounts to satisfy IRS minimum distributions available immediately.**
* 10% penalty-free withdrawals starting in year 2.
* Additional liquidity if you are confined to a nursing home or diagnosed with a terminal illness (available by state approval).
* Company Surrender Charges may apply for early withdrawal.
* Surrender Charges are waived at death.

** Benefit not guaranteed and subject to change.

Features and benefits may vary by contract form and state. Please review the contract or product disclosure for more information.

Annuities are products of the insurance industry and are not guaranteed by any bank or insured by the FDIC.

Fixed Index Annuity - What Is Triple Compounding?

American Equity - Tax Deferral

Triple Compounding Solutions!

One of the primary advantages of deferred annuities is the opportunity to accumulate a substantial sum of money by allowing your premium and interest to grow tax-deferred. Interest earned on your American Equity annuity is not currently taxable by the federal or state government until you choose to make a withdrawal. This is the key difference between an annuity and other taxable financial vehicles. A 5% return may sound good initially, but if you are in a taxable vehicle with a combined 27% tax bracket, the actual return is 3.65%. Combine this with an average inflation rate of 4%, and what have you truly gained? That�s right... nothing!

Taxable vs. Tax-Deferred

With that in mind, consider the many advantages of an annuity, including triple compounding! With annuities you earn interest on your principal, interest on your interest, and interest on what you would normally pay in taxes. You will not pay income taxes on annuity interest until you withdraw it from your annuity. You control when you pay income taxes!

Deferred Annuity

SEC Ignores Congressional, State, and Industry Opposition to Indexed Annuity Proposal

SEC Ignores Congressional, State, and Industry Opposition to Indexed Annuity Proposal

SEC Ignores Congressional, State, and Industry Opposition to Indexed Annuity Proposal

Last update: 11:09 a.m. EST Dec. 12, 2008
WASHINGTON, Dec 12, 2008 /PRNewswire via COMTEX/ -- The Coalition for Indexed Products issued a statement expressing "deep disappointment" in the Security and Exchange Commission's decision to pursue Proposed Rule 151A, which would require all indexed annuities to be registered as securities. The SEC announced yesterday that the proposal would be an agenda item on the Commission's December 17 meeting.
A letter signed by 19 members of Congress -- including several on the House Financial Services Committee -- was recently sent to SEC Commissioners expressing opposition to the proposed rule, according to the Coalition. It noted that Proposed Rule 151A would "reduce product availability and consumer choice" and "effectively [place] the cost of the regulation squarely on the shoulders of consumers."
Other high profile opponents include the National Association of Insurance Commissioners, the National Conference of Insurance Legislators, and a number of Congressional members who wrote separate letters to the SEC.
"The SEC's action appears to ignore the thousands of comments filed against this misguided proposal," said Jim Poolman, spokesperson for the Coalition and former North Dakota Insurance Commissioner.
"It is concerning that the SEC continues to see this issue as a priority in the middle of arguably the most severe financial crisis since World War II," Mr. Poolman added. "The Commission seems content to eliminate millions in market capital from the insurance industry, based on highly questionable suppositions."
SOURCE The Coalition for Indexed Products

Annuity
Annuity Rate
Annuity Guide
Index Annuities
Deferred Annuity

Fixed Indexed Universal Life Insurance

Sagicor Life Introduces New Fixed Indexed Universal Life Product - 12/10/2008 - insurancenewsnet.com

Tampa, FL - December 9, 2008 – Sagicor Life Insurance Company is pleased to introduce its Platinum Series Fixed Indexed Universal Life product Which is now available in the following states: AL, AR, CO, DC, DE, GA, FL, HI, ID, IN, KS, MD, MO, NC, NE, NV, OK, RI, SC, and WA. More state approvals are soon.

The Platinum Series Fixed Indexed Universal Life product is ideal for family income protection, college savings, wealth building, retirement savings, estate planning, wealth transfer, charitable giving, business continuation, buy/sell plans, executive bonus plans, deferred compensation plans and more. The Fixed Indexed Universal Life is part of a growing portfolio of life and annuity products offered by Sagicor Life.

A key highlight of the Fixed Indexed Universal Life product is it provides immediate death benefit protection along with three distinct crediting strategies offering the potential for significant cash value growth on a taxed-deferred basis with no market risk. The available crediting strategies include a one-year Declared Rate Strategy, a one-year point-to-point strategy linked to the S&P 500® Index and a three-year point-to-point strategy based on a basket of indices made up of the Russell® 2000, the Dow Jones EURO STOXX 50® Index and the Hang Seng Index.

Other features include the Accelerated Benefit Insurance Rider which includes Terminal Illness and Chronic Illness Living Benefits*, penalty-free withdrawals, policy loans after the first year** and preferred loans available after the policy has been in force for ten years. Available optional riders include the Primary Insured Term Rider, Waiver of Monthly Deductions Rider, Additional Insured Term Rider, Children’s Term Rider, and Accidental Death Benefit Rider. Policy and Riders are not available in all states and state variations apply. For more information visit www.SagicorLifeUSA.com or contact our Sales Department at salesdept@sagicorlifeusa.com or call 800-406-9900.

About Sagicor Life Insurance Company

Sagicor Life Insurance Company is a full-service life insurance company offering a wide range of competitive products consisting of term, whole life, indexed life and annuities. Licensed in 44 states and the District of Columbia, Sagicor Life is a wholly-owned subsidiary of Sagicor Financial Corporation, one of the oldest insurance groups in the Americas, with operations in 22 countries including the United States, United Kingdom, Latin America and the Caribbean. Sagicor Life is committed to offering our agents and customers world-class service with integrity and value.

* Not available in all states.
** In Indiana, loans can be taken in the first year.

MEDIA CONTACT:

Anabel S. Thomas
Sagicor Life Insurance Company
Phone: (813) 287-1602 ext. 6207
Fax: (813) 287-7420
anabel_thomas@sagicor.com

Index Annuity
Equity Index
Index Annuity Rate

Fixed Indexed Universal Life Insurance

Sagicor Life Introduces New Fixed Indexed Universal Life Product - 12/10/2008 - insurancenewsnet.com

Tampa, FL - December 9, 2008 – Sagicor Life Insurance Company is pleased to introduce its Platinum Series Fixed Indexed Universal Life product Which is now available in the following states: AL, AR, CO, DC, DE, GA, FL, HI, ID, IN, KS, MD, MO, NC, NE, NV, OK, RI, SC, and WA. More state approvals are soon.

The Platinum Series Fixed Indexed Universal Life product is ideal for family income protection, college savings, wealth building, retirement savings, estate planning, wealth transfer, charitable giving, business continuation, buy/sell plans, executive bonus plans, deferred compensation plans and more. The Fixed Indexed Universal Life is part of a growing portfolio of life and annuity products offered by Sagicor Life.

A key highlight of the Fixed Indexed Universal Life product is it provides immediate death benefit protection along with three distinct crediting strategies offering the potential for significant cash value growth on a taxed-deferred basis with no market risk. The available crediting strategies include a one-year Declared Rate Strategy, a one-year point-to-point strategy linked to the S&P 500® Index and a three-year point-to-point strategy based on a basket of indices made up of the Russell® 2000, the Dow Jones EURO STOXX 50® Index and the Hang Seng Index.

Other features include the Accelerated Benefit Insurance Rider which includes Terminal Illness and Chronic Illness Living Benefits*, penalty-free withdrawals, policy loans after the first year** and preferred loans available after the policy has been in force for ten years. Available optional riders include the Primary Insured Term Rider, Waiver of Monthly Deductions Rider, Additional Insured Term Rider, Children’s Term Rider, and Accidental Death Benefit Rider. Policy and Riders are not available in all states and state variations apply. For more information visit www.SagicorLifeUSA.com or contact our Sales Department at salesdept@sagicorlifeusa.com or call 800-406-9900.

About Sagicor Life Insurance Company

Sagicor Life Insurance Company is a full-service life insurance company offering a wide range of competitive products consisting of term, whole life, indexed life and annuities. Licensed in 44 states and the District of Columbia, Sagicor Life is a wholly-owned subsidiary of Sagicor Financial Corporation, one of the oldest insurance groups in the Americas, with operations in 22 countries including the United States, United Kingdom, Latin America and the Caribbean. Sagicor Life is committed to offering our agents and customers world-class service with integrity and value.

* Not available in all states.
** In Indiana, loans can be taken in the first year.

MEDIA CONTACT:

Anabel S. Thomas
Sagicor Life Insurance Company
Phone: (813) 287-1602 ext. 6207
Fax: (813) 287-7420
anabel_thomas@sagicor.com

Index Annuity
Equity Index
Index Annuity Rate

Fixed Annuities can’t be seen as asset in determining nursing home assistance.

Annuity ruling sets standard | Wilkes-Barre News | The Times Leader

Annuity ruling sets standard
Recent decision reaffirms other rulings that annuity can’t be seen as asset in determining nursing home assistance.

By Terrie Morgan-Besecker tmorgan@timesleader.com
Law & Order Reporter

In a precedent-setting ruling, a federal appellate court has said the state Department of Public Welfare cannot consider a $250,000 annuity a Wilkes-Barre woman purchased following her husband’s entry into a nursing home as an asset when determining whether he was eligible for Medicaid benefits.

The ruling by the Third Circuit Court of Appeals is the latest in a series of court cases brought by welfare officials in Pennsylvania and other states. The cases challenge a loophole in the Medicaid law that officials say has allowed affluent couples to use annuities to shelter assets that otherwise would be available to pay for an institutionalized spouse’s care.

The decision, issued last month in the case of Josephine James, is significant because it reaffirms prior court rulings, said James’s attorney, Matthew Parker of Williamsport. It will affect all residents in the states covered by the Third Circuit – New Jersey, Pennsylvania and Delaware.

But Jason Manne, chief deputy counsel for DPW, said the court’s ruling is fact-specific to the James case. Even though the department lost, Manne contends the legal reasoning the court employed will help DPW challenge the use of annuities in calculating Medicaid benefits.

The ruling is being closely monitored by attorneys on both sides of the issue as the stakes are huge. The average annual cost of nursing home care for one person is $60,000, according to DPW. Last year, Pennsylvania’s Medicaid fund paid out more than $3 billion to nursing homes.

While providing health care coverage to all persons is a laudable goal, DPW says, it has an obligation to ensure that Medicaid is utilized for those who truly need it.

“This does not involve poor people or people of modest means,” Manne said. “The problem is you have individuals who have hundreds and hundreds of thousands of dollars, sometimes even millions, who, rather than use their money for their nursing home care, want the taxpayers to pay for that care.”
A legal loophole

But Parker and other elder-law attorneys say couples such as the Jameses are simply availing themselves of all options to ensure the non-institutionalized spouse is left with sufficient income to support him or herself.

They note that amendments to the law that went into effect in 2006 now require DPW be listed as a lien holder on annuities in which a person or the person’s spouse is receiving Medicaid benefits. That does not affect Josephine James, whose case started in 2005. For all subsequent cases, it allows DPW to recoup all money spent on caring for the institutionalized spouse from the estate of the non-institutionalized spouse after their death.

They also note that regulations are in place to ensure the process is not abused. Welfare officials, they say, are trying to use the courts to circumvent a law they don’t like.

“If in fact there are any alleged loopholes, they were created by Congress. It is not for DPW ... to determine what public policy is when Congress has spoken,” said attorney Shirley Berger Whitenack of New Jersey, a member of the National Academy of Elder Law Attorneys. “If DPW doesn’t like it, they can certainly lobby Congress” to change the law.

The key issue focuses on the structure of an annuity – a contractual agreement in which the buyer gives the seller, typically an insurance company or bank, a lump sum of money. The company or bank then pays the purchaser a consistent monthly amount, or an “income stream,” over a given period of time.

In determining whether an institutionalized spouse will qualify for Medicaid assistance, states consider a married couple’s assets – including cash, stocks, bonds and property. The law prohibits the state from considering the income of the non-institutionalized spouse – known as the community spouse – in that calculation.

The community spouse is afforded a percentage of the assets to live on. Any excess is deemed an “available asset” that can be used to pay nursing home costs. Medicaid kicks in once that money has been exhausted.

The key benefit of an annuity is that it allows couples to convert joint assets that otherwise would be deemed available into an “income stream” for the community spouse. Because that money is now considered to be the income of the community spouse – not an asset – it cannot be counted when determining the institutionalized spouse’s Medicaid eligibility.
How it worked

In the James case, Robert James, now deceased, was admitted to a Wilkes-Barre nursing home on Aug. 10, 2005. At that time, he and his wife had total assets of $381,443, of which roughly $278,000 was deemed “available assets” that could be used to pay for Robert’s care.

In order to qualify Robert for Medicaid, Josephine James purchased a $250,000 annuity on Sept. 12, 2005 – about a month after her husband entered the home. She also spent about $28,000 on a new car, leaving no available assets to pay for her husband’s care under Medicaid rules.

Robert James then applied for Medicaid benefits, but was denied by DPW.

The department did not allege Josephine James did anything improper when she converted the couple’s assets into an annuity for herself or when she purchased the car, both of which are allowed under the rules.

Rather, it argued the annuity was an asset because Josephine James could, if she chose, sell the “income stream” it generated to a firm such as J.G. Wentworth, a company that purchases annuities and other types of structured payments for a lump sum.

The Jameses’ filed a federal court action that challenged the department’s interpretation. A federal judge ruled in their favor, saying nothing within the Medicaid Act says DPW can force a person to sell an annuity to a second party.

DPW appealed to the Third Circuit, which also sided with the Jameses.
More tests ahead

In its ruling, the court said Medicaid rules state that an asset can only be deemed “available” if the owner has the ability to liquidate it without incurring legal liability.

In the James case, her annuity was non-transferable and non-revocable, meaning she could not access the principal and could not sell it. If she did, she would be breaking the contract, subjecting her to legal liability. The court said it therefore could not be considered an asset.

While the ruling benefits James, Manne said it will not benefit persons who purchase annuities today because Pennsylvania in 2005 amended its law to forbid sellers of annuities from including a clause that makes them non-transferable. That would allow annuities to be sold without legal liability, he said, and allow the state to consider them an asset.

Manne acknowledged that others have interpreted the Third Circuit’s decision differently. There are also other complex legal issues that still must be resolved, he said.

Given that, the true significance of the ruling won’t be known until other courts apply the decision to pending cases that raise issues similar to the James case, he said.

Terrie Morgan-Besecker, a Times Leader staff writer, may be reached at 570-829-7179.

Variable Annuity - Insurers Abandon Rosy View of Variable Annuities

Insurers Abandon Rosy View of Variable Annuities at SmartMoney.com

Insurers Abandon Rosy View of Variable Annuities

For the last few years, insurance companies have been luring investors with an irresistible product: an investment that guaranteed market gains, with no risk, and generous income payments for life. Surprise of surprises, that pitch has worked, reviving the lackluster variable annuity and attracting about $140 billion a year in investor assets.

But the guarantees on these variable annuities sounded too good to be true, and a few months ago SmartMoney asked insurance company executives to explain how, exactly, they planned to keep them.

As it turns out, it’s not so easy. A variable annuity is basically an investment portfolio with an insurance overlay – investors got tax-deferral and, usually, a death benefit, but paid high fees and big withdrawal penalties. But in the last few years, insurance companies have started marketing the investments as safe havens for people in retirement or close to it: a typical product lets investors stay in the market, but promises a lifetime income stream based on an account value that can only go up, often by as much as 7% per year. That means investors’ potential income rises regardless of what happens in the market.

How’s that possible? Apparently, it’s not. When we asked earlier this year, the insurance companies told us they had it all under control, guaranteeing the benefits with sophisticated models and elaborate hedging strategies that would hold up even in a severe market downturn. But now that we’ve had that severe downturn, several companies have stopped selling their most generous variable annuities or raised fees, citing “prudence in light of current market conditions” – code for “we didn’t expect this.”

MassMutual has stopped selling an annuity that guaranteed a 6% annual return; AXA-Equitable has taken a product with a 6.5% guarantee off the shelf and raised the prices on its existing product; other companies are doing the same. “In today’s market, a 6.5% guarantee just is not prudent,” said Steve Mabry, senior vice president of product development at AXA-Equitable.

In theory, investors who already own one of these annuities are still entitled to the benefits for as long as they hold their contracts. And lucky them: in today’s markets, a 6.5% annual return looks downright spectacular. The problem is, the guarantees are still only as good as the companies that insure them. And this most recent move – discontinuing products, raising fees – acknowledges that the companies’ models and hedging strategies aren’t as stable as they thought. The financial crisis has hurt insurance companies across the board -- AIG has already received federal bailout funds; the Hartford has taken steps to apply for them – and the question policyholders need to ask is, “Will my company be around in four or five years, when I want to exercise that benefit,” says John McCarthy, vice president at Advance Sales, an annuity research company.

There are backstops in place, of course, but if companies go out of business, it won’t look good for investors. “You may be able to collect your account value,” said McCarthy. “But you’ve paid for a guarantee that you’ll never get.” The insurance companies say that won’t happen. They point to the rules and regulations that require them to keep a certain amount of money in reserve. Also, most states require insurers to guarantee at least $100,000 in annuity benefits, but it’s not clear whether these variable annuity benefits qualify. “They might be covered today, and they might not be, and that might not mean anything five or 10 years from now,” says Mike Surguine, the executive director of the Arizona Life and Disability Guaranty Fund. “The laws could change.” And, says AXA’s Mabry, the company discontinued its most generous guarantee precisely to insure the financial health of the parent company.

But some companies are showing no sign of retreat, at least not yet. Prudential is still selling its most generous annuity, which guarantees a 7% annual rate of return under any market conditions. It’s not cheap – the all-in cost for an annuity with the guarantee is well over 3% per year – but in this market, it’s selling like crazy: In the third quarter of 2008, 75% of Prudential annuities carried the benefit. The company says it has no plans to raise its prices or reduce the benefit, and says it’s confident it can handle these commitments. In any case it’s a big guarantee – as long as they’re around to keep it.

Fixed Index Annuity - American Equity - News Article

American Equity to Present at Friedman, Billings, Ramsey 2008 Fall Investor Conference

WEST DES MOINES, Iowa, Nov 25, 2008 (BUSINESS WIRE) -- American Equity Investment Life Holding Company (NYSE: AEL), today announced that Wendy Carlson, CFO and General Counsel, and John Matovina, Vice Chairman, will be presenting at the Friedman, Billings, Ramsey 2008 Fall Investor Conference in New York, NY on Tuesday, December 2 at 2:20 p.m. EST. Investors may access a web cast of this presentation on American Equity's Website, www.american-equity.com.

Certain statements made during this presentation may constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities and Reform Act of 1995. Actual results may differ materially. These forward-looking statements are subject to a number of risks and uncertainties discussed in detail in American Equity's most recent SEC filings.

ABOUT AMERICAN EQUITY

American Equity Investment Life Holding Company, through its wholly-owned operating subsidiaries, is a full-service underwriter of a broad line of annuity and insurance products with a primary emphasis on the sale of fixed-rate and index annuities. The company's headquarters are located at 5000 Westown Parkway, West Des Moines, Iowa, 50266. The mailing address of the company is: P.O. Box 71216, Des Moines, Iowa, 50325. For more information, visit our website www.american-equity.com.

SOURCE: American Equity Investment Life Holding Company

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Indexed Annuity - American Equity Announces AEL Management Succession

American Equity - News Article

WEST DES MOINES, Iowa, Nov 21, 2008 (BUSINESS WIRE) -- American Equity Investment Life Holding Company (NYSE: AEL), today announced the implementation of a senior management succession plan as approved by its Board of Directors and David J. Noble, Chairman. Mr. Noble, who founded the company in 1995, has served as its Chairman, Chief Executive Officer, President and Treasurer from inception and led the Company through its dramatic growth over the last decade. Commented Mr. Noble: "I have built a senior management team who possess substantial industry experience as well as many years of working effectively together. The time has come to call upon them to assume full responsibility for the day-to-day management and operations of the Company. I am tremendously proud of American Equity and the people who helped me build it."

The management succession plan includes the following changes in the executive ranks of the company and of its primary operating subsidiary, American Equity Investment Life Insurance Company ("American Equity Life"), effective January 1, 2009:

AEL:

John M. Matovina, Vice Chairman, Chief Financial Officer and Treasurer

Wendy L. Carlson, Chief Executive Officer and President

American Equity Life:

Ron Grensteiner, President

Debra J. Richardson, Chief Administrative Officer, Executive Vice President and Secretary

Mr. Noble will remain as Chairman of the Board of AEL as well as American Equity Life. All other executive positions within the Company remain unchanged.

Kevin R. Wingert will resign as President of American Equity Life and as a Director of AEL and American Equity Life effective January 1, 2009, in order to form his own business as a national marketing organization. He intends to principally market American Equity Life products through a new agency force he will create. Commented Mr. Wingert: "I'm fortunate to have had such a great relationship with Mr. Noble and the entire AEL team, and I'm looking forward to partnering with them in the future on products and services for agents."

Biographical information concerning Ms. Richardson, Ms. Carlson, Mr. Matovina and Mr. Grensteiner is as follows:

Debra J. Richardson has served as Senior Vice President and Secretary of AEL and American Equity Life since 1996. At the Company's inception, Ms. Richardson became its second employee after Mr. Noble. She has served as a Director of AEL since September 2008 and as a Director of American Equity Life since June 1996. Ms. Richardson has over thirty years experience in the insurance industry, including nineteen years with The Statesman Group, Inc. ("Statesman") where she served in various positions including vice president-Shareholder/Investor Relations and Secretary.

Wendy L. Carlson has served as Chief Financial Officer and General Counsel of AEL and American Equity Life since June 1999. She has served as a Director of AEL since September 2008 and as a Director of American Equity Life since June 2006. Prior to joining AEL, Ms. Carlson was a member of the law firm of Whitfield & Eddy, PLC, where she practiced law in the areas of insurance, finance, securities and taxation. Ms. Carlson acted as outside counsel to American Equity from 1995, when it was formed, until she joined the company in 1999. Ms. Carlson is also a certified public accountant.

John M. Matovina has served as Vice Chairman of AEL since June 2003. Prior to being appointed Vice Chairman, Mr. Matovina was a private investor since 1996 and a financial consultant to the Company from 1997 to 2000. He has served as a Director of AEL since June 2000 and as a Director of American Equity Life since June 2003. From November 1983 through November 1996, he was a senior financial officer of Statesman and many of its subsidiaries, and prior to Statesman's acquisition in September 1994, he served as Statesman's Chief Financial Officer, Treasurer and Secretary. Mr. Matovina is a certified public accountant and has more than 25 years experience in the accounting and insurance industries.

Ron Grensteiner has served as Senior Vice President of Marketing for American Equity Life since November 1996. At the Company's inception, he and Mr. Wingert comprised its marketing department and together with Mr. Noble built American Equity Life's agency force which today stands at over 46,000 licensed, independent sales agents. Prior to joining American Equity Life, Mr. Grensteiner was a senior marketing officer of Statesman's principal operating subsidiary. Mr. Grensteiner has over 30 years experience in the insurance industry.

ABOUT AMERICAN EQUITY

American Equity Investment Life Holding Company, through its wholly-owned operating subsidiaries, is a full-service underwriter of a broad line of annuity and insurance products with a primary emphasis on the sale of fixed-rate and index annuities. The company's headquarters are located at 5000 Westown Parkway, West Des Moines, Iowa, 50266. The mailing address of the company is: P.O. Box 71216, Des Moines, Iowa, 50325. For more information, visit our website www.american-equity.com.

SOURCE: American Equity Investment Life Holding Company

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American Equity's Third Quarter 2008 Operating Income Increases 41% to $23.1 Million

American Equity - News Article

WEST DES MOINES, Iowa--(BUSINESS WIRE)--Nov. 5, 2008--American Equity Investment Life Holding Company (NYSE: AEL), a leading underwriter of fixed-rate and index annuities, today reported 2008 third quarter operating income(1) of $23.1 million, or $0.42 per diluted common share, an increase of 41% over third quarter 2007 operating income of $16.4 million, or $0.28 per diluted common share. Performance results for the third quarter of 2008 include:

-- Book value per common share outstanding of $9.92 including
Accumulated Other Comprehensive Loss

-- Annuity sales of $571.8 million, an increase of 5% over third
quarter 2007 annuity sales of $543.8 million

-- Investment earnings of $210.0 million, an increase of 14% over
third quarter 2007 investment earnings of $183.7 million

-- Aggregate gross spread on annuity reserves of 2.83%, an
increase of 11% over third quarter 2007 aggregate gross spread
of 2.55%

The net loss for the third quarter of 2008 was $11.0 million or $0.19 per diluted common share compared to net income of $3.4 million or $0.06 per diluted common share for the same period in 2007. The net loss for the third quarter of 2008 included $39.2 million of realized losses, net of taxes and adjustments to the amortization of deferred acquisition costs and deferred sales inducements, on investments due principally to "other than temporary impairments". This amount also includes a $22.5 million increase in income tax expense for the establishment of a valuation allowance on deferred tax assets. The 2008 and 2007 quarters were also impacted by the effects of SFAS 133, dealing with fair value changes in derivatives and embedded derivatives. The net effect of SFAS 133 was a decrease in the third quarter 2008 net loss of $5.1 million compared to a $13.2 million reduction in third quarter 2007 net income.

MORE THAN ADEQUATE RISK-ADJUSTED CAPITAL

On October 30, 2008 A.M. Best announced that it has affirmed AEL's A- (Excellent) financial strength rating while revising the outlook on the rating from stable to negative in light of present market uncertainties. In affirming the A- (Excellent) rating A.M. Best cited the company's "more than adequate level of risk-adjusted capitalization" for this rating. The statutory capital and surplus of AEL's primary operating subsidiary was $898 million at September 30, 2008 compared to $991 million at December 31, 2007 reflecting the statutory accounting impacts of year-to-date net realized losses on invested assets and accelerated recognition of expense associated with options purchased to fund index credits on index annuities due to the decline in fair value of such options.

Commented David J. Noble, Chairman, Chief Executive Officer and President of AEL: "At $898 million of statutory capital and surplus, American Equity is adequately capitalized to support continued growth in sales at the present pace of approximately $200 million per month. By focusing on credit quality in our invested assets, we have been able to absorb the impact of falling asset values with very little problem. In my 50 years in the insurance industry I've survived many market cycles, and I'm confident that American Equity is well-postured to navigate through the present turmoil." AEL's management has no plans at present to raise additional capital through the issuance of debt or equity securities.

STRONG LIQUIDITY

AEL continues to have strong liquidity with deposits from new sales exceeding surrenders, withdrawals and death claims by approximately $890 million (including coinsurance receipts) for the first nine months of 2008. As a percentage of annuity contract values, outflows from surrenders, withdrawals and death claims for the third quarter of 2008 were at or below the average of each of the last 11 quarters beginning January 1, 2006. In addition, approximately $150 million of cash was provided by operating activities for the first nine months of 2008. At October 31, 2008, the company had drawn $75 million under its line of credit to fund repurchases of common stock and convertible senior debt, and may draw an additional $75 million under this line of credit prior to its maturity in October 2011, which is the earliest any of AEL's outstanding debt becomes due. Because the line of credit has been used in part to repurchase outstanding debt, AEL's ratio of adjusted debt to total capitalization has not increased during 2008 and in fact declined slightly to 29.9% at September 30, 2008 compared to 30.2% at December 31, 2007.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future operations, strategies, financial results or other developments, and are subject to assumptions, risks and uncertainties. Statements such as "guidance," "expect," "anticipate," "believe," "goal," "objective," "target," "may," "should," "estimate," "projects," or similar words as well as specific projections of future results qualify as forward-looking statements. Factors that may cause our actual results to differ materially from those contemplated by these forward looking statements can be found in the company's Form 10-K filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date the statement was made and the company undertakes no obligation to update such forward-looking statements. There can be no assurance that other factors not currently anticipated by the company will not materially and adversely affect our results of operations. Investors are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf.

CONFERENCE CALL

American Equity will hold a conference call to discuss third quarter 2008 earnings on Thursday, November 6, 2008, at 10 a.m. CST. The conference call will be webcast live on the Internet. Investors and interested parties who wish to listen to the call on the Internet may do so at www.american-equity.com. The call may also be accessed by telephone at 1-866-713-8307, passcode 22461740 (international callers, please dial 1-617-597-5307). An audio replay will be available shortly after the call on AEL's web site. An audio replay will also be available via telephone through November 27, 2008 by calling 1-888-286-8010, passcode 27418323 (international callers will need to dial 1-617-801-6888).

ABOUT AMERICAN EQUITY

American Equity Investment Life Holding Company, through its wholly-owned operating subsidiaries, is a full-service underwriter of a broad line of annuity and insurance products with a primary emphasis on the sale of index and fixed-rate annuities. The company's headquarters are located at 5000 Westown Parkway, West Des Moines, Iowa, 50266. The mailing address of the company is: P.O. Box 71216, Des Moines, Iowa, 50325. For more information, visit our website www.american-equity.com.

(1) In addition to net income (loss), American Equity has consistently utilized operating income, a non-GAAP financial measure commonly used in the life insurance industry, as an economic measure to evaluate its financial performance. Operating income equals net income (loss) adjusted to eliminate the impact of (i) net realized gains and losses on investments including related deferred tax valuation allowance; and (ii) the impact of SFAS 133, dealing with fair value changes in derivatives and embedded derivatives. Because these items fluctuate from quarter to quarter in a manner unrelated to core operations, American Equity believes a measure excluding their impact is useful in analyzing operating trends. American Equity believes the combined presentation and evaluation of operating income together with net income (loss), provides information that may enhance an investor's understanding of American Equity's underlying results and profitability. A reconciliation of net income (loss) to operating income is provided in the accompanying tables.

American Equity Investment Life Holding Company
-------------------------------------------------




Net Income/Operating Income (Unaudited)
-------------------------------------------------

Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
2008 2007 2008 2007
--------- --------- ---------- ---------
(Dollars in thousands, except per share
data)
Revenues:
Traditional life and
accident and health
insurance premiums $ 3,223 $ 3,344 $ 9,419 $ 9,591
Annuity product charges 13,328 12,576 37,271 33,023
Net investment income 209,978 183,732 607,546 528,809
Realized gains (losses)
on investments (58,974) 325 (91,412) 921
Change in fair value of
derivatives (83,753) (10,709) (314,431) 79,755
--------- --------- ---------- ---------
Total revenues 83,802 189,268 248,393 652,099

Benefits and expenses:
Insurance policy benefits
and change in future
policy benefits 2,126 2,360 7,056 6,390
Interest credited to
account balances 50,387 165,821 154,032 449,915
Amortization of deferred
sales inducements 6,760 565 34,193 16,528
Change in fair value of
embedded derivatives (37,100) (19,829) (237,969) (11,476)
Interest expense on notes
payable 3,881 4,039 11,732 12,178
Interest expense on
subordinated debentures 4,669 5,673 14,549 16,876
Interest expense on
amounts due under
repurchase agreements 2,698 4,764 7,694 11,842
Amortization of deferred
policy acquisition costs 19,285 9,013 118,595 60,948
Other operating costs and
expenses 13,490 11,582 38,308 37,076
--------- --------- ---------- ---------
Total benefits and expenses 66,196 183,988 148,190 600,277
--------- --------- ---------- ---------

Income before income taxes 17,606 5,280 100,203 51,822
Income tax expense 28,608 1,837 57,286 17,848
--------- --------- ---------- ---------
Net income (loss) (11,002) 3,443 42,917 33,974
Realized (gains) losses on
investments, net of offsets 39,222 (210) 49,140 (595)
Net effect of SFAS 133, net
of offsets (5,105) 13,189 (32,531) 14,503
--------- --------- ---------- ---------

Operating income (a) $ 23,115 $ 16,422 $ 59,526 $ 47,882
========= ========= ========== =========


Earnings (loss) per common
share $ (0.21) $ 0.06 $ 0.79 $ 0.60
Earnings (loss) per common
share - assuming dilution $ (0.19) $ 0.06 $ 0.77 $ 0.58
Operating income per common
share (a) $ 0.44 $ 0.29 $ 1.10 $ 0.84
Operating income per common
share - assuming dilution
(a) $ 0.42 $ 0.28 $ 1.06 $ 0.81

Weighted average common
shares outstanding (in
thousands):
Earnings per common share 52,916 56,878 54,075 56,899
Earnings per common share
- assuming dilution 55,835 59,774 56,953 60,081

American Equity Investment Life
Holding Company
----------------------------------



Operating Income
Three months ended September 30,
2008 (Unaudited)
----------------------------------


Adjustments Operating
------------------------
As Reported Realized Losses SFAS 133 Income (a)
----------- --------------- -------- ----------
(Dollars in thousands, except per share data)
Reserves:
Traditional life
and accident and
health insurance
premiums $ 3,223 $ - $ - $ 3,223
Annuity product
charges 13,328 - - 13,328
Net investment
income 209,978 - - 209,978
Realized losses on
investments (58,974) 58,974 - -
Change in fair
value of
derivatives (83,753) - 16,813 (66,940)
----------- --------------- -------- ----------
Total revenues 83,802 58,974 16,813 159,589

Benefits and expenses:
Insurance policy
benefits and
change in future
policy benefits 2,126 - - 2,126
Interest credited
to account
balances 50,387 - 720 51,107
Amortization of
deferred sales
inducements 6,760 13,496 (6,859) 13,397
Change in fair
value of embedded
derivatives (37,100) - 37,100 -
Interest expense on
notes payable 3,881 - (243) 3,638
Interest expense on
subordinated
debentures 4,669 - - 4,669
Interest expense on
amounts due under
repurchase
agreements 2,698 - - 2,698
Amortization of
deferred policy
acquisition costs 19,285 19,566 (5,743) 33,108
Other operating
costs and expenses 13,490 - 60 13,550
----------- --------------- -------- ----------
Total benefits and
expenses 66,196 33,062 25,035 124,293
----------- --------------- -------- ----------

Income before income
taxes 17,606 25,912 (8,222) 35,296
Income tax expense 28,608 (13,310) (3,117) 12,181
----------- --------------- -------- ----------

Net income (loss) $ (11,002) $ 39,222 $(5,105) $ 23,115
=========== =============== ======== ==========

Earnings (loss) per
common share $ (0.21) $ 0.44
Earnings (loss) per
common share -
assuming dilution $ (0.19) $ 0.42

(a) In addition to net income, we have consistently utilized operating
income, operating income per common share and operating income
per common share - assuming dilution, non-GAAP financial measures
commonly used in the life insurance industry, as economic
measures to evaluate our financial performance. Operating income
equals net income adjusted to eliminate the impact of net
realized gains and losses on investments, and the impact of SFAS
133, dealing with fair value changes in derivatives and embedded
derivatives. Because these items fluctuate from quarter to
quarter in a manner unrelated to core operations, we believe
measures excluding their impact are useful in analyzing operating
trends. We believe the combined presentation and evaluation of
operating income together with net income, provides information
that may enhance an investor's understanding of our underlying
results and profitability.

CONTACT: American Equity Investment Life Holding Company
Debra J. Richardson, 515-273-3551
Sr. Vice President
drichardson@american-equity.com
or
John M. Matovina, 515-457-1813
Vice Chairman
jmatovina@american-equity.com
or
D. J. Noble, 515-457-1705
Chairman
dnoble@american-equity.com
or
Julie L. LaFollette, 515-273-3602
Investor Relations
jlafollette@american-equity.com

SOURCE: American Equity Investment Life Holding Company

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A.M. Best Affirms American Equity's A- (Excellent) Financial Strength Rating

American Equity - News Article

A.M. Best Affirms American Equity's A- (Excellent) Financial Strength Rating; Revises Outlook to Negative, Consistent with Life Industry Outlook

WEST DES MOINES, Iowa--(BUSINESS WIRE)--Oct. 30, 2008--American Equity Investment Life Holding Company (NYSE: AEL), today announced that A.M. Best Company affirmed its financial strength rating of A- (Excellent) while revising the outlook to negative from stable. In affirming the rating, A.M. Best recognized AEL's:

-- More than adequate level of risk-adjusted capitalization

-- Consistently positive GAAP operating results

-- Leading position in the fixed-index annuity segment

-- Favorable surrender charge protection in its annuity business

-- Good asset liability management program including the hedging
of risks associated with its fixed-indexed annuity business

-- Overall business scale that was achieved over the past ten
years

The revision of the ratings outlook is consistent with A.M. Best's negative outlook on the life insurance industry as a whole. As to AEL, A.M. Best noted that while the company's investments in commercial loans have performed as expected to date, in A.M. Best's view, such loans are exposed to heightened financial risks as a result of macroeconomic challenges. In addition, A.M. Best expressed concern over possible volatility in investment earnings and spreads. In response to these questions, AEL is providing the following additional information regarding its commercial mortgage loans and spread management in the current environment.

As of September 30, 2008, AEL had $2.3 billion of commercial mortgage loans representing 17.4% of invested assets. This group of mortgage loans is made up of over 950 individual loans with an average size of $2.4 million per loan. At present all of AEL's commercial mortgage loans are fully performing in accordance with their terms and no facts exist indicating that losses or impairments of value will be recognized in the near term. In addition, these loans have the following characteristics as of September 30, 2008:

-- Weighted average book yield of 6.38%

-- Weighted average loan-to-value ratio of 59.7% based on
appraised values

-- For loans closed in 2008, weighted average loan-to-value ratio
of 56.9% based on appraised values

-- Weighted average debt service coverage ratio of 1.55 times

-- Personal recourse in 55% of loans

-- 25% cash borrower equity required in substantially all cases

-- No interest-only payment schedules, target fully amortizing
loans

-- No defaults, no payment delinquencies longer than 30 days, and
no restructuring of loans

-- Well-diversified by property type and geographic region

AEL continues to view its commercial loans as high quality assets with duration and cash flow characteristics that are well matched to AEL's annuity liabilities.

Gross investment spread (yield on invested assets minus cost of money on annuity liabilities) has been improving throughout 2008 as a result of both an increase in the average yield on invested assets as well as a reduction in the cost of money for annuity liabilities. Spread results for the quarter and nine months ending September 30, 2008 compared to the same periods in 2007 are as follows:

Spread Results
---------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2008 2007 2008 2007
--------- -------- -------- --------

Average yield on invested assets 6.20% 6.09% 6.18% 6.09%

Cost of money
---------------------------------
Aggregate 3.37% 3.54% 3.45% 3.44%
Cost of money for index annuities 3.36% 3.55% 3.46% 3.42%
Average crediting rate for fixed-
rate annuities
Annually adjustable 3.26% 3.30% 3.26% 3.28%
Multi-year rate guaranteed 3.85% 4.09% 3.90% 4.18%

Investment spread
---------------------------------
Aggregate 2.83% 2.55% 2.73% 2.65%
Index annuities 2.84% 2.54% 2.72% 2.67%
Fixed-rate annuities
Annually adjustable 2.94% 2.79% 2.92% 2.81%
Multi-year rate guaranteed 2.35% 2.00% 2.28% 1.91%

While equity market volatility has risen dramatically in October 2008, AEL's average cost of money on its index annuities was 3.29% for the first three weeks of October, reflecting the facts that: (i) there has been no cost increase in a significant category of option purchases; and (ii) policyholders are electing to allocate a larger percentage of their index annuity fund values to the fixed interest crediting strategy within the products, with the fixed interest rate at 3.25%.

Additional detail on results of operations for the third quarter of 2008 will be discussed in the company's earnings call scheduled to occur on November 6, 2008.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future operations, strategies, financial results or other developments, and are subject to assumptions, risks and uncertainties. Statements such as "guidance," "expect," "anticipate," "believe," "goal," "objective," "target," "may," "should," "estimate," "projects," or similar words as well as specific projections of future results qualify as forward-looking statements. Factors that may cause our actual results to differ materially from those contemplated by these forward looking statements can be found in the Company's Form 10-K filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date the statement was made and the Company undertakes no obligation to update such forward-looking statements. There can be no assurance that other factors not currently anticipated by the Company will not materially and adversely affect our results of operations. Investors are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf.

ABOUT AMERICAN EQUITY

American Equity Investment Life Holding Company, through its wholly-owned operating subsidiaries, is a full-service underwriter of a broad line of annuity and insurance products with a primary emphasis on the sale of index and fixed-rate annuities. The company's headquarters are located at 5000 Westown Parkway, West Des Moines, Iowa, 50266. The mailing address of the company is: P.O. Box 71216, Des Moines, Iowa, 50325. For more information, visit our website www.american-equity.com


CONTACT: American Equity Investment Life Holding Company
Debra J. Richardson, 515-273-3551
Sr. Vice President
drichardson@american-equity.com
or
John M. Matovina, 515-457-1813
Vice Chairman
jmatovina@american-equity.com
or
D. J. Noble, 515-457-1705
Chairman
dnoble@american-equity.com
or
Julie L. LaFollette, 515-273-3602
Investor Relations
jlafollette@american-equity.com

SOURCE: American Equity Investment Life Holding Company

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Rule 151a SEC to hear more on fixed indexed annuity regulation

SEC to hear more on index annuity regulation - InvestmentNews

By Darla Mercado
October 13, 2008, 3:47 PM EST


The Securities and Exchange Commission has reopened the comment period for its proposed rule on federal regulation of index annuities.

The Washington-based regulator made the announcement on Friday, giving the public thirty days from the publication of the extension in the Federal Register.

The rule, known as 151 A, would define the terms “annuity contract” and “optional annuity contract” under the Securities Act of 1933, clarifying index annuities’ status under the federal securities laws.

Were the rule to be approved, the products would come under the jurisdiction of the SEC and the Financial Industry Regulatory Authority Inc. of New York and Washington.

Comments may be submitted here.

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Fixed Index Annuity Sales for AEL

AMEB,AEL American Equity: Year-to-Date Annuity Sales Up 6% From Year Ago

American Equity: Year-to-Date Annuity Sales Up 6% From Year Ago

WEST DES MOINES, Iowa, Oct 07, 2008 (A. M. Best via COMTEX) -- AEL | Quote | Chart | News | PowerRating -- American Equity Investment Life Holding Co., a top seller of equity-indexed annuities in the United States, said year-to-date annuity sales rose 6% from the same period a year ago.

Ahead of releasing its third-quarter earnings next month, American Equity (NYSE: AEL | Quote | Chart | News | PowerRating) on Oct. 3 said annuity sales for the quarter totaled $571.8 million, bringing year-to-date sales to $1.7 billion for the first nine months of this year, up from $1.6 billion in the same period in 2007.

At the end of trading Oct. 6, American Equity Investment Life led the A.M. Best Global Insurance Composite Index -- up 17.93% from the previous close. The A.M. Best Global Index closed at 859.99 -- down 6.72%.

The West Des Moines, Iowa-based company will release third-quarter earnings Nov. 5 after the market closes. For year-end 2007, American Equity's net income declined 61.6% to $29 million, while total revenues dropped to $915.9 million, a decrease of 22%.

Debate surrounds indexed annuities. Back in June, the U.S. Securities and Exchange Commission proposed a rule, 151A, that would define certain indexed annuities as securities products. Under the rule, these annuities ? currently regulated as insurance products ? would be treated as securities if amounts payable by the insurer are more likely than not to exceed amounts guaranteed under the contract.

Insurance carriers would need to refile the products with the SEC and offer them via a prospectus. Agents who wish to continue selling them would need to become registered representatives overseen by the Financial Industry Regulatory Authority, a status held by only about 55% of those who currently sell the products (BestWire, Sept. 8, 2008).

The comment period for the SEC's proposal ended Sept. 10. As of that day, 2,400 comments were sent to the SEC and about 90% were in opposition, American Equity said. The SEC has continued to accept comments received after the deadline, it said.

American Equity said it co-hosted a Congressional "fly-in" in Washington, D.C., on Sept. 23 in which the Coalition for Indexed Products, made up nine companies and a group of national marketing organizations representing the coalition, met with nearly 80 members of Congress. They urged members to tell the SEC the measure isn't needed because indexed annuity sales "are already heavily regulated by state insurance departments and would restrict consumer choice at a time when access to principal-protected products like fixed-index annuities should be carefully guarded," American Equity said.

The SEC, which adopted the proposed rule unanimously, has pointed to allegations of abuses in the marketing of indexed annuities to seniors, and has sought supervision by the Financial Industry Regulatory Authority of those who sell the products. According to the SEC, among complaints made to state securities regulators, cases involving annuities represented 65% of the caseload in Massachusetts, and 60% of the caseload in Hawaii and Mississippi (BestWire, July 28, 2008).

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)

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Income Annuities - Women's financial security in retirement

Advice for men and women about women's financial security in retirement - The Boston Globe

I've thought about dying before my wife Georgina after reading two recent studies on women and retirement.

"Compared with men, women will likely have lower retirement savings yet they'll need to make those savings last longer and plan on being on their own at some point," concludes "Why Women Worry," part of ongoing research on retirement issues by the financial firm The Hartford and MIT's AgeLab.

On average, a woman, 65, can expect to live to 85, about three years longer than men, and has a 23 percent chance of living past 95, based on mortality tables.

"When a woman outlives her husband, her income decreases by 50 percent on average yet expenses only decrease by 20 percent," the study said.

The second study, "Lifetime Income for Women: A Financial Economist's Perspective," was authored by David Babbel, a professor at the Wharton School of Business, and cosponsored by New York Life Insurance Co.

Babbel argues women should allocate substantially less money to stocks and stock mutual funds in retirement and more to immediate annuities that guarantee an income for life in return for a lump-sum premium.

"Annuities are even more important for women because their risks are compounded by longer life expectancy as well as potentially outliving husbands by six years or more (wives tend to be younger than their husbands)," said Babbel. He concludes that income annuities from top-rated insurance companies can provide secure lifetime income for 25 to 40 percent less money than it would take an individual.

That's because insurance companies base their payouts on average life expectancies (premiums from those who die early subsidize payments to those who live longer). When we invest on our own, we must plan for our money to last several years beyond life expectancy, just in case.

For this reason, financial planners often recommend retirees withdraw no more than 4 percent of savings the first year of retirement, increasing the amount by 3 percent a year to counteract inflation.

But, several top-rated insurance companies offer lifetime annuities with payout rates of 5 percent or more the first year for a 65-year-old couple, raising the amount 3 percent a year and with a "refund" feature (if both spouses die before income payments equal the premium, a beneficiary gets the difference).

But with income annuities, we typically give up our principal and can't access it beyond the scheduled income payments. Some contracts allow exceptions at the cost of lowering income.

In all states, guaranty associations belonging to the National Organization of Life and Health Guaranty Associations back income annuity obligations up to a limit ($100,000 or more per company depending on the state) per policyholder if an insurance company goes bankrupt.

Humberto Cruz is a syndicated columnist. He can be reached at askhumberto@aol.com.

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FDIC May Need $150 Billion Bailout as More Banks Fail

FDIC May Need $150 Billion Bailout as More Banks Fail (Update3)

By David Evans
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Sept. 25 (Bloomberg) -- Deborah Horn tugs on the handle of the glass-paned entrance of the IndyMac Bancorp Inc. branch in Manhattan Beach, California. The door won't budge. The weekend is approaching, and Horn, 44, the sole breadwinner in a family of three, needs cash.

A small notice taped to the window on this Friday afternoon in mid-July tells her why she's been locked out. IndyMac has failed, the single-spaced, letter-sized paper says; the bank is now in the hands of the Federal Deposit Insurance Corp.

``The Receiver is now taking possession of the Bank,'' the sign says.

``I'm physically shaking,'' says Horn, an academic tutor, as she peers into the bank. Inside, an FDIC examiner is talking to six stone-faced IndyMac employees. ``I don't know when I'm going to be able to get my money,'' Horn says. ``I'm a single mom. This is the money I live on.''

Don't worry about Horn. She'll be all right, as will most of Pasadena, California-based IndyMac's 200,000-plus customers.

That's because the FDIC, created in 1934, insures all accounts up to $100,000 at its member banks, and it has never failed to honor a claim. The people to worry about are U.S. taxpayers.

The IndyMac debacle is taking a large bite out of FDIC reserves, and if scores of other banks fail in the year ahead, the fund will be depleted. Taxpayers will have to step in.

Worst Wave

Americans had gotten used to the idea that bank failures were as rare as a category five hurricane. No banks went bust in 2005 or 2006. Seven collapsed in 2007 as the credit crisis began to exact a toll. So far in 2008, 12 more, with total assets of $42 billion, have fallen -- that's the worst wave of bank failures since 1992.

IndyMac, which had $32 billion in assets when it went into receivership, is the most expensive bank failure the FDIC has ever covered. And that record may not stand for long.

By the end of 2009, about 100 U.S. banks with collective assets of more than $800 billion will fail, predicts Christopher Whalen, managing director of Institutional Risk Analytics, a Torrance, California-based firm that sells its analysis of FDIC data to investors.

``It's not going to be Armageddon,'' says Mark Vaughan, a financial economist at the Federal Reserve Bank of Richmond, Virginia and a senior lecturer in economics at Washington University in St. Louis. ``But it's going to be bad.''

FDIC's Secret List

The FDIC knows which banks are at risk; it has a watch list with 117 institutions. The agency won't disclose their names because doing so could cause depositors to panic and pull out all of their funds.

It won't take many more failures before the FDIC itself runs out of money. The agency had $45.2 billion in its coffers as of June 30, far short of the $200 billion Whalen says it will need to pay claims by the end of next year. The U.S. Treasury will almost certainly come to the rescue by lending money to the FDIC.

Regardless of who wins control of the White House and Congress in November, no politician is likely to vote in favor of leaving federally insured depositors out in the cold.

A taxpayer bailout of the FDIC would come on the heels of intervention by the U.S. Treasury Department and Federal Reserve to save investment bank Bear Stearns Cos., mortgage giants Fannie Mae and Freddie Mac and the world's largest insurer, American International Group Inc.

Uninsured Deposits

Emergency federal lending to the FDIC could swell the cost of government rescues of failed financial institutions to more than $400 billion -- not including the $700 billion general Wall Street bailout now under discussion in Congress. Under federal statute, the FDIC must pay back any loans from the Treasury.

That number would be even higher if the government were on the hook for uninsured deposits -- which amount to $2.6 trillion, 37 percent of the total of $7 trillion held in the U.S. branches of all FDIC member banks.

The subprime crisis -- which started in the suburbs of California and Florida and migrated through the alchemy of securitization to Wall Street investment banks -- has come almost full circle, spreading its toxins to the very lenders who first extended those teaser-rate, no-document mortgages to homeowners.

In 2006, IndyMac was the largest provider of mortgages that didn't require borrowers to provide proof of their incomes. And as of mid-September, investors were worried that Washington Mutual Inc., the biggest thrift in the U.S., would be the next bank to go belly up.

A federal takeover of Washington Mutual, which has assets of $310 billion, could cost taxpayers $24 billion more, according to Richard Bove, an analyst at Miami-based Ladenburg Thalmann & Co.

Slower To Hit

The reckoning that has run through Wall Street, claiming investment banks Lehman Brothers Holdings Inc. and Bear Stearns among its victims, has been slower to hit Main Street. In mid- 2007, Wall Street firms began disclosing losses on their packages of securitized home loans.

From August 2007 to September 2008, banks worldwide wrote down more than $500 billion. Regional banks, by contrast, have waited to write off their bad mortgages, hoping the housing market would improve and defaults would level off. Instead, they've risen.

FDIC-insured banks charged off $26.4 billion of bad loans in the second quarter of 2008, the most since 1991.

U.S. lenders, in their embrace of subprime lending, committed the same analytical fallacy as their Wall Street counterparts. When it came to assessing risk, they relied on the recent past to predict the near future.

Living in the Past

They were blinded by years of rising home prices and low mortgage default rates.

The FDIC fell into the same trap. As recently as March, an internal FDIC memo estimated the cost to cover bank collapses in 2008 would be just $1 billion, dropping to $450 million in 2009. It wasn't even close.

The IndyMac failure alone, which happened four months after that memo was circulated, will cost the FDIC $8.9 billion -- and the bill for all 12 collapses will be about $11 billion, the FDIC says.

FDIC Chairman Sheila Bair says the agency's forecast was based on models using data from the past 20 years, which included long periods with few bank failures.

``Given the change in economic conditions, we need to weight the more recent data more heavily,'' Bair says. ``You also need a good dose of common sense.''

Bair says depositors shouldn't fret about their banks. ``We do have a handful with some significant challenges,'' she says. ``Overall, banks are quite safe and sound.''

Bair is duty bound to say that, says Joseph Mason, an economist who worked for the Treasury from 1995 to 1998. Part of the FDIC's job is to reassure the public and prevent runs on banks. Mason says Bair's rhetoric masks the agency's inability to grasp the scope of the coming crisis.

`Ignoring the Problem'

``The FDIC and the banking regulators are ignoring the problems, hoping they'll go away,'' he says. ``They won't.''

The quake that shook markets in September may make the FDIC's task more complicated and expensive. With investment banks in eclipse, deposit-taking institutions will now play a larger role in financing the economy.

Earlier this month, Bank of America Corp. agreed to buy Merrill Lynch & Co. for $50 billion, and Wachovia Corp. and Morgan Stanley were in talks about a potential merger.

'Would Be Miraculous'

From 2002 to 2007, U.S. lenders made a total of $2.5 trillion in subprime mortgages, according to the newsletter Inside Mortgage Finance. ``Given the magnitude of the bad loans still on bank balance sheets, it would be miraculous for the FDIC to squeak by with losses of less than $200 billion,'' Whalen says.

On Sept. 18, in yet another stunning turn of events, Paulson proposed a plan that would cost the government, if not necessarily the FDIC, hundreds of billions of dollars more.

The Treasury secretary says the government will purchase toxic mortgage debt from banks in an effort to cleanse the financial system. In an unprecedented move, the Treasury also pledged $50 billion to insure nonbank money market funds.

Bair says Paulson's plan won't reduce the number of banks on the FDIC's watch list.

One reason the rolling financial crisis is hitting regional banks later than it walloped Wall Street is because the very system that is meant to protect depositors -- federal insurance -- has also served to prop up weak lenders. So has the ready supply of credit extended to banks by another government-chartered group, the Federal Home Loan Banks.

Because all deposits up to $100,000 are insured, most savers can be agnostic about where they put their money. They don't have to know -- or care -- whether a bank is making sound or foolish loans.

Unlike buyers of stocks or bonds, people who put their money in banks rarely do research about the soundness of the institution. That makes it easy for banks -- both prudent and reckless ones -- to raise cash.

Brokered Deposits Loophole

Banks have taken the FDIC's protection and run with it, thanks to the phenomenon of brokered deposits -- and a giant loophole in federal regulations.

As of June 30, Whalen says banks held $644 billion from brokers who offer customers a way to gain FDIC insurance for multiple accounts.

Promontory Interfinancial Network LLC, an Arlington, Virginia-based company founded in 2002 by former federal officials --including some from the FDIC itself -- has figured out how to help wealthy clients insure as much as $50 million each by putting their money into separate accounts at 500 different banks.

While the law does limit insurance to $100,000 per account, it places no ceiling on the number of different banks where an individual can hold accounts -- a loophole Congress failed to close even after the savings and loan debacle of 1984-1992.

Missing Discipline

Bair says brokered deposits can provide quick cash but also create potential danger.

``It is quite easy to get brokered deposits, and there's not a lot of market discipline with the brokered deposits,'' she says. ``When there's excessive reliance on them, particularly to fuel rapid growth on the balance sheet, that's definitely a high-risk factor.''

The other big source of money for banks is the FHLB, an under-the-radar network of 12 regional banks created by Congress in 1932 to help lenders finance mortgages. Lenders had borrowed a total of $840.6 billion from the FHLB system as of June 30, up 38 percent from $608 billion in the same period a year earlier.

Treasury Secretary Henry Paulson, in a little-noticed action on Sept. 7, the day after he announced the bailout of Fannie and Freddie, extended a secured credit line to the FHLB to provide an emergency source of funding if needed.

FHLB Advances

Vaughan says credit from the FHLB is keeping some sick banks afloat and postponing the inevitable.

`What's going to happen,'' he says, ``is that weak banks will use FHLB advances to avoid discipline from funding markets. In some cases, that will keep their doors open longer than they otherwise would, all-the-while offloading more and more potential losses onto the FDIC and taxpayers.''

Normally, the FDIC is no more than four initials customers see when they walk into their banks. In recent years, the agency hasn't had to close many banks, as it collected small amounts of insurance premium payments.

President Franklin D. Roosevelt signed the law creating the FDIC in the middle of the Depression. As part of the New Deal, Congress created a system of federal insurance to end bank runs by reassuring the public that depositing money in banks was safe. All banks paid the same rate for insurance.

Wave of Failures

The FDIC shares regulatory authority with other agencies. The Office of Thrift Supervision oversees federally chartered savings and loans, the Comptroller of the Currency monitors national banks, and state banking regulators review state- chartered banks.

The FDIC is the only one of these agencies that insures deposits.

By and large, the government's insurance system worked until the 1980s, when thrifts went on a commercial real estate lending binge, triggering a wave of failures and consolidation that lasted from 1984 to 1992.

In 1991, Congress changed the way FDIC premiums were assessed, requiring banks to pay rates based on how well capitalized they were for the risks they faced. As bank failures subsided to less than a dozen a year by 1995, the FDIC's reserves began to swell.

As a result, the agency cut to zero the premiums it charged to the 90 percent of the banks deemed safest. That free ride continued for 10 years.

`No Good Way'

In 2006, Congress increased insurance payments for most banks, averaging $5-$7 per $10,000 of deposits.

The insurance premiums imposed by the FDIC on the riskiest banks -- running as high as $43 per $10,000 -- are still far below the rates private insurers would charge, says Sherrill Shaffer, former chief economist of the Federal Reserve Bank of New York.

At the same time, charging struggling banks a fair price for insurance premiums may drive them into insolvency, he says.

``That can be destabilizing,'' says Shaffer, who's now a professor of banking at the University of Wyoming in Laramie. ``There's really no good way around that. It's an issue that policy makers and analysts have wrestled with for decades.''

Bair says the FDIC is gearing up for the coming wave of bank failures. She says she's developing a plan to raise insurance premiums.

The agency's Division of Resolutions and Receiverships has boosted authorized staffing levels by 48 percent, to 331, this year. It has hired 178 new financial specialists and called up 65 retirees for temporary service under a special program.

Bair vs. Enron

Bair, 54, an attorney who graduated from the University of Kansas School of Law, has challenged financial institutions as a regulator for more than a decade. President George W. Bush nominated her as chairman, and she was sworn in on June 26, 2006.

She replaced Donald Powell, a former Texas banker. In 1992, as a member of the Commodity Futures Trading Commission, Bair cast the lone vote against Enron Corp.'s effort to exempt certain energy contracts from the agency's anti-fraud and anti- market manipulation enforcement powers.

Nine years later, Enron blew up in one of the biggest financial scandals in U.S. history.

As assistant secretary of the Treasury for financial institutions in 2002, Bair criticized abusive subprime mortgage brokers.

``Lenders have made loans with little or no regard for a borrower's ability to repay and have engaged in multiple refinance transactions that result in little or no benefit to a borrower,'' she told the Pittsburgh Community Reinvestment Group on March 18, 2002.

`Rock and Brock'

Bair has published two children's books. One of them, ``Rock, Brock, and the Savings Shock'' (Albert Whitman, 2006) is a tale of two twins -- Rock the Saver and Brock the Spender

To contact the reporter on this story: David Evans in Los Angeles at davidevans@bloomberg.net
Last Updated: September 25, 2008 19:54 EDT

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