Broadcast Retirement Network’s Jeffrey Snyder discusses the recent A.M. Best report on insurers investment in private credit with The Warner Companies’ Phillip Snyder, CLU.
Jeffrey Snyder, Broadcast Retirement Network
Joining me now is Philip Snyder with The Warner Companies. And for full disclosure, he’s also my dad. Dad, great to see you.
Thanks for joining us this morning. My pleasure. Hope you’re doing well.
Well, me too. I hope I’m doing well as well. I’m hoping you’re doing as well.
Dad, thanks so much for making some time this morning. I wanted to, there was a recent story, I shared it with you. AM Best, which is a very well-known rating agency, raised some concerns about insurers investing their general accounts in private credit.
Now, both of us are not experts around private credit or private markets, but what was your initial reaction to what you read and immediately following reading the article?
Phillip Snyder, CLU, The Warner Companies
Well, let’s just take one step back. I think what’s driving this mostly is annuities. Annuity sales have doubled in the past decade.
The sales, I think last year were maybe something a little south of $500 billion. And more and more companies have entered into that marketplace. So it seems to me that the newer companies in that marketplace, in order to attract business, are probably offering more attractive rates of return, let’s say within their products.
But the question then becomes, how do you get those rates of return? And I think that’s the fundamental issue because annuity reserves now represent probably a third of the entire insurance industry’s life insurance reserves. So these are not insignificant sums that we’re dealing with.
And so these companies are now chasing higher returns, some of which are these private credit, privately structured credit arrangements where they’re loaning money to third parties outside the normal banking system. And part of the problem is those documents are not transparent. Those arrangements are not transparent.
So they sit on the balance sheet, but they’re not necessarily clearly defined. And so what’s happened is a number of credit agencies have begun, particularly AMBES, have downgraded a number of the companies that are now, or they’ve just lowered their ratings substantially for companies who are now in that annuity business. I don’t think that necessarily impacts the major players in the annuity business, although they’re probably chasing higher returns as well.
So it’s a concern, I guess.
Jeffrey Snyder, Broadcast Retirement Network
Okay. So it’s a concern. Let me ask you, we’re not going to indict anybody on this program because neither of us are experts.
You’re an expert in insurance products, but we want to be very careful here that we’re just trying to raise the base educational elements here. So how does the credit ratings from the agencies factor into the products that you evaluate on behalf of clients and prospective clients? Does it shape your thinking about what to recommend, who to partner with in terms of a carrier?
Phillip Snyder, CLU, The Warner Companies
Yeah, I guess that would depend to some extent on what the client is purchasing. If the client is purchasing term insurance for a short period of time, I don’t think it’s as much a concern. Although all things being equal, I would choose to buy from a more highly rated company, even if it costs me a little bit more.
That tends to be our focus. And within our national consortium, which my firm is a member, we have an internal group that continues to monitor insurance companies’ performance. So we’re aware of that.
Not everybody has that advantage in the marketplace, but I would tend to focus on more highly rated companies.
Jeffrey Snyder, Broadcast Retirement Network
So you focus more on highly rated companies, but that return stream, very important. Look, people that are buying annuities, I guess that’s good for the annuity industry and the insurance industry. And there are differing opinions on where annuities fit into a financial portfolio of products for an individual.
But it just seems to me that this is an area that oftentimes maybe people don’t get under the hood on, and they really should because these insurance companies are providing guarantees for a benefit oftentimes 15, 20 years in the future.
Phillip Snyder, CLU, The Warner Companies
Yeah. Yes, that’s correct. I think it’s incumbent upon the people selling these products to do that kind of work because you can’t expect the average consumer who looks to the person that they’re talking with as their advisor in this particular circumstance to present the best product that he or she can and represent their interest, the buyer’s interest, kind of like in a quasi-fiduciary arrangement.
And so I think it’s incumbent more on the marketers, the people selling the product, to do their due diligence before they recommend the product. But that doesn’t always happen.
Jeffrey Snyder, Broadcast Retirement Network
No, it doesn’t always happen. So let’s talk about, you mentioned the F word, not the four-letter F word, but the bigger F word, probably in my mind, the more important F word, which is fiduciary. That is a significant legal responsibility.
It’s probably the highest standard of the law that says you have to do on behalf of your participants the best thing. You can’t look at your own interest. You have to look at their interest.
Are your people that work in your industry, is everyone a fiduciary?
Phillip Snyder, CLU, The Warner Companies
Well, I’m not sure that I’m technically a fiduciary. I use that term in a broader context. But I think it’s incumbent upon the people who are marketing this product with whatever company to do the best due diligence they can before you make that recommendation to a client.
I mean, that’s fundamental to what we should be doing for people, helping people, and to some degree, suppressing our interest in that. Most people in the insurance industry get paid for selling products. That’s their primary motivation, to find people who will buy their products.
But that shouldn’t be the guiding motivation. The motivation should be, how can I find something that helps you achieve your goals? That’s really the motivator, the primary motivator.
Jeffrey Snyder, Broadcast Retirement Network
So use the word should, and should doesn’t mean that they do. You know your organization very well. You’re part of a organization that is part of a larger consortium.
When you make a recommendation to a client, does that get scrutinized internally to ensure that there’s no self-dealing, that there’s no churning, all the things that we’re taught in FINRA class not to do in order to get our Series 6, 63, 7, et cetera?
Phillip Snyder, CLU, The Warner Companies
Sure. You try and put yourself in the position of the buyer. I mean, we operate a business.
We have to make a profit, obviously. Yeah, sure. We don’t have to make a huge profit at the expense of the buyer.
And so we have pretty firm standards within our organization as to what we will and won’t do. And that’s in all aspects of what we do. If it doesn’t benefit the client in the way it should, and in accordance with that, we need to make enough of a profit to run our business.
So you balance those two things, and you do the very best for the client you can. That’s the goal.
Jeffrey Snyder, Broadcast Retirement Network
And just to kind of close things out, because we talked about the things that you do. We talked about the rating agencies. Let’s talk about the government.
My understanding is insurance products are regulated at the state level. So there are 50, I guess the District of Columbia has its own, so 51 regulators of these types of products. I would imagine that in addition to credit granting agencies, Dad, they’re giving scrutiny to these reserves and whether or not they’re meeting the reserve requirements, how they’re invested, et cetera.
Phillip Snyder, CLU, The Warner Companies
Right. But some of these new investment instruments go outside the normal things that regulators would scrutinize. So I know at the federal level, I think the Secretary of the Treasury now, Mr. Besant, is convening, or will be soon convening, a meeting of insurance state regulators to begin a dialogue as to what they need to do to address these issues. And I’m not saying, I don’t want to blow this out of proportion. I don’t know of any companies that are going to fall apart tomorrow because of their private credit loaning. But at the same time, I think it’s an area that needs greater scrutiny, maybe establish some guidelines, information that needs to be provided to the regulators, because these are not transparent transactions.
They’re outside the normal banking structure. And so how do you know how good they are or not so good? You don’t know.
Jeffrey Snyder, Broadcast Retirement Network
Well, and just to kind of piggyback, and I got about a minute left, if a company made some bad investments, you would probably see that in future rates for future products, but they could also come back. I know we talked about long-term care rates, I don’t know, several months ago about the increase there. They could come back and say, okay, well, we need to lower our interest rate, even though we contractually agreed to do that.
So that’s where it may not bankrupt the company or cause a company to go into bankruptcy, but this is where you could see that kind of pop up.
Phillip Snyder, CLU, The Warner Companies
Yeah, to the extent they’re allowed to do that under the contract they have with the buyer. And there’s so many different types of annuity products. So perhaps some of them may allow them to do that, but others would preclude them from doing that, which means that it hurts their business across the board, not just in the annuity products.
So I’m not a gloom and doom purveyor here. I’m just simply saying that these are new, they’re novel, they’re different, and people should be aware of them. Yeah, I know you’re not.
Go ahead. Any buyer of insurance could ask for a full financial report on the carriers that they’re considering. You can get ratings, there are four or five rating services out there that rate from AAA all the way down to- Junk.
Yeah, pretty much junk. None of them are junk. And so you could look at what they call Comdex, which is an amalgamation of all of those ratings.
I always try and use companies that have a very high Comdex rating, excuse me, because I secure the buyer.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, very important. I think what we’re doing here is just talking about issues that maybe are not necessarily coming up. Obviously, they’re percolating up in certain areas, but I’m not sure the general public is aware of this because they’re so busy.
We’re going to have to leave it there. Great to see you. It was always great to catch up.
And look, I’m going to see you in May. So we look forward to seeing you, having you back on the program. And I personally look forward to seeing you in mid-May.
Phillip Snyder, CLU, The Warner Companies
Happy. We’ll celebrate our birthday. All right.
Thanks, Jeff. Bye-bye. Have a good day.
