Sabrina Elliott inherited some money. Her son-in-law, a financial adviser, helped her put $40,000 into an indexed annuity. Lock the money up for 12 years, share in the market's gains, never lose a dollar. But the insurer could lower her share of those gains from time to time. It did, twice. Heather Gillers told it on Monday's front page.
Her first-year terms gave 60% of the money a return linked to the S&P 500, less a 2.9-point spread. The other 40% earned a fixed 1%. Then Athene, owned by Apollo Global Management (APO), bought her insurer, Aviva. Athene cut her share to 55% in year seven and 45% in year 11. Add-ons for lifetime or heir payouts cost about 2 points a year on top. The policy ended in late 2023 at 3.7% a year, against 1.9% from Treasurys and 13% a year from the S&P 500. Elliott, 69, teaches nutrition in Florida's state university system. Athene says the annuity “performed exceptionally well” and calls the stock comparison misleading.
The reset is the product, Gillers reports. An indexed policy runs about ten years, against three to five for a fixed-rate one. The longer lock lets the insurer park the money in private loans that are hard to sell. If those loans do badly, it lowers your cap. If they do well, it can lower it anyway. Larry Rybka, who runs a firm that sells annuities, says private equity likes the setup because it can “change the deal on the consumer.” A state insurance agent can sell these with no securities license, and without the best-interest rules that come with one. Brookfield-owned American Equity (BN) pays agents 5% to 7% of the deposit on some 10-year indexed annuities. Its plain fixed-rate ones pay about 3%. One Delaware Life sales piece shows $100,000 growing to $2.7 million in 21 years. The index is a year old. The returns are hypothetical, built on 15 past years, 11 of them with double-digit stock gains.
Then came the lawsuits
Delaware Life is controlled by Dodgers owner Mark Walter, and Tuesday's paper brought the lawsuits. A Los Angeles-area retiree filed Monday, Oct. 12. He wants buyers at Clear Spring and Gainbridge, two more Walter insurers, let out of their contracts without penalty. It's at least the third such suit. One earlier plaintiff had cashed out early and paid a penalty to do it. In June, Delaware Life and Clear Spring disclosed they had badly understated how much of their money was tied to Walter's own companies. Restated, the share was 59% at Clear Spring and 42% at Delaware Life, by the Journal's math from state filings. The parent, Group 1001, had nearly 500,000 annuity contracts at the end of 2024. These are allegations, and no court has ruled. Walter's company says there was no fraud, and Group 1001 says it will “defend the case vigorously.”
Our read
This is Insurance and Consumer Protection (M11) and Retirement (M10). We use annuities and index-linked annuities in plans, and we'll keep using them. A floor under part of a retiree's money is worth having. Three questions belong in front of any contract, including ours. First, ask who can change your terms, how often, and by how much. Second, ask what standard the seller is held to. A securities license brings best-interest rules. A state insurance license alone doesn't. Third, ask what the insurer owns with your money. A promise is only as good as the portfolio behind it.
Here's the check for this week if you own an indexed annuity or a RILA. Find the latest annual statement. Look up your current share of the gains (the participation rate), the cap and the spread. Set them next to the ones you signed at. If they've moved, you've been reset. Then find the surrender schedule. That's the price of changing your mind, and one of these plaintiffs paid it. Bring both pages to your next review. You read the fine print on a dry day so you're never reading it in the rain.