Rick Phillips spent about a decade buying annuities for the peace of mind: pay upfront, collect fixed returns, relax. Now the retired investment banker says he’s done with them. “The risk-reward isn’t there anymore,” he said. This summer, Clear Spring Life and Annuity, the insurer behind one of his contracts, revealed that federal prosecutors are scrutinizing its investment disclosures. Its billionaire owner is Mark Walter, whose empire includes the Los Angeles Dodgers.
Why annuity money is prized
Phillips is one of hundreds of thousands of Americans whose savings have helped power that empire. Delaware Life, Walter’s biggest insurer, took in $10 billion of individual annuity premiums last year.
Walter’s insurers specialize in fixed annuities and fixed-indexed annuities — the kind whose yearly payout moves within a set range, depending on an index. Buyers usually pay a lump sum upfront, then collect payments for a few years or for life.
That’s catnip for private credit — lending at high rates to riskier corporate borrowers. Annuity cash is dependable, so it can stay locked in speculative investments longer than life-insurance money, whose payouts are harder to predict. Wall Street giants such as Apollo Global Management (APO) and KKR (KKR) have increasingly tapped insurance money to fuel their lending, often buying life insurers outright.
Beneath the solid ratings
Regulators require insurers to disclose investments made with their own parent companies — so-called affiliated deals. According to the Journal, the federal probe centers on $20 billion of Delaware Life and Clear Spring investments that weren’t properly marked as affiliated. TWG Global, Walter’s conglomerate, has said it’s proud of the business it built and expects a favorable resolution.
Carlos Dias Jr., a financial adviser north of Orlando, sold Clear Spring annuities in recent years, reassured by solid ratings and healthy-looking quarterly filings. Then, in June, Clear Spring and Delaware Life disclosed billions more in affiliated assets than previously reported, and AM Best said it was weighing downgrades. “We’re seeing the outer not the inner,” Dias said.
Some sellers are stepping back. Shawn Plummer, who sells annuities online through The Annuity Expert, told his two salespeople to stop recommending Delaware Life or Clear Spring. Truist (TFC) and Fifth Third (FITB) have paused new Delaware Life sales, Bloomberg has reported; Delaware Life said it’s still working with advisers at both banks on existing clients. One backstop worth knowing: if any insurer becomes insolvent, a state-based, industry-funded system compensates annuity owners, typically up to around $250,000 per person.