The Markets December 24, 2012

Seattle Asked to Divest from Fossil Fuels

The City of Seattle is moving to divest from fossil fuels following a roundtable discussion with environmental activist and 350.org founder Bill McKibben.  
Reported by

While none of the city’s $1.4 billion in cash balances for daily operations is currently invested in fossil fuels, Seattle Mayor Mike McGinn is seeking to rid the city’s deferred compensation (DC) plan and pension holdings of fossil fuel investments. The city’s DC plan has $700 million in employee investments, while the pension system has holdings valued at $1.9 billion.

McGinn does not control those funds, but he wrote to the Deferred Compensation Plan Committee “to ask that they offer our employees options to move their investments out of fossil fuel companies, offer fossil fuel free investment choices to them, and begin the process of divestment,” McGinn said on his blog. McGinn also asked the city’s pension system governing board to “refrain from investing in fossil fuel companies in the future, and begin exploring options for moving existing investments from fossil fuel companies.”

Two of the pension system’s top 10 investments are with ExxonMobil and Chevron, according to McGinn. The system currently has $17.6 million invested with those two firms, representing just less than 1% of their $1.9 billion in assets.

350.org is calling for schools, churches and governments to immediately freeze any new investment in fossil fuel companies, and divest from direct ownership and any commingled funds that include fossil fuel public equities and corporate bonds within five years.

Data & Research December 24, 2012

Interest in Annuities Is Growing

Interest in annuities is growing as consumers demand guaranteed lifetime income in the face of challenging economic conditions, according to a report.
Reported by

The Insured Retirement Institute’s “State of the Insured Retirement Industry” said 2012 marked the first year of any significant sales in the industry—an estimated $1 billion in sales for deferred income annuities (DIAs). And, in 2013, annuity assets are expected to reach an all-time high.

Variable annuities continue to be the dominant product sold today, but anticipation is that DIAs will be the fastest growing product in 2013, at least on a percentage basis.

Annuities are now the most unsolicited products requested by clients, and nearly three in four financial professionals had clients who requested to purchase an annuity over the past year, according to a survey of financial advisers.

The fear of outliving one’s assets is one of the top financial fears of many Americans, and insurance companies are the only legal entities that can insure retirement income for a person’s lifetime.

(Cont’d…)

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Going into 2013, the institute expects to see a decline in defined benefit (DB) plans, increasing retirement assets in individually managed accounts and uncertainty about the future of Social Security and Medicare. External challenges include historically low interest rates, market volatility, cost of capital in providing annuities and regulatory issues.

In 2013, the institute says to watch out for the preservation of tax-deferred status of retirement savings and the prevention of tax increases, particularly on the middle class; the re-proposed fiduciary standard applied to advisors of employment-based retirement plans; and investor behavior driven by market volatility and desire for guarantees.

Companies are innovating with new products and are expanding into new markets and new players are entering the market. At least six companies currently offer a DIA, or have filed to offer the product in 2013.

Many new products and benefits are falling into one of three market segments: income now, income later and unknown income needs. Annuity providers are seeking to balance product design to manage longevity, market and client behavior risks while in an economic environment of continued low interest rates and high market volatility.

While some companies have slowed down or eliminated new annuity sales, private equity firms are entering the annuity market by purchasing interests in fixed-indexed companies as well as variable annuity blocks.

The report is here.

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