What happens to your pension or investments if your insurance provider goes insolvent?

S

SClarke

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I'm looking into starting a prsa as well as an investment with Zurich and saw on their key information document (for an investment option) a statement on insolvency: "If zurich is unable to fulfil its obligations as a result of its own insolvency or the insolvency of another party linked to the fund you have chosen, you may suffer a financial loss. There is no State guarantee scheme that can compensate you for all or part of these losses."

Is this commonplace for all insurance providers in Ireland? Would my PRSA be protected in the instance of Zurich going insolvent or does this just apply to investments with them? It's a bit unnerving in either case so would appreciate any further info people may have on this topic, thanks in advance!
 
A life insurance company is not like a bank which faces the risk of bad debts due to bad lending or an economic depression.

Zurich has a very high credit rating.


It's hard to see what might go wrong here. A huge epidemic which kills lots of people who have life insurance?

It is heavily regulated and has huge reserves.

I personally wouldn't worry about it.

Brendan
 
If the likes of Zurich go under, we’ll have bigger worries than the likes of Zurich going under.
 
I think insurers can fail. Wasn't Quinn allowed to run his insurance business recklessly? Hadn't there been a few other non-life insurers failing previously (PMPA and others)? On the life insurance side, didn't Equitable Life go under?

For life insurers, I'd be interested in understanding the precise priorities/protections in the event of an insurer failing on the presumption/understanding that all investments are not similarly protected - e.g. if I had an ARF, am I more protected than if I had an annuity with a given insurer.
 
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SGWidow said:
I think insurers can fail. Wasn't Quinn allowed to run his insurance business recklessly? Hadn't there been a few other non-life insurers failing previously (PMPA and others)?
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Non-life insurance such as motor is very risky. But that is not relevant to the question of life insurance.

SGWidow said:
On the life insurance side, didn't Equitable Life go under?
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Sort of. It was a very unusual set of circumstances. In an effort to be fair Equitable offered guaranteed annuities e.g that a pensioner would get an annuity of 12% of her pension pot on retirement. They had caveats on this but the High Court and House of Lords in the UK overruled those caveats.

While some life companies still have some guaranteed annuities, they are a tiny part of their business.

Brendan
 
Hi SG

You clearly have no idea about Equitable Life.

It was a mutual and had an ethical approach to its customers. I thought that their contract was crystal clear. The Courts took a different view and upheld the complaints but the losers were other customers not some shareholders. The big losers were consumers generally.

Brendan
 
Brendan,

I take the same view as the Court of Appeal.

Are the learned judges also clueless?

What EL tried was sleight of hand at its finest. It really is pure nonsense (and quite annoying) to say that the contract was crystal clear.

Also, I was personally at a meeting with the Head of EL Ireland where we my husband and I that the Irish "branch" was ring-fenced from the troubles in the UK.

I don't consider the ruse that brought them down or the misrepresentation made to me personally to be ethical.

So, specifically,

1. What part of the Court of Appeal judgement do you have issue with?

2. Are you aware that EL maintained that its Irish "branch" was ring-fenced when it wasn't?
 
The Court of Appeal missed the whole point of what Equitable Life was - it was equitable and it was mutual.

For example, on its with profits funds, if someone cashed early, they got the full value of the fund. With the other companies, you could not get the full bonuses until the product matured.

And that was the context in which the judgement should have been made.

I don't remember the detail, but I remember being shocked that the Judges effectively sentenced the best life company to death.

I don't recall the claim that the Irish branch was separate. I might have heard that claim at the time.

But the overall point is that life companies are very safe and the factors which brought down Equitable Life do not impact Zurich.

Brendan
 
SClarke said:
Would my PRSA be protected in the instance of Zurich going insolvent or does this just apply to investments with them?
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There are different issues with a PRSA and insurance.

With insurance they charge a pool of customers upfront, invest for the long term, and pay out in future. So poor investment returns and/or mis-estimation of risk means they may not be solvent when claims fall due.

With your PRSA they are simply taking your money and buying assets in whatever mix you tell them to, and holding on to these assets. The value of your portfolio will go up and down, but short of widespread fraud or embezzlement it can't disappear.
 
Precisely NoRegretsCoyote,

To adopt the phrase du jour, in the event of a failure (storm), not all cohorts will be in the same boat......
 
NoRegretsCoyote said:
With your PRSA they are simply taking your money and buying assets in whatever mix you tell them to, and holding on to these assets.
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I am not an expert in the area, but my understanding of Irish life insurance companies is that your investment is not segregated in any way. Your assets are a liability of the life insurance company. If the company goes bust, your assets would be gone. This is extremely unlikely.

Even in a worst case scenario, it's likely that an investor would get back about 90% of their investment.

But it's not like an online stockbroker which can go bust but your assets are usually in a separate company set up to own the assets.

Brendan
 
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Brendan Burgess said:
It's hard to see what might go wrong here. A huge epidemic which kills lots of people who have life insurance?
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I spoke to someone in the industry, who told me that established companies like Zurich are well balanced. So if an epidemic results in increased life insurance claims, it will be well compensated for by falling annuity payments as older people die sooner than expected.

The threat would have to come from something like a war which disproportionately killed off people with life insurance while not affecting older people as much.

Brendan
 
Personally I have pension in two different providers and that makes me feel more comfortable.

We simply can't forsee all the reasons a company may run into troubles. Having adequate reserves is theoretically as simple as a few extra zeros on a screen somewhere.

I consider it a non zero risk that your pension provider / broker / fund / investment plan provider could go bust. But what can you do about it or what alternatives do you have?
 
Use different funds/fund companies and different providers when you can?
 
There is also non zero risk that we die tomorrow.

Edit: I came back from dead to fix this post.
 
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