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Ebix, Inc. announced today that it has reached a “stalking horse” agreement to sell its North American life and annuity assets to Zinnia for $400 million, part of a bankruptcy reorganization plan.

A leading international supplier of on-demand software and e-commerce services to insurance and financial services, Ebix is filing for Chapter 11 protection of its U.S.-based operations, the company announced.

An Eldridge Industries company, Zinnia is a leading life insurance and annuity technology and service company based in Topeka, Kansas. The life and annuity assets being sold accounted for 14.5% of Ebix’s worldwide GAAP revenues for the first three quarters of 2023, Ebix said.

“This agreement is part of the strategic decision by the Company to seek a value-maximizing transaction that will benefit all stakeholders and put the company on the path towards sustainable growth and profitability,” Ebix said in a news release.

Ebix’s life and annuity assets include AnnuityNet and LifeSpeed, an order entry platform; WinFlex, a market-leading multi-carrier illustration tool used by over 35 carriers and more than 275,000 users; TPP (The Policy Processor), an underwriting platform; and SmartOffice, an insurance vertical driven CRM tool used by more than 35,000 agencies and advisors.

Ebix stock plummeted Monday upon the bankruptcy announcement. Shares that traded for more than $80 in 2018 bottomed out at a dollar and change.

All worldwide operations of the company will continue to operate in the ordinary course and without any interruption, the Ebix release said.

Ebix has secured the “debtor-in-possession financing” from its existing lenders to consummate these sale and continue business in the ordinary course, the release added. Zinnia’s proposed acquisition of the life and annuity assets would allow for “a seamless transition for Ebix’s customers.”

“Zinna’s proposal acts as a baseline for competitive bids for the acquisition of our North American Life and Annuity assets to a prospective strategic software company, who can seamlessly handle our NA L&A customer base,” said Robin Raina, president and CEO of Ebix. “With less than 15% of our worldwide revenues coming from the NA L&A assets being sold to address the credit, and the rest of the businesses of the Company continuing to exhibit strong fundamentals, we believe that the Company’s future is bright – with strong operating fundamentals, a robust business model, world-class products, and a continued ability to generate healthy operating cash flows across the world.”

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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The American Academy of Actuaries continues to work toward advancing diversity, equity and inclusion in the actuarial profession, and one of the organization’s board members gave a rundown of its recent DEI activities.

Annette James is a member of the academy’s board of directors and immediate past chairperson of the academy’s DEI Committee. She gave a briefing on the academy’s work with affinity organizations representing different constituencies within the profession. In addition, she described the academy’s public policy work and activities across all actuarial practice areas to consider and develop approaches to issues such as equity, bias, and implementation of insurance anti-discrimination regulation.

The academy is engaging with Abacus Actuaries, the Sexuality and Gender Alliance of Actuaries, the International Association of Black Actuaries, the Network of Actuarial Women and Allies, the Organization of Latino Actuaries, and the South Asian Network of Actuaries. Representatives of each of these organizations joined the academy for a discussion of DEI in the industry during the academy’s recent annual meeting.

In mid-November, James led the academy’s first health symposium, which was aimed at helping actuaries work with various parts of the health care system, from care management to health care financing. In addition, she said, the academy conducted outreach to a wide range of outside groups to get different perspectives on how health benefit design can be addressed through an equity lens.

Series of briefs issued

That outreach resulted in the academy issuing a series of briefs, “Health Benefit Design Innovations for Advancing Health Equity: Removing the Barriers to Successful Implementation.” In that series, the academy described factors that contribute to health disparities, which are differences in health or key determinants of health that adversely affect historically marginalized or excluded groups. The academy’s Health Equity Committee explored how employers are using health plan benefit design innovations to advance health equity, as well as the challenges they face and the ways they overcome these challenges.

The academy released an issue brief in August on “Discrimination: Considerations for Machine Learning, AI Models and Underlying Data.” That issue brief explored the topic of discrimination in machine learning algorithms and artificial intelligence algorithms, and the underlying data of these models.

One of the key points in the issue brief is that unfair discrimination takes place when insurers consider factors that are unrelated to actuarial risk while determining whether to provide insurance to particular individuals or groups and, if so, at what price and at what terms.

The issue brief goes on to say that insurance legislation has put in place measures to prevent discrimination while still permitting actuarially justified risk selection. However, within insurance companies, various functions – such as marketing, rating and underwriting – have been more reliant on big data, algorithms and machine learning. These processes might use variables that appear neutral on the surface but can lead to unequal impacts on different groups of people.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Contact her at Susan.Rupe@innfeedback.com. Follow her on Twitter @INNsusan.

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Senior underwriters are convinced emerging technology innovations will substantially transform their business in the coming years, but at the same time express significant concern and anxiety about how the changes will personally affect them.

That’s just some of the findings in a “Big Underwriting Survey” or more than 300 senior underwriters by Send, a rapidly growing InsurTech software company based in London and the U.S.

About 82% of respondents said they were concerned that technology will negatively impact the scope of their role. At the same time, more than two-thirds said they were unable to obtain all the data and information they need to make risk decisions, quickly and efficiently. Moreover, 72% said that artificial intelligence will reduce the number of underwriters in the insurance industry in the next 12 months.

Underwriters: many tasks repetitive

While fears about technology exist widely, the underwriters also confessed that they spend a huge amount of time on manual and repetitive tasks that could more efficiently be done by machines.

“This level of apprehension indicates a significant shift in sentiment within the underwriting community, reflecting a fear of the transformative effects of AI on their profession,” said Adam Cherubini, the chief revenue officer at Send. “We’ve never felt that the human underwriter will go away. We built technology to enable and enhance the experienced underwriter to help remove repetitive tasks and provide data-driven visibility into the risks they write.”

Indeed, a large percentage of respondents said they don’t have enough time to build quality relationships with top broker contacts, implying that computerized tasks would free them up to better pursue person-to-person communications and sorting through submissions.

Broker relationships hard to build

“Currently, the challenge faced by underwriters in building meaningful relationships with brokers is rooted in the overwhelming volume of submissions they handle, and the time investment required to respond to the risks they want to write,” Cherubini said. “Many underwriters find themselves grappling with the sheer volume of submissions, making it difficult to allocate time for relationship-building activities.”

Nearly  two-thirds,  64%, uniformly said their company lacked the tools and data needed to write better risks and more than half said they expected their company’s overall technology budget to only grow slightly in the next 12 months. Advanced predictive analytics and Ai and Machine Learning topped the list of technologies anticipated to be the most transformative in underwriting in the next two years.

Cherubini agreed that the survey showed a fear of technology while conceding a very real need for it.

“This paradox may stem from a fear of job displacement or a lack of understanding of how technology can enhance, rather than replace, human roles,” he said. “It underscores the urgency for effective communication and education within the industry to demystify the role of AI. Our goal is to make the underwriter’s day more efficient, and frankly enjoyable, by removing mundane tasks and data entry so they can get back to doing things they love. By automating routine activities through AI, underwriters can redirect their efforts towards higher-level decision-making, building relationships with key brokers and strategic tasks that were traditionally challenging to accomplish at scale. This not only enhances efficiency but also contributes to the overall job satisfaction of underwriting teams.”

A question that asked what they loved most about underwriting produces a plethora of varying responses.

“The opportunity to know about almost every industry in the world, different cultures, languages, and, most importantly, that we also underwrite people.”
“There are a lot of different ways you can underwrite one account and there is no single correct answer. It allows you to think outside the box and get creative with your approach. It’s also both a technical and social field.”
“The ability to truly understand  a market or company, assess the risks, and ultimately find a way to provide insurance to de-risk their operations and allowing them to continue doing their business.”
“We put communities and companies back on their feet after a major event.”

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at doug.bailey@innfeedback.com.

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A federal judge refused to toss out annuity fraud charges filed by the Securities and Exchange Commission against a Massachusetts financial advisor.

U.S. District Judge Denise J. Casper denied a motion to dismiss filed by Jeffrey Cutter, who is also an insurance agent. Cutter argued that the Investment Advisers Act of 1940 did not apply to the allegations made by the SEC.

On March 17, the SEC filed charges against Cutter and his advisory firm, Cutter Financial Group for “recommending that their advisory clients invest in insurance products that paid Cutter a substantial up-front commission without adequately disclosing Cutter’s and CFG’s financial incentive to sell the products.”

The case is being closely watched by industry trade associations who adamantly oppose further federal encroachment on state-regulated insurance. Casper is allowing the SEC’s case to continue.

“The Court concludes that the SEC’s claim under the Advisers Act is not so insubstantial and frivolous to warrant dismissing this case for lack of federal subject matter jurisdiction and will instead analyze the arguments regarding the scope of the Advisers Act,” she wrote in the Wednesday decision.

Lucrative annuity business

Cutter began working as an investment advisor in 2005, court documents say, and first formed Cutter Financial Group a year later. In 2017, he registered CFG with the SEC as an investment advisor. As a licensed insurance agent, Cutter also owns Cutterinsure, Inc.

According to the SEC complaint, Cutter earned 7-8% commissions on annuity sales as an agent, compared to 1.5-2% fees while managing assets as a fiduciary advisor. Starting in 2014, Cutter generated more than  $9.3 million in commissions from the sale of 580 annuities to his investment advisory clients, the SEC said.

As of 2022, CFG claimed to manage approximately $215 million in client assets across 476 clients, court documents say, “most of whom were individual retail investors of retirement age.”

Cutter “typically recommends that his advisory clients invest one-third of their assets in an annuity that Cutter sells them and the other two-thirds of their assets in accounts managed by a third party,” the SEC complaint said. He called it the “three buckets” approach.

“While Cutter consistently advised his clients to invest using his ‘three bucket’ system, he failed to clearly explain how his own economic incentives differed for each ‘bucket,’” the complaint said.

Even if the advisor standard did apply, Cutter said in court documents, he did not violate any conflict of interest regulations.

“Defendants complied with SEC and insurance industry guidance when they disclosed
the conflict of interest inherent when personnel of a registered investment adviser are
separately licensed as insurance agents and sell commission-based insurance products
to investment advisory clients,” Cutter’s motion reads.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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As generative AI changes the face of the workplace, financial advisors are adopting the revolutionary technology rapidly, with 8 out of 10 advisors surveyed by MDRT saying they use it for at least one professional purpose.

Male advisors (85.9%) and advisors ages 18-44 (90.2%) are more likely to leverage generative AI than female advisors (72%) and advisors ages 45 and older (71.8%). Similarly, 94.3% of American advisors have at least heard of generative AI, and 64.3% of them say they know how it works.

Putting generative AI to work

When it comes to how these programs are used in financial services practices, most American financial advisors and insurance agents (72.6%) have at least some knowledge of how they can leverage AI in their practices. Among the 82.5% of advisors who leverage generative AI for at least one professional purpose, employee onboarding (46.5%), processing employee and/or client data (41.4%) and client communications (40.4%) were the most popular uses.

Advisors who are using generative AI in their practices are still relatively new to the tools. 50.2% of advisors who are actively using generative AI have been using it for fewer than three months. On the other hand, even advisors who are not making use of generative AI in their day-to-day businesses are interested in learning more about it. Among the advisors who do not currently use generative AI for any professional purposes, 50% of them said they are at least somewhat likely to learn about how they can use it.

A majority of American advisors (73.5%) have at least some trust in generative AI programs for financial-services practices. Male advisors (81.6%) and advisors ages 18-44 (78.9%) are more likely to have at least some trust than female advisors (55.1%) and advisors 45 and older (68%).

“In the midst of such a digital era, it is important for financial-services professionals to be at the top of our game when it comes to technological advancements,” says MDRT President, Greg Gagne. “Learning to work with generative AI programs will differentiate advisors who will continue growing with the current trends and those who may struggle to play catch up.”

Generative AI can be a beneficial tool to help professionals around the world with countless processes. It is important for financial services professionals to take advantage of their resources and use them as steppingstones for growth. By tapping into their digital capabilities and making use of generative AI programs, financial advisors and insurance agents will be in a great position to continue serving their clients, while simultaneously staying on top of developments, the survey said.

Why such a huge interest in generative AI?

So, why are so many financial professionals showing such a keen interest in generative AI? “AI is taking over so many industries right now, but the financial-services sector is particularly ripe for this tool, explained MDRT Tim Clairmont, founder and CEO of Clear Financial Partners.

“The amount of knowledge that a comprehensive financial advisor has to keep up to date on is massive. We need to know taxes, investments, insurance contracts, real estate, accounting, and so much more. As an industry, we have leaned hard on the internet to keep current on changes, and generative AI feels like an extension of the internet’s capabilities. Now, we don’t just get the information from a Google Search. We ask the AI to search for the information and produce a draft of the deliverable we were working on. It’s just one step further, but it saves us so much time,” he said.

The benefits gained by generative AI are many and varied. According to Clairmont, one of them is saving time. “The generative AI is like another employee,” he added. But it can also make us better communicators. The financial-services knowledge that advisors have may be vast, but many advisors are more skilled at communicating with certain personalities than with others. Some advisors even specialize in working with a particular industry or demographic, or a unique group of people.

“Generative AI gives us all the ability to adapt our communications to better connect with very specific groups of people whom we may have otherwise struggled to relate with. Just ask generative AI to create a message geared toward a specific audience, and you can suddenly learn how to speak in a way that the audience will better understand,” he said.

AI can also help in writing job ads and interview questions, evaluating interviewee responses, creating a training schedule, and identifying key learning objectives. “The limits are only those of the imagination,” Clairmont said.

The online survey was fielded by G&S Business Communications on behalf of MDRT from October 12 to October 18, 2023, with a sample of 617 U.S. financial services and insurance professionals. The survey sample was balanced to reflect the gender demographics of the financial-services profession.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com. 

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Now that the Department of Labor’s two-day public hearing is over, Jan. 2 is the next big date for its controversial fiduciary rule proposal.

That is the day public comments are due after the department refused to grant an extension. As of Thursday, the government had received more than 8,000 comments on the fiduciary proposal.

“We take your comments very seriously,” said Lisa Gomez, assistant secretary of labor, in kicking off the hearing Tuesday. “And we have every expectation that the final rule will benefit from your thoughtful participation.”

Industry opponents doubted that sentiment, with several speakers critical of the DOL for refusing to grant an extension or to allow for review of other comments before the public hearing.

The current iteration of the rule is the department’s fourth attempt to apply a tougher standard to rollover sales of insurance products. Each time, DOL regulators seem to take a more aggressive approach.

The last two rules, in 2016 and 2020, ended up in court after industry trade associations brought lawsuits. With the prospect of another legal battle high, both sides had an eye on contributing to the public record during this week’s hearing.

Fifty-one people testified over two days, most of them representing 38 different trade associations, law firms, consumer groups and individual businesses.

Here are some additional highlights from the public hearing:

 Bryon Holz, president of Bryan Holz and Associates, testified that as a registered investment advisor and a fiduciary, he opposes the DOL rule. Holz, president of the National Association of Insurance and Financial Advisors, testified with his long-time client Chuck Ross. They have worked together for decades.

Consumers are best served when they can choose how and from whom they receive financial services, Holz said. The DOL proposal would force many advisors to move to a fee-for-service model tailored to higher-income clients, he added.

When Ross began preparing for retirement, he had limited assets and likely would not have been able to work with Holz had the fiduciary rule been in place, he testified.

NAIFA also shared some recent study results with the department, which the association later shared on social media:

Dan Danford, founder and CEO of the Family Investment Center in St. Joseph, Mo., spoke for many on the advisory side in endorsing the rule. Speaker after speaker disagreed on whether the rule protects or harms middle-market retirement savers. Danford left no doubt where he stands.

“The proposal rule will close several big regulatory loopholes that exist under the current rule and that harm retirement savers,” he said. “It would cover rollover recommendations to ensure that retirement savers receive strong protection when they are most vulnerable to receiving conflicted advice. Financial professionals often have strong incentive to recommend rollovers because each one can result in a big payday.”

Most importantly, the proposed rule would cover advice to employers who sponsor 401(k) plans to ensure that the advice employees receive about plan investment options is not tainted by conflicts of interest, Danford noted.

“A one-time recommendation to a 401(k) plan sponsor may include investments that have high costs and low performance, which can erode employees’ hard-earned savings and investment returns,” he added. “This could cause a retirement saver to lose tens of thousands if not hundreds of thousands of dollars over time.”

Micah Hauptman is the director of investor protection at the Consumer Federation of America. He accused the industry of resorting to “scare tactics” with claims that middle America will be left to fend for themselves.

The DOL fiduciary rule is in alignment with the Security and Exchange Commission’s Regulation Best Interest, Hauptman said.

“There is no evidence that that rule has reduced small savers’ access to investment recommendations,” he testified. “We expect the DOL rule to operate similarly, providing comparable protections to retirement plans and participants and to IRA investors.”

Small savers are deserving of the most protections from bad advice and underperforming investment options, Hauptman explained, because they have the most to lose. The free market would correct any loss of advice options for the middle market, he insisted.

“If some firms were to decide to pull out of the market, others would step in to provide high quality products and services without harmful conflicts,” Hauptman said.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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Climatologists, who are getting good at predicting hurricanes and other serious convective storm episodes, accurately predicted an average or moderate Atlantic hurricane season for this year.

Despite falling into that average or moderate category, insured losses from severe storms in the U.S. for the first time surpassed $50 billion through the end of Q3 and accounted for 60% of global insured losses, according to Aon PLC, the London-based risk management giant. P&C insurers in just the third quarter saw at least $4 billion in insured loss events.

“Wildfire and Severe Convective Storms were once again highly prominent, and Aon’s research reveals that both are becoming increasingly costly to insurers, communities and governments,” said Michal Lorinc, head of Aon’s Catastrophe Insight. “In the U.S., around 80% of SCS loss growth can be explained by exposure change – highlighting the need for insurers to understand underlying exposures in their portfolios.”

But it’s not so much the location, frequency and intensity of the storms that’s causing the increasing number of insured losses, although they are certainly factors. Inflation, particularly rising labor and construction costs, as well as supply chain interruptions are huge contributors to the surge in storm losses. And it’s not going to get better, even while predictions indicate only a slightly above average storm season for next year.

2024 storm predictions

Tropical Storm Risk predicts an active hurricane season next year with perhaps 20 named storms, nine hurricanes, and four intense hurricanes. They concluded factors for these predictions such as ongoing warm sea-surface temperatures throughout most of the basin, specifically in the Main Development Region and in the Caribbean Sea, and the current El Niño set to weaken to a neutral stage by August 2024.

El Niño actually had the effect of diminishing or dampening hurricane formation in the Atlantic this year, a trend that won’t exist in 2024. Forecasters have warned that with El Nino coming to an end and global sea temperatures expected to rise, there is a ‘high potential’ for even more hurricanes in 2024.

More alarming, though, is what the climate scientists say is a more frequent “rapid intensification” of storms, in which wind speeds increase at least 35 miles per hour in a 24-hour period.

Each of the three Atlantic major hurricanes underwent a rapid intensification period including hurricane Lee, which intensified about 86 miles per hour in 24 hours in August. Later in the year, Hurricane Otis underwent an even more impressive intensification, increasing more than 100 miles per hour in 24 hours.

Better building techniques sought

“Researchers in meteorology, will attempt to better understand rapid intensification and researchers in engineering and construction will better attempt to find and assay better building techniques to reduce losses in the future,” said Dr. Wesley Terwey, a hurricane risk modeling expert at Verisk, the New Jersey-based data analytics and risk assessment firm.

Luckily, Terwey said, only a few of these rapidly intensifying hurricanes made landfall this year.
Nevertheless, he said, rapid intensification can result in devastating losses.

“Rapid intensification or as it has also been called explosive intensification, is kind of the theme for this year’s tropical season worldwide,” he said.

Nevertheless, Terwey said, the 2023 Atlantic hurricane season was reasonably well predicted, given the competing effects of the warmer sea surface temperatures and developing strong El Niño.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at doug.bailey@innfeedback.com.

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As more states rush to adopt best-interest annuity sales standards, the Certified Financial Planner Board of Standards is reminding members that it has a higher standard.

The CFP Board’s Code of Ethics and Standards of Conduct takes precedence over the best-interest regulation created by the National Association of Insurance Commissioners. Forty-seven states have either adopted or are in discussions to adopt the NAIC best-interest model.

Last month, the CFP put out guidance with a side-by-side comparison of its code and standards and the NAIC model regulation.

“We wanted to make clear that the scope of these documents is different,” explained Leo G. Rydzewski, general counsel for the CFP Board. “The scope of the code and standards is broader than the [NAIC] model regulation. We made clear that we weren’t examining any of the laws, rules or regulations that might apply. We literally were just examining these two documents.”

The guidance notes that a CFP professional who is an agent or broker licensed to sell annuity products will be subject to both the code and standards and the NAIC model regulation (if the CFP professional practices in a state that has adopted the NAIC model).

The guidance points out five areas the code and standards differs from the NAIC best-interest model:

1. The scope of the code and standards is broader than the NAIC model regulation. 

The NAIC model applies only to annuities, not other types of insurance, and excludes annuities in many workplace retirement plans. The code and standards applies to all financial advice.

2. The code and standards employs a fiduciary standard, while the NAIC regulation does not.

The NAIC model explicitly states that it is not a fiduciary standard. Many insurance-focused industry trade groups oppose Department of Labor attempts to extend fiduciary standard to insurance transactions.

3. The code and standards applies a prudent professional standard, while the NAIC regulation does not. 

“The Model Regulation allows a producer to recommend products that other insurance professionals would determine effectively address a consumer’s financial situation, insurance needs and financial objectives, even if a prudent professional would not recommend the product,” the CFP guidance states.

4. The code and standards restricts the circumstances in which a CFP professional may recommend a product from a limited menu of options. The NAIC model does not.

The NAIC model allows a producer to recommend an annuity from a limited menu of products, without consideration of what is generally available in the marketplace. The code and standards would not permit a CFP to make any recommendation in these circumstances.

5. The code and standards treats compensation as a material conflict of interest, but the NAIC model does not.

The CFP Board “considers conflicts related to cash and non-cash compensation to be among the most prevalent and significant conflicts of interest,” the guidance states. So while the NAIC model aexcludes cash and non-cash compensation from the scope of material conflicts of
interest, it does not require producers to manage compensation-related conflicts.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

© Entire contents copyright 2023 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

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Even when the Federal Reserve does nothing it makes news.

After two years of incrementally nearly doubling interest rates to the highest levels in 22 years, the central bankers on Wednesday for the third month in a row decided to stand pat, keeping the Federal Funds Rate at its current level at between 5.25% to 5.5%. That means borrowing costs for things like credit cards, home, car and commercial loans, won’t go any higher for the year. But neither will they go down, as some had hoped.

The Fed, however, hinted that rate cuts are coming so long as it appears inflation is easing. At the same time, in a “on the one hand, on the other hand kind of statement, it kept open the possibility of further raising rates if it doesn’t manage to get inflation under control and achieve its vaunted “soft landing” of dampening inflation without inducing a recession.

Fed: Growth ‘has slowed’

“Recent indicators suggest that growth of economic activity has slowed from its strong pace in the third quarter,” the Fed’s Open Market Committee said in its statement released Wednesday afternoon. “Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.”

In its accompanying “Summary of Economic Projections,” the OMC pegged the Federal Funds Rate as going to 4.6 to 5.1% next year and to 3.6 to 3.9% in 2025.

In a press conference after the Fed’s announcements Chairman Jerome Powell clearly said officials don’t think they’re going to need to raise rates further, but that committee members aren’t yet ready to “declare victory.”

“You can say that there’s little basis to say the economy is in recession now,” he said. “But it’s always a possibility no matter what the economy is doing. Results are not guaranteed, and the economy could respond in unexpected ways, which it has done recently.”

Investors reacted positively

Investors reacted positively to the Fed news, sending markets spiraling following the Committee’s announcements.

The benchmark S&P 500, the Dow Jones Industrial Average, and the tech-heavy Nasdaq Composite all boosted more than 1% in the after the Fed’s meeting. The Dow briefly reached above 37,000 and was headed for its highest close ever.

Forecasters largely predicted the nation would head into a recession this year or early next, but those prognostications largely haven’t come to fruition.

“The inflation number that people wrote down a year ago has happened the way people expected but in a different setting,” Powell said, noting that the continuing strength of the labor market was not foreseen. “We believe we are likely at or near the peak rate for this cycle. When to dial back on rates is a discussion for a later date.”

Analysts and Fed watchers weren’t surprised by the Fed’s action on Wednesday, but some weren’t as optimistic sounding that rate cuts will occur anytime soon.

“Those hoping for a holiday gift from the Fed in the form of projected rate cuts early in 2024 will find a lump of coal in their stocking,” said Marty Green, Principal at Polunsky Beitel Green, a San Antonio-based law firm specializing in residential mortgages. “The Fed has spent the last half of 2023 trying to dampen expectations that it is about to reverse course and lower rates. It may have been a ‘Bah, humbug’ meeting, but as long as rate increases are a possibility in the coming months, rate reductions are pretty much off the table.”

The Consumer Price Index numbers unexpectedly rose a bit in November, but probably not enough to dampen the Fed’s outlook.

“The Fed will keep one or two rate increase bullets in its holster, ready to use if it sees a trend of inflation reports showing additional increases are necessary to make timely progress to the Fed’s 2% target,” Green said.

Cuts not expected soon

Other economists agreed that rate cuts won’t come soon.

“As we head into 2024, we expect the Fed to remain particularly attuned to growth risks as it seeks to achieve a soft landing,” said Thomas Holzheu, Swiss Re’s Chief Economist Americas. “However, persistent underlying strength in inflation is likely to delay the start of the easing cycle until well into next year.”

Holzheu said he expects a material slowing in U.S. economic growth to 1.1%, in keeping with the Fed’s projections, after a 2.4% expansion in 2023.

“We expect peak policy interest rates will weigh on economic activity more acutely in the months ahead, particularly as a softening labor market weighs on consumer confidence and spending behavior,” he said. “Corporate profit margins will also be increasingly pressured by lower nominal growth, resulting in more cautious hiring behavior and reduced investment.”
Like others, Holzheu does not see a recession in the making, but risks remain elevated as long as policy rates remain in “restrictive territory.”

“This risk is exacerbated by ongoing economic stagnation in Europe and structural growth risks in China,” he said.” “We look for the 10-year Treasury yield to remain largely unchanged at 4.2% over the course of 2024.”

Powell said that the notion rate cuts might come doesn’t mean that the path of the economy is necessarily looking weaker.

“It could just be a sign that the economy is normalizing and doesn’t need the tight policy,” he said.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at doug.bailey@innfeedback.com.

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Department of Labor officials potentially previewed its legal strategy during a pointed exchange Wednesday morning over the details of its controversial fiduciary rule proposal.

The contentious, drawn-out questioning involved representatives from the National Association for Fixed Annuities and regulators from the Employee Benefits Security Administration. It led off day two of the DOL public hearing on the rule.

A three-person NAFA team established the difference between a commission-based sales role adhering to a best-interest standard and a fee-based advisor adhering to a fiduciary standard. Or tried to, but the regulators repeatedly picked at the verbiage.

Two words, in particular, were mentioned again and again and are likely to be a significant part of a future lawsuit: trust and confidence.

“As I understand the way this relationship works, there’s advice [and] it’s individualized,” said Tim Hauser, deputy assistant secretary for program operations for EBSA. “It’s about a fairly complex set of products that ordinary investors can’t really understand without this expert assistance. And the people they’re dealing with hold themselves out as acting in the customer’s best interest.

“What is the thing that makes this not a relationship of trust and confidence?”

Released on Halloween, the DOL’s latest fiduciary rule effort is 494 pages and its biggest impact would be to essentially make any rollover recommendation from an retirement plan a fiduciary recommendation.

Tough fiduciary challenge for the DOL

The challenge before regulators is to hurdle the 2018 decision by the Fifth Circuit Court of Appeals tossing out the 2016 fiduciary rule. That decision examined the common law meaning of the word “fiduciary,” which requires a relationship of trust and confidence, and determined that Congress codified that common law meaning in the statutory text.

Administration officials repeatedly mention “trust and confidence” in both the rule text and their public comments since its release. Their challenge is to shoehorn an agent’s one-time sale of an annuity into the established understanding of a relationship of “trust and confidence” between an advisor and client.

NAFA representatives were equally dogged on the differences between fiduciary advice and singular insurance sales.

“We all know there’s a difference between a fiduciary relationship of trust and confidence and a professional sales interaction,” said Tom Roberts, principal at Groom Law Group. “A professional sales interaction is one where the transaction-based producer seeks to understand the individual circumstances and seeks to determine whether or not a product that that individual has available for sale meets the customer’s needs.”

Fiduciary rule opponents point to the best-interest standard developed over a two-and-a-half-year process by the National Association of Insurance Commissioners as evidence that the industry and state insurance regulators are adept at responding to regulation needs.

“That 47 states have now adopted or are in the process of adopting the best-interest standard without any significant deviation from the 2020 model is a testament to the fact that the NAIC got it right,” said Pam Heinrich, NAFA general counsel and director of government affairs. “The NAIC best-interest model establishes high standards for the responsible sale of annuity products by trained insurance professionals subject to oversight by state insurance departments.”

‘Do they understand?’

But Hauser kept drilling down on the real-world differences, or lack thereof, between the fiduciary and best interest standards. The questioning portion of the panel went beyond the allotted time.

“What part of the time … are people told, ‘Hey, you really do need to think of me as a salesperson. I’m just here to sell you this product. And I have an obligation to make sure it’s good enough. But I could actually sell you a worse product because it’s better for me financially,'” Hauser asked.

“You’re scripting a conversation that there’s no relationship with any commercial interaction of any kind,” Roberts countered. “What I would say is do they understand that they’re dealing with a commission salesperson? Of course they do.”

The DOL public comment period closes Jan. 2. As of Wednesday, the department had received more than 7,300 comments. The DOL is expected to release its final rule as early as the first quarter of 2024.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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