Beneficial Life Insurance: Is There A Catch?

Life insurance is a type of insurance that provides money to your chosen beneficiary when you die. Beneficial Financial Group is an insurance and financial services company based in Salt Lake City, Utah, with a history dating back to 1905 and assets of $3.0 billion as of 2013. While life insurance can offer financial protection and peace of mind, it's important to consider the advantages and disadvantages of different policies, such as term, whole life, and universal life insurance, to make an informed decision. Beneficial Life Insurance Company, a subsidiary of DMC, has faced challenges due to exposure to mortgage-backed securities and potential tax rule violations, impacting its ratings and ability to compete.

Beneficial Life Insurance Company's financial strength rating was downgraded to A by S&P in 2006

Beneficial Financial Group is an insurance and financial services company based in Salt Lake City, Utah. The company was founded in 1905 and as of 2013 had assets of $3.0 billion. The insurance side of the company was known as the Beneficial Life Insurance Company. Beneficial is certified by the Insurance Marketplace Standards Association for ethical business practices.

In 2006, Beneficial Life Insurance Company held an "A+" (stable) rating from Standard & Poor's for financial strength. However, in the same year, S&P downgraded the rating to "A". This downgrade was due to Beneficial Life Insurance Company's exposure to Mortgage-backed security investments in the wake of the 2008 housing bubble. S&P also warned of further possible devaluations unless Deseret Management Corporation (DMC) replenished some of Beneficial's capital, which was deteriorating from its strong level.

The S&P Insurer Financial Strength Rating is a system offered by Standard & Poor's that rates an insurance company's fiscal soundness and its ability to pay claims made by its policyholders. This rating is used as a guide by risk managers and employers before they make key decisions. A rating of "A" indicates that a company is strong but may have some issues in the face of business and financial challenges.

The S&P Global Rating's framework consists of three elements: a business risk profile, a financial risk profile, and a support framework that takes into account external factors. The S&P Insurer Financial Strength Rating only scores a company's fiscal health and does not rate the quality of its insurance products or services.

Beneficial Life Insurance Company is exposed to mortgage-backed security investments

Beneficial Financial Group is an insurance and financial services company based in Salt Lake City, Utah. The company was founded in 1905 and the insurance side of the company was known as the Beneficial Life Insurance Company. Beneficial Life Insurance Company is exposed to mortgage-backed security investments.

Mortgage-backed securities (MBS) are an indirect ownership interest in mortgage loans made by financial institutions. The value of MBS is secured by the value of the underlying bundle of mortgages that are pooled by issuers for sale to investors. MBS can be issued or guaranteed by the U.S. government or a government-sponsored enterprise (GSE), or by private institutions. Residential mortgage-backed securities (RMBS) are pools of residential mortgage loans that can include various types of fixed and/or floating-rate loans, such as prime, subprime, Alt-A, and adjustable-rate mortgages (ARMs). Institutional investors, including insurance companies, have been important investors in RMBS due to the relatively stable and predictable long-term cash flows they provide, which are useful for offsetting long-term liabilities.

Life insurers have significant exposure to commercial real estate (CRE) through direct mortgage lending and commercial mortgage-backed securities (CMBS). As of 2022:Q4, commercial mortgages in life insurers' portfolios stood at $600 billion, making them the third-largest asset class for life insurers. Life insurers also have indirect exposure to CRE through their investments in CMBS, which stood at about $170 billion in 2022:Q4.

The financial crisis and the collapse of the housing market in 2008 significantly impacted the mortgage-backed securities market. The delinquency and loss performance of RMBS and CMBS deteriorated rapidly, far exceeding the expected levels of default by credit rating agencies. This led to a massive ratings correction and a loss of market confidence in credit ratings, which directly impacted insurers' RMBS investment portfolios and their risk-based capital (RBC) assessments.

As a result of its exposure to mortgage-backed security investments, Beneficial Life Insurance Company's rating from Standard & Poor's was downgraded from "A+" to "A", and further devaluations were warned of unless DMC replenished Beneficial's capital.

Beneficial Life Insurance Company is too small to compete with larger insurers

Beneficial Life Insurance Company, a subsidiary of Deseret Management Corporation (DMC), is too small to compete with larger insurers. This was reiterated by DMC, which also committed to backing existing policies. Founded in 1905, the company had $3.0 billion in assets as of its 2013 fiscal year-end. While Beneficial Life Insurance Company was certified by the Insurance Marketplace Standards Association for ethical business practices and held a strong financial strength rating from Standard & Poor's as of 2006, its rating was downgraded to "A" due to exposure to mortgage-backed security investments following the 2008 housing bubble. This downgrade indicated a potential challenge for the company in competing with larger insurers in the industry.

The size of an insurance company can impact its ability to compete in the market, as larger companies often have greater financial resources, economies of scale, and brand recognition. They may be able to offer more diverse products, stronger financial ratings, and competitive pricing, potentially attracting more customers. In contrast, smaller companies like Beneficial Life Insurance may struggle to match the scale and scope of their larger competitors, potentially limiting their growth and market share.

To remain competitive, smaller insurance companies often focus on niche markets, specialized products, or personalized customer service. They may cater to specific customer segments or offer tailored policies that larger companies might consider too narrow or risky. Additionally, smaller companies can be more agile and responsive to changing market demands, allowing them to adapt their products and services quickly.

However, in the case of Beneficial Life Insurance Company, its small size was cited as a challenge in competing with larger insurers. This suggests that the company may not have been able to leverage the typical advantages of a smaller organization effectively. It is important to note that the insurance industry is highly competitive, and companies of all sizes must continuously adapt to market changes, customer needs, and economic shifts to maintain their market position.

In summary, while Beneficial Life Insurance Company's size may have hindered its ability to compete with larger insurers, the company's commitment to ethical business practices and its financial strength, as recognized by ratings agencies, remain important factors in maintaining its position in the insurance market.

Beneficial Life Insurance Company may have received funding from Ensign Peak Advisors, violating federal tax rules

Beneficial Life Insurance Company, the insurance side of Beneficial Financial Group, may have received funding from Ensign Peak Advisors, violating federal tax rules. Beneficial Financial Group is an insurance and financial services company based in Salt Lake City, Utah. It is a subsidiary of Deseret Management Corporation (DMC), the for-profit arm of the Church of Jesus Christ of Latter-day Saints (LDS Church).

In 2019, David Nielsen, a former employee of the LDS Church's investment manager, Ensign Peak Advisors, filed a whistleblower complaint with the Internal Revenue Service (IRS). Nielsen asserted that a portion of Beneficial's funding during a financial downturn had been provided by Ensign Peak Advisors, a possible violation of federal tax rules. Specifically, he claimed that in 2009, Ensign Peak Advisors bailed out Beneficial Financial Group, which was owned by DMC. Since 2009, Beneficial has paid dividends of almost half a billion dollars back to DMC, according to public filings at the Utah Department of Insurance.

Ensign Peak Advisors is an integrated auxiliary and supporting organization of the LDS Church and is tax-exempt. Nielsen asked the IRS to remove this tax-exempt status and compel Ensign Peak Advisors to pay billions in back taxes. He alleged that the organization was not meeting IRS regulations for using a percentage of its funds annually for religious, educational, or charitable purposes. He claimed that Ensign Peak Advisors had holdings worth between $99 billion and $101 billion.

The LDS Church denied any wrongdoing and claimed that Nielsen's allegations were based on "limited information." They did not offer any specific comments about the complaint or Nielsen himself. Instead, they directed media outlets to past comments by church leaders about church finances.

Beneficial Life Insurance Company stopped writing new policies in 2009

Beneficial Financial Group is an insurance and financial services company based in Salt Lake City, Utah. The company was founded in 1905 and, as of its 2013 fiscal year-end, had assets of $3.0 billion. The insurance side of the company was known for many years as the Beneficial Life Insurance Company.

Beneficial Life Insurance Company is a subsidiary of Deseret Management Corporation (DMC), the for-profit arm of the Church of Jesus Christ of Latter-day Saints (LDS Church). Beneficial is certified by the Insurance Marketplace Standards Association for ethical business practices. In 2006, it held an "A+" (stable) rating from Standard & Poor's for financial strength. However, S&P downgraded the rating to "A" due to exposure to Mortgage-backed security investments in the wake of the 2008 housing bubble. S&P also warned of further possible devaluations unless DMC replenished some of Beneficial's capital.

On June 16, 2009, it was announced that Beneficial Life Insurance Company would stop writing new policies at the end of August. DMC reiterated its commitment to back existing policies, but stated that Beneficial was too small to compete with larger insurers. This decision came in the context of the 2008 housing bubble and the subsequent economic downturn, which had negatively impacted Beneficial's financial strength and stability.

In 2019, a whistleblower complaint was filed against DMC, alleging that a portion of Beneficial's funding during the financial downturn had come from Ensign Peak Advisors (EP), the LDS Church's investment manager. This complaint asserted a possible violation of federal tax rules. However, the church denied any wrongdoing and claimed that the allegations were based on "limited information."

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