Dividend announcements

Being that dividends come from 3 places, interest in excess of the guarantee, mortality better than guaranteed and an expense factor, it would be a total sh#tstorm not to declare a dividend.
Yet the Board of Directors still needs to approve it.
Next time you are running an illustration, take the dividend interest rate down to the guarantee, you will see how much of the dividend come from mortality and expense savings.
 
No offense, but that's BS. Most likely? The foundation of a mutual insurer is to pay dividends. Insurance companies have had plenty of opportunities to not pay dividends. The "Big Four" have paid dividends for well over 150 years -- through world wars, civil war, the Great Depression, stock market crashes, inflation, stagflation, good, bad, and so on. Obviously they are not non-profits, but they are mutual companies. That means something. The stock companies say it doesn't, but they have to say that. Take out the dividend, make it zero, and with a mutual company, you still have a company that returns capital to policyowners.
Completely agree with everything you said.

But made me think, isn't that all because they priced the product up front to include extra premium charged to give back later as a dividend. Isn't this the same reason the IRS doesn't consider a dividend taxable? It is a return of overcharged premiums.
 
A dividend is considered a return of premium.
It does encompass more than that.
Your dividend is your share of the divisible surplus in relation to your contribution to that surplus.
A dividend can be bigger than the annual premium you have been paying.
It is not an overcharged premium.
The premium is based on a set of guarantees and if the company outperforms these guarantees, it creates a dividend.
 
Completely agree with everything you said.

But made me think, isn't that all because they priced the product up front to include extra premium charged to give back later as a dividend. Isn't this the same reason the IRS doesn't consider a dividend taxable? It is a return of overcharged premiums.

You would not say that about equity dividends. Did those investors "overpay" for their shares?

It is sharing in the profitability of that company, based on your investment in that company.

Not much different with WL.
 
You would not say that about equity dividends. Did those investors "overpay" for their shares?

It is sharing in the profitability of that company, based on your investment in that company.

Not much different with WL.
completely agree. I just recall some bizarre theory from IRS that Life dividends arent taxable because they were actually priced into the product design up front. I recall an example given of a carrier who offered both a non-participating policy & participating policy. the participating policy charged nearly double the non participating policy & thus was the excuse that a substantial portion of the dividend was actually the overcharged premium planned (invested for many years) & given back

I never liked that entire justification as we have all seen carriers lower or discontinue dividends all together
 
Completely agree with everything you said.

But made me think, isn't that all because they priced the product up front to include extra premium charged to give back later as a dividend. Isn't this the same reason the IRS doesn't consider a dividend taxable? It is a return of overcharged premiums.

I never viewed it as an "extra premium" -- and certainly not with the intentional thought of paying it back later as a dividend. I also do not view it as overcharged premium. While yes, in certain respects it's a return of premium, it comes from the three components of the company's performance (return on the investment portfolio, the mortality component (which includes profit from the company's other product lines/lines of business), and the company's operations/expenses).
 
If it was ONLY a return of unused premium, then the dividends would stop after it paid back all the premiums received.

Dividends don't (shouldn't) stop.

 
No offense, but that's BS. Most likely? The foundation of a mutual insurer is to pay dividends. Insurance companies have had plenty of opportunities to not pay dividends. The "Big Four" have paid dividends for well over 150 years -- through world wars, civil war, the Great Depression, stock market crashes, inflation, stagflation, good, bad, and so on. Obviously they are not non-profits, but they are mutual companies. That means something. The stock companies say it doesn't, but they have to say that. Take out the dividend, make it zero, and with a mutual company, you still have a company that returns capital to policyowners.
NYL and Massmutual have skipped dividends in the past. I cant find out on Guardian but their website says they have been paying dividends since. It does not use the word never skipped. NorthWestern Mutual is the only one I know that claims They have always paid dividends. NWM also has dirt in its dividend history. They launched special class of whole life products with the promise of higher dividend scale only to cut the dividend scale later. They were sued and lawsuits were settled and the lawsuits claims no longer appear on google search.

As for the mutuality argument, I used to buy the same argument you are making. Prudential a fine mutual life insurance company de-mutualized about 23 years ago. All the whole life holders at that time received shares. Today those shares are worth 8 times IPO price. I dont see a strong argument for mutuality anymore. Especially after experiencing what Ohio National did. For smaller whole life policies, I prefer a mutual company over stock company still.( Old habits)

Just applying Warren Buffet's logic cash flow is a stronger indicator of financial success and future profitability. I am happier to see dividend announcements. However, it all depends where the cash is coming from. Mutual life companies disclose less information about the source of cash flow than public life companies.
 
"NYL and MassMutual have skipped dividends in the past?"
I would be very confident saying these companies have continuously paid dividends for more than the past 100 years.
Guardian has paid a dividend continuously for over 130 years.
While the stocks provided for buyouts has appreciated, has it appreciated enough to make up for the dividends you gave up?
Can you take a distribution from these stocks tax free?
When a company demutualizes the newer policy holder get hosed.
The stock(s) they receive does not compensate for the lack of future performance.
On the other hand a client with an older seasoned policy, might make out very well.
 
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