February 26, 2009

403(b) Safety - Bank Nationalization

When it comes to research, I look for absolutely everything I can to make the most informed decision possible. Interestingly enough though, I had not thought about or researched the "nationalization" concerns of Citigroup in the context of 403(b) accounts - AIG, yes - but not Citigroup. Thankfully, a very nice educator from halfway across the country e-mailed me asking about Primerica - a division of Citigroup.

After reading everything I could find, and discussing the topic with numerous other individuals, I truthfully cannot see any issues with Primerica. That does not mean they are the greatest company or have fabulous investment ideas or people working them, but as far as your account just "vanishing," I cannot even fathom that possibility.

First, Primerica (much like VALIC within AIG) has had its own managers and CEO, so it is almost like a separate company. Also, insurance companies generally have a higher standard of regulatory requirements with cash reserves mandated by the states that they do business in (state regulated). Once again, this is much like VALIC under AIG.

Second, while "nationalization" has been a hot topic and Citigroup appears under more stress than any other financial institution (the government says it does not wish to nationalize any bank), it is hard to imagine any situation in which your assets would just disappear. The overhanging threat of a complete meltdown in the credit market has receded, and with AIG, if anything were in trouble in October, it was. Those AIG/VALIC accounts are still functioning, and the state regulators have probably burned up the phone lines verifying all of the information of Primerica.

Additionally, Primerica has now been made part of the new "Citi Holdings" division which is generally speaking the non-bank (non-core) businesses under the Citi name.

The following is an article written by Jim Connolly of the National Underwriter on January 21, 2009:

Primerica Placed in New Citi Division
By Jim Connolly
National Underwriter, January 21, 2009

Citigroup Inc. has put Primerica Financial Services Inc. in a new division that holds the company’s non-bank, “non-core” assets.

Citigroup, New York, is putting its core banking operations in a new Citicorp division. The other division, Citi Holdings, will hold Primerica, Duluth, Ga.

Citi Holdings also will hold other non-banking operations, such as Citigroup’s 49% stake in Morgan Stanley Smith Barney.

Citi Holdings managers “will seek to maximize the value of these [non-core] businesses by running them well, restructuring and managing them through this tough economic cycle, and taking advantage of value-enhancing disposition and combination opportunities as they emerge,” Citigroup says.

At Primerica, “there will not be a change in the way that business is done, because we have always operated as our own business and had our own CEO and management team,” says Peter Schneider, executive vice president of Primerica.

The shift into Citi Holdings will not lead to layoffs or additional employee attrition, Schneider says.

“Primerica has strong results and will continue to have strong results,” Schneider says. The unit is “extremely well capitalized,” he adds.

Although the life (insurance) market was difficult in 2008, the face amount of coverage issued held steady at $88 billion, and the number of applications fell just 1%, to 336,373, Schneider says.

The average face amount per policy increased slightly, to $299,200; from $296,400.

Don't just take my word for it. I would suggest that you pull out your December 31 statement and call the number on the statement. I would imagine that the company is ready with answers. Also, your account may have lost some value based on the mutual funds held within it, but the shares of the mutual funds are still there. If making that phone call will help you sleep at night, by all means, please call.

Finally, I would like to thank the nice educator again who e-mailed me to ask about Citigroup, and if anyone else has a question, please feel free to write me. I am sure that many people have the same questions.

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