Purchasing MYGAs (multi year guaranteed annuities) - mega thread

[AlwaysLearningMore]

I have two 3 yr MYGAs with one maturing later this year and the other in April of 2024. I think for me, I probably won't do them again. I think I like the freedom of having money at a brokerage/bank and not have to deal with an insurance company. With rates about double what I'm getting it might pay to absorb the penalties and just cash out but I don't want to deal with that hassle and will just wait them out and move them into Schwab or Fidelity.

The tax deferral thing is nice but I'm a low hassle/red tape type of person and I'm hoping moving them once they mature will be easy (American and North American annuity companies). I'll stick with CDs and treasuries as my fixed income and avoid MYGAs and bond funds in retirement.

Hopefully most will have good experiences in moving money.

When I began this thread on the last day of 2020, my view was that MYGAs presented very attractive interest rates compared to Treasuries or bond funds in addition, MYGAs pay full principal value plus accrued interest at the expiration of the guarantee period, and didn’t lose market value as interest rates rose in 2022.

As interest rates have risen, MYGAs have lost some of their attractiveness. This is especially true at the short end of the curve. Stan the Annuity Man now recommends buying Treasuries/CDs at three year durations and shorter, and MYGAs at longer durations.

I’ve personally put the majority of my fixed income allocation into MYGAs, and I’m happy that I did. But as these MYGAs mature, I’ll constantly assess where to reinvest.

Thank you so much for starting this thread, and your seemingly innumerable contributions to those with specific questions. In part because of your educational efforts, MYGA's became a part of my early retirement planning (retiring this summer).

[Stinky]

It looks like Group 1001, which is the parent company of Gainbridge/Clear Spring Life and Delaware Life, was the target of a ransomware attack recently. The company reports that operations have returned to normal and no ransom was paid. See this press release. https://www.group1001.com/news/group-10 ... are-attack

As is typical, the company has notified its regulators and rating agencies. AM Best has issued a press release saying that ratings are unchanged. https://www.group1001.com/news/am-best- ... are-attack

[BarbK]

Thank you for the replies. I opened an account on Sagicor and noticed that they use a separate form for direct deposit.

In 2022, I fully withdrew 2 matured MYGAs and was pleasantly surprised how 'fast' I got the $. Both required mailing in forms, but were direct deposit and withheld federal taxes. Plus all the 1099s I received were correct.

Insurance company was Synergy - 6 days including July 4th holiday.
AIG - a little longer but acceptable.

Also cashed out a life insurance policy Genworth which was the longest about 2-3 weeks.

------------
My plan is to withdraw quarterly federal taxes from MassMutual; all funds will be taxed since it has been 1035 exchanged several times. It is only a 3 year policy and matures in 2024.

Then Sagicor is my test case to withdraw the penalty free 10% just because there are better rates around and not too much taxes to pay in the 10%.

If that is relatively easy, I will withdraw other 10% penalty free $, from the lowest interest % MGYAs I opened in the 2022 summer.

[Weathering]

I started looking into MYGAs. They could be a very good fit for me within the bond portion of my holdings while deferring tax until I retire in a lower tax bracket. However, I'm in California, and this statement on the CanvasAnnuity.com website has caused me to seriously doubt the value I would gain from an annuity: "California has a specific premium tax — a sales tax assessed on insurance premiums — that applies to annuities. This tax is charged to the insurance company and can be passed along to the annuity owner. ...For non-qualified annuities, the premium tax is 2.35%"
source: https://canvasannuity.com/blog/annuities-in-california

Does this mean any funds I eventually withdraw from the annuity will be reduced by the 2.35% tax from California? Or would only the interest earned be taxed at 2.35%? Or is the 2.35% California tax already accounted for in the interest rates quoted for the annuities?

[Stinky]

I started looking into MYGAs. They could be a very good fit for me within the bond portion of my holdings while deferring tax until I retire in a lower tax bracket. However, I'm in California, and this statement on the CanvasAnnuity.com website has caused me to seriously doubt the value I would gain from an annuity: "California has a specific premium tax — a sales tax assessed on insurance premiums — that applies to annuities. This tax is charged to the insurance company and can be passed along to the annuity owner. ...For non-qualified annuities, the premium tax is 2.35%"
source: https://canvasannuity.com/blog/annuities-in-california

Does this mean any funds I eventually withdraw from the annuity will be reduced by the 2.35% tax from California? Or would only the interest earned be taxed at 2.35%? Or is the 2.35% California tax already accounted for in the interest rates quoted for the annuities?

See this explanatory page on annuity premium taxes.

https://www.annuity.org/annuities/buy/s ... emium-tax/

It looks like premium taxes are assessed only at time of “annuitization” - that is, if/when you start receiving monthly annuity payments from the policy.

If you’re just using the MYGA as an accumulation tool, there shouldn’t be any premium tax.

[HueyLD]

Your state premium tax is deducted from your premium in the year you buy an immediate annuity (or convert your deferred annuity into an immediate annuity).

In addition, if you move out of a premium tax state into a non premium tax state, annuitize your policy, and move back to a premium tax state, you will not be charged with premium tax on your existing annuity.

[Bronco Billy]

I read this THREAD when i get a chance. I had a friend ask me about buying a MYGA. I told her she needed to go to BH and search STINKY who i feel is the King of Annuitys. I also googled MYGA to see if anything was new and came across this Video "MYGA Buyers Beware" from 2022. I enjoyed watching and thought i might post for others. I really like MYGAs!!

https://www.youtube.com/watch?v=h8eqplurblo

[Weathering]

Your state premium tax is deducted from your premium in the year you buy an immediate annuity (or convert your deferred annuity into an immediate annuity).

In addition, if you move out of a premium tax state into a non premium tax state, annuitize your policy, and move back to a premium tax state, you will not be charged with premium tax on your existing annuity.

Does this mean that if a MYGA is purchased, held to maturity, and withdrawn then there is no state premium tax? That a state premium tax is only charged if the annuity is to be paid out over time. Just want to make sure I understand this.

[HueyLD]

Your state premium tax is deducted from your premium in the year you buy an immediate annuity (or convert your deferred annuity into an immediate annuity).

In addition, if you move out of a premium tax state into a non premium tax state, annuitize your policy, and move back to a premium tax state, you will not be charged with premium tax on your existing annuity.

Does this mean that if a MYGA is purchased, held to maturity, and withdrawn then there is no state premium tax? That a state premium tax is only charged if the annuity is to be paid out over time. Just want to make sure I understand this.

Yes.

A state premium tax is levied only at the time of annuitization. If you simply surrender a MYGA policy at maturity, there is no annuitization involved and thus no premium tax.

[Stinky]

A state premium tax is levied only at the time of annuitization. If you simple surrender a MYGA policy at maturity, there is no annuitization involved and thus no premium tax.

If California had assessed a premium tax while an annuity is in “accumulation” mode, that would have placed annuities at a competitive disadvantage to generally comparable products like bank CDs, which have no premium tax.

So I imagine that insurance companies lobbied pretty hard to restrict the premium tax to “annuitization” transactions, which don’t have any direct counterpart in the banking world.

[FrankinFl]

Maybe this is already been answered, but I'm still not clear on how the tax is paid when the policy is annuitized.

[Stinky]

Maybe this is already been answered, but I'm still not clear on how the tax is paid when the policy is annuitized.

If the SPIA is qualified, all payments are taxable income.

If it is non qualified (that is, purchased with after tax money), only part of the payments are taxable income until the full premium has been returned to you. After that, payments are fully taxable income. See this link, questions 2 and 3. https://www.immediateannuities.com/tota ... -faqs.html

[FrankinFl]

Maybe this is already been answered, but I'm still not clear on how the tax is paid when the policy is annuitized.

If the SPIA is qualified, all payments are taxable income.

If it is non qualified (that is, purchased with after tax money), only part of the payments are taxable income until the full premium has been returned to you. After that, payments are fully taxable income. See this link, questions 2 and 3. https://www.immediateannuities.com/tota ... -faqs.html

You are describing the premium tax?

[Stinky]

Maybe this is already been answered, but I'm still not clear on how the tax is paid when the policy is annuitized.

If the SPIA is qualified, all payments are taxable income.

If it is non qualified (that is, purchased with after tax money), only part of the payments are taxable income until the full premium has been returned to you. After that, payments are fully taxable income. See this link, questions 2 and 3. https://www.immediateannuities.com/tota ... -faqs.html

You are describing the premium tax?

Oops! I forgot the context.

The premium tax would be deducted from the premium. So if the tax rate was 2.35% and the premium was $100k, only $97.65k would be applied to purchase the SPIA. The remaining $2,350 would go to the taxing authority.

[FrankinFl]

Maybe this is already been answered, but I'm still not clear on how the tax is paid when the policy is annuitized.

If the SPIA is qualified, all payments are taxable income.

If it is non qualified (that is, purchased with after tax money), only part of the payments are taxable income until the full premium has been returned to you. After that, payments are fully taxable income. See this link, questions 2 and 3. https://www.immediateannuities.com/tota ... -faqs.html

You are describing the premium tax?

Oops! I forgot the context.

The premium tax would be deducted from the premium. So if the tax rate was 2.35% and the premium was $100k, only $97.65k would be applied to purchase the SPIA. The remaining $2,350 would go to the taxing authority.

Thanks. What about a MYGA that is annuitized?

[Stinky]

Maybe this is already been answered, but I'm still not clear on how the tax is paid when the policy is annuitized.

If the SPIA is qualified, all payments are taxable income.

If it is non qualified (that is, purchased with after tax money), only part of the payments are taxable income until the full premium has been returned to you. After that, payments are fully taxable income. See this link, questions 2 and 3. https://www.immediateannuities.com/tota ... -faqs.html

You are describing the premium tax?

Oops! I forgot the context.

The premium tax would be deducted from the premium. So if the tax rate was 2.35% and the premium was $100k, only $97.65k would be applied to purchase the SPIA. The remaining $2,350 would go to the taxing authority.

Thanks. What about a MYGA that is annuitized?

Same thing. Premium tax is deducted from the premium, remainder goes to purchase the payment stream.

[FrankinFl]

If the SPIA is qualified, all payments are taxable income.

If it is non qualified (that is, purchased with after tax money), only part of the payments are taxable income until the full premium has been returned to you. After that, payments are fully taxable income. See this link, questions 2 and 3. https://www.immediateannuities.com/tota ... -faqs.html

You are describing the premium tax?

Oops! I forgot the context.

The premium tax would be deducted from the premium. So if the tax rate was 2.35% and the premium was $100k, only $97.65k would be applied to purchase the SPIA. The remaining $2,350 would go to the taxing authority.

Thanks. What about a MYGA that is annuitized?

Same thing. Premium tax is deducted from the premium, remainder goes to purchase the payment stream.

Thanks!

[WestWorld1986]

Stinky,

Would you know if some of these annuity companies face the same bond selling pressures that resulted in Silicon Valley Bank being shut down by regulators?

Thanks,
WW

[indexfundfan]

Investors cannot redeem MYGAs without huge penalties. So I would say selling pressures, if any, would be small.

[Stinky]

Stinky,

Would you know if some of these annuity companies face the same bond selling pressures that resulted in Silicon Valley Bank being shut down by regulators?

Thanks,
WW

The Bank is being pressured because it’s needing to sell bonds at a loss to meet depositor demands. Those depositors receive funds at 100 cents on the dollar.

On the other hand, Almost all MYGAs have “market value adjustment” clauses, which haircut the amount paid out to policyholders by an approximate market value adjustment, offsetting any losses they need to take by selling bonds. Additionally, almost all MYGAs have steep surrender charges, which further reduce the amount paid out to policyholders.

From the insurance company point of view, MYGAs are well-structured liabilities. If policyholders want to leave early, the worst the insurance company will do is break even economically. And the insurance company will likely come out ahead.

[HueyLD]

Again, it is time to remind people not to put more than the maximum guaranteed amount into an insurance or a bank product.

[WestWorld1986]

Thank you, Stinky. I knew you would provide such a concise response.

[GreendaleCC]

If there is another interest rate hike, to what extent could it influence changes in advertised MYGA rates?

[Stinky]

If there is another interest rate hike, to what extent could it influence changes in advertised MYGA rates?

The only folks who could tell you that are the insurance companies themselves. And they aren’t talking.

It seems like there have been roughly as many MYGA rate decreases as increases in recent months. And that’s in a period of the Fed increasing rates at the very shortest end of the interest rate curve.

I’d say that if you see a rate that you like from a company that you feel comfortable with, buy it.

[retireIn2020]

I’d say that if you see a rate that you like from a company that you feel comfortable with, buy it.

^^^ This right here!

Nobody knows which direction any of this goes. What do I know? I know that rates right now on fixed income devices are better than they've been for a long time.

When was the last time anyone could get these fixed rates?

[PaulieLilly]

I have a 2yr, IRA MYGA with BluePrint/Oceanview which has a rate guarantee period (1.75%) ending 3/31/23.
My preference is to cash-out via a 1035 and transfer the funds back to my Fidelity IRA. I completed all the paperwork for Fidelity and received confirmation from them it was sent to Oceanview on 2/23/23. As of today (3/6) Oceanview still shows nothing. Fidelity again confirmed everything looks in order on their end and suggested I give it until Thu 3/9 and if Oceanview still has nothing we'll resubmit an expedited request. Does anyone have any experiences to share on timing for this kind of thing? I'm guessing the fact that it's in an IRA adds some complexity/time?

I went thru a worst-case, what-if scenario if for some bizarre reason I can't cash-out in time. Oceanview posted a "Renewal Notice" in my account dated Mar1 stating it is currently scheduled to auto-renew on 3/31 at an annual effective rate of 3.7% (subject to change based on the actual renewal date). I asked the Oceanview rep why they show 3.7% when BluePrint shows the current Oceanview 2-yr MYGA at 4.55%? She could not answer, put me on hold while she looked for help internally, but after ~15 minutes she still hadn't gotten help and I gave up. Does anyone have any insights?

These two paragraphs help shed light as to why a wish to cash-out, give up on Life Insurance Co's (at least for now) and go back to the simplicity & flexibility of reconsolidating my IRA funds in one account at Fidelity.

For renewal, Oceanview does not give you 30 day free look period after the renewal date. They say there is nothing new in the contract except for the renewal.

Be EXTREMELY careful and follow up with your process regularly and be ready to file complaints with their state regulatory agency in Phoenix, AZ. Hopefully it doesn’t get to that point.

I truly appreciate everyone's feedback.
I have 3 different IRA MYGA's with 3 different companies, this is the first one I have maturing. I have done free partial withdrawals from all 3 and it is baffling why it takes so long for paperwork from Fidelity to be officially received & acted on by the Ins Co. With partial withdrawals I was just patient and everything eventually went thru. In hindsight, I should have started my cash-out earlier (although I did give 5 weeks) since the stakes are much higher, so that's on me. I asked Oceanview how will I know when they receive the paperwork (will I get an email?, will there be a posting in my account dashboard?, etc) and did not get a confident answer so I'm guessing the answer is I have to continue to call them (and I will !!). Again, in hindsight, it looks like I picked one of the Ins Co's which is on the lower end for customer service.

Just wanted to leave an update (should be a happy ending). I stitched together some of the history above.
On 3/7, I setup a call with Blueprint (the middleman) to review the situation with my Oceanview MYGA. They were very understanding & helpful even though there was nothing directly in it for them. While we were on the phone, they emailed their contact at Oceanview alerting him to my wishes and timing, this also established a papertrail to help cover me. Blueprint also told me they have the power to "kill it" if my MYGA was to auto-renew ... I felt a lot better after this call.
On 3/8 I made my daily call to Oceanview and they verbally confirmed receipt of my paperwork via Fidelity. I have their verbal acknowledgment that my MYGA will cash-out upon fixed rate maturity on 3/31 and the funds will transfer back to my Fidelity IRA. I do not (and will not) see any indication of this in my Oceanview online portal prior to the actual execution.
In summary, Fidelity mailed (USPS) my cash-out paper work to Oceanview on 2/23. Oceanview acknowledged receipt on 3/8. I grew anxious during this period where in hindsight the timing was pretty inline with previous dealings I've had when requesting withdrawals from my IRA MYGA's. They probably received my paperwork ~Feb27-28, but it didn't get processed until 3/8.
In hindsight, I have no regrets over my choice to diversify some of my fixed income investments into MYGA's. I had all of my fixed income in one holding (AGG - US aggregate bond etf) before moving 80% of it into MYGA's prior to the major drop in AGG NAV. While some of this may have been an attempt at market timing, it was more that I didn't fully understand what I had in AGG and wanted to shift some into something I did understand, offered a "guaranteed" positive nominal yield and bought me time to better understand fixed income investment options (Iong overdue).

[Stinky]

I have a 2yr, IRA MYGA with BluePrint/Oceanview which has a rate guarantee period (1.75%) ending 3/31/23.
My preference is to cash-out via a 1035 and transfer the funds back to my Fidelity IRA. I completed all the paperwork for Fidelity and received confirmation from them it was sent to Oceanview on 2/23/23. As of today (3/6) Oceanview still shows nothing. Fidelity again confirmed everything looks in order on their end and suggested I give it until Thu 3/9 and if Oceanview still has nothing we'll resubmit an expedited request. Does anyone have any experiences to share on timing for this kind of thing? I'm guessing the fact that it's in an IRA adds some complexity/time?

I went thru a worst-case, what-if scenario if for some bizarre reason I can't cash-out in time. Oceanview posted a "Renewal Notice" in my account dated Mar1 stating it is currently scheduled to auto-renew on 3/31 at an annual effective rate of 3.7% (subject to change based on the actual renewal date). I asked the Oceanview rep why they show 3.7% when BluePrint shows the current Oceanview 2-yr MYGA at 4.55%? She could not answer, put me on hold while she looked for help internally, but after ~15 minutes she still hadn't gotten help and I gave up. Does anyone have any insights?

These two paragraphs help shed light as to why a wish to cash-out, give up on Life Insurance Co's (at least for now) and go back to the simplicity & flexibility of reconsolidating my IRA funds in one account at Fidelity.

For renewal, Oceanview does not give you 30 day free look period after the renewal date. They say there is nothing new in the contract except for the renewal.

Be EXTREMELY careful and follow up with your process regularly and be ready to file complaints with their state regulatory agency in Phoenix, AZ. Hopefully it doesn’t get to that point.

I truly appreciate everyone's feedback.
I have 3 different IRA MYGA's with 3 different companies, this is the first one I have maturing. I have done free partial withdrawals from all 3 and it is baffling why it takes so long for paperwork from Fidelity to be officially received & acted on by the Ins Co. With partial withdrawals I was just patient and everything eventually went thru. In hindsight, I should have started my cash-out earlier (although I did give 5 weeks) since the stakes are much higher, so that's on me. I asked Oceanview how will I know when they receive the paperwork (will I get an email?, will there be a posting in my account dashboard?, etc) and did not get a confident answer so I'm guessing the answer is I have to continue to call them (and I will !!). Again, in hindsight, it looks like I picked one of the Ins Co's which is on the lower end for customer service.

Just wanted to leave an update (should be a happy ending). I stitched together some of the history above.
On 3/7, I setup a call with Blueprint (the middleman) to review the situation with my Oceanview MYGA. They were very understanding & helpful even though there was nothing directly in it for them. While we were on the phone, they emailed their contact at Oceanview alerting him to my wishes and timing, this also established a papertrail to help cover me. Blueprint also told me they have the power to "kill it" if my MYGA was to auto-renew ... I felt a lot better after this call.
On 3/8 I made my daily call to Oceanview and they verbally confirmed receipt of my paperwork via Fidelity. I have their verbal acknowledgment that my MYGA will cash-out upon fixed rate maturity on 3/31 and the funds will transfer back to my Fidelity IRA. I do not (and will not) see any indication of this in my Oceanview online portal prior to the actual execution.
In summary, Fidelity mailed (USPS) my cash-out paper work to Oceanview on 2/23. Oceanview acknowledged receipt on 3/8. I grew anxious during this period where in hindsight the timing was pretty inline with previous dealings I've had when requesting withdrawals from my IRA MYGA's. They probably received my paperwork ~Feb27-28, but it didn't get processed until 3/8.
In hindsight, I have no regrets over my choice to diversify some of my fixed income investments into MYGA's. I had all of my fixed income in one holding (AGG - US aggregate bond etf) before moving 80% of it into MYGA's prior to the major drop in AGG NAV. While some of this may have been an attempt at market timing, it was more that I didn't fully understand what I had in AGG and wanted to shift some into something I did understand, offered a "guaranteed" positive nominal yield and bought me time to better understand fixed income investment options (Iong overdue).

Thank you so much for updating us on your progress.

It sounds like it was a good move on your part to involve your agent, Blueprint Income. By the nature of their business, they have much more contact with carriers than you do, and then might know better than you “which buttons to push”. As you note, there’s nothing in it for them right now, but I expect that they’re hoping you’ll buy through them again at some future date.

Thanks for posting.

[Stinky]

Per the Blueprint Income website, there highly rated MYGA writers (New York Life, Mass Mutual, and Western Southern) are slashing their rates on new MYGAs. The rate reductions are between 0.55% and 0.90%, depending on company and guarantee duration.

Based on what I’ve observed from the MYGA market, these are unusually large changes in rates.

Given the volatility of interest rates recently, it will be interesting to see if other companies follow suit.

[CletusCaddy]

Well team MYGA, I may have just found the Achilles heel for California residents.

Here is language from California Life & Health Insurance Guarantee Association:

What kinds of plans, policies, and benefits are not protected by the California Life and Health Insurance Guarantee Association?

Policies sold by insurers not licensed to do business in California; policies issued by medical, health, or dental care service corporations; managed care plans; self-insured employer plans; fraternal benefit society insurance certificates; policy benefits the insurer does not guarantee such as the non-guaranteed portion of a variable life insurance contract sold by prospectus, or benefits for which the individual policyholder has assumed the risk of loss; guaranteed interest rate yields that exceed the rate specified by the California Life & Health Insurance Guarantee Association Act; most unallocated annuity contracts; and charitable gift annuities. If you are unsure if your policy is protected you should contact your insurer.

The bolded wording caught my attention. So I went to the law:

(2) This article shall not provide coverage for any of the following:
(C) A portion of a policy or contract to the extent that the rate of interest on which it is based or the interest rate, crediting rate, or similar factor determined by the use of an index or other external reference which is stated in the policy or contract and employed in calculating returns or changes in value does both of the following:
(i) Averaged over the period of four years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this article exceeds the rate of interest determined by subtracting two percentage points from Moody's Corporate Bond Yield Average averaged for that same four-year period or for the lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired or insolvent insurer under this article, not to go below a minimum of 0 percent.
(ii) On and after the date on which the member insurer becomes an impaired or insolvent insurer under this article exceeds the rate of interest determined by subtracting three percentage points from Moody's Corporate Bond Yield Average as most recently available, not to go below a minimum of 0 percent.

So what is Moody's Corporate Bond Yield Average? Well it turns out there are two:

https://fred.stlouisfed.org/series/AAA
https://fred.stlouisfed.org/series/DBAA

But in either case, the guaranteed interest rate insured by the CA Life GA would be much lower than any of the prevailing MYGA rates right now.

[Weathering]

Deleted because information in thread below resolves the question I was commenting on

[Stinky]

Well team MYGA, I may have just found the Achilles heel for California residents.

Here is language from California Life & Health Insurance Guarantee Association:

What kinds of plans, policies, and benefits are not protected by the California Life and Health Insurance Guarantee Association?

Policies sold by insurers not licensed to do business in California; policies issued by medical, health, or dental care service corporations; managed care plans; self-insured employer plans; fraternal benefit society insurance certificates; policy benefits the insurer does not guarantee such as the non-guaranteed portion of a variable life insurance contract sold by prospectus, or benefits for which the individual policyholder has assumed the risk of loss; guaranteed interest rate yields that exceed the rate specified by the California Life & Health Insurance Guarantee Association Act; most unallocated annuity contracts; and charitable gift annuities. If you are unsure if your policy is protected you should contact your insurer.

The bolded wording caught my attention. So I went to the law:

(2) This article shall not provide coverage for any of the following:
(C) A portion of a policy or contract to the extent that the rate of interest on which it is based or the interest rate, crediting rate, or similar factor determined by the use of an index or other external reference which is stated in the policy or contract and employed in calculating returns or changes in value does both of the following:
(i) Averaged over the period of four years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this article exceeds the rate of interest determined by subtracting two percentage points from Moody's Corporate Bond Yield Average averaged for that same four-year period or for the lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired or insolvent insurer under this article, not to go below a minimum of 0 percent.
(ii) On and after the date on which the member insurer becomes an impaired or insolvent insurer under this article exceeds the rate of interest determined by subtracting three percentage points from Moody's Corporate Bond Yield Average as most recently available, not to go below a minimum of 0 percent.

So what is Moody's Corporate Bond Yield Average? Well it turns out there are two:

https://fred.stlouisfed.org/series/AAA
https://fred.stlouisfed.org/series/DBAA

But in either case, the guaranteed interest rate insured by the CA Life GA would be much lower than any of the prevailing MYGA rates right now.

I believe this means that current MYGAs are effectively uninsured for California residents.

I am neither a lawyer nor a California resident. So I don’t have a technical understanding of the quoted language, nor do I have a dog in this fight.

But I’d suggest that the “uninsured” part of an annuity policy is more likely just the excess of the guaranteed interest rate over the relevant Moodys rate - rather than the whole annuity policy being uninsured.

It would seem unduly punitive for an insurance policy that credited an interest rate fractionally less than the Moody’s average to be covered by the California Guaranty Association, while a policy that credited fractionally more than the Moodys average is excluded from coverage.

It seems more logical to me that the guaranty fund would cover the principal and “reasonable” interest (per CA’s definition), and exclude “excessive” interest from coverage.

I’d encourage anyone who is concerned about guaranty fund coverage to reach out to their state guaranty fund office. I’ve talked to my local office several times and have gotten helpful responses.

[HueyLD]

Well team MYGA, I may have just found the Achilles heel for California residents.

Here is language from California Life & Health Insurance Guarantee Association:

What kinds of plans, policies, and benefits are not protected by the California Life and Health Insurance Guarantee Association?

Policies sold by insurers not licensed to do business in California; policies issued by medical, health, or dental care service corporations; managed care plans; self-insured employer plans; fraternal benefit society insurance certificates; policy benefits the insurer does not guarantee such as the non-guaranteed portion of a variable life insurance contract sold by prospectus, or benefits for which the individual policyholder has assumed the risk of loss; guaranteed interest rate yields that exceed the rate specified by the California Life & Health Insurance Guarantee Association Act; most unallocated annuity contracts; and charitable gift annuities. If you are unsure if your policy is protected you should contact your insurer.

The bolded wording caught my attention. So I went to the law:

(2) This article shall not provide coverage for any of the following:
(C) A portion of a policy or contract to the extent that the rate of interest on which it is based or the interest rate, crediting rate, or similar factor determined by the use of an index or other external reference which is stated in the policy or contract and employed in calculating returns or changes in value does both of the following:
(i) Averaged over the period of four years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this article exceeds the rate of interest determined by subtracting two percentage points from Moody's Corporate Bond Yield Average averaged for that same four-year period or for the lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired or insolvent insurer under this article, not to go below a minimum of 0 percent.
(ii) On and after the date on which the member insurer becomes an impaired or insolvent insurer under this article exceeds the rate of interest determined by subtracting three percentage points from Moody's Corporate Bond Yield Average as most recently available, not to go below a minimum of 0 percent.

So what is Moody's Corporate Bond Yield Average? Well it turns out there are two:

https://fred.stlouisfed.org/series/AAA
https://fred.stlouisfed.org/series/DBAA

But in either case, the guaranteed interest rate insured by the CA Life GA would be much lower than any of the prevailing MYGA rates right now.

I believe this means that current MYGAs are effectively uninsured for California residents.

The quoted section of the law says that the rate of interest as stated in the contract is based on an index or other external reference.

I have not found any MYGA rate that is explicitly indexed to an external index. Thus, Cal residents are not impacted by this provision unless they specifically seek out such a guaranteed rate.

[CletusCaddy]

Well team MYGA, I may have just found the Achilles heel for California residents.

Here is language from California Life & Health Insurance Guarantee Association:

What kinds of plans, policies, and benefits are not protected by the California Life and Health Insurance Guarantee Association?

Policies sold by insurers not licensed to do business in California; policies issued by medical, health, or dental care service corporations; managed care plans; self-insured employer plans; fraternal benefit society insurance certificates; policy benefits the insurer does not guarantee such as the non-guaranteed portion of a variable life insurance contract sold by prospectus, or benefits for which the individual policyholder has assumed the risk of loss; guaranteed interest rate yields that exceed the rate specified by the California Life & Health Insurance Guarantee Association Act; most unallocated annuity contracts; and charitable gift annuities. If you are unsure if your policy is protected you should contact your insurer.

The bolded wording caught my attention. So I went to the law:

(2) This article shall not provide coverage for any of the following:
(C) A portion of a policy or contract to the extent that the rate of interest on which it is based or the interest rate, crediting rate, or similar factor determined by the use of an index or other external reference which is stated in the policy or contract and employed in calculating returns or changes in value does both of the following:
(i) Averaged over the period of four years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this article exceeds the rate of interest determined by subtracting two percentage points from Moody's Corporate Bond Yield Average averaged for that same four-year period or for the lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired or insolvent insurer under this article, not to go below a minimum of 0 percent.
(ii) On and after the date on which the member insurer becomes an impaired or insolvent insurer under this article exceeds the rate of interest determined by subtracting three percentage points from Moody's Corporate Bond Yield Average as most recently available, not to go below a minimum of 0 percent.

So what is Moody's Corporate Bond Yield Average? Well it turns out there are two:

https://fred.stlouisfed.org/series/AAA
https://fred.stlouisfed.org/series/DBAA

But in either case, the guaranteed interest rate insured by the CA Life GA would be much lower than any of the prevailing MYGA rates right now.

I believe this means that current MYGAs are effectively uninsured for California residents.

The quoted section of the law says that the rate of interest as stated in the contract is based on an index or other external reference.

I have not found any MYGA rate that is explicitly indexed to an external index. Thus, Cal residents are not impacted by this provision unless they specifically seek out such a guaranteed rate.

Read it again, you missed an “or”.

[WestCoastPhan]

Well team MYGA, I may have just found the Achilles heel for California residents.

Here is language from California Life & Health Insurance Guarantee Association:

What kinds of plans, policies, and benefits are not protected by the California Life and Health Insurance Guarantee Association?

Policies sold by insurers not licensed to do business in California; policies issued by medical, health, or dental care service corporations; managed care plans; self-insured employer plans; fraternal benefit society insurance certificates; policy benefits the insurer does not guarantee such as the non-guaranteed portion of a variable life insurance contract sold by prospectus, or benefits for which the individual policyholder has assumed the risk of loss; guaranteed interest rate yields that exceed the rate specified by the California Life & Health Insurance Guarantee Association Act; most unallocated annuity contracts; and charitable gift annuities. If you are unsure if your policy is protected you should contact your insurer.

The bolded wording caught my attention. So I went to the law:

(2) This article shall not provide coverage for any of the following:
(C) A portion of a policy or contract to the extent that the rate of interest on which it is based or the interest rate, crediting rate, or similar factor determined by the use of an index or other external reference which is stated in the policy or contract and employed in calculating returns or changes in value does both of the following:
(i) Averaged over the period of four years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this article exceeds the rate of interest determined by subtracting two percentage points from Moody's Corporate Bond Yield Average averaged for that same four-year period or for the lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired or insolvent insurer under this article, not to go below a minimum of 0 percent.
(ii) On and after the date on which the member insurer becomes an impaired or insolvent insurer under this article exceeds the rate of interest determined by subtracting three percentage points from Moody's Corporate Bond Yield Average as most recently available, not to go below a minimum of 0 percent.

So what is Moody's Corporate Bond Yield Average? Well it turns out there are two:

https://fred.stlouisfed.org/series/AAA
https://fred.stlouisfed.org/series/DBAA

But in either case, the guaranteed interest rate insured by the CA Life GA would be much lower than any of the prevailing MYGA rates right now.

I believe this means that current MYGAs are effectively uninsured for California residents.

I am neither a lawyer nor a California resident. So I don’t have a technical understanding of the quoted language, nor do I have a dog in this fight.

But I’d suggest that the “uninsured” part of an annuity policy is more likely just the excess of the guaranteed interest rate over the relevant Moodys rate - rather than the whole annuity policy being uninsured.

I think that's right. The law uses the phrase "to the extent that" -- that only makes sense in the context of a portion of the policy being uninsured.

[CletusCaddy]

I reached out to the CA Guarantee Association and they confirmed that it is only the “excess interest” portion that is uninsured. But there is also the 80% cap.

So an example works like this:

$100k principal invested in MYGA
Grows to $150k over some number of years
Insurance company fails
The insured interest is only $20k instead of $50k due to the Moody’s Average rule
But even the $120k is subject to the 80% rule
So I only get $96k back in a worst case scenario

[Stinky]

I reached out to the CA Guarantee Association and they confirmed that it is only the “excess interest” portion that is uninsured. But there is also the 80% cap.

So an example works like this:

$100k principal invested in MYGA
Grows to $150k over some number of years
Insurance company fails
The insured interest is only $20k instead of $50k due to the Moody’s Average rule
But even the $120k is subject to the 80% rule
So I only get $96k back in a worst case scenario

I’m glad that you called the California Guaranty Fund to clarify that the “excess” interest is what’s haircut.

It’s clear that California policyholders are much less protected by their guaranty fund than those in most all other states.

Thanks also for editing your post above to indicate that even high rate MYGAs are partially covered by the California Guaranty Association, rather than being entirely excluded from coverage.

[sergeant]

The 80% protection is an interesting moral hazard situation. I'm in California and bought some MYGA's. Due to the state not covering the full 100%, I was forced to truly consider the strength of the issuing insurance company. I went with top rated companies that offered slightly lower rates. Had I been 100% covered I would have just gone with the highest rate.

[nalor511]

The 80% protection is an interesting moral hazard situation. I'm in California and bought some MYGA's. Due to the state not covering the full 100%, I was forced to truly consider the strength of the issuing insurance company. I went with top rated companies that offered slightly lower rates. Had I been 100% covered I would have just gone with the highest rate.

I wonder if these companies ever strategically default and hose CA holders. 20% uncovered is significant

[Stinky]

The 80% protection is an interesting moral hazard situation. I'm in California and bought some MYGA's. Due to the state not covering the full 100%, I was forced to truly consider the strength of the issuing insurance company. I went with top rated companies that offered slightly lower rates. Had I been 100% covered I would have just gone with the highest rate.

I wonder if these companies ever strategically default and hose CA holders. 20% uncovered is significant

I don’t recall any “strategic defaults” in the life insurance industry. Ever.

Even if a company wanted to do that, the default couldn’t be limited to policyholders in one state. All policyholders, wherever situated, would be impacted by a life insurer insolvency.

[Tuna1947]

I have 1.5 million in an IRA. My wife has 190,000.
I am 75 years old and my wife is 70
I decided that I would put 1 Million in 4 MYGAs 3A1A+ I have them all through blue print.
Started end of December. It has become very difficult to transfer money. Hopefully now blueprint going to send me a form overnight. which I will sign and notarized and send back.
I question now on the other end after reading your last post, how hard will be when they come due in 7-10 years to transfer if I have to.
I live in Connecticut so we are covered for each one up to 500,000. Four of annuities allow me to take after the first year 10% of total. One allows me to take interest only very easy to meet my RMD’s.
I guess I’m just getting nervous now so hard to get them ,concerned when I try to close them when they are due will be even worse .

[Stinky]

I have 1.5 million in an IRA. My wife has 190,000.
I am 75 years old and my wife is 70
I decided that I would put 1 Million in 4 MYGAs 3A1A+ I have them all through blue print.
Started end of December. It has become very difficult to transfer money. Hopefully now blueprint going to send me a form overnight. which I will sign and notarized and send back.
I question now on the other end after reading your last post, how hard will be when they come due in 7-10 years to transfer if I have to.
I live in Connecticut so we are covered for each one up to 500,000. Four of annuities allow me to take after the first year 10% of total. One allows me to take interest only very easy to meet my RMD’s.
I guess I’m just getting nervous now so hard to get them ,concerned when I try to close them when they are due will be even worse .

I’m sorry that you’re off to a bumpy start with your MYGAs.

It sounds like the issue process for your policies is taking longer than you had expected. By way of explanation, not excuse - I know that many MYGA writers have been absolutely deluged with new business, and processing delays have been significant. For example, I purchased a MYGA from Global Atlantic with an issue date in early January 2023, and it took a full five weeks after the issue date to get the policy. (Global Atlantic sent me a letter this week apologizing for the processing delays.)

If you purchased from A and A+ companies, you have strong companies standing behind your policies. As I mentioned upthread earlier this week, the products issued by life insurance companies these days aren’t subject to the “run risk” that some commercial banks are facing.

Hopefully your agent, Blueprint Income, will continue to be helpful as you have policy servicing needs.

I hope that you don’t fret too much about what might happen in 7-10 years when your initial guarantee periods expire. There’s not a lot you can do until about one month prior to the expiration date. At that one month mark, you will want to be in contact with the company, in writing and on the phone, and with Blueprint Income, making clear what your desires are for the distribution of the policy proceeds.

If you bought policies in late 2022 or early 2023, you locked in some pretty attractive interest rates for several years to come. You can feel good about that.

[Tuna1947]

Thank you so much for your reply. I have learned so much from this forum.

[Stinky]

I’ve been retired from the insurance industry for several years now, but I still keep up with many aspects of the industry.

I’ve just seen an annuity “new sales” report for 2022, and MYGA sales are soaring. Sales in the 4th quarter of 2022 were up almost 30% from the third quarter, and were up 217% from the fourth quarter of 2021. Sales for all of 2022 were up 105% from sales for 2021.

Evidently, people were really liking the MYGA rates compared to alternatives like CDs.

As I’ve mentioned upthread, this may go to explain (but not excuse) why some folks have reported slow processing times on MYGAs. Getting interest rates above 5% seems to have unleashed a torrent of MYGA business.

[CletusCaddy]

I’ve been retired from the insurance industry for several years now, but I still keep up with many aspects of the industry.

I’ve just seen an annuity “new sales” report for 2022, and MYGA sales are soaring. Sales in the 4th quarter of 2022 were up almost 30% from the third quarter, and were up 217% from the fourth quarter of 2021. Sales for all of 2022 were up 105% from sales for 2021.

Evidently, people were really liking the MYGA rates compared to alternatives like CDs.

As I’ve mentioned upthread, this may go to explain (but not excuse) why some folks have reported slow processing times on MYGAs. Getting interest rates above 5% seems to have unleashed a torrent of MYGA business.

Stinky, with all the new money flowing in at high interest rates, are you concerned at all about insurers taking increased risk with those deposits, leading to more insurer failures than we’ve seen in the past?

[WestWorld1986]

I’ve been retired from the insurance industry for several years now, but I still keep up with many aspects of the industry.

I’ve just seen an annuity “new sales” report for 2022, and MYGA sales are soaring. Sales in the 4th quarter of 2022 were up almost 30% from the third quarter, and were up 217% from the fourth quarter of 2021. Sales for all of 2022 were up 105% from sales for 2021.

Evidently, people were really liking the MYGA rates compared to alternatives like CDs.

As I’ve mentioned upthread, this may go to explain (but not excuse) why some folks have reported slow processing times on MYGAs. Getting interest rates above 5% seems to have unleashed a torrent of MYGA business.

Stinky, with all the new money flowing in at high interest rates, are you concerned at all about insurers taking increased risk with those deposits, leading to more insurer failures than we’ve seen in the past?

Very good question. I have had this same concern. Since I have very little knowledge of how these insurance companies mitigate risk, I am eager to find out how they manage these funds.

[Stinky]

I’ve been retired from the insurance industry for several years now, but I still keep up with many aspects of the industry.

I’ve just seen an annuity “new sales” report for 2022, and MYGA sales are soaring. Sales in the 4th quarter of 2022 were up almost 30% from the third quarter, and were up 217% from the fourth quarter of 2021. Sales for all of 2022 were up 105% from sales for 2021.

Evidently, people were really liking the MYGA rates compared to alternatives like CDs.

As I’ve mentioned upthread, this may go to explain (but not excuse) why some folks have reported slow processing times on MYGAs. Getting interest rates above 5% seems to have unleashed a torrent of MYGA business.

Stinky, with all the new money flowing in at high interest rates, are you concerned at all about insurers taking increased risk with those deposits, leading to more insurer failures than we’ve seen in the past?

I was involved in the process for setting credited interest rates at my former employer, and have become familiar with the practices at other life insurers.

The processes that I observed all started with (a) the rates expected to be earned by the life insurer on newly purchased assets that are funded by new sales and (b) the expense and profit margins that the insurer need for the product. A pricing committee, usually composed of representatives from actuarial, sales and marketing, investment, and "corporate" areas of the company, would meet periodically to assess whether the rates currently being credited for new business, along with expenses and profit margins, are being satisfactorily covered by the yield on new assets. Coming out of this committee is a recommendation for "updated rates", or for "no change in current rates", which is then ratified by senior management and put into place.

The level of "risk" that insurers can take on the asset side is constrained by the capital charges that are imposed on the companies. Rating agencies and regulators both have capital charges that vary based on type and riskiness of assets, and the charges go up as the "riskiness" goes up. Companies also have their own internal capital models. These capital charges, which are taken into account in the pricing process, constrain the insurance company from totally throwing caution to the wind by buying particularly risky assets so that they can credit high rates. Various other capital rules effectively encourage companies to "match" the term of their liabilities with the term of their assets.

It should be noted that the capital models have gotten considerably more conservative over the past decades, as both regulators and rating agencies have ratcheted up the capital expectations. At my former company, the level of "required capital" for a certain amount of liabilities is roughly double what it was in the 1990s. Rating agencies have also roughly doubled their capital charges.

The point of this explanation is - I believe that the vast majority, if not all, companies have an interest-rate-setting policy that they believe is profitable for them, taking into account what they're earning on the assets and the capital charges associated with the assets.

Does that mean that there won't be an MYGA insurer insolvency in the future? No, it doesn't. But it does mean that there are standards and practices in place to reduce the risk of such an insolvency.

Hope that this helps.

[WestWorld1986]

Thank you, Stinky. This is very helpful.

[CletusCaddy]

Thanks Stinky

[ttravaille]

Americo. Agent submitted my application 1/27, Americo promising to get review / approval done each week. Still waiting. Does not instill confidence on the WD side. So - I'm going with SBLI instead. Note: My experience with American Equity, Ocean, and SILAC was positive. Americo definitely an outlier - something is wrong.

[Stinky]

Americo. Agent submitted my application 1/27, Americo promising to get review / approval done each week. Still waiting. Does not instill confidence on the WD side. So - I'm going with SBLI instead. Note: My experience with American Equity, Ocean, and SILAC was positive. Americo definitely an outlier - something is wrong.

You’re not the first to report ridiculously long processing delays with Americo.

Sounds like a company to stay away from.

I have a policy with SBLI. The time to issue the policy and service has been just fine.