credit risk of a fixed annuity

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Subject Author Date credit risk of a fixed annuity beliavsky 09-15-2008  Re: credit risk of a fixed annuity kastnna 09-16-2008  Re: credit risk of a fixed annuity beliavsky 09-17-2008  Re: credit risk of a fixed annuity Ron Peterson 09-17-2008  Re: credit risk of a fixed annuity Otis 09-18-2008  Re: credit risk of a fixed annuity Ron Peterson 09-18-2008  Re: credit risk of a fixed annuity beliavsky 10-20-2008  Re: credit risk of a fixed annuity kastnna 10-21-2008
Posted by on September 15, 2008, 2:21 pm About 10% of the savings of my parents is in a fixed (CD-like) annuity of a large AAA rated insurance company that will soon mature. On September 5, the agent quoted them a rate of 4.75% to roll that money into a new 5-year annuity. This annuity is tax-deferred, but it is not covered by FDIC, although there are state funds that back annuities. What spread over FDIC-insured bank certificates of deposit should one demand to invest in a CD-like annuity? There is no cut-and-dried answer, just wondering what people would think represent fair compensation for the slight increase in credit risk. The annuity benefits from deferral of tax on the interest. -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by kastnna on September 16, 2008, 2:40 pm On Sep 15, 1:21 pm, beliav...@aol.com wrote: > About 10% of the savings of my parents is in a fixed (CD-like) annuity > of a large AAA rated insurance company that will soon mature. On > September 5, the agent quoted them a rate of 4.75% to roll that money > into a new 5-year annuity. This annuity is tax-deferred, but it is not > covered by FDIC, although there are state funds that back annuities. > What spread over FDIC-insured bank certificates of deposit should one > demand to invest in a CD-like annuity? I'm a little confused of your use of the word "mature". Do you mean that the annuity has a guaranteed rate of interest for a specified time period and that time period is almost up? Or perhaps, the annuity had a surrender period that will soon be expired and thus you parents can move investments without penalty? Or do you truly mean "matured" as in the annuity value will be paid out like it or not? Typically fixed annuities function with both a guaranteed interest period and a surrender period. Regardless, I took a look at a handful of single premium fixed annuities matrices and found a few respectable one's that offered 6+% guaranteed for 6 years with a 4.55% minimum interest rate after that period (Jackson National, Lincoln Benefit, MetLife & NY Life, namely). Honestly, I didn't look into the details/caveats, so make sure you perform your due diligence. Strangely enough, most of the attractive offers were 3,6, & 7 year guarantees. 5 yr looked the worst. I don't know why, but it was the case none the less. Lastly, assuming the current annuity isn't automatically distributed, does it have a minimum interest rate floor and, if so, what is it? -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by on September 17, 2008, 8:53 am > On Sep 15, 1:21 pm, beliav...@aol.com wrote: > > > About 10% of the savings of my parents is in a fixed (CD-like) annuity > > of a large AAA rated insurance company that will soon mature. On > > September 5, the agent quoted them a rate of 4.75% to roll that money > > into a new 5-year annuity. This annuity is tax-deferred, but it is not > > covered by FDIC, although there are state funds that back annuities. > > What spread over FDIC-insured bank certificates of deposit should one > > demand to invest in a CD-like annuity? > > I'm a little confused of your use of the word "mature". Do you mean > that the annuity has a guaranteed rate of interest for a specified > time period and that time period is almost up? I mean this. <snip> > > Regardless, I took a look at a handful of single premium fixed > annuities matrices and found a few respectable one's that offered 6+% > guaranteed for 6 years with a 4.55% minimum interest rate after that > period (Jackson National, Lincoln Benefit, MetLife & NY Life, namely). > Honestly, I didn't look into the details/caveats, so make sure you > perform your due diligence. Strangely enough, most of the attractive > offers were 3,6, & 7 year guarantees. 5 yr looked the worst. I don't > know why, but it was the case none the less. Thanks for this information. > Lastly, assuming the current annuity isn't automatically distributed, > does it have a minimum interest rate floor and, if so, what is it? I will find out. AIG, a big insurance company that offers annuities, among other things, has effectively been taken over by the Federal government to avoid bankruptcy. I have read that owners of annuities and life insurance policies should be safe. AIG has insurance subsidiaries that are strictly regulated. How much credit risk a fixed and immediate annuties have remains murky to me. -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by Ron Peterson on September 17, 2008, 2:06 pm On Sep 17, 7:53 am, beliav...@aol.com wrote: > AIG, a big insurance company that offers annuities, among other > things, has effectively been taken over by the Federal government to > avoid bankruptcy. I have read that owners of annuities and life > insurance policies should be safe. AIG has insurance subsidiaries that > are strictly regulated. How much credit risk a fixed and immediate > annuties have remains murky to me. IIRC, annuities are regulated by the state that they were issued in. There may be maximum annuity that is guaranteed by the state. -- Ron -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by Otis on September 18, 2008, 6:52 am According to this document: http://fic.wharton.upenn.edu/fic/papers/06/0614.pdf when an insurance company liquidates, it isn't the state the annuity was issued in that counts, it's the state you live in at the time of liquidation. See the footnotes in table 2. > On Sep 17, 7:53 am, beliav...@aol.com wrote: > >> AIG, a big insurance company that offers annuities, among other >> things, has effectively been taken over by the Federal government to >> avoid bankruptcy. I have read that owners of annuities and life >> insurance policies should be safe. AIG has insurance subsidiaries that >> are strictly regulated. How much credit risk a fixed and immediate >> annuties have remains murky to me. > > IIRC, annuities are regulated by the state that they were issued in. > There may be maximum annuity that is guaranteed by the state. > > -- > Ron -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Similar Threads Posted Mutual of America Fixed Annuity April 13, 2007, 4:14 pm Does the equity risk premium justify the risk? 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