Annuity Companies To Avoid In 2025

It’s time to be picky with the annuities you choose for retirement.  I’ve always thought it is important to be incredibly selective and that approach has cost me a fair bit of business over the years.  Interest rates have been far more attractive in the last couple of years and many people wanted the absolute highest rates possible.  Although it did cause me to add several new companies to what I offer, for the most part I stuck with companies that I knew very well.  At times I couldn’t offer the highest interest or income payouts because I refused to use the company with the best rate.

Near the beginning of December 2024, Sentinel Security Life was barred from writing new business.  Domiciled in the state of Utah, the insurance commissioner deemed the investment portfolio of the company to be too risky and put a stop to new sales.  The company is of course going to appeal this decision. I hope it works out for all the policyholders but it’s not at all the type of thing anyone wants to deal with after choosing a safe product for retirement.

Sentinel has been very competitive with MYGAs and guaranteed income contracts for several years.  The company rating was B+ so I never touched it.  On top of that, customer service reviews were awful so it wasn’t hard for me to disregard this option.  I spoke with several people who went ahead with a slightly better deal and chose to take the risk.  I’m glad I don’t have to hold anyone’s hand through this.  Maybe it works out but it could also get ugly.  Almost every other annuity website posted Sentinel’s rates so I assume they have some explaining to do.  Certain advisors touted state guaranty funds as a safeguard against insolvency and I’ve written about why that’s a ridiculous claim, not to mention something we are barred from doing.

The problem is what Kerry Pechter calls the Bermuda Triangle for insurance companies.  That’s a good resource for anyone who wants to fact check me.  Basically it allows insurance companies to use offshore holding companies to buy assets that chase higher investment returns but don’t have to be specifically disclosed on the company balance sheet.  The most solid insurance companies have 90% or more of assets held in high-grade bonds.  Using alternative assets for an increasing percentage of the portfolio obviously brings more risk.  With companies like Sentinel getting into trouble, it shows that regulators are taking a closer look at this questionable system of accounting.

Private equity is the issue.  Large investment companies wanted access to the large pool of cash available at insurance companies.  They buy some smaller companies, slap a catchy new name on it, and take the assets offshore where they can do anything they want.  Oh yeah, they also jack the rates on annuity products so they can gather even more assets.  A reliable source told me a few years ago that some of these companies are losing money on their MYGAs.  The only way they can stay solvent is to chase returns that exceed what is guaranteed.  I shouldn’t have to tell anyone that it may not work out in the long run.  Strong global markets in the past few years have certainly made this practice profitable but just wait til there’s some real economic turmoil.

Private equity-led insurance companies have products all over the place and I stay away from them.  I’m going to be a lot more vocal about this going forward and you should pay attention.  Annuities are supposed to be the most solid foundation of a retirement portfolio.  Greed has no place here so focus on fundamentals, even if you have to take a slightly lower rate. If you disagree then go ahead and take your business elsewhere.

Have a great weekend…

Bryan

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Last Updated on January 21, 2025 by Bryan Anderson