Why I Don’t Chase MYGA Rates
What perfect timing for this episode! I just got an email from someone who declined the annuity I recommended because there was a MYGA with a much higher guaranteed rate. I guess some people think that I don’t see those options or don’t know about what’s available in the market but the exact opposite is true. I have reasons for recommending what I do and it goes far beyond interest rates. Multi Year Guaranteed fixed Annuities (MYGAs) have become much more popular in the past few years and more companies are hoping to secure your retirement money. Pay close attention to the details of such contracts so you’re not stuck with terms that don’t work in the future.
A couple of years ago there was a podcast, How to Choose the Best MYGA, and I talked about all the fine print that might be important. We don’t need to go over all of that again but it essentially states why the interest rate is not always the most important feature. Lots of things have changed with annuity products in the past few years but the fundamentals stay the same. One of the biggest changes is in the number of different companies that are trying to be competitive for your business. Meanwhile, the strongest insurance companies are doing what they have always done. Inquisitive people might wonder why the smaller and often lower rated companies are offering higher rates. Those who are new to this might not know to ask those questions so I’m here to give you the information.
Business has been a little slow this year and I don’t really mind. It has given me more time to enjoy life instead of working all hours of the day, and I also get to spend more time servicing existing clients. With products just as good as they have been for the past couple of years I am also surprised to know that some other people in the industry have also noticed things slowing down. Most importantly, the rate increases three years ago were such a dramatic change that a lot of people got off the sidelines and locked into an annuity. But something I realized recently might suggest another reason why my phone isn’t ringing as much. Consumers aren’t the only ones jumping at the chance to capitalize on annuities.
Private equity jumped into the insurance industry over the past decade and it became very obvious in the past few years. One thing in particular that has happened is that several small insurance companies have been purchased then renamed and given new financial backing from a major equity firm. It all may sound solid to some, but private equity firms are just trying to access easy money from the insurance industry and it starts to run outside the normal parameters of what has traditionally been the safest place to put money. I will keep recommending people put money in the safest place with this in mind.
It hit me a couple of weeks ago when searching MYGA rates for an interested individual. I have certain products I select because of the overall terms and that’s what I covered in the previous podcast. It’s not all about rates. The interesting thing is that none of the top rates over ten years were offered by the standard companies that we all know about. A basic Google search shows that most of the companies offering top rates were obscure companies that are owned by private equity firms. Why are they able to offer something so much better than the traditional companies?
They either know something that the management of bigger companies don’t know, which is unlikely, or they are taking more risk than is traditionally acceptable. Greater risk can be taken in several different ways. They can reduce profit margins dramatically or invest in lower-grade bonds and speculative investments to produce higher returns. I’ve heard from more than one industry insider that many of the smaller companies are willing to lose money to sell a more competitive MYGA. This means they are just trying to aggregate assets and will have to make up the losses in the future. It could be a gamble on interest rates or they will try to generate more profit from another part of the business. Either way somebody is going to lose but this is all just speculation on my part.
If you consider the fact that many of these companies are participating in investments that fall far outside the scope of traditional insurance industry management, that may be enough for the average person to pass up a few basis points in yield. Remember, historically, insurance companies have always purchased high grade corporate bonds and treasuries. They subtract a spread for expenses and profits but deliver the bulk of the yield to annuity owners. In the past several years, private equity companies have developed a bit of a shell game, while hiding investments and reinsurance in offshore countries to escape reporting requirements in the US.
This is a very general view of things but the practice has been well documented. Late last year I ran a podcast on Sentinel Security Life who got into trouble because of a high concentration within a very risky asset class. Regulators didn’t like it and nor should policyholders. It’s likely that more of this will come in the next months and years as the regulators attempt to add more accountability to the industry. Extremely conservative management was once the only way to run this industry but is now something that requires additional diligence to verify. I didn’t make a single penny selling Sentinel products but I’ve spent a lot of hours talking to people about it.
The top MYGA rates are all held by small companies that offer much more than many of the traditional companies you have heard of. Income products are similar for the most part and I don’t trust it. As much as I tell everyone to get the best deal possible it’s important to consider all factors with rates or payouts being only one. I don’t chase MYGA rates because there are other key features that set products apart. With safety being the biggest concern I’ll stick with products paying just a little bit less. I’ve been right to avoid a specific company twice in my career. When we shoot for 100% performance then any hint of financial trouble is unacceptable.
I don’t want anyone to lose money or have it tied up while an insurance company is on the hot seat. So it’s easy to take just a little bit less and keep your money with one of the ultra solid companies. Annuities are supposed to add stability and balance to a portfolio. There’s no place for aggressive investment management in the insurance industry so I’ll gladly stay away from it, even if it does cost me a few deals. There is another podcast I released a few years ago and the title says it all, Annuities and Greed Don’t Mix. Go ahead and chase rates if you want. I’m going to stick to the fundamentals.
Have a great weekend!
Bryan
Watch Episode 188: Why I Don’t Chase MYGA Rates
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Last Updated on August 1, 2025 by Bryan Anderson
