3yr MYGA @ 3%, AM Best A- ?

[catotx]

Now that the CD rates have dropped like a rock, I am looking at MYGAs as alternatives.

So I am looking to buy a MYGA, 3yr term at 3% from an insurer (Oceanview Life) rated AM Best A-.

My preference would be a rating of A or better. But the insurer with the better rating only pays 1.95% (North American A+), so there is quite a bit of difference in yield.

Any thoughts?

Background info:

a) This will be my first ever purchase of a MYGA.

b) This will be using non-qualified funds.

c) I understand the 10% tax penalty if withdrawn before 59.5. I will probably let it rollover tax-deferred until my age is out of the ACA subsidy MAGI constraints.

d) I won't need the money before the term is up. This money is part of my fixed income allocation for my 65/35 portfolio.

e) I understand the state insurance guaranty is not as strong as FIDC/NCUA.

f) The amount invested is below the state insurance guaranty limit.

 

[Retireby45ish]

I asked this in the previous thread on these but no one responded: what do these invest in that allows them to offer this return? So that I can weigh the actual risks.

Also, for taxes, there is no impact (gains recoded) until they mature in 3 years? Is that right? If so, good if you are in higher bracket now (vs something like a bond) and a lesser one in the final year.

 

[catotx]

I asked this in the previous thread on these but no one responded: what do these invest in that allows them to offer this return? So that I can weigh the actual risks.

Also, for taxes, there is no impact (gains recoded) until they mature in 3 years? Is that right? If so, good if you are in higher bracket now (vs something like a bond) and a lesser one in the final year.

As far as I know, Oceanview Life is a relatively new name, so I guess they have to pay more to attract assets. They might also be paying a lower commission to the agents, and seems to be marketed only by online agents who accept the lower commission (I think).

Correct, no tax consequence until maturity. At that point, you can decide to cash out and pay the taxes or continue to defer (with option to transfer the funds to another insurer with a 1035 exchange).

For those optimizing the MAGI for ACA subsidy, a MYGA can defer the income until you reach medicare age when you don't need the ACA subsidy anymore.

I am weighing the risk / yield of the insurer -- a 3% yield for A- insurer versus 1.95% yield for a A+ insurer.

 

[pb4uski]

Just reading between the lines, it looks like Oceanview is a private equity play. IOW, a PE firm buys a little life and annuity company principally for its insurance licenses and then ramps it up to issue product and aggressively invests the premiums with the premise that outsize PE returns are sufficient to provide an attractive return to policyholders as well as good fees to the PE fund sponsors. Another similar player is Athene. In both cases there is an off-shore tie in, usually Bermuda based, using reinsurance to side-step US capital requirements. This was an emerging modus operandi for the PE firms in my last couple years of work.

It could work out, or in a recession it might not. I would be cautious... especially for an additional 1%.

https://www.businesswire.com/news/h...Credit-Ratings-Oceanview-Life-Annuity-Company

 

[catotx]

Just reading between the lines, it looks like Oceanview is a private equity play. IOW, a PE firm buys a little life and annuity company principally for its insurance licenses and then ramps it up to issue product and aggressively invests the premiums with the premise that outsize PE returns are sufficient to provide an attractive return to policyholders as well as good fees to the PE fund sponsors. Another similar player is Athene. In both cases there is an off-shore tie in, usually Bermuda based, using reinsurance to side-step US capital requirements. This was an emerging modus operandi for the PE firms in my last couple years of work.

It could work out, or in a recession it might not. I would be cautious... especially for an additional 1%.

https://www.businesswire.com/news/h...Credit-Ratings-Oceanview-Life-Annuity-Company

Thank you for your insight. It gave me something to think about.

 

[jazz4cash]

Have you reviewed the offers from a broker like immediate annuities.com? The Oceanview product is listed there and it is indeed a superior rate. I am very open to using a MYGA as a CD alternative but I’m not sure how meaningful the ratings are esp for a new or unfamiliar insurance company. I would use a few different insurers even if it meant giving up some interest.

Guggenheim is rated B++ and they have a direct sales arm called Gainbridge offering 3% for 5 yrs. Except for the Oceanview product 5 yrs seems to be the sweet spot for these things. There are several B+ and A rated companies within 1/4 % of Oceanview.

 

[catotx]

Have you reviewed the offers from a broker like immediate annuities.com? The Oceanview product is listed there and it is indeed a superior rate. I am very open to using a MYGA as a CD alternative but I’m not sure how meaningful the ratings are esp for a new or unfamiliar insurance company. I would use a few different insurers even if it meant giving up some interest.

I use the Blueprint Income website which provides similar comparisons.

https://www.blueprintincome.com/fixed-annuities

I share your concerns about a new insurer with an AM Best A- rating. On the other hand, a 3yr MYGA is relatively short and maybe the higher yield with slightly higher risk is acceptable?

If I were to buy a SPIA which provides lifetime income, I would probably only consider AM Best A+ or A++.

 

[jazz4cash]

I use the Blueprint Income website which provides similar comparisons.

https://www.blueprintincome.com/fixed-annuities

I share your concerns about a new insurer with an AM Best A- rating. On the other hand, a 3yr MYGA is relatively short and maybe the higher yield with slightly higher risk is acceptable?

If I were to buy a SPIA which provides lifetime income, I would probably only consider AM Best A+ or A++.

I forgot about blueprintincome.com. I looked at their site a long time ago. I dont know why I never went back because it is a great resource, so thanks for that.

 

[catotx]

I'm doing some comparisons for 3yr MYGA at the $50k level

Oceanview Life A- 3.00%
Fidelity & Guaranty Life A- 2.25%
Delaware Life A- 2.25%
Oxford Life A- 2.10%
North American A+ 1.95%

The best 3yr CD available to me would be the jumbo CD from Hughes Federal Credit Union at 1.77%. (With NCUA insurance, I would be comfortable putting more money into one jumbo CD).

Getting 3.00% from the MYGA versus 1.77% from the CD is attractive to me, but getting 1.95% from the MYGA versus the 1.77%, not so much. The EWP for the Hughes CD is only 180 days.

 

[pb4uski]

If you go with Oceanview, I would suggest that you stay within the $300k limit for the Colorado state guaranty association.... so invest no more than $275k.

 

[catotx]

If you go with Oceanview, I would suggest that you stay within the $300k limit for the Colorado state guaranty association.... so invest no more than $275k.

Thanks. I would definitely stay below my state's limit, regardless of which insurer I go with.

 

[pb4uski]

Good point... it would be your state of residence when the insurer goes into receivership and not the insurer's state of domicile... so $250k for Georgia I think.

Subject to limited exceptions, the guaranty association in a policy owner’s or certificate holder’s state of residence at the time the insurer fails will provide coverage, regardless of where the policy was purchased. For purposes of determining coverage, a person may be a resident of only one state. In the case of a non-natural person (i.e., corporate or other entity), residency will be determined by a “principal place of business” test.

If a guaranty association does not cover its residents because the insurer was not licensed in the state, the guaranty association in the state where the insolvent insurer is domiciled will provide coverage in most cases.

 

[catotx]

Good point... it would be your state of residence when the insurer goes into receivership and not the insurer's state of domicile... so $250k for Georgia I think.

Yes it is $250k for my state.

This link has a summary for comparison

https://www.annuityadvantage.com/resources/state-guaranty-associations/

But for confirmation, it's better to check with each state's site.

 

[capjak]

I purchased a 5 year and a 7 year A+ AMBEST rated at 2.65% and 3.5% respectively from Stan the Annuity Man. There currently is a A+ company Midland paying 2.4% at 100,000 minimum.
I am too cautious to go with Oceanview at A-

Fixed Rate Annuities (MYGAs) | Stan The Annuity Man®

 

[catotx]

I purchased a 5 year and a 7 year A+ AMBEST rated at 2.65% and 3.5% respectively from Stan the Annuity Man. There currently is a A+ company Midland paying 2.4% at 100,000 minimum.
I am too cautious to go with Oceanview at A-(MYGAs) | Stan The Annuity Man®[/url]

That's a reasonable option.

At the 5-yr term, I do see a 2.75% Jumbo MYGA from Mutual of Omaha (A+ AM Best).