Insurance Alchemy: The Fixed Rate Annuity Anomaly

The AFS Conference will feature speakers, symposia, and several special sessions. Among them, we will introduce a new panel session for PhD students, highlighting how to best navigate the job market.
With the generous support of our sponsors, the Academy has awarded several best paper awards during past meetings and we anticipate continuing Best Paper awards in 2021.
We will continue with our Emerging Scholar Award to a current graduate student for promising research work on a paper or poster presented at the conference.

Keywords

Short Description

Fixed rate annuities, also called multi-year guaranteed annuities, or MYGAs, offer expected returns protected by state guaranty associations similar to other safe investments such as CDs, money market accounts, or Treasury bonds. Yields on MYGAs have risen considerably, in relative terms, in recent years compared to historical levels. MYGAs offered by highly rated insurers had a 100 bps yield premium above Treasury bonds as of December 2020, with premiums exceeding 200 bps from lower rated insurers. Expected MYGA returns were approximately 100 bps higher than yields on similarly rated corporate bonds and have significantly lower default risk. We explore this apparent anomaly and discuss opportunities for sophisticated investors.

The Academy of Financial Services 35th Annual Meeting

September 21–22, 2021

Virtual