The Academy of Financial Services 35th Annual Meeting

fixed rate annuities, annuities

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.