Your annuity may not be as safe as you think!

Added: 2026-05-05

[00:00:00]We'll see. Well, we're going to move on here to Harrison's favorite topic, your annuity may not be as safe as you think.

[00:00:06]>> This isn't even my topic. I didn't come up with this. So, this isn't like, you know, me just ripping on these things.

[00:00:11]This was >> [laughter] >> Jason Brent put this together.

[00:00:14]And many people, I mean, they they buy annuities cuz they they think they're safe. And again, you can't forget that a lot of times sales people they collect nice commissions, maybe 7 8% off of them. So, we always say annuities aren't bought, they're sold. And that's really our our belief here. But a a thing that we're looking at that is kind of behind the scenes is the Treasury Department has concerns and is talking to state insurance regulators about the amount of private loans that insurance companies are using in their portfolios. Yeah, that seems a little scary. Back in 2024, even the National Association of Insurance Commissioners, uh known as NAIC, is the what's the largest organizing body for regulators for every state in the US, had stated ratings that insurers had on private credit and investments were consistently overinflated.

[00:01:03]They have since pulled the report from the website. Large redemption requests from individual investors that want to pull their money out of many private loan funds are starting to show up in other areas like pension funds and insurance companies. Yeah, and the thing that really scared me was the insurance industry holds about $6 trillion in invested assets. That's not what's scary. What concerns me is roughly $1 trillion or about 17% is now in private credit investments.

[00:01:29]The insurance industry also uses what is known as private letter ratings and can also assign a risk score to the investment. In a study that examined 109 private letter ratings that NAIC officials received in 2023, in 106 of those cases, the private rating was higher than the NAIC.

[00:01:50]Does that sound familiar?

[00:01:52]Hm. 2008.

[00:01:53]>> [laughter] >> And I mean, even to make matters worse, 17 of the cases gave an investment grade private letter rating to assets that the NAIC considered junk or below investment grade. I mean, it's just so important that you understand these things because a lot of times people they're like, "Oh, my annuity, it's fine." If you have an insurance company that is taking on these big risks in private credit, and you know, there are private credit funds that are going to be totally fine. I don't want to say all private credit is bad. I will never do it because the illiquidity of it, but there are some that will be totally fine. But there's others that will not. And the moment those start going bankrupt, well, could kind of spread to the insurance companies that took big risks. If those insurance companies didn't go bankrupt, well, that is going to have a huge impact on your annuity that you thought was safe. And everything is fine with private credit as long as things are going well. It's when everything starts to unravel that those things fall apart very quickly.

[00:02:48]And 17% of their assets, I thought that insurance companies had more assets than 6 trillion. That seems low to me. But um the the fact that 17% of it is in the private credit space, I wonder what it was um earlier because private credit seems to be, you know, more definitely more prevalent, more pronounced. It's becoming more popular. Um but you know, we haven't really had a large credit issue in, you know, almost 20 years. So.

[00:03:20]>> Yeah, I mean, there there is again concern. And you know, I I I do believe it's not systemic, the private credit situation. It's large, but it it's not mortgage large >> No, no, no.

[00:03:30]>> in 2008, 2009.

[00:03:33]But it is something that I think individual investors need to be aware of because if your portfolio has, you know, uh exposure to this area, either direct or indirect, like annuities, you need to know about it because that could have a big impact on maybe not the whole economy, but your personal situation.

[00:03:50]And you know, these annuities, often times people they can't explain them, they don't know what's going on behind the scenes. They just see, you know, a paper statement and kind of what comes out each what, month, quarter, whatever annuities will send you paperwork on, and you think everything's fine, as you said, until one day it's like, "Whoa, what happened?" And at the end of the day, you know, annuities are guaranteed, but a guarantee is only as good as the person making that guarantee. So, federal government guarantees interest rates from Treasury bonds, that's pretty safe, risk-free investment for the most part.

[00:04:22]Um you know, some guy that you meet on the street that guarantees that he'll uh you know, pay you back, probably not. So, annuities are obviously not that, but guarantee doesn't always mean 100% perfectly safe. They are investing money that could, you know, fall apart at some point.

[00:04:37]>> Long story short, understand your investments, be careful, don't fall for anything that is too good to be true.