Some Annuities Are Backed by Riskier Private Credit Assets

For decades, a fixed annuity worked in a simple way. You handed an insurance company your money, and the company mostly invested it in government and investment-grade corporate bonds, safe, boring assets that reliably covered the rate it promised you. That is changing at a growing number of insurers, and researchers and regulators are starting to pay closer attention.

Some life insurers, especially ones now owned by private equity firms, back their annuities with private credit instead: loans made directly to companies rather than publicly traded bonds. Those loans can pay more, but they are harder to value and harder to sell quickly if the insurer needs cash. Here is what that shift means for you, and how to check what is actually backing your own contract.

Why Private Credit Is Showing Up Inside Annuities

Private equity firms have been buying life insurance companies for years, because those companies collect premiums up front and may not have to pay claims or annuity income for decades. That gap between money in and money out is attractive to a firm that also runs investment funds, since it can direct the insurer's assets toward those funds' own loans and earn management fees along the way.

A paper from Yale researchers, covered by Retirement Income Journal, warns that some of these insurers could face real strain if a wave of those private credit loans, many made to software and data-center companies riding the AI investment boom, sours at the same time. A decades-old rule meant to protect policyholders from losing their annuity income could end up shifting part of that risk onto taxpayers instead of the firms that made the loans.

Why Multi-Year Guaranteed Annuities Are Getting the Most Attention

Multi-year guaranteed annuities, often called MYGAs, were the top-selling type of annuity last quarter, and they are exactly the product this strategy tends to back. A MYGA's fixed rate is only as solid as the insurer's ability to actually pay it years from now, which is why what sits behind the promise matters as much as the rate itself.

An affiliated reinsurer set up in Bermuda or the Cayman Islands can also let an insurer hold less capital against these obligations than it otherwise would, which is part of why this pattern has a name in the trade press: the "Bermuda Triangle" strategy.

Where to Actually Check This Information

Your carrier's customer service line is the fastest answer, but you do not have to take a single phone call at face value. The National Association of Insurance Commissioners runs a free consumer search that shows an insurer's licensing status, financial information, and complaint history by state, which is a useful second opinion on anything you're told over the phone.

Every state also has its own life and health insurance guaranty association, the backstop that pays claims up to a set limit if an insurer becomes insolvent. The National Organization of Life & Health Insurance Guaranty Associations keeps a directory of each state's association and how the coverage limits work, since they are not the same in every state.

Questions to Ask Before You Sign Anything New

If you are still comparing offers, ask these before you commit to a carrier, not after your money is locked in for years.

If you haven't started comparing offers yet, Questions to Ask Before You Buy a Retirement Annuity covers the basics first.

What to Do If You're Concerned About Your Current Contract

You do not need to cancel anything today. Pulling money out of an annuity early usually triggers a surrender charge, so the point right now is information, not a rushed decision. Use the checklist above, then decide with real answers in hand instead of a headline.

If what you find genuinely worries you, an independent fee-only financial advisor, one who isn't paid a commission to sell you a different annuity, can help you weigh whether staying put, waiting out the surrender period, or moving your money makes sense for your specific contract.