As I mentioned a few days ago, I had a conversation last week with Bryan Clontz, who I now consider the leading CGA risk expert in the country. If you followed my previous discussion on this topic, you should know that I’ve had doomsday concerns over the whole CGA business for some time.
You have to do some risk analysis on your CGA program! Especially if your entire CGA pool/reserve fund is just meeting New York’s reserve requirement. According to Bryan, who confirmed my own guess-work, the New York reserve requirement is essentially the funds needed to cover the payments to the annuitants. The gravy to the charity is supposed to be the funds in addition to the reserves. (If you are not licensed in New York, and don’t have such requirements, find out what it would be if you were licensed)
In other words, if you are struggling to meet New York’s reserve requirement (going up again this year!), you potentially have an even bigger problem: your program might start losing money!
Maybe it’s time to rethink your policies visa-vi how much you pull when a donor dies or whether you should issue annuities for related institutions or whether you should allow donors to designate the remainders of their CGAs?
Here is a link again to Bryan’s site: http://www.charitablesolutionsllc.com/index.html I don’t know if there is anyone else out there who can do a full fledged, professional risk analysis. Yes, he sells reinsurance – but contrary to popular planned giving thinking, reinsurance is an important option for gift annuity programs dealing with risk issues. I do my own “risk analysis” for clients but if my simplistic charts show too much red, I am sending you to Bryan.
Bryan gave me another great piece of “news” (at least news for me). Met Life very recently obtained an approved New York State reinsurance treaty.
Why is this important?
Up until now, only The Hartford was known for having the proper “treaty” in New York that would allow a charity to re-insure and not need to reserve on the re-insured portions of CGAs. Not that I don’t love The Hartford, but it is always good to have price competition.