Reinsurance

I know I promised a NY Times/WSJ style article to my blogosphere readership – that will take a few days. In the meantime, I came across an interesting presentation that is worth sharing.

While looking at my cluttered computer desktop last night, I opened a presentation that I gave to the Philanthropic Planning Group of Greater New York in May of 2009 with a colleague and some reinsurance people from The Hartford. A really interesting presentation and still relevant today.

Here is it: Planned Giving Day presentation on crashing stock market and CGAs

This was done at the height of the crashing stock market, CGA programs were buckling under unheard of market losses, and we really had to wonder if the field of planned giving would ever be the same.

Anyway, why should all of the work we put into this presentation disappear into the annals of computer memory. Check it out and post questions on it here!

And, believe it or not, under the right circumstances, I believe that reinsurance of CGAs (and possibly CRTs) actually works better than “self-insuring” (keeping and investing) for most CGAs/planned giving programs. Just don’t ignore my “under the right circumstances” caveat.

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.