​When markets become volatile, donors love to lock in gains with gift annuities. Charities, however, get very nervous about them. Why? First, it is one of the only gifts where the charity can actually lose more money than the original donation. Secondly it’s tough to find anyone who is really is really focused on all risk management facets. Third, people seem to become very focused on risk management when it is too late. When markets become volatile, Charitable Solutions and Dechomai Foundation ramp up quickly (in 2008, we worked 7 days a week over 7 months with two actuaries and completed over 120 pool risk audits).

With market volatility, charitable gift annuities (CGAs) have quickly become our main focus. So, what do we do? What can you do? And what are some helpful resources?

What We Do

We have four different approaches to CGA risk management:

1. CGA Actuarial Risk Audits
2. CGA Reinsurance Brokerage
3. Illiquid CGA Services, and
4. Our National Gift Annuity Foundation.

CGA Risk Assessment

Charitable Solutions has had an actuary on staff since our founding in 2003. We have also built a CGA Mortality table for the Society of Actuaries (click to view).

We use aggregated data from our past 200 CGA risk clients to create stress testing model reports to measure risk across 10 different dimensions (e.g., gender, longevity, restricted, statistical, concentration). Then, we derive a solvency number, a list of prioritized recommendations and a health analysis of each individual CGA.

CGA Risk Transfer

We have helped design three insurance carrier reinsurance contracts and have placed over 2,000 reinsurance cases since 1997. It is the only type of insurance we provide. Reinsurance allows the charity to transfer the investment and mortality risk to an insurance company – it provides a known amount at a known point in time.

In most cases, charities do this with large concentrated risks, situations where the charity or donor wants to see the money used immediately for the intended purpose or where the charity is very risk averse. There are many situations where reinsurance doesn’t work well – basically, the opposite of all of these characteristics. We work with 26 carriers to provide full quote bids in all 50 states, and have written every peer-reviewed published article on the topic in the last 25 years – see most here.

CGA Risk Avoidance

We developed the National Gift Annuity Foundation so charities could fully outsource gift annuities and still receive 100% of the residuum. In 2017, we had about 50 contracts and $4.5 million in assets. Today, we have 520 contracts and $36 million in assets. We are now the nation’s largest independent CGA platform and continue to grow rapidly. We can issue CGAs in 49 states, have a $20K minimum and can receive illiquid donations (e.g., S-corp stock, real estate, other private business interests, retained life estates). You can see more here www.nationalgiftannuity.org.

Common CGA Risk Mistakes

Don’t make the mistake we see over and over – waiting too late to get a pool or large CGA assessment! When the pool or CGA is healthy we have about a dozen possible approaches. When charities wait until the bottom has dropped out (or the annuitant is calling you after winning the 100+ age group in the Ironman!), it is too late. Another mistake is relying on FASB or State Reserve Reports to assess the health of the pool – they don’t and most always understate the liability… especially for restricted pools.

Let NGAF help you increase your CGA program by tapping your donors’ vast reservoir of unique assets. Real estate, business interests, and other hard to liquidate assets can be used in this way. We can issue annuity contracts of this type in virtually any state of the union. More information on the NGAF is available at nationalgiftannuity.org, or you can give us a call at 888-811-NGAF.

Thanks as always for considering the benefits of charitable annuities for your clients, whether funded by cash or other illiquid assets.

Bryan, Johnne, Mike, and Alex