The brochure said guaranteed

You're at the kitchen table.

The insurance agent left a brochure. A five-year guaranteed annuity. 6.45%, locked in. No stock market, no surprises.

Your bank's CD pays less. So does the government. You're tempted. I would be too.

But I'd want to know one thing first. Who stands behind that guarantee, and what do they own?

A fixed annuity works like a CD sold by an insurance company. The FDIC doesn't back it. The insurer's balance sheet does.

Last week, the top five-year rate on Annuity.com's board came from Mountain Life, which AM Best rates B-. The best A+ insurer on the same board, Athene, paid 5.85%.

The U.S. Treasury paid 5.033% when it sold five-year notes on September 23. That was its highest five-year auction yield since 2006.

So the weakest-rated insurer pays the most. That's normal… it's how risk works. The question is where the extra yield comes from.

More and more, it comes from private credit. U.S. insurers held about $1.2 trillion of it at the end of 2025, by the regulators' own estimate. That's roughly 13% of their cash and invested assets.

And many annuities don't stay home. Insurers hand the liabilities to reinsurers in Bermuda. That market holds about $1.52 trillion, and more than 80% of the business comes from the U.S.

It sells like a CD. Behind it sits a private loan book on an island.

In May, Treasury Secretary Scott Bessent sat down with state insurance regulators to talk about exactly this.

That's the anomaly. To the retiree buying it, the product looks as safe as ever. The assets behind it look less like plain bonds every year.

I have no idea when, or if, this breaks. But rising rates are the test. When new annuities pay 6% and up, people holding older, cheaper ones have a reason to leave.

So this week, we're following the guarantee.

This connects directly to what backs the promise.

For decades, life insurers bought government and corporate bonds. They could sell them on any trading day.

Private credit works differently. These are loans made directly to companies, often through the insurer's own affiliated asset manager. They don't trade on a screen, so nobody quotes a price for them every day.

The NAIC says private credit made up about 21% of insurers' bond holdings at the end of 2025.

And the average hides the edges. Forbes reported this month that some private-equity-backed insurers hold up to 40% of their assets in these illiquid, affiliated products.

State regulators are now rewriting how they judge private credit and offshore reinsurance.

Same guarantee. Different collateral.

And here's where it spreads.

When a U.S. insurer passes annuity business to a reinsurer in Bermuda, it can hold less collateral against it. Bermuda's rules count as qualified for U.S. regulators.

S&P Global counted $130 billion of life and annuity assets moving offshore in 2024 alone. That brought the total to $1.1 trillion.

One slice is growing fastest. Morningstar DBRS says Bermuda's life and annuity "sidecar" market has quadrupled since 2021, to about $375 billion of liabilities. Most of those vehicles don't disclose what assets back them.

Apollo, KKR, Ares, Brookfield and Carlyle all operate in the Bermuda market.

Offshore is legal. It's just harder to see into.

It doesn't always end well. 777 Partners used the structure to fund risky bets that failed, and Bermuda's regulator later cancelled the license of its reinsurer.

Meanwhile, rates keep climbing. On September 16, the Fed raised its target to 3.75%–4.00%, its first hike since the 2024–2025 cuts.

Annuity rates followed. One rate board this week showed a seven-year guarantee paying 6.95% in simple interest. Five-year rates have climbed sharply from their 2021 lows.

So a retiree who bought a few years ago now sits on a lower rate than the agent is offering today.

Surrender charges keep most of that money in place. On a typical fixed annuity, they start at 6% to 10% and fall about a point a year. Many contracts add a market value adjustment, which shrinks the payout further after rates rise.

But those charges run out. Then the money can walk.

That's when an insurer finds out how fast its assets can turn into cash.

Three more things worth keeping track of…

France is closing in on 5%. On October 1, the French 10-year yield traded near 4.95%. The gap over Germany passed 130 basis points, the widest since the 2012 euro crisis. At times this year, France has paid more to borrow than Italy. A decade ago that would have sounded absurd.

Australia is hiking too. The Reserve Bank of Australia raised its cash rate to 4.60% this week, with Australian inflation running at 4.0% a year. Central banks on both sides of the Pacific are now tightening into an oil shock. That's interesting.

China crept back over the line. China's official purchasing managers' indexes moved back into expansion for September, at 50.1 for manufacturing and 50.2 for services and construction. Anything above 50 means growth. It's barely over the line, and it came just before the Golden Week holiday shut markets. We'll see.

Fred Carr built a winner.

In the 1980s, his Executive Life grew into the largest life insurer in California. It sold policies and annuities, and it was a high-flyer.

The engine was the portfolio. Executive Life bought junk bonds, many of them sold by Michael Milken at Drexel Burnham Lambert. By 1991, more than 60% of its $9 billion in assets sat in high-risk bonds.

Then the junk market broke. The parent company lost more than $1.1 billion in 1989 and 1990. Writedowns caused part of it. A surge of policy surrenders caused the rest.

In other words, the customers saw it first. They asked for their money.

A guarantee is only as good as what stands behind it on the day you ask.

In April 1991, California's insurance commissioner, John Garamendi, seized the company. He froze policy loans and surrenders. It was the biggest insurance failure the country had ever seen.

More than 337,000 policyholders waited. Garamendi estimated 92% of them would eventually recover their full policy values. The rest would not.

The state sold the junk bonds to a unit of the French bank Crédit Lyonnais for $3.25 billion. Years later, California sued, alleging secret deals behind that sale. Recoveries eventually topped $930 million.

Every policy said the same thing on the front. The difference was in the portfolio. We'll see.