Charitable Gift Annuities ("CGA") are very popular with senior donors who like the security of guaranteed fixed income returns. With interest rates at all-time historical lows, it is easy to understand why higher interest paying CGA's are appealing to donors.

However, many nonprofits do not offer CGA's because they feel the benefits are too far into the future since the nonprofit usually receives the gift much later on when the donor passes away. However, nonprofits which don't market CGA's may want to start offering them to senior donors. Gift annuity risk reinsurance can be a very effective way to manage risk for the nonprofit that seeks to offer charitable gift annuities. Reinsurance is simply a financing technique whereby a charity shifts its contractual life-income liability owed to the donor with annuity reinsurance. In this way, the nonprofit is able to shift both the investment risk — the risk that returns are less than had been originally expected over the annuity's life — and the longevity risk — the risk that the donor will live longer than expected. donors because of a CGA hybrid which enables the CGA to be a major current gift, rather than a deferred gift after the donor dies. How this works is that the nonprofit receives the gift when the CGA is created, rather than receiving it later when the donor dies. This is done by reinsuring the CGA which also shifts the CGA longevity risk and market risk to a third party. With a $100,000 CGA, the nonprofit could receive 25% to 45% of the CGA amount when the CGA is created, rather than having to wait years, possibly decades, to receive the donor's gift. For most nonprofits, getting $25,000 to $45,000 now on a $100,000 CGA, rather than many years down the road, is a major plus. This way, the CGA becomes a major current gift rather than a deferred gift, paid years later after the donor passes away. Because of this, many nonprofits are getting off the sidelines and offering Reinsured CGA's to donors.

©Mark Henry, JD