An annuity paying a higher crediting rate looks better.
But there is no magic in insurance.
If one insurance company can consistently credit more than another, somebody should ask:
Where does the extra spread come from?
Increasingly, the answer is:
Private credit.
Structured credit.
More aggressive asset management.
Reinsurance.
Bermuda and Cayman.
And sometimes a more accommodating state regulatory structure.
That brings us to New York vs. Iowa.
Insurance Companies Know the Difference
I spent seven years as an officer of AEGON/Transamerica insurance companies.
We had multiple insurance-company legal entities.
When possible, we generally favored the Iowa companies.
New York was different.
We generally avoided the New York company unless a sophisticated client insisted upon it.
Why would an insurance company care?
Because regulation has an economic cost.
More restrictive investment rules, tougher reserve scrutiny, tighter reinsurance requirements and more regulatory friction can reduce the amount of spread an insurer can extract from its balance sheet.
That’s potentially bad for insurer profits.
But it may be pretty good for the retiree relying on a guarantee for the next 30 years.
Iowa Has Become America’s Annuity Laboratory
Iowa now regulates roughly:
$1.3 TRILLION
of insurance assets.
Its roster includes some of the biggest names in fixed and indexed annuities:
Athene
Transamerica
F&G
American Equity/Brookfield
Sammons/Midland National/North American
Principal-related insurance operations
And Iowa’s own insurance commissioner, Doug Ommen, is now publicly warning about the industry’s migration into private markets.
About one-quarter of life insurers’ fixed-income assets are now private credit, according to recent reporting, and roughly $70 billion is below investment grade.
This isn’t your grandfather’s insurance portfolio.
The Extra Yield Isn’t Free
The old insurance-company model was relatively simple.
Take in $100 from an annuity buyer.
Invest heavily in publicly traded bonds.
Earn 6%.
Credit the annuity owner 4%.
Keep the spread.
Today Wall Street has discovered a potentially more profitable model:
Annuity: 4%
↓
Private Credit: 7%–9%
↓
Insurer captures a much larger spread
That sounds terrific—until someone remembers the first rule of finance:
Higher yields generally come with higher risk.
Private credit may be less liquid.
It may not have a readily observable market price.
It may rely upon private ratings.
It may involve affiliated asset managers.
And its value may be based substantially on models rather than transactions in a public market.
Recent reporting estimates life insurers held about $480 billion of privately rated debt in 2025. Private ratings can matter directly to insurer capital because regulatory capital treatment depends partly upon the credit quality assigned to an investment.
So the real game isn’t merely:
How much does the asset yield?
It is also:
How much regulatory capital must the insurer hold against it?
Iowa: 72. New York: 21.
In our CommonSense Regulatory-Arbitrage Risk Score, where 100 represents the greatest opportunity for regulatory flexibility/arbitrage—not probability of insurer failure—we estimate:
| New York | Iowa | |
| Regulatory-Arbitrage Risk Score | 21 | 72 |
| Private/structured-asset flexibility | Lower | Higher |
| PE/affiliate complexity | Lower | Higher |
| Offshore/reinsurance exposure | Lower | Much higher |
| Additional regulatory friction | Higher | Lower |
| Major annuity companies | TIAA, NY Life, MetLife | Athene, Transamerica, F&G, AEL/Brookfield, Sammons |
These are CommonSense analytical scores, not official regulator ratings.
But the underlying regulatory differences are real.
New York law contains extensive, specific limitations governing the investments of domestic life insurers.
And New York separately maintains extensive life-insurer reserve, valuation and filing requirements.
Iowa has become one of the industry’s preferred centers for the newer annuity/private-capital model.
Then $449 Billion Leaves Iowa
Here is the statistic every ERISA fiduciary should understand.
Iowa insurers have reportedly passed approximately:
$449 BILLION
of reserve funds to reinsurers in other jurisdictions.
That includes Bermuda and Cayman.
Iowa Commissioner Ommen himself is now warning about the increasing complexity of private-market investments and securitizations.
So the modern annuity can look like this:
401(k) participant
↓
Iowa-regulated annuity
↓
Private Credit
↓
Reinsurance
↓
Bermuda / Cayman
The participant sees one word:
GUARANTEED
New York Creates Friction
New York isn’t perfect.
New York insurers invest in private assets too.
They reinsure risk.
And nothing about a New York domicile eliminates insurance-company credit risk.
But New York has historically imposed more regulatory friction.
Its insurance law contains detailed limitations governing life-insurer investments.
It has extensive rules governing when insurers receive reserve credit for reinsurance.
It requires extensive insurer-specific valuation and reporting.
And New York has demonstrated that it will aggressively police its regulatory perimeter.
That costs insurers money.
Which may help explain why insurers don’t always want to issue through New York.
Higher Spread—or Lower Protection?
This is the question ERISA fiduciaries should be asking.
Suppose:
Iowa annuity: 5.0%
New York annuity: 4.5%
The easy analysis is:
Iowa wins by 50 basis points.
The fiduciary analysis should be:
Why am I getting another 50 basis points?
Is it better management?
Longer duration?
Less capital?
More private credit?
More structured securities?
Affiliated asset management?
Offshore reinsurance?
Different reserve treatment?
Or simply a different regulatory regime?
Until the fiduciary knows the answer, 50 basis points isn’t necessarily alpha.
It may be compensation for risk.
Wall Street Understands This Perfectly
Insurance companies employ armies of:
actuaries
lawyers
investment professionals
capital-management specialists
and reinsurance experts
to decide which legal entity should issue an annuity, what assets should back it, how much capital must support it and whether liabilities should be reinsured elsewhere.
They understand exactly what it means to issue through Iowa instead of New York.
Yet many 401(k) committees appear to compare annuities primarily on:
crediting rate
insurance-company rating
and perhaps fees.
That isn’t enough.
Ask the Question
When one annuity pays more than another, don’t simply congratulate the consultant for finding the higher rate.
Ask:
Where does the extra spread come from?
Then ask:
How much is private credit?
Who originated that credit?
Is the asset manager affiliated with the insurer?
How are the assets valued?
Who rates them?
How much regulatory capital backs them?
Has the liability been reinsured?
Where?
Bermuda? Cayman?
And:
Why did the insurance company choose Iowa instead of New York?
Insurance companies understand regulatory arbitrage.
Private equity understands regulatory arbitrage.
Wall Street understands spread.
ERISA fiduciaries need to understand all three before calling an annuity “safe.
The CommonSense 401k Project 