Hi skc,
Haven't posted in these parts in a long time but took an interest at your post given I've been invested in CGF previously and we use their products in our financial planning office. Annuities can be structured in a few different ways but basically you put $x amount in, and you can choose the period of time to receive payments and whether there is any residual at the end of that time. So you might have a 5 year annuity starting with $100,000 and finishing with $0 receiving payments monthly with no indexation of payments. I just quickly ran a quote based on this setup and the payment was $1,795 a month with an earnings rate of approximately 3.00%.
This earnings rate is pretty typical of annuities at the moment and so you can see they don't have to invest the money very aggressively to earn the amount required to pay the annuity and still make a nice margin on the annuity for themselves. And because everything is fixed when the annuity is put in place they can easily manage their risk levels etc based on performance of their investments.
As you say if there is a shortfall they would need to make up said shortfall themselves however given they run the funds management section of the business as well as making a decent margin on the annuities historically I don't think they'd struggle too much to meet the annuity payments in these down markets.
My original thesis for investing in CGF was the aging population which has less tolerance for risk following the GFC and the benefits of having a funds management arm that will likely steadily increase as people are required to receive 9.5% SGC each year anyway. I sold my holding after making a decent gain thinking they were starting to get a little overvalued and that was when they were around $6.50 just a year or so ago and it seems I was wrong. I still think my investment thesis stands but whether they are value or not at the current price is another question.
Haven't posted in these parts in a long time but took an interest at your post given I've been invested in CGF previously and we use their products in our financial planning office. Annuities can be structured in a few different ways but basically you put $x amount in, and you can choose the period of time to receive payments and whether there is any residual at the end of that time. So you might have a 5 year annuity starting with $100,000 and finishing with $0 receiving payments monthly with no indexation of payments. I just quickly ran a quote based on this setup and the payment was $1,795 a month with an earnings rate of approximately 3.00%.
This earnings rate is pretty typical of annuities at the moment and so you can see they don't have to invest the money very aggressively to earn the amount required to pay the annuity and still make a nice margin on the annuity for themselves. And because everything is fixed when the annuity is put in place they can easily manage their risk levels etc based on performance of their investments.
As you say if there is a shortfall they would need to make up said shortfall themselves however given they run the funds management section of the business as well as making a decent margin on the annuities historically I don't think they'd struggle too much to meet the annuity payments in these down markets.
My original thesis for investing in CGF was the aging population which has less tolerance for risk following the GFC and the benefits of having a funds management arm that will likely steadily increase as people are required to receive 9.5% SGC each year anyway. I sold my holding after making a decent gain thinking they were starting to get a little overvalued and that was when they were around $6.50 just a year or so ago and it seems I was wrong. I still think my investment thesis stands but whether they are value or not at the current price is another question.