Competition Tightens In The Bank Annuity Market

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Shelf space for annuities in banks is narrowing, despite investor skittishness over the stock market, experts say.

Notwithstanding record sales, banks still want annuity underwriters who can offer name recognition to their customers. And many financial institutions are trying to reduce the number of carriers they work with, notes Kenneth Kehrer, head of Kenneth Kehrer Associates, a Princeton, N.J. research firm.

“They are cutting back for two reasons: to simplify their processes and to have more leverage over underwriters,” he says. “The fewer the underwriters, the better the commissions and marketing allowances they can get.”

The average bank sells 13 fixed annuities from five insurance companies and 12 variable annuities from seven companies, Kehrers research has found.

Bruce Ferris, a vice president of the Hartfords investment products division thinks any newcomer to the bank annuity market is going to find it hard to break in.

“It takes scale and a big commitment of resources, particularly in light of current market conditions,” says Ferris. “Many competitors are retreating from the variable marketplace, including from banks. That spells opportunity for us and others.”

The Hartford said in June it wants to double the size of its external wholesaler force dedicated to annuities, from 11 to 22. On top of that, it will add a new internal sales force of 22.

Most will be on board in time for the companys annual sales meeting in early August, Ferris expects.

Forty percent of annuity sales by the Hartfords wholesaling organization, Planco, in Paoli, Pa. is through banks, Ferris points out.

Its biggest line of variable annuities is co-branded with Putnam Investments, a subsidiary of Marsh & McLennan Companies, New York. Hartfords two other VAs are the Director and Hartford Leaders.

On July 26, Hartford announced a new rider to all its VAs called Principal First, which offers a guaranteed return of principal to owners who take out 7% or less annually in withdrawals.

“It will help investors who want to have confidence in the safety of an investment to get back into the equity markets,” Ferris says.

Banks are tough to crack but not shut to newcomers, observes Matt Riebel, president of Nationwide Financial Institutions Distributors Agency, a unit of Nationwide Financial, Columbus, Ohio. His company was second in the sale of VAs in banks last year, after the Hartford, and fourth in fixed products.

“There is always room for good competitors in the market,” Riebel insists. “Even if there is not more business, the good competitors will take away the market share from the weaker companies.”

But David Peters, vice president and national sales manager for financial institutions sales for Mutual of Omaha, believes the bank annuity market is saturated.

“Banks are cutting back because it became overwhelming for reps to deal with all those annuities,” Peters observes. “So now they deal with select names.”

His company plans to expand annuity sales in banks and elsewhere, Peters says.

MetLife recently cut back its bank-dedicated wholesaler force after its VA sales in banks fell 40%, to $39 million, last year, compared to a drop of only 26% for the industry as a whole, according to figures compiled by the Kehrer firm.

Although MetLifes sales of fixed products rose 23% to $349 million, that was well below the 79% average growth registered by annuities in banks last year.

In April, MetLife slashed its bank wholesalers in its MetLife Investors Distribution Company unit in Newport Beach, Calif. from seven to three.

Les Sutherland, executive vice president of broker/dealer and bank channels, calls the move “rightsizing.”

“We look to increase the size of that sales force by the end of the year,” Sutherland says. Meanwhile, the company is using its regular broker-dealer wholesaler force to fill the gap.

“The bank channel presents tremendous opportunities, and we look forward to our continued presence there,” Sutherland says.

Banks are redefining their markets and their value proposition for annuities as they gain information on what sells best, notes Rick Connors, senior vice president and head of the annuities division of Mutual of New York.

“There are significant quality players who have become entrenched” in the bank VA market, he observes. “But there is still a lot of play in the fixed market. Companies like Lincoln Financial came in late but did very well with fixed products.”

In January, MONY began treating manufacturing and distribution as separate profit centers. Then it went after new distribution channels and expanded its product offerings.

MONY brought out a new VA in January that it hopes will do well in banks as well as other channels. It can have fixed accounts inside of it, based upon bond funds and guaranteed interest accounts, an innovation MONY expects will attract nervous investors, Connors says.

“I dont think the variable annuity is dead,” he adds.

MONY introduced a new fixed product in May with a choice of guaranteed interest periods within the annuity. Individuals can allocate money into one or more of the guaranteed periods, ranging from one through 10 years.

The product also offers free withdrawals of up to 10% of the accumulated value from any of the guaranteed accounts without incurring a surrender charge.

Connors says MONY is in discussion with several banks to sell that product.

In the fall, the company will come out with new fixed products that will have short surrender and no surrender charge versions.

“A key requirement to play in the bank annuity market is to have a broad portfolio,” Connors explains. “We are confident we will play in that market.”

Despite its rigors, the bank market still seems to offer a place for even relatively small carriers with the right niche.

VantisLife Insurance Company, East Hartford, Conn., in June began offering its life and annuity products in Virginia, focusing on community banks with under $1 billion in assets.

VantisLife, formerly Savings Bank Life Insurance Company (and still doing business under that name in Connecticut) did market research that showed the Virginia annuity market was “underserved,” says Craig Simms, senior vice president of the company.

“In light of recent events, the fixed marketplace is going to remain strong,” observes Simms. “The typical buyers are over 50, and theyve been burned too much with 401(k)s tied to the equity markets. Even if the stock market rebounds, people over 55 will have lost faith. Theyre going to be happy with vehicles that pay 5% or 6%.”

VantisLife, which exclusively sells fixed annuities, last year sold around $60 million in annuities and expects to do the same this year.

“Were small enough to offer a level of customer service than maybe bigger companies can and are focused squarely at the middle income market, those under $100,000 in income and even under $25,000,” says Simms. “Not a lot of companies pay attention to that market.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 5, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.