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.
