AIG unit could be next VA powerhouse

Turning the corner

As insurers put the brakes on variable annuity sales, an old rival is emerging as a potential powerhouse in the business.

At a time when most life insurers are experiencing only tepid growth or outright declines in their variable annuity sales, SunAmerica Annuity and Life Assurance Co. went gangbusters in the second quarter and is winning back advisers.
The life insurer, a subsidiary of American International Group Inc., brought in $1.3 billion in VA sales in the second quarter, up 51% from the year-earlier period.
Broker-dealers reported some upticks in SunAmerica business, with Raymond James Financial Inc. generating $61.8 million in sales from October through July, a 12% gain from last year. Edward D. Jones & Co. LP, a major SunAmerica partner that brought the insurer back to its product platform in May 2011, had generated close to $300 million in sales of the latter’s VAs year-to-date through early August.
“They have a strong wholesaling force that cultivates the relationships with the advisers, and the sales are there as a measure,” said Merry Mosbacher, principal in Edward Jones’ insurance marketing unit.
Though SunAmerica is far from overtaking the market leaders — in the same quarter, MetLife Inc. brought in $4.6 billion in sales, down 34%, while Prudential Financial Inc. saw gross annuity sales increase 20%, to $5.4 billion from $4.5 billion — its volumes suggest that the company has turned a corner.
“What we’re seeing now is the benefit of the fact that they didn’t have the fundamental problems that other parts of AIG had,” said Paul Newsome, an analyst with boutique investment bank Sandler O’Neill + Partners LP. “The life insurance unit had relatively stable management and strategy throughout the turmoil.”
Management seems sufficiently confident in the overall progress at SunAmerica and at AIG since the 2008 bailout that in October, SunAmerica Financial Group, which comprises annuity issuers SunAmerica Annuity and Life, VALIC and other entities, will be renamed AIG Life and Retirement.
“To some degree, we’re officially turning the corner, and we will continue to go to market with the legacy brands we’re best known for,” said Stephen Maginn, president of SunAmerica Financial Group Distributors. “To me, the name change signifies the greatest turnaround in American history.”
Not all financial advisers remain convinced of the SunAmerica’s potential VA firepower.
Susan Moore, founder of Moore Wealth Management and an adviser with LPL Financial LLC, for instance, didn’t like a rider requirement that 20% of the VA assets be put in a fixed account. “It’s really just a stable value account that could dilute returns,” she said.
However, observers agree that a combination of strengthened wholesaling efforts, attractive living benefits for customers who want income early in retirement and a massive retrenchment among VA providers puts SunAmerica in the pole position to capture market share.
“After the crisis, one thing advisers are looking for is whether you’re committed to the space,” said Tamiko Toland, managing director, retirement income consulting at Strategic Insight. “SunAmerica never disappeared, and they see an opportunity with wholesaling talent that’s available in order to build a good distribution network.”
As market players MetLife and Prudential moderated their VA sales and with companies like Sun Life Financial Inc. and The Hartford Financial Services Group Inc. exiting the product line, SunAmerica had a shot at attracting more wholesalers to its ranks.
In early 2009, the company had about 55 wholesalers, and that’s expected to be near 100 by the end of 2012, Mr. Maginn said.
Advisers, even if they’re not immediate converts to SunAmerica’s products, note that wholesalers are using other companies’ exits as a pitch.
SunAmerica’s features include the opportunity to take as much as 6.5% in withdrawals, though some versions of the rider cut that percentage to 3% if the client’s account is depleted.
“They’re [wholesalers] aggressive to go after market share as those other companies reduce benefits,” said Thomas B. Hamlin, president of Somerset Wealth Strategies Inc., a firm that offers securities through Raymond James Financial Services Inc.
“They’ll say, ‘Hey, now that Met and others are changing their benefits, what about SunAmerica? Let me share with you why we’re competitive,’” he added.
The fact that SunAmerica has managed to avoid overloading its books with annuity liabilities is also a strength.
“The increase in sales is the result of the execution, plus an environment where they think they can make more money, as opposed to wanting to be No. 1 in market share,” said Mr. Newsome.
The insurer doesn’t necessarily want to be the number one VA seller, but would be content with a top three or top five placement. As of the first quarter, it was the seventh-largest seller of variable annuities, according to data from LIMRA.
“The VA business is only about 10% of the assets at SunAmerica Financial Group and less than 5% of AIG’s overall assets,” Mr. Maginn said. “There’s a tremendous amount of capacity, but we’re growing in a disciplined way.”