Pru deal for Allstate's VA biz seen as a benefit to advisers

Mar 20, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - Advisers who sell or recommend Allstate Financial Services LLC's variable annuities will benefit from Prudential Financial Inc.'s financial strength, scale and product mix, industry observers say.

There will be no reduction in Allstate's independent sales force if the proposed acquisition by Prudential of Allstate's $16 billion VA business goes through, according to Michael Trevino, a spokesman for Northbrook, Ill.-based Allstate Corp. The force includes 8,000 agents licensed to sell securities and 1,300 financial services representatives.

Minimal overlap

Mr. Trevino added that it is "too early to tell if there would be personnel changes" at Allstate Financial, the unit through which Allstate Corp. markets its variable annuities. Allstate Financial will concentrate on fixed annuities and life insurance.

Regarding sales force compensation, Mr. Trevino said that the VA commission structure won't change.

"There's almost no overlap with our existing independent-financial-adviser channel," David Odenath, president of Newark, N.J.-based Prudential's annuity division, said in a prepared statement.

Prudential will administer Allstate's in-force variable annuities during a two-year transition period and sell its own products through Allstate's distribution force. In the bank channel, a variable annuity designed by Prudential will be sold under the Allstate brand.

The transaction is a "win" for the sales force, Casey Sylla, Allstate Financial's president, said in a statement.

"Distribution of Prudential variable annuity products through Allstate's proprietary distribution force is very complementary to Prudential's existing distribution channels," said a spokeswoman for Prudential. "[The] addition of Allstate's distribution rounds out our distribution strategy, because the strengths of both companies' distribution are in different areas."

Brokers at New York-based Morgan Stanley, who have been selling an Allstate-underwritten VA product, are expected to switch to a Prudential product. Access to the Morgan Stanley distribution channel was cited by Prudential as a key reason for the deal.

A concern among advisers who use both companies' products is that innovation in product design may suffer from the consolidation trend in the VA marketplace. That trend is driven by insurers' need for financial strength and scale to afford the ubiquitous guarantees, industry observers say.

While Prudential is flush with cash and seeking acquisitions, Allstate Corp. is reeling from property losses - caused mainly by management's failure to obtain reinsurance in the hardest-hit areas - from last year's Gulf Coast hurricanes.

Allstate has a solid fixed-annuity lineup, with the No. 1 product sold by wirehouses and the No. 3 product overall, according to a study of 188 fixed annuities offered by 49 insurers released this month by Beacon Research Publications Inc. in Evanston, Ill.

On the other hand, Allstate VAs were among the least popular choices of 179 adviser respondents to an August InvestmentNews survey. Prudential was a top-five VA source for advisers, the survey found.

Prudential generally is seen as having greater breadth than Allstate in its VA product offerings, which include the Prudential Strategic Partners line and a host of optional guarantees.

However, Allstate's guaranteed-minimum-accumulation benefit and joint-life spousal death benefit applicable to individual retirement accounts are highly valued by advisers.

Advisers with clients more concerned about preserving capital tend to gravitate toward Allstate VAs, while those with clients who need a guaranteed-lifetime-income benefit are more likely to use a Prudential product.

Fund options similar

Regarding underlying investment options in the variable annuities, "both companies offer a similar spread of mutual funds," said Andrew Edelsberg, assistant vice president in the life/health division of rating firm A.M. Best Co. in Oldwick, N.J. Sales force compensation of the two appears to be about the same, he added.

Allstate stopped offering the guaranteed-minimum-income benefit - a popular rider for retirees who may not have time to recover from adverse investment results - in 2004, noted an A.M. Best analysis of the deal.

Last year, Allstate attempted to remedy that void by adding the SureIncome option to its Advisor Variable Annuity product line. But that rider never caught on, because the way it calculated income benefits made it less attractive than comparable products of other companies, advisers noted.

Allstate agents and reps may be shortchanged in the quality of marketing materials, an area in which the company excelled. Its VA kit received top honors in a December best-practices sales literature study by Marketing Matrix International Inc. in Los Angeles.

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