Equity index troubles spark Allianz layoffs

Aug 21, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - Broker-dealer anxiety over complying with NASD regulation is causing once-highflying equity index annuities to lose some of their luster, prompting layoffs at the industry's largest EIA insurer.

Minneapolis-based Allianz Life Insurance Company of North America, which specializes in EIAs and has a 33% market share, this month said that it was laying off 200 employees - about 7% of its U.S. workforce.

Layoffs were needed to balance expenses, said Doug Reynolds, president of Allianz, in a prepared statement.

Sales of the company's EIA products have "flattened" in recent months, partly because of new regulations from NASD, he added.

Parent company Allianz AG, based in Munich, Germany, this month said that it was cutting 7,500 jobs in its insurance and banking subsidiaries in Germany.

However, an Allianz Life spokeswoman said that those reductions were unrelated to the U.S. layoffs and that the German parent wasn't involved in the decisions that led to the 200 job losses.

"The decision was made by the Allianz Life management team. We don't have any more layoffs scheduled," she added.

Allianz Life also may be about $50 million over budget from initiatives to promote its products among independent producers, many of whom proved unreceptive to aligning with a specific insurer, according to industry observers.

But the insurer's spokeswoman denied that. "We are aligning our expenses with our projected production, not based on being over budget due to spending on previous initiatives," she said.

Tough all over

Other large EIA insurers are feeling the strain, as well.

AmerUs Group Co. in Des Moines, Iowa, last month agreed to be acquired by London-based Aviva PLC, in part to bolster its resources in light of expected additional costs of EIA compliance.

This month, American Equity Investment Life Holding Co. in West Des Moines, Iowa, wrote in its earnings release that NASD regulations partly were to blame for its second-quarter drop in EIA sales (InvestmentNews, Aug. 14).

"With NASD demanding closer monitoring of EIAs, the independent broker-dealers don't want products with long surrender periods or excessive surcharges," said Tobin Johnson, annuity manager for Swenson Anderson Associates Inc. in Minneapolis.

Since August, NASD has required broker-dealers to supervise the sale of EIAs by advisers, even though the annuities are not registered securities and already are regulated by the states as insurance products.

Allianz Life is among the companies that many broker-dealers view as having products that might be objectionable to NASD, according to observers.

"Especially for the senior marketplace, Allianz EIA products are very user-unfriendly," said Richard Dunnagan, owner of Dunnagan Retirement Services LLC in Raleigh, N.C.

"Once you put money in an Allianz EIA, you can't get it back out," he said. "The majority of companies allow you to take out 10% a year without penalty, but many Allianz products have no withdrawal privileges - you must annuitize to get money out."

"[Allianz] became big and successful due to their sales force and the field marketing organizations [many of which Allianz owns]. They had a loyal and dedicated following of agents," Mr. Dunnagan said.

Dim outlook

"Allianz is bracing for things' getting worse," Mr. Johnson said. He noted that the company recently promoted Mr. Reynolds, who used to be in charge of compliance.

"I think that the broker-dealers are talking out of both sides of their mouth when it comes to the EIA products they want to sell," said Rod Prahl, owner of Renaissance Annuity Group LLC in New Hope, Minn.

"For instance, ING [Americas in Atlanta] has consumer-friendly EIAs, but if the broker-dealer doesn't approve ING products, clients won't hear about them."

Insurers should know by now that EIAs can't escape regulation as securities, said Rod Heggy, a lawyer in Oklahoma City.

"The insurance industry has been bellowing for national regulation, and NASD is a national regulator," he said. "Those in the securities industry are now probably saying, 'Welcome to our world.'"

Adverse publicity of EIAs, and their fees and surrender charges, also may be eating into sales, according to Mr. Prahl.

"EIAs were flying under the radar for a long time, but then the media started paying attention to them," he said. The fact that EIAs are a product of middle America, mainly Iowa and Minnesota, and not a "Wall Street darling," also might be hurting sales, Mr. Prahl added.

"I hear a lot about how complicated EIAs are, but they are no more complicated than variable annuities and mutual funds," he said.

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