Boomer assets draw Old Mutual to VA market

Mar 19, 2007 @ 6:31 am

By Gary S. Mogel

NEW YORK — A life insurer known mainly for its fixed annuities has thrown its hat into the variable annuity ring.

Old Mutual Financial Network in Baltimore last month launched a no-frills VA product to which a guaranteed-withdrawal-and-death-

benefit rider can be added. The product — which has been approved in about 40 states — is available to advisers through independent marketing organizations and is intended as a lower-cost VA option for retiring baby boomers.

Financial advisers who use variable annuities in their practices are willing to see what a newcomer has to offer, while those who don’t use them are apathetic about yet another VA product.

A life insurer known mainly for its fixed annuities has thrown its hat into the variable annuity ring.

Old Mutual Financial Network in Baltimore last month launched a no-frills VA product to which a guaranteed-withdrawal-and-death-benefit rider can be added. The product — which has been approved in about 40 states — is available to advisers through independent marketing organizations and is intended as a lower-cost VA option for retiring baby boomers.

Financial advisers who use variable annuities in their practices are willing to see what a newcomer has to offer, while those who don’t use them are apathetic about yet another VA product.

“More competition is always good. There’s a huge difference in VAs; they come in many different sizes and shapes,” said Tim Kaminski, an investment executive with Security Investment Solutions in Hibbing, Minn.

The insurers that he uses for variable annuities — Hartford Life in Simsbury, Conn., John Hancock Life Insurance Co. in Boston and Pacific Life Insurance Co. in Newport Beach, Calif. — offer products that almost always can satisfy client needs, he said.

“I don’t use other companies unless a client specifically requests one,” Mr. Kaminski added.

“I decided long ago that I didn’t want to use annuities. I’ve just never been a fan of them, because savings and bond accounts can be annuitized,” said Bill McLarty, president of Money Minders Financial Planning Corp. in Mobile, Ala.

Therefore, he said, he pays no attention to new VA insurers and products.

Finding niches

According to Patrick Ferrer, its vice president of VA distribution, Old Mutual initially will compete mainly with Baltimore-based AEGON USA Inc. and Minneapolis-based Allianz Life Insurance Company of North America, the two largest VA distributors through independent-marketing organizations. Although IMOs offer many types of products, they have been used by most advisers as a source for fixed-annuity products such as equity index annuities.

“The VA marketplace is crowded, but there is not much head-to-head competition selling VAs through the IMOs,” Mr. Ferrer said.

“Allianz Life does not comment on the practices of other companies,” said company spokesman Jim McManus. AEGON representatives didn’t return a call seeking comment.

The competition ultimately may include Mr. Ferrer’s former employer, Jefferson National Life Insurance Co., which has one of the best-selling flat-fee, no-frills variable annuities. Up until last June, he was the national sales director at Jefferson National, and helped develop and distribute the New York-based insurer’s low-cost variable annuity, which has a $240 flat fee and no death benefits or guarantees.

Flat-fee, no-frills, no-commission products often appeal to fee-based advisers with clients who can obtain death benefits from other sources, such as group life insurance, and who don’t need guarantees, because they have pensions or can’t afford them.

Old Mutual may later offer a similar flat-fee product for fee-based advisers, according to Mr. Ferrer, who added that the amount of the fee hasn’t yet been decided. The insurer’s fee for its current variable annuities with guarantees is between 0.85% and 1.15% — a common fee range for the industry.

“Building a flat-fee product can’t be done overnight,” said Laurence P. Greenberg, chief executive of Jefferson National. “It takes a year or more to establish the trust and name recognition.”

Jefferson National’s wide choice of underlying mutual funds and use of technology to simplify the application process will differentiate its products from competitors’, Mr. Greenberg added. “The fee is only one ingredient in the stew,” he said.

The insurer’s flat-fee variable annuity had about $100 million in sales last year, and that figure is expected to “more than double” this year, Mr. Greenberg added.

There is already competition in the low-cost-VA space from AEGON, Fidelity Investments in Boston and The Vanguard Group Inc. in Malvern, Pa., so he isn’t worried about a new entrant, he said.

Simplicity sells

“Aside from Jefferson National, there are no very low VA fees out there,” said Greg Zandlo, president of North East Asset Management in Coon Rapids, Minn.

“But once there’s a ripple, other insurers will catch on,” he added. “I would use a VA with low fees.”

An advantage for Old Mutual over Jefferson National as a low-cost-VA provider is its A financial-strength rating from A.M. Best Co. in Oldwick, N.J., Mr. Ferrer said. Jefferson National’s rating is B.

Another possible advantage is simplicity.

We “went the other way, compared with VA insurers that are confusing advisers and clients with too many guarantee options,” Mr. Ferrer noted. “We have no a la carte menu for guarantees; there is just one simple living-benefits rider.”

The optional rider includes a guaranteed 5% annual withdrawal benefit and a 5% annual increase in the death benefit of up to 200% of the original amount. It is available for clients ages 55 to 75.

Industrywide, about 70% to 80% of variable annuities are sold with a guarantee, Mr. Ferrer noted. Commissions are in the 5% to 7% range, he added.

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