First Chicago NBD Plans Proprietary Fixed Annuity

First Chicago NBD Corp. will launch a proprietary fixed annuity product by yearend.

The fixed annuity will be underwritten by Western National Life Insurance Co., Houston, which also underwrites annuities for 10 other banks.

"It made sense to have a bank-branded fixed annuity, as we have a bank- branded variable annuity," said Karl Keller, vice president for marketing, planning, and technology at First Chicago NBD Investment Services, the bank's broker-dealer.

Mr. Keller said that the bank's proprietary variables, as well as its proprietary mutual funds, have provided a solid revenue stream, but he declined to provide figures.

First Chicago picked up the proprietary variable line, which is underwritten by The Hartford, when it acquired NBD Bancorp. in December 1995.

First Chicago's proprietary funds and annuities are sold under the bank's Pegasus label.

Proprietary funds and annuities are valuable because banks offering them get not only a commission for selling the products but also a fee for managing the assets. Banks typically get 3% or 4% of the invested amount as a sales fee and another 3% for managing the assets in proprietary annuities.

Banks started offering proprietary annuities in late 1992, when Fleet Financial Group rolled out a line of variable annuities. Now a few dozen banks offer proprietary annuities.

Industry watchers are split over whether proprietary annuities have been worth the effort.

"I don't believe it has done much to date in terms of lifting annuity sales within institutions," said David Kaytes, managing vice president, First Manhattan Group. "It's a scale-driven business, and most banks don't have enough scale to make lots of money."

But Jim Rensel, managing director of Q-Group Quality Insurance Resource Group, a consulting firm in Tempe, Ariz., disagreed. "My feeling is that they've done fairly well," he said.

But he questioned whether annuities will remain as popular, given the capital gains tax reduction recently signed into law. The reductions make mutual funds more attractive relative to annuities.

First Chicago executives also are considering selling term and whole life insurance through the bank's licensed investment representatives, according to Mr. Keller.

Western National is the country's top provider of fixed annuities to financial institutions. The 53-year-old life insurance company created its first proprietary fixed annuity for First of America, Kalamazoo, Mich., in 1995.

Through the second quarter, sales of the insurer's proprietary bank fixed annuities were slightly more than $1 billion, said Patrick Grady, a vice president at Western National.

Western National is unusual in that it does not manage any of its invested assets. Ten percent of the assets are managed by banks, and the rest are managed by Conseco Inc., Carmel, Ind., which owned Western National before spinning it off in 1994.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER