A regulatory investigation into its parent company and flat sales industrywide made last year difficult for AIG SunAmerica's variable annuity business in the bank channel.
"It was an interesting year," said Leslie Hunnicutt, the unit's managing director. "It was the first time in the parent company's history that it was in the news negatively. We couldn't file new products, and we were in a difficult position."
Ms. Hunnicutt said that, after nine consecutive years during which sales grew 10% to 16% annually, AIG SunAmerica suffered a 20% sales slump last year, to $700 million in the bank channel. Some bank partners were hesitant to offer the SunAmerica unit's variable annuities, she said, while investigators probed the parent company's accounting practices, which prompted the ouster of American International Group's longtime chairman, Maurice R. "Hank" Greenberg.
The company was at a crossroads, Ms. Hunnicutt said. It delayed introducing a guaranteed-withdrawal variable annuity rider until November, and sales in the channel suffered. But the Los Angeles subsidiary of AIG responded by playing offense, she said, adding seven wholesalers and three bank relationships in this year's first quarter.
"We wanted to put the past behind us and concentrate on growing from here," she said. "We had a new product and a broader sales force, and that has enabled us to get back on track."
Last week, saying that AIG had resolved most of the uncertainties hanging over it for the preceding 12 to 14 months, Fitch Ratings said it had removed from rating watch-negative all of its ratings on American International Group and its subsidiaries.
In the first quarter, AIG SunAmerica's sales grew 19% from the preceding quarter and 28% from the year earlier, to $251 million. It expanded its wholesaling force to 22 and added SunTrust, Key Bank, and Commerce Bank as distribution partners.
Ms. Hunnicutt said that April's start encourages her to expect tremendous sales for the rest of the year. "We expect the first quarter to be our lightest quarter," she said. "We want the ramp-up to continue. We signed three banks in the first quarter, and we are hopeful that that will continue."
Kenneth Kehrer, the president of the Princeton, N.J., consulting firm that bears his name, said most variable annuity companies gathered sales momentum in the first quarter on the strength of riders guaranteeing lifetime withdrawals. These living benefits with automatic step-up features let investors lock in investment gains annually for a certain period without having to make an election each year. Mr. Kehrer said the feature has proliferated this year as providers look to simplify their products for salespeople and clients.
AIG's MarketLock withdrawal benefit, launched last week, is one such option. In addition to offering the automatic step-up feature, it imposes no investment restriction on policyholders within the variable annuity contract, as many such riders do.
Living benefit riders fall into three categories: guaranteed minimum withdrawal, guaranteed minimum accumulation, and guaranteed minimum income. A withdrawal benefit lets policyholders withdraw a fixed percentage - typically 5% to 7% - of their annuity premiums annually for a specified period, regardless of market performance.
Guaranteed accumulation benefits promise a stated minimum contract value to the policyholder when the annuity contract is redeemed, regardless of market performance in the meantime. And guaranteed income benefits ensure that the policyholder gets a periodic income stream that is a fixed percentage of the premium for as long as he or she lives.
Banks' variable annuity sales were nearly flat last year, Mr. Kehrer said. Data from his firm showed that the top 22 providers in the bank channel posted $17.6 billion of variable sales last year, up 1.1% from 2004.
The generally flat results last year were the bigger cause of AIG SunAmerica's declining sales, he said, and at a meeting he conducted for bank program managers, none indicated a slowdown in selling AIG SunAmerica products because of the investigation into the parent company.
Ms. Hunnicutt disagreed. The scrutiny of AIG intensified the generally lackluster environment in the bank channel, she said, and was the overriding cause for the SunAmerica unit's sales decline.
"When parent companies face scrutiny, the typical response that some companies have is to duck down into the rabbit hole," Mr. Kehrer said. "Some companies confront the issue head on. We didn't see that kind of negativity toward AIG because they confronted things head on."
Ms. Hunnicutt said she wants to maintain the first quarter's momentum. Her unit plans to add three more wholesalers before the end of the summer and even more by yearend.
"We want our wholesalers to have the ability to provide the coverage that is necessary," she said. "It is so important that the wholesalers have high touch with the brokers. We want the wholesalers to spend more time with the brokers so that they can explain these new benefits and help the brokers increase their business overall."
AIG SunAmerica wants to keep adding banks as distribution partners, she said. Bank distribution accounts for 21% of the unit's overall variable annuity sales.
"In the bank environment, acquisitions continue at a greater pace," she said. "If we don't grow that pie in terms of the number of distribution partners, we could be in a position where banks are purchased and then constriction occurs in terms of the products on the shelf."
