When Safeco Corp. reentered the bank channel with its fixed annuities last year, the companys obstacles included banks active efforts to work with fewer providers.
And the marketplace is still tough, says Mike Korthaus, president of the Seattle insurers financial institutions division, created last year to distribute annuities, mutual funds, and life insurance products through banks. But he said the company has managed to make inroads all the same.
We really just kicked off the channel, and in the last two quarters we were able to build annuity sales, Mr. Korthaus said.
After two years of selling very few annuities through banks, Safeco sold $755 million in 2001, Mr. Korthaus said, adding that almost all sales were fixed annuities.
Kenneth Kehrer, president of the consulting firm Kenneth Kehrer Associates in Princeton, N.J., said, Im surprised, but not shocked that they were able to get into the channel. It does show that with innovative products, a provider can jump-start sales.
In this case, a three-year guaranteed interest rate with a bonus for each of the first three years was included in the Safeco Select fixed annuity. These types of guarantees protect the customer against possible interest rate drops during a specified period, usually three or five years.
According to Mr. Kehrer, many providers still have five-year guaranteed rates, but in current market conditions Safecos three-year guarantee was of interest to some investors who dont want to have their money tied up for as long, because they believe the market will rebound.
Product and product variety are not the only reasons Safeco has boosted sales in the channel, Mr. Korthaus said. He also credited its new bank-channel-specific wholesalers.
Mr. Kehrer said Safeco was the top distributor through banks of equity index annuities, a type of fixed annuity, until 1998, when that product fell out of favor because of complications in the options market. Thats when the insurer pulled out. And while its reentry looks strong, Safeco is not out of the woods yet.
They actually saw a pretty big drop in the fourth quarter from the third, Mr. Kehrer said. Safeco sold $205 million of fixed annuities banks in the period, compared with $411 million in the third quarter.
The market is very competitive, Mr. Kehrer said. Other companies fought back and retook market share. Now its Safecos turn to do something.
Mr. Korthaus said that something includes getting additional distribution deals. We plan on adding four or five more bank distribution agreements by the end of the second quarter, he said, noting that those banks have assets of $13 million to $75 million. He added that Safeco also continues to seek distribution agreements for its variable annuity products. Safeco has not been a player in the variable market, selling only $1.5 million of those annuities through banks in 2001.
Safeco is willing to create a co-branded, proprietary variable annuity with banks, Mr. Korthaus said.
But Mr. Kehrer said Safeco would not have an easy time breaking into the variable market.
A lot of banks are looking to cut down the number of providers they have and theyre not necessarily looking for another variable annuity provider, he said.
But Mr. Kehrer did say that proprietary annuities are one way to get a banks attention.
