After more than doubling its variable annuity sales through banks last year, John Hancock’s bank annuity operation expects double-digit growth this year, its president says.
Hancock’s bank variable annuity sales grew 106% last year, to $1 billion, a company record. This made the Boston-based unit of Manulife Financial Corp. the fifth-largest seller of variable annuities through banks, up from 11th in 2004, according to data from Kenneth Kehrer Associates.
Kenneth Kehrer, the president of the eponymous Princeton, N.J., consulting firm, said that only one other company — Lincoln National, whose bank sales grew 220% last year, to $384 million — set a faster pace than Hancock.
“This is substantial in a time when variable annuity sales have been more modest nationally through the bank channel,” he said. The product’s sales through banks were flat overall, he said.
“I think it is unreasonable to expect another 100% increase,” said Fred Nicholas, the president of Hancock’s bank annuities channel, “but I think we expect a meaningful increase as we get into more banks and gain more awareness [of] the vast appeal of these products in the banks that we are currently in. … I clearly see double-digit growth not just because of our momentum but [also] because we are going to be adding new relationships.”
Mr. Nicholas said Hancock was able to deepen penetration in the channel because key components came together last year. The company used brand recognition, its track record, and some innovative products to push ahead, he said.
“We came out with a simple, straightforward message about retirement income solutions and built a story to help brokers in banks appeal to the needs of [baby] boomers entering retirement,” he said.
Hancock also expanded its wholesaler force in the channel from 15 to 25, and Mr. Nicholas said he expects to add more. The company also added five banks to the group of 15 through which it distributed in 2004. Mr. Nicholas said he expects to add at least five more this year.
“Clearly we are targeting the largest banks in the country with the largest retail presence, but we are also equipped and have the coverage to work with midsize banks and small banks,” he said. “We are providing coverage nationally. Our wholesalers are geographically distributed so they work with banks and bank consultants throughout the country.”
Analysts were skeptical that Hancock could have this kind of success when Manulife bought it for $11 billion in 2004. At the time, Hancock sold fixed annuities through banks but was not considered a player in variables. Toronto-based Manulife was a successful distributor of variable annuities, but its prowess seemed limited to Canada.
Mr. Kehrer said Hancock was able to achieve this growth because it focused its resources on variable annuity sales.
“In variable annuity sales, the name of the game is really getting distribution agreements with the very largest banks and developing market share in those institutions,” Mr. Kehrer said. “Hancock has done well in getting access and gaining market share in five of the top 10 banks. Their momentum will depend in part on whether they can add one or two more major banks and continue to gain share in the banks they are in.”
Mr. Nicholas said another key driver has been Hancock’s Principle Plus for Life variable annuity rider, which offers retirees guaranteed income for life that can grow with favorable performance by the product’s underlying investments. The rider was chosen on more than 75% of annuity contracts sold last year.
Variable annuities with unique riders have the bank channel buzz, he said.
“Today, it is about income; it is not just tax deferrals,” he said. “People are looking for a source of income with upside benefits. They want something that is predictable, sustainable, and potentially increasing. It used to be about asset performance. Now it is about converting assets to income that can sustain a lifestyle and keep pace with inflation.”
In addition to the annuity withdrawal benefit, the company’s Lifestyle portfolios — diversified asset allocation funds-of-funds — have driven bank sales growth. About 70% of variable annuity premiums and deposits are flowing into the Lifestyle portfolios.
Mr. Nicholas said Hancock would try to add products and services strategically in order to develop additional wallet share through banks.
“We have established a presence in the bank marketplace and increased awareness about who Hancock is with our variable annuities,” he said. “Once we have established that presence, it puts us in a good position in bring in other products such as our Lifestyle portfolios. We want to offer not only variable annuities but also mutual funds, 529 plans, and 401(k) programs to the bank channel.”
Mr. Kehrer said Hancock could succeed with this strategy because banks are interested in limiting the number of underwriters they work with. Hartford Financial Services Group Inc. used a similar strategy, he said, to become the leading provider of variable annuities through banks and a company that can also provide other products.
Banks, eager to offer a wider array of nonproprietary products, are receptive to offering more Hancock products, according to Mr. Nicholas.
“First, we had to establish that we can bring value and that our products are not just slicing their pie,” he said. “Once we can convince that we can help a bank grow their business and we have established credibility, we can offer other things for their other lines of business.”
