SIMSBURY, Conn. — Hartford Life, the No.1 bank seller of variable annuities for more than a decade, is discovering that it will have to work even harder to retain that spot as more and more variable annuity providers turn to banks as a distribution channel.

“Banks know their distribution channel is the fastest-growing for variable annuities,” said Bruce Ferris, vice president of investment product sales at Hartford Life. “So if we want to hold on to their business, we have to be a better partner.” Through the third quarter, Hartford has sold $2.7 billion of variable annuities through banks. This was about 35% of the company’s sales of these products. And in the second quarter, about 22% of all variable annuities sold through banks were Hartford Life products.

“Five years ago there were 15 players in this market, and 95% of the marketplace was dominated by five companies,” Mr. Ferris said. “Now there are 25 players, and companies like Nationwide Financial, which has 14% of the market, are formidable challengers. We absolutely can’t take anything for granted.”

Hartford Life is strengthening its relationships with the banks that sell its annuities by adding those banks’ proprietary investment funds to its Director variable annuity — its most popular bank-sold variable annuity, Mr. Ferris said.

“This way, the bank makes money on fees for its asset management services,” Mr. Ferris said. “It helps the bank’s asset-gathering.”

Forty percent of Hartford Life’s variable annuity sales through banks now come from annuities customized with bank proprietary funds, Mr. Ferris said.

That 40% share is impressive, said Kenneth Kehrer, president of the consulting firm Kenneth Kehrer Associates in Princeton, N.J. Of all the variable annuities sold through banks, 21% contain bank proprietary funds, he said.

Also, according to Mr. Kehrer, 45% of annuity sales from banks that have proprietary-fund agreements with annuity providers come from products that contain the banks’ funds. This is true even though the average bank has about seven annuities on the shelf.

“This shows that banks are selling a lot more proprietary variable annuities,” Mr. Kehrer said. “From Hartford’s point of view, it already has a dominant share of the market. If the only way another company is going to catch it is to offer a lot of proprietary funds, it makes sense for Hartford to do it as well. It’s great defense.”

The No. 2 bank variable annuity seller, Nationwide Financial Services Inc., is on the offensive in the bank channel. The Columbus, Ohio-based company is aggressively pursuing similar proprietary agreements with banks, according to Matt Riebel, president of Nationwide Financial Institution Distributors Inc., the bank distribution arm for retirement and investment products.

“Banks are buying mutual fund families all the time, and the best way to drive in assets is when funds go in through a variable annuity because the money will probably stay there for a long time,” Mr. Riebel said. “It beats getting investments from the street because you never know when the investor is going to sell.”

According to Mr. Riebel, 34% of Nationwide’s sales through the bank channel are of bank-proprietary products.

One problem, Mr. Ferris said, is that some banks that have these customized annuities want their own funds included when Hartford gets shelf space for the Director at other banks.

“Banks are looking for other distribution channels for their funds,” and this is an external opportunity for them, Mr. Ferris said. “If a smaller annuity distributor wants to distribute a bank’s funds to all other banks that they sell to, it could be done because it might only be five banks. Some banks might go for that.”

However, he said, Hartford Life can’t do that because it distributes through too many banks, including 19 of the 20 largest in the country. “We have to prove that we’ll raise more for them through our proprietary products than by putting funds into those five banks through the smaller annuity distributor,” he said.

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