The rush is on to offshore variable annuities.
Today, Nationwide Financial Services Inc. introduces its Bermuda-based offshore variable annuity with Citibank, which is planning to introduce its own in two weeks.
Since mid-1996, trailblazer MFS Investment Management has been the only player in the marketplace with a Bermuda-based MFS Architect variable annuity. MFS Architect has attracted $250 million of assets with an average sales ticket of $255,000. Sixty percent of those sales came through banks.
"I would say that's because the banks have grasped the concept a little sooner than the wire houses," said Mary Ann Parker, vice president MFS International, a subsidiary of MFS Investment Management.
MFS Architect has been successful despite concerns that nonresident aliens would shy away from offshore variable annuities because they are generally unfamiliar with annuities and do not need the tax-deferral feature sought by many Americans.
"They are buying to secure and preserve wealth and pass it down to the next generation," said Ms. Parker. The offshore annuity gives foreigners the chance to avoid onerous inheritance laws and to name one or more beneficiaries, she said.
But the purchaser's needs are not the only difference. To offer these funds, companies must have or build an insurance company domiciled outside the United States. Then, the funds are sold to nonresident aliens of the United States and others who live abroad.
Because they are not registered in the United States, companies may not talk specifically about these offshore annuities with U.S. customers. Instead, annuities can be discussed generally and sales leads can be provided to the offshore entity.
From there, marketing materials may be sent from the offshore location to the customer's native residence. Bankers in the United States, however, may discuss product details when the nonresidents are calling from their home country.
"You need to make sure what you are doing and the legal issues are critical in how you set this up," said John M. Fenton, principal at Tillinghast-Towers Perrin. Mr. Fenton expects offshore variable annuities will remain a niche marketplace.
"This product was born out of Nationwide's desire to build a global presence and expand beyond the U.S.," said Karen Eisenbach, president of the bank distribution unit of Nationwide Financial Services, Columbus, Ohio. Nationwide is building an international arm that is ultimately expected to provide about 10% of the company's revenues, Ms. Eisenbach said.
Nationwide predicts the new fund will attract $100 million of assets this year and $400 million by the end of 1999, Ms. Eisenbach said. It features funds from Fidelity Advisors, Morgan Stanley, J.P. Morgan, and Nationwide Global. Global customers know and trust these money managers, Ms. Eisenbach said.
Citibank's offshore variable annuity also will feature multiple money managers. It will offer 18 funds: eight proprietary funds, five MFS funds, and five Putnam funds.