Seeking to bolster its position as the leading seller of annuities through banks, ITT Hartford Group Inc. is adding mutual funds to its menu.
The 10th largest U.S. life insurer plans to introduce in August a family of eight mutual funds, six of them clones of the company's popular variable annuities.
The move makes ITT Hartford the first insurer to take a family of variable annuities and copy them into a mutual fund family, according to Morningstar Inc., a Chicago-based company that monitors the performance of both products.
"It's a dramatic move," says Mary Nguyen, editor of Morningstar's Variable Annuity/Life Performance Report. "They're a household name. By cloning their annuities they're opening a big door" on the mutual fund side, she said .
For years, mutual fund companies have been cloning their portfolios into variable annuities. The fund companies then sell these tax-deferred investments through insurance carriers, hoping to cash in on annuities' popularity among consumers.
By adopting that strategy in reverse, ITT Hartford hopes to burnish its already strong reputation in the bank investments community. The addition of funds to its mix will enable ITT Hartford to position itself as a well- rounded provider of investment products to banks.
That is becoming increasingly important to insurers and fund companies alike as banks seek to limit the number of vendors with which they do business.
"Hartford, a big annuity writer, can now say to banks, 'You don't have to deal with all these companies, you can get mutual funds from us now too,' " said Robert Baranoff, a business unit manager at the Life Insurance Marketing Research Association, Windsor, Conn.
ITT Hartford has been the No. 1 seller of annuities through banks for three years, according to Kenneth Kehrer & Associates. So far this year, banks have sold $1.5 billion, or 35%, of ITT Hartford's variable and fixed annuities.
The company's annuities are also sold through financial planners, independent agents, and brokerage houses.
Hartford's new mutual funds will be marketed through banks via Planco, the Paoli, Pa.-based company that is already responsible for much of Hartford's annuities sales through banks. The insurer also has some direct relationships with banks.
"We think mutual funds are a natural evolution of our products," said Stephen Joyce, assistant vice president for bank and thrift sales at ITT Hartford. "In our initial discussions with financial institutions, they expressed a desire for this."
Mr. Joyce said banks will continue to grow in importance to ITT Hartford as regulators loosen the "shackles" of insurance restrictions. "A significant portion of the population prefers to do business through their banks than other venues," he added.
Planco was responsible for about 45% of ITT Hartford's $1.8 billion of annuities sales last year. Planco Chairman Edwin Gold said he expects sales of the new ITT funds to reach close to that level in 18 months.
Last year, that volume would have been enough to rank ITT Hartford among the top five sellers of mutual funds though banks.
Planco has about 150 relationships with banks, including such large players as NationsBank Corp., Boatmen's Bancshares, and Citicorp.
ITT Hartford's plans, which have been filed with the Securities and Exchange Commission, are to clone six of the portfolios in its 17-year-old variable annuity family, the Director. ITT Hartford is also introducing a variable annuity that invests in small-company stocks. The company plans to copy the annuity into a mutual fund.
Finally, the insurer plans to start up a bond fund from scratch.
ITT Hartford's prominence in the annuity arena won't guarantee it success in pushing funds through banks, bankers said.
As a late entrant into the fund business, the company will have to compete with a half-dozen or so rivals with established footholds in banks, and dozens more trying to muscle their way in.
"Hartford has a good shot at getting on the approved list, but most reps prefer funds with track records they can show their customers," said Robert Comfort, national sales manager for Huntington Investment Co., Columbus. Huntington is a Planco client.
Indeed, regulators are likely to restrict ITT Hartford from marketing its mutual funds by touting the track records of the cloned annuities.
Mr. Comfort said his representatives, who are trained by Planco, already sell ITT Hartford's annuities. But Mr. Comfort said he will leave it to his sales reps to decide if they want to sell the insurer's mutual funds as well.