Customers' growing preference for variable annuities took a toll on the first-quarter earnings of JMC Group Inc., the parent company of James Mitchell & Co.

The San Diego-based company, a leading marketer of investment products through banks, reported a net loss of $217,839 in the quarter that ended March 31. That is down sharply from net income of $1.729 million in the first quarter of 1993.

James K. Mitchell, the company's chairman and chief executive, said the loss occurred in large part because customers were shifting from fixed-rate annuities to variable-rate annuirties, which pay lower revenue rates.

He noted that revenues were off because of an overall deline in sales. First quarter 1994 revenues totaled $9.527 million, down from $13.943 million a year earlier.

Analyst Is Upbeat

Despite the difficulties, JMC Group is still "very well" positioned as an annuity marketer, said Mark Matheson, and analyst with Cromwell, Weedon in Los Angeles who tracks the stock.

Demand for fixed annuities will come back, now that interest rates are rising, Mr. Matheson said. "The worst is beind JMC Group."

The company's clients include Barnett Banks, Jacksonville, Fla., and First Tennessee Bank, Memphis.

In a recent interview, Mr. Mitchell said JMC Group spent about $500,000 on legal fees in the first quarter in a battle with Florida's insurance commissioner, who maintains that the company's annuity sales program at Barnett Bank's is illegal under Florida law.

The company has responded to the earnings setback with cost-cutting measures, Mr. Mitchell said in announcing the first-quarter results.

JMC Group is also changing the commission structure on its variable annuity "in order to enhance gross margins," he added.

"Beginning in the second quarter, this will make the company's revenues less sensitive to changes in product mix due to interest rate fluctuations," he said.

And the company announced it has decided not to pay a dividend in the first quarter.

Mr. Matheson, the stock analyst, said JMC Group's depressed stock price, at around $3 a share, makes the company attractive to potential acquirers.

Mr. Mitchell said he has no interest in selling the company, in which he owns a major stake. "There hasn't been a play on us. I can say that emphatically," he added.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.