Old Mutual Financial Network plans to jump into the fiercely competitive market of variable annuities in the first quarter, avoiding the industry's big guns by targeting small and regional broker-dealers, its chief executive said.
The business has proven unforgiving to several entrants in recent years, but the U.S. arm of Old Mutual PLC of London could rack up annual sales of as much as $5 million within three years, CEO Bruce G. Parker Jr. said.
In fact, the company, which generated more than $5 billion of U.S. revenue last year, wants to increase that total to $10 billion to $15 billion within three years, a third of it coming from variable annuities, Mr. Parker said in an interview last week.
"We've always had a plan to move into the variable annuity space," he said. "We're taking a very focused approach." The company hopes to make banks a sales channel by 2008.
Old Mutual's annuities will feature asset management by the company's in-house fund managers, with outside managers incorporated through its asset allocation funds, Mr. Parker said.
The products will have a fairly conventional design, he said. "I don't think you're going to see tremendous innovation."
Old Mutual will not go toe-to-toe with Hartford Financial Services Group Inc. or other industry heavyweights, he said. Instead, it will gain traction through small and regional broker-dealers by working with 10 independent marketing agencies that can supply a suite of annuities as well as training and compliance services.
One analyst said the approach could be the right one, but others were dubious.
Mr. Parker said his company plans to pursue registered investment advisers - probably starting in the second half of next year - with no-load and low-load products.
In 2008, Old Mutual will add wire houses, banks, and independent advisers, and it will start offering private-label annuities with an eye toward private banking, he said.
In this decade, variable annuities have tripped up respected companies like American Skandia Life Assurance Co. and Allmerica Financial Corp. Stock market swings that affected the underlying investments' performance have made for volatile demand.
Burton Greenwald, a consultant at BJ Greenwald Associates in Philadelphia, said companies often have overpaid to gain distribution.
"It's tough to see how Old Mutual is going to carve out a niche for themselves," Mr. Greenwald said. "I think it's an uphill fight for these guys."
Kenneth Kehrer, the president of the Princeton, N.J., consulting firm Kenneth Kehrer Associates, which tracks annuity sales through banks, called Old Mutual's sales goal "aggressive."
Michael White, president of Michael White Associates LLC in Radnor, Pa., said Old Mutual's strategy of starting with smaller broker-dealers is a way to create a track record that might prompt companies to consider squeezing its products on to their shelves.
American Skandia got out of the fixed annuity business at the wrong time. In 2002 it was stung by a collapse in variable annuity sales as the bear market in equities sapped the performance of the products' underlying investments. Prudential Financial Inc. bought American Skandia that year for $1.265 billion shortly after its Swedish parent, Skandia Insurance Co. Ltd., put it on the market.
Allmerica gambled during the 1990s on an overgenerous guaranteed minimum death benefit that was supported by the bull market's equity valuations but went underwater when a bear market began in 2000. The company put its life and annuity lines of business in runoff in 2002, and Goldman Sachs Group Inc. bought them last year.
Mr. Parker said Old Mutual can build on its success in the United States, where it is one of the top five sellers of equity index universal life, immediate, equity index, and fixed annuities, according to the insurance research group Limra International Inc.
Old Mutual plans a "robust retail branding" campaign at about this time next year around a retirement planning theme, he said.
It began to assemble its variable annuity team a month ago when it hired Pat Ferrer, the national sales director for Jefferson National/Inviva Securities, to be its vice president of variable annuity distribution.
Old Mutual entered the United States in 2000 with the $2.2 billion purchase of United Asset Management Corp. in Boston and went on to buy several insurance companies, the largest being Fidelity and Guaranty Life in Baltimore, which it purchased in 2001 for $635 million.
It targets the private banking channel through Omnia Life, a Bermuda variable annuity business it bought in 2003.
