Taking advantage of proprietary annuity agreements and its ability to maintain commission rates, American International Group Inc. easily stayed on top as the biggest provider of annuities through banks in the fourth quarter.
Bruce Abrams, the president and chief executive officer of AIG Annuity Co. in Houston, said the company has 45 private-label or proprietary agreements in place.
"Our first agreement came in 1995, and every deal we've ever signed is still with us," Mr. Abrams said. "The proprietary model has worked wonders for us. It's been a key to our success."
But don't ignore AIG's ability to get into more big banks as its competitors cut the commissions they would pay on bank annuity sales while falling interest rates eroded the profitability of fixed annuities, said Kenneth Kehrer, the president of a consulting firm that tracks bank-annuity sales.
Kenneth Kehrer Associates in Princeton, N.J., said that AIG's sales total was $3.1 billion in the quarter, more than twice as much as second-place Hartford Financial Services Inc.
AIG's $3.1 billion was 47% more than it sold through banks the year earlier, an increase stimulated by its entry into more big banks, all while taking advantage of other annuity providers' slashing of commissions in order to compensate for falling interest rates. By cutting commissions, annuity providers made it harder for banks to reach earnings targets in their annuity businesses, said Mr. Kehrer.
"Basically, if commissions are cut in half, a bank has to sell twice as much to hit those targets, and that's not easy to do," he said.
In the last six months, AIG has gotten into the superregional banking companies Bank One Corp. and Bank of America Corp. It also added a big regional, AmSouth Bancorp in Birmingham, Ala.
Bank One is the second-largest seller of annuities, Bank of America is fourth, and AmSouth is also in the Top 10, said Mr. Kehrer.
AIG already distributed its annuities through the biggest bank seller of annuities, Wachovia Corp., and the third-largest, Washington Mutual Inc.
The insurer's "cost of administering a policy, processing the business, and their marketing and advertising are less than eight basis points," Mr. Kehrer said. "Almost every other company is much, much higher. That cost savings can translate into higher interest rates or higher commissions compared to the competition."
Of the $2.9 billion of fixed annuities AIG sold through banks in the quarter, about 80% were in proprietary or private-label deals.
Joel Levine, a vice president and senior credit analyst in the life insurance group at Moody's Investors Service in New York, said AIG's 2001 purchase of American General has turned out to be a bonanza. American General had many proprietary agreements, he said, and "with AIG behind it, they have more scale, and certainly AIG's strong ratings are a differentiator."
Mr. Abrams also touted the American General deal as a boon.
"It could not come at a better time," he said, alluding to the popularity of fixed annuities during the last few years of equity market malaise. American General had been the top seller of fixed annuities through banks.
"The growth of the bank channel is incredible because there was a time when $1 billion in sales for the year would make you the top provider," Mr. Abrams said.
