American Skandia is persisting this year with its flagship variable annuities despite the beating they took in 2001.
Wade Dokken, the company's president and chief executive officer, says fixed annuities, which had record sales last year, will not go into his product mix.
"Generally, if you're good at one, you're not so good at the other," Mr. Dokken said. "We're a variable annuity leader, and that's where we can maximize growth. Fixed annuities offer a low return on equity, and that's not what we're about."
Variable annuity sales through banks fell 29% industrywide in 2001 but 66% at American Skandia, and the Shelton, Conn., company - without a fixed product to take up the slack - fell from ninth in overall annuity sales during 2000 to 24th place last year.
As part of a refocusing on variables, American Skandia is in the midst of adding as many as 20 wholesalers to its force of 41. They sell through broker-dealers and banks, Skandia's two core channels.
The company is also seeking a sales director for both channels to succeed Bayard F. Tracy, who resigned last week, and hopes to recruit a development officer for banks.
"That's a senior position, and that person's responsibility will be to call on banks," Mr. Dokken said.
Meanwhile, American Skandia has pulled out of the variable life business, effective immediately, Mr. Dokken said.
"It's a small part of our business; we have about $90 million in life insurance under management," Mr. Dokken said. "About four years ago a previous management got into the business, and it's a business I don't like. Our core customers - banks and broker-dealers - don't sell it. I don't care if they ever sell it. I don't think they ever will."
"Our success is in variable annuities and mutual funds, and that's where we're going to have future success," he added. "We have proprietary annuity agreements with some big banks, like Fleet, Wells Fargo, and First Union. We were the first to have a bonus annuity and a multimanager VA. We're good at this."
But the decision to remain focused on variable products prompted some analysts and consultants to say that lacking a diversified book of business could hurt Skandia's relationships with banks.
"If a bank is looking for a relationship with a provider that offers multiple products, a company that offers less disqualifies itself," said Michael White, president of Michael White Associates, a consulting firm in Radnor, Pa. "The other possible pitfall is, if that one product doesn't perform as well under certain economic conditions, like equities over the last year, you don't have anything to offer as a substitute."
Robert Donohue, a vice president and senior analyst at Moody's Investors Service in New York, said, "Those with a breadth of products, they have the inside track. Fixed annuities lend themselves to banks, and they don't have those. So, 'strike one.' "
But Mr. White said he sees positives to Skandia's staying with variable annuities and mutual funds.
"If you offer a good product, offer good investment managers, and stay focused, you're not scattering yourself all over the place," Mr. White said. "As the equity markets bounce back, variable annuities will have their role to play."
However, Scott Edmiston, an associate director at Fitch Inc. in Chicago, said that from a ratings perspective product diversity promises less volatile earnings.
"Companies with more predictable earnings have higher financial strength," Mr. Edmiston said. "Up until 2000, focusing on equity-based products was a great strategy. Now that's reversed itself."
Or as Mr. Donohue of Moody's said, "The stock market giveth, and the stock market taketh away and then they had their lunch handed to them."
Despite the industry's 27% increase in overall annuity sales through banks last year, Skandia's sales fell precipitously because it lacked a fixed annuity in a marketplace hot for them. Fixed annuity sales through banks rose 78% last year.
Mr. Donohue also called American Skandia's decision to pull out of the variable life business "interesting."
"Hartford Life doesn't have a career [agent] force," he said, "and in recent years their sales have grown. Variable life is one of the bigger life products."
