UJB Financial Corp. and SunAmerica Corp. have scuttled plans to launch a family of proprietary annuities after crossing swords over how to make the products profitable.
The breakup appears to mark the first time a bank and its insurance partner have split since banks began entering the proprietary annuity business two years ago. About a dozen banks have rolled out variable annuities and another 10 or so have announced plans to do so.
Officials at UJB, based in Princeton, N.J., say the deal began unraveling late last year. UJB wanted the annuities to feature more investment options than the Los Angeles-based insurer was prepared to support, bank officials said.
The companies had agreed last summer to launch the annuities with four investment portfolios linked to UJB's proprietary Pillar Funds. SunAmerica, a diversified financial services company that specializes in products for the "pre-retirement" market, was to create insurance contracts for the products and handle statements and other administrative tasks.
But communications began breaking down, officials at both companies say.
"They had laid out some ideas and we weren't getting back to them in a timely fashion," said Lou Daniels, UJB vice president overseeing investment products.
He said UJB was pushing for the annuities to feature six, not four, investment options tied to the Pillar Funds.
The additions would have allowed UJB to offer asset allocation accounts, Mr. Daniels said. These accounts spread investments over a number of portfolios; the mix of assets is periodically reconfigured to respond to market conditions.
But SunAmerica balked, according to James Rowan, a vice president of the insurance company. Executives there were concerned that UJB would not be able to amass enough sales to make the six portfolios profitable within a reasonable amount of time.
"We didn't want to develop a product that couldn't reach critical mass," Mr. Rowan said.
Industry experts say each investment portfolio within a family of annuities requires $50 million to $100 million of assets before profits are possible. Before that level is reached, insurance companies typically commit capital and other support to help the product along.
The pullout shows that after the first rush to assist banks, insurers are finding that all deals may not be viable, one consultant said.
SunAmerica walked away after taking "a hard look at the economics" of its deal with UJB, said Kenneth Kehrer, head of Kenneth Kehrer Associates, Princeton.
Mr. Rowan said SunAmerica also felt UJB was having limited success marketing its Pillar Funds, a sign the insurer took as troubling. "Our partners must have a demonstrated ability to sell their own mutual funds," Mr. Rowan said.
Though SunAmerica has been eagerly seeking bank clients, the breakup with UJB doesn't leave the company high and dry. Its other bank partners include Chase Manhattan Corp. and First Interstate Bancorp.
UJB, for its part, is determined to roll out proprietary annuities despite the setback.
Mr. Daniels said the bank company is close to selecting a new partner, a large insurer based on the East Coast. Mr. Daniels said that company, which he declined to name, already has agreed to help UJB craft an asset allocation approach linked to six Pillar Fund portfolios.
Mr. Daniels also said that UJB is quite satisfied with sales of its Pillar mutual funds and believes its asset allocation approach to annuities will make for profitable products. "We'll do great," he said.
