Though, industrywide, sales of variable annuities were soft compared with fixed, Hartford Financial Services Group Inc. managed to turn its strong focus on variables into a banner 2002.
"Frankly, we've had a terrific year, against a headwind of very turbulent markets," said Bruce Ferris, a vice president and the director of sales and marketing at Hartford Life, a Hartford Financial Services Group subsidiary.
"I'm particularly pleased with our bank results. Our variable annuity results are up 20% year over year," Mr. Ferris said. Because so many banks have been pushing fixed annuities in the current financial climate, selling a lot of variable annuities in that channel required strong commitment, he said.
The company's variable annuity sales through banks grew 20% last year, to $3.6 billion, compared with 2001. Its variable sales through all channels totaled $10.3 billion, up 15%. Sales of the product ended 2002 on a very strong note at $3.5 billion in the fourth quarter, up 45% from the third quarter and 70% from the year earlier.
Overall annuity sales, including both variable and fixed, totaled $11.6 billion, surpassing the company's previous record of $10.9 billion set in 1999.
Kenneth Kehrer, the president of the Kenneth Kehrer Associates consulting firm in Princeton, N.J., which tracks annuity sales, said his data show Hartford to be an anomaly. The information he has so far suggests "that for variable annuity sales it was a flat year, more or less, from the previous year," he said.
Mr. Ferris said the interest rate environment in the fourth quarter "has taken a little of the glow away from fixed-income and fixed annuities." The quarter was Hartford's best ever for variable annuity sales, he said.
Though Hartford added some distribution in 2002, Mr. Ferris said, most of the sales increase was from organic growth in the company's longtime distribution venues.
Mr. Ferris said that several factors explain Hartford's success at the same time other companies were struggling with variable annuity sales.
First, he said, his company focuses on variable annuities and sells comparatively little in fixed annuities. "We have always focused on equity investing, and we never got off that story," he said.
Mr. Ferris also said that Hartford had remained committed to wholesaling support as some competitors were cutting back. He attributed a lot of the sales success to Planco, Hartford's wholesaling subsidiary.
"This is a contact sport, and we've got more players in the game than anyone else," he said.
Hartford's strong brand recognition among consumers also helped; the turbulent markets drove "a flight to quality," Mr. Ferris said.
The industry will continue to face challenges this year, he said, especially if economic weakness persists. However, variable annuities remain a good choice for investors who want to reap the long-term rewards of investing in the equity markets but still protect principal, he said.
Hartford was able to benefit from its strong brand name and product mix to boost sales, said Mr. Kehrer, the consultant. "In a period of uncertainly, both investors and reps tend to gravitate toward the companies that have done well in the past," he said, "and Hartford certainly has a reputation for being a conservative lineup of investments."
At the same time, he pointed out, "a large proportion of Hartford's variable annuity sales are bank proprietary products" that include a large amount of the bank's own mutual fund offerings. The affinity that banks have for annuities that include their own funds can spur sales, he said, as well as a perception that bank funds are more conservative investments.
"The sales of those kinds of funds have held up better than other funds," he said.
In addition, Hartford's focus on variables means salespeople do not make any money if variables don't sell, Mr. Kehrer said. Hartford must sell variables, he said, but other companies can make up sales in fixed annuities.
There might have been some "going with the easier row to hoe on the part of some other companies that have more balanced sales between variable and fixed," he said.
A big issue of 2002, for Hartford and other variable annuity providers, was guaranteed minimum death benefits. These promise to pay annuity holders upon their deaths the highest value their portfolios reached during a set period. Because stock markets have gone from record highs to deep lows in a short period, insurers are left with big gaps between what these annuity portfolios are now worth and what would have to be paid at the contract holder's death. In the past, insurers have passed this liability on to reinsurers, but reinsurance for this risk has become scarce.
"Everyone has been affected by the reinsurance market, in terms of guaranteed minimum death benefits," Mr. Ferris said, though he said Hartford "enjoys not only one of the largest books of variable annuity business but [also] one that is heavily reinsured."
As reinsurers pull back from this product feature, however, "going forward we face the same challenges that others do," Mr. Ferris said. "Before, it was just the affordability of reinsurance; now, it is whether it's even available."
Hartford intends to "unbundle" its guaranteed minimum death benefits when it updates its prospectuses in May he said. Pricing the guaranteed minimum death benefit separately will mean only customers who choose it will get it.
Mr. Ferris said that an important trend he has noticed in variable annuity sales has been outside the bank channel but important for the industry overall. Brokers who previously shunned variable annuities in favor of mutual funds and stocks are now showing more interest in the product, he said.
Some stockbrokers have been skeptical of annuities because of their costs, he noted, but in the current environment, many have become interested in the way annuities protect principal. "Brokers are much more willing to meet with our wholesalers," Mr. Ferris said.
However, Mr. Kehrer said the impending changes in guaranteed death benefits and other features might have inspired a "fire sale" among stockbrokers who do not normally offer these products to clients. Brokers may have encouraged clients to buy annuities while the current crop of benefits remains but may have no long-term commitment to the product, he said.
