Return to big brokerage platforms revives SunAmerica

SunAmerica Annuity and Life Assurance Co. is back in the fight in variable annuity sales after being dropped from or ignored on platforms for the past few years. But hurdles — such as a product with limited usefulness, stiff competition and its association with American International Group Inc. — remain. The company kicked off May by returning to Edward Jones' platform which suspended sales following the 2008 crisis. The insurer has been reinstated at other firms in the past year, including Wells Fargo Advisors LLC last summer. The hibernation of SunAmerica's VA business ended last year, with the addition of two new guaranteed-minimum-withdrawal benefits to its Polaris VA. The insurer plumped up those offerings that fall with Income Plus 6% Option 2, which permits 7% withdrawals at 65, and the modified Income Builder 8% Option 2, which allows 6.5% withdrawals at 65. It was from these that it reaped $759 million in VA deposits during the first quarter, reflecting a gain of 113%, from $357 million a year earlier. SunAmerica climbed to sixth place among VA sellers at the end of last year, up from 10th place a year earlier, helped by ING Groep NV's exit from the VA market and RiverSource Life Insurance Co.'s limit on third-party distribution, according to LIMRA. Still, those rich benefits come with a trade-off. Once the account hits zero, clients can take only 3% or 4%, depending on the age at which they began withdrawals. Financial advisers are iffy about that aspect of the product, particularly out of concern that clients might overlook the fact that their withdrawal benefit could undergo a drastic change years from now. “It's a way to maximize the bird in the hand. But it's an aggressive withdrawal rate, and when you add in the fees, you're probably going to reach zero and live off of 3% or 4%,” said Richard G. Dragotta, a branch manager at LPL Financial. “The concern is that you're buying for protection and you're going to get hurt at the worst time,” said Tyler Denholm, a senior analyst at ValMark Securities Inc. “Advisers don't want to go to clients and tell them they're going to take a pay cut when the account value reaches zero.” Rather, the product seems to work in cases when a client could count on another source of future income, such as an inheritance, advisers said. Commissions for the product are toward the higher end of average but don't seem to be too high, compared with what other insurers offer. The B share version of Polaris generally has a 7.5% commission, while the L share tends to sell for 5.5%.

AIG STIGMA

Although AIG is closer to regaining its independence with this month's share offering, broker-dealer executives and advisers noted that bad memories have been hard for SunAmerica to shake. “Advisers don't want to justify why they're working with a company, and AIG has a taint,” said Steph Laflamme, managing director of the financial services group at First Allied Securities Inc. Still, sales are inching up at some broker-dealers. At Commonwealth Financial Network, sales of SunAmerica VAs hit $2.3 million in the first quarter. That is less than 1% of its total VA sales but still almost triple the $875,000 of SunAmerica variable annuities it sold a year earlier. Meanwhile, at Securities America Inc., all of last year, the firm sold $13.6 million in SunAmerica products and is on pace to beat that, as sales hit $12 million this year through April. The AIG subsidiary makes up less than 2% of market share there, though.

WARM WELCOME

Nevertheless, SunAmerica has found a receptive audience at Edward Jones — once a major seller of the insurer's variable annuities. The companies worked to create a so-called O-share version of SunAmerica's variable annuity, which doesn't have any upfront charges. Instead, mortality-and-expense fees on the annuity kick in during a seven-year surrender period and eventually dissipate until they are similar to fees on a front-loaded VA contract. The rider designed for Edward Jones is also different from what is widely available, providing clients with a steady 5% withdrawal benefit instead of one that reduces once the account reaches zero. Edward Jones remained in contact with SunAmerica's senior management over the two-year period when the insurer was suspended from the platform, said Merry Mosbacher, a principal in the firm's insurance marketing unit. So far, she is optimistic about how the insurer will fare in its return. “We've worked with SunAmerica since the early 1980s, and there's no doubt we'll restore that momentum, that relationship,” Mr. Mosbacher said. “They know our system well, and we're excited to have them back.” E-mail Darla Mercado at dmercado@investmentnews.com.