The CFO at Jackson National Life Insurance Co. said that he does not expect to add assets this year but remains optimistic that market conditions will improve and the annuity industry will grow in 2010.
"In 2009, I think companies will regroup," said Mike Wells, the CFO for the Lansing, Mich., unit of Prudential PLC in London. "People will look at their product menus and produce new business plans this year. There is just not going to be a huge demand for investment and insurance products in 2009. Consumers want to figure out what their risk appetite is again. But honestly, no one can accept a 1% return on a CD indefinitely."
Wells said in an interview last week that Jackson National plans to preserve capital this year so it can position itself for growth in 2010.
"If I wanted a record year this year, I could do it," he said. "But we don't want to just deploy capital for the sake of deploying it. We want to remain strong. We want to work on maintaining our distribution relationships, our staff and our employee base. We are not going to try to bust through the fixed[-income] league tables here."
Jackson had nearly $4 billion of regulatory adjusted capital at Dec. 31, nearly nine times the level required. Its statutory capital ratio was nearly 9%.
Wells said Jackson National would be very cautious this year. The company will consider doing an acquisition, he said, but "we aren't assuming 2009 is a fire sale and this is the only opportunity to get assets at low prices. We really don't believe that anything available today won't be available in early 2010 at the same price or lower. This is the time to be conservative. We want to make sure we are positioned for growth next year."
Jackson National is always looking for potential acquisitions, Wells said. In 2004, it bought Life of Georgia from ING Group.
"There are dozens of life insurance businesses that we'd like to buy," he said, "but we just don't know that this is the right time. This is a good time to be cautious and profitable."
Wells said Jackson National is unique because it has maintained a relatively conservative strategy, a mix of annuity products and a distribution strategy that includes working through banks and other financial services companies rather than advertising directly to consumers.
The company's strategy is simple, he said: "We want to make sure whatever we sell is profitable. We are very careful about professionally managing risk. We don't hedge for profit."
Last year was Jackson National's second-best sales year, though sales and deposits fell 3%, to $14 billion. Sales of traditional fixed annuities rose 179%, and sales of institutional products rose 18%. Stronger sales in these sectors offset a 29% drop in sales of variable annuities.
Retail sales and deposits fell 7%, to $11.8 billion, and annuity net flows fell 2%. Life insurance sales rose 13%, to $58 million.
Wells said the company has been able to weather the difficult economic climate because, unlike some competitors, it has a mix of annuity products, including variable, fixed and index products. "Most firms focus on one line that they lead with, but that isn't our model," he said.
Analysts said Jackson National was able to have a strong 2008 because it was relatively conservative in 2007 and last year when competitors repriced many annuity products.
Wells agreed. "Companies made money selling thin-margin products in the first half of the year when they should have been guarding the margin," he said.
Jackson National saw its market share decline in 2007 and 2008 "because we didn't believe the industry pricing was profitable," he said.
Now, most competitors are adjusting their variable annuity pricing.
In February, Axa Equitable reduced the roll-up to 5% from 6% and raised fees by 5 basis points, to 85 basis points. (A roll-up is a guaranteed minimum rate of return on an investment.)
In November the Axa Group unit had cut the roll-up rate to 6%, from 6.5%, and raised fees 25 basis points, to 80.
Analysts said most providers are making such changes, though sales of variable annuities fell 15% last year, to $151.63 billion, according to Morningstar Inc.
Jackson National sells its annuities through banks, financial services companies and independent advisers. About 22% of Jackson National's $11.8 billion in sales last year came through the bank channel. Wells said this model has worked for the company since it was adopted.
"The way we look at the bank space is that these companies have well-established brand and the reps have strong relationships," he said. "That leaves us to provide strong products."
Wells said Jackson National will remain conservative and customers appreciate that. "People are far less trusting today than they were a year ago," he said. "They are asking more questions that they didn't even think about a year ago. People want guarantees. They need assets to perform."
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