AnnuityNet Inc., the top-selling Web-based annuity distribution provider, has worked diligently over the past two years to distance itself from its nearest competitor-Info-One/VARDS.Deploying a dynamic front-end Internet distribution platform emphasizing "paperless accuracy," Herndon, Va.-based AnnuityNet has leveraged its technology to enable it to increase its sales of both fixed and variable annuities from 164,500 by the end of 2002 to 243,000 by the end of July.
At the rate it's going, the company believes that in 2004, it will amass 500,000 annuities sold.
On the other hand, Info-One/VARDS, a property of Charlotte, N.C.-based Wachovia Insurance Agency Inc., has been quietly averaging about 1,000 annuity transactions per month.
Despite such a disparity in overall scale, AnnuityNet executives realized that Info-One/VARDS possessed a component built within its technology platform that AnnuityNet had long lacked: a robust annuity research capability to be deployed by participating distributors.
Seeing this as the missing piece to the puzzle, AnnuityNet in July acquired Info-One/VARDS. Specific terms of the deal-such as details involving exchange of stock or cash-were not disclosed.
However, the parties did reveal that the combined company initially will be known as AnnuityNet/VARDS, with a new moniker to be announced within the next few months.
David de Gorter, president of Wachovia Insurance, will serve as chairman of the board, while Shane Chalke, president and CEO of AnnuityNet, will continue in that role at AnnuityNet/VARDS.
Wachovia Insurance Agency is expected to make a capital contribution and hold a significant ownership interest in the combined company, which will be headquartered in Herndon. The parties expect to close the transaction early in the third quarter.
Complementary pairing
Established in 1988, VARDS, which was acquired by Wachovia in 2001, has the ability to benchmark national averages for contract pricing and variable annuity fund performance; track and recognize the leading variable annuity contracts by sales levels; and rate and publish the investment performance of an entire variable annuity contract.
Executives say these capabilities provide an ideal complement to AnnuityNet's strong front-end Web competencies.
"The annuity-research capabilities of VARDS were a key value proposition (in the acquisition)," Chalke explains. "Researching annuities is a key priority for broker-dealers as they try to fit the best products with their customers.
"Paper processing represents an enormous hassle for brokers with various forms and disclosures to deal with," Chalke adds. "It's because of this that the failure rate of annuities-those considered `not in good order'-can be as high as 40% of all annuities sold."
Other industry observers agree that the deal is a textbook example of synergy. "The VARDS research and trading component is a key to the acquisition for AnnuityNet," says Deborah Tucker, vice president of communications for the National Association of Variable Annuities (NAVA), Reston, Va. "The research capabilities of VARDS complement the front-end platform that has been AnnuityNet's signature."
AnnuityNet's claim to fame is the development of a fully automated, Web-based, end-to-end transaction processing solution. The solution links brokers with a wide range of carriers for the exchange of information and money settlement during the sale of variable and fixed-rate annuities and life insurance products.
"AnnuityNet has been able to offer ease of information straight to the broker-dealer's desktops, and in a customized, off-the-shelf fashion," NAVA's Tucker adds. "The platform they offer has resulted in a great deal of cost savings for their customers.
The data transmitted between parties, such as from a broker to various insurers that produce annuities, promotes speed and accuracy, with fewer errors because fewer people have to touch information through processing."
Info-One VARDS' strength lies in annuity product research. The trading platform enables users to log in once regardless of the various types of business they want to conduct, saving a significant amount of time in the process, adds Tucker.
The combination of AnnuityNet and InfoOne/VARDS is expected to greatly ease the burden on insurance carriers that felt compelled to align with both distribution providers so they could offer their products to a wider array of banks and broker-dealers.
AnnuityNet has partnerships with about 29 insurers, while Info-One/
VARDS has about 25, with many insurers having affiliations with both. Following the merger, these insurers will be able to conduct business from a single annuity distribution platform.
The broker-dealers and vendor partners, such as Blue Frog, CSC and Vertex, "have all developed tool sets to support the respective platforms. Now they won't have to duplicate their efforts," says Chalke.
Over the past year, AnnuityNet has been championing the annuity selling process to make it simple and profitable for insurers and brokers.
Industry standard
In 2002, it relinquished to the industry its proprietary standard for transmitting and exchanging annuity account and transaction information across the Internet.
By relinquishing its intellectual property and offering it for use as an open standard, AnnuityNet's intent was to support and accelerate efforts by NAVA and key industry participants toward creating a universally adopted industry standard for annuity application data exchange.
Electronic annuity order-entry has "already hit critical mass with acceptance by nearly 50% of all financial institutions selling annuities. Forty-nine firms among broker-dealer and bank annuity distributors have purchased annuity automation platforms from either AnnuityNet or Info-One/ VARDS," Chalke says.
"This transaction unifies an important segment, allowing the market to experience the savings and benefits of scale validating the business models developed by the two companies individually," he says.
Info-One/Pivot, Info-One's agency service business that delivers insurance fulfillment services, will not be affected by this transaction and will remain a part of Wachovia Insurance Agency Inc.
