Date: 4/23/2012
Source: Ignites.com
Author: Mariana Lemann

Incapital Launches Annuity Platform, Inks Deal

Incapital, a securities and investment banking firm, is launching an annuity distribution platform and has inked its first agreement with Commonwealth Annuity and Life Insurance Co., a subsidiary of Goldman Sachs Group.

Incapital, which underwrites and distributes fixed-income and structured notes, is currently building a distribution team and is in talks with other insurers to add their products to its new platform. It partnered with Commonwealth to sell a single premium fixed deferred annuity, the Multi-Year Guaranteed Annuity (MYGA).

Incapital tapped Patrick Clifford in August 2011 as senior VP in capital insurance services to lead the effort. Prior to joining Incapital, Clifford served as senior VP, relationship management at Sun Life Financial Distributors. Even though insurance providers have been retreating from the annuity market, Incapital sees an opportunity.

“While there is a lessening of appetite by many issuers, especially in the VA space …, there is a continuing increase in demand on the part of consumers and advisors for the benefits that annuities can provide in terms of reaching their personal retirement goals,” Clifford says. “There is clearly an opportunity to fill that gap and fill that void where there is a lessening of supply but an increased demand.” Commonwealth declined to comment.

Sales of variable annuities were strong in 2011, while sales of fixed annuities experienced a small decline. Net variable annuity sales in 2011 totaled $27.7 billion, 28% higher than 2010, according to Morningstar. Last year’s VA sales were also the strongest industry annual sales since 2007. Fixed-annuity sales for 2011 totaled $75.6 billion, down 1.1% from $76.4 billion in 2010, according to Beacon Research.

Incapital’s move to go against the grain is not a bad idea, consultants and analysts say.

“I do believe it is a good time to enter the annuity market if you are well hedged and have the capital to do so,” says Donnie Ethier, a senior analyst at Cerulli Associates. “They might not have a huge legacy book of in-force policies that they are hedging.”

In addition, Ethier says, if Commonwealth offers competitive products, it will attract advisors, given the diminished offering of products both in the variable and in the fixed annuity market. “If an insurance company offers an aggressive and competitive rate on a fixed annuity, it is definitely going to get the attention from advisors and consumers.”

The new platform’s first product is a step in that direction, industry experts say. Being part of Goldman Sachs gives Commonwealth’s products a certain cache.

“They haven't been actively building their book of business organically, but they have the ability to manage the product competently,” says Tamiko Toland, managing director of retirement income consulting at Strategic Insight. “Goldman also does work selling derivatives to insurance companies and helping insurance companies’ hedging programs.” Incapital is touting its relationships with more than 700 broker-dealers to annuity providers.

“We are viewed favorably,” Clifford says. “When there are not a lot of upfront costs, we can help them hit the ground running by virtue of the relationships we have in place.”

Insurers that are exiting the annuity business still have infrastructure in place, which for the most part, is proprietary and costly, Clifford says. Conversely, companies still selling variable annuities, or planning to do so, are looking for distribution alternatives. “They are looking at whether they want to build, buy or lease that distribution,” he says. While third-party distribution has appeal for product manufacturers, its success depends on the effectiveness of a carrier’s business model.

“If a firm is going to really establish a significant footprint and have their brand really communicated to the market, it is typically important to control the distribution,” says Lee Kowarski, a principal at kasina. “That doesn’t necessarily mean that it is has to be in-house or fully owned, but it makes it easier in many cases.”

Incapital’s new business will have a dedicated sales desk, some hybrid wholesalers and some external wholesalers, Clifford says. Incapital would not disclose the number of wholesalers it currently has or is seeking to hire.

A source familiar with the hiring process said that the company is searching for a director of national accounts, two key accounts professionals and a sales force of eight to 10 people.

In February, Incapital announced the appointment of Brian Jones as managing director, financial services, a newly created position focused on building the firm’s advisor sales group, according to a company press release. His role is to expand Incapital’s internal sales team and its team of regional wholesalers that target retail advisors, registered investment advisers (RIAs), independent firms and annuities specialists. Prior to this appointment, Jones served as CEO of SIP America.

“We will be hiring account managers and wholesalers as the business grows,” says Steve Hartman, a managing director at the firm. “Incapital is in the process of on-boarding broker-dealers now. As agreements are finalized, we will be announcing products and rates.”

Despite the difficulties that pushed many carriers out of the annuity space, opportunities still exist, consultants say. The average advisor has 12% of their assets in VAs and another 4% of their assets in fixed annuities, according to kasina’s FA Vision data service. “There is some significant money invested in these products, and with some major players retreating from the market, you can understand why some firms might be attracted to the space,” says kasina’s Kowarski. The agreement with commonwealth appears to be the first step in Incapital’s plans to build an annuity distribution platform. “The intent is to carry a full array of annuity products from multiple carriers,” Clifford says. “Part of the benefit of our wholesalers carrying multiple products is to be viewed favorably by the broker-dealers.”

One recurrent message from broker-dealers and advisors is that wholesaler visits can be challenging when they are crunched for time, Clifford says.

Edward Jones has also created a distribution model that aims to be a one stop shop for advisors seeking annuities. The providers on the platform – Prudential and Pacific Life, SunAmerica and Lincoln – have all created O-share versions of their variable annuities for the platform. The share class carries a fee structure that is similar to an A share without an upfront sales charge.



The investment products discussed herein contain unique risks, terms, conditions and fees specific to each offering. Depending upon the particular investment product, risks may include, but are not limited to, issuer credit risk, market risk, the performance of an underlying derivative financial instrument, formula or strategy, and foreign currency risks. Return of principal may not be guaranteed and may be subject to credit risk of the issuer or the performance of a derivative instrument, formula or strategy. Additionally, unless otherwise specified in the particular offering documentation, the products discussed herein are not FDIC insured, may lose value, and are not bank guaranteed. You should not purchase an investment product or make an investment recommendation to a customer until you have read the specific offering documentation and understand the specific investment terms, conditions and risks of such investment. A copy of the official statement and other offering information may be found at the SEC’s EDGAR as related to securities offerings. Incapital will also provide copies of the relevant offering statements upon request. Incapital does not offer or sell investment products to individual investors. Investors should consult with their financial professional prior to investing any money in these or other products and carefully review the disclosure statement or other offering documents.

This material may include certain representations, projections and comparisons concerning particular investment products, markets or indices. Such representations, projections and comparisons may not reflect the opinions of Incapital and may not be accurate either now or at a future date. Consequently, you should not rely on such representations, projections, comparisons or other opinions in purchasing an investment product or making a recommendation to a customer. Current and future economic and other market events concerning an investment product or an issuer thereof may cause the information provided herein to be incorrect. Past performance is not indicative of future results and should never be relied upon in making an investment decision or recommendation. This material may not have been authored or officially authorized by Incapital, its employees or an affiliate thereof.