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Style Consistency Sought for Sub-Accounts


ATLANTA - When selecting an asset manager for an annuity sub-account, insurance companies need to look beyond performance figures and brand recognition if they want to offer a unique product line that is highly marketable, according to fund and insurance executives.

Portfolio management in sub-accounts is more important than performance figures or brand recognition when selecting an asset manager, according to Eric Levy, senior vice president and director of insurance product development for Putnam Investments of Boston.

Levy and other executives spoke at The Annuity Conference, held here last month and sponsored by the Life Office Management Association, LIMRA International and the Society of Actuaries.

Controlling style drift within a sub-account allows the insurance company to offer a concise and unique annuity program without redundancies, Levy said.

"Insurance companies want a clearly defined reason to add a fund," he said. "They want to have a reason to stand apart from their competitors."

Evaluating asset managers using a clear selection process can not only insure a strong working relationship, but can also yield an annuity program that is easy to sell.

"When you have a process for selecting managers, you have a marketing opportunity and you are getting the best management," Levy said. "You need a partnership, so both sides feel that they are getting something. You're really trying to decide if you both want to work together and the process says a lot to an asset manager. The process shows the insurance company is very much behind the selection process. When an insurance company is serious about its process, we can get serious about support for things like sales training."

An asset managers' qualitative characteristics are vital to the success of a relationship between an asset manager and an insurance company and should be scrutinized during the selection process, said Margo Somma, a marketing consultant with MetLife of New York. "It's an ongoing relationship and meeting our needs for marketing, compliance and investment experience helps us tell our story," she said.

Insurance companies should also look for managers that are willing to visit and spend time building a relationship, said J. Scott Dunn, a competitive analyst for Massachusetts Mutual Life of Springfield, Mass. Having a successful existing relationship with an asset manager is a good criteria to use in selecting a new sub-account, he said.

While it is important to offer sub-accounts that have style consistency, performance should not be overlooked, said Dunn.

"Ultimately, performance is key," he said. "I think we look at performance a little too much, but it does look good for marketing." And offering a strong brand name sub-account can strengthen an annuity program's marketability, Somma said.

But selecting a sub-account solely on strong performance and brand is a selection strategy fraught with pitfalls for not only the insurance company, but the asset manager as well, Levy said. Because market fluctuations and trends are impossible to predict, selecting a sub-account on performance is unreliable. A company can also add funds to an annuity lineup that are constantly changing style in order to keep up with the market trends, yielding a chameleon-like product that is difficult to market, Levy said.

An insurance company that places too great an emphasis on performance should raise red flags for asset managers. A company that is quick to hire based on past performance is also quick to fire when that performance drops, Levy said.

An asset managers' brand name recognition is another characteristic that can be valuable, but should not be overemphasized. Asset managers that promote their portfolio managers in their branding campaigns should be avoided, Levy said.

"(Brand) is less of an issue when you've hired a team-managed fund," he said. "If you've touted that star manager, you're out of luck if he decides to leave the firm for whatever reason. It's important to think about that." Also, a team-managed sub-account tends to have more internal investment controls, protecting against style drift, he said.