In AIG’s lower Manhattan headquarters, SunAmerica Financial Group’s CEO Jay Wintrob rattles off a series of encouraging statistics about SunAmerica. The company is currently the fourth-largest seller of annuities in the United States; the largest seller of fixed annuities in the United States; the sixth-largest seller of variable annuities in the United States; and the fifth-largest seller of term life insurance in the United States.
It is more than mere cheerleading; as the head of AIG’s life and retirement savings operations, he wants to let the world know that SunAmerica remained strong even during AIG’s larger problems, and that now, some years after the crisis that almost destroyed the world’s largest insurer, SunAmerica — and AIG itself — is back in a big way, ready to compete on its own terms, and with a keen awareness of where it went wrong before.
“Granted, we were knocked down in 2008 and the first quarter of 2009, but the fact is that we are now back,” Wintrob says, enthusiastic about the future of the life and retirement savings industry here in the United States, and for the prospects of SunAmerica.
A COMPANY MOVING FORWARD
There is more than one reason for his optimism. For starters, financial decisions have been made about AIG and its ongoing structure by AIG’s current CEO, Robert Benmosche, that make SunAmerica, and the Chartis property and casualty unit, key components of the larger group.
“I think that the risk diversification we provide our shareholders and our customers is a strong benefit over a long time period.”
Wintrob said he believed the restructuring and transformation going on at Chartis — led by his regarded colleague Peter Hancock — is going to be very successful, but he added that it would not happen overnight.
Hancock, Wintrob said, “is asking all of the right questions, and is off and running with a very well thought out long-term strategy of improving performance that I’m very optimistic will be a successful endeavor.”
Wintrob’s comments were made against the background of comments by analysts and others that Sun-America Financial Group might be better off spinning off from Chartis.
In his comments, Wintrob acknowledged the speculation, but it seemed to weigh little upon him. What mattered most to him was that SunAmerica would grow, thrive and become an important contributor to AIG in the years ahead. “That is the program I’m on,” Wintrob said, “ and that is the program the senior managers are on.”
He said the AIG turnaround began when Robert Benmosche came in as CEO in August of 2009 and made it known what he thought were the key parts of AIG going forward.
“He announced his vision for the company, his business strategy, what he deemed core, and what he deemed not, and, as I said, what that really did for us was take us from an uncertain, ambiguous situation, because it was never entirely clear before that, exactly how things would come out, to one of certainty,” Wintrob recalled.
He said the “great thing about our situation is that you now have a flag planted in the ground, something you can rally around, as a management team, as a group of committed employees.
“You could start planning for the future in increments, you can start setting milestones because you are not looking over your shoulder, or watching your employees chit-chat at the water cooler about, ‘Gee, I wonder what they are going to do around here next month’,” Wintrob said.
“It has been Bob’s hallmark since he arrived, that we deliver what we say we are going to deliver,” Wintrob said. “We have been on this path since Bob became very public about the future structure in the summer and fall of 2009, and that is the path we are on. We are excited about that, positive about that.”
AIG has made a host of divestitures since it got into trouble in the fall of 2008. It has divested insurance, reinsurance, banking, finance and financial operations throughout the world during that period. These have included insurance companies in Taiwan, Japan and Canada, among others.
The largest insurance operation sold was Alico, a global insurance company based in Delaware but with major operations in China, as well as Japan, Europe, including European Union and eastern European companies, as well as in Latin America.
It was sold in November 2010 to MetLife. It also sold, effective early last year, two of its Japan-based life insurance subsidiaries, AIG Star Life Insurance Co., Ltd. (“AIG Star”) and AIG Edison Life Insurance Company (“AIG Edison”), to Prudential Financial, Inc. It also sold its interest early last year in Nan Shan Life Insurance Co. in Taiwan to a Taiwan-based company.
It sold AIG Life of Canada in January 2009, one of the first of the divestitures following the federal investment.
THE HIGH COST OF LIVING (LONGER)
Meanwhile, Wintrob says, Americans are becoming increasingly aware that as they live longer lives, the security of the current public safety net is growing threadbare. This, in turn, is generating greater demand for products such as life insurance and variable annuities with living benefit riders. This demographic shift alone could generate growth for the next two or three decades.
That is why, he said, that there have been recent periods of very strong growth in the variable annuity industry. (For more on that, see our special feature on annuities, “Great Expectations,” on p. 40.)
At the same time, Wintrob sees this as a unique opportunity for AIG because the strong growth in the market has caused some of the leaders in this category to pull back out of concern that they are over-concentrated in this market at the same time that AIG is catching its second wind.
As part of this trend, he implied that some insurance companies that dominated the market are pulling back because the 2007-2010 “global financial crisis” impacted their balance sheets.
“We are very excited to be building back our own distribution, to see our growth, because it’s actually a very good time to do that in the market,” Wintrob said.
“The fact is that the annuity business in the last couple of years, like never before, has become very concentrated in the top three or four players,” he said, These include MetLife, Prudential and Jackson Life, cited both by LIMRA and Morningstar as the largest players in the living benefits rider market.
“I am not going to comment on that, but it has now been publicly announced that some of those companies have said they may really want to pull back in their exposure in the annuity market, because they in effect, have become over-concentrated,” Wintrob said.
He said that’s a “good factor for us as we continue to move up the rankings in a controlled, risk-managed way.”
He also said that, at the other end of the spectrum, coming out of the global financial crisis there were several other players, that used to be bigger players, and you could guess on who some of those are, actually have pulled way back, in the market, or in fact, exited the market.”
He cited John Hancock as one former dominant player, and said Hartford Financial used to be the leader.
“You don’t see them on the tote board in the same way anymore,” Wintrob said. “That provides a wonderful opportunity for SunAmerica Financial Group to continue its growth in that area.”
“We have gone about it in our own disciplined way, focusing on our risk-adjusted returns and really only selling where we could get our intended rates of return,” he said. “At the same time, these competitive dynamics are happening. Certain players have pulled out of the market, while the remaining top three or four players in the market have moderated.”
In general, Wintrob sees overall market factors as very positive. He noted that the U.S. has had relatively low rates of annuitization, and always has. This stems from an ongoing concern among customers that if they annuitize and then die soon thereafter, they might give up control of their money, and that annuitizing may not turn out to be a good financial transaction.
The flip side of mortality protection is longevity protection, Wintrob said. “Variable annuity living benefits resonate because you get, in effect, the same kind of longevity protection with a certain amount of lifetime guaranteed income but you also continue to have access to your funds.
“You have liquidity of the account value of your product. This is really starting to resonate and why the industry is going to continue to tell the story of the three ‘Ps’ of the variable annuity.”
He said there is the downside protection embedded in the variable annuity. “Your account values are generally protected, generally the accounts work whereby you get your premium back; the premium is stepped up over time.
Second, you get “participation,” meaning you can invest your variable annuity funds in a variety of sepa- rate accounts
“You have the opportunity to grow your account value through participation in the market,” Wintrob said.
He said the third “P,” and the most important, “is that you get predictability, you get at your option a predictable stream of income for the rest of your life.
“You can start the withdrawal at 55, 60, 65. Different contracts have different withdrawal rates, depending on how long you wait to start,” he said.
“But that combination — protection of your assets on the downside, participation in the market, on the upside, and a predictable stream of guaranteed lifetime income — that’s a powerful message and people are relating to it as they think about what they need in their own life,” Wintrob said.
“I am enthusiastic about annuities that provide guaranteed lifetime income benefits, and that is a very exciting trend in our industry,” he said.
“I have been part of this industry for 25 years and I have seen this demographic build, and I have seen the social safety net challenge build, and just in the matter of time, I think something about the global financial crisis has actually pulled it all together, and people are really reassessing their needs, how to approach retirement, their life span, their responsibility to their parents, their siblings, their children,” Wintrob said.
TELLING THE AIG STORY
Despite all of this, Wintrob cautions, SunAmerica’s business will only grow in its own disciplined way, focusing on risk-adjusted returns and only selling where the company can get its intended rates of return.
“If you were to follow the quarter-to-quarter rankings published by Morningstar or LIMRA or the other services, you will see that the trends for several quarters now have us showing improvements in all those rankings,” Wintrob says of SunAmerica’s sales.
As of Sept. 30, SunAmerica Financial Group had $251 billion of assets under management and shareholder’s equity of $37 billion.
“We generated sales of over $23 billion and operating income of $3.4 billion during the past 12 months, and all major product segments have delivered double-digit top line growth and strong growth in the value of new business created.”
Confident that the wind is behind it some three years after its parent company found it itself mired in the economic abyss of a federal government takeover and what he termed the “global economic crisis,” Wintrob is eager to tell what he calls “the AIG story.” Namely, how SunAmerica has been a key contributor to what Wintrob considers to be one of the most remarkable turnarounds in the history of the financial services industry.
“Not a single policyholder of any of our life companies was ever in any jeopardy,” Wintrob says of SunAmerica during the crisis that nearly led to AIG’s complete collapse in late 2008. “We had positive cash flows in our businesses every quarter throughout the global financial crisis. We retained substantially all our customers. Our surrender rates are low and our business persistency was improving and very strong.”
Moreover, he said, during this period SunAmerica essentially retained its entire management team, experienced modest employee turnover. “Quite frankly,” he says, “we are back in business, and we are here to compete.”
Wintrob’s comments were made three years after problems, primarily at AIG Financial Products, forced the company in September 2008 to seek a federal bailout.
At that time, AIG turned over 79.9% of its stock in exchange for what was then a $180 billion line of credit from the Federal Reserve Bank of New York.
The company’s problems had really started in 2005, when an investigation by then New York Attorney General Elliot Spitzer resulted in the departure of long-time chairman and CEO Maurice “Hank” Greenberg.
The company also settled with New York state and the Securities and Exchange Commission over alleged accounting irregularities and other problems.
The primary problem generating the need for a government bailout was sale of credit default swaps by the Financial Products unit of AIG. At the time of the government involvement, it was later learned, AIG had guaranteed $2.77 trillion in notional value of mortgage-backed securities issued by foreign and domestic banks.
As the economy soured, the value of real estate declined, and as AIG’s stock price and financial condition deteriorated, terms of the contract required that AIG post additional collateral to the counterparties to guarantee compliance.
When AIG was unable to raise these funds in the open market, the decline in its financials accelerated.
Currently, AIG’s loans from the Federal Reserve Board have been repaid, and its government involvement is now mainly through Treasury ownership of approximately 77% of its common stock.
DIVERSITY...TO A POINT
Wintrob has been with SunAmerica for 25 years. It was originally based in Maryland, and its headquarters moved to Los Angeles after it was acquired by Kaufman and Broad, a real estate company that was then diversifying.
SunAmerica was acquired by AIG in 1999. American General, a huge life insurance company and a large player in the 403(b) and fixed annuity businesses, and based in Houston, was acquired by AIG in August 2001.
SunAmerica Financial Group now includes American General, its primary life insurance platform and numerous other operations, including AGLA (which focuses on providing life products to the middle market), VALIC (a leader in group retirement products), and Western National Life (the top distributor of fixed annuities in the bank channel for 15 consecutive years). The group also includes SunAmerica’s variable annuity and retail asset management businesses as well as Advisor Group, one of the largest networks of independent financial advisors in the U.S.
This diversity, Wintrob says, is as intentional as it is important to the group’s sense of risk management. SunAmerica has a comprehensive suite of live and savings products, Wintrob says, but it is not a full supermarket. “We don’t sell every product under the sun.”
It may not need to. Wintrob notes that SunAmerica has affiliated distribution by way of AGLA’s career insurance agents and VALIC’s career financial advisors, and it also owns one of the largest networks of independent financial planning broker-dealers in the United States with roughly 4,600 financial advisors that are licensed with its Advisor Group broker-dealers — FSC Securities, Royal Alliance and SagePoint Financial.
“We have 3,300 AGLA agents and about 1,300 VALIC financial advisors,” Wintrob says, and that is just the beginning. Those 4,600 professionals account for about 35% of Sun-America distribution. There are also partnerships with the U.S. banking and brokerage industry that gives SunAmerica regional and national reach in all major banks. but it also gives the group distribution through major broker-dealers from large national firms such as Merrill Lynch, Morgan Stanley and Edward Jones to important independents like LPL and Raymond James.
He said SunAmerica also distributes through the major insurance marketing organizations and brokerage general agencies for life insurance and annuity products. But it isn’t afraid of selling direct either; SunAmerica also sells simple term life insurance and accident & health products through a direct-to-consumer life insurance platform called Matrix Direct.
“A big part of our strategy is not to be all things to all people,” Wintrob says, “but to be properly diversified so that we have products to sell in every category when the customer demand is there and the competitive environment allows us to sell them at appropriate returns.”
To this end, SunAmerica is not focused exclusively on the top line, Wintrob stresses. Rather, it is focused on profitable growth. To that end, a strong balance sheet, diverse product menu and multi-channel distribution reach are all seen as critical components to fuel strong sales growth now and well into the future.
NOT REALLY A COMEBACK
“You might remember in your readings that there was a time when people were wondering if we could compete, for example, in the area of education conferences and top producer meetings, which, as you know, is part of this industry, diligence meetings, and there were some early incidents with other parts of AIG that the media made hay over.”
But toward the end of 2009, Sun-America was back in business and fully competing in every way, including product distribution and providing top-level customer service. This, Wintrob says, is little more than an open secret: anybody who has been paying close attention to SunAmerica would have seen it all along.
The real secret, Wintrob says, isn’t what SunAmerica has been doing to become what is probably one of the fastest-growing life and retirement savings organization in the country...but how it is has been doing it.
“It is a combination of having strong personal relationships, a strong reputation over many, many years of doing the right thing for the customer,” Wintrob says. “And quite frankly, it is a matter of just wanting it more than other people because we all have such commitment to what has been built here, our employees, our distribution partners, most importantly, the customers who bought and held our products.”