Lehman/A.M. Best Co. 2nd Annual Conference

"That trend shows that companies in the business are not training and educating their brokers and agents." Lorry Stensrud Vice President & Chief Executive Officer of Annuities Lincoln Financial Group

Lincoln Financial CFO Sees Opportunity in Annuities

Lincoln Financial Group sees opportunity in the mushrooming amount of retirement income that will come from baby boomers in the near future, and the company is betting that aggressive product development and marketing in its annuity business will capture a good share of that income.

Lorry J. Stensrud, executive vice president and chief financial officer for annuities, spoke at the 2nd Annual Insurance Conference in New York, co-sponsored by A.M. Best Co. and Lehman Bros. Stensrud pointed out that the gap between net cash flows and total annuity sales for the industry in the United States has been widening considerably since 1996. That gap--representing surrenders, exchanges and withdrawals--is an opportunity, Stensrud said.

"That trend shows that companies in the business are not training and educating their brokers and agents," he said. "Basically, they are just trying to grab each others' business."

Lincoln Financial has done no better, said Stensrud, who has helped turn the company around in the 11 months he has been there. While gross deposits in Lincoln Financial's annuity segment rose from $1.1 billion in the first quarter of 1999 to $1.4 billion in the first quarter this year, net cash flows went from a $300 million deficit to a $600 million deficit. "For every $5 billion in business we're taking in, we're writing $7 billion in checks," he said.

To turn the business around, Lincoln Financial intends to launch a "multifaceted attack on net flows," through exemptive relief, new products and alliances and an aggressive sales strategy, Stensrud said. The company believes net flows can break even sometime in 2001, he said.

For exemptive relief, Lincoln Financial will need permission from the U.S. Securities and Exchange Commission to reimpose surrenders. "We've got a gigantic block of old annuities," Stensrud said. "Exemptive relief would allow us to go back to the customer, offer them new features and give something to the brokers at the same time."

Stensrud said Lincoln Financial plans seven different exemptive-relief products, while "most of our competitors have only one or two."

Stensrud said that in the second half of 2000, Lincoln Financial offered more new products than it had in the past five years. "We're getting caught up and getting more products to the marketplace," he said.

One of those products is the Income4Life solution, as Stensrud describes it. Income4Life is designed to allow the customer maximum access to his or her funds, while eliminating many of the fees usually imposed on withdrawals and transfers, Stensrud said.

"We have a simple story with Income4Life," said Stensrud. "It's control, flexibility and liquidity. We intend to be the go-to company for income products."

A "very aggressive sales strategy" would include signing up new distributors and renewing relationships with old partners, he said. "We're teaming up new products with new partners, and new products with old partners."

(By David Pilla, senior associate editor, BestWeek: David.Pilla@ambest.com)