Summary
1. Profit margins are challenged by market conditions.
2. The marketplace is very competetive.
3. Regulatory power struggles create fewer channels for sales.
Analysis
Old Mutual Financial Network offers a competetive array of Term Insurance, Universal Life, Indexed Universal Life, Fixed rate, variable, and Fixed-Indexed Annuities. Indexed annuities rely upon Index options linked to the volatile U.S. Equity markets, from which it calculates interest earnings for its Indexed annuities. Market volatility has been reflective of one of the highest Beta's in market history, resulting in abnormally high options costs. These costs have impacted sales of the product because of pressure to lower "Cap" earnings rates, reflective of these higher costs, making the products less attractive to the marketplace. This, coupled with an extremely volatile interest rate environment have focused more marketing attention on fixed rate product, which is an extremely competetive marketplace. To compete in this market, which offers lower profit margins than the Indexed annuity marketplace, profit margins must be cut very thin in order to grow new premium business. Regarding Universal life products, the same interest rate and option premium challenges exist in the UL marketplace. This coupled with actions by FINRA/NASD, and the SEC, to thwart the flows of money out of mutual funds, into insurance products, by restricting sales by securities licenesed persons, and disruption in the wholesale distribution channel that woks with broker-dealers, has impacted the annuity industry up to an estimated forty percent since late 2005. Now the SEC has proposed even more restricitve rules, that will have continued negative impact on the industry and its margins, if adopted.
