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AXA leaps into segregated funds

par Alain Thériault | August 18 2008 01:32PM

In early June, AXA Assurances leapt into the Canadian segregated fund market. With 12 funds and a team still under construction, AXA may seem somewhat ill equipped to battle the big players that dominate the market. Yet, Robert Landry, executive vice-president, life insurance and financial services at AXA, is confident that his company can carve out a place in this market.

Interviewed by The Insurance Journal, Mr. Landry said he has an ace in the hole: AXA’s global expertise. Not only does the insurer plan to import European products without having to develop everything from scratch, but it already has a market risk management team at its disposal, and can offer individual clients access to funds usually reserved for institutional investors.

During a presentation to advisors, the insurer emphasized the high market concentration by quoting Investors Economics data on segregated fund assets, released on December 31, 2007. At that date, Great-West Life and Manulife Life held segregated fund assets under management of $23 billion and $20 billion respectively. The two leaders control 57% of the market.

Sun Life Financial ranks third, with $8 billion in assets under management, Industrial Alliance follows with $7 billion and Transamerica Life Canada holds $5 billion. Empire Life, Standard Life Canada, Primerica Life Canada, Desjardins Financial Security and Equitable Life collectively manage $11 billion in segregated fund assets. The remaining players divvy up $2 billion in segregated fund assets under management. The bottom line: the top ten segregated fund distributors cornered more than 97% of the market on December 31, 2007.

Factors in their favour

Mr. Landry believes AXA can skilfully ride the variable annuity wave. The variable annuity is basically the American equivalent of the Canadian segregated fund. This product has been sparked fervour around the world.

In Canada, the wave of popularity has been building since Manulife launched IncomePlus, its guaranteed minimum withdrawal benefit (GMWB) product, in 2006. In less than two years, Manulife has already racked up $5 billion in assets under management with this new offering.

AXA’s logic is simple. Since it is already a leader in the global variable annuity sector, it believes it has the tools to achieve the same status in Canada, explained Mr. Landry. The insurer plans to launch a GMWB product as soon as its line of segregated funds has gained a solid footing, he added.

“We want to accumulate $1 to $2 billion in assets under management as quickly as possible. With our financial capacity, we could wait five years before reaching this critical mass, but we want to reach it within two to three years,” Mr. Landry explains.

AXA’s presentation to advisors highlights the factors that will help it attain its objective.

According to statistics published by AXA, which it attributes to the United Nations, the global population aged 60 and up is projected to double between 2005 and 2050. In North America, it is expected to increase by nearly 50% during the same period, to make up 27% of the population.

Life expectancy is also expected to rise steadily, this data shows. Between 2005 and 2050, it is projected to increase from 67 to 75 globally, and from 79 to 83 in North America.

In addition, generalized under-financing of public pension plans on a global scale has created a hotbed of variable annuity growth, AXA notes.

Because segregated funds offer guarantees that other investment products do not, they can best meet Canadian needs sparked by these trends, AXA maintains.

In its 2008 AXA Retirement Scope study, the results of which were published this spring, AXA underlined the huge potential of the Canadian segregated fund market. Canadians are among those that plan to retire the earliest, the study reveals.

In Canada, the segregated fund market represented over $75 billion in assets under management at the end of 2007, according to Investors Economics. This market is expected to reach $170 billion in assets by December 2016, projects the analysis firm.

The Canadian investment sector is in the midst of a revolution, Mr. Landry said. “The baby boomer generation has caused one sea change after another. They’re also the wealthiest. Advisors must realize that the wave will not last long. The portfolios available are being invested now. Once they are invested, it’ll be difficult to shift them.”

GMWB products will play a key role in this wealth transfer, Mr. Landry continues. “Savings have begun to flow from classic mutual funds and segregated funds to guaranteed minimum withdrawal benefit products. We anticipate an exponential phenomenon that we will soon be a part of. Players that enter the game in four or five years will have missed the boat.”

AXA intends to hire sales managers across Canada. They are aiming to have four starting in 2008 and will increase this to eight by 2009, Mr. Landry said.

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