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Segregated fund sales skyrocket in the first quarter

par Reynaldo Marquez | June 20 2004 02:01PM

The stock market recovery gave insurers a shot in the arm in the last RRSP campaign, sending seg fund sales skyrocketing by 166% between the first quarters of 2003 and 2004.

Insurers’ net sales of segregated funds (investors’ deposits less withdrawals) literally exploded by the end of first quarter 2004, data from the analyst firm Investor Economics reveal.

In total, the net sales of the 24 players examined by the firm soared by 166% compared with sales reported during the same quarter in 2003. From a modest $416 million, sales ballooned to $1.1 billion at March 31 (see tables).

In the first quarters of 2002 and 2003, Manulife Financial (Manulife Investments) took in $1 million more than Great-West Life and subsidiaries, including Canada Life in the first quarter, with $256 million in net seg fund sales. Manulife had reeled in barely $83 million in seg fund premiums for the same period last year, while Great-West set the pace with sales of $97 million.

Manulife revelled in sales growth of a staggering 208% between the first quarters of 2003 and 2004. Not surprisingly, it boasted the sharpest growth in the industry.

Other titans of the first quarter include Industrial Alliance and CI Mutual Funds, which posted $149 million and $140 million respectively in seg fund sales.

Transamerica Life Canada and Desjardins Financial Security had less prosperous RRSP campaigns. The disappointment continued at Transamerica with withdrawals of $20 million in the first quarter of the year. A slight improvement over the $22 million lost last year in the same quarter. Desjardins watched $8 million flow out of its seg funds in the first quarter of 2004.

Top 5 still dominate

The top five seg fund players continue to completely dominate this sector of the industry, with an 80% stranglehold on the market. At the same time, they garnered nearly three quarters of seg fund sales in the first quarter.

In terms of seg fund assets under management, Great-West remained well in the lead and controlled nearly a third of the market, with $14.7 million in the first quarter. Collectively, all of the players surveyed by Investor Economics hold seg fund assets of $46.8 billion.

Manulife Investments lags far behind Great-West in assets under management, with $7.6 billion and a share half the size of its main rival, at 16%. Manulife’s market share will grow substantially when it tacks on that of Maritime Life. Its new acquisition presently controls a 10.9% market share, making it the fourth largest player in the market, with $5.1 billion in segregated fund assets under management.

For now, CI is holding onto third place with 11.8% of the market and assets under management of $7.6 million. Industrial Alliance ranks fifth with $3.5 million in segregated fund assets under management, for a market share of 7.4%.

Confidence comeback

Several factors explain the seg fund sector’s performance, says Jimmy Chu, research analyst at Investor Economics. First, the stock market recovery of recent months revived investor confidence. This upswing had a simultaneous leverage effect for insurers, translating into a solid RRSP campaign, Mr. Chu continues.

Rick Annaert, vice-president, products, at Manulife Investments agrees. He feels that it is natural that investors are flocking to seg funds in conjunction with the market recovery. “Canadians are conservative investors,” Mr. Annaert points out. “After having been burned by the stock market, they are mainly interested in products that guarantee their capital.”

Manulife Investments accentuated its presence through its managing general agents (MGA) channel, adds Mr. Annaert. This let the company increase the proportion of its total seg fund sales realized through this network from 12% in the first quarter of 2003 to 25% on March 31.

The company also increased its wholesaler forces. “We have communicated with advisors in the field, even during the stock market meltdown. We didn’t hide. Those relationships built on bad times pay off in good economic times.”

Diversification an asset

Funds of funds and asset distribution programs have been a boon for seg fund suppliers during the RRSP campaign, Mr. Chu noted.

Alf Goodall, vice-president, marketing at Great-West, believes that the insurer’s success rests on its strategy of focussing its sales efforts on a clientele with high net value.

He added that investors are particularly interested in the new asset distribution program Canada Life launched in November 2003.

At Industrial Alliance, the Focus fund family, together with dividend and diversified funds, represent 50% of all seg fund sales at the company, said Marie-Chantal Viau, marketing coordinator, individual annuities.

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