January 23, 2006

Conning Research: Variable Annuity Companies Evolve To Virtual Companies through Outsourcing

• Making Insurance Component More Significant, More Visible

(Hartford, CT) January 23, 2005 - The variable annuity insurer has been shifting from vertical integration toward a virtual company structure over the past few years, according to a new study by Conning Research and Consulting. The structural shift has been driven in part by changing contract owner needs, and in part by competitive forces and demands from the distribution system as the variable annuity product has evolved.

"Outsourcing investment management and distribution has allowed the insurer to reduce operating costs and access a larger, and richer, contract owner pool," said Terence Martin, analyst at Conning Research & Consulting. "This change has also created value for the contract owners by giving them access to fund managers, subaccounts, and distributors that meet their evolving expectations for service, performance, and risk tolerance."

The Conning Research study, "Integrated to Virtual: Evolution of the Variable Annuity Company-Implications for the Competition for Retirement Assets" identifies this structural change, its impact on the product, and the corresponding implications for the variable annuity in competition for retirement assets

"The net effect of these changes is to isolate and highlight the variable annuity's key advantages over mutual funds as a retirement product: longevity and investment risk transference and insurance protection," said Stephan Christiansen, director of research at Conning Research. "While this increased transparency will enable contract owners to better evaluate the cost of the benefits they receive from the product, it also raises questions about how variable annuity companies need to adjust their products and positioning to better compete for retirement assets."

"Integrated to Virtual: Evolution of the Variable Annuity Company-Implications for the Competition for Retirement Assets" is available for purchase from Conning Research & Consulting, Inc., by calling (888) 707-1177 or by visiting the company's web site at www.conningresearch.com.

About Conning Research & Consulting, Inc.
Conning provides insurance industry analysis to insurers and industry stakeholders. The Conning name has represented excellence in independent insurance industry research for more than 90 years. As a result of its wealth of experience and intimate knowledge of the insurance industry, Conning understands industry challenges and opportunities and provides in-depth insights and analyses on a wide range of industry products and issues. Conning is headquartered in Hartford, CT.

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