America is at a crossroads as millions of Americans are retiring every year. Many on the cusp of their golden years are also caring for aging parents and financing young adults. We also have a sizeable younger generation with rapidly changing needs that will need to close a growing wealth gap driven by economic disruption, globalization, and relatively high levels of student debt compared to prior generations. The annuity branch of the insurance industry is also evolving with changes in financial planning needs, product innovation, fintech, regulation, and the tax code.
Recognizing that the bulk of the burden of providing financial security in retirement now rests on the shoulders of every consumer, American Equity (AEL) believes that all roads in financial planning lead to income at some point. A leader in the development and sale of fixed index and fixed rate annuity products in the U.S., the Des Moines, Iowa-based enterprise aims to lead the industry on the journey, creating innovative products designed to meet the needs of multiple generations.
AEL distributes their products through independent agents as well as financial institutions, including banks and broker-dealers, serving individuals seeking to accumulate tax-deferred savings and generate lifetime income in retirement.
Developing innovative products that provide Americans dignity in retirement through predictability of income, preservation of accumulated wealth, and participation in the market is AEL’s ambitious goal. “We strive to provide our policyholders with the dignity of a paycheck for life, and keeping our promises to our clients is paramount to who we are as a company,” said Tamara Kravec, AEL’s SVP and Treasurer. “Our transformational journey — both strategic and digital — is all about keeping our promises.”
The firm refers to their assurance that their policyholders’ retirement dollars are safe as Sleep Insurance®, managing over $50 billion of policyholder funds and demonstrating the ability to originate and change with the times.
Macroeconomic concerns and very low interest rates for a prolonged period have resulted in a shift in the competitive landscape which provides AEL with ample opportunities to dominate the general account annuity market.
“Through what is known as our Virtuous Flywheel of Success, a concept introduced by our CEO Anant Bhalla, we are talking our at-scale origination platform and adding to it a differentiated axis of investing,” Kravec said, describing the company’s AEL 2.0 initiative. “Through our cornerstone partnership with Brookfield, and with an open architecture asset allocation approach and an optimized capital structure, we can invite third party capital to make our flywheel turn even faster.”
A Partnership Approach to Digitalization
The company is transforming into a capital light business and shifting toward an open architecture asset allocation approach. “We are forming new strategic partnerships and we are investing for the long-term, not just this year or next,” Kravec said. AEL innovates in all areas of the business, including annuity products, investment capabilities, and strategic partnerships as well as enterprise-wide internal processes and analytics.
They are also innovating around investment capabilities with a differentiated axis of investing. “Investing in the typical instruments, such as bonds, is no longer sufficient to generate the required returns in this prolonged low interest rate environment,” Kravec said. “Our investments team also has a flywheel of success which centers around investment discipline, where liability-driven investing, a focus on preservation of capital, and a strong risk management framework leads to a solid liquidity position which comes full circle to liability-driven investing.”
In the real estate sector, AEL is focused on long-term growth in value and return by adhering to a forward-looking investment approach with a strong emphasis on the implementation of data and technology solutions to highlight leading indicators and sustainable macro-economic and demographic trends, for example, markets with continued population and employment growth and assets positioned to capitalize on evolving lifestyle trends.
“Our goal in Treasury is to continue to automate our processes and deepen our relationships with our key strategic partners, like GTreasury, Strategic Treasurer, Fides, Citibank, and FundConnect,” Kravec said. Recent upgrades to AEL’s Treasury capabilities through GTreasury aligns with industry best practices, helping to ensure optimization of cash and short-term investments to support their growth.
“In addition to the recent implementation of our more automated Treasury platform, our IT team has been working to centralize our data within a data lake. This approach, coupled with the new Treasury functions, will allow us to maintain accuracy of data presented for forecasting, analysis, and historical lookbacks,” Kravec said. This also increases the efficiencies of the daily functional workload and allows Treasury to provide internal stakeholders with key reports, analysis, and ad hoc information for near-term decision making and strategic positioning.
COVID-19 has brought about profound changes in the way business is conducted and the way clients want and expect to interact with companies. While this trend has been around for a while, the pandemic significantly accelerated the need for operational efficiencies and full end-to-end digital capabilities, such as straight through processing. Customers are preferring digital interactions and AEL’s goal is to transform the digital customer experience to enable users to own their experience with a cohesive array of self-service capabilities, automate processes for efficiency and scale, and transform interactions through an omni-channel menu of digital services. “We want to take the great service we are known for and apply that focus to digital transactions,” Kravec said. AEL is creating a Customer Experience function that will provide end-to-end experience focused on intuitive technology and automation.
Fund Connect allows AEL to complete money market mutual fund trades as well as mutual funds through their online portal. The technology enables them to optimize their cash positioning, which is crucial to executing the AEL 2.0 strategy and its many moving parts.
“Having our money fund trades and positions from Fund Connect seamlessly integrated into our downstream platforms and custodian records has been instrumental to our overall efforts,” Kravec said. “Fides Treasury Services allows us to connect all of our banks to one centralized hub to feed into GTreasury. This makes the addition of new accounts and/or banks easy to connect with the Treasury Management System.”
Fides formats all payment files and messages from GTreasury into the file format needed by each bank. With their concentration banking partner, Citibank, AEL can send payment files from their ERP systems that contain ACHs, checks, and wires all at the same time. “Another element to our banking automation is Fund Connect’s SWIFT payment capabilities that dovetails into our treasury and custodian processes,” Kravec said.
The implementation of GTreasury allows AEL to centralize its Treasury function, more effectively positions the company’s cash, enhances reporting capabilities and provides visibility to forecasted cash flows. GT’s forecasting capabilities allow for predictive analytics for bank activity, improving their cash forecast capabilities. GT has a strategic partnership with Goldman Sachs which allows AEL to execute foreign currency trades directly through the GT platform.
“We are in the beginning stages of leveraging AI and predictive analytics through our distribution organization,” Kravec said. “The learning curve is steep due to the technology, but we are also getting the data into the right place for us to leverage into advanced technologies.”
Investments around data hygiene, importing industry and distribution partner data, and creating propensity models are key to the success of AEL 2.0. They recently integrated MarketMetrics into their CRM as a tool for their sales professionals to better assess opportunities within their geographic territories. It produces annuity and mutual fund sales data down to the zip code, firm, and product, helping AEL to better target their efforts to capture new producers. Incorporating predictive analytics into their CRM dashboards is also on the horizon.
AEL worked with Moxtra to develop the Client Assist digital selling and service platform. Producers can make presentations and sign and submit paperwork to the company in one platform.
“Eventually we’d like to use AI and machine learning to help with sales forecasting as it relates directly to our business footprint and the macro environment,” Kravec said. “We’d ideally like to use many of our learnings through these efforts to better educate our distribution partners on their own business, their financial advisors, and the industry.”
On the real estate side, AEL is currently co-developing a proprietary analytical tool with an external partner that incorporates multiple data feeds. Variables are independently weighted to screen and identify those assets and markets which are undervalued and/or offer the greatest potential for income and value growth.
“We got together with Strategic Treasurer and thought through data, processes, and architecture carefully in light of all that is changing with data, security, and analytics,” Kravec said. “There’s an intersection between technology and structure determining what is possible and what is available and how that ties into and helps drive the AEL 2.0 strategy. Strategic Treasurer talked with us and all across the different areas and languages in our business and arrived at what we do…
Read More:American Equity: The journey to forever | BOSS Magazine