Manulife Life Insurance is preparing to launch its first variable annuity products in Japan this January, says Keith Walter, managing corporate officer in charge of business development in Tokyo. It will be the insurer's first investment-based product in that market since it entered Japan in 1999.

According to John Shed, managing corporate officer for investment operations, Manulife will manage two portfolios itself, one for Japanese equities and one for Japanese bonds. It will outsource two portfolios (international equities, debt) to fund managers with brand names. He says tentative agreement has been reached with one fund manager but declined to reveal which one until the product's official launch next month.

Shed adds that the international investments will be hedged back into yen. One selling point for Manulife's VAs will be international diversification. He notes that Japan's ultra-low interest rate environment and volatile stock market means even a modest performance by VAs will be welcome by many investors.

Walter notes the two-year old market for variable annuities is embryonic in Japan, around Y200 billion in size. "Very few providers combine international product strength with strong Japanese distribution," he says.

Distribution is tricky for the 11 current insurance companies, local or foreign, selling variable annuities in Japan. Global insurance companies tend to sell them in home markets through several channels, including banks, brokers and financial advisors, as well as through their own sales forces.

In Japan, however, sales forces at many firms are part-timers, not professionals (they are often compared to Avon cosmetic sales ladies in the United States), and not trained to provide investment advice. Notoriously, domestic life insurance companies such as Nippon Life do not sell VAs through their own sales forces.

Furthermore, for now banks are prohibited from selling VAs, although industry players hope this will change in mid-2002. Brokers have in some cases been successful channels in Japan, particularly if the product wraps in funds affiliated with the broker's fund management arm. But many brokers want exclusive relationships. "It's pretty much one insurer per broker," Walter notes.

Manulife will initially rely on the 4,300-strong sales force it inherited from its acquisition of Daihyaku Mutual of May, 2000. It is beginning to train its force, which Walter says is already professionalized û that is, not Avon ladies.