The right prescription: as the financial crisis grinds on, annuity writers emphasize the advantages of insurance.

Investors have been hurt by last fall's stock market meltdown. Many are still reeling from the speed and depth of the decline.

Annuity writers have felt the pain, too, but their products either protected clients from the financial fall or are poised to help repair damaged portfolios. Below are stories from six insurers who are out to make the best of a tough economic climate.

Helping Clients Make The Best Use of Products

Pacific Life Insurance Co. is planning to spend more time with advisers about helping clients with product diversification, said Christine Tucker, vice president of marketing for the annuities and mutual funds division. "With all the products out there, what's the right product mix and allocation?" she asked.

Many investors own mutual funds, fixed annuities, variable annuities, and guaranteed income riders, "so that's what we're going to see more of--how these different products fit into an overall plan," she said. "We need to apply some of those needs-based consultative wholesaling efforts to outline the need to become more familiar with the product allocation concept." In particular, advisers could help clients to decide when to start peeling away monthly income at different times, she said.

Like other variable-annuity writers, Pacific Life has responded to the economic crisis by cutting back on guaranteed benefits in new contracts or by charging more for them.

"If you go to SEC filings, you'll see some pretty big jumps," she said. "Some are up to 1.25% of the benefit base. When you have market volatility and interest rates in the zero-ish realm, then these benefits become incredibly valuable to consumers, but there are some challenges that they are priced adequately in today's environment."

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Pacific Life Insurance Co.

A.M. Best Company # 06885 Distribution: Independent producers, broker/dealers and wirehouses

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IRA Rollovers Seen as a Way To Rebuild a Retirement Base

At a time when banks, insurers and car companies are receiving bailouts from the federal government, Sun Life Financial has implemented a strategy to bail out individuals whose assets in qualified retirement plans have withered.

The strategy involves rolling them over into a Sun Life variable annuity inside an Individual Retirement Account with a rider, the Retirement Income Escalator II, that guarantees growth of future withdrawals for income. The rider is available on its Masters suite of variable annuities. Assets of many investors in qualified retirement plans dropped last year 25% to 40%.

"Financial advisers don't know how they're going to rebuild those accounts for clients," said James Slotuick, associate director of advanced markets. "If you've gone from $500,000 at the start of 2008 to $300,000 now, you can't afford any more risk" One way the variable-annuity industry is able to help is by letting a policyholder transfer the risk, he said.

An insurer does this by creating a benefit base, an auxiliary account used to calculate an income, and guaranteeing it won't decline in the policyholder's lifetime. Before a policyholder begins withdrawals, Sun Life guarantees the benefit base to grow 7% a year in simple interest.

Assuming an investment of $300,000, the benefit base would grow in 10 years to $510,000, even if the annuity's account value falls. If the account value exceeds the value of the benefit base at the end of any quarter, the base value becomes the greater amount, and a new minimum base is locked in. When withdrawals for life begin, they equal 4% to 7% of the benefit base annually, depending on the starting age. Slotnick called this "the simplest story we've ever told, but also one of the most timely."

In February, after two months of implementing the strategy, Slotnick said Sun Life was seeing lots of rollovers from mutual-fund IRAs. He said it also gives advisers, especially those earning commissions based on asset levels, a new way to generate income.

Sun Life's Personal IRA Bailout Strategy

Turning $300,000 into $30,600 annually for life is the example Sun Life provides. It takes 10 years, and it works even if the variable annuity's account value falls. Other insurers offer similar products.

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Sun Life Assurance Company of Canada (U.S.)

A.M. Best Company # 08226 Distribution: Career agents, general Agents and third-party intermediaries

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Restoring Confidence in Small Steps With a Short-Term Fixed Annuity 

In today's climate, it's hard to sell a product with a long-term commitment. So in February, Allianz Life Insurance Co. launched an alternative: a traditional fixed, deferred annuity with a term of as little as one year. Dan Slater, assistant vice president of product development, said the annuity is designed to help prospects deal with their distrust of the financial-services industry.

"A lot of people are paralyzed and don't know what to do with their money today, so why not put it into a product that you know will provide a fixed-rate return for a year?" he said, adding that people are also concerned about the financial strength and stability of issuing companies.

The product, Dominator, allows a choice of one, two or three-year rate guarantees and full access to all money invested at the end of the rate guarantee. Slater said the idea is to give a client the chance to work with an adviser and the company in a kind of tryout.

"It gives people the opportunity to see our financial strength and power of our distribution, because ultimately, we're confident that the power will be there to move them into a retirement plan," he said. "This type of product allows you to put your toe in versus jumping into the pool."

Normally, the three- to five-year range has been considered short-term in the annuity world. "Especially in the fixed space, the true-value proposition comes from dialing up the yield curve and having a long-term commitment," said Slater. But Allianz did not have such a product in its portfolio. "We had fixed accounts within all of our products, but they were part of a longer-term commitment," said Eric Thomes, a senior vice president of sales.

Slater said Allianz may have one or two competitors for short-term annuities. "You can get that type of product on nonqualified funds in a CD, money market or things like that," he said. "But when you're talking about retirement funds, those are 401(k)s, those are qualified assets, and people really don't have much of an option for this type of product."

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Allianz Life Insurance Company of North America 

A.M. Best Company # 06830 Distribution: Independent agents, broker/dealers

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A Conservative Approach Resonates in Protecting 403(b) Account Value

Keith Young recalls how, at a recent meeting with school teachers and educators, several came up to thank him that they will be able to retire. "They had been comparing 403(b) plan statements with other people who had lost a lot of money," said Young, vice president of marketing at Life Insurance Company of the Southwest, a Dallas-based subsidiary of the Vermont-based National Life Group.

Those other people had been in plans funded with variable annuities. Young's customers were in indexed annuities and traditional fixed annuities. "We never promised great returns, just safety for your money," he said. "We protect principal and earnings, and that strategy has paid off in this marketplace."

LSW is seeing record sales. Young said they were up 72% in January over the same month in 2008. For all of 2008, sales were up 50%. Meanwhile, people have been fleeing variable annuities and mutual funds. "We have agents calling us about joining our company," he said. "They're looking for safety guarantees. They're tired of clients losing 30% or 40% of their money, and we've been the beneficiary."

LSW in February had a sales force of about 7,000 spread among career agents, independent personal producing general agents and smaller agencies. Also in the mix are independent marketing organizations, which the company began adding during the past 18 months, Young said.

The teachers are a risk-averse group. "Their whole mission is to teach children," said Young. "They didn't get financially educated. They don't want to lose money or spend time allocating and worrying about subaccounts. They just want their money there at retirement."

Those in variable annuities often followed the advice of registered representatives and allocated their plan assets according to models designed by Ibbotson Associates, said Young. In many years, the models returned 8% to 10%. But in last fall's collapse, suddenly plan participants were down 30%. Young said teachers asked him, "What did I buy? How could I lose this kind of money?" He replied that even the well-balanced models couldn't avoid the losses "because the market was that bad." The indexed annuities were returning 4% to 6%, but didn't lose anything last year, he said.

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Life Insurance Company of the Southwest

A.M. Best Company # 06647 Distribution: Career agents, independent personal producing general agents, small agencies, independent marketing organizations

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Taking the Long View: The Strength of Mutuality

Securian Financial Group is very comfortable with its mutual form of governance, according to Bruce Shay, senior vice president of retirement. The company likes having the ability to take a long-term view and not worry about quarterly sales results, so it can make decisions in the best interests of the policyholder.

That is currently playing out well for the company's fixed-annuity business, which is growing significantly. In part, that is due to an expansion over the past 18 months of its so-called "platform" distribution, which Shay described as clearinghouses able to offer many products from many insurers.

But sheer numbers of distributors are only part of the story. Shay said Securian is able to present itself as a well-capitalized financial institution that is good at managing risk. "Our financial position allows us to move up in terms of profile," he said. "High ratings, solid financial strength and competitive products in the fixed annuity space obviously play out each and every time there is a market correction. And given the length and severity of this one, we're seeing the same, and probably at a higher level than we've seen in the past."

Shay said consumers are rotating from other accumulation products such as CDs and mutual funds. "Until we-the entire world economy--find the bottom, we'll continue to see that," he said.

Shay said that while Securian's indexed annuity is "well-priced" for the policyholder, the company is not promoting it," and we're seeing the result in the distribution area. We're not building an indexed annuity for which the first priority is the distribution partner," he said.

"The problems in that space are well-documented. We understand the space, and that's why we're comfortable with our lack of result."

Securian offers a classic variable annuity with living-benefit riders, but is also not promoting that product. "Again, we want to have good solid products for the policyholder that are appropriate and manage our risk and the policyholder risk appropriately given the environment," he said. "The financial results will speak to what the issue is, and since we're not on the front page regarding VA exposure, you know where we're at."

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Securian Life Insurance Co.

A.M. Best Company # 09064 Career general agents, financial institutions and credit unions brokers and benefit consultants. Also, a distribution alliance with Wadell & Reed Financial.

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Mortality Risk Premium Can Raise Retirement Income

American General Life is shining its spotlight on income annuities as part of a back-to-basics strategy, said John Rafferty, vice president of annuity marketing. "If you had to ask for a situation in which economic stars are aligned in support of the income annuity's value proposition, now would sure seem to be that time," he said.

Fixed income annuities are simple and predictable. A buyer makes a one-time payment, and an insurer guarantees payments for life at an annual rate based on the applicant's age. But "the best-kept secret" about these annuities, as Rafferty pointed out, is that the buyer can expect more income than from common alternatives. The average 5-year bank certificate of deposit in February, for example, paid less than 3%, according to Bankrate.com. Thirty-year U.S. Treasury bonds were paying about 3.5%. The S&P 500 stock index was paying dividends of about 3%.

In contrast, a 65-year-old couple buying American General's Platinum Income Annuity would lock in annual payments of about 7% for as long as at least one spouse is alive, said Rafferty. The higher rate is enabled by a pooling of premiums. As insureds die, the money they paid into the pool can go to surviving insureds. This is known as the mortality risk premium.

Rafferty said the Platinum Income Annuity ranked third in sales in the independent channel and first in the independent-agent channel through the third quarter of last year. "We are truly focused on trying to convince agents and advisers that the basic use of an income annuity has a lot of value for clients, and not just for period-certain payouts, but life-contingent payouts, where you're going to get that mortality lift," he said.

Mortality lift starts to become significant in the 60-75 age range, he added. As of Feb. 1, American General listed its income annuities on the CANNEX SPIA Exchange, which compares products and rates of

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American General Life Insurance Co.

A.M. Best Company # 06058 Distribution: Personal producing general agents, brokers, independent marketing organizations, agency system

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* What Happened: Many investors have seen portfolios fall in value by 25% to 40%.

* The Significance: Annuity guarantees may find more traction among investors.

* The Lesson: Risk management in investing has become a vitally important factor.

Annuity Industry Estimates
($ billions)

                             3Q         3Q        % Change
                           2008       2007   Q3 '08/Q3 '07

Total Variable             37.9       46.4             -18
Fixed Equity Indexed        6.7        6.4               5
Fixed Deferred             24.8       16.4              51
Fixed Immediate             2.1        1.6              51

                         Q3 YTD     Q3 YTD        % Change
                           2008       2007          08/'07

Total Variable            122.0      135.9             -10
Fixed Equity Indexed       19.3       18.7               3
Fixed Deferred             64.5       44.0              47
Fixed Immediate             5.9        4.7              26

Note: Industry estimates reported for third quarter based upon data
from 59 companies, representing 96% of total sales.

Source: LIMRA International