Variable-Annuity Writers Court Sales With High Interest Rates.

Interest rates paid by insurers offering variable annuities through banks remained at high levels during the second half of 2000, according to the Quarterly Kehrer Bank vawatch produced by Kenneth Kehrer Associates, Princeton, N.J.

Insurers offer high rates in special dollar-cost-averaging accounts to attract investors wary about plunging into stock funds. Investors can deposit money into the special accounts and have the money doled out into their chosen variable-annuity investments over a six- or 12-month period.

Bank investors tend to be more conservative than others, said Kenneth Kehrer, president of the research and consulting firm, which focuses on banks as a distribution channel for investments and insurance. He said dollar-cost-averaging accounts have been a significant marketing tool for variable-annuity sales at banks, particularly in periods of market volatility. "It's a sound investment strategy, and rates being used to attract people are very high," he said. "Some are paying an annualized rate of 12% to 15%. Compare that to the 3% or 4% investors might earn in a money-market account, and you can see why people see it as a good reason to act now."

Kehrer said some major companies had reported that dollar-cost-averaging accounts represented more than half of their variable-annuity premiums. Through the first three quarters of 2000, premiums from variable-annuity sales at banks totaled $12.3 billion.

The survey of 32 variable annuities monitored by vawatch currently average 11% for six-month dollar-cost-averaging plans, the same rate as they averaged earlier in the year, said Jim Rensel, president of Q-Group, a Tempe, Ariz.-based research firm that compiles the variable-annuity data for Kehrer. Largely responsible for maintaining the average was Keyport Life Insurance Co., Boston, which boosted its rate in the last quarter to 16% from 11% to promote its renamed Charter VA, which was previously its Advisor VA. Without Keyport, the average six-month rate would have dropped to 10.8%. A year earlier, the average was 9.7%.

Twenty-six variable annuities offer six-month dollar-cost-averaging rates. Those rates ranged from a low of 7% by ING/Golden American's extra-credit Premium Plus VA product to Keyport's 16%. Six companies reduced their six-month rates during the last quarter--Sun America (part of the American International Group), Sun Life of Canada, Safeco Life Insurance Co., American Enterprise Life Insurance Co. (part of the American Express Financial Corp.), General Electric Life & Annuity Co. and Jackson National Life Insurance Co. ING/Golden American was the only other insurer to raise its rate.

Twenty-eight vawatch products offer one-year rates ranging from a low of 5.5% (ING's Premium Plus VA) to a high of 10% offered on three products--Aetna's Variable Annuity, Allstate Life's Glenbrook Provider, and Sun America's Polaris. Six companies reduced their one-year rates, while only Allstate Life's Putnam Allstate Advisor increased its rate.

Variable Annuities Offer High Annual Interest Rates

One-year interest rates on variable annuities that offer dollar-cost - averaging accounts have remained strong for the past several quarters. Some insurers have significantly increased the rates they offer to attract investors.

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