Magazine article American Banker

Rivals Crying Foul over Skandia's Annuity 'credit.'(American Skandia Life Assurance Corp.)

Magazine article American Banker

Rivals Crying Foul over Skandia's Annuity 'credit.'(American Skandia Life Assurance Corp.)

Article excerpt

Sparking the ire of its competitors, American Skandia Life Assurance Cos. is aggressively marketing a new variable annuity that offers consumers a novel, immediate "credit" on their investment.

The Shelton, Conn.-based company is offering to contribute to the investment an amount equal to 3% of the total. Rivals claim the credit amounts to a kickback that will prompt consumers to switch out of their own annuities for the wrong reasons.

Annuities typically carry penalties for early withdrawals. By giving customers a credit, the Skandia product, dubbed Xtra Credit, essentially reimburses investors for those penalties.

Competitors say American Skandia is unabashedly targeting their annuity investors.

"This is really the first company that I know of that is open and up- front about what it's doing," said Jennifer Strickland, who covers the variable annuity industry for Morningstar Inc., Chicago.

Here's how Xtra Credit works: If a customer invests $100,000 into the annuity, the company contributes $3,000 - so the balance on the first day is $103,000. That's an extra $3,000 compounding gains on the investment, starting from day one.

The company boasts in a press release that the unusual pricing feautre is the reason the product is "one of the hottest sellers in the country," generating $200 million in premiums in its first three months.

Competitors are clearly unhappy, saying that the scheme encourages brokers to advise investors to move their annuities prematurely."That product is about as controversial as you get," one competitor said.

But American Skandia officials stand by the product.

"We would only be encouraging brokers to use this if it's in the client's best interest," said Alan Blank, a vice president overseeing the company's sales through financial institutions. He called the criticism "something a jealous competitor would say. …

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