Faced with subpar fixed-income annuity sales, banks are lowering commissions to boost volume, and at least one big insurance company isn't standing in the way.

Fixed-income annuity sales through banks peaked in the first quarter at $10.7 billion, before dropping to $8.4 billion in the second quarter, according to Kehrer-Limra. The research company projects that third-quarter figures will show that such sales tumbled to $6.9 billion.

American International Group Inc. is one company behind the volume-oriented trend.

AIG, a lightning rod with the public and the government during the financial crisis, has leveraged the shortness of investors' memories to move more product. First, it changed the name of one of its subsidiaries from AIG Annuity Insurance Co. to Western National Life Insurance Co., distancing itself from its tarnished brand.

Western National also made special arrangements with banks to lower commissions so it could offer clients higher interest rates, making its products that much more attractive, said Ken Kehrer, the research company's founder.

Western National even beat out New York Life Insurance Co. for the top spot in fixed-annuities sales in the bank channel in the third quarter, according to Kehrer-Limra.

New York Life still holds the top slot, but it recognizes that the landscape may be changing for annuity issuers and the banks that sell them. "We would attribute our lower third-quarter sales to overall lower market interest rates, which makes fixed annuities less attractive," a New York Life spokeswoman said. "A couple of competitors had strong sales in the third quarter due to very attractive interest rates or aggressive product features."

Some experts and rival companies have criticized Western National's volume-based strategy, saying the subsidiary used AIG's bailout money as a cushion to offer competitive interest rates and undercut others. Still, as Kehrer noted, annuity purchasers are benefiting. If Western National can lower its expenses by paying banks lower commissions, in the end clients do get higher interest rates.

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