Given strong demand for retirement products that offer downside protection and growth potential, target-date funds and annuities would seem a great match.

But many insurers remain leery of target-date funds, analysts said. They said Prudential Retirement is the first to offer a product that combines them with annuities.

"Target-date funds are still relatively young products, so insurance companies are wary about putting them inside of an annuity," said Carmen Effron, an analyst with C.F. Effron Co. LLC in Weston, Conn. "But the time is right to bring this type of thing out. Right now, people want to invest in a product that has some downside protection. People want a secure place to put their retirement funds."

Target-date funds are designed to become gradually more conservative as an investor moves toward retirement. They were introduced in 1993 and started to gain traction in 2006, when legislation made it possible to use them as default options in employer-sponsored retirement plans.

The funds suffered outflows last year along with the rest of the industry. According to Morningstar Inc., assets held in target-date funds were down 14.8%, to $159.8 billion, through March from a year earlier.

Analysts said these losses and target-date funds' lack of a track record worry insurers, whose annuities leaked assets last year. "With an annuity, you are talking about guaranteeing an investment. Insurers don't take the word 'guarantee' lightly," said Burton Greenwald, an analyst with BJ Greenwald & Associates in Philadelphia.

George Castineiras, a senior vice president of distribution for Prudential Retirement, said in an interview Tuesday that IFX Target, which the Prudential Financial Inc. unit rolled out Monday, was designed to ensure investors can invest their retirement savings in target-date funds while maintaining their principal investment through an annuity with a guaranteed minimum withdrawal benefit.

"This solution is intended to allow investor to stay in market in a well-diversified portfolio and, if the market falls out of bed, they still have downside protection," he said.

The product is a follow-up to IncomeFlex, which Prudential unveiled in January 2007. IncomeFlex, which was designed to help older employees manage their retirement savings, combined mutual funds with an annuity that featured a guaranteed minimum withdrawal benefit.

Castineiras said IncomeFlex, which has assets of $140 million, started slowly. "We spent time advertising and marketing when we launched it, but we really didn't get many calls," he said. "Usually, when we did get a call from someone responding to our ads, they were just trying to sell us ad space somewhere else."

As equity markets collapsed last year, the product surged, adding more than $60 billion of assets. Castineiras said he expects to generate more than $25 million of assets in IFX Target this year.

IncomeFlex "gained momentum in the fourth quarter of last year as advisers really started to the carry the message about the importance of protecting 401(k)s," Castineiras said. "Our volume of calls was two or three times higher than anything I have ever seen in my career for a product."

Other large insurers hesitate to come out with such a product. Hartford Financial Group, which expanded its family of target-date funds to nine from three last month, is not considering linking its target-date funds to annuities. "We are focusing on target funds offered through our retirement plans," said Kelly Carter, a spokeswoman for the Simsbury, Conn., company.

Jon Gabriel, a researcher at Kehrer-Limra, said that, though Prudential, of Newark, N.J., is the first to pair target-date funds with annuities, other carriers have variations on this blend.

Castineiras said he is confident other providers will offer the combination once Prudential's product has gained assets and otherwise proven itself. "There is just a sense of demand for this," he said. "We positioned ourselves in advance of the market to launch this, but really it is only because of what has happened in the market that people are most interested in a product with downside protection."

Effron said bringing the product to market now will help Prudential gather assets quickly. "We are all creatures of the headlines," she said. "No matter how smart we think we are, we tend to chase the trends. There is a tremendous need for defined contribution products that give people the protection of a defined benefit product. If you can make something that looks and feels like a defined benefit product, you are halfway home."

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