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."

Further defending the product, Mr. Blank said that the credit paid to investors is taken out of the broker's commission, so an immediate financial reward is not a motivation.

The broker gets 3% of the premium in the first year plus 0.25% each year after. He said that rate is lower than those on American Skandia's other variable annuities.

Though the special credit may be appealing to some consumers, not all of Xtra Credit's features are enticing.

In particular, the early withdrawal period lasts longer and the penalties are higher than for most annuity products. American Skandia charges 8.5% of assets for exiting within the first four years of the contract. With the typical product, Morningstar's Ms. Strickland said, the charge is 7% in the first year and declines a percentage point each year.

American Skandia is not a major seller of annuities through banks, but it has been aggressively pursuing that market. It underwrites the proprietary variable annuities of banking behemoths Wells Fargo & Co. and Fleet Financial Group Inc. - an activity which generates most of its revenues from the banking industry.

It is unclear how much of Xtra Credit's sales comes from banks. Mr. Blank would only say the company is "selling a ton" of the new product.

Competitors say American Skandia has made no bones about targeting their annuity customers. Indeed, company executives boasted about the strategy in February at a meeting of the National Association of Variable Annuity Companies, competitors said.

Mr. Blank noted that the Xtra Credit annuity does not require an initial investment to come from a competitor's product. But, he added, "obviously it's one of the uses of it."

Those are fighting words for rivals.

Snipes one: "It's one thing to be competitive - it's another thing to be a pirate."

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