Variable annuities may be staging a comeback.

Bruce Ferris, the senior vice president of sales and distribution for Prudential Annuities, said he has heard all the objections from wholesalers and advisers: in essence, that the product is too expensive or too complicated.

But while assets under management for variable annuities have declined over the past two years, they "aren't going away," and the perception of them is beginning to improve, Ferris said.

"In the past 18 months, retirement savings have atrophied by 40%, and that is starting to change a lot of attitudes about these products," Ferris said in an interview last week. "People like the idea of a product with a guarantee."

Ferris said the success of Prudential Financial Inc.'s U.S. annuity business is evident. Last year the company's annuity sales rose 58.3%, to $16.3 billion, from a year earlier as fourth-quarter sales rose 71.4% year over year, to $4.8 billion.

"Variable annuities provide us with the ability to offer downside protection and upside market participation," he said. "We can put a floor under an investment. It is a unique value proposition to have. … The question is no longer if [variable annuities] are appropriate, but what percentage of assets should have this protection."

In the bank channel, Prudential Annuities has had substantial growth. Its bank sales of variable annuities increased 152% year over year, to $1.8 billion, as it added 15 more banks to its distribution list. In the third quarter Prudential ranked first in bank sales of variable annuities, according to VARDS, a unit of Morningstar. In 2002 it ranked 14th in bank sales.

"Bank clients look at CDs, fixed annuities and fixed income as safer havens than equity products," Ferris said. "But right now they are finding it difficult to generate yields in fixed income or [to find] products that offer attractive returns for their retirement income savings. This is generating more interest in variable annuities."

Prudential Annuities has nearly doubled its wholesalers in the bank channel in the past two years, to 26. "We want to continue to add selectively from here," Ferris said. "We are confident that we have the right resources and support for bank clients. … We have made a significant investment in the bank channel over the last four to five years, and we are really starting to reap the benefits of that investment in our sales results."

That doesn't mean the Newark, N.J., company plans to stop investing in bank sales of annuities. "We have sustainable momentum in the channel," Ferris said. "Look at our industry: banks represent 12% to 13% of total industry annuity sales. We are right in that wheelhouse. I expect to continue to grow our business and I am looking at doing that across all channels."

Some advisers remain skeptical of variable annuities. Fixed annuity sales heavily outweighed variable annuity sales last year as many banking companies shied away from variable products because the guarantees associated with these products became too expensive, according to Michael White of Michael White Associates.

The strain that the market crash put on guaranteed-income rider providers is behind much of the change. Many providers have eliminated guarantees or raised their prices.

Figures from Kehrer-Limra showed that variable annuity sales rose 17% in the second quarter compared with the first quarter, versus a 55.9% gain for mutual funds. The disparity is striking, because sales of the two products usually move in tandem.

In fact, 2008 net sales of variable annuities were $23.8 billion, roughly half the 1999 total.

In the fourth quarter variable annuity sales rose 3%, to $32.6 billion, from the previous quarter, according to Limra's U.S. Individual Annuities quarterly sales survey.

"The last time VA sales were at this level was in 2003, at the end of the last financial crisis," Limra research director Joe Montminy said. "While we are seeing VAs slowly recover, the recovery is slower than expected."

Ferris said Prudential certainly has not won every adviser over. "There are still naysayers, and there always will be," he said. "But we attracted 20,000 new producers last year that are now offering Prudential annuities that never sold our products before. That is twofold our previous record of new producers. I think this is evidence that advisers recognize that given recent market conditions, variable annuities are a solution that make sense for many clients."

Prudential is not alone. Sun Life Financial Distributors Inc., the U.S. division of Sun Life Financial Inc. of Toronto, is looking for ways to increase sales of the product through banks. This month it hired Leslie Hunnicutt as a senior vice president and a national sales manager to increase sales through banks.

The Wellesley, Mass., unit vaulted into the top 10 providers of annuities through banks last year, Hunnicutt said. Its variable annuity sales rose 22% in the channel last year, and it expects a further increase this year, she said.

Sun Life has 19 wholesalers in the bank channel, up from 15 a year earlier, and it plans to add one wholesaler this year as part of its effort to become a "top five player overall," Hunnicutt said.

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