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Allstate Warns About Fied Annuities

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The Allstate Corp. says it is doing well but has concerns about fixed annuities because of continuing weakness in fixed annuity spreads.[@@]

Tough competition and low interest rates on investments now have narrowed the difference between the interest rates insurers pay on fixed annuities and the rates they earn on their own investments for years.

Allstate, Northbrook, Ill., a giant multiline insurer, is reporting a total of $1.1 billion in net income for the second quarter on $8.8 billion in revenue, up from $1 billion in net income on $8.3 billion in revenue for the second quarter of 2004.

The company’s Allstate Financial unit is reporting $97 million in net income for the quarter on $4 billion in revenue, compared with $58 million in net income on $4.3 billion in revenue.

Sales of fixed annuities and funding agreements, another fixed-income instrument, were strong, but Allstate notes that 75% of its interest-sensitive life and fixed annuity contracts still have guaranteed crediting rates of 3% or higher, and 76% of those contracts already have crediting rates that are at the guaranteed minimum.

The difference between the weighted average crediting rate and the average guaranteed crediting rate is about 0.49 percentage points, Allstate says.

Traditionally, issuers of fixed annuities have tried to achieve a spread of about 2 percentage points.

Allstate’s sales of variable annuities increased 4.6%, to $459 million.