Variable Annuities Are Down but Not Out

The pricey, complex insurance contracts essentially did their job-paying out a steady stream of income to clients regardless of the plunging markets-but the companies that backed them took a hit.

In response, last year they began to reduce the benefits offered and raise prices. Many have overhauled the structure of their contracts altogether. Some industry observers take a glass-is-half-full attitude and say that the market turmoil gave the industry a gift by forcing it to recognize that its wares were too complicated and pushed it to create simpler products. "Nobody thinks prices up and benefits down is a good thing," says Frank Zafran, director of annuity products at Morgan Stanley Smith Barney. "But the industry simplifying its product line is a good thing..."

OnWallStreet: Variable Annuities Are Down but Not Out