Nationwide Financial Reports Higher Profits, Lower Fixed Annuity Sales

"Interest spread margins compressed during the quarter," Nationwide says in a discussion of the annuity unit results. "The current interest rate environment has limited the ability to effectively adjust crediting rates due to the interest rate floors contained in annuity contracts."

The difference between the rates Nationwide is paying on fixed annuities and fixed accounts within variable annuities and the rates it is earning on its own investments shrank to 1.55 percentage points, from 1.95 percentage points during the second quarter of 2002, Nationwide says.

Nationwide is trying to manage the shrinkage by reducing sales of fixed annuities and enforcing restrictions on customer allocations to the general account investment options within individual variable annuities, the company says.

Meanwhile, at the institutional unit, revenue and income were both up, and the interest spread margin increased to 2.05 percentage points, from 2.04 percentage points.

At the life insurance unit, the recently competed acquisition of Provident Mutual Life Insurance Company, Berwyn, Pa., helped increase income and revenue, but economic and legislative uncertainty caused sales of corporate-owned life insurance to fall 32%, Nationwide says.