NU Online News Service, March 25, 10:15 a.m. – Banks reported higher annuity sales in January, ending a brief period of declining premiums, according to a new monthly survey by Kenneth Kehrer Associates, Princeton, N.J.
Sales of variable annuities continued to slip, but they showed definite signs of leveling off after a long decline.
Banks and thrifts set a monthly sales record for fixed annuities in January, increasing sales by 19% over December’s relatively low level, Kehrer reports. Sales rose to almost $3.2 billion, from $2.6 billion the month before.
January sales of fixed annuities were more than twice what they had been for the same month a year earlier, Kehrer finds. The previous record was $3.1 billion in October 2001.
The data show the typical bank sold $4.30 in fixed annuities in January for every $1 in VAs.
Brad Powell, president of the institutional marketing group at Jackson National Life Insurance Company, Lansing, Mich., says the popularity of fixed annuities is no surprise in view of continued uncertainty in the equity markets and the increasing yields of fixed products. Because annuity underwriters invest in longer-term securities, he observes, they can pay much higher rates than short-term bank certificates of deposit.
Investors are also showing more interest in variable products. Bank-sold VA premium was $814 million in October, then increased 6% to $862 million in November before falling back 16% in December to $724 million. Sales then rose 1% in January over December, to $731 million. January sales were, however, down 6% from year-ago levels.
An executive at Hartford Life, a subsidiary of the Hartford Financial Services Group, Inc., Hartford, which specializes in VAs, suggests financial advisors may not be doing their clients a favor by letting them invest heavily in fixed products.
“With fixed annuities, people are locked into 4% to 5.5% interest rates for the next five years,” says Bruce Ferris, a Hartford Life vice president. “Many of those people should have some level of diversification into VAs, based on historical returns of 8% and 9%. And if you believe the market will rebound, I am not sure we appropriately serve the public by locking then up in fixed annuities.”
VA sales do appear to be recovering. Powell of Jackson National reports that in February, his company saw bank VA sales rise 18% over January. March sales of Jackson VAs in banks appear to be climbing even higher.
In addition, Kehrer reports rumors from financial institutions that annuity sales in general continued to rise in February.
Ferris of Hartford Life notes that while overall bank sales of VAs were down 20% for the year for the industry, Hartford was down only half of that.
“So we picked up more market share,” Ferris says. “We ended the year at a 26% share, up from about 21%.”
The Kehrer-Jackson National Monthly Bank Annuity Survey is a new venture for the Kehrer firm, which previously reported bank annuity sales quarterly. “There’s been a lot of interest among people in the industry for more frequent data,” says Kenneth Kehrer, whose consulting/research firm conducts the studies.
Unlike the quarterly surveys, which are based on data from insurance companies, the new survey monitors sales by surveying a sample of about 30 banks, S&Ls and credit unions.