NU Online News Service, June 4, 2:20 p.m. – Sales of variable annuities in banks and thrifts seem to have halted their long decline, while bank sales of annuities in general have reached new highs, a survey of 32 insurers by Kenneth Kehrer Associates, Princeton, N.J., finds.
Total annuity sales through banks and thrifts rose 2% over the final quarter of 2001, to $11.4 billion during the first three months of 2002, according to the Kehrer Report. It was the fourth straight quarter that banks have set a new annuity sales record.
After declining for six straight quarters, VA sales in banks were up, though they still lagged other channels. Banks sold $2.5 billion of VAs during the quarter, 4% more than the $2.4 billion sold the previous quarter. Still, bank sales of VAs were 40% below the high of $4.2 billion set seven quarters previously, the Kehrer firm found.
“Banks sold $8.9 billion of fixed annuities, up just 1% from the previous quarter,” says Kenneth Kehrer, head of the firm. “But bank fixed annuity sales have increased every quarter since the third quarter of 2000 and set a new quarterly record every quarter since the first quarter of 2001. Banks sold $3.18 in fixed annuities for every dollar of VA during the quarter, somewhat less than the $3.67-to-$1 advantage in the fourth quarter.”
Much of the growth was fueled by banks’ increased efforts to train employees to sell annuity products, Kehrer notes. At the same time, fixed annuity sales continue to benefit from a wide rate advantage over short-term certificates of deposit. The average base crediting rate on fixed annuities was 4.6% in March, the Kehrer Monthly Bank Fixed Annuity Ratewatch reports, 248 basis points higher than the average one-year CD. The average fixed annuity with a first-year bonus was crediting 355 basis points more than one-year CDs. Although those spreads fell by four to five basis points in April and again in May, they remain high by historical standards, Kehrer points out.
Many individuals likely to invest through their banks continue to shy away from mutual funds because of a lingering fear of the equities markets, but they also seem to have a renewed interest in VAs, Kehrer notes.
Looking at market share, Kehrer found that the banks lost ground slightly in fixed annuities during the quarter, falling from 40.7% of the market to 40.3%, but they were still well above the 31.8% share they held a year earlier. As for VAs, the bank market share of 9.1% held steady over the previous quarter but remained at the lowest level compared to other channels since 1996.