Bank variable annuity premiums were up 34% in June 2002 over year-ago levels and increased 6% over May 2002, reports Kenneth Kehrer Associates, Princeton, N.J., in a survey sponsored by Jackson National Life Insurance Company, Lansing, Mich.
“All bank VA sales were up for the second consecutive month and the third time in the past four months,” says Brad Powell, president of Jackson Nationals institutional marketing group.
Sales of fixed annuities, however, fell in June by 8% from record levels set the month before. Because fixed products account for 73% of all annuity sales in banks, total annuity sales were off by 4.7% from May, falling from about $4.8 billion to $4.5 billion.
Banks continuing improvement in VA sales came despite falling mutual fund sales. Fund sales in banks were off 22% in June from the month before, Kehrer found.
One reason for the resurgence in VAs was that many of the new products sold through banks have features that limit investors potential losses in a pool of securities that are similar to mutual funds. A few major carriers changed VA design to give consumers a choice of features and to pay only for the enhancements they want, observes Powell.
These new modular products include such options as guaranteed minimum income benefits, increased access to assets, a selection of death benefit protection levels and shortened withdrawal charge periods.
Despite the monthly drop, bank sales of fixed annuities rose 45% over the same month a year ago and were slightly above the April total, which had been the previous high water mark.
“While banks sold $2.77 in fixed annuities for every dollar of VA, variable annuities are slowly closing the gap,” notes Powell. “The sales ratio was $3.19 to $1 in May.”
Fixed annuity sales continue to benefit from the wide rate advantage enjoyed by fixed annuities over short-term certificates of deposit.
The average base crediting rate on fixed annuities was 4.53% in mid June, 229 basis points higher than the average one-year CD, notes Kenneth Kehrer, head of the research firm. The average fixed annuity with a first-year bonus was crediting 334 basis points more than one-year CDs. While this rate advantage has shrunk in recent months, it remains high by historical standards.
Kehrer notes, too, that an investor can still earn more than twice the yield in a fixed annuity than in a one-year CD, not even counting the tax advantages of an annuity.
Reproduced from National Underwriter Life & Health/Financial Services Edition, August 26, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.