Bank Annuity Sales Declined 7% In August

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Bank sales of fixed and variable annuities fell 7% in August to $4.1 billion, from Julys near-record $4.2 billion, reports the Kehrer-Jackson National Monthly Bank Annuity Sales Survey.

Both fixed and variable annuity sales declined, according to the survey, compiled by Kenneth Kehrer Associates, Princeton, N.J.

Although down from the month before, August sales were up 4% over year-ago levels, notes Brad Powell, president of Jackson National Life Insurance Companys institutional marketing group, which sponsors the monthly survey.

Bank sales of fixed annuities in August were down 5% to less than $3.2 billion. May recorded the all-time high, when banks sold more than $3.5 billion of fixed annuities for the month.

Fixed annuity sales from all insurance companies have now fallen in two of the three months since that record high, the reports notes, although they were still 5% above the same month a year ago.

Fixed annuity sales have benefited from their wide rate advantage over short-term certificates of deposit. The average base crediting rate on fixed annuities was 3.9% in mid-August, which was 201 basis points higher than the average one-year CD, the report notes. The average fixed annuity with a first-year bonus was crediting 308 basis points more than one-year CDs.

This rate advantage, however, has shrunk in recent months and is starting to make an impact on fixed annuity sales. In mid-September, the base rate advantage of fixed annuities dropped to 187 basis points, and the average bonus rate annuity was crediting 293 basis points more than the average one-year CD.

Nonetheless, an investor can still earn more than twice the yield in a fixed annuity than in a one-year CD, not even counting any first-year bonus interest or the tax advantages of an annuity, notes Kehrer.

The shaky equity markets dragged variable annuity sales down from almost $1.1 billion to $925 million, a 14% drop. Bank VA sales from all insurers had increased in four of the five previous months.

“Since VAs fell much more than fixed annuities, the ratio of fixed annuity sales to VA sales increased,” says Powell. “Banks sold $3.44 in fixed annuities for every $1 of VA in August, compared to $3.11 to $1 in July. The ratio had been creeping toward variable annuities over the past few months.”

The Kehrer survey monitors annuity sales from a national sample of banks, S&Ls and credit unions.


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 11, 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.