Despite a still-shaky stock market, banks sales of variable annuities staged a comeback in September, while banks fixed annuity sales continued their recent slump, according to the latest Kehrer-Jackson National Monthly Bank Annuity Sales Survey.
VAs, a distant second in banks to fixed annuity sales over the past two years, closed the gap significantly in September, the survey by Kenneth Kehrer Associates, Princeton, N.J., shows. The research firm reports a two-thirds increase in bank VA sales in September over August levels, from about $900 million to about $1.5 billion, while fixed-annuities sales in banks dropped 13%, from $3.2 billion to an estimated $2.8 billion.
Banks sold $1.87 in fixed annuities for every dollar of VAs sold in September, down from a $3.44-to-$1 ratio in August, the study reports.
“Considering that the equity markets were still spiraling down in September, VAs showed surprising strength,” comments Brad Powell, president of Jackson National Life Insurance Companys institutional marketing group, Lansing, Mich., which sponsors the monthly survey. “One factor might be that fixed-annuity rates finally sank to levels that could be considered unattractive to investors.”
The Kehrer firm reports the average base new money rates on fixed annuities fell to 3.68% in September. While still twice what the average one-year CD pays, fixed annuities rate advantage has shrunk in recent months.
Kenneth Kehrer, whose firm conducts the survey, thinks, too, that publicity about the financial impact of guarantees on VA underwriters might have created “a fire sale atmosphere.”
“Variable annuities now have very attractive features that limit downside risk,” observes Kehrer. “But the expectation is that insurance companies will either withdraw some of those features or increase the price they charge for them, because the products are proving to be much less profitable than they were designed to be. The guarantees built into the products did not anticipate a bear market that has lasted almost three years.”