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VAs Surged In Banks In September

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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.”

Still another factor is the availability of C-share pricing on many VAs, Kehrer notes. C-share pricing, also called level-load pricing, refers to annuities that carry no cost to the investor in the form of surrender fees or up-front or back-end charges. They allow investors to park money in the fixed accounts inside a variable annuity without locking up their money with withdrawal penalties, notes Kehrer. He cites reports from several banks suggesting that a significant amount of the money invested in VAs in September was in those fixed accounts.

In total, bank sales of fixed and variable annuities were up 5% in September to almost $4.3 billion, just shy of Mays record, the study notes.

“All bank annuity sales reached a high-water mark of $4.4 billion in May and flirted with a new record in July,” observes Powell. “We expected a new high might be set this year, but we didnt expect that it would be driven by variable annuities. In September, total bank annuity premium from all insurance companies was 48% above year-ago levels.”

Bank sales of fixed annuities in September were 27% above levels of September 2001, while the VA total in banks was more than double the year-ago level, Kehrer reports.

Kehrer notes that one factor in the surge above year-ago levels was the Sept. 11 terrorist attacks.

“Interestingly, however, this September was also a terrible month for the stock market, even worse than last year. So it was very surprising that VA sales in banks were up,” adds Kehrer.

Reproduced from National Underwriter Life & Health/Financial Services Edition, November 25, 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.