NU Online News Service, Jan. 13, 10:35 p.m. – Bank sales of annuities continued to falter in November 2002 after setting a record pace earlier in the year, according to the latest survey by Kenneth Kehrer Associates, Princeton, N.J.
Annuity sales fell 11% in banks to $3.5 billion in November as fixed annuity sales fell to $2.7 billion, from $2.8 billion, and variable annuity sales fell below the billion-dollar mark, slumping to an estimated $825 million, from $1.1 billion in October 2002 and $1.7 billion in September 2002.
“Banking industry annuity sales are now about 10% below the level of a year ago,” says Brad Powell, president of the institutional marketing group of Jackson National Life Insurance Company, Lansing, Mich., which sponsors the monthly survey.
Bank annuity sales reached an all-time high of $4.4 billion in May 2002, then set another new record of $4.5 billion in July 2002 before plunging, according to Kehrer statistics.
VA sales were down 25% from the previous month and 53% from September 2002 levels but were still only 4% below year-earlier figures.
Kenneth Kehrer, whose firm conducts the survey, notes that bank sales of fixed annuities were further behind last year’s level than sales of variable annuities were. But November 2001 was the second best month his firm has recorded for fixed annuity sales, and November 2002 sales were still quite high by historical standards.
Moreover, the ratio of FA to VA sales began to increase again after falling at the start of the fourth quarter.
Banks sold $3.22 in fixed annuities for every dollar of VA in November 2002, up from $2.55 to $1 in October 2002.
Although fixed annuity crediting rates remain very low, they are still attractive relative to short-term certificate-of-deposit rates, which is probably the main reason FA sales have held up, Kehrer says.
The average base new money rate reported in the Kehrer Bank Fixed Annuity RateWatch was 3.41% in November 2002, 2.2 times the average yield on one-year certificates of deposit, before any bonus interest provided by the annuity.
Increased bank VA sales in the third quarter of 2002 were spurred by enhanced crediting rates, which attracted investments in fixed subaccounts inside the variable annuities. By October 2002 and November 2002, several VA underwriters had ceased taking deposits or capped deposits in their fixed subaccounts, or they had substantially reduced their fixed crediting rates.
“We estimate that much more than half of the bank VA premium was deposited in fixed subaccounts during the third quarter,” Kehrer says.