Banks Annuity Sales Slump Continued In November

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Bank sales of annuities continued to falter in November 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 declined from $2.8 billion to $2.7 billion, and variable annuity sales fell below the billion-dollar mark, slumping to an estimated $825 million, from $1.1 billion in October and $1.7 billion in September.

“Banking industry annuity sales are now about 10% below the level of a year ago,” observes Brad Powell, president of Jackson National Life Insurance Companys institutional marketing group, which sponsors the monthly survey.

Bank annuity sales reached an all-time high of $4.4 billion in May, then set another new record of $4.5 billion in July before falling, Powell notes.

VA sales were down 25% from the previous month and 53% from September levels but were still only 4% below year-earlier figures, according to Powell.

Kenneth Kehrer, whose firm conducts the survey, notes that bank sales of fixed annuities were further behind last years level than VAs.

“Banks sold $2.7 billion in fixed annuities in November, down 11% from October and 10% below November 2001,” Kehrer says.

But because fixed annuity sales in November 2001 were the second best month ever to that time, this Novembers 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, up from $2.55 to $1 in October,” Kehrer says.

While fixed annuity crediting rates remain very low, they are still attractive relative to short-term CD rates, which is probably the main reason their sales have held up, Kehrer notes.

The average base new money rate reported in the Kehrer Bank Fixed Annuity RateWatch was 3.41% in November, 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 were spurred by enhanced crediting rates, which attracted investments in fixed subaccounts inside the VAs. By October and November, 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,” says Kehrer.


Reproduced from National Underwriter Life & Health/Financial Services Edition, January 20, 2003. Copyright 2003 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.