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Kehrer: Banks Report Higher January VA Sales

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NU Online News Service, March 28, 2003, 4:43 p.m. EST – U.S. banks generated $3.6 billion in annuity sales in January, down 5% from annuity sales for January 2002, according to a new study by Kenneth Kehrer Associates, Princeton, N.J.

Annuity sales continued to fall despite an increase in variable annuity sales, the market research firm says.

Although bank sales of variable annuities increased to $1.1 billion, from $800 million in January 2002, bank sales of fixed annuities fell to $2.5 billion, from $3 billion.

Banks sold $2.27 in fixed annuities in January for every dollar generated through variable annuity sales. The fixed-to-variable sales ratio has fallen from a level more than 4 to 1 in January 2002.

The survey is sponsored by Jackson National Life Insurance Company, Lansing, Mich., a unit of Prudential P.L.C., London.

The shift toward variable annuities is due largely to low rates on fixed annuities, says Kenneth Kehrer, the head of the firm that conducted the study.

“While fixed annuity rates continue to be attractive relative to short-term [bank] certificates of deposit, some potential annuity buyers seem to be taking a wait-and-see attitude, hoping for rates to improve,” Kehrer says.

In mid-January, the average base crediting rate guaranteed for one year on new money invested in fixed annuities was 3.17%, 175 basis points more than the average rate for a one-year CD, Kehrer reports. The average first-year bonus rate was 4.31%.

Customers still appear to be investing a large share of premiums for variable annuities sold through banks in fixed subaccounts, and this probably accounts for much of the slide in fixed annuity sales, Kehrer says.

Fixed subaccount deposits accounted for about 60% of bank VA premiums for the second half of 2002, Kehrer estimates.

Flows into VAs have slowed as several insurance companies have suspended their short-term fixed subaccounts or pared back attractive crediting rates, but VA flows still remain substantial, Kehrer adds.