Although the rush to the safety of fixed annuities continued among bank customers last year, a burst of new variable annuity products from manufacturers also helped spur annuity sales by financial institutions last year to $48.9 billion, over 2001s $38.3 billion, industry data show.
Banks fixed annuities sales grew from $27.4 billion in 2001 to $36.4 billion last year, while, despite market misgivings, banks variable annuity sales increased from $10.9 billion to $12.5 billion, studies by Kenneth Kehrer Associates, Princeton, N.J., reveal.
There was only a slight increase in the number of banks selling annuities last year. So most of this growth happened through higher sales within the same banks, says Kenneth Kehrer, head of the firm that compiles the data.
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“On the fixed side, banks sold a third more than in 2001, and by and large they were the same banks [as 2001].”
Insurers that did better than average did so by taking market share away from other companies, Kehrer says.
Of 29 insurance companies studied, 19 increased their FA sales in banks, while eight showed declines and two remained unchanged. Of those 19 that increased, 12 gained market share, he adds.
Among 28 companies Kehrer polled, 19 saw increased bank sales and nine showed a decrease. Fifteen of those with higher sales also increased market share.
Last year, many VA products sold in financial institutions developed the character of fixed annuities, as cautious VA buyers placed an increasing share of their funds into fixed-interest-rate subaccounts within the annuity, a number of industry executives note.
“Toward the end of the year, there was a big movement of funds into fixed subaccounts on variable annuities,” reports Kehrer.
As a result, carriers dropped efforts to sell certain guaranteed-rate annuities because they had become unprofitable. They then filed new product applications with state regulators offering lower guaranteed rates, Kehrer says.
In many cases, that floor dropped from 3% to 2%, industry executives report.
“The marketplace dictated lower floor rates for all insurance companies offering annuities, whether in banks or other channels,” adds Mike Korthaus, president of Safeco Financial Institutions Distribution, Redmond, Washington.
“We did see large inflow in August and September, particularly into variable annuities fixed buckets, says Bruce Jones, senior vice president, direct annuity distribution, John Hancock Life Insurance Co., Boston. “As a result, we shut down Access, our no-surrender-charge product. We did see increased use of products with guaranteed income benefits and other features.”
Despite the difficulties, Hancock boosted VA sales in banks by 363% over 2001 (see table).
Not every VA manufacturer found that investors are pushing their funds into fixed subaccounts.
“That couldnt be further from the truth for us,” says Bruce Ferris, vice president of investment product sales and marketing for the largest VA seller, Hartford Life Insurance Company, Simsbury, Conn. “In our first quarter 2003 sales just completed, only 7% of funds were put into fixed accounts for new sales,” he says.
Ferris notes 43% of Hartford VA customers funds use dollar cost averaging, in which the investment is split between fixed and equity accounts to minimize the chance of losses.
“It gives them exposure in equities,” he says. “Too many advisors use fixed accounts as temporary stopgaps that dont diversify clients, and that has distorted VA sales.”
For fixed annuities, it was “a particularly good year overall” in banks, observes Dave Weymouth, president of Talbot Financial Corp., Albuquerque, N.M.
Still, there was a tendency among bank customers to keep their money out of long-term investments.
“During 2002, the tendency was to buy short-term annuities, even though rates werent terribly high. People felt they wanted to keep their options open.”
Eventually, however, even with interest rates at all-time lows, some bank customers started reaching for higher yield by getting into long-term annuities, Weymouth says. Many showed interest in three-plus-three-year or four-plus-four-year products, where halfway through the products six- or eight-year investment period, the investor has the option of taking out their money without penalty.