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.
“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.
“Toward the end of last year and the start of this year, these products became more popular,” Weymouth says.
Talbot, a unit of Safeco Life Insurance Co., Redmond, Wash., is a third-party marketer working with banks to sell investment products. It saw its sales jump 40% last year over 2001 levels. “Annuities were a big piece of that,” says Weymouth.
Safeco was able to boost sales of VAs in banks by 450%, according to Kehrer.
“We still have seen strong demand,” says Korthaus. “Banks consumers are more concerned about safety. And annuity yields offer significantly higher returns than certificates of deposit.”
Safeco structured itself to work directly with banks to develop new annuity products, beginning in the third quarter of 2001, Korthaus explains.
“Since then, we built several new fixed annuities,” he adds. “We added Select Annuity in 2001, a three-year term annuity that took off in a huge way. In its first month, about $246 million in sales hit the books.”
Then last year, Safeco launched its Secure single premium fixed annuity, again following suggestions from banks.
Secure offers a four-year rate guarantee–one year longer than what is typically offered–with an option to continue for another four years at whatever rate is available–or to take income or move to some other kind of investment.
Safeco currently works with about 220 banks, Korthaus says. Smaller banks are still handled by its Talbot unit, but banks with assets of over $10 billion are handled by Korthauss group.
To respond to low interest rates and investors shattered faith in equity-based products, insurers came out with a number of new products that they say did well in banks over the past year or so, although not all were developed exclusively for the bank market.
Matt Riebel, president of Nationwide Financial Institution Distributors Agency Inc., Columbus, Ohio, says Nationwides All American Annuity, a variable product introduced late in 2001, blossomed last year to become its best seller.
This year, he says, the companys hot new product is Platinum III, a fixed annuity developed to address commission pressures stemming from falling guaranteed rates. Offering a 5% commission compared to 4% or less by many annuities, the product has attracted much interest from banks, Riebel says.
“We are very optimistic about 2003,” he adds. “We are rolling out a new variable annuity in May, All American Gold, an upgrade to our All American product.”
Last year, Allstate Insurance Company, Northbrook, Ill., introduced a new Treasury Linked Annuity designed in collaboration with a number of banks, says Rob Shore, executive vice president of Allstate Distributors LLC, also in Northbrook, Ill.
Although final figures are not yet available, Kehrer reports rapidly growing sales for Allstates Treasury Linked Annuity.
The product is an adjustable-rate FA with a first-year bonus. It offers the investor a higher rate than products that are guaranteed for several years, Allstate says.
“Clients are reaching for yield and appear to be attracted to high first-year bonus products,” observes Shore.
He adds that Allstates best selling fixed annuity in banks was its traditional Fixed Annuity Performance Plus, while its best-selling variable product was Allstate Advisor.
Among other success stories in bank annuity sales last year was Jackson National, which increased VA sales by 83% and FA sales by 54% over 2001, largely by riding its recently expanded relationship with Washington Mutual Bank. That bank significantly increased sales of investment products last year when it entered the lucrative New York market last year by acquiring Dime Savings Bank, Kehrer points out.
CUNA Mutual Life, which sells through credit unions, reported a hefty 683% increase in sales of FAs, from $30 million to $235 million.
That spike was largely due to a drive by credit unions to license and train platform staff to sell annuities, Kehrer says. Previously, credit unions annuity sales had been entirely made by full-time stock brokers, he explains.
Annuity sales grew to $48.9 billion over 2001s $38.3 billion
Reproduced from National Underwriter Edition, April 7, 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.