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Bank Annuity Sales Ease Upward in August

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NU Online News Service, Oct. 17, 2003, 10:55 a.m. EDT – Bank sales of annuities inched up in August to $4.3 billion, from $4.1 billion in the same month a year earlier, a study by Kenneth Kehrer Associates, Princeton, N.J., reports.

The August 2003 total was also up 2% from $4.2 billion sold in July 2003 but still 3% below the June total of $4.4 billion.

“Banking industry annuity sales in August were just 9% below March, the best monthly total in history,” says Brad Powell, president of Jackson National Life Insurance Company’s institutional marketing group, Lansing, Mich., which sponsors the monthly survey. “As banks’ fixed annuity sales have slipped from their record highs over the past year, variable annuity sales have recovered and have generally compensated for declining fixed annuity sales.”

However, Powell noted that bank VA sales slipped in August for the second straight month, after six consecutive months of improving sales. Their $1.7 billion of variable annuities in August was about 3% less than in July, although still 70% above December’s low of $1 billion.

“August’s bank VA sales were higher than in any month from October 2002 through March 2003,” Powell points out.

Fixed annuity sales in banks fell to $2.6 billion from $3.3 billion a year earlier. However, sales of the product during the month improved 7.5% over July’s $2.4 billion.

Kenneth Kehrer, whose firm conducts the survey, points out that bank fixed annuity sales have stayed within a relatively narrow range for the previous 12 months, except for a $3.2 billion spike in March. The fixed annuity total was, however, 26% lower than the record monthly total of $3.5 billion set in both May and July 2002.

Fixed annuity sales have been affected by low crediting rates, Kehrer says. His study found an average basic crediting rate of 2.9% in August and 2.8% in July. Fixed annuities crediting rates below 3% used to be the standard minimum in a fixed annuity contract, Kehrer notes.

“But the premium on basic fixed annuity rates over one-year certificates of deposit improved by eight basis points in August to 183 basis points,” he says. “The widening spread, combined with increasing interest rates, has helped boost interest in fixed annuities again.”

The study found that banks sold $1.53 in fixed annuities for every $1 in variable annuities in August, well down from the $4.13-to-$1 ratio of a year earlier.

“However, the ratio increased in August from July, when banks collected only $1.33 in fixed premium for every dollar of variable annuity premium,” Powell says.