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Bank Annuity Sales Continue Recovery: Kehrer

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NU Online News Service, Nov. 18, 2003, 1:15 p.m. EST – Bank sales of annuities increased in September for the second consecutive month, returning to year-ago levels, according to the Kehrer-Jackson National monthly bank annuity sales survey.

Banks sold a total of $4.5 billion in annuities during September, jumping 5% from $4.3 billion in August and 7% over July, reports Kenneth Kehrer Associates, Princeton, N.J., which conducted the study.

September sales were 3% below a record monthly level of $4.7 million achieved in March, notes Brad Powell, president of Jackson National Life Insurance Company’s institutional marketing group, in Lansing, Mich., sponsor of the study.

“While bank sales of fixed annuities have steadily declined from their record high last year, variable annuity sales have recovered and have generally compensated for decreasing fixed annuity sales,” Powell says.

However, fixed annuity sales in banks rose in September to $2.9 billion, up 12% from the year-earlier total of $2.6 billion. That figure was also up from August’s $2.6 billion and July’s $2.4 billion.

“The September total was 17% lower than the record monthly total of $3.5 billion, which was set in May 2002 and matched in July 2002,” Powell says

Variable annuity sales slipped in September for the third consecutive month, after a run of increasing sales for the first six months of 2003. Banks’ $1.6 billion of VA sales were slightly below the $1.7 billion in sales achieved in the same month last year but 4% below August’s total and 13% below June 2003 sales.

“Despite the fact that there has been some improvement in the stock market, variable annuities are not coming back as fast as I thought,” comments Kenneth Kehrer, head of the firm conducting the study.

However, Powell points out, VA sales were still 60% above December 2002 sales of $1 billion. VA sales in banks had fallen to as low as $700 million in total in February 2002, due to a slumping stock market and the flight of investors to safer fixed products.

Kehrer says improved fixed annuity sales were probably due to increased crediting rates, which strengthened the products’ advantage over certificates of deposit in the minds of bank customers.

Until recently, he points out, most fixed annuities were crediting rates below the 3% level that used to be the standard minimum in a fixed annuity contract.

“But as the average crediting rates rose above the 3% percent level in September, the spread between fixed annuity rates and one-year CDs widened to 192 basis points, a more favorable situation for fixed annuities,” Kehrer says.

Increasing interest rates also helped boost sales of fixed annuities, he says.

The decline in bank VA sales can be traced to underwriters who reduced the use of fixed subaccounts in their VA products, Kehrer explains.

“During the past year, a large share of the investments in variable annuities through banks has been in fixed accounts inside the VAs,” he says.

In September, banks sold $1.81 in fixed annuities for every $1 of VAs sold, down from a $1.87-to-$1 ratio in September 2002 and $2.16-to-$1 last December. The ratio had fallen to $1.53-to-$1 in August 2003.