Banks increased their modest share of the life insurance market in 2003 while producing near-record sales of annuities, experts say.
Banks may set new highs this year in annuity sales, says Kenneth Kehrer, head of a Princeton, N.J., research firm that tracks banks sales of life insurance and investment products.
“Theyve set new records for the past 4 years in total annuity sales,” says Kehrer. “This year, they have a shot at setting a new record and putting the total over $50 billion.”
Banks had a 43% market share of U.S. fixed annuity sales in the third quarter and 14% of the variable annuity market, Kehrer reports.
Although fixed annuity sales in banks fell in midyear, variable annuities more than made up for their losses, paralleling the recovery of the equity markets. In recent months VA sales sagged, but fixed products improved.
For October, banks total sales of annuities stood at $4 billion, down 7% from $4.3 billion in the same month a year earlier and 11% below September 2003s $4.5 billion.
John Fenton, a principal of Tillinghast-Towers Perrin, a consulting firm in New York, thinks bank sales of fixed annuities will be down from last year but still high.
Fixed annuity sales were strong in banks, as elsewhere, for much of 2002 because interest rates were low, he explains.
“For a while, they offered a 3% guarantee and crediting rates of 3% but eventually had to pull back and now offer rates as low as 1.5%,” Fenton says. “In 2002, turbulent equities pushed sales of fixed products, but now low interest rates are catching up with them.”
What happens to these products next year will depend on which way interest rates go, he adds.
In the fixed annuity market, many banks sought out products that continued to offer upfront compensation.
“Stock brokers are moving more to asset-based compensation for fixed annuities, but banks are still interested in getting 5% to 6% of premium upfront,” Fenton says.
Variable annuities increased their share of the bank market this year after a big drop in 2002, he says, ironically because of the appeal of guarantees in their fixed subaccounts.
“Sometimes guarantees in VAs were more attractive than in fixed annuities,” he says.