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Bank Annuity Sales Fall Again In November

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NU Online News Service, Jan. 20, 2004, 3:49 p.m. EST – Bank sales of annuities fell for the second straight month in November 2003.[@@]

Bank annuity sales totaled $3.3 billion that month, down from $4 billion in October 2003, according to a monthly survey by Kenneth Kehrer Associates, Princeton, N.J.

Bank annuity sales dropped 27% over 2 months after flirting with a new record in September, says Brad Powell, president of the institutional marketing group at Jackson National Life Insurance Company, Lansing, Mich., which sponsors the monthly survey.

November results were the worst reported for the first 11 months of 2003, Powell adds.

Sales of both fixed and variable annuities were down.

Bank fixed annuity sales fell to $2.1 billion in November, down 18% from the total for the previous month and down 22% from the total for November 2002. The monthly FA sales record is $3.5 billion, which was set in May 2002 and matched in July 2002.

Bank VA sales amounted to $1.2 billion. VA sales were 11% lower than in the previous month and 35% lower than in November 2002. VA sales peaked at $1.8 billion per month in May, June and July, says Kenneth Kehrer, whose research firm conducts the bank annuity sales study.

Although bank FA sales were 22% lower in November 2002 than in November 2003, the bank VA sales total was 9% better than the total for the previous November, Powell points out.

VA sales suffered last fall when many carriers stopped offering new investors fixed subaccounts with variable annuity contracts and some carriers refiled contracts with lower guarantee rates with state insurance departments, Kehrer says.

“The increase in variable annuity[y sales] through banks during the first half of the year was driven by investments in fixed accounts inside the VAs, which often were crediting higher rates than stand-alone fixed annuities,” he says.

On the fixed annuity side, sales were hurt by narrower spreads between their crediting rates and short-term rates available on bank certificates of deposit, Kehrer says. Most fixed annuities in November were offering crediting rates below 3%, which used to be the standard minimum in a fixed annuity contract.

“As the average crediting rates rose above the 3% level in September, the spread between fixed annuity rates and 1-year CDs widened to 192 basis points, a more favorable situation for fixed annuities,” Kehrer explains. “However, in October, the average fixed annuity rate fell to 2.89%, and the spread between fixed annuity rates and 1-year CDs tightened to just 182 basis points. Average new money rates crept back up to 3% in November, and the spread widened slightly to 188 basis points, but that was not enough to turn around the receding sales.”

Banks sold $1.75 in fixed annuities for every dollar of variable annuities sold in November, down from a ratio of $1.87-to-$1 in October, the study found. A year earlier, banks were selling $2.45 in fixed annuities for every $1 in VA sales.

Powell says he expects annuities to recover because they present a strong alternative to CDs and other products.

How long the sales downturn for variable annuities will continue remains to be seen. Deborah Tucker, a spokeswoman for the National Association for Variable Annuities, Reston, Va., says early data for December suggests total VA sales have been strong, although information on the bank channel is lacking.

“The expectations are VA sales [generally] should be improving, because the market is picking up,” she says.