Sales of life insurance in banks were down 13% in the first half of 2005, the first time in years that banks’ life premium revenue declined, according to Kenneth Kehrer, Princeton, N.J., a consultant who tracks the bank insurance market.

He estimates first-half premiums at $550 million, down from $632 million in the same period the year before.

The big decline was in single-premium life, a popular product among affluent bank depositors, which fell from $541 million to $459 million in the period.

“Single-premium sales fell because those products are heavily dependent on interest rates,” says Kehrer. “They are sold more as an investment than as insurance.”

Banks actually reported increased sales for recurring-premium products in the first half, from $91 million in 2004 to $96 million this year.

Banks’ experiences with life insurance sales were pretty much on par with the industry as a whole, Kehrer says. He estimates banks’ share of life sales at 2.3% of the total market, same as the year before.

Annuity sales in banks had mixed results. Although banks benefited from the generally hot market for variable annuities in the first three quarters, fixed annuities slumped.

Small banks and savings institutions sold $3.5 billion of annuities in September, the latest month for which figures are available, down 3% from $3.6 billion in August 2004.

For the first time since Kehrer began tracking bank annuity revenue in the mid-1990s, VA sales actually exceeded those of fixed annuities. Banks normally sell far more of the fixed-rate products.

In September, banks sold $0.84 of fixed annuities for every $1 of variable annuities sold, according to Kehrer. Just a year earlier, banks sold $1.49 in fixed annuities per $1 of VAs.

Kehrer blames low interest rates for a drop in fixed annuity sales from $2.2 billion in September 2004 to $1.6 billion this year. Sales of VAs rose to $1.9 billion, from $1.4 billion.

Just two months earlier, fixed annuity rates fell so low, bank certificates of deposit often paid more. By the end of the third quarter, the average fixed annuity base rate had recovered somewhat but still paid on average only about 0.2% more than CDs.

Looking at sales of investments as well as insurance, banks as a whole fared well in the first three quarters.

A study by Kehrer for the Bank Insurance & Securities Association, Wayne, Pa., found community banks and credit unions generated $393 in brokerage revenue per $1 million in deposits in the first three quarters of this year, an 11% increase over the same period of 2004, when small bank brokerages produced $354 per $1 million in deposits.

However, the productivity of individual bank advisors declined by 11% in the third quarter. Monthly gross revenue per advisor averaged $20,125, down from $22,164 a year earlier.

Another study, by Michael White Associates, Radnor, Pa., found bank insurance brokerage fee income up 10% year-to-date through Sept. 30, compared to the same period in 2004. Those findings cover all types of insurance.

White’s study of Federal Deposit Insurance Corp. data found banks’ total insurance brokerage fee income in the first three quarters totaled $2.9 billion, up from $2.6 billion in the same period of 2004. Of almost 8,000 banks reporting, 46% earned insurance brokerage fees.

Citibank N.A., New York, led all banks in insurance earnings, reporting $553 million as of Sept. 30, up almost 21% from $458 million a year earlier.

Branch Banking and Trust (BB&T) Company, Winston-Salem, N.C., ranked second, with $502 million, up 16% from $434 million in the same period of 2004.

Lynn Niedermeier, president, Invest Financial Corp., Tampa, Fla., expects banks will continue to see a stable product mix for some time.

The trend in small community banks is to use advisors with Series 7 licenses trained to handle all of the bank customers’ needs and to take a wealth management approach, says Niedermeier, whose company is a division of National Planning Holdings, an affiliate of Jackson National Life Insurance Co., Lansing Mich.

Given the increasing focus of bank advisors on financial planning, she expects to see banks increase sales not only of insurance but also a menu of financial products. An increasing number of banks will offer income-generating products through their retail investment arms, not just through trust departments catering to wealthy customers.

“We may not only see some bank investors move from capital appreciation to income funds but will also see bonds increasingly become part of their portfolio over time,” Niedermeier says.

The big decline was in single-premium life, while sales of recurring-premium products increased