Bank Annuity Sales Increase in May
In May, total bank annuity sales increased 17 percent compared to the prior month. According to the Kehrer-JacksonSM Monthly Bank Annuity Sales Survey, financial institutions sold $4.1 billion of fixed and variable annuities in May, up from $3.5 billion in April, $3.6 billion in March, and $2.9 billion in February. The monthly survey is based on a national sample of banks that each have a minimum of $4 billion in assets.
Greg Cicotte, executive vice president and national sales manager for Jackson National Life Distributors LLC, which includes the firm’s Institutional Marketing Group, the sponsor of the monthly survey, said total bank annuity sales reached their highest point during the last 12 months in May, having climbed 41 percent since January, when sales slid to their lowest level during the same 12-month period.
Dr. Kenneth Kehrer, whose firm, Kehrer-LIMRA, conducts the monthly survey, said that bank sales of fixed annuities rose 13 percent in May, after a flat performance in April, and a 50-percent increase in March. "Our research found that May’s fixed annuity sales in financial institutions were 55 percent higher than fixed annuity sales reported in January 2007," Kehrer said. "After hitting a low of $1.0 billion in February 2007, bank sales of fixed annuities have rebounded, rising 70 percent through May."
Bank sales of variable annuities were up 20 percent in May, following a 5-percent decline in April and an 11-percent gain in March. "Variable annuity sales have risen 33 percent since January, and were 14 percent higher than the monthly VA sales total in May 2006," Cicotte said. "In addition, variable annuities have outsold fixed annuities in financial institutions for nine out of the last 12 months."
According to the Kehrer-LIMRA Bank Fixed Annuity RateWatch, the average base new money rate on fixed annuities guaranteed for one year remained below the average yield on one-year CDs in May. "This marks the ninth month in a row that the average base rate on fixed annuities guaranteed for one year has been below the one-year CD rate," Kehrer said.
The difference between the average fixed annuity bonus rate and the average rate on a one-year CD increased in mid-May to 1.70 percent after decreasing to 1.62 percent in mid-April from 1.65 percent in mid-March. Kehrer explained that, historically, a spread of about 2 percent or more between fixed annuity bonus rates and one-year CD rates is necessary for investors to be more attracted to fixed annuities than to CDs.
"As Baby Boomers prepare for retirement, fixed and variable annuities are the only products that can help them establish a guaranteed stream of income in retirement," Cicotte said. "In addition, variable annuities can offer optional living benefits that can help investors protect their premium and can provide them with the opportunity to receive an income stream while fully participating in the equity markets."
In May 2007, banks sold $1.41 in variable annuities for every dollar of fixed annuities, compared to $1.33 in April, and $1.40 in March. In May 2006, this ratio was $1.11 in variable annuities for every dollar of fixed annuities.
According to a separate Kehrer-LIMRA proprietary survey, bank sales of mutual funds rose 4 percent from April to May, and are up 9 percent from the beginning of the year. In May, banks sold $3.67 in mutual funds for every dollar of variable annuities, which was down from $4.25 for every VA dollar sold in April.
Kehrer-LIMRA is the successor company to Kenneth Kehrer Associates, the premier provider of research and consulting services on banks as financial services stores.
