Total annuity sales through the bank channel declined in October 2010, according to a recent survey.
A monthly bank annuity sales survey put out by Windsor’s Kehrer-Jackson found total sales were at their lowest level since January, dragged down by the persistent low interest rate environment.
Financial institutions nationwide sold $2.5 billion of fixed and variable annuities in October, which was a 5 percent decrease from September, but a sharp 29 percent fall from sales levels reached October a year ago when total annuity sales were at $3.5 billion.
"Total annuity production in the third quarter was at a 10-year low at banks. The numbers we’re seeing for October fell short of the monthly average from last quarter, which doesn’t bode well for the fourth quarter," said Janet Cappelletti, associate research director for Kehrer-LIMRA. "We’re not seeing indications that sales in November and December will make up for the slack."
Fixed annuity sales at financial institutions experienced another setback in October, falling even further behind variable annuities. Fixed production at banks dropped 9 percent to $1.1 billion, a historic low first reached in January. October sales were less than half of the $2.5 billion sold in October 2009.
The disappointing fixed annuity numbers masked the success of indexed rate annuities which have become increasingly popular at financial institutions in 2010 and accounted for one in five dollars invested in fixed products in the third quarter.
"Clients who are looking for guaranteed products continue to be frustrated with the low rates on fixed annuities," said Scott Stathis, managing director of Kehrer-LIMRA. "The indexed annuities are gaining popularity with conservative bank investors because while they have that rate guarantee, they also have the potential to benefit from a recovering market."
According to the Kehrer-LIMRA Bank Fixed Annuity RateWatch, the spread between the yield on five-year CDs and the average effective yield offered by fixed annuities guaranteed for five years has disappeared. The difference between the two products fell from 33 basis points in October 2009 into negative numbers in May 2010. The spread remained in negative territory until Oct. 15 when rates met at 1.63 percent and produced a rate spread of zero.
In October 2010, banks sold $1.4 billion in variable annuities for the third month in a row. Although monthly growth is stagnant, this month’s figure is a 30 percent increase over October 2009.
Banks sold $1.21 in variable annuities for every dollar of fixed annuities in October. Banks sold more VAs than fixed annuities in September 2010 for the first time since January 2008. In October 2009 the ratio was $2.31 of fixed sales for every dollar of VA sales.
Sales of mutual funds at financial institutions dipped 4 percent in October. Banks sold $5.1 billion in mutual funds, slightly less than $5.3 billion in September and on par with the same month in 2009.
