February Bank Annuity Sales Mixed

Still, banks sold $3.91 in fixed annuities for every dollar of variable annuities in February, and the months fixed annuity total was 81% above the same month a year ago.

Part of the reason for the drop in fixed products may be because they had been rising for a long time, speculates Kenneth Kehrer, head of the research firm that conducted the study.

"Sales have grown every month for the past five quarters, so there is some sense of what goes up, must come down," Kehrer notes. "Fixed annuity sales are still remarkably high compared to historic levels."

In addition, recent signs of a revival in the stock market may have lured some people toward equities.

"We think that is why VAs did better," says Kehrer. "Mutual funds were down, and people may have been attracted to VAs because they are a way to invest in mutual funds while limiting your downside risk."

Banks sold $709 million of VAs in February, almost 21% of their total annuity premium for that month. They sold $814 million in October, increased that 6% to $862 million in November, slid back 16% to $724 million in December, then inched up 1% to $731 million in January, the study found.

Fixed annuities continue to benefit from the rate advantage they enjoy over short-term certificates of deposit, says Kehrer. The average base-crediting rate on fixed annuities was 5.62% in February, 243 basis points higher than the average one-year CD. The average fixed annuity with a first-year bonus was crediting 350 basis points more than one-year CDs. Those spreads increased by 5 basis points in March.

Reproduced from National Underwriter Life & Health/Financial Services Edition, May 13, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.