Bank Annuity Sales Fall Again In November

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.