Fixed and variable annuities sold through banks started the year in the dumps, hitting their lowest point in a decade, according to the latest Kehrer-Jackson monthly bank annuity sales survey.
Sales of fixed and variable annuities through banks and credit unions dropped 17% in January from December, to $2.4 billion, and 44% from the previous January, when annuity sales totaled $4.2 billion.
It is unusual for sales of both fixed and variable annuities to fall in tandem, since they typically move in opposite directions. But sales of both products were also down a year ago January. "There's a tiny rate spread on fixed annuities," said Limra's Janet Cappelletti. "When you look at the big picture, fixed annuities really peaked in the end of 2008."
The Kehrer-Limra Bank Fixed Annuity RateWatch reports that the spread between the yield on five-year certificates of deposit and the average effective yield offered by fixed annuities guaranteed for five years tumbled 90% last year. The spread between the two products narrowed from 155 basis points in January 2009, to 15 this January.
Fixed annuity sales dropped 14% from December, to $1.3 billion, and 61% from the previous January. "Historically, $1.3 billion is not too far out of the ordinary as monthly averages for fixed annuity sales at banks were $1.55 [billion], $1.66 [billion] and $1.46 billion in 2005, 2006 and 2007, respectively," Cappelletti said. "In 2008, monthly averages leapt to $2.93 [billion], and this trend continued through most of 2009, ending the year at $2.65 billion."
Variable annuity sales, meanwhile, fell more than 20%, to $1 billion in January.
Banks sold $1.33 in fixed annuities for every dollar of variable annuities in January. At the start of 2009, this ratio stood at a record high of $5 to one. The last time the ratio was this low was February 2008, at $1.17 to one. It had been below $1 for all but a month in the previous 16 months.
"What we're seeing is that people are getting back into the market and prefer mutual funds to annuities," Cappelletti said. "It may be because the benefits are watered-down benefits, and the products are more expensive. They're just not that attractive."
Mutual funds are healthy and rebounding along with the stock market. Their sales edged out fixed annuity sales to account for the largest portion (67%) of the bank broker-dealer sales mix in January.
Sales were up 131% from the previous January. Though mutual fund sales of $4.9 billion in January were slightly less than the $5.1 billion sold in December, mutual funds' share of the sales mix was the highest since February 2007.