Low interest rates and a scandal-ridden environment affected banks' fixed and variable annuity sales in the fourth quarter, according to a consultant who tracks them.
Fixed annuity sales dropped 17% in the quarter, and banks' variable annuity sales were flat, according to data from Kenneth Kehrer Associates, the Princeton, N.J., consulting firm that tracks annuity and life insurance sales through banks. Six of the top 10 providers in the channel sold fewer annuities overall by comparison with their third-quarter volume.
"On the fixed side, the main challenge has been low interest rates and competition of interest rates with bank deposits," said Kenneth Kehrer, the consulting firm's president. "Typically," he said, "fixed annuities have crediting rates that are 100 basis points more than one-year CDs are paying. In good times, when that spread grows to 150 or 200 basis points, fixed annuity sales take off. If it shrinks, sales slide." "In December, it was down [to] 79 basis points, but it was 108 in October," he said.
Regarding variable annuity sales, Mr. Kehrer said, "it was a little surprising" that sales were flat in the quarter "since mutual fund sales have been coming back" (and variable annuity sales usually move in tandem with the waxing and waning equity markets). "But you have to wonder if bad publicity has impacted sales."
New York Life, the seventh-ranked provider of annuities through banks, was the biggest loser among the Top 10 during the quarter, down 46%, to $527 million. "They declined because one of their biggest bank sellers was Fleet and after the acquisition by Bank of America, Bank of America dismantled the platform at Fleet," Mr. Kehrer said. MassMutual, No. 22, was the down the most, 61%, to $90 million.
"When you look at companies that fell significantly, you have to think of what happened. In some of the large banks, someone is taking market share from them," said Mr. Kehrer. Last year was difficult in both the fixed and variable annuity markets, he said, though for very different reasons.
In May NASD censured and fined Nationwide Investment Services Corp. in Columbus, Ohio, and its affiliate, Nationwide Securities Inc. of Dublin, Ohio, an aggregate $175,000 for allegedly having inadequate procedures and systems governing variable annuity sales and distributing advertising and sales literature that failed to make required disclosures.
"I do think it impacted sales" at the units of the big insurer Nationwide Financial Inc., Mr. Kehrer said, "but it's hard to say how much or how much longer it will last." Nationwide - No. 10 in the fourth-quarter ranking, with $350 million of sales overall, down 37% - had ranked No. 4 overall as recently as 2003.
And the cloud of investigations that had darkened the market burst again last month when Massachusetts regulators charged Citizens Financial Group Inc.'s brokerage unit with civil fraud for allegedly selling variable annuities to elderly customers in an "unethical and dishonest" way. Other probes remain pending.
Sales declines at the two biggest players in the bank channel - AIG and The Hartford - bracketed the 17% rate of decline in the channel as a whole, Mr. Kehrer said, at 15% and 19%, respectively. Hartford's erosion surprised him, he said, because the Simsbury, Conn., insurer tends to be very competitive on pricing.
Nationwide's decline was equally surprising, he said. "A few years ago, they were second in fixed annuities," he said, and now Nationwide ranks 16th.
Some insurers reported significant sales growth. MetLife Inc., ranked ninth in the fourth quarter, grew 41%, to $350 million. No. 13 John Hancock reported a 77% sales increase, to $253 million. The Boston insurer was bought last year by Manulife Financial of Toronto but continues to sell in the United States under its own name.
