Keyport Life more than doubled the face value of fixed annuities it sold through banks in 2000, but sales of variable annuities fell because of fluctuating market conditions.
The Boston company sold $2.1 billion in fixed, variable, and index annuities. Fixed annuities accounted for $1.2 billion, of which $989.6 million was sold through the bank channel, 144.8% more than in 1999.
Sales of variable annuities, on the other hand, were down 17%, to $736.3 million. Of the 2000 figure, $290.5 million was sold through banks, down 32.4% from a year earlier.
Brian Kane, assistant vice president of Keyport Life, attributed its fixed annuity sales growth in the bank channel to its two main relationships - Fleet Bank, which is part of $181 billion-asset FleetBoston Financial Corp., and third-party marketer Independent Financial Marketing Group Inc. Both Keyport Life and Independent Financial Marketing Group are owned by Liberty Financial Cos. in Boston.
"I certainly think there was a flight to quality in 2000," Mr. Kane said. In the second and third quarters, investors, spooked by stock market fluctuations, stopped buying mutual funds and variable annuities in favor of fixed annuities, which have a guaranteed rate.
Though Mr. Kane considered 2000 a peak for fixed annuity sales, he said they have remained strong through the first few months of 2001. "The market hasn't corrected. It's still as volatile as it was in 2000," he said.
Fixed annuities are a good product for banks to sell because the fixed interest rates make them easier for reps to explain to customers, Mr. Kane said. "Both sophisticated and newer sales reps can sell the product," he said.
Also, "as the market became more volatile, fixed annuities became more attractive," Mr. Kane said. "I think Keyport was able to capitalize on it."
He attributed a sizable chunk of Keyport's fixed annuity gains to its three-year-old relationship with Fleet Bank. Keyport not only sells its own products but also provides a proprietary product to Fleet, which is sold under the Galaxy brand.
Independent Financial Marketing Group, which manages 50 bank programs and sells its annuities through an additional 20 banks, also posted sales increases last year, Mr. Kane said.
Robert L. Spadafora, president of Independent Financial, said, "We tend to focus on banks that have half a billion and more of deposits. We provide those banks a full range of programs, designed to help them offer their customers alternative investment products," including annuities, life insurance, mutual funds, and securities.
Though Independent Financial has sales agreements with most major U.S. carriers, Mr. Spadafora said about 50% of the products it sells are Keyport's.
The Focus Five fixed annuity, a proprietary product developed for Independent Financial last year, also contributed to its totals, Mr. Kane said.
Mr. Spadafora said the proprietary annuity was very successful because it has a shorter surrender period - five years, versus seven years typically. "That, along with the stock market's volatility, helped sales last year," he said.
Although third-party marketers have been struggling to redefine themselves over the past few years, some, such as Independent Financial, have recast themselves as educational and marketing resources for banks with established programs, as well as turnkey providers of investment and insurance programs for new companies.
For example, Mr. Spadafora said, Sovereign Bank, a $33 billion-asset company in Philadelphia, has been an Independent Financial client for several years.
According to Ken Kehrer of consulting group Kenneth Kehrer & Associates in Princeton, N.J., it is not unusual for a relationship with one big bank to drive growth for an annuity company. Since the biggest banks lead the pack in annuity sales, signing up one of those banks as a client can make a big difference for an insurer, he said - especially since many banks have streamlined their programs to work with only a few annuity vendors.
Variable annuities did not fare so well last year because fluctuations in the stock market made these mutual fund-based products less attractive, he said.