Higher CD rates and the negative publicity from regulatory probes of variable annuity sales practices have converged to hamper bank sales of the products, as shown in a bank-annuity sales report of a third straight decline in overall sales during January.
Good conditions for variable annuities have typically meant weaker sales of the fixed product and vice versa, but negative factors separately affecting the two product categories have combined to hobble them both.
The Kehrer-Jackson National sales report, co-sponsored by Kenneth Kehrer Associates and the Jackson National Life Insurance Co. unit of Britain’s Prudential PLC, said bank-annuity sales fell 7% in January from December and were about 6% below the year-earlier total.
“The fixed annuity slide has been going on for several months, and we think that has to do with the compression of [the spread between] fixed annuity rates and CD rates,” said Kenneth Kehrer, the president of the Kehrer firm in Princeton, N.J. “Fixed annuity sales in banks have fallen for three consecutive months and five of the past seven months,” he said.
“January’s fixed annuity sales were 15% below last January’s total,” he added, and bank sales of fixed annuities dropped 7%, to $1.8 billion in January.
“The average one-year guaranteed crediting rate on new money invested in fixed annuities was only 2.74% in mid-January,” said Brad Powell, the president of Jackson National’s international marketing group. “The spread between fixed annuity crediting rates and interest rates on one-year certificates of deposit was only 62 basis points in January,” compared with 108 in October, “which was the last time we saw an increase in bank fixed annuity sales.”
Further sales declines are likely to have occurred in February and March, Mr. Powell said, as the spread tightened further, to 57 basis points in March. “The only bright light out there is a marked increase in index annuity sales,” he said. Index annuities are targeted to investors seeking a better return than fixed annuities offer but worried about risking their premium.
Mr. Kehrer said he tracks both variable annuity and mutual fund sales in banks and they typically move in tandem “eight or nine months out of 12.” In January, however, while variable annuity sales fell 7%, to $1.5 billion, banks’ mutual fund sales rose 6%.
Though he has no quantitative measure of the impact of negative news about variable annuity sales practices, Mr. Kehrer said, he suspects that regulatory sanctions on certain sales practices may be affecting bank sales of the products.
“The wild card is all the hammering they get in the press, but there are positive features that protect people in a risky environment,” he said. “That said, that is one of the things that equity index annuities offer. More and more banks are attracted to those types of products since a broader sales force can sell them.” Sales representatives do not need a securities license to sell index annuities.
