Bank Annuity Sales Surge in First Half of 2007

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Sales of annuities in banks surged in the first half of the year, according to a report by a financial institution market watcher.

The most recent Kehrer-Jackson Bank Annuity Sales Survey shows bank annuity sales climbed 17% in May over the previous month, to $4.1 billion from $3.5 billion, and have soared 41% since January, when sales were $2.9 billion.Sales levels in May were the highest they've been in the last 12 months, the report said.Historically, spring is usually a strong period for sales, especially fixed annuity sales, because it's the time when many bank certificates of deposit (CDs) expire, explained Ken Kehrer, president of Kehrer-LIMRA, of Princeton, N.J., which prepared the report with JacksonNational Life Distributors, of Lansing,

Mich.Fixed annuity sales are usually linked to CD sales, Kehrer said. As CD sales rise, fixed annuity sales usually flatten or decline.Even with seasonal factors taken into consideration, Kehrer said, "May is somewhat stronger than we would have expected. That suggests that there was some pent-up demand for fixed annuities.

"According to the monthly survey, fixed annuity sales grew 13% in May over the previous month, to $1.7 billion from $1.5 billion, and 55% from January, when sales were $1.1 billion.The survey showed that the products hit a six-month nadir in February, garnering only $1 billion in sales, before recovering in March with $1.5 billion in sales.The May sales gains by fixed annuities were a bit surprising, Kehrer observed, because the spread between interest paid on CDs and the average bonus rate paid by fixed annuities remained unfavorable to the annuity products.

Fixed annuities sales usually benefit when bonus rates are 2% or more above CD rates, he explained. In May, the spread was only 1.7%, an improvement over the previous month, when it was 1.62%, but still below the magic 2% mark.However, Kehrer revealed that during the summer months, the spreadcrossed over the 2% line, which should bode well for fixed annuity sales during that period.

Variable annuities continued to outperform their fixed peers, as VAs have done nine of the past 12 months.At $2.4 billion, VA sales were 20% over the previous month, when sales were $2 billion, and 33% higher than they were in January, when they were $1.8 billion.Sales grew on a year-to-year basis, too, with the May numbers being 14% greater than they were during the same period in 2006, when sales were $2.1 billion.According to Kehrer's report, in May, banks sold $1.41 in variableannuities for every $1 in fixed annuities.

For the same period in 2006, the ratio was $1.11 to $1.As long as the interest rate environment remains as it is, that discrepancy between fixed and variable is likely to continue for the rest of the year, said Greg Cicotte, executive vice president and national sales manager at Jackson National Life Distributors.

"If we see a bump upward in fixed annuity sales in the coming weeks or coming months," he said, "it will have less to do with interest rates than with market volatility and people making the flee for safety."In the past, volatile times in the stock market have been bad newsfor variable annuities, but a number of features added to the products in recent times have given them more cachet for investors, he noted.

"We've seen them act pretty resiliently in the face of some marketturbulence primarily because of the living benefits that have been introduced over the years," he maintained. "Because of those benefits,people are feeling comfortable staying in the market even during turbulent times."An underlying success story for VAs can be seen when their sales are compared to those of mutual funds in banks, Kehrer asserted.Variable annuities have been eating into mutual funds' market share in banks.

In May, for example, $3.67 of mutual funds were sold for $1 of variable annuities, a substantial improvement over the previousmonth, when $4.25 of mutual funds were sold for every $1 of VAs.Part of that success story can be attributed to the dearth of bad press focused on VAs in recent times, Kehrer argued.