February was a strong month for annuity sales through financial institutions, and early indications are that March will follow suit.
With market and economic conditions looking good, total annuity sales through banks jumped 27% in February, to $3.4 billion, according to the Kehrer-LIMRA Monthly Bank Annuity Sales Survey. That rate of sales had not been seen October of 2009, noted Janet Cappelletti, associate research director at Kehrer-LIMRA.
“I think the market hitting 12,000 was a big deal,” she says. “And also in Q1, we saw the beginning of IRA season.”
IRA season typically sees Americans tucking their money into annuities to shelter it from taxes. One notable feature of the February surge is that it encompassed both fixed and variable annuities, notes Cappellitti. The two categories of annuities have grown during the same month just 15 times over the past six years, she says.
“It only happens a couple of times a year that they surge together,” says Cappellitti. “It’s not a common thing for them because they (reflect) nearly opposite sentiments.”
Financial institutions sold 27% more annuities in February than they did in January, and 33% more than they did in February of 2010, according to Kehrer-LIMRA. Total sales of fixed and variable annuities surpassed the $3 billion mark for the first time since last spring.
Among the factors that may have driven sales: Consumer confidence reached its highest level in three years, and the unemployment rate dipped below 9% for the first time since 2009.
Meanwhile, March may be lining up as a stronger month than February. Since February, events in the global economy have put pressure on gas prices and consumer confidence. But for each of the past five years, sales of annuities in March have been significantly higher than sales in February, according to Cappellitti.
“And from the preliminary numbers from our monthly surveys of banks, they’re saying March was a good month,” she says.
The Kehrer-LIMRA Monthly Bank Annuity Sales Survey is based on a national sample of banks that have a minimum of $4 billion in assets. The participating institutions account for about one-third of all bank annuity sales.
Variable annuity sales through financial institutions hit a nearly three-year high in February, posting $1.68 billion in sales. The sales were 24% higher month-to-month and 41% higher than the prior February. Despite the impressive growth, however, the amount of variable annuities sold fell slightly below that of fixed annuities for the first time since September.
Financial institutions sold fixed annuities, meanwhile, to the tune of $1.71 billion in February. That was 29% higher than the previous month and 17% higher than in February 2010. Fixed annuity sales have only reached February’s level of sales once in the past 16 months, according to Kehrer-LIMRA.
Success with fixed annuities came as the interest rate corridor between fixed annuities and bank certificates of deposit expanded in February. The spread between the yield on five-year CDs and the average effective yield offered by fixed annuities guaranteed for five years reached a nadir in the summer of 2010, according to the Kehrer-LIMRA Bank Fixed Annuity RateWatch.
Increases in the average fixed-annuity interest rates were larger than those of bank CD rates, producing a gap of 43 basis points in annuities’ favor by mid-February.
Mutual fund sales, meanwhile, posted a scant 3% improvement from January to February. Banks sold $4.5 billion of mutual funds, a 3% dip compared with the previous February. And because of robust annuity sales, mutual funds comprised just 57 percent of the month’s bank sales. That was the lowest proportion of mutual funds sold through financial institutions since August 2009, according to Kehrer-LIMRA.