Annuities sales through banks in April 2010 managed to maintain a modest recovery since hitting record lows at the beginning of the year. Variable sales dropped from March levels, but fixed annuity sales rose and kept total annuity sales even month-to-month. Meanwhile mutual fund’s share of the market has grown recently.
Financial institutions sold $3.3 billion in fixed and variable annuities in April, which matched March levels but were 26% short of the sales level reached the previous April when total annuity sales were $4.4 billion. “The dead of the financial crisis was the heyday for fixed annuities,” says Janet Capelletti, associate research director at Kehrer-LIMRA. “When the market’s in turmoil people looking for security.”
At that point Fixed Annuities had a 60% share of the market while mutual funds had only 30%. Now that situation has reversed.
Bank-sold fixed annuities bounced back in April, and climbed 9%, to $2 billion, which was almost double the $1.1 billion sold in January. However April sales were still 40% percent below the sales levels of April 2009. To put that into perspective, FA sales were in the $1 billion to $2 billion range in 2006 and 2007 before the crisis struck.
“Fixed annuity sales in April usually fall short of March’s highs at banks, but this year was an exception. It seems banks still want to reduce retail deposits while, at the same time consumers are tired of waiting on the sidelines for fixed rates to rise” said Capelletti.
According to the Kehrer-LIMRA Bank Fixed Annuity RateWatch, the spread between the yield on five-year CDs and the average effective yield offered by fixed annuities guaranteed for five years has turned upside down in recent months. The difference between the two products fell from 94 basis points in April 2009 to 8 points in April 2010. “In May the rate spread between five-year CDs and five-year annuities inverted to negative 6—fixed annuities were 6 basis points below CDs,” says Cappelletti. That trend has continued into June, when FAs offered 16 basis point less than CDs.
So why the jump in numbers? “Customers are tired of waiting around to see fixed annuity rates come up. It’s just not happening so they’re moving money into FAs anyway,” Capelletti surmises.
Variable Annuity Sales
“Variable annuity sales in April could not maintain March’s levels even though the markets continued to cooperate. This is largely because current VA offerings are relatively unattractive when compared to the rich benefits and lower prices of yesteryear, according to Scott Stathis, Managing Director of Kehrer-LIMRA.
In April of 2010 banks sold $1.3 billion in variable annuities—a 10% setback from March’s $1.4 billion, which was the highest level since August of 2008. Year-to-year April’s sales represent a 17% decline, however variable annuity sales at banks lingered at $1.1 billion for most of the balance of 2009. This isn’t particularly surprising given the 2008 crisis.
Banks sold $1.54 in fixed annuities for every dollar of variable annuities in April. At the start of the year, this ratio stood at a record low of $1.05 to one. The ratio had been over $2 to one for most of the period between August of 2008 and October of 2009.
Mutual fund sales through banks continue to show strength in 2010. Even though sales levels in April were at $5 billion, not quite as high as the $5.5 billion in March, April mutual fund numbers were up 57% year over year. “Mutual funds have outpaced annuities in terms of market share making up two-thirds of the market share for sales through banks,” says Capelletti. “Annuities were one-third of the share, with variable annuities at 16% of the market and fixed annuities at 19%.