Sales of annuities through banks ended the year with a promising lift, specifically for variable business.
In December, fixed annuity production was relatively stable but variable sales continued on their upward trajectory, recording increases each month in the fourth quarter, according to the Kehrer-Jackson Monthly Bank Annuity Sales Survey.
Total annuity sales have grown 24% since they hit a low in January 2010. Financial institutions sold $2.7 billion of fixed and variable annuities in December, a 4% increase, roughly equal to the growth rate in November. This slow but steady increase brought total production up to within 7% of the previous December.
Variable Annuity Sales
In December of 2010, bank-sold variable annuities, at $1.6 billion, grew 21% year-over-year. December production was a 6% improvement over November, which was the second consecutive month of growth. Sales reached this level in the spring of in 2010 but haveHAD struggled for several months.
The disparity between variable and fixed sales continued to increase. The sales ratio in December surpassed November’s three-year high as banks sold $1.48 in variable annuities for every dollar of fixed annuities. Banks have been selling more VAs than fixed annuities since September and the gap is widening. The turnabout is evident when considering the fact that banks sold only $.84 in variable annuities for every dollar of fixed annuities in December of 2009.
Fixed Annuity Sales
Bank-sold fixed annuities reached $1.08 billion, which was a nominal increase over November’s $1.07 billion. Financial institution sales of fixed annuities have lingered at about $1.1 billion for the entire fourth quarter.
“Fixed annuity production has been flirting with historic lows, but so far have been able to stay above the bottom,” said Janet Cappelletti, Associate Research Director at Kehrer-LIMRA.
The spread between the yield on five-year CDs and the average effective yield offered by fixed annuities guaranteed for five years continued to grow, according to the Kehrer-LIMRA Bank Fixed Annuity RateWatch. In the past year, the rate spread was as high as 24 basis points in December 2009 and steadily fell to a low of minus six points in May 2010. The spread reversed course in November, and as of December 15th, the average effective yield on five-year products was back up to 34 basis points above CD offerings for five-year commitments.
“The rate spread between fixed annuities and like CDs is becoming meaningful,” says Scott Stathis, managing director of Kehrer-LIMRA. “We are all now waiting to see when the inevitable corollary sales increase will come.”
Mutual Fund Sales
Banks sold $4.8 billion in mutual funds in December, which was just shy of November’s $4.9 billion and 5% less than the amount sold in December of 2009. Mutual funds continued to account for two-thirds of packaged product sales in December.