After a period of booming sales in first quarter of 2011, annuity sales through banks have fallen off significantly, according to a new report by Kehrer-LIMRA, the banking industry research unit of LIMRA.
Kehrer-LIMRA reports that total annuity sales in the bank channel fell 14% from March to April to $3.6 billion and dipped another 5% in May to $3.5 billion.
Most of that drop was in sales of fixed annuities, though variable annuities in May were also off from their March pace.
Janet Cappelletti, associate research director at Kehrer-LIMRA, attributes much of the falloff in annuities sales in the banks to a narrowing of the spread between CD interest rates and fixed annuity rates.
In mid-February, when fixed annuities were at their peak, that spread was 0.43%, with fixed annuities paying 2.04% against just 1.61% for CDs. Just three months later in mid-May, the spread was a meager 0.13%, with fixed annuities offering 1.84% vs. 1.71% for CDs.
“When the spread is that narrow, most people see the CD as more secure because of the FDIC backing and as having lower fees,” Cappelletti said.
CDs and fixed annuities were both offering an average return of 1.63% back in the October-November period last year and then began to diverge, reaching their maximum spread in February.
Variable annuities were hurt during the second quarter this year by the run-up in the stock market, which made mutual funds more popular with investors, as well as by the usual spate of IRA roll-overs that occur in April each year, Cappelletti said.
The Kehrer-LIMRA report notes that, historically, mutual funds tend to exceed annuities sales in the bank channel. But since the onset of financial crisis -- and particularly in mid-2009 -- selling mutual funds has been more of a challenge. However, in May, mutual funds caught up with variable annuities for the first time since the summer of 2009.
While annuities sales in the bank channel in the second quarter have slowed significantly from the torrid pace of the first quarter, overall they are still up 10% compared to the same five-month period of last year.