The fact that both fixed and variable annuities posted sales increases in June wasn’t quite as rare as summer snow, but it was enough to raise eyebrows among industry watchers.
“There’s just so much instability out there, so many unknowns, that things have gotten quirky,” said Scott Stathis, managing director of research firm Kehrer-LIMRA.
Annuity sales through financial institutions jumped to $3.7 billion, a 7% boost from the prior month, according to the Kehrer-LIMRA Monthly Bank Annuity Sales Survey. Since the start of the year, total annuity sales in banks have surged 48%. And compared to June of last year, sales are 31% higher.
June is also the first time since 2006 that both fixed and variable annuity sales through banks have grown in the month of June. The spike came after two months of declines, which is more typical.
Variable annuities had a particularly stellar month, reaching $2.1 billion -- the highest level since November 2007. VA sales through financial institutions have leapt 69% since the beginning of 2011 and were 52% higher than in June 2010.
“VA sales have been on a slow and steady upward trajectory for the last 18 months,” said Cappelletti. “Although there have been short-term peaks and valleys, over the long term bank-sold VAs have performed well.”
Fixed annuity sales increased nearly 3% in June after two months of double-digit declines. Although the monthly growth rate was low, year-to-date fixed sales were up 28%. The year-over-year comparison was also favorable, registering a 12% advance, according to Kehrer-LIMRA.
Interestingly, sales rose despite further deterioration in the average effective yield of five-year products, according to the Kehrer-LIMRA 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 fell from 13 basis points in May to negative 9 basis points in June. This is the first time the rate spread has been negative since September of 2010.
“Even the rate spread is not foolproof anymore,” Stathis said.
Stathis predicted that a negative impact on fixed annuity sales would likely occur in July. Fixed annuity sales eked out a sales increase in June in part because of products that are competitive, especially so-called rate-for-term and rate-for-comp products.
Rate-for-term fixed annuities allow customers to gain better rates in exchange for committing to longer holding periods. Rate-for-comp annuities have a similar see-saw feature where distributors trade off the products’ interest rate against their own compensation.
Meanwhile, mutual funds posted a strong June following several months of declines and stagnant growth. Banks’ mutual fund sales reached $4.8 billion, a level not seen in seven months, according to Kehrer-LIMRA. For the month, mutual funds were up 42%. Year-to-year, however, they were down 5%. Since January, mutual fund sales have only increased just 10%.