Fixed and variable annuities sales through banks slumped at the beginning of this year, hitting their lowest point in a decade, according to the latest Kehrer-Jackson Monthly bank Annuity Sales Survey.
Sales of fixed and variable annuities through banks and credit unions declined 17% in January to $2.4 billion from a month earlier, and 44% from a year earlier.
It’s unusual for sales of both fixed and variable annuities to fall in tandem, since they typically move in opposite directions, but sales of both products were down also last January. “There’s a tiny rate spread on fixed annuities," said Limra’s Janet Capeletti. “When you look at the big picture, fixed annuities really peaked in the end of 2008.”
Kehrer-LIMRA Bank Fixed Annuity RateWatch reports that the spread between the yield on five-year certificates of deposit and the average effective yield offered by fixed annuities guaranteed for five years fell 90% in the past year. The difference between the two products fell from 155 basis points in January 2009 to 15 points in January.
Fixed annuity sales fell 14% from December, to 1.3 billion, and 61% from a year earlier.
“Historically, $1.3 billion is not too far out of the ordinary as monthly averages for fixed annuity sales at banks were $1.55, $1.66 and $1.46 billion in 2005, 2006 and 2007 respectively. In 2008, monthly averages leapt to $2.93 and this trend continued through most of 2009, ending the year at $2.65 billion per month,” Cappelletti said.
Variable annuity sales fell 21% to $1 billion in December. Annuity sales for the rest of 2009 was $1.1 billion. “VAs bottomed in Jan. and they only came up a hair,” Cappelletti said.
Banks sold $1.33 in fixed annuities for every dollar of variable annuities in January. At the start of last year, this ratio stood at a record high of $5 to $1. The last time the ratio was this low was February 2008, at $1.17 to $1. Previously, it had been below $1 for all but one month in the prior 16-month period.
“What we’re seeing is that people are getting back into the market and prefer mutual funds to annuities,” Capelletti said. “It may be because the benefits are watered-down benefits and the products are more expensive. They’re just not that attractive.”
However mutual funds are healthy and rebounding along with the stock market.
Mutual fund sales edged out fixed annuity sales to account for the largest portion (67%) of the bank broker dealer sales mix in January. Mutual fund sales were up 131% from a year earlier.
While mutual fund shares of $4.9 billion sold in January were slightly less than $5.1 billion sold a month earlier, it was still the highest percentage of mutual funds in sales mix since February 2007.