Bank-Sold Annuities No Slam Dunk

By Cyril Tuohy

InsuranceNewsNet

As the annuity industry improves, so do the fortunes of the sales channels. But despite the torrent of fee income to banks in 2013 from bank-sold annuities, selling annuity products is no slam dunk for banking institutions.

Customers must understand that annuities are not banking products, nor are they insured by the Federal Deposit Insurance Corp. (FDIC), according to Michael White, a bank insurance expert.

Even if income from a fixed annuity is “guaranteed” for as long as an annuitant lives, there is always a chance of loss of principal.

“Selling fixed annuities is not a layup for banks,” White said in an interview with InsuranceNewsNet.

Banks compete with independent financial advisors, captive agents, broker/dealers and wirehouses to sell annuities. Life and annuities companies, depending on their sales strategy, invest heavily to get their products sold through multiple channels.

Some insurance carriers, such as Symetra and Athene, are aggressive about selling annuities through banks. But other carriers prefer selling through broker/dealers or captive agents. These two sales channels also had a record year, according to the Bank Insurance & Securities Association (BISA).

Last year, banks did well selling fixed annuities. White, who tracks such data, said income earned from the sale of annuities at bank holding companies reached a record $3.43 billion, up 9 percent from 2012.

Fourth quarter 2013 annuity commissions reached a record $932 million, up 17.3 percent from the year-ago fourth quarter, White added.

Banks’ annuity fee income also set records in each of the four quarters last year, according to the latest data from “Michael White Bank Annuity Fee Income Report.” White said that posting big sales numbers across all four quarters is a measure of the consistency in annuity sales.

“The number of significant players exhibiting growing programs, the rates of growth among them, and the substantial increase in significant players that experience growth is a testimony to the caliber and resiliency of those annuity programs,” White said.

Fixed annuity sales in 2013 came to $78.1 billion, an increase of 16.6 percent over 2012. Annuity sales through independent broker/dealers and financial advisors channels hit records, Beacon Research data finds.

Separate data from the Bank Insurance & Securities Research Associates (BISRA), BISA’s research division, shows that banks are in a ferocious fight with broker/dealers and advisors.

Banks were the No. 2 sales channel through which to sell fixed annuities, trailing only the independent agent channel, according to BISRA data.

Rising interest rates made annuities more attractive compared to rates paid on bank certificates of deposit (CDs).

Income annuities and fixed index annuities in particular are expected to do very well over the next five years, according to annuities researcher Joseph E. Montminy, assistant vice president at LIMRA Secure Retirement Institute.

Higher interest rates – expected by some analysts – will help fuel demand for income annuities, said Montminy, speaking last week in Chicago at the Retirement Industry Conference co-sponsored by the LIMRA-LOMA Secure Retirement Institute and the Society of Actuaries.

The locomotive pushing demand are baby boomers retiring in droves and in need of guaranteed income to supplement pensions and Social Security income.

Retirees holding CDs and savings accounts also represent billions of dollars in fee income for banks selling annuities. Every retiree who drops by the bank to discuss rolling over a CD or boosting yield in a savings account is an opportunity for the banks to sell an annuity.

“Baby boomers — that's going to continue to drive the numbers, I think,” White said.

Fee income has turned into banks’ lifeblood and it’s hard for any bank to resist a sliver of $3.43 billion in earned income from the sale of fixed annuities in 2013.

Income from fees helps offset burdensome government fines levied against some banks and banks’ lower net interest margins. Net interest margin is the difference between interest income to banks generated by investments, and interest paid out by banks to depositors and other lenders.

Of the 1,062 large bank holding companies, 423 or 39.8 percent participated in annuity sales of some kind in 2013, White said.

Of the 423 large top-tier bank holding companies reporting annuity fee income last year, 216 or 51.1 percent earned a minimum of $250,000 selling annuities, up from 179 banks or 41.8 percent in 2012, according to White’s research.

His research also found that 75 percent of the nearly 100 top-tier bank holding companies with at least $1 million in annuity revenue increased their revenue last year over 2012.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.