Bank Annuity Fee Income Dips 5.5% In 1Q

Income earned from the sale of annuities by large banking companies fell 5.5 percent to $840.1 million in the first quarter of 2015 from the year-ago period as investors preferred to hold off on tying up their capital in hopes of a rise in interest rates.

Among the top 10 bank holding companies, eight reported declines in annuity fee income, according to data published by the banks consultant Michael White, president of Michael White & Associates in Radnor, Pa.

At Citigroup, annuity fee income dropped 19 percent; at Bank of America, annuity fee income dropped 16.6 percent, and at JPMorgan Chase, annuity fee income shrunk by 17.2 percent, the consultant reported.

Among the top 10 bank holding companies, only Wells Fargo and BB&T reported an increase in annuity fee income, according to data published by Michael White & Associates.

Of the 274 bank holding companies reporting annuity fee income in the first quarter of this year, 178 were on track to earn at least $250,000 this year. Of those 178 bank holding companies, 62 or 34.8 percent achieved double digit growth, White said in a news release.

“That’s a 25-point drop from the first quarter 2014, when 108 institutions or 60 percent of the 276 bank holding companies on track to earn $250,000 or more in 2014 annuity fee income achieved double-digit growth,” he said.

One reason for the dip is that depositors would rather buy a short-term banking product than a long-term insurance product in hopes that interest rates will rise soon.

Analysts widely believe that rates will rise in the fall as the economy gains more steam. The Federal Reserve raises rates as a way to tamp down on inflation. One cause of inflation is when an economy heats up.

An expanding economy produces more goods and services to meet demand, but to product more it needs to higher labor and invest in new and more efficient manufacturing process, which is expensive and causes costs to rise.

In a separate analysis, the Bank Insurance and Securities Research Associates (BISRA) announced June 18 that bank annuity sales fell 10 percent in the first quarter. This happened as the 22 percent drop in fixed annuity sales weighted too heavily on the 5 percent rise in variable annuity sales to push overall bank annuity sales into positive territory.

“Sales of variable annuities in the bank channel grew 5 percent, but the increase was not enough to compensate for the bank channel’s drop in fixed annuity sales,” Betty Moon, BISRA managing director, said in a news release.

Moon also said that fixed annuity sales are “highly sensitive” to the interest rate environment, which declined at the end of 2014 and into the first quarter of this year.

Rates have since gone back up and market watchers seem to think they will soon be high enough for the Fed to raise its benchmarks.

Annuity sales through banks reached $36.8 billion last year, a 6 percent increase from 2013, according to the BISRA 2014 Annuity Report.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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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 [email protected].