Bank Products Steal Annuities’ Thunder

Usually a solid performer in terms of annuity sales, banks weren’t their old reliable selves in the first quarter. Consumers preferred shorter-term bank products such as certificates of deposit, in hopes of benefiting from rising interest rates.

Rising equity markets also made variable annuities and hybrid annuity products more attractive than fixed annuities to depositors. But while first-quarter sales of variable annuities rose slightly, they weren’t enough to make up for the big drop in fixed annuities.

Dan Beatrice, associate research director for the Bank Insurance & Securities Research Associates (BISRA), told InsuranceNewsNet “There’s logic in how it played out.”

Short-term products allow investors to roll over their investments as rates rise instead of tying up capital longer term, as in an annuity.

Sales of bank-sold annuities declined 10 percent in the first quarter to $8.6 billion compared with the year-ago period, according to BISRA.

Fixed annuity sales plunged 22 percent in the first quarter compared with a year earlier, while variable annuities rose 5 percent in the same time period.

Total annuity sales through banks reached $36.8 billion last year, a 6 percent increase from 2013, the BISRA annual report also found.

These quarterly sales numbers are in the shadow of a record-setting year for sales of bank-sold income annuities and index annuities, as BISRA’s 2014 Annual Report sales of these products through banks hit a high last year.

Beatrice said that banks tend to attract conservative investors, and bank customers can quickly compare CD rates to an annuity, making for immediate competition with annuities.

“Alternative products like CDs are readily available at a branch and you can compare it quickly and it’s immediate competition, so that’s a factor,” he said.

Analysts speculate that the first opportunity for the Federal Reserve to raise interest rates will come in September.

The Interest rate environment “continues to be challenging,” Dr. Betty Moon, managing director at BISRA, said in a news release.

BISRA also reported that within the fixed category for annuities, hot-selling fixed index annuities (FIAs) fell 8 percent in the bank channel, even as overall FIA sales rose 3 percent in the first quarter compared with the year-ago period.

Beatrice said that index annuities have become competitive in an environment with higher equity markets. FIA investors don’t feel as if they are missing out when stock indexes reach new heights.

FIAs are a good fit for a “somewhat conservative customer in the bank channel,” Beatrice said. That customer is a bit more risk averse, “and FIA is part of the story.”

Sales of annuities through banks soared during the financial crisis in 2008, dropped off as the crisis receded, and are gradually recovering.

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

© Entire contents copyright 2015 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

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].