Banks' Fixed Annuity Sales Plummet

Banks' second-quarter sales of fixed annuities of $4.1 billion were down a massive 52% from the same period a year earlier, according to a joint report by Beacon Research and the American Bankers Insurance Association.

Fixed annuity sales were down 3.1% from the first quarter this year, although the report noted that 60% of insurers saw an increase in fixed annuities sold through banks. "The second quarter of 2009 was a tough act to follow," concedes Judith Alexander, director of sales and marketing at Beacon Research. "Rates started falling and credit spreads started narrowing, so fixed annuity rates weren't as competitive relative to CDs."

Western National Life dominated the bank channel with $1.2 billion in fixed annuities sold. New York Life is a distant second with $686 million in fixed annuity sales through banks and Lincoln Financial sells half as much, or $334 million. Western National Life? You may know it better by its former moniker AIG Annuities. The insurance giant changed its annuities unit's name back to its pre-acquisition title as part of its realignment as a result of the financial crisis.

New York Life's book-value NYL Preferred Fixed Annuity was the most popular product overall in banks, followed by Lincoln's New Directions indexed annuity and Western National's drily named Proprietary Bank Product F book-value annuity. Western National sold the most overall annuities because its Flex 7 and Flex 5 products were also big sellers in the top five.

While book-value annuities are common in the bank channel, Lincoln's indexed annuity is a sign of the times, Alexander says. "Generally when you see an indexed annuity doing very well in the bank channel it's because it has a high fixed rate," she explains. "Last time this product did well it was because of a high fixed rate. When buyers are comfortable with the market, they move their assets over to the indexed strategy."

(Western National apparently has taken note: It introduced an indexed annuity in July this year, 18 months after the company, then known as AIG Annuity, dropped this type of product.)

Alexander says the third-quarter results, which aren't yet available, could see a marked improvement in fixed annuity sales. "Based on current credit spreads, we could see a 10% quarter-over-quarter increase in banks," she says. However, advisors shouldn't get their hopes up. Spreads are likely to narrow again, potentially depressing fixed annuity sales well into next year.

This story has been reprinted with permission from Financial Planning.