For a third consecutive quarter last fall, variable annuity sales through banks rose - this time by 6%, to $3.7 billion.
Kenneth Kehrer Associates, the Princeton, N.J., consulting firm that tracks annuity sales, said the increase from the third-quarter sales total might not accurately reflect investor appetite for the equity markets.
"In the third quarter, about two-thirds of the money going into VA's were going into the fixed subaccounts," said Kenneth Kehrer, the president of the firm. "It's probably lower in the fourth quarter, but it's still a big part of variable annuity sales.
"Competition has driven the margins down on the fixed accounts. That makes it difficult to get the rate of return most companies need," he added.
Generally, he said, profits on variable accounts are higher than on fixed accounts.
One notable exception to the trend toward fixed subaccounts in variable products emerged last quarter, however. Hartford Life in Simsbury, Conn., which was easily the top seller of variable annuities through banks, "actually suspended taking money in the fixed accounts," Mr. Kehrer said. Hartford Life had $994 million of variable annuity sales through banks in the quarter, more than twice the volume of second-place Nationwide Financial.
Hartford Life's "wholesaling focus has been on getting out the message that this is a time to buy," Mr. Kehrer said. "They've done a great job with that."
Of course the sluggish stock market kept variable annuity sales well below fixed annuity volume in the bank channel all last year. Fixed sales totaled $8.3 billion in the fourth quarter, down 12% from the third period.
So for every $1 of variable sales, $2.24 worth of fixed annuities were sold through banks. This ratio was down from 2.69:1 in the third quarter.
The 12% decline in fixed annuity sales was the second straight quarterly drop. The third-quarter dip was 5%, from second-quarter sales. Before that, the last fixed annuity volume shrinkage, quarter-over-quarter, was in the third quarter of 2000.
"The rate advantages of fixed annuities over CDs has shrunk," Mr. Kehrer said. "Interest rates have gone down."
Still, fixed sales through banks were robust, though well below the $10 billion high in the second quarter.
"It's still clear that a lot of customers that invest with a bank have been stunned by the market for the last three years and are looking for safety," Mr. Kehrer said. "Undoubtedly, there are a lot of investors that aren't going to buy variable annuities with the market the way it is."
The biggest annuity players are generally seeing increases in variable sales, according to the Kehrer study. Of the top eight variable annuity providers, only one reported a sales decline from the third quarter, and that was American Enterprise, which had a large quarter-over-quarter increase in the third period.
But Craig Whitehead, a senior vice president at Milliman USA in Chicago, said he was not all that impressed by the variable annuity numbers in the bank channel.
"I'd call that flat; that's not really up a whole lot," Mr. Whitehead said. "But I do think that in time variable annuity sales will go up. The reps have been well trained to sell the product. I just think volatility is hurting the market right now."
So long as the market has such big daily gains or losses, he said, investors will feel scared.
"You listen to news reports, and you hear that the market was down so much on a given day and then at the end of the week you see that the market was even, that's confusing to the investor," Mr. Whitehead said. "In November, I got a statement that showed I was up, and I thought, 'How can that be?' The market needs to be more stable."
