Bank VA Sales Surge In September

“Variable annuities now have very attractive features that limit downside risk,” Kehrer observes. “But the expectation is that insurance companies will either withdraw some of those features or increase the price they charge for them, because the products are proving to be much less profitable than they were designed to be. The guarantees built into the products did not anticipate a bear market that has lasted almost three years.”

Still another factor is the availability of C-share pricing on many variable annuities, Kehrer notes. C-share pricing, also called level-load pricing, refers to annuities that carry no cost to the investor in the form of surrender fees or up-front or back-end charges. They allow investors to park money in the fixed accounts inside a variable annuity without locking up their money with withdrawal penalties, notes Kehrer. He cites reports from several banks suggesting that a significant amount of the money invested in variable annuities in September was in those fixed accounts.

In total, bank sales of fixed and variable annuities rose 5% in September to almost $4.3 billion, just shy of May’s record, according to the study.

“All bank annuity sales reached a high-water mark of $4.4 billion in May and flirted with a new record in July,” Powell says. “We expected a new high might be set this year, but we didn’t expect that it would be driven by variable annuities. In September, total bank annuity premium from all insurance companies was 48% above year-ago levels.”

Bank sales of fixed annuities in September were 27% above September 2001 levels, while the bank VA sales total was more than double the year-ago level, Kehrer says.

Kehrer contends that one factor in the surge above year-ago levels was the Sept. 11, 2001, terrorist attacks. “Interestingly, however, this September was also a terrible month for the stock market, even worse than last year,” he says. “So it was very surprising that VA sales in banks were up.”