Sales of Annuities at Banks Jumped 31% for the Quarter

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Annuity sales through banks surged 31% in the second quarter, to a record $7.3 billion.

Consumers concerned about market stability sought safety in the guarantees offered by annuities -- while also taking advantage of a slew of product enhancements such as bonus rates, increased death benefits, and dollar cost averaging investment programs.

"It's all these factors working together that made for such a good quarter," said Kenneth Kehrer, a Princeton, N.J.-based consultant who tracks annuity sales.

Variable annuity sales rose 25% in the quarter, to $3.9 billion. Variable products attract consumers who are looking for a degree of security tied to the ability to track market upticks, Mr. Kehrer said.

Fixed annuities, which have languished over the past few years, showed surprising strength in the second quarter. Banks sold $3.4 billion in fixed annuities, a 36% increase over first-quarter sales and the best quarterly results since 1994.

"As the yield curve has steepened, it's made fixed annuities more attractive," Mr. Kehrer said.

The difference in the rate of return between fixed annuities and one-year certificates of deposit grew from 36 basis points in the first quarter to 71 basis points in the second, Mr. Kehrer said.

Special bonus-rate annuities offered by banks and insurers also contributed to higher sales. These annuities lower first-year sales commissions to boost first-year returns and offer a return premium of up to4% for the first year, Mr. Kehrer said.

"The distance between base rates and bonus rates is growing," he said.

American Skandia introduced a 1% bonus on all its variable annuities this year, which helped boost sales, said Bayard Tracy, national sales manager for the Shelton, Conn.-based insurer. …