Magazine article American Banker

Insurance: Interest Rates, Mutual Funds Erode Bank Annuity Sales

Magazine article American Banker

Insurance: Interest Rates, Mutual Funds Erode Bank Annuity Sales

Article excerpt

With variable annuities sluggish and fixed annuities slumping, overall sales of these retirement products through banks fell in the first quarter.

Banks sold $4.3 billion worth of annuities in the first quarter, compared with $4.4 billion in the fourth quarter of 1997, according to a survey by Kenneth Kehrer Associates, Princeton, N.J.

The major cause of the sales decline was people's continuing disfavor for fixed annuities, according to Mr. Kehrer, the consulting firm's principal.

It is little surprise that people were more likely to choose certificates of deposit than longer-term fixed annuity contracts, he said. By February, a flattening yield curve, which has narrowed the difference between short- and long-term interest rates, put fixed annuities at a 17- basis-point disadvantage to one-year CDs, he said.

"I see the interest rate problem continuing," Mr. Kehrer said. Only major market changes would return the financial instrument to popularity, he added.

However, a second quarter of sluggish variable annuity sales did surprise him, he said. In nearly two years leading up to the third quarter of 1997, variable annuities had enjoyed increasing popularity.

But sales were just $2.5 billion in the first quarter, up slightly from $2.4 billion in the fourth quarter and equal to third-quarter 1997 sales, Mr. Kehrer said. "With a hot mutual fund market, it's easier to sell mutual funds."

In addition to their focus on funds, bank brokers have also been keen on selling Roth IRAs, he said. …

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