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A recent LIMRA Secure Retirement Institute research briefing finds that banks and career agents manage the client relationships for nearly two-thirds of fixed-rate annuity assets. Their preferences and perceptions will strongly influence whether or not their clients surrender their contracts once surrender charges expire.

At the end of the second quarter 2013, Secure Retirement Institute estimates that the bank channel controlled 40 percent of the $414 billion total retail fixed-rate annuity assets ($166 billion).  In addition, banks sold nearly $60 billion in fixed-rate annuities in 2008 and 2009.  Five-year contracts sold in these two years will be coming out of surrender charges in 2013 and 2014. Moreover, 40 percent of the assets controlled by the bank channel have already exited the surrender penalty period. Given its assets under management, the bank channel is in a unique position to influence fixed-rate annuity surrenders and sales in the next few quarters.

Career agents manage nearly a quarter of retail fixed-rate annuity assets ($100 billion), although it is unlikely that they will recommend moving assets out of these accounts.  While independent agents, independent brokers-dealers, and full service national broker-dealers control only 24 percent of fixed-rate annuity assets collectively, they have many other investment options to suggest to their clients.

It’s important to note that independent agents, independent broker-dealers, and full service national broker-dealers have higher cash value surrender rates for annuity assets without surrender charges than career agents do (Chart).  However, their impact on total surrender rates is low as these three channels account for only 18 percent of the total retail fixed-rate annuity assets without surrender charges.   

The biggest factor that is likely to drive fixed-rate annuity surrender rates in the coming months is how banks adjust their CD rate offerings — both short- and long-term.  Right now, surrender rates of fixed-rate annuities sold in banks are low. In a rising interest rate environment, however, CDs may offer better returns, making it hard for carriers to retain their fixed-rate annuity assets.

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Catherine Theroux

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Brooke Lacey

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