First Interstate picks SunAmerica for annuities.

Taking a crucial step forward in its plan to create a family of proprietary annuities, First Interstate Bancorp has selected-SunAmerica to underwrite the product's insurance contracts.

The deal marks the second time in a month that SunAmerica, a Los Angeles-based insurer, has aligned with a bank to develop annuities.

Earlier this month, Chase Manhattan Corp. said it plans by yearend to unveil a family of annuities underwritten by SunAmerica.

First Interstate's plans to launch annuities came to light about a month ago, and it has been expected that SunAmerica would get the nod to handle the insurance-underwriting duties that are off-limits to banks.

However, SunAmerica faced some serious competition. First Interstate had discussions with eight insurance companies and received proposals from "many more" before going with SunAmerica, said Michael A. Johnson, senior vice president at the banking company.

Banks' broad distribution networks are the chief drawing point for insurance companies like SunAmerica, industry analysts say.

Annuities are investment products whose tax-deferred returns make them attractive for retirement planning.

In the case of variable annuities, returns are linked to the performance of an underlying family of mutual funds.

Fee-Income Potential

Banks that manage mutual funds see variable annuities as a way to expand their investment management business and reap additional fee income.

Mr. Johnson said SunAmerica's high insurance ratings and sophisticated processing and servicing systems went a long way to garnering the contract for the company.

First Interstate plans to roll out its annuities late this year, linking five of the products' investment options to First Interstate's own mutual funds.

SunAmerica will oversee a sixth portfolio, whose rate of return is fixed.

First Interstate plans to distribute the annuities through more than 1,000 branches in 13 western states.

Cites Strong Annuity Sales

Mr. Johnson said the partners have high hopes for the product's success, based on the kind of business the bank is already doing in annuities.

Indeed, branch sales of other companies' fixed and variable products reached $500 million last year.

First Interstate will continue offering two or three nonproprietary annuities when it begins offering its own product in retail branches, Mr. Johnson said.

"We want to make sure our customers have enough choice."

At the same time, the banking company is looking at ways to make its annuities more attactive. One would be to add an international portfolio, he said.

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