American International Group's agreement to buy American Bankers Insurance Group could tighten the two companies' ties to financial institutions.

AIG, a big global financial services company, could take advantage of American Bankers' bank client network to sell its signature product, property casualty insurance, and to increase its sales of fixed annuities through banks, industry watchers said.

And American Bankers, which sells insurance for things like credit cards and home equity loans, could consolidate its hold on the booming bank credit insurance market by having more financial muscle behind it.

AIG, based in New York, said Monday it would pay $2.2 billion for American Bankers, Miami. The transaction is expected to close in early 1998.

AIG is already the nation's sixth-largest seller of fixed annuities through banks, having sold $470 million in 1996. It also did a negligible variable annuity business of $15 million.

American Bankers' relationships with banks represent a rich vein of potential customers for American International annuities, said Kenneth Kehrer, a consultant in Princeton, N.J.

P. Bruce Camacho, executive vice president for investor relations at American Bankers, said that is the plan.

"We can take a broader array of products to bank and retail," Mr. Camacho said.

That includes annuities and property casualty insurance as well as term and universal life.

And American Bankers' relationships with bank credit card departments could open doors for AIG to sell property casualty insurance which, like credit cards, is often sold through direct response.

Credit insurance, fueled by the swift growth of the credit card and home equity businesses, is one of the few areas of insurance that is experiencing fast growth. It also boasts higher margins than life or property casualty insurance.

As credit card and home equity loans have grown, credit insurance has kept pace. Premiums in 1996 were $5 billion, up 20% from 1992. By contrast, new life insurance premiums in 1996 amounted to $12 billion, up about 12% from 1992, according to A.M. Best.

"It has been a strong area," said Nancy Benacci, an analyst with McDonald & Co. Investments, Cleveland. "American Bankers has really proven to be leader in that market."

American Bankers is the only big independent credit insurer. Last year it wrote just over $600 million in premiums through banks, and it has a 30% market share in U.S. bank credit card insurance.

The company also sold $770 million through retailers that sell things like appliances and stereos.

Its pending purchase indicates that financial services companies are realizing how valuable the business is. More companies are likely to try to get into the game, and the resulting competitive pressures could drive down margins.

In that case, American Bankers would be in a strong position since it is gaining a corporate parent with deep pockets, observers said.

American Bankers also hopes the deal will help it expand in Europe.

"AIG's worldwide distribution network will make it easier for American Bankers," said John M. Roberts, an analyst with Hilliard, Lyons, in Louisville, Ky.

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