Culminating a big drive into a new market, banks grabbed 30% of annuity sales in 1995, overtaking all rivals.

Banks sold at least $24 billion worth of the popular tax-deferred investment products, nosing ahead of such competitors as insurance companies' agents and brokerage firms, according to a study by A.M. Best Co., Oldwick, N.J.

Best, a leading insurance-rating service, based its findings on a January survey of 1,400 insurance companies. These companies supply annuities to banks and other sellers, which in turn collect commissions on their sales.

Sales of annuities have soared in recent years, largely because they are the only retirement savings vehicles that offer federal tax breaks without restrictions on contributions.

In recent years, more than 3,000 banks have swarmed into annuity sales, emerging as a potent force in a field once dominated by insurance agents.

"Banks are beginning to dictate how annuity products are developed, distributed and serviced," said Valerie Jordan, president of Jordan & Jordan, a Belchertown, Mass., consulting firm that helps banks set up insurance and annuity programs.

Still, banks have had to overcome significant legal and regulatory barriers to take the lead in annuity sales. Twelve states ban annuity sales by banks outright, according to Michael White, president of the Financial Institutions Insurance Association. And insurance regulators in other states where the laws are murkier, such as Florida, have been challenging banks' entry into the business.

A breakthrough came in January 1995, when the Supreme Court, in a case pitting NationsBank Corp. against Variable Annuity Life Insurance Co., affirmed banks' right to sell annuities. Insurance companies, eager to find new sales outlets for their annuities, took the ruling as a green light to develop alliances with banks.

"Since the Valic decision, insurance companies see potential for greater growth, and are getting a foot in the door," said Charles Holland, senior vice president for sales at NationsBank Corp.'s securities unit.

But banks are getting most of their annuity sales from the low-growth end of the market: fixed annuities. These investments - which supply a stable rate of return, much like certificates of deposit - account for 90% of sales at banks, according to Roger Blease, manager of product analysis at A.M. Best.

Banks and their customers have been slower to embrace variable annuities, which have been booming. Investment results on these offerings depend on the performance of underlying investments, typically mutual funds.

Still, there are clear signs that change is afoot. The study showed that fixed-annuity sales at banks dropped 30% in 1995, while variable-annuity sales jumped 44%. "Variable annuities will catch on as more bank personnel gain the experience and the licensing to sell them," Mr. Blease said.

Indeed, some observers said demographic shifts will continue to fuel demand for the riskier variable products.

"Banks are now reaching out to the younger generation," said William Waldie Jr., a senior vice president with PFL Life Insurance Co., Cedar Rapids, Iowa. "To do that, they are looking at variable annuities."

Bankers said they are confident of retaining their newfound edge in annuities sales.

"Customers see an annuity as an investment product rather than an insurance product, so they want someone who knows their total investment picture," said Anne J. Doss, a senior vice president in the brokerage unit of Wachovia Corp., Winston Salem, N.C.

Banks in states that don't allow their employees to sell annuities are champing at the bit. "We're missing out on a lot," said Cynthia Winslow, sales director, 1784 Investor Services at Bank of Boston Corp.

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