by developing and selling proprietary annuities.

These products, which allow a bank rather than an insurance carrier to set the terms of an annuity contract and even manage the assets for a fee, have taken off in the past six years.

Last year, banks garnered $4.5 billion in proprietary annuity premiums, 22% of all the annuities they sold, said Ken Kehrer, a Princeton, N.J., consultant. Five years earlier, sales of proprietary annuities at banks represented a paltry 2% of all annuities sold.

Banks last year generated $2.4 billion of premiums from proprietary fixed annuities - which are tied to fixed investments such as corporate bonds. About $2.1 billion of premiums came from variable proprietary annuities, which are tax-deferred products, similar to mutual funds, that allow investors to play the stock market through equity investments.

"Proprietary annuities are coming into their own," said Glen Milesko, chairman of Bank One Insurance Group. Four years ago, when many banks were just starting out, "you couldn't get an insurer to return your phone call.''

Banks have developed proprietary annuities programs as part of a larger effort to grab an increasing share of the country's personal financial assets. By becoming asset managers, banks can generate steady, reliable fees that build over time.

Indeed, about a dozen large banks have generated more than $9 billion of variable annuity assets under management, a large jump from the $200 million they managed in 1993, according to Lipper Inc., a Summit, N.J., analytical firm. That is because major underwriters such as American Skandia and Hartford Life have been developing variable annuities at a rapid pace.

Leading the list of bank proprietary annuity providers are Mellon Bank Corp., with $3.3 billion of assets, followed by Deutsche Bank AG, with $2.9 billion, and Bank One with $807 million, according to Lipper's data.

Though no figures are available on the total fixed annuity assets that banks manage through proprietary arrangements, observers believe that the number is considerably smaller than for the variable annuity. That's largely because banks, while old hands at selling "off-the-shelf'' fixed annuities designed by insurance companies, are relatively new to the game of developing their own fixed annuities, Mr. Kehrer said.

Still, it is clear from recent sales numbers that proprietary fixed annuities which resemble certificates of deposits because of their fixed returns have come on strong in recent years.

"One barrier to banks doing proprietary fixed annuities is that insurance companies wouldn't let them,'' said Mr. Kehrer. But these limitations are dissolving as insurance underwriters such as American General Financial Group are taking the lead in helping banks develop their own fixed annuity contracts.

Bankers say that proprietary annuities bring many advantages compared with those bought off-the-shelf from large insurance companies. For one, banks like being able to negotiate the terms and fees with the insurers. They are able, in some cases, to reduce commissions paid to brokers and increase the returns paid to customers compared with traditional off-the-shelf annuities.

"We like to custom-tailor products to our customers' needs," said Michael C. Baker, senior executive vice president overseeing the annuity program at AmSouth Bancorp, Birmingham, Ala.

Banks also like to be able to control asset management because of the fees involved. They can pick and choose among their mutual funds, offering money- market type accounts for customers who are totally averse to risk, or growth funds for customers willing to take some risk.

Also, banks like the ability to tie an annuity to the bank brand rather than passing the glory on to the underwriter. Bank One's family of annuities is marketed under the name One Group, and Citigroup's annuities are marketed under the Citiselect name.

But most importantly, the management and brokerage fees generated by proprietary annuities are generating nice fee-based profits for banks, though few are willing to give specific figures.

Analysts say the banks' profits can come after they amass $50 million to $200 million of assets under management.

In recent years, the annuities business received a boost, with the outsize gains in the stock market helping to generate customer demand for variable annuities.

"Variable annuities are now more of a mainstream investment product," said Mary McAvity, an analyst at Cerulli Associates, a research firm in Boston. "They have come out of insurance sales channels and into the bank and brokerage communities."

Banks are well suited to proprietary annuity sales because they have access to the client in an environment that fosters the relationship required for this type of sale, analysts say.

AmSouth Bancorp relies on its Sunbelt market for its annuity investors, said Mr. Baker, a senior executive vice president in charge of the annuity program.

The program has been under way for three years and "we're in some very good markets," Mr. Baker said. "It's a nice fit as an alternative investment to a certificate of deposit or a mutual fund."

The markets include Virginia, Alabama, and Florida. "The Southeast has a lot of retirement destinations and we capitalize on that," Mr. Baker said.

The company relies on 75 sales people who operate in branches but are employees of the bank's broker-dealer.

First Union looks at its proprietary annuities "as a major line of businesses," said David DeGorter, president of First Union's insurance group. "We have a full array of products to meet market needs."

Bankers said that proprietary variable annuities are in some cases overtaking the products offered by outside vendors. But the bankers say they work hard to make sure a customer selects the product. "We don't push the products on anyone," Mr. Baker said.

John Kimelman contributed to this report.

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