In pushing a merger deal with Travelers Group, executives of what was then Citicorp touted teaming up with a leading underwriter of annuities and insurance.

But even before the October merger, Citicorp itself was making inroads as an annuities underwriter. And the effort is still paying off.

Using a legal loophole that lets it underwrite insurance products, the Citibank unit of what is now Citigroup has quietly built an annuities business over three years by selling to the bank's customers through in- house brokers.

The bank has made its greatest strides in variable annuities-retirement investments that let a customer play the stock market. The bank's underwriting unit, Citicorp Life Insurance Co., sold $91 million of variable annuities in the third quarter, making it the fifth-largest underwriter of the products ranked by bank sales, according to data from Kenneth Kehrer Associates, a Princeton, N.J., consulting firm.

"Everyone keeps saying Travelers is going to teach Citicorp how to sell," Mr. Kehrer said, "but Citicorp insurance services is one of the most successful sellers" in bank brokerage, he said.

Now the bank is seeking to sell annuities beyond its walls. In November, Citicorp Life Insurance began selling its fixed and variable annuities through three retail brokerages-Royal Alliance, Sun America Securities, and First Financial Planners, said Chad H. Masland, a senior vice president for sales at the unit.

Despite its success, the underwriting unit is imperiled by the much larger Travelers Life and Annuities Co., another Citigroup unit.

Company officials would not discuss the future of Citicorp Life.

Though the Citicorp life insurance unit may become a footnote in the largest U.S. financial services deal in history, its modest success is proof that banks can develop and underwrite annuities, Mr. Kehrer said.

It wasn't always a smooth ride for the unit, said Mr. Masland, who recently addressed the topic at KPMG Peat Marwick conferences in New York and Dallas.

He said Citicorp had acted swiftly in the late 1980s when Delaware enacted laws letting financial institutions underwrite insurance products.

Soon thereafter, Congress-bowing to insurance industry pressure-passed legislation withdrawing state authority to grant underwriting powers. But Citicorp, which had headquartered its life insurance subsidiary in Dover, Del., was grandfathered.

In 1995, Citicorp underwrote its first annuity, which almost immediately captured 60% of fixed annuity sales at the bank.

But Citicorp Life struggled when it tried to develop a variable annuity, Mr. Masland said. Rather than mimicking other successful variable annuities, the bank developed a more restrictive product that was tied to the bank's underperforming Landmark mutual fund family.

The bank also had to prove to Citibank brokers that it could deliver service on a par with Nationwide, Aegon, and Hartford Financial Services- three underwriters offering annuities to the bank's customers.

But after racking up a dismal $9 million in sales during 1996, the bank revamped its variable annuity, adding stronger funds to the investment mix and reducing fees. Sales took off.

Citicorp Life said it expects variable annuity sales to top $400 million this year, despite a third-quarter falloff due to the stock market's slide.

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