Citicorp next month will become the first commercial banking company to underwrite and manage its own variable annuities.

The New York banking company's annuities will include four of Citicorp's own mutual funds and three portfolios advised by outside fund managers, said Alan F. Liebowitz, general counsel for Citicorp's insurance division.

Citicorp's decision to oversee fund management and insurance underwriting comes as federal legislators and state insurance regulators are turning up the heat on banks' involvement with investment products.

The banking company is well aware of the scrutiny but is confident its efforts are "legally permissible," Mr. Liebowitz said.

"We're conscious of certain risks associated with this," he said, "and have made a decision to go forward."

By using its own insurance company to issue the annuity contracts, Citicorp will be able to collect administrative fees that average 125 basis points for every dollar spent on insurance policies, Mr. Liebowitz said.

Citicorp's challenge is to make sure the costs of administrative tasks - like printing, customer service, and bookkeeping - don't exceed insurance fees the company will charge.

Most other banks aren't allowed to handle insurance duties and must give up processing and other fees to outside insurers. But Citicorp is among a handful of banking companies whose Delaware insurance units are exempt from a federal law that sharply limits banks' ability to underwrite noncredit insurance products.

Chase Manhattan is also among the exempt group, but the banking company still has chosen an outside insurance company to underwrite its proprietary annuity contracts.

Chase opted to work with Los Angeles insurer SunAmerica Inc. to receive annuity development and marketing expertise that the banking company lacks, said Robert K. Gallman, vice president in Chase's insurance products group.

Citicorp's decision to handle the annuities' insurance contracts fits with the banking company's broader strategy of "having as much proprietary product as possible," Mr. Liebowitz said.

Overseeing annuities "is a natural extension for us," he said at a conference in New York sponsored by Executive Enterprises.

But the banking company isn't handling the annuity entirely on its own.

In addition to the funds from Citicorp's Landmark family, the annuities will feature funds managed by AIM Management Group, Fidelity Investors, and Massachusetts Financial Services.

Citicorp is shooting for a Jan. 9 rollout of the annuities to customers in New York and Illinois. The banking company wants to expand the products to California later next year and to Virginia, Maryland, and the District of Columbia by yearend 1995, Mr. Liebowitz said.

Chase Manhattan, in a bid to boost life insurance volume, will deploy a "SWAT team" exclusively devoted to closing policy sales, Mr. Gallman said.

The six sales people, whom the banking company plans to hire by yearend, will follow up referrals from various Chase units, Mr. Gallman said. Chase also will add life insurance to offerings at interactive kiosks the banking company has set up in some branches, businesses, and supermarkets, Mr. Gallman said.

The Chase vice president, speaking at the Executive Enterprises conference, said his company's insurance unit has crucial support from top management.

In fact, he said, "our senior, senior manager was so excited he went to work for Prudential," referring to Chase president Arthur Ryan's November defection to Prudential Insurance Co. of America.

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