Bank sales of variable annuities edged past sales of fixed annuities for the first time in the third quarter, as bank customers took more risks and sought higher returns on investments.

Sales of variables at banks were $2.6 billion for the quarter, versus $2.5 billion for fixed annuities, according to Kenneth Kehrer Associates, Princeton, N.J.

In the general market, sales of variable annuities surpassed fixed sales in 1993. Banks have lagged, experts said, because their investors are generally more conservative and less sophisticated.

Annuities, typically manufactured and underwritten by insurance companies, are tax-deferred retirement funds. Generally, fixed annuities are tied to bonds, and variables are tied to mutual fund securities.

On the whole, variable annuities have been generating returns between 10% and 20%, while fixed annuities have returned between 6% and 7%.

Bankers and industry observers credited a sustained bull market and growing investor sophistication about mutual funds for the increase in variable sales.

"Everybody is looking at variable products and the kind of returns they are getting in the market," said Glen J. Milesko, chairman of Banc One Insurance Services, a Milwaukee-based unit of Banc One Corp., Columbus, Ohio.

While bank customers are still savers, he said, "They are moving toward the variable products."

The survey culled its data from the 29 fixed and 29 variable annuity insurance companies that do more than 90% of U.S. annuities sales.

"There is a consumer pull and a marketing push on the part of banks," said Kenneth Kehrer, principal of the consultancy. "Investors are naturally very attracted to mutual funds these days, given the high yields and the long, sustained growth of mutual fund values."

Sales of variable annuities at banks grew 10% in the third quarter and a whopping 62% in the 12-month period ended Sept. 30. Fixed annuities sales, on the other hand, declined 19% in the quarter, but were up 6% year over year.

Banks are eager for variable annuity sales because the commission can be as much as 50% higher than commissions for fixed annuities, Mr. Kehrer added.

Mr. Kehrer said that in the past, the rate gap between certificates of deposit and fixed annuities drove sales at banks. But low inflation has caused the yield curve to flatten. In November, he said, the yield on CDs and fixed annuities was equal-5.18%.

At Banc One, 20% of annuities sales this year have been variable, compared to 10% a year ago. Columbus-based Nationwide Life Insurance Co. underwrites the bank's proprietary One Investor variable annuity.

James P. Heide, annuity products manager, KeyCorp, Cleveland, said that 75% of KeyCorp's annuities sales this year have been variable, up from 70% last year.

"We have had mutual funds around for a long time," Mr. Heide said. "Investors are more and more familiar with them and they understand them better, and understand better the idea of asset allocation."

Some of the manufacturers for KeyCorp's variable funds are Putnam Investments Inc., Hartford Life Insurance Co., and Aegon USA Inc.

Hartford Life Inc., Simsbury, Conn., is the largest seller of variable annuity products, with 45% of the variables market.

For the 1997 third quarter, variable sales made up 95% of the $2.4 billion worth of annuities it sold through banks.

"Financial institutions and sales organizations have become much more at ease in the sale of variable annuities," said Peter W. Cummins, senior vice president, investment product sales and marketing, Hartford Life. "It is a matter of training. Over time, we have converted them to people who believe in equities and the acceptance of selling equities."

The long bull market, he said, has made people "believers." On the other hand, Mr. Cummins said it has been "a very, very slow year for fixed annuities."

Companies that sell fixed annuities have become more cautious about pushing them as spreads in bond markets have become thinner, Mr. Cummins added.

But the fixed market is not moribund, either, and bankers still see opportunities there, particularly if equities see a sustained downturn.

"There are still good reasons to buy a fixed annuity," Mr. Heide of KeyCorp said. "If someone is older or risk-averse, they are still buying the fixed product, and they tend to be the more conservative people."

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