With variable annuities sluggish and fixed annuities slumping, overall sales of these retirement products through banks fell in the first quarter.

Banks sold $4.3 billion worth of annuities in the first quarter, compared with $4.4 billion in the fourth quarter of 1997, according to a survey by Kenneth Kehrer Associates, Princeton, N.J.

The major cause of the sales decline was people's continuing disfavor for fixed annuities, according to Mr. Kehrer, the consulting firm's principal.

It is little surprise that people were more likely to choose certificates of deposit than longer-term fixed annuity contracts, he said. By February, a flattening yield curve, which has narrowed the difference between short- and long-term interest rates, put fixed annuities at a 17- basis-point disadvantage to one-year CDs, he said.

"I see the interest rate problem continuing," Mr. Kehrer said. Only major market changes would return the financial instrument to popularity, he added.

However, a second quarter of sluggish variable annuity sales did surprise him, he said. In nearly two years leading up to the third quarter of 1997, variable annuities had enjoyed increasing popularity.

But sales were just $2.5 billion in the first quarter, up slightly from $2.4 billion in the fourth quarter and equal to third-quarter 1997 sales, Mr. Kehrer said. "With a hot mutual fund market, it's easier to sell mutual funds."

In addition to their focus on funds, bank brokers have also been keen on selling Roth IRAs, he said. Also variable annuities may be less attractive to many investors since the cut in the capital gains tax last August.

Although the impact of the law has been debated, Mr. Kehrer said he now believes, "if the mutual fund market remains hot and variable annuity sales remain down, then it might be the tax change."

Annuity provider Jackson National Life reported its annuity sales off in the first quarter, said Bradley Powell, president of the Atlanta company's financial institutions group.

Jackson National, the eighth-largest underwriter of bank-sold annuities by premiums, had $122 million of annuity sales through banks in the first quarter compared with $186 million in the fourth quarter, according to Mr. Kehrer's statistics.

Jackson National's experience was consistent with that of the industry. Of the top 13 annuity providers to banks, only John Hancock gained sales. That, Mr. Kehrer said, was attributable to bank customers Hancock gained at other underwriters' expense.

But Jackson National has seen a major uptick in sales this quarter, Mr. Powell said. He said he believes the improvement is a result of brokers' and customers' learning the details of tax changes and the benefits of variable annuities.

Still, Mr. Powell was reluctant to predict what is in store for the balance of the year. "We're taking it quarter by quarter," he said.

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