If the experience of one insurance company is anything to judge by, turbulence in the stock and bond markets is taking its toll on customers who have bought variable annuities through banks.

For weeks, Boston-based Keyport Life Insurance Co. has been fielding phone calls from nervous customers who want advice on how to safeguard their investments from further market bumps.

"They're saying, 'What can I do? This is my retirement money,'" said Deborah Re, head of the customer service center at keyport.

Coaching and Counsel

In response, Keyport's customer service representatives have been spending a lot of time coaching investors about alternatives and talking them through their anxieties.

Although many customers are sticking with their investments, some are losing patience. Some say they want out, said Michael McGoldrick, a Keyport customer service representative. "They've had enough."

Keyport's observations merit attention because annuities -- insurance contracts that are invested in a pool of securities -- have surged in popularity at banks. One reason: under tax law, earnings on annuities aren't taxed until the proceeds are withdrawn, so the investments are considered ideal for retirement planning.

Variable Risk

While many bank customers are familiar with fixed annuities, which pay a preset yield, they may be less familiar with variable annuities, which have boomed this year. Variable annuities invest in mutual funds and pay a return that varies depending on the performance of the fund chosen.

Investors typically are allowed to switch their annuity assets among fund portfolios as their tolerance for risk shifts. But they cannot redeem the investments before reaching retirement age without paying both tax penalties and surrender charges.

Like Keyport, some banks are facing the task of soothing worried investors.

"Some people saw the early change in the market and said, 'I don't want to play this game,'" said Tom Munsell, executive vice president of Fleet Investment Services. The brokerage unit of Rhode Island-based Fleet Financial Group sells a variable annuity that invests in Fleet's proprietary Galaxy Funds.

As the markets headed south, Keyport's annuities customers showed a growing preference for conservative investments.

Dampened Enthusiasm

The market's slide also seems to be dampening enthusiasm for new sales of variable annuities. Based on preliminary sales figures, it appears that first-quarter volume was "significantly down," said Kenneth Kehrer, an insurance consultant based in Princeton, N.J.

Executives at Fleet and Keyport maintained that they haven't witnessed a decline in sales so far. Indeed, they maintain, investors are most interested in buying the more aggressive funds, seeing opportunities in their depressed values.

But many banks say their customers don't want anything to do with variable annuities.

"Our customers say, 'The market's up, it's down -- let's just stick with fixed rates,'" said Robert Walster, president of First National Bank, Mt. Vernon, Mo.

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