Annuity sales through banks surged 31% in the second quarter, to a record $7.3 billion.

Consumers concerned about market stability sought safety in the guarantees offered by annuities -- while also taking advantage of a slew of product enhancements such as bonus rates, increased death benefits, and dollar cost averaging investment programs.

"It's all these factors working together that made for such a good quarter," said Kenneth Kehrer, a Princeton, N.J.-based consultant who tracks annuity sales.

Variable annuity sales rose 25% in the quarter, to $3.9 billion. Variable products attract consumers who are looking for a degree of security tied to the ability to track market upticks, Mr. Kehrer said.

Fixed annuities, which have languished over the past few years, showed surprising strength in the second quarter. Banks sold $3.4 billion in fixed annuities, a 36% increase over first-quarter sales and the best quarterly results since 1994.

"As the yield curve has steepened, it's made fixed annuities more attractive," Mr. Kehrer said.

The difference in the rate of return between fixed annuities and one-year certificates of deposit grew from 36 basis points in the first quarter to 71 basis points in the second, Mr. Kehrer said.

Special bonus-rate annuities offered by banks and insurers also contributed to higher sales. These annuities lower first-year sales commissions to boost first-year returns and offer a return premium of up to4% for the first year, Mr. Kehrer said.

"The distance between base rates and bonus rates is growing," he said.

American Skandia introduced a 1% bonus on all its variable annuities this year, which helped boost sales, said Bayard Tracy, national sales manager for the Shelton, Conn.-based insurer. The company's second-quarter sales through banks jumped 44%, to $245 million.

American Skandia, which is the largest seller of variable annuities in the United States, also attributes much of its sales growth to the popularity of its multimanager investment portfolios underlying the annuities.

The second quarter saw no rankings changes among the top five annuity players through banks. Northbrook, Ill.-based Allstate stood out with its continued strong performance. It sold $517 million in annuities in the second quarter, up 70%.

Allstate's performance is because of a new relationship with Bank One Corp., Mr. Kehrer said. Just one big bank, he said, can make a huge difference in today's market.

Bank One, Bank of America Corp., Chase Manhattan Corp., Citigroup First Union Corp., and Wells Fargo & Co. account for about 40% of bank annuity sales, Mr. Kehrer said. "That's a tremendous concentration of market power. The underlying thing that's happening here now is that some banks have almost 10% of the underlying business in the annuity channel."

Allstate should soon get an additional boost from sales of a new annuity that will have Putnam-managed investment portfolios, Mr. Kehrer said.

He said Safeco's bank sales increased 36% as the company overcame difficulties with equity-indexed annuity sales.

Though its sales slowed briefly after the second quarter, American Skandia says it still expects 1999 to be a strong year for its annuity sales.

"August is turning out to be a little less robust than July, and that's in all products," Mr. Tracy said. "I anticipate with a little luck we will be up substantially this year."

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