Some sales of AIG annuities on hold

— -- Dozens of banks have suspended sales of AIG annuities, a sign of the challenge the company faces holding onto business a week after the government took it over.

The banks largely suspended AIG annuities after major ratings agencies downgraded the parent company last Monday, a day before the Fed agreed to lend AIG up to $85 billion. Major banks — including Chase jpm, Bank of America bac, SunTrust sti, Wachovia wb, Capital One cof and Wells Fargo wfc— have yet to resume selling some AIG insurance products, despite the Fed's loan and the company's assurances that its insurance divisions have more than enough money to pay policyholders. AIG expects to repay the two-year loan by selling assets.

Because the majority of AIG fixed annuities are sold through banks, a disruption in such sales could tamp the insurer's growth. In the first half of 2008, AIG's subsidiaries were the largest provider of individual fixed annuities sold through banks and among the top 10 variable annuity issuers, according to Kehrer-Limra, a consulting firm.

SunTrust, in a statement, says it believes "temporarily" halting sales of AIG fixed and variable annuities "is in the best interest of clients at this time given the uncertainty surrounding the company."

Chase says that it suspended sales of AIG fixed annuities — and has no timetable to resume sales — to evaluate the parent's "financial condition and plans."

The moves are "worrisome because they're a harbinger of things to come," says Michael Paisan, an analyst at Stifel Nicolaus.

Bruce Abrams, chief executive of AIG Annuity Insurance, says he expects most banks to eventually reinstate AIG products. He estimates that about 15% of the 700 banks that distribute the company's fixed annuities suspended new product sales about a week ago. Since then, more than a dozen are estimated to have resumed sales.

"We understand that people have their life savings with us, and we take that very seriously," says Abrams. What policyholders need to understand is that "We are the same company we were one week ago, one month ago, one year ago."

In a statement last week, Sandy Praeger, president of the National Association of Insurance Commissioners, said that AIG insurance companies are "solvent and have the capability to pay claims."

Despite the health of AIG's insurance subsidiaries, banks — and consumers — may be concerned about whether the parent company's asset sales will disrupt the servicing of policies, Paisan says.