(Corrects to show advance is biggest in 17 quarters in headline, first paragraph of story published Aug. 25.)

Aug. 25 (Bloomberg) -- Assets in U.S. variable annuities rose the most in 17 quarters in the three months ended June 30 as stock markets surged and savers invested more than in the prior three months.

Total assets were $1.19 trillion as of June 30, compared with $1.07 trillion on March 31, the Insured Retirement Institute said today in an e-mailed statement. The gain helped life insurers including No. 1 MetLife Inc. and No. 2 Prudential Financial Inc., which added to reserves last year when markets declined.

Funds backing variable annuities are often concentrated in equities, and the 15 percent increase in the Standard & Poor’s 500 Index in the second quarter boosted account values. Industry sales in the April to June period were $31.8 billion, up 4.3 percent from the $30.4 billion recorded in the first three months of the year, IRI said.

“As the economy begins to show signs of stability, consumers continue to be thoughtful about their investments,” Cathy Weatherford, chief executive officer of IRI, said in the statement. “With the personal savings rate remaining high, we’re likely to see this renewed investment in annuities continue in the months to come.”

Government efforts to pull the world’s biggest economy out of recession are starting to pay off as consumer confidence climbs and the housing market shows signs of improvement. The S&P/Case-Shiller home-price index advanced 2.9 percent in the second quarter from the previous three months, the first increase since 2006 and the biggest in almost four years.

Insurers generally allow clients with variable annuity accounts to choose their investments and often promise to shoulder at least a portion of any losses in exchange for a fee. Annuities are retirement products that pay returns over time.

Hartford, MetLife

The 38 percent drop in the S&P 500 last year pushed Prudential and Hartford Financial Services Group Inc. into annual net losses of more than $1 billion each. New York-based MetLife, which used hedges against slumps to remain profitable each quarter last year, reported a $1.9 billion loss in the first half as markets improved.

Variable annuity clients had 45 percent of their assets in equities and about 12 percent in bonds at the end of June, according to IRI.

MetLife, the No. 1 variable annuities provider, posted a 27 percent increase in sales in the period, compared with the same three months of 2008, trade group LIMRA International said last week. Newark, New Jersey-based Prudential’s sales rose 23 percent, according to LIMRA.

The two companies gained market share from bailed-out insurers ING Groep NV, American International Group Inc. and Hartford, which is based in the Connecticut city of the same name. LIMRA said sales were still below last year’s second quarter, before the near collapse of AIG in September.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

Last Updated: September 4, 2009 10:14 EDT