That's bad news for insurers that had pinned high hopes for profit on ever-growing sales of the popular retirement savings vehicles, which soared from near obscurity a decade ago to almost $1 trillion in assets last year. Others cheer the trend. For many financial planners and unhappy investors, the fewer Americans who own variable annuities, the better.

"I detest them," said Laura Tarbox, a Newport Beach financial planner who thinks variable annuities are suitable only for certain wealthy individuals.

"People are really not told the whole story, and once they realize what they've got they say, 'Oh, my gosh, I want out!' "

Don and Julie Propp of Irvine wish they hadn't purchased variable annuities for their individual retirement accounts four years ago. The Propps say they were misled about the nature and the cost of the annuities.

"What makes me so angry is that it's really hard for us to get out of [the annuities] without paying a lot of money," said Julie Propp, 54, a government secretary.

Industry proponents defend variable annuities, saying they are an excellent way to save for retirement--offering investors flexibility, tax deferment and protection of their principal if investors die while the stock market is down.

"Variable annuities have features that no other investment has," said Tom Connor, general counsel for the National Assn. for Variable Annuities, a trade group.

A variable annuity is a combination of an insurance contract and an investment in which gains can grow tax-deferred. The insurance company selling the annuity guarantees that if the investor dies before withdrawing the money, his or her heirs will receive at least as much as the investor originally contributed--a feature known as a death benefit.

Meanwhile, investors can take advantage of stock market gains. They can allocate their annuity contributions among stocks, bonds or cash using so-called subaccounts that resemble mutual funds. And they can move their money between subaccounts without triggering income or capital gains taxes.

Variable annuities often cost more than comparable mutual funds, however, and usually have surrender charges that can make withdrawing money expensive.

Those disadvantages weren't much of a deterrent for most of the 1990s, as the stock market soared, baby boomers tucked away more money for retirement and investors found their stock market gains could be protected from taxes in a variable annuity.

Insurance companies discovered variable annuities were good for their bottom lines, as well. Los Angeles-based SunAmerica Inc., which sold its life insurance business to concentrate on annuities in the late 1980s, racked up big profits and saw its shares soar more than 11,000% in the 1990s, making it the best-performing stock on the New York Stock Exchange.

Other insurers quickly followed SunAmerica's lead, and assets of variable annuities exploded from less than $176 billion in 1991 to a record $973 billion last year, according to the VARDS Report, which tracks industry trends.

Now the tide has turned.

As the stock market has fallen over the last 18 months, so have variable annuity sales. Since peaking in early 2000, the amount of money contributed to variable annuities in the first six months of 2001 fell 21.2% to $57.7 billion, according to LIMRA International, an insurance industry research firm.

The fall is cutting into insurance company profits. On Aug. 7, financial services company Conseco Inc. cut its earnings forecast by more than 10%, blaming the weak stock market's effect on variable annuity sales, while an analyst downgraded John Hancock Financial Services Inc. on similar concerns. Skandia, a Swedish insurance firm, reported that its second-quarter sales of variable annuities in the U.S. fell 56%, to $2.5 billion.

Investors Suing Insurers Over Annuity Sales

Meanwhile, companies are battling in court and with regulators over annuities sold during the boom times.