One of the last states to resist banking's aggressive push into annuities sales, Florida is about to open its doors to what banks expect will be one of the country's richest markets for insurance products.

Spurred by the U.S. Supreme Court's January decision in the Valic case, Florida insurance regulators have dropped their fight to limit bank sales of annuities.

Both the state's insurance and banking authorities say the Valic decision makes it clear that banks can sell annuities. As a result, the agencies are issuing final rules jointly this month to govern how banks market and administer annuities.

A limited number of banking companies, including Jacksonville-based Barnett Banks Inc., and thrifts already have been selling annuities in the state through third-party arrangements. But those programs, notably Barnett's marketing of annuities under the "Tax Advantage Account" name, proved controversial with state insurance regulators.

That regulatory opposition had prompted First Union Corp. and NationsBank Corp., two banking companies with big deposit shares in Florida, as well as other institutions, not to sell annuity products in the state.

Now those behemoth players, already experienced with annuity sales in other southeastern states, are among those gearing up for serious competition in the Sunshine State.

In a state flush with retirement money, the stakes for banks are high.

"Banks will be very anxious to offer annuities in Florida," said Jerry Cunningham, president of New York's Essex Corp., a third-party provider of annuity investments for banks. "The average buyer of an annuity is a conservative 65-year-old, and that means there should be a massive market for such a product in Florida."

Richard Ayotte, managing partner of American Brokerage Consultants in St. Petersburg, Fla., said that, of the 18 states that sought to restrict bank sales of annuities, Florida has been among the toughest. Now there should be big pent-up demand.

"We should see those banks on the sidelines move quickly into this line of business," he predicted. "Florida is a huge market, certainly among the top five in the country."

The player about to make the biggest splash in Florida is North Carolina-based First Union, the nation's 10th-largest banking company. Its First Union National Bank of Florida, with nearly $38 billion of assets, has the second-largest share of deposits in Florida, behind Barnett. Already among the most aggressive seller of mutual funds in Florida, First Union plans a similar campaign in annuities.

This year, First Union signed up Essex to place its annuity sales agents in First Union's 552 branches in Florida. In other southeastern states, First Union said last month, it will train and license 800 of its employees who already sell mutual funds to sell annuities.

The use of a third-party provider like Essex was intended to satisfy Florida regulators, said David de Gorter, director of First Union Insurance Group.

However, Mr. Cunningham, Essex's president, already expects the regulatory relaxation on bank annuity sales in Florida to let First Union extend its in-house sales strategy soon to that state.

Such a move would bring a quick end to the use of Essex agents in First Union branches. But Essex would continue to train First Union's staff and also provide marketing and wholesale support, according to Mr. Cunningham.

First Union declined to comment on any possible reorganization of annuity sales in Florida.

Based on Essex's experience in the state working with a few other financial institutions, like Miami's Chase Federal Bank, Florida has lived up to its reputation as a big market for annuities, Mr. Cunningham said.

"It's seasonal, and sales tend to taper off in the summer," he said, "but it's a good market."

Another heavyweight patiently watching the Florida annuity market is NationsBank Corp., Charlotte, N.C. The country's fourth-largest banking company, NationsBank has the third-largest share of deposits in Florida.

Though NationsBank has been selling annuities in North Carolina, South Carolina, and Virginia branches through its NationsSecurities unit, it has chosen so far to stay out of the insurance business in Florida.

The Valic decision, however, which coincidentally involved NationsBank, has prompted the company to take a fresh look at its annuity strategy.

For starters, NationsBank has established two in-house teams dedicated to making the company a bigger player in annuities.

First, a legal team is picking apart the Supreme Court decision in Valic to make sure every detail is clear before it commits major resources to an expansion. And the second team is studying how best to market annuities, according to NationsBank spokesman Ellison Clary.

For all its size, NationsBank's annuity efforts to date have been modest.

It sells annuities underwritten by ITT Hartford and Putnam in three states. But it does not offer the products in Texas or Georgia, where state regulators, like those in Florida, offer less than explicit blessings to banking's push into insurance.

As Florida's largest banking company, Barnett chose to push into annuity sales in its home state years before any of its biggest banking rivals. Barnett recruited, with apparently good success, the San Diego-based insurance agency James Mitchell & Co. to offer fixed-rate annuities in its branches through licensed James Mitchell agents.

By 1993, Barnett was racking up annual fees from annuity sales of nearly $13 million. But those earnings came at a cost.

Tom Gallagher, Florida insurance commissioner until this year, argued that James Mitchell & Co.'s relationship with Barnett was so close that it violated state insurance regulations. Mitchell agents improperly shared commissions with Barnett employees, Mr. Gallagher said, and agents failed to disclose to Barnett customers that they were third-party agents not employed by the bank.

The controversy became a legal struggle between the state regulator on one side and Barnett and Mitchell on the other. At the least, the publicity hurt Barnett's annuity sales.

This year, Bill Nelson, Florida's newly elected insurance commissioner, has expressed more willingness to let banks sell annuities. And Barnett has reorganized how it sells uninsured investment products in its branches.

The bank still uses James Mitchell agents to sell annuities. But Barnett's own employees screen prospective investment customers before directing them to the agents. And Barnett says it has stopped giving customer lists to Mitchell agents and halted its practice of telephone "cold calls" to bank customers with maturing certificates of deposit.

It is unclear whether Barnett's early entry into annuities sales will give it an edge over its rivals. First Union, NationsBank, and to a lesser extent SunTrust Banks Inc. have all gained experience in annuity sales elsewhere that they should be able to import quickly to the state.

For now, Florida's banking institutions are focused on the efforts of state regulators to fashion rules governing how banks will sell annuities. The regulatory effort is a unique collaboration between the state Department of Insurance and the Florida Comptroller, whose office oversees the Department of Banking and Finance.

The two agencies issued draft rules March 10, held a public hearing March 17, and invited public comment until the end of March. While the final rules had not been released by press time, bankers were less than ecstatic about limitations proposed in the draft.

At the public hearing in Tallahassee, the state capital, and in interviews, bankers complained that the draft rules would place too many constraints on bank sales of annuities.

The rules, for example, appear to require banks to sell annuities through separate subsidiaries - a structure that would prove costly to smaller banks. The rules also strictly define who can be paid commissions on the sale of an annuity, and that could make it difficult to permit the sharing of fees between a selling agent and the host bank.

Less clear, but still of concern to banks, is a proposed requirement that licensed annuity agents must work in separate quarters within a bank branch. That would likely mean that insurance agents, like sellers of mutual funds, must simply be in a distinct area to make it clear to customers that they are not buying federally insured investments.

John Milstead, executive director of the Florida Bankers Association, said bankers are keen on getting into annuity sales. But they are not happy that new state comptroller and bank regulator Robert Milligan is sharing regulatory control over annuity sales with the state insurance department.

Insurance regulators would oversee the relationship between licensed annuity sales people and financial institutions, while bank regulators would focus on the adequacy of consumer disclosure in annuity sales, confirmed Doug Johnson, assistant director of the state division of banking.

If there's a curveball lurking in all this, it's in the hands of Florida's insurance industry.

State insurance and banking regulators have endorsed banks' right to sell annuities, but insurance lobbyists in Florida contend that the Supreme Court decision in the Valic case does not clear the way.

"We don't agree with the state's interpretation of the Valic case," said Herbert Morgan, director of the Florida Association of Life Underwriters, a Tallahassee-based trade association. The group is one of several insurance organizations that is watching court cases elsewhere in the country that may still raise doubts about the right of banks to sell annuities.

"We're trying to determine just what is our legal course," Mr. Morgan said.

Tom Cardwell, general counsel for the Florida Bankers Association, acknowledged that the opposition of state insurance groups, conflicting litigation, and even a possible congressional debate over McCarran-Ferguson - the law which cedes regulation of insurance to the states - could throw a monkey wrench into the effort to move Florida banks into annuity sales.

But Mr. Cardwell remained optimistic. "There is a high degree of interest among financial institutions, and not just the big banks," he said, "to expand into annuity sales in Florida."

Mr. Trigaux is a staff writer for the St. Petersburg Times in Florida.

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