Variable annuity wholesalers are scrambling to sign up banks in Puerto Rico following a decision by the commonwealth's insurance commissioner.

Commissioner Juan Antonio Garcia recently notified banks with a presence in Puerto Rico that they may sell variable annuities directly. Previously, the banks had to use third-party marketing firms.

"We've been approached by six or seven mutual fund companies," said Juan Guerrero, managing director of Popular Securities, the broker-dealer subsidiary of Banco Popular de Puerto Rico, San Juan.

Among the providers fighting for a place at the table are Nationwide Life, Pioneer Group, Massachusetts Financial Services, AIM Management Group, Putnam Investments, and Fortis Financial Group.

Sales of variable annuities, which are basically mutual funds with an insurance wrapper that permits tax-deferred growth, have rapidly expanded in the last few years.

But the Puerto Rican variable annuities push comes at a time when the variable business overall is at a crossroads. A law signed by President Clinton last week reduced the tax rate on capital gains, potentially making the investments less attractive, experts say.

Others-particularly those who sell variable annuities-disagree with that prognosis.

Either way, the new law should not affect the market for variable annuities in Puerto Rico. That's because capital gains taxes in Puerto Rico have long been lower than those on the mainland.

Banco Popular's Mr. Guerrero, for one, is betting that demand for variable annuities will remain high. His bank has selected Pioneer and Massachusetts Financial to provide variable annuities, and it may pick one more provider, he said.

Pioneer is particularly excited about landing Banco Popular as a variable annuity client, said Barry G. Knight, the company's vice president in charge of selling variable annuities through banks.

Until six months ago, Pioneer sold a "significant" amount of variable annuities through a third-party marketer for Banco Popular, said Mr. Knight. But then the bank formed the broker-dealer subsidiary, dropped the third-party marketer, and stopped offering variable annuities.

"Now I can get back the business I had six months ago, plus more," said Mr. Knight. He said that Pioneer is talking to five banks in Puerto Rico about carrying the company's variables.

Banco Popular intends to roll out its variable annuities next month, said Mr. Guerrero, after its brokers take a variable annuity test administered by the commonwealth.

The insurance commissioner's decision to allow banks to sell variables was based on the premise that the products are akin to investment products and therefore not subject to restrictions placed on other kinds of insurance.

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