TUCSON, Ariz. - Last year's down market dampened investment product sales, but the mood was anything but somber as insurance executives gathered here to discuss their variable annuity business through banks.

The executives, attending a conference sponsored by the National Association for Variable Annuities, were told that banks' sales of the tax- deferred investment products were $3.75 billion last year. That's up from $2.82 billion in 1993, when fewer banks were in the business.

What's more, banks' share of variable annuity volume, now at around 7%, will soar to 20% by the end of the decade, said Rick Carey, editor of the Variable Annuity Research Data Services Report, which tracks variable annuity data.

Spurred by consumer demand, even more banks will sell proprietary products and annuities offered by outside vendors, Mr. Carey said.

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Longtime banker Michael D. Diver turned up at the conference, representing the other side of the fence. Mr. Diver, who was president of U.S. Bancorp's brokerage until a management shake-up last fall, is now a wholesaler for Wood Logan Cos., an investment company based in Greenwich, Conn.

As a regional vice president, Mr. Diver is in charge of getting banks in Arizona, California, Hawaii, and Nevada to sell Wood Logan's mutual funds and annuities.

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The Securities and Exchange Commission has noticed banks' growing involvement with variable annuities, and is generally comfortable with the development, a top official said.

The agency, which polices the securities industry, feels the distribution of variable annuities through banks "is a good thing for investors," said Brenda D. Sneed, assistant director of the SEC's division of investment management.

But, Ms. Sneed, warned, customers must be made aware that variable annuities are backed by insurance companies, not banks.

"Investors must know who is issuing the contract," she said.

Ms. Sneed also indicated the SEC will be keeping close tabs on insurance companies' efforts.

"We're very interested in learning of your experiences in selling variable annuity contracts through banks," she said.

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The National Association of Securities Dealers is apparently well aware of industry reaction to its proposed rules for regulating bank brokerages.

The proposals, which would limit practices that bank regulators allow, have caused "a lot of consternation," said Suzanne Rothwell, the association's associate general counsel.

The proposed rules are open for comment until Feb. 15, and Ms. Rothwell urged conference goers to put their feelings down on paper.

"We need information, but not just letters that say, 'We don't like it,' " she said. "We know that already."

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The three-day conference drew 340 insurance and mutual fund executives, and about a dozen bankers. But the bankers didn't mind being outnumbered.

"This is a good way to get a look at their approach," said William A. Valerian, president of Home Federal Savings Bank, Cleveland. And, Mr. Valerian added, "You couldn't pick a better place."

Indeed, while the rest of the country was withstanding storms and record cold, Tucson was enjoying cobalt skies and temperatures in the high 70s.

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