Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 26, 1995 TAG: 9502240028
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Long
The push is coming from a recent decision by the U.S. Supreme Court in a hot battle between the banking and insurance industries. The banks won.
The high court held that annuities are investment products, not a form of insurance, so they can therefore be sold by banks as well as by agents for insurance companies. Annuities are contracts that guarantee payment of sums of money at specific intervals, generally during retirement.
Now the long feud between the industries has shifted to the states and Congress because banks want the power to become full-service insurance agencies as well. In Congress, there is a move to change the McCarran-Ferguson Act, which limits banks to selling insurance products in towns of less than 5,000 persons - too small, presumably, to support an insurance agency.
But states vary in their rules about whether banks can sell insurance even in small communities. Some, including Virginia, permit the practice. Others, such as Florida, forbid competition from the banks.
In a decision reached Jan. 30, a federal appeals court in Atlanta, sitting in a Florida case, threw out a challenge by Barnett Bank of Marion County to Florida's law, which bans banks there from selling any insurance products anywhere.
But another federal appeals court, this one hearing a Kentucky case, decided just the opposite on Dec. 29. On a petition by several banks in small towns in Kentucky, that court ordered the state insurance commissioner to allow the banks to sell insurance.
The conflict between the circuits might well set up another hearing before the nation's highest court as to whether states can pre-empt federal law on this subject.
But annuities legally are investment products, and banks are making plans to push them to their customers even though in Virginia they have been selling annuities for a long time.
That's because most large Virginia banks are state-chartered. And the national banks - NationsBank and First Union National Bank of Virginia - were grandfathered because they sold insurance before enactment of McCarran-Ferguson.
NationsBank, which was a party to the Supreme Court case, has sold annuities for years through a subsidiary now called NationsSecurities. Ellison Clary, spokesman for the bank at Charlotte, N.C., said they were sold only in Virginia and the Carolinas where there is "no question of state laws clouding the issue."
Clary said NationsBank is happy with the ruling that "put the matter to rest" because annuities are "part of what banks should be able to offer."
Two teams of NationsBank people are at work on the question.
One team is composed of lawyers who are "going over the ruling in detail," Clary said.
Marketing people are on the other team which is deciding the best way to offer securities and do it on a wider scale.
NationsBank will have more to say about annuities next month, Clary reported.
In one sense, Clary conceded, banks will be competing with themselves in selling annuities - which are not federally insured - to customers who otherwise might invest in certificates of deposit or other traditional bank products.
But NationsBank wants "to be a one-stop financial services center" offering as many different products as possible, Clary said. "Our research has shown that customers like that."
Bob Wick, vice president in charge of annuity sales for First Union Insurance Group, said it has been selling annuities throughout its multistate system except in Florida, where it is watching the Barnett case closely.
Like brokerage services, First Union markets its annuities through the branch bank system using licensed investment counselors.
First Union now sells products "manufactured" by insurance companies, Wick said, but the company is in the process of developing its own annuities just as it has mutual funds. The company plans, in fact, to offer annuities wrapped around its own mutual funds as the form of underlying investments.
Of $81 billion in annuity sales, Wick said, $18 billion has been sold by banks.
"There's a big, big demand for sale of annuities through banks," Wick said. He sees them as an enhancement for customers, while the banks earn a commission on sales.
Wick pointed out that the return on annuities is market driven, moving inversely to the direction of interest rates except that they move more slowly.
Jim McCoy of Signet Financial Services said Signet Bank has owned an insurance agency since 1939, long before passage of the McCarran-Ferguson Act. Its agency sells products of three or four insurance companies and, like any other agent, earns a commission.
Signet, like other banks, sells through licensed personnel in its branches.
He estimated that banks sell 25 percent of all fixed annuities and a lesser amount of variable annuities. Signet's variable annuities, where the earnings vary with the performance of the chosen investment, are primarily products that invest through Fidelity Funds.
Bank selling heightens the public awareness of annuities, McCoy said, and they go hand-in-hand with other types of investments in creating personal financial portfolios. When people walk into a bank, he said, they want all types of investments available.
Annuities and mutual funds, he said, have developed into a big business for banks.
Signet is grandfathered into selling all types of insurance as well, McCoy said, but now the battle looms over whether the state or federal governments will regulate such business.
Crestar Bank also owns a grandfathered agency, according to Bayne Northern of Crestar Securities Corp. It has been offering annuities through an insurance company.
Annuities, Northern said, meet the needs of some bank customers for tax-deferred investments that pay income in retirement.
Susan Mistr, spokeswoman for Central Fidelity Bank, said it sells annuities through insurance companies. Mistr said the bank has no plans to make any changes in light of the Supreme Court decision.
by CNB