American General Corp.'s decision to buy an insurance company specializing in bank sales of fixed annuities could help the company crack the bank distribution channel.

Last month's deal calls for American General, a financial services company that is a big seller of variable annuities, to acquire the 55% of Western National Corp. that it does not already own.

The $1.2 billion merger of the two Houston companies would create the nation's third-largest seller of annuities. And it would open the door for American General to sell variable annuities and possibly other insurance products through banks.

Western National is the biggest seller of fixed annuities through banks. It has relationships with 200 institutions, including First Union Corp., Charlotte, N.C.; First of America, Kalamazoo, Mich.; and Fleet Financial Group, Boston.

"It's our role in this to grow American General's presence in the financial institution distribution channel," said John Graf, vice chairman of Western National. "It's a growth segment that up until now they've not really taken advantage of."

American General, a big seller of qualified products like 401(k) plans, needs a distribution channel to reach retail customers. Banks will fill that role nicely, said Nicholas R. Rasmussen, senior vice president of corporate development at American General, which is the seventh-biggest annuity seller.

"We're trying to do something in the fastest-growing area in the insurance business," said Mr. Rasmussen, referring to the burgeoning market for variable annuities. Banks "are becoming a more important rather than less important distributor of annuities in the nonqualified market. Our expectation is, for the next several years at least, that's where you're going to see the highest growth."

American General, which sells mainly through agents, sold $3.3 billion of annuities last year. Western National sold $1.6 billion.

The deal is also expected to lift Western National's claims-paying rating, which is average, to the level of American General's, which is above average, said Kenneth Kehrer, an insurance consultant in Princeton, N.J. The ratings indicate how equipped an insurer is to pay claims.

"It strengthens Western National's hand," said Mr. Kehrer. "One reason some banks haven't adopted their proprietary products is because of concern about ratings."

Western National has overcome its middling rating largely through the introduction two years ago of an annuity for which it lets banks manage the assets.

"That's really helped them gain market share at the expense of the competition," said Mr. Kehrer. "Now they're way ahead, and they're pulling away."

Western National sold $920 million of fixed annuities in the first half. Its closest competitor, Aegon USA, sold $575 million. And Western National had barely beaten out Aegon last year for the No. 1 spot.

Mr. Rasmussen said American General will consider letting banks manage the assets in its variable annuities. His company has had limited and unsuccessful experience with banks.

In the early 1990s American General forged a deal under which Great Western would sell American General's variable annuities and manage the assets. That deal has amounted to little, said Mr. Rasmussen.

Aside from annuities, American General sells a full range of life insurance products and makes loans through its consumer finance unit.

The merger is a friendly one. Michael J. Poulos, chairman of Western National, was once vice chairman of American General, where he mentored Robert M. Devlin, now American General's chairman. Mr. Poulos will join the American General board.

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