When Nationwide Financial Services Inc. decided to round out its distribution with a group of career agents, it could have trained its parent company's property/casualty agency force to sell more life insurance and annuities or built its own force from the ground up.
It rejected both ideas. Instead, in a deal announced Wednesday the Columbus, Ohio, insurer will spend $1.56 billion to buy Provident Mutual Insurance Co., whose 770 career agents specialize in life insurance, annuities, and investment products.
Joseph K. Gasper, Nationwide Financial's president and chief operating officer, said it sought the deal because it wanted to have a career agent distribution channel dedicated to life insurance and annuity products.
"We have somebody who runs the bank channel as a business, dedicated to banks' needs and banks' culture, and we have somebody who does the wire houses. Now we'll have a management team that does nothing but build career agents" for life insurance and annuity sales, Mr. Gasper said. Those products are advice-intensive, he said, "and selling them is a full-time job."
Nationwide Financial's parent company, Nationwide Mutual Insurance Co., already has 4,200 career agents, but they sell primarily property/casualty insurance and account for only 5% of Nationwide Financial's life insurance and annuity sales.
"Look at State Farm, Allstate, and Nationwide - the big three property/casualty companies," Mr. Gasper said. "As hard as we've tried to sell life insurance through property/casualty agents, it just doesn't work."
Nationwide Financial, which reported revenues of $3.2 billion in 2000, was No. 2 in bank sales of variable annuities and No. 9 in fixed annuities last year, according to consulting firm Kenneth Kehrer Associates, in Princeton, N.J.
Provident, based in Berwyn, Pa., had revenues of $748 million last year. It specializes in selling life insurance, retirement, and investment products to businesses and the wealthy. Its agents are concentrated in Pennsylvania, New York, New Jersey, Massachusetts, California, and Texas.
In a conference call with analysts, Jerry Jurgensen, the chairman and chief executive officer of Nationwide Financial, said that Provident's agents would provide specialized expertise, which is better than "than turning every agent in America into a renaissance salesperson."
Robert W. Kloss, Provident's chief executive officer, said that after the deal closes his company would expand its offerings to include Nationwide Financial's brand, including its variable annuity and corporate-owned life insurance products.
Provident would keep its name and would retain a separate identity and management, in line with Nationwide Financial's strategy of running each of its distribution channels separately.
Nationwide Financial is also interested in 1717 Capital Management Co., Provident's full-service broker-dealer, which serves clients of financial planners. Nationwide Financial, which already has broker-dealer distribution, is looking at linking 1717 with some of its other channels.
The deal is structured as a sponsored demutualization: Provident would demutualize, and Nationwide would buy 100% of Provident's stock. Eligible Provident policyholders would receive shares of Nationwide Financial common stock, cash, and policy credits.
Nationwide Mutual Insurance Co., which has $117 billion of assets, owns about 80% of Nationwide Financial, but this transaction would reduce its share to about 68%.
Stephen Schwartz, and analyst with Raymond James & Associates, said that Provident brings distribution as well as a strong variable life insurance business, which is currently a growth line.
The deal is expected to close in the second quarter of 2002, depending on approvals from the Pennsylvania Department of Insurance and a policyholder vote.
