General Electric Capital Corp.'s pending acquisition of First Colony Corp. will broaden the company's menu of choices in banks, posing a large threat to its competitors.
Through its Seattle-based insurance subsidiary, GNA Corp., the financial services giant has consistently maintained a large presence in banks, mainly as a provider of fixed annuities. Now, thanks to GE Capital's plan to purchase First Colony, GNA is set to become a specialist in term insurance - a product expected to be wildly popular among middle-class bank customers.
"It's the middle market that tends to be underinsured, underserved," said GNA chief executive Patrick Welch. "And banks are a very good vehicle to reach that type of customer."
For insurance companies, the bank marketplace resembles the Wild West, a new frontier where deep-pocketed competitors are fighting for the chance to sell their wares.
"GNA is one of a group of gunslingers out there that stands a better than average chance of doing well," said David Shapiro, an insurance consultant in Los Gatos, Calif. "They made a terrific acquisition."
Mr. Shapiro, who specializes in helping insurers design annuities, said First Colony, based in Lynchburg, Va., has done a good job customizing term products for clients.
"They certainly have the horses to develop that product in banks," he said. "They have a great machine there."
GE Capital announced plans to acquire First Colony two weeks ago for about $1.8 billion. The deal, subject to regulatory approval, is expected to close by yearend.
Founded in 1980, GNA began as a marketer of annuity products to banks. It was acquired in 1993 by GE Capital, which quickly embarked on a buying spree to broaden the company's insurance offerings and distribution outlets.
First Colony officials could not be reached for comment. But Mr. Welch said the $9.3 billion-asset company has a unique way of marketing to banks, which includes exploiting its "leadership position" in dealing with life insurance brokerages.
Life insurance brokers are independent marketers who hawk the wares of various insurance companies to independent agents. First Colony has arrangements with many to market to banks, he said.
First Colony is the sixth insurance company acquisition in three years for GE. Many of its purchases have unique product niches that banks will eventually demand as their insurance sales grow, said Richard Ayotte, president of American Brokerage Consultants in St. Petersburg, Fla.
"If GNA can pull all that together it will have more distribution through banks than it ever had," he said.
