In a fresh signal that insurance companies are intrigued by banks' sales potential, a Minneapolis underwriter has signed a deal to buy a firm that provides brokerage services to nearly 600 community banks.

Reliastar Financial Corp.'s $15.5 million purchase of Primevest Financial Services in St. Cloud, Minn., is expected to close in late October, pending regulatory approval.

The acquisition would sharply boost Reliastar's profile in banking circles. Primevest, which concentrates on banks with under $500 million in assets, sold $2 billion in stocks, bonds, mutual funds, annuities, and life insurance through banks last year, according to American Brokerage Consultants in St. Petersburg, Fla.

Banks accounted for only $100 million of Reliastar's total $1.4 billion in sales in 1995. Although it began pitching annuities through banks two years ago, most of its business is in life insurance sales through about 2,000 agents.

The deal for Primevest comes in the aftermath of a series of legal decisions striking down barriers to bank sales of insurance, and is the latest in a string of moves by insurance companies to crack into the bank channel.

It echoes Allstate Life Insurance Co.'s acquisition last year of Laughlin Group of Companies, a Beaverton, Ore., brokerage that markets its wares through 150 community banks. In addition, several large insurance companies - among them Metropolitan Life Insurance, Co., Travelers Group, and New York Life Insurance and Annuity Co. - have set up units to cater to banks.

Reliastar sees banks as a growing market for customers who demand one- stop shopping for financial services, said James R. Gelder, the company's vice president of financial markets.

"The acquisition of Primevest clearly opens a distribution channel for us," Mr. Gelder said. "We're on the threshold of an opportunity here."

Mr. Gelder said Primevest's appeal was that it didn't have just "one prescribed way to serve its bank clients." Instead the company customizes for its bank clients various brokerage programs.

Nearly 400 banks use Primevest to manage a discount brokerage, and just over 200 contract with the company to manage a full-service operation selling individual securities, mutual funds, annuities, and life insurance.

Primevest's chief executive, Stephen Fischer, would not disclose 1996 sales figures, but said his revenues this year would double last year's production.

Mr. Gelder emphasized that though Reliastar was "looking for shelf-space for our products," the company will allow Primevest's 465 sales representatives to sell insurance or mutual funds of competing companies.

"We do not plan any significant changes in the way Primevest does its job. This is not viewed (by Primevest's clients) as any unsettling event," Mr. Gelder said.

Primevest is owned by Kinnard Investments Inc., a brokerage in Minneapolis. Kinnard was hoping the sale would boost a languishing stock price, said its chairman, Hilding Nelson. At $6, the stock had been trading "a little less" than its book value, Mr. Nelson said. The stock jumped 12.5 cents to $6.25 at the end of Monday.

Mr. Nelson added that Kinnard could not afford to provide Mr. Fischer with support to add services to Primevest's menu without taking a hit to earnings. And Mr. Fischer added he needed a larger company to expand new cash management and mortgage services.

Primevest contributed about 20% to the company's bottom line for the first six months of 1996, Mr. Nelson said. Calling Primevest "probably one of the few profitable third-party marketing firms," Mr. Nelson said, "I'm emotionally attached to it; I hate to see it go."

Kinnard acquired Primevest in 1991 for less than $1 million from Bank System Inc., a St. Cloud company that supplies the forms that banks use for opening savings accounts and loan applications.

"It was a steal at the time; they were sitting on 600 bank clients, a gold mine," recalled consultant Richard Ayotte, managing director of American Brokerage Consultants.

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