Rivals For Wachovia Take Different Insurance Approaches

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Two rival financial institutions competing to take over Winston-Salem, N.C.-based Wachovia Bank take strikingly different approaches to insurance sales.

As the rivalry heats up between SunTrust Banks Inc., in Atlanta, and First Union Corp., in Charlotte, N.C., it remains unclear how each would integrate Wachovias existing insurance business into its own operations.

It would appear, however, that SunTrust Banks Inc. would have by far the bigger adjustment to make if it won the battle for Wachovia. It has a relatively small insurance operation, built from scratch, offering a modest selection of products to its customers.

If it acquires Wachovia, however, SunTrust would suddenly find itself a big player in bank insurance in the southern United States.

First Union, on the other hand, takes a similar approach to Wachovia in building insurance operations, by acquiring existing agencies in its major markets.

Wachovia and First Union decline to cite dollar figures for their insurance sales, but their aggressive agency acquisition strategies over the past two years suggests that merging their operations would create a major entity.

“They are two of the largest bank-insurance operations in the country,” says Kenneth Kehrer, head of Kenneth Kehrer Associates, Princeton, N.J.

Life insurance products sold by SunTrust Insurance Services include credit insurance, term insurance and accidental death policies, underwritten by Aegon N.V. It also sells juvenile and senior life insurance products through direct mail and telemarketing of products from GE Capital and the Assurant Group.

For investment-type products, the bank has a referral agreement with Sagemark, the financial planning division of Lincoln National Life Insurance Company, Philadelphia.

“We partner our wealth-management bankers with fee-based financial planners at Sagemark,” explains Michael A. Kinsey, chairman, president and CEO of SunTrust Insurance Services, a traditional insurance agency that the bank established in-house four years ago. “When we complete an estate plan for our customer, we offer to arrange a joint meeting with our wealth-management people and Sagemark experts to sell other financial products.”

Kinsey says the bank sees a “tremendous opportunity” in life insurance and that it already had plans to go after the small-business market for life products before it decided to pursue Wachovia.

Wachovia has purchased insurance brokers in North Carolina, Florida and Georgia in the past few years.

First Union has bought agencies in New Jersey and Virginia in the past year. It also bought Pivot, an online agency in Columbus, Ohio.

“Weve been growing, compound, in excess of 35%, maybe 40% a year for the past five years,” says David de Gorter, president of First Union Insurance Group.

De Gorter says he has known David Holton, head of Wachovia Insurance Services, for years.

“We have a great relationship,” says de Gorter. “Were friends. I think both of our strategies are very complementary, which I think is one of the benefits of this deal. We both focus on the distribution side. Its almost as if we were reading each others playbook.”

Details of how the two operations would be merged have not been worked out, de Gorter says.

“I expect the strategy will be more of the same, to look at distribution opportunities in the commercial/employee benefit side, strengthen the Internet operation [Pivot]. It will be a greatest-hits approach, taking the best from each and coming up with a killer strategy.”

De Gorter says that both G. Kennedy Thompson, chairman, president and CEO of First Union, and L. M. “Bud” Baker Jr., chairman, president and CEO of Wachovia, want to make insurance a major line of business.

Although declining to compare the rival offers due to a lack of information, an analyst with Moodys Investors Service, New York City, says it appears at first glance that the SunTrust offer would make a good deal of business sense.

“In a competitive landscape, size, product range and franchise value would make SunTrust-Wachovia very competitive,” observes Les Muranyi, a vice president of Moodys.

The combination would have a significant retail client base, he adds. “It would be a natural outlet to sell insurance products.”

After Wachovias board rejected its offer, valued at about $13.7 billion, last month, SunTrust filed suits in both state and federal court in Georgia against Wachovia and First Union, challenging the legitimacy of their merger agreement, valued at $12.9 billion.

Among other items, SunTrust challenges a $780 million breakup fee that Wachovia would pay First Union if it were bought by another bank.

SunTrust submitted its rival bid to Wachovia May 14, under which Wachovia shareholders would receive 1.081 shares of SunTrust common stock for each Wachovia share. In addition, SunTrust would increase its annual per share dividend to $2.22 so that Wachovia stockholders would receive on a pro forma equivalent basis the same $2.40 annual per share dividend they currently receive.

Wachovia and First Union filed a countersuit in state court in Georgia, charging that SunTrusts public statements about the dispute violated a confidentiality agreement it had with Wachovia last year, when the two companies secretly engaged in unsuccessful merger talks.


Reproduced from National Underwriter Life & Health/Financial Services Edition, June 11, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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