Ethyl Corp., the Richmond-based manufacturer of gasoline additives, announced yesterday the acquisition of First Colony Life Insurance Co. for $270 million.

First Colony stockholders will receive $50 cash per share and a half share of Ethyl preferred stock, which will pay $4 a share annual dividend. It will be redeemable five years after issue at $40 per share.

Based on an initial market price of $35 per share of Ethyl preferred, First Colony puts the value of the transaction at $67.50 a share of its common stock.

First Colony, a fast growing insurance firm based in Lynchburg, Va., had sought a merger partner in order to continue its expansion. It is one of a growing number of mergers in the industry, according to the American Council on Life Insurance.

Ethyl said that First Colony will continue to operate under the same management as an unconsolidated subsidiary.

Ethyl's chairman, F. D. Gottwald Jr., stated, "While the acquisition of all of First Colony's outstanding stock will dilute Ethyl's earnings somewhat initially, we believe First Colony will maintain its impressive growth rate and become one of Ethyl's largest divisions."

During the past five years, First Colony's amount of insurance in force rose from $2.5 billion to $10.8 billion. An innovative company, it was among the first to introduce new products such as universal life and retired lives reserves insurance.

For the first nine months of 1981, First Colony had earnings of $10.5 million, compared with $7.9 million in the same period in 1980. It writes insurance in 49 states. First Colony also has interests in oil properties in California.

Ethyl is a diversified high-technology producer of chemicals for the oil industry, plastics and aluminum products. It is involved in the development of oil, gas and coal resources, and the acquisition of First Colony represents something of a departure from Ethyl's usual lines of diversification.