Mixed Direction for Banks in Insurance, Reagan Team Tells Leading Independent Brokers

May 28, 2008

Meg Allwein: (614) 734-6058

Mixed Direction for Banks in Insurance, Reagan Team Tells Leading Independent Brokers

COLUMBUS, Ohio (May 28, 2008)—The banking industry has experienced mixed results in property/casualty insurance ventures, and smaller banks may drive the next round of agency acquisitions.

These projections were among those recently made at the annual meeting of Assurex Global Partners, the world's largest independent insurance brokerage, by Kevin Stipe and Jim Campbell, senior vice presidents with Atlanta-based Reagan Consulting.

Banks own an 8% market share in the commercial property-casualty market, the consultants noted. Some 500 banks have invested a total of $5 billion in agencies, and 11 of the top 50 agencies now are bank-owned.

Some banks, however, have divested of agencies. Reasons vary: Some acquired agencies that proved to be under-achievers; other agencies were too small to make a meaningful contribution to the bank's financial performance; and some bank-owned agencies were inherited by new ownership and subsequently sold.

Some bank boards of directors are scrutinizing their agency acquisitions in light of a softer market and historically modest results in cross-selling, Stipe said. So with the exception of large, active banks, such as BB&T and Wells Fargo, most are being "more selective, more cautious, and more realistic on cross-sale projections."

Stipe added: "If you're a banker, the insurance business looks good when you have good numbers and you have a tailwind. But today it's a very different look."

Despite market difficulties the vast majority of banks in the business remain committed to insurance, Campbell pointed out. And some are seeing 50-60% of non-interest income derived from insurance sales. "There is a myth that banks get into this business for cross-selling. But most get in to drive non-interest revenue," he said. "Banks are struggling with their core business. They need new sources of fee-based income. And, unlike with business lines such as mortgage origination and securities brokerage, with insurance you don't have to re-create revenue every year."

Stipe suggested that acquiring banks run the risk of taking the middle-market commercial account for granted. To sell to this market, savvy independent agents and brokers build strong goodwill created over time. "Relationships in the middle market are where value is created in your business," he said to the Assurex Global Partners. "And if banks can tie in ownership for the producers out there who are creating value, they have a very good business model. That's a major source of competitive differentiation—producers who enjoy the culture and have an opportunity for ownership.

"But if the firm is owned by some Wall Street trust or venture capital firm, in my experience, over time you have a dissipation of the competitive drive of that agency in that marketplace," Stipe added.

Banks generally have had "a real education," Campbell said. "Ten years ago, they didn't understand the market cycles in this business."

Campbell did not predict a return to the heyday of purchases of the early 2000s over the next five years, but the number of deals is expected to increase with a smaller average deal size. "Banks with less than $1 billion in revenue are under a tremendous amount of pressure to do something," he said. "They won't hunt big game. They will look for small or mid-sized agencies."

About Assurex Global: Founded in 1954, Assurex Global has 113 Partner firms with more than 500 offices in 80 countries. With more than $23 billion in annual premium volume, Assurex Global is the world's largest privately held risk management, commercial insurance and employee benefits group. For a complete listing of Assurex Global Partners, or for more information, visit