ABA Banking Journal - September 2009 - (Page 34)
SPECIAL REPORT: BANKS IN INSURANCE Next round will go to the small banks Changed landscape now favors community banks to pick up the slack in agency acquisitions A decade ago, the banking industry was captivated by its prospects in the insurance brokerage business. And rightly so. Years of battling for the opportunity to sell insurance were finally paying dividends. To seize this opportunity, banks began aggressively buying insurance agencies. By 2000, banks were the most active acquirers in the market, completing 78 deals, or nearly 40% of all agency deals announced that year. Among those leading the way into the promised land of insurance sales were large banks including BB&T, Wells Fargo, First Tennessee, and Citizens Financial Group. Expectations soared. Today, however, the landscape has changed, and bank insurance momentum has slowed (Exhibit 1). The capital crisis that has gripped the banking industry over the past couple of years has made agency acquisitions difficult for some banks. However, By Jim Campbell, principal and senior vice-president of Reagan Consulting, Inc., www.reaganconsulting.com, where he leads the firm’s banking industry practice. firstname.lastname@example.org (404) 233-5545. 34 SEPTEMBER 2009/ABA BANKING JOURNAL the beginning of the slow-down pre-dates the full force of the credit crisis and can be traced to a sequence of setbacks that unfolded over the past half-decade. Soft prices sap momentum The first setback for bank-insurance began in 2004 as property and casualty insurance pricing began to soften. As softening prices slowed agency growth and suppressed investment returns, bank boards began to reassess their agency acquisition strategies. Enthusiasm for more deals waned. By 2005, the banking industry’s share of the agency acquisition market had plummeted to 21.1% or roughly half its peak level reached three years earlier. The following year, as banks tried to mount a comeback in the agency acquisition market, they encountered a second setback. The competitive situation had changed. The public insurance brokers, needing to supplement their woeful organic growth in a persistent soft market, were highly-motivated buyers. In addition, private equity was on the hunt and willing to pay premium prices. With the increased aggression of these two segments, banks had lost the pricing advantage they previously held and Subscribe at www.ababj.com
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