Banks’ Total Insurance Revenue Dipped; Brokerage Income Rose in ’06

April 10, 2007

The nation’s bank holding companies (BHCs) experienced a slight decline of 1.3 percent in their total insurance revenue from $44.1 billion in 2005 to $43.5 billion in 2006. Citigroup, Inc. (N.Y.), Wells Fargo & Company (Calif.), Countrywide Financial (Calif.), HSBC North America Holdings (Ill.), and BB&T Corp. (N.C.) led all bank holding companies with significant banking activities in total insurance fee income in 2006, according to findings released by Michael White Associates (MWA) and the American Bankers Insurance Association (ABIA).

The findings are based on data reported to the Federal Reserve Board by top-tier BHCs. The analysis measures the banking industry’s insurance business and provides some benchmarks that gauge bank insurance performance.

“While the industry’s insurance underwriting activities registered a decline of 5.2 percent, its insurance brokerage fee income continued growing, increasing 10.6 percent in 2006. Among the top 50 in insurance revenue, the mean ratio of insurance revenue to non-intererest income was 14.8 percent in 2006,” said Michael D. White, president of MWA. “So, insurance activities continue to make increasingly meaningful contributions to banking revenues.”

During 2006, 656 bank holding companies (or 67 percent of all top-level BHCs reporting) earned some type of insurance-related revenue, compared to 1,428 in 2005. (Fewer bank holding companies reported total insurance revenues in 2006 because the Federal Reserve redefined “small” BHCs as those with less than $500 million, instead of $150 million, in consolidated assets. This reduced the total number of BHCs that must report Banking’s detailed fee income information by 1,317 and the number of BHCs that reported total insurance fee income in 2006 by 791.)

“While insurance underwriting income has grown at a compound annual rate of 3.1 percent since 2001, insurance brokerage fee income has been racing upward at a compound yearly average of nearly 20 percent during that same period,” said Valerie Barton, ABIA executive director. “Its growth was slowed in 2006 by softening of property-casualty premiums and declines in some agencies’ contingent commissions. Insurance brokerage remains healthy, and the prospects for continued growth in bank insurance revenues are very positive.”

The analysis includes a ranking of the top 50 bank holding companies on the basis of the absolute dollar amount of total insurance revenue (earnings from sales and underwriting) and on the basis of total insurance revenue as a percentage of the institution’s total noninterest income. Other findings include:

BHCs’ insurance brokerage fee income increased 10.6 percent from $10.98 billion in 2005 to a record $12.14 billion in 2006, as 656 bank holding companies (or 67 percent of all top-level BHCs reporting) engaged in sales activities that produced insurance brokerage fee income.

Joining the top 50 in total insurance revenue in 2006 were First Charter Corp. (N.C.), CoBiz, Inc. (Colo.), Susquehanna Bancshares, Inc. (Pa.), Bremer Financial Corporation (Minn.), and The South Financial Group (S.C.). Sky Financial Group, Inc. (Ohio) increased its rank in total insurance income the most, having jumped from 41st place at the end of 2005 to 20th by year-end 2006. Capital One Financial Corp. (Va.) and The South Financial Group (S.C.) also jumped fairly dramatically, rising 14 spots and landing respectively at ranks of 26th and 50th.

Sources:
The American Bankers Insurance Association (ABIA) www.theabia.com.

Michael White Associates (MWA)
www.BankInsurance.com.

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