Bank Holding Company Insurance Revenue Drops 5.7%

May 16, 2011

The nation’s bank holding companies (BHCs) experienced a decrease of 5.7 percent in their total insurance revenue from a record $15.08 billion in 2009 to $14.21 billion in 2010, when MetLife, a traditional life insurance company, is excluded. Total insurance income consists of both insurance brokerage and insurance underwriting fee income.

Citigroup, Inc. (NY), Wells Fargo & Co. (CA) and Bank of America Corporation (NC) led all bank holding companies in total insurance income in 2010, according to findings released today by Michael White Associates (MWA) and sponsored by American Bankers Insurance Association (ABIA). The findings are based on data reported to the Federal Reserve Board by large top-tier BHCs. The analysis measures the banking industry’s insurance business and provides some benchmarks that gauge bank insurance performance.

“Total insurance revenues include both insurance brokerage and underwriting,” said Valerie Barton, ABIA executive eirector. “On the whole, brokerage managed to grow, albeit somewhat unevenly, at a rate of 6.0 percent in 2010, excluding MetLife. Fortunately, for every institution where insurance brokerage income was down, another was up.”

What hurt the industry in particular in 2010 was a widespread decline in underwriting, as 46 of 68 BHCs engaged in underwriting reported a drop in that income, Barton says. “Nonetheless, overall, the prospects for a resumption of long-term growth in bank insurance revenues seem positive.”

During 2010, 595 bank holding companies (or 65.3 percent of all large top-level BHCs reporting) earned some type of insurance-related revenue. Including MetLife, total BHC insurance revenue increased 1.1 percent from $47.24 billion in 2009 to $47.74 billion in 2010. Excluding MetLife, total BHC insurance income was $14.21 billion in 2010, down 5.7 percent from $15.08 billion in 2009.

“Bank revenues from insurance activities made another decent showing in 2010, despite continued rough spots in the economy and a seemingly unending soft property/casualty market,” said said Michael D. White, president of MWA. “Among the top 50 in insurance revenue, the mean ratio of the concentration of total insurance revenue to noninterest income was 17.2 percent in 2010. Among the top 50 in this Concentration Ratio, the mean was 42.5 percent.”

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 the concentration of total insurance revenue as a percentage of each institution’s total noninterest income.

Other findings include:

Joining the top 50 in total insurance revenue in 2010 were RBC USA Holdco Corp. (NY), First Niagara Financial Group (NY), Two Rivers Financial Group (IA), Doral Financial Corp. (PR), and Valley National Bancorp (NJ). RBC USA Holdco became the new top-tier U.S. bank holding company in the Royal Bank of Canada (RBC) organization in 2010, replacing RBC’s previous U.S. high-holder, as the bank reorganized the ownership-structure of its U.S.-based holdings, including insurance. First Niagara was formerly a thrift and consequently did not report insurance income as a line item in its call reports to the Office of Thrift Supervision (OTS). Two Rivers Financial was previously a small bank holding company and, thus, exempt from reporting line item fee income like insurance.

Among the top 50 nationally and those BHCs reporting data in 2009 as well as 2010, RBC USA Holdco (NY) increased its predecessor’s rank in total insurance income the most, having jumped from 243rd place at the end of 2009 to 11th by year-end 2010. The report states the rise in total insurance income is due to a reorganization of RBC entities that were not previously part of a top-tier U.S. BHC. Doral Financial (PR) jumped 10 spots from 53rd to 43rd place, Stifel Financial ascended 6 places from 34th to 28th ranking, and Valley National Bancorp (NJ) climbed 5 spots from 54th to 49th place in the rankings.

Source: Michael White Associates

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