Although data on bank sales of insurance products in 2001 are not yet available, indications are that they are strong and may even have seen a surge following the calamitous events of 9-11, industry observers say.
However, for the time being at least, banks’ interest in acquiring insurance agencies appear to have been quelled by economic realities as well as the World Trade Center and Pentagon attacks.
SNL Securities, a financial services research firm in Charlottesville, Va., reports 51 bank-agency deals completed in 2001, well down from 77 deals last year.
Bjorn Turnquist, director of financial services and insurance for SNL, says the development is part of a merger and acquisition slowdown affecting most industries.
“M&A is not viewed by the Street favorably right now,” Turnquist observes.
John Wepler, a consultant with Marsh, Berry & Company, Concord, Ohio, believes that, with banks and insurance companies preoccupied with the aftermath of 9-11, acquisition strategies have gotten pushed to the back burner.
Recent economic news was another distraction, he notes.
Another reason for the fall in agency buying is the uncertainty that developed this year among banks about how an agency acquisition would look on their books. That concern arose after the Financial Accounting Standards Board mandated an end to pooling-of-interest accounting in favor of purchase accounting. That change left a question among acquisition-minded banks about what portion of an agencys purchase price would be charged against the banks earnings, Wepler observes.
Despite the drop in M&A deals this year, Wepler predicts that there will be a spike in agency acquisitions by banks early in 2002 as these changes are absorbed.
He notes that while actual deals have slumped, there has been a surge in agency evaluations, often a precursor to a deal announcement.
Banks still need to diversify revenue, he adds, and acquiring an agency is a fast way to position themselves as a total financial solution, particularly among medium-sized businesses and their wealthy owners, he notes.
Another aspect of the M&A slump is that insurers interest in buying banks has fallen considerably.
For instance, the federal Office of Thrift Supervisions reports there were no new applications for thrift charters by insurance companies this year. In contrast, insurers filed a total of 45 applications to establish or buy a depository institution from 1997 through 2000, out of a total of 220 applications the OTS received from all sources.
M&A activity aside, it seems clear that insurance will continue to grow as part of banks business. They are continuously introducing a greater variety of offerings while targeting customers that represent the potential for large fees and commissions, industry observers say.
“Banks that were traditionally selling flavor-of-the-month term policies are taking a look at more cash-value products,” says Valerie Jordan, a bank-insurance consultant in Belchertown, Mass. “You see more universal life sales than in the past because of the stock market, while variable products took a nosedive.”
Although final figures are not yet in for 2001 on sales of insurance products, industry experts predict they will be strong in most categories, aside from variable products.
Fixed-rate annuities had a banner year and should continue to do well, experts say.
Bank fixed annuity sales might hit $25 billion this year, a two-thirds increase over last year, reports Kenneth Kehrer, head of Kenneth Kehrer Associates, Princeton, N.J.
By the end of the third quarter, fixed annuities had hit $18.4 billion in sales, already well over the $15.4 billion reported for all of 2000.
On the other hand, investors had spent only $8.4 billion on VAs in banks by the end of the third quarter of 2001, putting VA sales on a pace well shy of the $15.6 billion in total sales for these products recorded in 2000.
Looking ahead, banks are planning to begin distribution of a number of insurance products new to them.
A new survey by the American Bankers Insurance Association, Washington, finds that 15.4% of banks plan to begin distributing term life insurance for the first time within two years, while 14.9% expect to offer whole, variable or universal life products. In addition, 14% expect to begin offering long-term care products within the next two years.
Larry Altman, a consultant with Booz Allen, New York City, sees banks continuing to push into insurance for their commercial clients, particularly in employee benefits.
Still, banks still have to convince their customers that one-stop shopping for financial products makes a lot of sense.
“There remains some customer skepticism for buying financial products from an all-in-one source,” Altman says.
Banks will still push to broaden the lines of insurance they offer, however. “They are under pressure in their traditional lines of business. Revenue on asset management products and services declined, so they are looking for a new revenue stream,” Altman says.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 24, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.