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June 22, 2003 at 08:00 PM
Bank One Sees Big Revenue Potential In Zurich Life Deal
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Why buy the cow when you just need the milk?
Thats the objection often raised when a bank proposes acquiring an insurance company. There are easier ways for a bank to get into the insurance business, many experts argue, such as by simply contracting with insurance carriers to distribute their products.
Obviously, top executives of Bank One Corp., Chicago, beg to differ.
Late last month, they announced they had agreed to acquire most of the U.S. life insurance and annuity business of Switzerland-based Zurich Financial Group. The bank will pay $500 million for Zurich Life Insurance Company, Schaumburg, Ill.
One reason to buy this particular cow is that it produces much more than milk, says the head of Bank Ones investment unit.
“Bank One expects a significant jump in its insurance business,” says Dave Kundert, chairman and CEO of Bank One Investment Management Group, which will oversee Zurich Life.
The acquisition “gives us the ability to be a manufacturer as opposed to a middle man,” as well as “additional distribution and product capabilities we dont have today,” Kundert observes.
Zurich “gives us a full-blown manufacturing chassis of insurance and 403(b) products, and we are more interested in that than in just distributing insurance products,” he explains.
Another big plus is that Zurich Life already is registered in all 50 states, so Bank One doesnt need to undergo endless state-mandated paperwork in order to expand its insurance operations.
“Plus, we get 40,000 reps to get access to a big distribution system beyond Bank Ones bricks and mortar,” Kundert says. Those agents will give the bank an important new marketing channel for the banks own line of financial products, he notes.
In addition to helping the bank boost sales of its line of mutual funds, Zurichs agent network will give it instant access to the lucrative teachers annuity market, where so far it has not been a player. Zurichs line of 403(b) retirement plan products, Kundert points out, is already distributed to almost a third of the school district payroll systems in the United States. Those products will produce an estimated $80 million in revenue next year, Bank One estimates.
One knock sometimes heard about banks buying insurance companies is that they generally expect higher profits than insurers normally produce.
But return on equity from the Zurich Life purchase is “not a concern” to Bank One, says Kundert.
