Whatever Bank Holding Company Insurance Income Was In ’02, It Was A Lot
Bank holding companies tallied total insurance commission and fee income of $5.3 billion for 2002, according to a report from the American Bankers Insurance Association and the American Bankers Association, Washington, based on data submitted by BHCs to the Federal Reserve Bank.
However, some of the figures cited by the report conflicted with preliminary data found in another, as yet unpublished, study by Michael White Associates, Radnor, Pa., based on the same Fed data.
The White study concluded that bank holding companies sold $5.71 billion in insurance the same year.
The two totals are not as close as they seem. Whites tabulations include figures from MetLife and Citigroup, two companies that ABIA excluded from its tabulations because the Fed data do not exclude nonbank sources of insurance sales for those two companies.
If insurance figures for both MetLife and Citigroup are added to the total, BHCs produced a total of $30.3 billion in insurance in 2002, ABIA reports.
E. Kenneth Reynolds, managing director of the ABIA, says he is unable to pinpoint exactly why the two organizations findings differ.
He notes, however, that the Fed only recently began releasing data on insurance sales of BHCs.
“Admittedly, this is a new reporting stream, so you never know if you may be missing something,” he says.
He also suggests that because some BHCs have several subsidiary holding companies, efforts to provide an accurate accounting of revenues can be complicated.
Whether this problem arose with ABIAs study or Whites, or both, was unclear.
A spot check of one bank suggests at least some of the disparity between the two studies may be based on misinterpretations of what constitutes revenue. Revenues would consist only of commissions and fees collected by the banks in selling insurance, not total premiums.
For instance, ABIA shows total income for Wells Fargo & Company, San Francisco, of $997 million. However, Wells Fargos own figures show combined insurance income of its two major insurance units of about $697.2 million.
Part of that $997 million included premiums, confirms Tom Murphy, senior vice president of Wells Fargo Insurances international insurance group.
This suggests ABIA researchers may have in some cases included figures for total premiums with actual revenues.
It was not apparent how extensive such inconsistencies may be. Spokesmen for two large bank holding institutions, Countrywide Financial Corp., Calabasas, Calif., and Bank One Corporation, Chicago, declined to comment on insurance data for their organizations. ABIA put Countrywide in second place on its list of top BHCs selling insurance, with $622.8 million in insurance revenue. White, on the other hand, ranks Countrywide 10th, with only $61 million in insurance revenue.
ABIAs Reynolds says his organization checked its data with leading BHCs, including Wells Fargo.
Differences aside, both White and ABIA data show BHCs are selling a considerable amount of insurance.
The data are not broken down by type of insurance and the figures do not include annuities sold by the BHCs securities brokerage units.
“Including these figureswould significantly increase the total revenue from the sale of insurance products by the nations bank holding companies,” ABIA observes.
Even the number of BHCs counted by the two studies differed, although both found a similar percentage of holding companies are selling insurance.
ABIA found that of 1,948 BHCs reporting to the Fed, 1,284, or 66%, were involved in insurance sales. White reports that 1,886 banks filed, of which 1,207, or 64%, reported such income.
Michael White, head of the consulting firm, says he looked only at BHCs that legally were required to file reports with the Fed–that is, those with over $150 million in assets.
ABIA says it included all BHCs that filed reports with the Fed last year. That would include many that voluntarily reported.
In addition to ranking BHCs by absolute dollar amount of insurance commission and fee revenue, the trade group ranked the institutions on the basis of this revenue as a percentage of each BHCs total noninterest income.
This measure shows many institutions have a relatively large share of all their noninterest income from insurance. This was particularly true among the smallest institutions.
“Fully 80% of these companies have less than $500 million in assets,” the ABIA report states.
For all BHCs reporting insurance revenue, average income from that source was only 5.8% of total noninterest income, ABIA found.
Insurance sales can produce mighty results for relatively tiny institutions. Many of the most productive banks in terms of insurance sales as a share of noninterest income were small community institutions, the ABIA study shows.
For example, the top bank holding company in terms of insurance revenues share of all noninterest income was Chambanco Inc., parent of Chambers Bank, Chambers, Neb. ABIA found that its insurance revenue was 76% of its total noninterest income.
But that figure is based on extremely small income. Chambers Bank reported a total of only $254,000 in total noninterest income in 2002, of which $193,000 was from insurance.
A spokesman for the banks Adams & Adams agency says its producers primarily sell property/casualty products–most of which is crop insurance for local farmers.
“Were a very small shop, so it doesnt take much income to skew things a little bit,” the spokesman points out.
Crop insurance indeed contributes significantly to noninterest revenues of Midwestern banks, Reynolds agrees.
White adds that small banks like Chambanco often make more profits from insurance than other sources such as investments.
“Insurance is more meaningful for community banks than big banks,” he says.
ABIA reaches a similar conclusion, estimating based on its analysis that smaller banks ($500 million or less in assets) realistically can set a target about 40% of noninterest income from insurance sales.
White calculates that the average share of insurance to noninterest income was 6.5%, for all BHCs, with a median of 2.3%. ABIA calculated an average of 10.1%.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 8, 2003. Copyright 2003 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.