Number Of Bank Holding Company Insurance Underwriters Rose In 2002
Underwriting noncredit-related property-casualty, ordinary life and health lines of insurance is novel for, and largely untried by, banking organizations.
Previously, banks and bank holding companies were forbidden to engage in these insurance activities, with only a few exceptions. The most notable exception was a 1990 Delaware law that was subsequently negated in 1991 when Congress passed the Federal Deposit Insurance Corporation Improvement Act (FDICIA) to establish additional funding for the FDIC and specific capital adequacy standards. FDICIA grandfathered the noncredit insurance underwriting operations that a handful of banks had established in Delaware in the interim.
The Gramm-Leach-Bliley Act, signed into law in November 1999, eliminated the separation of banking, insurance and securities and overturned state anti-affiliation statutes barring banking organizations from underwriting noncredit-related insurance.
GLB permits a bank holding company to elect to become a “financial holding company” (FHC) if it meets certain criteria. By electing FHC status, a BHC can then engage in activities that are “financial” in nature, including providing insurance as principal (i.e., underwriter), agent or broker.
Total Insurance Premium. According to bank data compiled and analyzed in my Bank Holding Company Insurance and Investment Fee Income Report 2002 year-end edition, in 2002, 171 or 9.1% of 1,886 top-tier BHCs with minimum consolidated assets of $100 million reported underwriting insurance premiums, up from 134 or 7.6% of 1,755 BHCs in 2001. The additional 37 BHCs reporting insurance premiums in 2002 represented an increase of 27.6% in the number of BHCs underwriting insurance.
Altogether, these 171 BHCs reported writing $24.38 billion in premiums, down 24.6% from $32.35 billion in 2001. This decline was largely due to Citigroups sale of its Travelers property-casualty unit and the migration of some big BHCs like Bank of America Corporation away from credit insurance into debt cancellation and debt suspension agreements.
The top 5 insurance underwriters among BHCs were MetLife Inc. (NY) with $19.09 billion in total insurance premiums, up 10.9% from $17.21 billion; Citigroup Inc. (NY) with $3.48 billion, down 74.2% from $13.48 billion; Countrywide Credit Industries Inc. (CA) with $561.9 million, up 53.0% from $367.2 million; Wells Fargo Company (CA) with $399.0 million, up 3.1% from $387.0 million; and J.P. Morgan Chase & Co. (NY) with $220.0 million, up from $20.0 million reported in 2001.
In 2001, MetLife Inc., Citigroup Inc., Bank One Corporation, Wells Fargo, Countrywide Credit Industries Inc. (CA) and Bank of America were the only BHCs that wrote more than $100 million of premium. They were joined in 2002 by J.P. Morgan Chase & Co. These 7 companies accounted for 98.6% of all BHC underwritten premiums.
MetLife is a leading traditional insurance underwriter specializing in ordinary and group life insurance products. In 2002, Citigroup sold the p-c insurance operations of Travelers but kept its life insurance operations.
Countrywide, which obtained its FHC status in 2002, owns a large multiline insurance operation, Balboa Insurance Group. With $22.23 billion in total premium writings, MetLife and Citigroup accounted for 92.6% of the $24.38 billion in insurance premiums underwritten by the 171 BHCs.
Including Countrywides Balboa in the select leaders group, these 3 holding companies represent 94.9% of all insurance premiums underwritten by bank or financial holding companies.
In 2002, 13 other BHCs wrote between $10 million and $40 million of premiums, 2 more than in 2001. Excluding the top 7 BHC underwriters that accounted for 98.6% of BHC-underwritten premiums, the remaining 164 BHCs underwrote $342.7 million in premiums. Their mean premiums per BHC were $2.09 million, down 24.3% from the nonleader boards $2.76 million in 2001. Sixty-nine of the 171 BHCs each wrote less than $100,000 in premiums in 2002, 27 more than in 2001.
Credit Insurance Premium. Of the 171 BHCs underwriting insurance in 2002, 143 reported credit insurance premiums of $1.144 billion. The leaders in credit insurance underwriting were Citigroup Inc. (NY) with $269 million, Wells Fargo & Company (CA) with $232 million, J.P. Morgan Chase & Co. (NY) with $220.0 million, Bank One Corporation (IL) with $132.0 million and Countrywide Financial Corporation (CA) with $107.6 million.
Fifty BHCs over $1 billion in consolidated assets produced $1.135 billion or 99.2% of the BHC credit insurance premiums.
Noncredit Insurance Premium. In terms of other, noncredit insurance premiums, 76 BHCs reported noncredit p-c and/or life and health insurance premiums of $23.2 billion. Of these 76 BHCs, 45 participated in p-c underwriting and 72 engaged in life and health insurance underwriting. The 45 p-c underwriters earned $492.7 million in net income from underwriting. The 72 life and health insurance underwriters earned $3.5 billion in net income from life and health insurance underwriting. Roughly, MetLife earned half that net income; MetLife and Citigroup earned 78.6% of that net income; and MetLife, Citigroup and Wells Fargo earned 96.4% of it.
In 2002, 9 holding companies, less than half of one percent, reported separate account assets totaling $81.85 billion. This amount was 9.1% less than the $90.0 billion reported by 11 holding companies in 2001. Two financial holding companies accounted for $81.81 billion or more than 99.9% of total BHC separate account assets in 2002. MetLife managed $59.7 billion or 72.9% of total BHC separate account assets, and Citigroup managed another $22.1 billion or 27.0%.
Reproduced from National Underwriter Edition, January 16, 2004. Copyright 2004 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.