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.