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Bank Insurance Brokerage Fees Rose To $4.1 Billion in 2006

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Banks increased their insurance brokerage fee income to a record $4.08 billion in 2006, up 3.7% from $3.93 billion the year before, according to the 2007 Michael White-Symetra Bank Fee Income Report.

The report, by Michael White Associates LLC, Radnor, Pa., measures the banking industry’s production of fees from sales of insurance, investments, and mutual funds and annuities. It is based on data reported by all 7,837 commercial and FDIC-regulated savings banks in the United States, of which around 47% generated insurance brokerage revenue, according to MWA.

At the top of MWA’s list of banks in insurance brokerage fee income was Citibank N.A., New York, which reported brokerage fee income of $973 million for the year ending Dec. 31, 2006. Branch Banking and Trust Company Raleigh, N.C., which has acquired more insurance agencies than any other bank, ranked second, with $799.4 million in insurance brokerage earnings. FIA Card Services N.A, Wilmington, Del., formerly MBNA America Bank N.A., ranked third with $256 million.

Those same 3 banks also led the MWA list in 2005.

Bank insurance brokerage fee income consists of commissions and fees earned by a bank or its subsidiaries from insurance product sales and referrals of credit, life, health, property, casualty and title insurance as well as annuities not sold by securities brokerage firms.

Because of the way the data on bank sales of insurance and financial products is reported by the Federal Reserve Bank, which compiles the data, it is not possible to break out the data for most individual products. [Bank brokerage income from mutual funds and annuities is reported separately, however.]

Banks with over $10 billion in assets continued to have the highest participation rate in sales of insurance and related products, with 71% reporting insurance brokerage activities producing a total of $3.2 billion in fee income. These largest banks accounted for 78.5% of all insurance brokerage fee income earned by banks last year, according to MWA.

Michael White, president of MWA, notes the industry’s growth rate declined last year from a compound annual growth rate of 6.5% since 2001. In 2005 alone, the industry recorded 8.4% growth.

The decline partly reflects a tendency to locate insurance operations within bank holding company subsidiaries rather than bank subsidiaries, said Rod Halvorson, senior vice president of financial institutions distribution for Symetra Financial, a unit of Symetra Life Insurance Company, Bellevue, Wash., which sponsors the report.

“And it reflects a slowdown in bank platform sales programs that strictly sell fixed annuity products,” he added.

White points out the greatest rate of growth in insurance brokerage fee income was seen among banks with assets between $1 billion and $10 billion, where this income grew 11.1%, from $447.8 million in 2005 to $497.6 million in 2006.

The smallest banks, those under $100 million in assets, often beat the average relative performance compared to larger banks. The smallest banks were first in mean and median insurance as a percent of both noninterest income and noninterest fee income, MWA reports. With $545 in median insurance brokerage fee income per bank employee, banks in the category ranked second in per-employee fee income only to banks with assets over $10 billion, which reported a median per-employee fee income of $1,350.

Because some banks are owned by holding companies, the list of top bank insurance brokerages may tell only part of the story about financial service sales volume under a particular brand name, White points out. The parent company may report some insurance, mutual fund, annuity and other financial product revenue to the Fed as holding company income.

“If a bank sets up a brokerage operation as part of the bank, those earnings are reported in the bank,” explains White. “Often, the bank holding company will have all or part of those earnings outside the bank in a nonbank subsidiary, so the holding company gets most of the income. That’s prevalent among big banks.”

The use of BHCs is also a reason why some financial institutions with large insurance and financial operations, such as Wachovia Corp., Charlotte N.C., and Wells Fargo & Company, San Francisco, don’t appear on the bank list. White notes he will report insurance brokerage income for bank holding companies later in the year.

Different reporting practices also explain some wild fluctuations in bank brokerage fee income from year to year–often a result of BHCs switching reported revenue to different corporate entities, White notes.