W. R. Berkley Co. has sold its interest in InsurBanc, the savings bank created by the Independent Insurance Agents & Brokers of America to serve independent agents, as part of a trend by insurance companies to divest their thrifts in an effort to avoid federal regulation.
The bank was sold to Connecticut Community Bank N.A., a bank controlled by W.R. Berkley, W.R. Berkley’s chairman and chief executive officer.
W.R. Berkley Co. will receive approximately $15.5 million in cash and securities from CCB as a result of the transaction. The Company also received 493,051 preferred shares of ACBancorp.
The IIABA said it will remain a minority shareholder in InsurBanc, and that the president and CEO of InsurBanc, David W. Tralka, the president and CEO of CCB. All employees of InsurBanc will become employees of CCB.
W.R. Berkley said that the company has the right to require its chairman and CEO to purchase its ACBancorp shares for an amount equal to approximately $1.5 million. The company can do this at any time prior to the third anniversary of the closing of the transaction.
The company acquired InsurBanc, which was created by the Independent Insurance Agents and Brokers of America but which was struggling to garner enough assets to make it viable, in 2001, for $22 million.
Berkley owns 75.5 percent of CCB. Berkley’s son, W. Robert Jr., president and chief operating officer of W.R. Berkley, owns 0.5 percent of the bank.
The data was contained in a proxy statement filed this afternoon by W.R. Berkley with the Securities and Exchange Commission. According to the proxy statement, the sale of InsurBanc to Connecticut Community Bank N.A. became final April 1.
Insurance companies are divesting their thrifts because under the Gramm-Leach Bliley financial services reform law, they are now subject to stronger scrutiny than before by the Federal Reserve Board as a thrift holding company.
Northwestern Mutual, Prudential Financial and Massachusetts Mutual have all reduced their thrifts to trust banks in order to escape Fed scrutiny as a thrift holding company.
In the proxy statement, W.R. Berkley company justified its divesture of the thrift because, as a savings and loan holding company, W.R. Berkley would have become subject to enhanced regulation by the Fed.
W.R. Berkley said in the statement that that meant it would have become subject to certain prior notification requirements and restrictions on dividends, stock repurchases, distributions, transactions with affiliates and compensation plans and additional requirements related to its shareholders, management reporting and capital adequacy.
“Accordingly, the board concluded that, given the de minimis nature of the banking operations of InsurBanc to the Company and the adverse consequences of these enhanced restrictions, the company should divest its banking operations so that it could deregister as a savings and loan holding company as soon as possible,” the company said in the proxy statement.
The combined banks will have approximately $516 million in total assets and employ a total of 119 individuals.
The mission of InsurBanc, created by IIABA in 2001, will remain unchanged, executives said.
Robert Rusbuldt, IIABA president and CEO, said the new structure will strengthen InsurBanc’s ability to serve the independent agent system and provide “an attractive source of additional capital to lend to agencies across the country.”
“InsurBanc is better positioned now to serve the growing banking needs of our members and their clients,” says Rusbuldt.
Tralka said that independent agents and brokers who may be in need of additional capital will find the bank has greater lending assets to work with than in the past, says Tralka.
“All clients will experience no change,” says Tralka. “The products and people they deal with will all remain the same. I don’t see why this is not a win-win for all.”
CCB was listed as a troubled bank at the end of 2012 by the Investigative Reporting Workshop of the American University Communication School.
Both its assets and deposits dropped from 2011 compared to 2012, and loans 90 days past due more than doubled from 2011 to 2012.
Its capital plus reserves at the end of 2012 were $40.3 million, compared with total troubled assets of $30.1 million. Its total troubled asset ratio at the mid-year 2012 was over 90 percent, according to a graph created by the group, although it dropped below 80 by the end of the year. That compared to a national average of under 10 percent, the chart showed.