Many Banks Seeing Increased Income Fees from 'Wallet Share' Insurance Products

By Christopher Sheffield
Memphis Business Journal

Bank holding companies are putting more pressure on their non-bank lines of business as the interest rate environment continues to hurt profits.

And nothing has been in the cross-hairs of bank executives more than the insurance operations which holding companies, particularly the national and regional players, have steadily grown for a decade.

"The larger banks recognize that they need to smooth out the peaks and valleys of net interest margins," says Michael D. White, president of Michael White Associates, a bank insurance and economic analysis firm based in Radnor, Pa.

Casey Bowlin, president and CEO of Regions Insurance Group, a division of Regions Financial Corp., says insurance as a line of business is important for four reasons. First, it expands the concept of the bank being a trusted adviser. Second, by providing a customer with yet another service, it further ties the customer to a bank, a concept known as "wallet share." Third, it enhances financial results because it is a profitable business. And, lastly, it renews every year and grows with the economy and therefore is a "very meaningful component of non-interest income," Bowlin says.

According to White's quarterly survey, insurance brokerage fee income increased 2.4% in the first quarter compared to the first quarter of 2006. Though small, the growth set a new quarterly record of $3.1 billion.

For White's report, insurance brokerage fee income includes commissions and fees earned by a bank holding company or its subsidiaries from insurance product sales and referrals of credit, life, health, property, casualty and title insurance.

The $3.1 billion in first-quarter fee income was a 6.8% increase from $2.9 billion for the fourth quarter of 2006.

Topping the national list for the quarter was Citigroup of New York with total fees of $458 million. Regions Financial Corp. was eighth with $27.5 million in fee income, up 37.5% from a year ago, and BancorpSouth, Inc., was ranked twelfth with $19.9 million in fees, up 14% in a year.

Memphis-based First Horizon National Corp., parent of First Tennessee Bank, reported that income from insurance fees dropped 10.1% in 2006 to $48.3 million. FHN ranked 22nd in assets and seventh in the Southeast region for 2006 for total insurance fee income.

Through the first quarter of 2007, 72% of all bank holding companies were involved in insurance brokerage. Among the largest banks, those with more than $10 billion in assets, the percentage is 92%.

The growth is particularly startling given that the vast majority of the 1,453 bank holding companies that now report insurance revenue have gotten into the business since 1999 following the passage of the Grahamm-Leach-Bliley Financial Services Modernization Act. The legislation essentially gave banks the ability to buy insurance firms.

Now, bank-affiliated insurance agencies control 10% of all the U.S. property and casualty marketplace, says Bowlin, and 25 of the top 100 largest insurance agencies are bank affiliated.
Regions is relatively small in the business because it is rather late to the party, having made its first acquisition in 2004. But, says Bowlin, the goal is to be larger although he's hesitant to give any numbers.

"We're not driven by market share," he says. "We're driven by building shareholder value. We are opportunistic. We don't have any benchmark we're driving toward, but we're opportunistic, and acquisitive."

As of 2006, insurance brokerage fee income contributed 4.21% to the bank's non-interest income.

On the other end of the spectrum is BancorpSouth, where insurance brokerage fees contributed almost 34% of all non-interest income in 2006.

BancorpSouth got into the business in 2000 and has made three significant purchases in Mississippi, Louisiana and Arkansas to grow the business, says James Threadgill, BancorpSouth vice chairman over insurance, trust and investments.

Threadgill says all banks are trying to expand away from net interest margins. And with all fighting over the same loans and deposits, that net interest margin is getting tighter.

"We're all looking for ways to expand non-interest income," he says.

And insurance has been one of the biggest ventures. It has also produced some of the biggest flops, many admit.

Fifth Third Bank, once of the leaders in terms of total revenue, got out of the business two years ago. Bank of America, which saw its insurance fee income jump 80% from 2005 to 2006, has said its insurance business is up for sale.

From: Memphis Business Journal (www.bizjournals.com)