CA…CHING!!

Banks Cash-In on Insurance

Insurance revenue reported to the Federal Reserve by the nation’s bank holding companies grew by $5.0 billion in the first half of 2004 to a level of $20.9 billion, 23 percent higher than at this same time last year, according to an analysis from the American Bankers Insurance Association (ABIA).

“The June 2004 numbers indicate that bank insurance revenue for the full year 2004 will increase at more than twice the rate of increase between 2002 and 2003,” said Ken Reynolds, ABIA managing director. “The growing rate of increase in bank insurance revenue shows that banks are here to stay in the insurance industry.”

In 1999, federal legislation removed regulatory barriers that prevented affiliations between financial institutions, opening the door for banks to sell insurance. Since passage of the Gramm-Leach-Bliley Act, bank insurance revenue has steadily risen through agency acquisitions and systemic growth.

The total number of bank holding companies reporting insurance revenue also increased to 1,331 compared to 1,257 in 2003, according to the ABIA analysis. In addition, 96 bank holding companies reported earning insurance premium income. This indicates that the holding company is engaged in insurance underwriting or reinsurance activities, as opposed to simply acting as an agent for the sale of insurance underwritten by an unaffiliated insurance company.

The ABIA analysis includes a ranking of the top 50 bank holding companies on the basis of the absolute dollar amount of insurance revenue (commissions, fees and earned premiums) and on the basis of insurance revenue as a percentage of the institution’s total non-interest income.

The top 50 holding companies in terms of insurance revenue for the first six months of 2004 (excluding Metlife, Manulife and Citigroup) earned $3.6 billion, or 90 percent, of the $4.0 billion earned by all the reporting holding companies. Insurance revenue for these top 50 companies averaged 14.6 percent of the total non-interest income reported by each institution. This represents a significant increase over the 2003 figure of 12.3 percent and 11.6 percent of total non-interest income for the first six months of 2003 and for the full year respectively.

Joining the top 50 in insurance revenue for the first time are Sky Financial, Webster Financial Corp., Mercantile Bankshares and Doral Financial Corp.

Bancorp increased its rank the most having jumped from 41st place at the end of 2003 to 13 through June, 2004.

The simple average insurance revenue percentage of total non-interest income for this elite group was 48.7 percent while the standard deviation was 13.9 percent. The median is 44.4 percent.

Total insurance revenue (excluding MetLife and Citigroup) as a percentage of total non-interest income for all companies selling insurance is 6.5 percent; as a percentage of total non-interest income for the top 50 revenue producers it is14.6 percent.

ABIA’s analysis, done in collaboration with the American Bankers Association, is based on information reported to the Federal Reserve. The annual ABIA Study of Leading Banks In Insurance provides a more comprehensive analysis of bank-insurance programs. Copies can be obtained from the ABIA by visiting www.theabia.com.