Hub, Citizens Bank on ‘Not Your Typical’ Insurance Agency Deal

“Not Your Typical Bank,” the slogan used by Citizens Financial Group in its popular consumer-friendly ads, seems to apply to the bank’s latest move, the selling off of its respected insurance agencies.

It is not a typical transaction. The bank did not shop the agencies around to assure the best price; the agencies being sold were not performing poorly; and the bank is actually expanding its reach into insurance as a result of selling off.

Also, the sale of the three insurance agencies by Citizens reflects the judgment of one bank and is not a sign of any flight from insurance by other banks that own agencies, according to experts.

Providence, R.I.-based Citizens Financial Group is selling its three well-known agencies that have combined revenues near $45 million for the price of $80 million to Hub International Ltd., a Chicago-based network of agencies across the country and in Canada. The deal includes a strategic alliance between the two for future joint sales and marketing.

The three large insurance brokerages joining Hub are: Citizens Clair Insurance Group, based in Norristown, Pa.; Brewer & Lord, based in Norwell, Mass; and Feitelberg Insurance, based in Fall River, Mass. The three operate from 19 offices in Pennsylvania, Massachusetts, and Rhode Island.

“This is not necessarily a trend,” said Michael White, president of Michael White Associates (www.bankinsurance.com), explaining that he thinks the Citizens decision might have come down to the relatively small contribution the insurance agencies were making to the bank’s overall revenues.

“These insurance agencies were good producers; it’s not that they were performing poorly,” he added. It’s just that Citizens was expanding its banking footprint and revenues much faster and decided to focus there.

Another consultant to banks on insurance deals, Gerald C. Vigneron, of North Bridge Advisors Inc. in Concord, Mass., said he was not really surprised by the transaction because he has long felt agencies were not a good fit for larger banks. “I’d been predicting this. Like in any trend, some who jump in will look at insurance and see this isn’t their real mission and doesn’t fit.”

Vigneron stopped short of suggesting that this sale marks any trend of banks selling agencies but raised the possibility others could get some ideas from this. “This is not yet a trend but it could put in the mind of other brokers that maybe they could pick off some agencies now owned by banks.”

Bruce Guthart, Hub chief operating officer, offered his own rationale for this move by Citizens. “Insurance operations were going well but it’s tough to be a bank and grow an insurance operation also,” he said, adding that this transaction actually gives Citizens a quicker way to expand insurance offerings into new territories.

Citizens Financial Group, the eighth-largest commercial bank holding company in the U.S. with $155 billion in assets, has retail and commercial banking operations beyond southern New England and Pennsylvania into Ohio, Illinois, Indiana, Michigan, New York and Vermont.

But its insurance operations are only in Massachusetts, Rhode Island and Pennsylvania, so its banking and insurance footprints don’t match.

Not banking on insurance
Using June 30, 2005 figures for bank holding companies, White, president of Michael White Associates (www.bankinsurance.com) in Radnor, Pa., points out how relatively little Citizens banked on insurance:

Citizens’ insurance fee income revenue represents only 3.18 percent of its noninterest income. In contrast, at BancorpSouth, Inc. (Miss.) insurance revenue represents 32.2 percent of noninterest income.

In the Northeast, insurance revenue represents 22.2 percent of Webster Financial Corp.’s (Conn.) noninterest income. Also, at Eastern Bank Corporation (Mass.), it is 41.0 percent.

Hub officials indicated that they expect total consideration for the transaction will be within Hub’s target multiple of 5-7 times EBITDA (earnings before interest, taxes, depreciation and amortization). Closing of the acquisition is expected to occur in April 2006.

Consultants Vigneron and White agreed Citizens got a good price at $80 million, despite having dealt with only Hub about the sale. Both also agreed that Hub was a good partner.

Typical Fish
Hub indicated that Citizens had contacted it for the deal and that no other buyers participated. Citizens “specifically chose us to partner with,” according to Hub CEO and chairman, Martin Hughes. He said Hub knew the brokerages being bought and believed the territorial match-ups made sense for both parties.

Joseph Feitelberg’s agency Feitelberg Insurance, based in Fall River, Mass., was bought by Citizens in 2003 and now becomes part of Hub. Feitelberg says the way Citizens went about this transaction might not be typical of how other sellers would proceed but is typical of how Citizens operates under Chairman and CEO Lawrence K. Fish. The company’s credo calls for emphasizing the “Three Cs”: customers, colleagues and community, and Feitelberg says that’s what the bank did.

“They (Citizens) wanted to do the right thing for customers and colleagues, so they pre-selected a partner they knew the people on the insurance side would be comfortable with. Hub is the right partner,” says Feitelberg.

Unlike most mergers, no major consolidation or expense savings are anticipated, according to Hub, even though its network already includes another New England office in Wilmington, Mass., which is north of Boston. The two Massachusetts agencies purchased are closer to and south of Boston.

Another not-so-typical aspect is that although the bank does not want to be in the insurance business any longer, it’s not swearing off insurance completely. Both parties claim “substantial” dollars will be spent on a joint marketing effort, although they released no figures.

“While we achieved both revenue growth and profitability in line with our strategies for the insurance brokerage business, we see a new opportunity to serve our customers by partnering with Hub International as our insurance broker of choice. Joint marketing efforts with Hub will enable us to bring a broader array of insurance products and services to more of our retail and commercial customers in more locations,” said Robert M. Mahoney, vice chairman of Citizens Financial Group.

Hub’s Hughes said the marketing alliance creates the opportunity for Hub to reach thousands of clients currently affiliated with Citizens.

“So without being owned by a bank, we’ll get that clout,” commented Hub’s Guthart.

This is a shortened and edited version of a story that appears in the March 20, 2006 print edition of Insurance Journal East.