BANKS' INSURANCE GAINS MAY BE PRECURSOR TO MORE ACQUISITIONS

Rough Notes, Nov 2004

Banks are tapping into the insurance brokerage market and are producing impressive results. That's the macro level view at least. Banks' insurance brokerage fee income was up 18.7% in the first half of this year, compared to the same period in 2003, according to Michael White Associates, LLC (MWA).

MWA bases its figures on preliminary data reported to the Federal Deposit Insurance Corporation (FDIC) by more than 8,000 commercial and federally insured savings banks. Of this universe of banks, 46.4% reported some insurance brokerage fee income.

How much of this first-half growth was derived from bank-owned property/casualty insurance agencies is not shown. Nor is it possible, even, to determine how much of it is property/casualty insurance. (The income includes commissions and fees from credit, life, health, property, casualty, and title insurance as well as some annuity sales.) But still the figures provide further evidence of why many banks continue to be intrigued with the idea of owning property/casualty agencies.

The 15 top banks in insurance brokerage fee income, as measured by the MWA figures, include several that have been significant buyers of insurance P-C brokers: BB&T (which ranks second nationally in insurance brokerage fee income after boosting this income by 53.7% in the first half), Wells Fargo, Commerce Bank, BancorpSouth and Banknorth.

Bank insurance brokerage income also is going up in relation to total noninterest income, considered a crucial measuring stick of banks' performance. Insurance brokerage income reached a mean figure of 2.8% of noninterest income, and 12 of the 15 leading insurance brokerage banks exceeded that mean ratio.

Recent transactions involving changes of ownership for property/casualty agencies and brokerage firms include the following:

Acordia, Inc. (www.acordia.com), acquires Speare & Company of Sherman Oaks, California.

Speare & Company, which has operated for more than 50 years, offers a wide variety of P-C, life, health, and benefits products. It will continue to operate with its current staff at its Sherman Oaks location. "We can now offer our clients not only insurance products and risk management services, but also financial services through Wells Fargo" (Acordia's parent), said Bob Bryar, president of Speare & Company.

Acordia describes Speare & Company as one of the largest privately held insurance brokerages in the western United States. The acquisition doubles the size of Acordia's operations in Encino, California.

The acquisition is the 15th for Acordia since the company became part of Wells Fargo & Co. three years ago. Kevin W. Conboy, Acordia's president and CEO, said, "Acordia will continue to look for acquisition opportunities that fit its operating philosophy and that expand Wells Fargo's reach both inside and outside its 23 banking states."

Arthur J. Gallagher & Co. (www.ajg.com) acquires Sheridan Insurance Group, a retail malpractice insurance specialist.

Sheridan Insurance Group of Friendswood, Texas, does business as National Health Services, an insurance brokerage operation that specializes in structuring and placing medical malpractice insurance for more than 3,000 physicians and physician groups.

The associates of Sheridan Insurance Group, a 20-yearold agency, will continue operating the firm from their Friendswood, Texas, office as part of Gallagher's South Central Region.

Banknorth Insurance Group (www.banknorth.com) is part of the sale of a majority interest in its banking parent-Banknorth Group-to TD Bank Financial Group, a large Canadian bank. TD Bank Financial Group, consisting of Toronto-Dominion Bank of Canada and its subsidiaries, is buying 51% of Banknorth for approximately US$3.8 billion.

Banknorth Insurance Group operates P-C agencies throughout New England, employing 400 people. Its most recent agency acquisition was Drake, Swan & Crocker of Orleans, Massachusetts ("Ownership Changes," September Rough Notes).

TD Bank Financial Group President and Chief Executive Officer Ed Clark said the acquisition provides his company with "an expanding beachhead in the Northeastern United States and an outstanding personal and commercial banking complement to our strong U.S. wealth management franchise."

The acquisition, which is expected to close by February 2005, also permits TD Bank Financial Group to bid for the remaining publicly held Banknorth shares subject to certain conditions.

Consumers Financial Corporation (www.consurnersfc.com) acquires Fear & Fear, Inc., of Syracuse, New York, for a purchase price valued at $6 million.

Fear & Fear has annual revenues of approximately $3 million, operating 11 offices plus one administrative office in the Syracuse area, specializing in auto insurance. Consumers Financial is a diversified merchant banking and financial services company, which invests in a variety of micro-cap businesses via acquisition, merger or joint venture.

F.N.B. Corporation (www.fnbcorporation.com) acquires Morrell, Butz and Junker (MBJ) of Pittsburgh, Pennsylvania.