A record year for consolidation of US insurance brokers in deal that helps perpetuate a long-standing trend.
As part of Fifth Third Bancorp’s divestiture of Fifth Third Insurance Agency Inc. to Foundation Risk Partners Corp., as confirmed by S&P Global Market Intelligence, a rapidly growing brokerage backed by private capital has expanded its footprint and capacities by taking over the old property and casualty insurance distribution activity of a regional bank.
At the turn of the century, regional banks emerged as the main consolidators of the insurance distribution space as they sought to build financial services supermarkets after the passage of the Gramm-Leach-Bliley Act. The typical approach would be for a bank to purchase a relatively large insurance practice within its branch as a founding agency, and then expand that business through subsequent add-on acquisitions.
Over time, and particularly in the aftermath of the global financial crisis, a number of banks have chosen to move away from this approach. The emergence of numerous privately-backed acquirers, which created greater competition for potential acquisition targets, may have accelerated some of the withdrawals.
There were nine cases of banks selling US insurance agencies and / or insurance portfolios in 2020, including the Fifth Third transaction, compared to just six of those acquisitions by banks or brokerage houses owned by US companies. banks. This was the third year in a row that banks were net sellers of U.S. insurance distributors. Other notable sellers in 2020 include People’s United Financial Inc. and Associated Banc-Corp., With Sales of their insurance agencies to AssuredPartners Inc. and USI Insurance Services LLC, backed by private funds, respectively.
In the case of Fifth Third, the company included the sale of the insurance agency in a multi-faceted $ 200 million expense reduction program that included streamlining staff, businesses, supplier relationships third party and facilities. Executive Vice President and CFO James Leonard at a December 2020 meeting investor conference noted the bank had identified what it called “non-core niche activities” for the divestiture, which also included its health savings account and 401 (k) record keeping operations, the last of which involved Empower Retirement LLC of Great-West Lifeco Inc. as purchaser.
The bank confirmed in its fourth quarter 2020 publication of results that it has completed the assignment of insurance.
“It wasn’t really providing the returns we were looking for, and we unable to get scale “, President and CEO Gregory Carmichael said during a gain of January 21 conference call. Carmichael said the bank was looking to step back from activities that were “more of a hobby” for Fifth Third.
Although the bank did not disclose the identity of the agency’s acquirer, Foundation Risk Partners chairman and CEO Charles Lydecker confirmed to S&P Global Market Intelligence that his company had purchased the business.
“It was a great opportunity for FRP to enhance our leadership ranks,” said Lydecker, noting that his company would add locations in Louisville, Ky., and Cincinnati through the agreement.
Lydecker said Foundation Risk Partners has grown to produce annualized revenues of over $ 300 million. The company was started in 2017 by Warburg Pincus & Co., in partnership with a team of industry veterans, including Lydecker, a former executive at Brown & Brown Inc.
Fifth Third recorded $ 35.4 million in other insurance income in the 12-month period ended September 30, 2020, according to banking regulatory data compiled by S&P Global Market Intelligence. This ranked 22nd among bank holding companies, savings and loan holding companies, commercial banks and savings banks at the leading consolidated level.
Other insurance revenue, which is a measure of revenue from insurance product sales and referrals, was only 1.2% of Fifth Third’s non-interest revenue during the same period, although below the double-digit percentages that were common among some similar deposit-taking institutions with the operations of insurance agencies like Truist Financial Corp., TowneBank, Cullen / Frost Bankers Inc., BancorpSouth Bank and Trustmark Corp. . 30, 2020.
A Fifth Third spokeswoman noted that the bank retains other insurance assets beyond the ceded P&C and employee benefits.
Fifth Third Insurance Agency was incorporated under its current name in 1998. More recently the bank has identified insurance as a growing business, evidenced by separate acquisitions of RG McGraw Insurance Agency Inc. and Epic Insurance Solutions Agency Inc. in 2017.