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Friday, April 24, 2015

This Week at the CFPB

A summary of this week's news about the CFPB from the ABIA and ABA Dodd-Frank Tracker:
The ABIA has a Task Force of members that work on issues related to the CFPB's regulation of insurance products. If you are an ABIA member and would like to learn more about ABIA's work with CFPB to educate them about the bank-insurance industry or join our CFPB Task Force, please contact us and visit our website.

Department of Labor Releases Fiduciary Plan,

Last week, the Department of Labor issued for public comment its rule to amend the definition of "fiduciary" under the Employee Retirement Income Security Act.  The comment period is open for 75 days, followed by a public hearing and publication of the transcript followed by another opportunity to comment.  The rule includes a proposed rule that would update and close loopholes in a nearly 40-year-old regulation. The proposal would expand the number of persons who are subject to fiduciary best interest standards when they provide retirement investment advice. It also includes a package of proposed exemptions allowing advisers to continue to receive payments that could create conflicts of interest if the conditions of the exemption are met. In addition, the announcement includes a comprehensive economic analysis of the proposals' expected gains to investors and costs.

Under the proposals, retirement advisers will be required to put their clients' best interests before their own profits. Those who wish to receive payments from companies selling products they recommend and forms of compensation that create conflicts of interest will need to rely on one of several proposed prohibited transaction exemptions.

ABIA will be issuing a comment letter responding to the Department of Labor Rule.  If you have any questions or comments, please contact Sarah Ferman.

Read the proposed rule.

Thursday, April 23, 2015

House Passes Cybersecurity Bill

By a strong 307-116 vote, the House yesterday passed the ABA-supported Protecting Cyber Networks Act (H.R. 1560), which would enhance cybersecurity threat information sharing.

In passing the bill, the House also approved an amendment offered by Rep. Mick Mulvaney (R-S.C.) that would sunset the bill’s provisions after seven years. While ABA remained supportive of the legislation, it opposed this amendment, noting that businesses participating in cyber information sharing need certainty to know their information security investments will be worthwhile.

The House is expected to vote today on the National Cybersecurity Protection Advancement Act (H.R. 1731), another ABA-backed bill that is also intended to enhance information sharing.

Tuesday, April 21, 2015

Banks Continue Interest in Insurance - Why can't we acquire?

Banks that are in insurance today understand the beneficial impacts that insurance brings to the non-interest income portfolio, according to a talk by Jim Campbell of Reagan Consulting. There are other signals that banks continue to be interested in the insurance business:

Divestitures are slowing- There was a peak period of agency divestiture during the financial crisis. Divestitures have been cut in half over the last three years.

Revenues are increasing- The number of banks with insurance revenues over $5 million is increasing from 76 in 2011 to 94 in 2013 and probably more than 100 in 2014.

Reagan Consulting found that the number one reason for the increase in revenues was acquisitions. Community banks led the charge, perhaps in part because of the impact that insurance has on non-interest income.

The ABIA Study of Banks in Insurance released last year reveals that at least half of the banks in insurance are interested in doing acquisitions, although only 17 deals were closed in 2014.

Why, then, the gap between interest and executing on deals? A decrease in bank deals correlates with an increase in private equity and a corresponding increase in deal pricing. In the last two years alone, the guaranteed portion of valuations for a high quality firm in the range of $3 to $10 million in revenue have increased more than 10%.

Banks report being priced out of deals and comment that the target agencies need to be looking for more than just pricing - banks have a customer model that will appeal to some sellers.

Reagan has found that sellers weigh four aspects of a new ownership model:
  • Autonomy
  • Capital
  • Resources
  • Valuation
ABIA will continue the acquisition discussion at the ABIA Annual Conference in October. Save $400 if you register now.

ABIA's Study of Banks in Insurance is available for sale online.  Order your copy now.

ABIA members can take advantage of one hour of consulting with Reagan Consulting as a benefit of ABIA membership. Jim Campbell, Partner and head of Reagan's bank practice, is a favorite speaker at ABIA events often speaking at the ABIA Annual Conference and paneling ABIA Best Practices Panel, "Competing with Agency Acquisitions".  You may download the recording and view his presentation here

Monday, April 20, 2015

Reagan Consulting M&A Workshop - Characteristics of Acquisition Targets

This week, ABIA staff is attending the Reagan Consulting Mergers & Acquisitions and Perpetuation Workshop in Atlanta, GA.  Though the focus is broadly on insurance brokerage, there is a lot of information that is useful for bank insurance, particularly at a time when banks are looking to grow through acquisition.

Banks own 15 out of the top 100 brokers in the country. They are a critical player in the insurance brokerage industry - and a player that is looking to grow both organically and through acquisitions.
There is a big market of potential acqusition targets and acquiring agencies is the most effective strategy for growing noninterest income through insurance. There were more insurance brokerages in 2014 in every revenue category from $1.25 million and up.

The difficulty for banks is that the population of buyers has changed dramatically since banks started buying. In a comparison of buyers from 2006 to 2014, banks and private equity have switched places. In 2006, banks did 29% of deals and by 2014 only completed 5% of deals. Private equity firms bid up the price on agencies, often pricing banks out of the deals.

Reagan highlighted some characteristics of firms that may be ready to sell with one being firms with owners that are employee benefits producers.  Many firms with strong employee benefits practices have rewarded their producers with an ownership stake. With such massive changes in the employee benefits world, these companies may be open to selling.

Another characteristic of firms that may be ready to sell are firms owned by baby boomers. Often fiscally conservative, these firms may be looking to cash in on their life's work.  These firms may not have implemented good perpetuation strategy, an important topic of conversation throughout the Workshop.

ABIA members can take advantage of one hour of consulting with Reagan Consulting as a benefit of ABIA membership. Jim Campbell, Partner and head of Reagan's bank practice, is a favorite speaker at ABIA events often speaking at the ABIA Annual Conference and paneling ABIA Best Practices Panel, "Competing with Agency Acquisitions".  You may download the recording and view his presentation here.