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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