Reg Burden Prompts Another Insurer to Give Up on Banking

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Shelter Insurance in Columbia, Mo., is the latest insurance company to chart an exit out of banking. Perhaps not surprisingly, the insurer is blaming the Dodd-Frank Act.

The insurer has agreed to sell $26 million in deposits and $16 million in loans to the $10.2 billion-asset Central Bancompany in Jefferson City, Mo. The companies did not disclose a price for the transaction. Shelter will pay off its bank's remaining depositors, and continue to service the remaining $137 million of loans.

Shelter follows other insurance companies that have bailed on banking in the past two years, including MetLife (MET) and Allstate (ALL). MetLife has said that its decision in 2011 to sell its bank involved "regulations written for banking institutions."

Management at Shelter also determined that it was no longer cost-effective to run a bank, given the higher expenses associated with the Dodd-Frank Act, says Ron Wheeling, chief executive of Shelter Financial Bank.

"We were a very soundly run, profitable, growing bank that provided great rates and services," Wheeling says. "The government is putting us out of business."

Shelter's specific beef is that Dodd-Frank would require it to provide regulators with two sets of financial statements, each based on different accounting principles. Those filings would have added $1 million in annual expenses, Wheeling says.

Dodd-Frank should have exempted insurers that act as thrift holding companies, such as Shelter, from having to submit consolidated financial statements to the Federal Reserve Board, says Doug Faucette, a banking lawyer at Locke Lord.

Rather, insurance companies face an "impossible position" of having to submit two sets of books. "There will be an increasing reluctance by insurance companies to hold onto" their banks, as a result of Dodd-Frank, Faucette says.

Shelter, which primarily sells property/casualty and life insurance, opened its bank in April 1999, the same year that lawmakers repealed the Glass-Steagall Act. Shelter has gradually been shrinking its bank, starting around the time that Dodd-Frank was passed.

The bank's assets, which peaked at $200 million in early 2010, totaled $160 million at Sept. 30.

Dodd-Frank would have required Shelter to provide the Fed with financial statements using "full-accrual" generally accepted accounting principles, Wheeling says. The company already files financial statements to its state insurance regulator in Missouri based on the statutory accounting principles used by insurers.

Shelter raised the issue of higher costs with the Fed, but the regulator would not budge on the requirement, Wheeling says.

Representatives for the Fed could not be reached for comment.

Shelter's management is particularly incensed because the old way the company had been reporting financials, under statutory principles, "is actually much more conservative than GAAP," Wheeling says.

"The GAAP books would actually have lower capital than the statutory books," Wheeling adds. "We're well capitalized by every measure in the regulatory tool kit and we had sterling asset quality."

Dodd-Frank's Volcker Rule would also hurt Shelter's capacity to serve as the holding company for Shelter Financial, Wheeling says.

Central's Boone County National Bank will buy $26 million of certificates of deposit and a $16 million home equity loan book, says Mary Wilkerson, senior vice president of marketing at Boone County. There is no disclosed date for the deal's completion.

Other insurance companies that have left banking in the last two years include Hartford Financial Services Group (HIG) and Prudential Financial (PRU). In the biggest insurance deal, MetLife agreed to sell $6.5 billion of deposits to General Electric's GE Capital Retail Bank. The Office of the Comptroller of the Currency approved the deal last month.

Allstate decided to close its bank after an agreement to sell the unit to Discover Financial Services collapsed.

At least one insurer plans to stay in banking. State Farm Insurance, which owns the $14.4 billion-asset State Farm Bank in Bloomington, Ill., has no plans to close the bank, even though Dodd-Frank will also require the company to file two sets of financial books at an additional expense.

"We definitely plan to follow the law," says State Farm spokesman Dick Luedke.

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Comments (2)
So are thsese insurers claiming that before Dodd-Frank insurance and banking regulations were identical and they didn't have to manage to two separate sets of regulations before? Probably not... In which case Dodd/Frank merely adds to the burden rather than creates a brand new one. And again lets remember that Dodd-Frank was necessary because many major players in the banking system proved they couldnt be trusted with lesser levels of regulation or self regulation.
Posted by j.doe | Monday, January 07 2013 at 3:57PM ET
Wait, wait, let me find my violin. $1MM for a set of full accrual accounting books? Right.
Posted by scdrb | Tuesday, January 08 2013 at 9:32AM ET
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