Why lots of banks are saying goodbye to their insurance agencies

Banks with insurance businesses had a choice to make in 2023: hang onto those units and keep reeling in a steady stream of fee income, or sell them for a lot of money.

Several banks chose the latter course, divesting some or all of their insurance subsidiaries amid surging valuations that promised big payouts. The sales also reflected banks' need for capital in a more demanding regulatory environment and a desire to focus on their core banking businesses.

Competition and the ability to scale up in insurance, or not, also played a role, said Mark Crites, a partner at Reagan Consulting, a firm that works with insurance agents, brokers and financial institutions.

"There are lots of big players investing a lot to outcompete those who are not," Crites told American Banker earlier this fall. "So banks have to make a decision: Do I invest heavily in resources on the insurance side, or do I invest heavily in my core businesses?"

Truist Financial, Cadence Bank and Eastern Bancshares were among the banks that sold all or parts of their insurance operations this year. In the case of Cadence and Eastern, as well as M&T Bank in 2022, the buyer was Arthur J. Gallagher, a global insurance firm engaged in an agency buying spree.

Through October, seven U.S. banks agreed to sell their insurance agencies, topping the number of banks that made deals to buy agencies by two, according to data compiled by S&P Global Market Intelligence. It was the first time in at least eight years that the number of sales exceeded the number of acquisitions, S&P reported.

The S&P data doesn't include sales or acquisitions that took place later in the year, including Evans Bancorp's divestiture of its insurance agency to Gallagher for $40 million.

It's a seller's market, which has led to buyers paying significant premiums, Patrick Gallagher, Gallagher's chairman and CEO, said in October.

"We've had incredible success with our friends at M&T. We're very excited about Eastern and Cadence," Gallagher said on the conference call. "Frankly, if there's other banks that are looking in that direction, we're a very good place to look."

Here is a rundown on several banks that sold all or some of their insurance operations this year.

Truist
Scott McIntyre/Bloomberg

Truist Financial

Heading into 2023, speculation arose about whether Truist would sell its insurance subsidiary, a fee-generating powerhouse that makes up more than one-third of its total noninterest income.

During the Charlotte, North Carolina-based company's fourth-quarter earnings call in January, CEO Bill Rogers talked up Truist Insurance Holdings, which is one of the largest insurance brokerages in the nation. Notably, he didn't shut down the possibility of a sale someday

Then, in February, Truist said it would sell 20% of the unit to Stone Point Capital, a private equity firm in Greenwich, Connecticut, for $1.95 billion. The deal closed early in the second quarter.

According to the terms, Truist can sell another part of the insurance unit at any time. 

In the months since, investors have been watching closely for signs that Truist executives are ready to part with more of the business. Prices being paid for insurance subsidiaries are top-notch, and many banks are looking to bolster their capital levels to prepare for new capital rules. 

In October, amid media reports that the bank was preparing to sell the rest of the business, Rogers said Truist likes having the strategic and financial "flexibility" that the insurance unit offers. Selling the remaining stake would add more than 200 basis points of capital flexibility, Truist has said.

"We just want to make sure that we retain that flexibility," Rogers told analysts.

He made similar comments in December about maintaining "strategic and financial flexibility," but he also clearly kept the door propped open for a future sale.

"How and when we use that [flexibility] will be determined by changes in market conditions and our opportunity to maximize shareholder value," Rogers said.
Boston skyline
Scott Eisen/Bloomberg

Eastern Bankshares

In September, Eastern Bankshares in Boston agreed to sell its insurance subsidiary, Eastern Insurance Group, to Arthur J. Gallagher for $510 million in cash. 

The deal was announced on the same day that Eastern said it would acquire Cambridge Trust in Cambridge, Massachusetts, in a $528 million all-stock deal that would create what Eastern Chairman and CEO Bob Rivers described as a "powerhouse" banking company in the Boston area.

The sale of Eastern's insurance arm "provided us with the opportunity to partner with Cambridge Trust," Rivers told analysts during a conference call with investors.

The sale marked the end of an era for Eastern, whose foray into insurance began in 2002 with the acquisition of Allied American Insurance Agency. Eastern subsequently completed 36 additional insurance agency acquisitions. In 2022, the bank generated $99.2 million in insurance commissions.

Jim Fitzgerald, Eastern's chief financial officer, told analysts that the valuation premium on Eastern Insurance — it was valued at 35 times earnings — was a big reason for the sale.

"Eastern hasn't been able to fully take advantage of Eastern Insurance Group's value," he said. "Unlocking this value through the sale is important to our shareholders."
Cadence Bank post-merger

Cadence Bank

In October, Cadence Bank in Tupelo, Mississippi, reached a deal to sell its insurance business to Gallagher for $904 million in cash.

The sale price was about five-and-a-half times the total revenue generated by Cadence Insurance over the past 12 months, Cadence Chairman and CEO Dan Rollins said at the time.

The deal, which is expected to be finalized during the fourth quarter, gives the $48.7 billion-asset Cadence a chance to take advantage of the current steep valuations of insurance agencies and reinvest the capital in a way that improves earnings and generates higher shareholder returns, Rollins told analysts during the company's third-quarter earnings call.

Present-day Cadence, which is the result of a 2021 merger between BancorpSouth Bank in Tupelo, Mississippi, and Cadence Bancorp. in Dallas, hasn't met certain financial targets, Rollins noted. Adjusted return on average assets has declined for several quarters, for instance.

"When you look at us and you compare us to what's going on in the market, we're not where we want to be," Rollins said. "Nobody is willing to hide from that. We've got to improve, and I think this transaction gives us some tools in our toolkit to allow us to improve."
Evans Bank

Evans Bancorp

Evans Bancorp, a $2.1 billion-asset bank in Western New York, spent 23 years building up its insurance agency. But in November, an offer from Gallagher was too good to pass up.

The following month, the Angola, New York-based parent company of Evans Bank sold The Evans Agency to Gallagher for $40 million. The deal's announcement came just over a year after another Western New York bank, Buffalo-based M&T, sold its insurance business to Gallagher.

Evans said it would invest the proceeds from the sale —about $15.1 million after taxes — into lending and other core banking operations.

Before the sale, Evans had acquired more than 15 insurance agencies over the course of two decades.

CB Financial

Earlier this month, Washington, Pennsylvania-based CB Financial became the latest bank to strike a deal to unload its insurance agency. The $1.4 billion-asset holding company for Community Bank said it would sell its Exchange Underwriters unit to World Insurance Associates for $30.5 million.

After taxes, CB expects the deal to yield about $16.4 million. The cash "provides flexibility to evaluate and pursue various strategic initiatives to redeploy capital in support of our core banking business," CEO John Montgomery said after the deal was announced. 

Exchange Underwriters has been a significant contributor to CB's earnings. During the first three quarters of this year, its revenues made up nearly two-thirds of the company's $7.5 million in fee income.

CB acquired Exchange Underwriters in October 2014 as part of its $54.5 million purchase of FirstFed Financial in Monessen, Pennsylvania.
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