LAS VEGAS - Banks may soon be buying a lot of insurance agencies, according to executives at an insurance industry conference.
Anticipating a ban on pooling-of-interest accounting, banks may buy more insurance agencies this year than in all of the past three, said John Wepler, a vice president in the merger and acquisition division of March Berry & Co. of Cleveland.
Banks and thrifts bought 63 insurance agencies in 1999, up from 44 in 1998 and 19 in 1987, according SNL Securities.
Pooling of interest, in which the balance sheets of the two parties are merged, has been popular with banking companies because it eliminates the need to take charges against earnings for the purchase price. The Financial Accounting Standards, concerned that pooling makes it hard for investors to judge earnings, has voted to require purchase accounting starting next year.
Though the board recently said it would review complaints about its plan, a number of banks are canvassing for deals, said Mr. Wepler.
Pooling does not hurt earnings, Mr. Wepler said, "and it makes the financials look good."
He spoke to American Banker after taking part in a panel discussion at the 12th annual conference of the Financial Institutions Insurance Association, whose members are banks, insurance companies, and third-party marketers. The panel examined the various ways banks can enter the insurance sales business.Generally, pooling is the preferred accounting method only for banking companies buying large agencies, Mr. Wepler said. How a $40 billion-asset company accounts for the purchase of a 10-person agency matters less, because the price would have little effect on earnings, he said.
Also, Securities and Exchange Commission rules that bar share buybacks after pooling deals could dissuade some banks, Mr. Wepler noted.
PNC Financial Group of Pittsburgh has looked at buying insurance agencies but would not make a pooled-interest deal, said Richard H. Klovstad, vice chairman and chief executive officer of PNC Insurance Services Inc.
PNC, which has four start-up agencies, would go for a pooling deal only if the target were a large insurance agency, he said. The fact that it is also buying back its own stock is also a deterrent, Mr. Klovstad said in an earlier interview.
Banks that buy insurance agencies should be careful to leave their entrepreneurial spirit intact, Mr. Wepler said. Independent agents should not be exposed to "the bureaucratic structure of the bank," he said.
David Reich-Hale contributed to this article.
