A top executive at BancorpSouth Bank in Tupelo, Miss., said there are acquisition opportunities in the Gulf Coast region as small insurers look to sell themselves.
W. James Threadgill Jr., the vice chairman of BancorpSouth Inc. unit, said in an interview last week that it wants to continue to expand its BancorpSouth Insurance Services Inc. by acquiring small agencies in its eight-state area: Florida, Missouri, Mississippi, Texas, Tennessee, Louisiana, Arkansas, and Alabama.
BancorpSouth Insurance has found willing targets because of the increased pressure on insurers in the region since Hurricane Katrina, Mr. Threadgill said.
"The capacity and the calls to insurance companies have really escalated in the Gulf Coast region, and it has made it difficult for a small insurer to provide the type of coverage that clients are looking for," he said. "This is a hard market, and we are thriving in it, because we have a certain size and a certain expertise. After Katrina, one of our hallmarks was our ability to provide service to clients after the catastrophe."
The $13.2 billion-asset BancorpSouth's insurance business is the 38th-largest insurance brokerage firm in the United States and the 12th-largest bank-owned one, according to the Michael White-Symetra Bank Holding Company Fee Income Report, published in July with data through the first quarter.
The company has "foundation" insurance agencies in Louisiana, Mississippi, and Arkansas and plans to continue to expand them through acquisitions.
Last week BancorpSouth Insurance Services bought Insurance Network of Jonesboro in Arkansas. The acquisition was BancorpSouth's fourth in insurance since entering the business in 2000.
Insurance Network serves clients in the aviation, banking, construction, manufacturing, professional, and retail markets in northern Arkansas. It has become part of BancorpSouth's Little Rock insurance division, Ramsey, Krug, Farrell & Lensing, which the company bought in April 2004.
BancorpSouth bought Wright & Percy in Baton Rouge in 2005 and Stewart Sneed Hewes in Gulfport, Miss., in 2002.
Mike Medlock, the president of Insurance Network, said it was fortunate to be north of most of the damage rendered by Katrina, so the 2005 storm did not affect his decision to sell. Nevertheless, many small competitors continue to struggle as a result of the storm, he said.
"For a small business, whether it be an insurance agency or a hardware store, this storm is something they are still working through," he said. "It is hard for a small business to come back from that, especially if you are an insurer."
However, Denise Brignac, a deputy commissioner with the Louisiana Department of Insurance's Office of Financial Solvency, said mergers and acquisitions have not spiked in the two years since Katrina.
Since the beginning of last year seven insurance agencies have been sold in Louisiana — roughly equivalent to the typical pace of sales in the state over a 20-month period, she said.
"I really think these sales have been more about an owner trying to get a return on their investment than anything storm-related," she said.
Michael White, the head of Michael White Associates LLC, the Radnor, Pa., consulting firm that compiled the report, also questioned Katrina's effect on insurance agencies.
"Certainly, there are opportunities for banks to acquire insurance agencies, because agents tend to be an older crowd, so there are owners that are eventually looking to cash out," he said. "I just don't know if that is driven by Katrina."
Small agencies in any market tend to have a tougher time growing than big ones do, Mr. White said. "Smaller insurers are under pressure to meet minimum premium and volume requirements, which makes it difficult to establish relationships."
Mr. Threadgill said he is confident that BancorpSouth Insurance's annual revenue, currently $67 million, can rise to $100 million within the next three to five years. The unit plans to continue expanding in Louisiana, Arkansas, and Mississippi by buying small agencies and making them divisions of the foundation agencies, as well as expanding into other states where the parent operates, he said.
"We are looking in other states where we have banking operations to find some real quality agencies," he said. "We want to find companies that can enhance our revenue stream."
The initial acquisition in any state would have to be an agency that is "large enough to be able to support further deals," Mr. Threadgill said. "We want to find an agency that can be a good, strong partner for us that we can grow from. We are going to need a partner that is already generating north of $5 million in revenue."
Mr. Medlock said small and midsize insurance agencies like his are generally open to being acquired, especially by banking companies.
"We believe being owned by a bank is a big plus, because we know that they have the capital that we are going to need in order to grow," he said. "Some smaller agencies are going to continue to thrive, but in this region they are going to be limited in terms of the capabilities they will be able to offer, and that will cost them larger customers."
Mr. Threadgill said that BancorpSouth competes in the Gulf Coast region with large providers such as Marsh & McLennan Cos. Inc. and Arthur J. Gallagher & Co. However, by maintaining its growth strategy, BancorpSouth's insurance unit can continue to thrive, he said.
"Customers want more sophisticated insurance services, and it is increasingly difficult to provide the level of expertise and service without having a partner," Mr. Threadgill said. "We can do things for larger clients that smaller agencies just can't."
