Who wants to marry an insurance underwriter?

With the passage of the financial services reform law, and more recently ING Group's bid for Aetna, the prospect of banks and insurance companies heading down the aisle takes on a new immediacy.

Notwithstanding the bid for Aetna - and despite the apparent availability of a number of other large insurers - most banking companies are hesitating to declare themselves interested in acquiring one. And none has taken the plunge.

But a small number of banking companies - including Citigroup Inc., Wells Fargo & Co., and BB&T Corp. - may be more open to the idea. And more could follow if financial stocks rebound or if banks determine that distribution can be improved by buying underwriting capabilities, industry observers and financial services executives said.

The conventional wisdom on banks' buying insurers has swung wildly in the months since the passage of the reform law. Initially, such mergers were touted as one of the likeliest outcomes of the new law. But soon thereafter, as banking companies took stock of their shares' weak standing - and of insurers' shares' weaker standing - they lost interest.

"Nothing's happening now," said Sean J. Ryan, an analyst with Byrne, Ryan & Co. in White Plains, N.Y. "Virtually all activity is contingent on a rebound in share prices," he said.

John M. Wepler, vice president of mergers and acquisition services at Marsh Berry & Co. of Concord, Ohio, said, "We don't know of banks other than the gorillas that are interested in acquiring the underwriting component."

Still, it's worth taking a look at some of the gorillas, and others, that might now be mulling making such a play.

For one thing, there are the European players, such as ING, ABN Amro NV, and Amsterdam-based Aegon NV. Industry observers generally see these as the likeliest near-term buyers of U.S. insurance companies partly because such companies already combine banking and insurance. Their expertise makes them better bidders than U.S. banking companies and their size gives them an advantage over many U.S. insurers.

If you're a big European insurer and you want to be in one of the largest insurance markets in the world, "you're going to want to buy U.S. life insurance companies," said Robert A. Lee, an insurance analyst with PaineWebber Inc. of New York.

Outside Europe the pickings get slimmer.

One obvious possibility is Citigroup, said Mr. Ryan of Byrne, Ryan. "You may not actually need a dramatic move in the stocks to make Citi a plausible near-term buyer. But for the rest of the woeful bank industry, you're going to have to wait and see," he said.

Raphael Soifer, a former banking analyst with Brown Brothers Harriman & Co. in New York, agreed that Citigroup is in a different position than any other U.S. banking company. That's because Citigroup already owns a large life insurance company and a property casualty insurer and anything they were to buy could be folded into those holdings.

"I think there's every chance in the world, given the right price and the right situation, that Citi will be buying insurance companies," Mr. Soifer said, adding that it would have to be large in order to be worth the company's effort.

A spokeswoman for Citigroup did not return calls seeking comment.

Meanwhile, a spokesman for Wells Fargo said the company would be interested in buying an insurer only if doing so increased its distribution capabilities.

"We do not have an immediate need to acquire a large insurance company but we continue to explore opportunities that first of all would benefit our shareholders and second, enable us to expand our distribution network for selling insurance products," he said.

BB&T, for its part, has been one of the more aggressive banking companies in insurance, buying 10 independent agencies in 1999, a spokeswoman said. It also harbors an interest in buying an underwriter.

Darrell Pittard, executive vice president of the Winston-Salem, N.C., company agreed that the lackluster market for financial stocks has taken a toll on potential deals. But he also asserted that BB&T would be interested in acquiring a medium-size or small insurance company, even if such a deal is not as high a priority as it was 18 months ago. BB&T's stock closed at $22.625 on Monday, off from $23.375 on Friday and a 52-week high of $40.25 last May.

Mr. Pittard added that once the market for financial stocks improves, "there will be American banks competing with European insurance companies for life insurance companies here."

On the insurance company side, at least one, ReliaStar Financial Corp. of Minneapolis, has said publicly for the last several years that if financial services reform were to pass, midsize insurance companies would be obliged to look to at the advantages of aligning with a bank.

Indeed, in a Feb. 2 meeting with analysts, ReliaStar chairman and chief executive John G. Turner reiterated that opinion.

"Because nothing has happened, the impression seems to be that I have changed my view. I have not. A significant decline in financial stocks has created an environment that has been less than ideal for pursing an important strategic initiative. ReliaStar will remain open-minded and vigilant in evaluating opportunities that present themselves."

Still, many bankers said they do not need to own the factory in order to sell the product.

"We can continue to be successful in meeting the customer's needs for insurance products without pursuing an acquisition," said a spokesman for PNC Bank Corp. of Pittsburgh.

Karen Goff, senior vice president of First Tennessee National Corp.'s insurance arm, said: "As long as the products are available and are competitive and fit through our distribution channels, I don't think you'll find the banks rushing to buy insurance companies." Ms. Goff also noted that banks are more likely to continue buying agencies, establishing a track record in that area before moving on to underwriting - the approach that BB&T appears to be taking.

Agency acquisitions, a trend that started before the reform law passed, have been on the rise, with banks and thrifts buying 63 insurance agencies in 1999, up from 44 in 1998, and 19 in 1997, according to SNL Securities of Charlottesville, Va.

And Marsh Berry's Mr. Wepler sees agency acquisition as remaining the favored route for smaller banks looking to add insurance to their suite of products. These players are "more interested in obtaining the expertise and the distribution capabilities that are provided by insurance agencies," Mr. Wepler said.

Meanwhile, it's possible that a nonbank would be interested in doing a deal, said Peter Mann, senior vice president of John Hancock's Financial Institutions Group, which sells mutual funds, annuities, and life insurance to banks, thrifts, and credit unions.

He specifically cited on-line companies, such as Yahoo Inc., who might see an advantage in combining their strong base of customers with insurers' product manufacturing. A Yahoo spokeswoman declined to discuss the subject.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.