Citizens Financial Group Inc. sold its three insurance agencies Wednesday to Hub International Ltd. and said it will continue to sell insurance products to its customers through a distribution alliance with the Chicago insurance broker.
Acquisitions have extended the Providence, R.I., banking subsidiary of Royal Bank of Scotland's branch network far beyond the reach of its agencies, according to Robert M. Mahoney, a vice chairman at Citizens. In order to offer insurance products to corporate customers throughout its 13-state market, not just to those in three local markets, he said, Citizens needed to align with a provider boasting a broader footprint.
"We are getting out of insurance ownership, but we are not getting out of the insurance business," Mr. Mahoney said in an interview. "This alliance gives customers access to the Hub agencies and all of their insurance offerings."
In the deal, expected to close in the second quarter, Citizens sold its Citizens Clair Insurance Group in Norristown, Pa., Brewer & Lord in Norwell, Mass., and Feitelberg Co. in Fall River, Mass. The agencies will continue to operate independently within the Hub International system. The deal's terms were not disclosed.
Mr. Mahoney said the company decided to sell its insurance brokerage operations because, since its August 2004 deal for Cleveland-based Charter One Financial Inc., "either we had to purchase a huge number of insurance agencies or affiliate" in order to provide a full array of insurance products and services throughout the footprint. "Either we had to create or partner, and we decided the most efficient way to do this was to partner."
The decision to divest its insurance business came a day after Royal Bank announced in an earnings conference call that it is retreating from years of aggressive dealmaking and is redirecting excess capital to shareholders. Lawrence K. Fish, Citizens' chairman and chief executive officer, said he could become a buyer again when he sees "more realistic pricing" for small-bank targets.
Bruce Guthart, the chief operating officer of Hub International, said the alliance would let Hub work through Citizens bank reps, direct mailings, and marketing that targets Citizens customers.
"A lot of banks have not done a good job owning insurance brokerage firms," he said. "Many banks bought brokers and tried to start a cross-selling initiative and it just didn't work. Citizens has done well with cross-selling. There have been mutual collaborations with clients, and Hub has an opportunity here to capitalize on what they have done well with their agencies and stretch beyond their geographic limitations."
Mr. Guthart said Citizens was limited to insurance sales in southern Massachusetts and the Philadelphia area. Hub gives Citizens an insurance sales network that stretches through New England, the Northeast, and Midwest.
Chicago-based Hub has expanded rapidly through mergers, acquisitions, and organic growth since its formation in 1998, he said. This is Hub's fourth deal with a large financial institution, he added, starting with the January 2003 purchase of Fifth Third Insurance Services Inc., the insurance brokerage arm of Fifth Third Bancorp in Cincinnati.
The Citizens deal is different from that with Fifth Third, Mr. Guthart said, because Citizens was sufficiently committed to the insurance business to buy agencies and build the business, whereas Fifth Third had happened to acquire an insurance business in a bank deal.
Citizens had an insurance operation more comparable in revenue terms to smaller banking companies in the Northeast than to one of the giants, JPMorgan Chase & Co., according to Michael D. White, the president of Michael D. White Associates, an insurance research firm in Radnor, Pa.
The Rhode Island company's insurance brokerage fee income was $26.4 million for the first half of 2005, the latest data available in his firm's Insurance Brokerage Fee Income Ratings Report, Mr. White said. This ranked it 20th among the 65 banking companies with $10 billion or more of assets that reported insurance fee income.
By comparison, the much smaller regional bank Webster Financial Corp., with $22.4 million, was ranked 23d, and TD Banknorth, with $19.6 million, was ranked 26th. JPMorgan, by contrast, had $225 million of insurance fee income and was ranked fifth.
Hub's alliance with Citizens will sell property and casualty, life and health, employee benefits, investment, and risk management products and services to the bank's customers nationally, Mr. Guthart said.
Mr. Mahoney said Citizens, which has been offering insurance services since its purchase of Brewer & Lord five years ago, remains committed to offering insurance services to its customers.
"We like this business, and we like offering one-stop shopping to our customers. … We just wanted to broaden the insurance offering over our entire footprint," he said.
Insurance was a relatively small piece of Citizens' overall business, said Mr. White, the consultant. Compared with traditional insurance brokerage firms, Citizens' agencies may have done well, he said, but compared to the performance of the bank's other businesses it was not a significant piece.
"This is not to say that their insurance agencies were bad or that they were losing money," he said. "Historically, these agencies are well-perceived agencies. But from the bank holding company perspective, they weren't keeping up with the holding company."
Mr. White said that Citizens would not have sold its insurance business if it was meeting expectations within the organization and that Citizens wanted to focus on its core strengths.
Mr. Mahoney said that this is a fair assessment. The insurance operation is a relatively small part of the $159 billion-asset banking company's business, he said.
"Our focus is on the business of banking. We are taking deposits and making loans," he said. "But we also want to serve all of our customers' financial needs. We want to find good resources for products we don't deliver, and we can give our customers access to first-class insurance products without owning them."
Mr. Guthart said Hub is establishing itself as the "buyer of choice" for financial services institutions looking to leave the insurance brokerage business.
