The strategic alliance Countrywide Financial Corp. reached with a New York insurer this week significantly advances revenue diversification efforts and fills a gap in its product lineup for the affluent, an executive for the lender said.
Prior to the revenue and risk-sharing alliance, which it announced Wednesday with Atlantic Mutual, Countrywide had not offered insurance packages to higher-end customers, focusing instead on midtier borrowers.
"Countrywide has significant market share with midrange homebuyers," said Tom Scrivener, the president of Countrywide Insurance Group's personal lines division, "but we are focused on expanding in all spectrums of the mortgage business, and that includes expanding the services we offer to affluent customers."
Countrywide Insurance had $782 million of premium in 2004, up 33% in two years. Mr. Scrivener said the company wants to expand that significantly in the next few years.
"Clearly, as has been communicated, our goal for the insurance group is to be a multibillion insurance player six years from now," he said. "This deal with Atlantic Mutual is a significant step in reaching one of the many niches we are trying to reach."
The mortgage company also is assuming part of the risk, with Atlantic Mutual, in a reinsurance arrangement that gives the latter's independent agents the backing of the A.M. Best "A" rating boasted by Countrywide Insurance's property and casualty underwriter units.
Though Calabasas, Calif.-based Countrywide is the top mortgage originator in the United States, Mr. Scrivener said, it is a "critical initiative of Countrywide to grow diversified businesses." These diversified businesses, which include Countrywide Insurance, accounted for 35% of corporate earnings in 2004, a share the company wants to increase this year.
Atlantic Mutual specializes in offering property/casualty insurance products to people with substantial assets to protect. Its Atlantic Master Plan packages automobile, homeowner's, and other liability coverages, as well as scheduled-item insurance for valuables, boats, and the like. It distributes through independent agents. And the two companies have begun working to extend the partnership to the western states, where Countrywide plans to leverage the Atlantic Mutual brand with its affluent customers.
"The insurance business is an important part of our diversification because insurance earnings are countercyclical to the mortgage booms," Mr. Scrivener said. "Growing the insurance business is a high-level initiative for Countryside."
It also is very interested in developing a niche in the auto insurance market, he said. "We would like to be able to bring auto insurance to nonaffluent homebuyers," he said.
The parent company is working to double its market share by 2010. Analysts said Countrywide wants to reach a 30% share of mortgage originations and also wants to increase cross-selling of nonmortgage products.
Other home lending competitors are also trying to increase cross-selling. Washington Mutual Inc.'s new home lending chief laid out an initiative this month to increase cross-selling of products such as credit cards through the Seattle company's 2,000 thrift branches.
"It isn't enough to just be great at selling one product," said Burton Greenwald, an analyst at BJ Greenwald Associates in Philadelphia. "To increase revenue, firms have to be great at using their primary product to develop relationships and cross-sell additional products."
Mr. Scrivener said having a package of insurance products for affluent homebuyers was "critically important" to the insurance division's growth.
"Atlantic Mutual is primed to be a significant player with the exact customer that we are attempting to serve," Mr. Scrivener said. "We believe that now we can compete with any insurance provider of affluent products. This is more than just competing with other mortgage companies."
"We find mortgage customers want a package insurance product alternative as they are purchasing their house," he said. "They want quality products and quality service that is convenient."
