First Niagara Financial Group is finding success in the slow-growth upstate New York insurance and employee-benefit market by offering business customers deep and broad relationships.
The Lockport, N.Y., company, whose First Niagara Bank subsidiary has assets of $8.1 billion, has used acquisitions in recent years to assemble a product line encompassing everything from health insurance to compensation consulting services and retirement plan administration. It even has an equipment leasing business.
All told, the insurance and employee benefits businesses throw off annual revenue of about $50 million, said Daniel Cantara, a senior vice president of business services. Insurance accounts for about 80% of the total, he added.
"Upstate New York is generally a slow-growth market," he said. "Insurance is a commodity business, so you have got to offer value-added consultative service."
Mr. Cantara declined to project the unit's growth. But First Niagara is already a leading insurance player among banks: Its First Niagara Risk Management unit served about $400 million of annual premium volume and had $70.1 million of assets at yearend 2005.
One reason for its success, Mr. Cantara said, is that with a relatively small parent company, the insurance leadership can line up high-level support more easily. "If you are a $50- or $60-billion bank and you buy a [small] agency, it's hard to get the attention of senior management," he said.
And with help from the insurance business, fee income accounts for 30% of the bank's revenue. Nearly a dozen acquisitions since 1999 have fueled the growth, topped off by last year's purchase of Hatch Leonard Naples. The insurance agency was the largest in Rochester and one of the largest in Buffalo and Syracuse.
Because today's business clients are more sophisticated, banks must be "more than just a conduit taking in commissions," Mr. Cantara said.
At this time last year, First Niagara bought Burke Group Inc., a major employee benefits and compensation consulting firm in western New York. Burke was the record keeping consultant for about 150,000 plan participants in 50 states with an aggregate of more than $2 billion of assets, according to First Niagara's most recent quarterly SEC filing.
Burke's employee benefits consulting group was combined last week with the bank's insurance unit to form First Niagara Benefits Consulting. The move will let the bank more easily serve businesses' full range of needs, Mr. Cantara explained.
The combined unit has 650 clients served from offices in Buffalo, Rochester, Syracuse, and Albany.
The benefits consulting business has been a "great entrée" for the bank's cross-selling of insurance and other services, Mr. Cantara said. Demand for actuarial services, for example, is growing, he said, as regulations and accounting standards call for companies as well as municipalities to establish that they can meet future obligations in areas like pensions and health care.
First Niagara's sweet spot is customers that are typical in Upstate New York - those with 10 to 100 employees and generating $10 million to $50 million of annual revenues. The bank sells simple-issue term life insurance in its branches, separately from the benefits consulting unit, said Mr. Cantara.
Individual life insurance sales has not been a focus of the benefits unit because it is a highly competitive, low-margin business, he said, adding, "We have a lot more results and penetration on the commercial line side than on the personal line side."
First Niagara is still on the lookout for acquisition targets. But the market for buying insurance agencies has softened of late, Mr. Cantara said; pricing pressures have squeezed profits at agencies, driving down their prospective sale prices and making them reluctant to sell.
"If you are a small, independent agency, you are not necessarily showing the best earnings trend over the last couple of years," he said. "They are waiting for a hard market to sell."
In addition, many of the biggest and best "foundation agencies" have already been snapped up by banks, he said.
