June 30, 2008

SOURCE: InsuranceNewsNet, Inc.

Banks are having a tough time in the sputtering economy but one shining spot on their balance sheets is their insurance brokerage services, which had their second best quarter in the first three months of 2008, according to a fee income report.

 The Michael White-Symetra Bank Fee Income Report showed:

• Bank insurance brokerage earnings for the first quarter registered the second highest level ever at approximately $1.07 billion (8.6 percent higher from $993.3 million for the first quarter of 2007).
• With the record set at $1.08 billion in 2006’s third-quarter, this year’s first-quarter needed $4.4 million more to set a new record.

Meanwhile, the Kehrer-Jackson Monthly Bank Annuity Sales Survey reported that sales of bank fixed and variable annuities have climbed steadily every month from December 2007 to February 2008. From $3.5 billion in December 2007, bank annuity sales increased to $3.8 billion in January and $4.7 billion in February. In fact, total bank annuity sales in February were 68 percent higher than the $2.9 billion in February 2007.

“Fixed annuity sales in banks have doubled in the last two months,” said Kenneth Kehrer of Kehrer-LIMRA in a press statement. “Bank sales of fixed annuities rose 47 percentin February, following a 36 percent increase in January. Year-over-year, fixed annuity sales were up 180 percent.”

A third survey by Bank Insurance Market Research Group (BIMRG) showed that
banks that sell insurance earned an average of 44 percent higher net income in 2007 than financial institutions that do not offer the same products.

BIMRG also noted that the trend toward higher average net income was seen in financial firms of all sizes, but banks with $10 billion or more in assets garnered 15 percent higher average net income in 2007.

BIMRG concluded that insurance brokerage played a key part for banks in 2007 when traditional income sources were under pressure. One BIMRG executive said that an insurance agency business in a bank can act as a hedge against interest-rate volatility and can balance out earnings.

Another bright spot in 2007 was bank-owned life insurance (BOLI) assets that topped $120 billion in 2007 – 16 percent higher than the total amount in 2006. In the 2008 BOLI Holdings Report published by Michael White Associates, some 81 percent of the 696 large bank holding companies and stand-alone banks with more than $500 million in assets held some BOLI assets, an increase from 1.3 percent in 2006.

From 2003 through 2004, financial institutions sold nearly $100 billion in annuities with an estimated $5.8 billion in commissions, BIMRG said. Although sales have dropped from  their $50.1 billion peak in 2003,  many remained confident that bank annuity sales programs would continue to be sources of fee income. Financial institutions are one of the leading sellers of deferred fixed or fixed-rate annuities, BIMRG said. 

Industry observers say a cornerstone of the success of banks in selling insurance products are programs that pay licensed bank employees to cross-sell annuities. They noted a stand-alone or hybrid licensed-bank-employee annuity program can expand a bank’s product distribution-reach to include the middle market generally ignored by investment representatives.

Licensed bank employees are eager to serve and pay close attention to their customers and often uncover undisclosed fund sources that could be put into annuities and other products that help meet their customer needs. By offering annuities as a savings alternative, banks are able to convert these opportunities into assets.

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