Financial Services
The convergence of products and services that began in the 1970s continue to gather momentum. Today most of the top financial services companies do business across sectors, offering their customers an ever-broadening range of financial tools. Below are some examples of convergence. For further information on the financial services arena, see the Financial Services Fact Book ( http://www.financialservicesfacts.org ).
 
TOP TEN CROSS-INDUSTRY ACQUISITIONS ANNOUNCED IN 2003, UNITED STATES (1)

 

 Rank
Buyer
Industry
Country
Target
Industry
Country
Deal value (2)
($ millions)
1 Bank of America Corp. Bank U.S. FleetBoston Financial Corp. Bank U.S. $49,328.7
2 Anthem Inc. Insurance U.S. WellPoint Health Networks Inc. Insurance U.S. 16,247.1
3 St. Paul Cos. Insurance U.S. Travelers Property Casualty Corp. Insurance U.S. 16,138.5
4 Manulife Financial Corp. Insurance Canada John Hancock Financial Services Inc. Insurance U.S. 10,423.0
5 Citigroup Inc. Bank U.S. Sears Roebuck & Co.'s credit and financial business Specialty lender U.S. 6,000.0
6 General Electric Co. Diversified U.S. Transamerica Finance's commercial lending business Specialty lender U.S. 5,400.0
7 BB&T Corp. Bank U.S. First Virginia Banks Inc. Bank U.S. 3,375.5
8 UnitedHealth Group Inc. Insurance U.S. Mid Atlantic Medical Services Insurance U.S. 3,301.1
9 Lehman Brothers Holdings Inc. Broker/
dealer		 U.S. Neuberger Berman Inc. Asset manager U.S. 2,947.1
10 American International Group Insurance U.S. GE Edison Life/GE's U.S. auto and home business Insurance U.S. 2,150.0

(1) At least one of the companies involved is a U.S.-domiciled company. List does not include terminated deals.
(2) At announcement.

Source: SNL Financial LC.
THE SECURITIZATION OF INSURANCE RISK

Insurers and reinsurers typically issue catastrophe bonds through an issuer known as a special purpose vehicle or reinsurer, a specialized company set up specifically for this purpose. The bonds pay high interest rates and diversify an investor's portfolio because natural disasters occur randomly and are not associated with economic factors. Depending on how the bond is structured, if losses reach the threshold specified in the bond offering, the investor may lose all or part of the principal or interest. There is growing interest in securitizing life insurance company portfolios and a catastrophe bond public fund has been launched in Europe for individual investors. Discussions are taking place on securitization of auto insurance and other commodity-type insurance risks.
 
CATASTROPHE BOND TRANSACTIONS, 2003

($ millions)

 

 Special purpose vehicle
Sponsor
Risk amount
Peril
Risk location
Residential Re 2003 USAA $160.0 Hurricane East/Gulf Coast & Hawaii
      Earthquake U.S.
Phoenix Quake Zenkyoren 192.5 Earthquake Japan
Wind Ltd.     Typhoon Japan
Phoenix Quake Ltd.   192.5 Earthquake Japan
Phoenix Quake   85.0 Earthquake Japan
Wind II Ltd.     Typhoon Japan
Palm Capital Ltd. Swiss Re 41.4 Hurricane North Atlantic
Oak Capital Ltd. Swiss Re 23.6 Windstorm Europe
Sequoia Capital Ltd. Swiss Re 22.5 Earthquake California
Sakura Ltd. Swiss Re 14.7 Earthquake Japan
Arbor I Ltd. Swiss Re 163.9 Hurricane North Atlantic
      Windstorm Europe
      Earthquake California
      Earthquake Japan
Arbor II Ltd. Swiss Re 26.5 Hurricane North Atlantic
      Windstorm Europe
      Earthquake California
      Earthquake Japan
Pioneer 2002 Ltd. Swiss Re 16.3 Hurricane North Atlantic
    20.3 Windstorm Europe
    13.8 Earthquake California
    59.1 Earthquake Central U.S.
    8.0 Earthquake Japan
    8.1 All the above All the above
Formosa Re Central Re 100.0 Earthquake Taiwan
Redwood Capital III Swiss Re 150.0 Earthquake California
Redwood Capital IV Swiss Re 200.0 Earthquake California
Pylon Ltd. Electricite de France 85.4 Windstorm France
    146.4 Windstorm France
Source: Guy Carpenter; MMC Securities Corp.
LEADING INSURERS, LIFE INSURANCE SALES THROUGH BANKS, 2002-2003 (1)

($ millions)

 

 Rank
Company
2002
2003
1 Hartford $17.0 $33.1
2 Nationwide 38.1 21.0
3 Mass Mutual 2.5 11.9
4 Great West Life 7.8 11.0
5 AIG 9.7 10.9
6 AXA 11.3 8.5
7 CUNA Mutual 15.2 6.3
8 John Hancock 4.2 5.9
9 Sun Life Financial 5.2 5.7
10 Aegon 0.0 4.3

(1) Ranked by 2003 weighted premiums, which discount 90 percent of single premium (one-time payment) products to approximate the expected value of premium flows to life insurance companies each year.

Source: Kenneth Kehrer Associates.
 
TOP TEN WRITERS OF FIXED ANNUITIES SOLD THROUGH BANKS, 2002-2003 (1)

($ millions)

 

 Rank
Company
2002
2003
1 AIG $8,575 $10,380
2 Aegon/Transamerica 5,142 3,725
3 Allstate Financial 1,973 2,283
4 Nationwide 2,214 1,642
5 Jackson National 2,005 1,089
6 Western-Southern 1,205 1,075
7 John Hancock 1,982 1,068
8 New York Life 789 1,005
9 American Enterprise 1,094 996
10 Sun Life Financial 1,535 952

(1) Ranked by 2003 sales.

Source: Kenneth Kehrer Associates.
TOP TEN WRITERS OF VARIABLE ANNUITIES SOLD THROUGH BANKS, 2002-2003 (1)

($ millions)

 

 Rank
Company
2002
2003
1 Hartford $3,176 $4,890
2 AXA 605 1,950
3 Pacific Life 674 1,760
4 Nationwide 1,398 1,659
5 American Enterprise 1,125 1,051
6 AIG/SunAmerica 833 907
7 GE Financial 242 765
8 Jackson National 291 582
9 Prudential 223 556
10 Sun Life Financial 595 529

(1) Ranked by 2003 sales.

Source: Kenneth Kehrer Associates.
BANK PURCHASES OF INSURANCE AGENCIES,
2000-2003 (1)

 

  
2000
2001
2002
2003
Number of deals 63 56 60 54
Deal value (2) ($ millions) $131.8 $383.7 $136.2 $656.1

(1) List does not include terminated deals.
(2) At announcement.

Source: SNL Financial LC.

  • In 2003, the number of bank/agency deals decreased by 10 percent from 2002, but the value of those deals increased by 382 percent.

 
 
BANK-PRODUCED INSURANCE PREMIUMS, 1998-2003 (1)

 

  
1998
1999
2000
2001
2002
2003
Percent change, 1998-2003
Annuities $19.6 $24.2 $31.0 $37.1 $47.7 $51.6 163.3%
Commercial lines (2) 4.0 4.4 5.4 8.9 11.5 14.2 255.0
Personal property/casualty 2.9 3.1 3.7 4.1 5.0 6.3 117.2
Credit coverages 2.9 2.9 2.7 2.8 2.5 3.6 24.1
Individual life/health 1.5 1.8 2.1 2.3 2.8 2.4 60.0
Total $30.9 $36.4 $44.9 $55.2 $69.5 $78.1 152.8
Annual growth 11.6% 17.8% 23.4% 22.9% 25.9% 12.4% NA

(1) Estimated.
(2) Includes commercial property/casualty and group benefits premium.

NA=Not applicable.

Source: American Bankers Insurance Association.
BANK INSURANCE PREMIUMS, BY TYPE OF COVERAGE, 2003 (1)

 ($ billions)


 

  • In 2003, bank insurance premiums increased by 12 percent to an estimated $78.1 billion from $69.5 billion the previous year, according to a survey conducted by the American Bankers Insurance Association.

     

  • In 2003, sales of credit coverages dropped to 5 percent of bank premiums, down from 9 percent in 1998.

 
PRIMARY BANK INSURANCE DISTRIBUTION CHANNELS, 2003

(Percent)

 

 
Property/casualty
Life/health

 
Personal
Commercial
Individual
Group benefits
Acquired agency 53.1% 67.1% 29.4% 51.9%
Carrier direct 22.2 19.0 19.3 14.8
De novo (1) 19.8 15.2 20.2 23.5
Joint venture (2) 11.1 11.4 24.4 17.3
Third-party marketer 7.4 5.1 25.2 11.1

(1) Joint venture or marketing alliance with an insurance agency.
(2) Agency originated by the bank without acquisition of a platform agency.

Source: American Bankers Insurance Association.
TOP TEN FINANCIAL HOLDING COMPANIES, 2004 (1)

 

 Rank
Financial holding company
City
State
Assets
1 Citigroup Inc. New York NY $1,396,568,000
2 Bank of America Corporation Charlotte NC 1,039,764,440
3 J.P. Morgan Chase & Co. New York NY 817,763,000
4 Wells Fargo & Company San Francisco CA 420,305,000
5 Wachovia Corporation Charlotte NC 418,441,000
6 Taunus Corporation (2) New York NY 316,458,000
7 Bank One Corporation Chicago IL 299,303,000
8 HSBC North America Holdings Inc. (3) Prospect Heights IL 298,818,386
9 U.S. Bancorp Minneapolis MN 190,230,000
10 ABN AMRO North America Holding Company (4) Chicago IL 131,361,819

(1) As of June 30, 2004.
(2) Taunus' top holder, Deutsche Bank, is an FHC.
(3) HSBC N.A. Holdings Inc.'s holder, HSBC Holding PLC, is an FHC.
(4) ABN AMRO N.A. Holding Company's holder, ABN AMRO Holding, N.V., is an FHC.

Source:  Board of Governors of the Federal Reserve System.

  • More than 500 BHCs elected to become FHCs within the first 12 months that the option was available with the passage of Gramm-Leach-Bliley.

 
 

Travelers, Allstate, Encompass, Deerbrook,  Metropolitan, Cumberland Mutual, Allied, AIG
Friends Cove Mutual, Progressive, Harleysville, Safeco, General Casualty, Foremost, Zurich
Hartford,  Commercial Protective, Truckers, Hartford, USG, Bristol West, Philadelphia Ins Co.
Auto Insurance, Homeowners Insurance, RV Insurance, Motorcycle Insurance, Life Insurance
Powersports Insurance, Business Insurance, Commercial Vehicle Insurance, Truck Insurance
Accident Insurance, Disability Insurance, Health Insurance, Flood Insurance, Aircraft Insurance

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