US banks log most insurance business sales since 2020

US banks are continuing to capitalize on attractive insurance valuations, pushing the number of their insurance business sales to its highest level since 2020.

Banks have announced 10 insurance business sales so far in 2023, outpacing the number of acquisitions for the first time in at least eight years, according to S&P Global Market Intelligence data. Banks are increasingly exiting insurance as valuations in this segment surge. Conversely, bank valuations have reached one of the lowest points since the Great Financial Crisis.

Half of the 10 sales have been disclosed since September, including two so far in December: BOK Financial Corp.'s sale of BOK Financial Insurance Inc. to USI Insurance Services LLC and CB Financial Services Inc.'s sale of Exchange Underwriters Inc. to World Insurance Associates LLC.

As strengthening capital became important in the current environment, some banks have been opting to use the proceeds from their insurance operation sales to restructure their balance sheets.

One of those banks is BOK Financial, which sold its risk management and employee benefits insurance brokerage and consulting business for a pretax gain of $28 million after considering transaction-related expenses.

BOK Financial plans to use the gain to realize an equivalent amount of losses in its available-for-sale securities portfolio and reposition into higher-yielding securities.

"While admittedly a small transaction, we applaud [BOK Financial] management for taking advantage of the frothy insurance valuations and electing to use the proceeds in a tax efficient manner to partially restructure its bond portfolio," Raymond James analyst Michael Rose wrote in a Dec. 1 note.

While 2024 earnings per share accretion from the restructuring will be small, "management has the capacity to do more over time should it decide to do so," Rose added.

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Cadence Bank plans to use the proceeds from its sale of Cadence Insurance Inc. to Arthur J. Gallagher & Co. to increase its capital ratios and improve its performance metrics.

The transaction, the second-largest insurance business sale by a bank in 2023 with a value of $904 million, will enable Cadence to reposition its balance sheet by paying down wholesale borrowings and exiting low-yielding securities, according to an investor presentation.

Meanwhile, CB Financial Services expects to redeploy capital generated through the $30.5 million sale of its insurance unit across its core banking franchise.

"The additional capital provides flexibility to evaluate and pursue various strategic initiatives to redeploy capital in support of our core banking business with a focus on continuing to enhance long-term shareholder value," CB Financial Services President and CEO John Montgomery said in a news release.

Most active banks

Some of the most active acquirers of insurance units in recent years have changed their tunes in 2023.

Truist Financial Corp. and Eastern Bankshares Inc. — which reported the largest and third-largest insurance business sales, respectively, in 2023 — led the list of banks with the most net acquisitions of insurance brokers since 2016.

Earlier in the year, Truist sold a 20% stake in Truist Insurance Holdings LLC to funds managed by private equity firm Stone Point Capital LLC for $1.95 billion. Eastern Bankshares sold Eastern Insurance Group LLC to Arthur J. Gallagher & Co. for about $510 million in cash.

Truist Chairman, President and CEO William Rogers Jr. said in a Dec. 5 conference appearance that the company's sale of the insurance stake helped create strategic and financial flexibility. The executive was noncommittal on the topic of whether Truist would pursue a full exit.

Two other banks that sold their insurance operations in 2023 were among the most active net acquirers of insurance brokers: Premier Financial Corp., which sold First Insurance Group, and Evans Bancorp Inc., which sold Evans Agency LLC.