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In This List

Merger partners BB&T, SunTrust take opposite approaches to insurance business

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Merger partners BB&T, SunTrust take opposite approaches to insurance business

The insurance business of BB&T Corp., which ranked as the No. 5 U.S. broker and the largest bank-owned broker in 2017, will not receive much of an immediate lift from a proposed merger of equals with SunTrust Banks Inc.

That said, SunTrust CFO Allison Dukes listed insurance as an area of potential revenue opportunity as it "brings a new highly relevant capability" to her institution's client base.

Branch Banking and Trust Co. generated $1.81 billion in noninterest income from insurance commissions and fees in 2018, according to call report data, by far the highest among depository institutions not owned by an entity primarily engaged in insurance. SunTrust Bank tallied an immaterial sum during the year, though insurance at several times in the past represented a somewhat larger portion of its overall business. Its holding company generated less than $9.5 million through the first nine months of 2018, according to bank regulatory filings.

Insurance brokerage will be the largest contributor to the combined fee income of BB&T and SunTrust, the banks said, as the segment will be responsible for 23% of the pro forma total of approximately $8 billion. Insurance will contribute less than 10% of total revenues, Dukes said during a conference call to discuss the deal, down from about 20% for BB&T on a stand-alone basis.

Global insurance specialists Marsh & McLennan Cos. Inc., Aon PLC, Willis Towers Watson PLC and Arthur J. Gallagher & Co. topped Business Insurance's most recent ranking of U.S. brokerage revenue. Those rankings, which placed BB&T and Brown & Brown Inc. fifth and sixth, respectively, did not account for significant acquisitions by each of those entities: BB&T's July 2018 purchase of Regions Insurance Group Inc. from Regions Financial Corp. and Brown & Brown's November 2018 addition of Hays Cos. Each of the two targets produced more than $100 million in 2017 U.S. brokerage revenue, according to the Business Insurance survey.

Through a combination of organic and inorganic growth, BB&T has increased its insurance revenues and market presence considerably over the past 15 years. Its noninterest income from insurance commissions and fees totaled less than $400 million in 2003. SunTrust's noninterest income from insurance commissions and fees peaked in 2008 at $75.6 million, much of which pertained to insurance and reinsurance underwriting at a time when the bank engaged in mortgage reinsurance through a captive insurance subsidiary. It sold an inactive insurance subsidiary in 2009.

The contrasting emphasis on insurance distribution among the merger partners might best be viewed in the fate of Hilton Head Island, S.C., agency Carswell Insurance Services.

SunTrust acquired the agency, which provided commercial and personal property and casualty coverage and group benefits offerings, through a broader June 2003 purchase of Lighthouse Financial Services for $130 million. Less than two years after SunTrust announced the completion of its integration of Lighthouse, including what was then known as Carswell-Lighthouse Insurance, it sold its 100% interest in the agency to management for $10.9 million. In June 2007, BB&T announced an agreement to buy Carswell.

BB&T's long-term commitment to growing its insurance franchise contrasts with many of its banking peers, a number of which have exited insurance brokerage or agency networks in recent years. In the most prominent retreat, Wells Fargo & Co. sold its commercial insurance distribution business to private equity-backed USI Insurance Services LLC in 2017. Regions and KeyCorp have more recently pulled out of the insurance brokerage space.

Shifting strategic priorities, cultural challenges between banking and insurance, and intense competition for inorganic growth rank among the factors behind the exodus. Banks or thrifts were the sellers in 12 transactions involving insurance agencies and/or their assets in 2018. Banks and thrifts accounted for only 19 insurance agency acquisitions in 2018, marking at least a 20-year low at a time when overall M&A in that sector was at or near an all-time high.

BB&T, however, views insurance as a way to differentiate its business and provide a diversified revenue stream that is not sensitive to interest rate movements or the dynamics of the credit cycle.