Convergence at a Glance
Convergence refers to the cross sector activities in the financial services sector, such as banks selling insurance and insurers purchasing banks. Such activities were facilitated by the passage of the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (GLB), which removed many of the Depression-era barriers that restricted affiliations between banks, securities firms and insurance companies.
Under GLB, bank holding companies (BHC), i.e., firms that control one or more bank, with federal regulatory approval are permitted to organize as a financial holding company (FHC), a structure that expands the financial activities permissible for BHCs. A large number of BHCs earn income from insurance and/or securities activities. For their part, a number of insurance companies are engaged in the business of banking, either through the establishment of thrifts, by obtaining FHC status or through the purchase of industrial banks. In addition, many insurers market their products through the bank channel.
- A 2012 analysis by Michael White Associates (MWA) found that in 2011, bank holding companies (BHC) recorded $51.5 billion in investment banking, advisory and underwriting income, and $36.8 billion in securities brokerage fee income.
- In 2011 BHCs reported $118.4 billion in income from wealth management activities. Such activities include securities brokerage income, either alone or in conjunction with any of the following: investment advisory, banking and other services (i.e., securities dealer income); annuity commissions; and income from fiduciary-related activities, according to MWA.
- In 2011 BHCs reported $25.0 billion in income from sales of mutual funds and annuities, according to MWA.
- In 2011 BHCs recorded total insurance revenue of $57.2 billion, including $15.7 billion in brokerage income (i.e., sales and referrals) and $41.5 billion from underwriting activities (i.e., generated by insurance companies owned by BHCs), according to MWA.
- 34 banks bought insurance agencies in 2011, with a total deal value of $33.3 million, compared with 27 such transactions in 2010, with a total value of $13.4 million, according to SNL Financial.
- The largest banks owned by insurers, based on deposits as of March 2012, were USAA FSB, MetLife Bank NA and State Farm Bank FSB. In December 2011 MetLife announced plans to sell most of its retail deposit business in the U.S. to GE Capital Financial Inc. MetLife joins a number of insurers that have exited the banking business in recent years.
- A 2012 analysis by BISRA (formerly Kehrer-LIMRA) looked at insurance sold through the bank channel. It found that bank sales of individual life insurance policies dropped from $1.8 billion in 2010 to $1.4 billion in 2011.
- BISRA reports that sales of fixed annuities through banks totaled $17.5 billion in 2011, accounting for 23 percent of the market.
- Sales of variable annuities through banks totaled $19.7 billion in 2011, or 12.3 percent of the market, according to BISRA.