Why lots of banks are saying goodbye to their insurance agencies

Banks with insurance businesses had a choice to make in 2023: hang onto those units and keep reeling in a steady stream of fee income, or sell them for a lot of money.

Several banks chose the latter course, divesting some or all of their insurance subsidiaries amid surging valuations that promised big payouts. The sales also reflected banks’ need for capital in a more demanding regulatory environment and a desire to focus on their core banking businesses.

Competition and the ability to scale up in insurance, or not, also played a role, said Mark Crites, a partner at Reagan Consulting, a firm that works with insurance agents, brokers and financial institutions.

“There are lots of big players investing a lot to outcompete those who are not,” Crites told American Banker earlier this fall. “So banks have to make a decision: Do I invest heavily in resources on the insurance side, or do I invest heavily in my core businesses?”

Truist Financial, Cadence Bank and Eastern Bancshares were among the banks that sold all or parts of their insurance operations this year. In the case of Cadence and Eastern, as well as M&T Bank in 2022, the buyer was Arthur J. Gallagher, a global insurance firm engaged in an agency buying spree.

Through October, seven U.S. banks agreed to sell their insurance agencies, topping the number of banks that made deals to buy agencies by two, according to data compiled by S&P Global Market Intelligence. It was the first time in at least eight years that the number of sales exceeded the number of acquisitions, S&P reported.

The S&P data doesn’t include sales or acquisitions that took place later in the year, including Evans Bancorp’s divestiture of its insurance agency to Gallagher for $40 million.

It’s a seller’s market, which has led to buyers paying significant premiums, Patrick Gallagher, Gallagher’s chairman and CEO, said in October.

“We’ve had incredible success with our friends at M&T. We’re very excited about Eastern and Cadence,” Gallagher said on the conference call. “Frankly, if there’s other banks that are looking in that direction, we’re a very good place to look.”

Here is a rundown on several banks that sold all or some of their insurance operations this year.