Banks exiting insurance opens door to Gallagher’s growth
Remember when banks were snapping up insurance businesses as another source of revenue?
It’s been a different story lately in the Buffalo Niagara region.
Evans Bank just agreed to sell its Evans Agency subsidiary for $40 million to Arthur J. Gallagher & Co., an insurance brokerage, risk management and consulting firm.
About a year ago, M&T Bank finished selling its M&T Insurance Agency to Gallagher, resulting in a $136 million gain for the bank.
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Going back a few years, KeyBank in 2018 sold its Key Insurance & Benefits Services business to USI Insurance Services, recording a $78 million gain from the sale.
Why are some banks exiting the insurance business? Each has its own reasons. Evans received an offer that it decided was too good to pass up, and will redeploy the proceedings elsewhere. Key had acquired an insurance business as part of its 2016 deal for First Niagara, but insurance wasn’t core to Key’s operations, and the bank found a buyer in USI.
Nationally, Bank Director reported that for the first time in two decades, divestitures of bank-owned insurance brokerages this year have outpaced announced acquisitions.
“The industry as a whole is refocusing its effort on its core business,” said David Nasca, Evans’ president and CEO. “They don’t want to hold capital in ancillary businesses, so they’re monetizing them to be able to refocus that capital into their core.”
This trend is allowing Gallagher to build up its presence in the Buffalo area.
Gallagher, which is publicly traded, ranks as the fourth-largest insurance brokerage in the world, based on brokerage revenue. The firm has 49,000 employees worldwide.
But don’t let the large size of the firm, which is based in suburban Chicago, fool you, said Bart Kresse, Gallagher’s area president.
“Everyone I meet at Gallagher, it feels like they could live in Buffalo,” said Kresse, who led M&T’s insurance agency before joining Gallagher.
Kresse said Gallagher has a “family feel,” despite its vast size. Members of the family that founded the firm nearly 100 years ago are still in leadership roles.
At the same time, Kresse said Gallagher’s large scale gives employees access to more resources and expertise to serve their clients.
Mergers and acquisitions are a driving force of Gallagher’s growth – the firm completed 36 deals last year – but Kresse said the firm still looks for the right fit before making an acquisition.
“Gallagher, with this (Evans) acquisition, is showing the marketplace and showing our employees here in Western New York that they’re willing to invest,” he said.
Gallagher has been making inroads in the Buffalo market in other ways, including employee volunteering and sponsorship deals with the Buffalo Bills and Shea’s Buffalo Theater.
The firm plans to close its deal for the Evans Agency by the end of the year. All 63 Evans Agency employees will join Gallagher, and the Evans Agency name will remain in use through a transition period.
Gallagher will maintain the Evans Agency’s office in Wellsville, giving the firm a presence in Allegany County. But Gallagher is still working out where he will combine his employees in the Buffalo area. Its local offices are downtown on Delaware Avenue.
Gallagher found a lot to like about the Evans Agency, including its markets, book of clients and personnel, Nasca said. Gallagher saw the Evans Agency as a high-performing business “with a talented young team in an industry that’s aging,” he said.
There was also a big financial upside for Evans Bank in the deal.
“The purchase of this agency is effectively fast forwarding 18 to 20 years’ worth of earnings with this purchase price, back into our capital,” Nasca said. “That’s a significant impact.”
Not all banks around the Buffalo Niagara region are exiting the insurance business.
SDN Insurance Agency “has, and continues to be, an excellent complement to our diversified financial services offerings, along with retail banking, commercial banking and wealth management, and an important driver of non-interest income for our company,” said Martin K. Birmingham, president and CEO of Financial Institutions, the Warsaw-based parent of Five Star Bank.
In 2014, Financial Institutions bought Scott Danahy Naylon, an Amherst-based agency, in a deal valued at $16.9 million in cash and stock. The business was renamed SDN Insurance Agency in 2018 as part of a rebranding.
Since making the deal, Financial Institutions has grown SDN Insurance organically and through other deals, “allowing us to expand our reach and enhance capabilities to better serve our customers,” Birmingham said.
Citigroup has begun cutting jobs as CEO Jane Fraser follows through on her plan to streamline the organization.
The bank isn’t saying whether the reductions are hitting its sophisticated financial hub in Getzville.
Citi has cut 300 senior managers across the bank, but many more reductions are expected. The Wall Street Journal reported future rounds of job cuts will “spread to thousands of lower-level workers,” and that Citi aims to finish the reductions by the end of the first quarter of 2024. Fraser is under investor pressure to turn things around at Citiwhose stock has been in a slump.
The prospect of more job cuts creates uncertainty for members of the workforce heading into the holiday season.
Citi is an anchor tenant of CrossPoint Business Park. The bank did not provide a current headcount for its Getzville site, but in recent years, it has had a workforce there of nearly 2,000 employees.
The financial hub supports multiple business units, mostly in corporate and investment banking, and is connected to operations around the world.
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The Buffalo Next team gives you the big picture on the region’s economic revitalization. Email tips to email@example.com or reach Buffalo Next Editor David Robinson at 716-849-4435.
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