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Wells Fargo Sells its Insurance Business to USI

by Precise Leads

July 6, 2017

In what’s being described as a blockbuster deal, USI Insurance Services has doubled its holdings after acquiring a major Wells Fargo asset.

To sharpen its focus on its core banking business, San Francisco-based megabank Wells Fargo agreed last month to sell its Wells Fargo Insurance Services USA to USI Insurance Services of Valhalla, New York. The deal includes Wells Fargo’s commercial insurance brokerage and consulting business, employee benefits, and property and casualty national practices. The bank’s Safehold Special Risk, small business insurance, student insurance, individual health, and private risk management insurance lines also will be folded into USI.

Both firms declined to reveal the financial terms of deal, which is not expected to close until the fourth quarter. Business Insurance ranked USI and Wells Fargo Insurance Services USA in its top 100 US brokers, with each producing roughly $1 billion in brokerage revenues. In May, Bloomberg reported that Wells Fargo expected to receive about $2 billion for its insurance business.

Tim Prichard, Head of Wells Fargo Insurance Services USA, will join USI’s network of 140 local offices across the US. Wells Fargo will retain its personal insurance lines unit, incorporating those functions into its consumer lending business and continuing to offer auto, home, umbrella, and renters insurance to its customers.

A Blockbuster Deal

Wells Fargo and USI have done business with one another in the past, creating a history that was vital in helping this acquisition reach the finish line. In 2014, USI purchased 42 of Wells Fargo’s smaller regional outposts that collectively accounted for 40% of the bank’s insurance brokerage locations.

The familiarity between the two parties paved the way for a smooth transaction, according to Prichard. “When you go through a transaction like we did with the 42 offices in 2014, you get to know someone fairly well in that process,” he said. “What came out of that was an appreciation for how USI handled team members moving forward and how they served our clients.”

Timothy J. Cunningham, Managing Director at Optis Partners, LLC, characterized the deal as a “blockbuster,” noting the acquisition roughly doubles the size of USI. He indicated that Wells Fargo wanted a prompt sale of the unit and looked for a partner able to quickly integrate the business.

Private Equity Hankers for Brokerage Business

The deal also underscores the growing influence of private equity (PE) in the insurance brokerage business. In March, private equity firm Kohlberg Kravis Roberts & Co. LP and Montreal-based institutional investor Caisse de dépôt et placement du Québec bought USI from Onex Corp. for $4.3 billion.

But that was far from the only PE deal in the insurance brokerage sphere this year. Of the 178 brokerage M&As Optis Partners counted in the first quarter, PE firms transacted 93. Taking second place were private brokerages with 49 deals.

So while PE activity garners the headlines, Jim Campbell, a partner at Reagan Consulting, told the crowd at the Agency Ownership Summit in Atlanta not to dismiss private brokers in the M&A arena. “Although private brokers would appear to be the underdogs in a marketplace driven by private equity, they have more than held their own,” Campbell said. “Private brokers have actually increased their acquisition activity, averaging more than 100 announced acquisitions per year since 2014 and on track to exceed that level in 2017.”

Independent agents, meanwhile, have little reason to worry that mega-mergers will render them obsolete: the Independent Insurance Agents & Brokers of America’s 2016 “FutureOne” report counted 38,000 independent property and casualty agents and brokers in the US. Although a slight decrease from 2014, the number fell within the 37,500 to 39,000 agencies tallied since 2004. Small agencies account for 21% of the marketplace, nearing the 2012 peak of 28%.

Reagan Consulting estimates the ratio of new agencies forming as others consolidate at a bit over one to one. Reagan Consulting President Kevin Stipe said the independent agency universe is healthy, arguing that regeneration “will continue to replenish the agency system despite consolidation.”

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