Is bancassurance nearing the end?

Bank insurance, which has become a strategic asset to the banking sector for years, has encountered, since the end of 2008, difficulties of structural and regulatory nature. Hardships and pressure are such that the alliance between banks and insurance is now being reconsidered.

The recent economic crisis has, indeed, profoundly shaken some European conglomerates while others were driven out of business.

According to a survey published recently by Standard and Poor's, there are no more sizable stakeholders on the market nor are there many incentives for the establishment of new entities between banks and insurance. Are we witnessing a return to the pure models?

The reasons behind the decline of bank insurance

The crisis, a test of soundness

Photo credit: Atlas Magazine In Europe, insurers have been relatively spared by the recent financial crisis, and very few companies were bailed out by public authorities. However, it was not so for bank insurers.

Severely affected by the subprime crisis, some groups were on the brink of collapse. They were required to rebuild their shareholder's equity and to restabilise their balance sheets so as to avoid an imminent bankruptcy. They, therefore, resorted to :

  • capital increase
  • sale of assets
  • public aid

Structural and regulatory reasons

Apart from the financial turmoil, the downfall of bank insurance is accounted for by structural and regulatory reasons. Among the arguments mentioned, we note the following:

  • problems of integration within the group. Neither the investors nor the manager did really adopt the double culture.
  • pressure from the European Commission on big groups which stand as a systemic risk for the market.
  • the refocusing strategies: the authorities in charge of control and competition require that asset sales and refocus on baseline trade, in return for public aid.
  • regulatory evolutions which contribute to the return of the pure models. Therefore, the passage to the Basel II standards in 2012 requires a higher basic shareholder's equity for banks which own an insurance subsidiary.

The series of restructurings

Used with permission from MicrosoftSustaining heavy losses, some European bank insurers have requested the intervention of governments. To revitalize the financial markets, the authorities have then required a restructuring of the conglomerates and of their activities.

Other equally restrictive measures were taken in order to minimize the exposure of bank insurers to risks and to toxic assets. The main measures regard:

  • the split-up of the groups into several subsidiaries: retail banks, wealth management, merchant banks and insurance: Bank insurers have been called upon to separate out banking activities from operations related to insurance
  • the refocus of the groups on their trade of origin
  • the nationalization and the intervention of public authorities to purchase some toxic assets
  • scaling down groups through the sale of their subsidiaries

The groups hardest hit by the crisis were obligated to cede all or part of their insurance activities. That is the case of:

  • Fortis, which lost 70% of its value between January 1, 2007 and August 31, 2008, was dismantled after having lost 28 billion EUR (39 billion USD) by the end of 2008. The bank insurer disengaged from the most of its banking and insurance operations. In May 2009, it had to sell Fortis Banque (Belgium's number one bank) to French BNP Paribas.
  • The Belgian KBC saw its size fall by 25% and was compelled to give up its insurance subsidiary Fidea as well as other assets. From now and up to 2013, KBC will have to cede 39 billion EUR (55 billion USD) of assets and pay back 7 billion EUR (9.9 billion USD) of public loans.
  • ING has been split up into two entities. From now and up to 2013, the group will have to sell its insurance operations, its real estate credit operations in the Netherlands and its American online bank. ING has already raised its capital by 7.5 billion EUR (10.7 billion USD) in order to be able to repay half of the public aid which amounts to 10 billion EUR (14.2 billion USD).
  • The Royal Bank of Scotland, which was severely hit by the crisis, has been nationalized up to 84% of its capital. Benefiting from a governmental plan against toxic assets, the bank received 25.5 billion GBP (42 billion USD) from the State. The Royal Bank of Scotland plans on disengaging from its insurance operations with RBS Insurance.
  • Lloyds Banking Group has proceeded to the increase of its capital by 13.5 billion GBP (21.9 billion USD) in a move designed to escape a governmental plan of protection from toxic assets. By doing so, the group avoids a second intervention by the British State which already detains 43% of its capital. The group's life insurance subsidiary, Scottish Widows, could soon be put for sale.

In fact, European bank insurers, the Dutch and the Belgian in particular sank into the crisis because of their excessively risky moves which were designed to make up for the reduced size of their domestic markets.

Bank insurance, a strategic asset

Used with permission from Microsoft (modified picture)

According to some analysts, this business model remains a strategic asset of the banking sector and a winning model in terms of distribution. For banks:

  • the activity of life and non life insurance stands as a cushion in the operating result. It generates liquidity which the bank needs.
  • insurance premiums and results are increasingly weighing down the balance sheets of banking establishments.
  • life insurance accounts for a substantial market share whereas non life insurance is constantly progressing in European countries.
  • the insurance development opportunities are important. An underwriter has to 6 to 7 times more contacts in a banking agency than in an insurance company.
  • the bank and insurance combination make it possible to reduce management and distribution costs.

Bank insurance is an appreciated activity in France

In France, unlike other European countries, bank insurance has not shrunk since no bank within the hexagon even thought of disengaging from this strategic activity.
According to the 2008 report conducted by the French Federation of Insurance Companies (FFSA), banks continue to dominate the life insurance market with 60% of the turnover, a 2% decrease in comparison with 2007. A 10% share of non-life insurance, on the rise by 1% in comparison with 2007, is underwritten by banks. Five bank insurers remain among the first ten French insurance groups.

The soundness of the French model may be accounted for by:

  • a favorable fiscal environment for life insurance products
  • a model of turning companies into subsidiaries which limited the negative impact of the crisis and which discarded credit securitization mechanisms
  • an adequacy between supply and demand


Some signs of breathlessness in Morocco

Bank insurance appeared in Morocco in 1973 but has developed particularly well in recent years. However, this channel of distribution has undergone a little stagnation as of 2008.
A slowdown in underwritings was reported in 2008, while the number of banking agencies has risen, moving from 3 285 units in 2007 to 3 856 units in 2008.
The turnover of some insurance products like assistance went down in 2008. This stagnation is accounted for by:

  • the estate crisis which had a direct impact on the householder's comprehensive insurance,
  • the fall of saving contracts placements, as a result to the financial crisis,
  • the oligopolistic structure of the market where three major players: Attijariwafa bank, BMCE Bank and Crédit Populaire monopolize 90.16% of bank insurance turnover.
With regard to the great growth potentials, professionals are relying on the recovery of the bank insurance sector as soon as the crisis exits the market.

Situation of the main European bank insurers

Bank insurerAmount of
the public aid
Measures taken to accompany restructuring
The Netherlands
10 billion EUR
(14 billion USD),
in October 2008
From now up to 2013, ING shall proceed to:
  • the sale of ING Direct USA
  • the cession of real estate operations in the Netherlands
  • split-up of banking and insurance operations into two separate entities
  • the sale of 6% of the Dutch retail bank
  • the reimbursement of 1.3 billion EUR (1.8 billion USD) in commissions to the State
  • the decline from 6 down to 2 of the number of the group's divisions
ING will be just a regional bank of Benelux
7 billion EUR
(9.5 billion USD)
at mid-May 2009
From now up to 2013:
  • the reimbursement of 14 billion EUR (19.9 billion USD), (150% of public aid + other fees)
  • refocus on Belgium and on 5 strategic markets in central Europe
  • the sale of its subsidiary Fidea
The cession of 39 billion EUR (55 billion USD) of balanced assets, that is, 25% of the group's operations
Belgium, The Netherlands
11.2 billion EUR
(15.7 billion USD),
end 2008
  • The nationalization of bank insurance operations in the Netherlands
  • The sale of Fortis Banque to BNP Paribas
  • Maintaining the insurance operations of Fortis Holding in Belgium and worldwide
Royal Bank of Scotland,
Great Britain
25.5 billion GBP
(42 billion USD),
at end November 2009
  • The reduction of the balance sheet from now up to 2013
  • The nationalization up to 84%
  • The sale of 318 agencies and the suppression of 3700 jobs in Great Britain
  • The winding up of operations in China, India and Malaysia
  • The sale of three insurance subsidiaries : Direct Line, Churchill and Privilege
The cession of assets worth 20 billion GBP (31.9 billion USD)
France, Belgium
6.4 billion EUR
(9.2 billion USD),
in September 2008
  • Giving up troublesome subsidiaries and shareholdings in Kommunal Kredit Austria and Crédit du Nord
  • The sale of Dexia Epargne Pension (DEP), the life insurance subsidiary to BNP Paribas in mid December 2009
Slashing the balance sheet by 30%.
Lloyds Banking Group,
Great Britain
17 billion GBP
(28.2 billion USD)
according to mid- September 2009 figures
  • Increasing the capital by 13.5 billion GBP (21.9 billion USD), in mid December 2009
  • Control over 43% of the group's shares by the State
  • The sale of 600 agencies, including those belonging to Lloyd's TSB Scotland
  • The suppression of 5000 jobs especially in insurance and real estate credit
  • Probable disengagement from Scottish Widows, the insurance division, bought out in 2000 for 7.3 billion GBP (10.9 billion USD).
1.5 billion EUR
(1.9 billion USD),
in February 2009
  • Scaling down the size by 40%
  • Abandoning its individual life insurance activity ("First" account)
  • Cession of Nateus
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