Fifth largest broker
BB&T (BBT) is the fifth largest insurance distributor in the US. Its Insurance Services segment provides property and casualty, employee benefits, and life insurance products. It also provides small business and corporate services—like workers compensation and professional liability, surety coverage, and title insurance. BB&T forms ~1.3% of the iShares U.S. Financial Services ETF (IYG).
The above chart provides the top US insurance brokers by brokerage revenue. An insurance broker is different from insurance companies—like MetLife (MET), AIG (AIG), and Allstate (ALL)—that do underwriting and claims settlement. The insurance industry forms ~17% of the Financial Select Sector SPDR ETF’s (XLF) portfolio.
A broker simply understands the client’s requirements, searches for the best option available from those offered by the various insurance companies, negotiates it, and earns a commission for the effort. A broker works independently. A broker isn’t part of any insurance company.
BB&T has good relationships with leading insurance companies, regional insurers, and specialty insurers. It provides a full line of insurance products and services for companies and individuals. Its market expertise and industry knowledge help it procure good deals for clients.
The revenue from insurance services isn’t sensitive to interest. It isn’t subject to the credit cycle’s dynamics. As a result, the revenue provides stability to BB&T’s revenue. In recent years, the contribution of insurance revenue to the firm’s total revenue increased.
BB&T believes that providing insurance services improves its ability to increase its “share of wallet.” “Share of wallet” indicates the percentage of a customer’s spending within a category that’s captured by a firm. The firm has a huge cross-sell opportunity through its community bank network.
Rising net income
Insurance Services’ net income increased by 24.6%—compared to 2013. The segment’s non-interest income increased primarily due to increased commissions on new and renewal property and casualty business, higher performance-based commissions, and an increase in employee benefit commissions.
Non-interest expense increased. It was driven by higher salaries, performance-based incentives, operating charge-offs, and business referral expense.
Not only is the revenue from the insurance segment increasing, it’s diversified as well. We’ll discuss this in the next part of this series.