Sign in Subscribe
Insurance industry

Financial Services Overhaul Bill: A Year After Citigroup Merger

Strategic Insights

— 2 min read

The financial services overhaul bill passed by Congress in November 1999 aimed to lift restrictions on mergers between banks and insurance companies. However, a year later, no large US banks or insurers have merged to create their own version of Citigroup, citing bank stocks' slump and volatility in the financial market. Analysts question the attractiveness of the insurance business for banks, with some suggesting that asset management and capital markets may be more suitable. Meanwhile, foreign acquirers have been actively pursuing insurance deals, and insurance companies are slowly making inroads into the banking business.

Key Takeaways:

  • The financial services overhaul bill passed in November 1999 was driven by the $70 billion merger between Citicorp and Travelers Group to form Citigroup.
  • Despite the Citigroup merger, no large US banks or insurers have merged to create their own version of Citigroup, citing bank stocks' slump and volatility in the financial market.
  • Analysts question the attractiveness of the insurance business for banks, with some suggesting that asset management and capital markets may be more suitable.
  • Foreign acquirers, such as ING Group, have been actively pursuing insurance deals, with ING buying the ReliaStar Financial Corporation for $6.1 billion and Aetna's financial services and international units for $7.7 billion.
  • Insurance companies, such as MetLife Inc., are slowly making inroads into the banking business, with MetLife planning to get into the banking business either by acquisition or by building a new operation.
  • The scarcity value of the life insurance business is high, with only six publicly traded life insurers with market capitalizations of $5 billion or greater that could be acquired.
  • The Bank One Corporation acquired a small insurance company, Congress Life Insurance, in November, but will generally offer only a select number of insurance products to its correspondent banks or small companies.
  • ING Group has become the 11th-largest asset manager worldwide, up from 19th, following its insurance acquisitions.

Statistics:

  • Bank stocks have been volatile this year and, even with some recent gains, are now down more than 10 percent from their highs in April 1999, according to a Keefe, Bruyette & Woods index.
  • Citigroup accounts for just 20 percent of its profits from insurance.
  • Bank One will underwrite just $300 million and sell $2.4 billion in insurance this year.
  • ING Group paid $6.1 billion for ReliaStar Financial Corporation and $7.7 billion for Aetna's financial services and international units.
  • MetLife Inc. has a market capitalization of $26 billion and plans to get into the banking business either by acquisition or by building a new operation.
  • There are only six publicly traded life insurers with market capitalizations of $5 billion or greater that could be acquired.

Sources:

  • Keefe, Bruyette & Woods index
  • Ronald Mandle, banking analyst at Sanford C. Bernstein
  • Thomas Kelly, Bank One spokesman
  • H. Rodgin Cohen, chairman of Sullivan & Cromwell
  • Ronald McIntosh, analyst following the life insurance industry at Fox-Pitt Kelton

Read more