Wells Fargo Insurance Services Inc.'s brokerage revenue dropped 10.5% in 2009 to $1.56 billion.

The revenue decrease from $1.74 billion in 2008 moved Chicago-based WFIS from the world's fourth-largest insurance brokerage to the fifth-largest in Business Insurance's 2010 rankings.

Soft market conditions contributed to WFIS' revenue decline, although company officials said the addition of Wachovia Insurance Services Inc. was a major reason why revenue fell. Wachovia was No. 12 in the 2008 BI ranking before its late 2008 acquisition by WFIS.

WFIS spent 2009 integrating its former competitor rather than seeking other acquisitions that might have helped boost WFIS' revenue, said Chairman David J. Zuercher.

“Part of the reason why our revenue declined is because of being more focused on the Wachovia integration and the acquisition, which was clearly the largest integration or acquisition we have ever done,” Mr. Zuercher said. “We had not been actively in the market looking for other acquisitions throughout 2009, so the revenue lift that we normally would have gotten from a series of acquisitions we didn't get in 2009.”

The Wachovia integration now is nearly complete, although “we have a couple of large offices more to consolidate, but that will be done in the course of this year,” said Neal R. Aton, WFIS president and CEO.

Integrating Wachovia has been a “stunning success” in combining complementary cultures and talent pools that have boosted WFIS' expertise in specific industries and helped bolster its sales to “risk-management size” insurance accounts, Mr. Aton said.

But the economy likely is another factor weighing on WFIS, sources said.

Not since World War II has there been negative growth in gross written insurance premiums nationwide, as was the case in 2009, and WFIS likely is very sensitive to current economic conditions, said John Wicher, principal of John Wicher & Associates Inc. in San Francisco.

“Organic growth has been flat to down for most of the brokerage community, but 10% is a pretty healthy number,” Mr. Wicher said of the revenue decrease.

WFIS' commercial retail brokerage revenue was just above $1 billion in 2009, down from $1.21 billion the previous year. WFIS said 98% of its 2009 retail brokerage revenue resulted from commissions and 2% was from fees.

The broker accepts contingent commissions.

To help bolster revenue, WFIS has increased its emphasis on cross-selling insurance services to bank customers, company officials said. WFIS has pursued cross-selling throughout the years, but there is renewed emphasis on the strategy, they added.

Approximately one-quarter to one-third of WFIS' middle-market and risk management business derives from bank referrals, Mr. Aton said.

To increase that portion, WFIS recently developed a “segment strategy,” bolstering its ability to team Wells Fargo & Co. bankers possessing expertise on specific industries with its insurance brokers that have specialty knowledge of the same industries, Mr. Aton said.

The idea is to create “an enterprisewide practice to serve that vertical,” market Mr. Aton said. That way, WFIS can serve commercial customer needs for multiple products such as credit and insurance coverage.

“We are teaming up the right broker to talk to the right banker,” Mr. Aton said.

Overall, cross-selling insurance has proven difficult for bank-owned operations because of cultural differences between banking and lending institutions and insurance brokers, Mr. Wicher said.

But Wells Fargo has had years to hone its practices, although the broker does not make cross-selling numbers readily available, sources said.

While some banks have failed in the insurance business and others question the value of investments they made in insurance brokerages, WFIS' bank parent has found its insurance services unit to be essential, said John M. Wepler, president of Willoughby, Ohio-based Marsh, Berry & Co. Inc.

“They are a force that can't be ignored by the parent company,” which means they get ample support, Mr. Wepler said.

While WFIS did not attempt large acquisitions in 2009, it bought small agencies.

In December, for instance, WFIS acquired iLeader Solutions L.L.C., an insurance brokerage in Tampa, Fla., and Orca Bay Benefits L.L.C., an employee benefits firm in Mercer Island, Wash.

WFIS' 2009 purchases focused on acquiring talent and expertise in specific fields, WFIS said.

“The small fold-ins are the one area we didn't want to shut off in 2009 as we went through the Wachovia integration,” Mr. Zuercher said.

Those acquisitions have continued in 2010. On July 1, for example, WFIS said it had acquired Albuquerque, N.M.-based commercial brokerage Kinney Agency Inc.

With the Wachovia integration complete, WFIS will return to evaluating large acquisitions, Mr. Zuercher said.

Benefits business accounted for a significant amount of WFIS revenue. It generated $242 million in revenue during 2009, relatively unchanged from the prior year.

Mr. Aton said the acquisition of Wachovia and the 2007 acquisition of ABD Insurance & Financial Services bolstered WFIS' employee benefits credibility. He intends to continue growing that business to provide additional services for existing customers and help attract new ones.

“I have an appetite for that business because I think it's an area where our customers are going to be looking for solutions from their insurance brokers,” Mr. Aton said.

During 2009, WFIS saw its number of retail offices drop to 170 from 213 in 2008. That was largely due to the integration of Wachovia offices, company sources said.

But customer service levels have not suffered, Mr. Aton said. In fact, WFIS' technology investments have improved customer service, he added.

At the close July 9, Wells Fargo's stock was $27.00 vs. a 52-week high of $34.25 and a low of $23.17.