BB&T Corp.'s $500 million cash deal to acquire the North American brokerage business of Cooper Gay Swett & Crawford Ltd. reflects ongoing industry consolidation, but does not signal a major return by retail brokers to ownership of the wholesale segment.
BB&T Corp., already the largest broker with wholesale business in the latest Business Insurance ranking, would expand that with the acquisition announced last week of the former Swett & Crawford business. BB&T said it would add $200 million in annual revenue.
Despite a parallel trend of retail brokers designating favored wholesalers, market observers say this does not mean retailers have renewed interest in acquiring wholesalers.
The largest insurance brokers withdrew from major wholesale involvement after then-New York Attorney General Eliot Spitzer's investigation into brokers' acceptance of contingent fees from insurers, which led to a 2005 settlement with world's largest brokers — Marsh & McLennan Cos Inc., then-Aon Corp. and then-Willis Group Holdings P.L.C.
Major retailers subsequently divested their wholesale brokerage business to remove any appearance of conflict of interest with their retail arms, but at least some of the largest brokers have decided to limit the outside wholesalers with which they deal, which may be driven by a desire for higher profits.
For example, a spokeswoman for Chicago-based RT Specialty L.L.C., a division of Ryan Specialty Group L.L.C., said last week that it has been appointed by Aon as its sole “preferred wholesaler” for U.S. retail business. Aon had no comment.
Selecting RT Specialty “is a refinement of what (Aon has) done in the past,” said Mac Wesson, Dallas-based president and chief operating officer of U.S. Risk Insurance Group, an underwriting manager and wholesale broker.
In 2011, Aon said it was limiting the number of wholesalers it uses to two, RT Specialty and Charlotte, North Carolina-based AmWINS Group Inc.
AmWINS, Willis and Marsh did not respond to requests for comment.
“There is a general trend that's been going on for a while of retailers ... trying to narrow their list of wholesalers to try to get better deals” driven by “intense profit pressure” on retail brokers, said Kevin Stipe, president of Reagan Consulting Inc., which is based in Atlanta.
With regard to Mr. Spitzer, “the wound has healed, but you still see the scar,” said John Wicher, principal of John Wicher & Associates Inc. in San Francisco. Brokers “are far more aware of any appearance of conflict.”
Among risk managers, Mr. Wicher said, “if a retailer is using a controlled wholesaler, there's a question mark here. You're going to at least ask ... "Am I getting the best possible market?' “
As for last week's deal for most of the former Swett & Crawford business that Cooper Gay bought five years ago, BB&T said the purchase is subject to regulatory approval and expected to close in the first half of this year.
“Swett & Crawford nicely enhances our insurance business and increases and diversifies our overall fee income profile,” Kelly S. King, Winston-Salem, North Carolina-based BB&T's chairman and CEO, said in a statement.
With $200 million in annual revenue and a $500 million purchase price, the deal “appears to have gone for a market price” and “likely will have some strategic value,” said Timothy J. Cunningham, managing director at Chicago-based investment banking and consulting firm Optis Partners L.L.C.
“The sale agreement is credit positive for Cooper Gay,” said Bruce Ballentine, vice president and senior credit officer at Moody's Investors Service Inc. in New York.
Cooper Gay, in which Light Year Capital L.L.C. purchased a 55% stake in 2013, has a financial profile that “immediately improves with this transaction, because the company is using proceeds from the sale to eliminate all balance-sheet debt,” Standard & Poor's Ratings Services said in a statement.
The deal consists of U.S. wholesale insurance brokerage operations, specialty managing general agencies that include J.H. Blades & Co. and U.S. reinsurance brokerage business, Cooper Gay said.
However, it excludes Creechurch International Underwriters, a specialty managing general agent that operates in Canada.