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8. BB&T Insurance Services Inc.


BB&T Insurance Services Inc. did not let a softening market disrupt its growth ambitions last year, posting solid double-digit revenue gains due to strong organic growth, new business sales and improved client retention.

The Raleigh, N.C.-based brokerage posted revenues of nearly $842.3 million, an 11.2% increase, despite soft pricing in several lines of business.

That made BB&T Insurance Services, a unit of banking parent BB&T Corp., the world's eighth-largest insurance brokerage based on 2006 revenue.

"We were really pleased with our earnings growth last year," said H. Wade Reece, chairman and president of the insurance unit. "Clearly, we would have had even better results had the market been neutral. But fortunately, our new business and retention emphasis more than offset the decline in market price. We stayed in a very strong growth mode."

BB&T's efforts led to an increase of more than 3% in client retention levels, Mr. Reece said. "Happy clients who stick with you," he said. "That really makes for a good year."

Organic growth, driven by contributions from companies BB&T has acquired in recent years, was another reason for solid profits. "Our emphasis on organic growth is really paying off," Mr. Reece said. "We view our acquisition program as really a means to get to long-term organic growth."

The company also took advantage of new business opportunities, the vast majority of which arose from clients changing brokers, with the company experiencing its best year in terms of new-business growth, Mr. Reece said.

"I think throughout much of BB&T Insurance, they have a strong sales culture and a lot of production talent," said Jim Campbell, a principal with Reagan Consulting Inc. in Atlanta.

BB&T's ability to post solid gains in the soft market was a testament to the company's ability to focus on executing its growth plan, analysts say.

"BB&T continues to be pretty impressive," said John Wicher, principal at San Francisco-based John Wicher & Associates Inc., which provides merger and acquisition advisory and investment banking services to the insurance industry. "What they've been doing has been a success."

Remaining focused on its strategic growth plan is important, particularly because the property/casualty market will continue to decline, barring a major catastrophic event, BB&T's Mr. Reece said.

"I think the market will continue to stay soft at least through the end of '09 and possibly longer," Mr. Reece said.

Although pricing for property catastrophe insurance moderated during the first half of this year, wind coverage still can be tough to secure, which is why Mr. Reece sees tremendous growth potential for the company's managing general underwriter, AmRisc L.P. The unit, which was spun off from CRC Insurance Services Inc. in late 2005, underwrites for Lloyd's of London, Berkshire Hathaway Inc. and units of Renaissance Reinsurance Ltd. and can provide millions in wind coverage, he said. "We think we're providing a greater service by bringing additional capacity to market," Mr. Reece said.

Unlike previous years, BB&T was relatively quiet on the acquisition front in 2006 and made two small, strategic purchases.

"BB&T did exactly what many businesses say they are going to do and don't: stop and integrate," Mr. Wicher said.

Mr. Reece anticipates BB&T will pick up the acquisition pace this year, although it will likely fall below the seven to eight annual acquisitions of previous years. So far this year, BB&T said it would expand its presence in metropolitan Atlanta and Hilton Head Island, S.C., by acquiring insurance agencies that provide property/casualty and group benefits coverage. The company likely will announce four more acquisitions by the end of the year, he said.

The integration of major acquisitions such as the 2002 purchase of wholesale brokerage CRC and the 2003 acquisition of Birmingham, Ala.-based McGriff, Seibels & Williams Inc.--the purchase that put BB&T among the 10 largest insurance brokerages in the world--have gone extremely well, Mr. Reece said.

"At this point, it doesn't feel like fragmented pieces anymore," Mr. Reece said. "It feels like one cohesive company working together very fluidly."

McGriff and CRC have been key contributors to BB&T's earnings growth in recent years, analysts say. Commission income from CRC contributed about $39 million, while McGriff contributed $30 million toward last year's profit gains, according to a filing with the U.S. Securities & Exchange Commission.

The McGriff acquisition established a stronger presence in the large-account market, complementing BB&T's presence in the small to midsize customer base. "We never de-emphasized small commercial accounts," Mr. Reece said. "We have always done that very well and we continue to do that well. What you've found is that McGriff has brought a new dynamic to us."

In recent years, BB&T also has had to contend with the ramifications of government investigations of insurance brokerage practices, emphasizing training and enhancing disclosure. "I think we've taken constructive action with client advocacy at heart and I think all that has paid dividends for us," Mr. Reece said.

"I think they have historically navigated through some of that stuff very well," Reagan Consulting's Mr. Campbell said. "I think they did a very good job of addressing the issue and made good decisions on how they would handle it."

While BB&T continues to receive inquiries from various states, the impact of regulatory investigations is largely behind the company, Mr. Reece said.

"There's still noise, but not as much, which is a good thing," Mr. Reece said. "It was a tremendous, unproductive distraction."

BB&T Insurance Services will continue its emphasis on organic growth and retaining clients, he said. It also will pay more attention to profitability, particularly with the influx of private equity firms that are shifting the brokerage industry toward a permanent focus on profit margins, he said.

"Clearly, they're going to be focused on the profit margins and we, too, need to be focused on profit margins," Mr. Reece said.

In the first quarter of this year, BB&T said its insurance commissions increased 11.9% compared with the year-earlier period.

BB&T will take a long-term view that concentrates on innovation and tweaking its business model to make the company more profitable, Mr. Reece said. Private equity firms, which tend to have a short-term focus on profitability, will have a long-term impact on the industry as companies either take their aggregated brokerage units public or sell them to other brokers, Mr. Reece said.

"It's creating an interesting phenomenon in watching how this evolves and figuring out how to continue to play in that scenario over the long term," Mr. Reece said.

On July 6, BB&T Corp.'s stock closed at $41.17 per share. Its 52-week high was $44.63 and its 52-week low was $39.60.