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Wells Fargo Insurance Services USA Inc. saw revenues decline last year as the company exited the wholesale brokerage business, but company executives hope the move will allow it to focus on expanding its retail insurance clientele.
Chicago-based Wells Fargo Insurance Services reported gross revenues of $1.85 billion last year, down nearly 5% from 2010, while brokerage revenues decreased 1.4% to $1.63 billion.
Despite decreased revenue, the company remains the world's fifth-largest insurance brokerage in Business Insurance's 2012 rankings. The broker is a unit of San Francisco-based banking firm Wells Fargo & Co.
Laura Schupbach, executive vp and head of the unit, said the company's 2011 performance was affected by a soft insurance market, as well as the sale of Wells Fargo's specialty wholesale brokerage operation.
The company sold San Francisco-based American E&S Insurance Brokers in February 2011 to R-T Specialty L.L.C., a unit of Chicago-based Ryan Specialty L.L.C. As a result, Wells Fargo reported $5.3 million in wholesale revenue for 2011, down from $18.2 million in 2010.
Kevin Kenny, executive vp and head of Wells Fargo's insurance brokerage, said the divestiture was part of a strategy to focus on cross-selling insurance and risk management services to Wells Fargo's various customers.
“Our core business strategy puts us very close to the customer, and the role of the wholesaler is more of an intermediary than direct customer relationship-building model,” Mr. Kenny said.
John Wicher, principal at John Wicher & Associates in San Francisco, said it made sense for Wells Fargo to shift away from wholesale business because the company's strength is retail insurance brokerage.
Wells Fargo Insurance Services reported $1.1 billion in commercial retail brokerage revenue last year, down 2.7% from 2010.
The insurance services unit “is able to access almost the entire standard market, and when that's not enough, they have relationships with the best wholesalers in the country,” Mr. Wicher said. “There is also the issue (of) retailers preferring not to do business with a wholesaler owned by their perceived retail competitor.”
Last fall, the unit acquired Procomp Benefit Resources Inc., a Hazlet, N.J.-based employee benefits brokerage and consulting firm. Ms. Schupbach said the company is not actively seeking acquisitions, but could make additional deals if it finds complementary businesses that it can buy at the “right time (and) right price.”
Ms. Schupbach said the insurance services unit sees growth opportunities among middle-market and upper middle-market customers, as well as in providing employee benefits management and international risk management services.
The unit's employee-benefits revenue increased to $263.5 million last year, up 13.1% from 2010.
Insurance represents about 2% of Wells Fargo & Co.'s overall revenue, said Daniel Marchon, New York-based equity research associate with Raymond James & Associates Inc. As a result, he said the lender sees large potential for growth as it strives for more cross-selling opportunities across its business units.
“They're really excited about the fact that (Wells Fargo Insurance Services has) such limited market penetration, that they can still grow out from where they are right now,” Mr. Marchon said.
Wells Fargo Insurance Services revamped its regional office structure this year to help align the brokerage's leadership with Wells Fargo's banking configuration. Ms. Schupbach said the strategy has helped the unit become more efficient by creating parallel roles between Wells Fargo's insurance and banking groups.
Mr. Kenny said the insurance unit has increased its focus on consulting that can help its clients navigate a “turbulent” insurance market.
“Our role is to take each client relationship and nurture and guide it through this turbulent period, where rates are increasing yet the business climate is not helping our customers grow,” he said.
Lockton Cos. L.L.C.'s ability to meet the needs of large risk management accounts, retain clients and attract talent is helping push the broker closer to the $1 billion mark in annual revenue, observers say.