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The sale of several smaller offices and restructuring efforts by Wells Fargo Insurance Services USA Inc. likely signal a company effort to focus on core pieces of its commercial insurance brokerage, such as placing cyber liability insurance and assisting midsize clients.
Chicago-based Wells Fargo reported a 14.3% decrease in brokerage revenue last year, which fell to $1.35 billion. “The brokerage business recognized small positive organic growth,” a spokeswoman said in a email.
It declined to No. 8 in Business Insurance's ranking of the world's largest insurance brokers as it sold off several pieces of its business.
Last year, Wells Fargo sold its disability management unit. In 2011, it sold its workers compensation third-party administration and wholesale brokerage businesses. And this year, Wells Fargo sold 40 insurance brokerage and consulting offices to Valhalla, New York-based USI Insurance Services L.L.C. — all for an undisclosed amount.
“You would expect them to continually or consistently trim areas in which they're not meeting the overall profitability goals and to reallocate those resources elsewhere,” said Chris Mutascio, Baltimore-based managing director at Keefe, Bruyette & Woods Inc.
Wells Fargo opted to leave out revenue data for the smaller offices in order to allow the 2013 data to be compared with future results. It also excluded revenue for an identity theft product that has been shifted to another unit of its banking parent, San Francisco-based Wells Fargo & Co.
“It really is about sharpening the focus, restructuring ... divesting or moving pieces to other parts of Wells Fargo that aren't part of our go-forward strategy,” Laura Schupbach, executive vice president and head of Wells Fargo's insurance unit, said of the recent deals.
Wells Fargo's restructuring efforts represent the company's commitment to its commercial insurance brokerage going forward, Ms. Schupbach said.
“It's actually a sign that we are doubling down in the brokerage business because we were willing to kind of take that step ... so that we can focus our time and our energy and our investments on growing the part of the business that we think we're uniquely qualified to grow,” she said.
Ms. Schupbach and Kevin Kenny, executive vice president and head of Wells Fargo's insurance brokerage, said Wells Fargo plans to grow by hiring dozens of sales associates in the next 12 to 18 months. It also plans to focus on cross-selling personal insurance lines to customers of its bank parent, such as homeowners insurance to mortgage customers, as well as placing commercial insurance and providing risk management services to middle-market and upper mid-market employers, Mr. Kenny said.
“We're having success in the private equity arena, and our specialty lines continue to excel, particularly environmental, cyber risk and owner-controlled insurance programs,” Mr. Kenny said of the commercial lines that Wells Fargo sees as growth areas.
KBW's Mr. Mutascio agreed that Wells Fargo is working to grow its commercial insurance brokerage business.
“Despite the slower growth you're seeing year-over-year, I still think it's a business that (Wells Fargo & Co.) looks at being at in the long haul because it is a business that does not provide a lot of underwriting risk,” Mr. Mutascio said.
But John Wicher, a principal at John Wicher & Associates in San Francisco, said the Wells Fargo sale to USI could be viewed as an effort to build the business going forward or as a potential exit strategy for the insurance brokerage.
It's possible to view the Wells Fargo sale to USI as a move toward a larger sale “so that they could basically have a core business which would be attractive for sale, because the natural buyer of the larger offices wouldn't necessarily want those small operations,” Mr. Wicher said.
“The flip side is that Wells Fargo was, in fact, repositioning themselves for the long term and identifying those offices which were consistent with their strategy (while) selling those smaller operations which really weren't,” Mr. Wicher said.
Ms. Schupbach emphasized Wells Fargo's commitment to its insurance brokerage and that the recent changes have positioned the business for near-term growth.
“We're really excited about the future,” Ms. Schupbach said. “This year is a good year.”
While many brokerages see retaining employees as a priority, some say they could put more effort into attracting talented workers.