When financial services reform laws were passed late last year, the banshee wails for independent insurance agencies began. Analysts and soothsayers predicted banks, with their mountains of money, would swoop down upon the comparatively poor insurance industry like the grim reaper, plucking the best and the brightest, forever changing the landscape of the industry.
Since the laws went into effect in January, however, the foretold deaths have been few and far between. Even the acquisitions by the banking industry have not been as far-reaching as some predicted. Not yet, anyway.
Part of the reason is because agencies throughout the country began positioning themselves early on to be more competitive. One such company, Insurance Management Associates (IMA) of Wichita, Kan., has gone so far as to create its own investment banking arm.
IMA, one of the top 20 independent agencies in the country with roughly $30 million in revenues in 1999, has been historically engaged in the property/casualty business. According to Kurt D. Watson, IMA chief operating officer, the move into investment banking, as unusual as it may seem for a P&C agency, seemed only natural for IMA.
“As we were looking at the landscape of our industry and watching the banking industry and the beginning stages of acquiring by banks of the insurance industry, we began wondering how we might become a part of that,” Watson, who spent 20 years in the banking industry, said.
“IMA did not want to sell to a bank, so we took a look at starting a banking business of our own,” he said. “The most lucrative element of banking is in the investment area, so we decided to start an investment bank.”
The result was TrueNorth, a wholly owned subsidiary of IWA involved in investment management, allowing IWA to diversify its income strategy, utilize its extensive customer base and utilize a unique concept that is attractive to both corporate and individual customers.
Heading up TrueNorth is President David L. Strohm, who has 23 years of banking experience on the asset liability management side.
“The investment management concept fit IMA very well because IMA is a risk management company,” Strohm said. “The commonalities seemed to drive a relationship that makes sense.”
TrueNorth is a registered direct management investment business helping make investment decisions for its customers through brokers who confirm those decisions with clients.
“In the investment management business we like to think of ourselves as on the same side of the table as the client,” Strohm explained. “As their portfolio grows and does well, our income also increases.”
TrueNorth, which began doing business with its first client in November, has grown rapidly, managing roughly $100 million in investments as of this writing. Strohm predicts that amount will increase to somewhere between $1 billion and $2 billion within five years.
The company has six full-time employees, three of whom are seasoned investment professionals, including Chief Investment Officer Paul D. Worth, who worked as an equity portfolio and fund manager for 10 years managing over $350 million in assets; Vice President for Operations and Compliance Margaret E. Hornbeck, who served as a senior vice president for 18 years in the banking industry; and Strohm, who has 23 years experience as a banking executive responsible for $3 billion in fixed income portfolios. TrueNorth’s average client has an investment portfolio of between $2.5 million and $3 million, and most of them were originally insurance clients of IMA.
“There’s not been another instance, to my knowledge, that an insurance agency has aligned itself with an investment banking firm,” Watson said. “We think we’ve selected the [option for surviving after financial services reform] that is the most efficient from a cost standpoint and most closely aligns itself with our business.”
The move offers the company a host of other business opportunities, as well, including estate planning and selling life insurance, all the while leveraging its existing client base.
“I don’t know that our approach is unique,” Strohm said. “I think what’s unique is that one of the top 20 insurance agencies in the country has elected to address financial services consolidation this way.”
“We believe strongly that if we aren’t active about the diversification of our income stream, some sort of exit strategy would have to be implemented.”
“That’s why we’re willing to try an initiative like TrueNorth. Ultimately, it will help us retain our independence.”
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