S&P Report Analyzes Bancassurance in Europe, U.S., Russia

Standard & Poor’s Ratings Services has issued a new report -“Bancassurance Approaches Employed In Europe, The U.S., And Russia: Similarities And Differences-” that analyzes the sector in those regions.

S&P describes “Bancassurance” as a “catch-all phrase to describe the many combinations of banking and insurance activities adopted by companies to promote business.” It has different meanings – and different consequences – “depending on the bancassurance strategy employed.”

“The success of a given strategy will often rest on managerial ability to understand the value generated from distribution versus manufacturing in each market, and on appropriate decisions regarding group resources, skills, and risk-management frameworks as to whether to accept either balance-sheet risk or revenue risk, or alternatively both,” explained S&P credit analyst Tatiana Grineva.

S&P defines bancassurance as a distribution strategy that involves selling insurance products via a banking sales network. The method involves various combinations of both banking and insurance activities. The common factor unites “an insurance arm with a banking arm.” The “basic rationale behind bancassurance is to lift earnings by selling the products of one arm to the customers of the other arm.”

S&P notes that bancassurance in the U.S. and Europe “developed out of a need to find ways to protect, grow, and diversify income streams. Both banking and insurance industries were in a relatively mature stage of development.”

Grineva indicated that in those regions the idea was mainly to “free up resources, avoid duplication, and optimize on established relationships already in place. A practical advantage, be it bank or insurer, is that less time is spent trying to woo new customers.” Retaining customers by providing a full range of financial products themselves rather than losing out to other institutions offering broader product palettes is another prime objective of bancassurance.

S&P identifies five different bancassurance strategies. They range from “the ground-up creation of subsidiary, acquiring either an insurer or bank, or setting up a joint venture, to merely putting a strategic distribution agreement in place. Alternatively, insurers or banks might take an intermediary route, providing more of an advisory service as to the availability and suitability of products.”

Europe, the U.S., and Russia have used different approaches with varying degrees of success. In the 1990’s “cross-sector acquisitions gained popularity in Europe,” but since 2001 “equity market volatility has dampened the appetite for this approach, prompting a move to toward distribution alliances.”

S&P described Russian bancassurance models as favoring “a preference for the distribution alliance approach, but there complex ‘unwritten rules’ on cash deposits requirements diminish the flexibility that this model usually offers.

“By contrast, clients in the U.S. place great emphasis on the ability to pick and choose from a range of products from competing insurers, hence the model that has worked best in the U.S. has been the one in which the banks have bought insurance agencies.”

The report is available to subscribers of RatingsDirect, the real-time Web-based source for S&P’ credit ratings, research, and risk analysis, at: www.ratingsdirect.com.

If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to: research_request@standardandpoors.com.

Ratings information can also be found on Standard & Poor’s public Web site at: www.standardandpoors.com; under Ratings in the left navigation bar, select Credit Ratings Search. Alternatively, call one of the following Standard & Poor’s numbers: Client Support Europe (44) 20-7176-7176; London Press Office Hotline (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4017.

Topics USA Europe Russia