Three months after its chief executive unveiled plans to shed noncore business lines, Berkshire Hills Bancorp in Boston has announced plans to sell its 21-year-old insurance subsidiary.
The $12.3 billion-asset Berkshire Hills said late Tuesday that it is selling Berkshire Hills Insurance Group to the insurer Brown & Brown in Daytona Beach, Florida, for $41.5 million. The deal price includes $1.6 million to fund executive goodwill purchase price payments to executives of Berkshire Hills Insurance. The sale is expected to close in the third quarter.
“This transaction allows us to simplify our operating model, repurpose valuable resources and redeploy capital to support core businesses and strategic initiatives that will enhance long-term stakeholder value,” CEO Nitin Mhatre said in a press release.
Berkshire Hills telegraphed the insurance group’s sale in May, when it announced plans to focus on the businesses it said offered the best prospects for growth, including small-business and asset-based lending and wealth management. Insurance was nowhere on the list.
Insurance has been a significant contributor to the company’s noninterest income, so revenue will take a hit going forward. Berkshire Hills Insurance Group generated $10.8 million in commissions and fees in 2020 and $11 million in 2019.
Through the first six months of 2021, the insurance unit generated $5.4 million in revenue, down 6.3% from the same period in 2020.
“While we readily acknowledge that the company is reducing fee income, which investors often prefer to spread income, we also recognize this was a subscale business with mediocre returns,” Mark Fitzgibbon, who covers Berkshire Hills for Piper Sandler, wrote Wednesday in a research note. “The transaction strikes us as quite logical.”
Brown & Brown has offered jobs to all Berkshire Hills Insurance Group employees, and Berkshire plans to refer clients to the firm after the deal closes. Brown & Brown expects to operate Berkshire Hills Insurance Group as a stand-alone unit led by John Flaherty, currently a senior vice president at Berkshire Hills.
Brown & Brown ranks as the fifth-largest independent insurance brokerage in the U.S., so the partnership arrangement will “serve our customers better with an expanded offering of insurance solutions,” Sean Gray, president and chief operating officer at Berkshire Hills Bank, said in the release.
The insurance sale is the biggest strategic move Berkshire has undertaken since hiring Mhatre in January to replace Richard Marotta, who
While Berkshire Hills is exiting insurance, other banks have moved to bulk up in the space. Earlier this month, the $14.8 billion-asset Community Bank System in Syracuse, New York, announced the acquisition of a Boston brokerage firm it said would push annual insurance revenues to approximately $35 million.
The $1.8 billion-asset Colony Bankcorp in Fitzgerald, Georgia, announced plans to launch an insurance subsidiary in July after agreeing to acquire an agency in Macon, Georgia.
