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TheStreet Open House

More Insurers Likely To Divest Banks

Stocks in this article: ALL PRU UNH UTR DFS HIG LNC

NEW YORK ( TheStreet) -- Many insurance companies that own thrift banks, could divest them this year to avoid extra compliance costs that they will be subjected to under Dodd-Frank, say industry experts.

"I think the Dodd Frank rules make it punitive to own a thrift unless you really need it because you will subject to more regulations," said Nicholas Potter, a M&A attorney at Debevoise & Plimpton.

Under Dodd Frank, insurers that own thrifts will have to comply with the Collins Amendment, the Volcker Rule and be subject to much more oversight from federal agencies than they have been in the past. Part of that transition will take place in July when The Office of the Comptroller of Currency (OCC) assumes the duties of the Office of Thrift Supervision, and the Federal Reserve will oversee the compliance of insurers with thrifts.

"This would put them onto the list of insurers that would be systemic important. We expect there will be a lot of interest in restructuring and shedding these thrifts to avoid oversight," said Howard Mills, former superintendent of the New York State Insurance Department and Chief Advisor with Deloitte LLP's insurance industry group. "We think the reporting requirements would be costly for these insurers. In addition, the more interconnected an insurance company is in the financial landscape, the more they pose systemic risk."

Allstate (ALL - Get Report) is the most recent example of an insurer fleeing the banking business. In February, Allstate sold its bank to Discover Financial Services for an undisclosed amount. Allstate stated in its press release that the thrift was not core to its business going forward.

Like many insurers, Allstate jumped into banking with the passage of the Gramm-Leach-Bliley Act in the 1990's.

"A lot of the insurance companies bought thrifts after the Gramm-Leach-Bliley Act, but it is not the core business model of these insurance companies so you will see more insurance companies like Allstate divest these thrifts," said Potter.

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