Truist’s Insurance Exit a Potential Bellwether as Capital Requirements Tighten

Truist Financial Corp.'s massive sale of its remaining insurance business stands out as a response to impending heightened capital requirements and a potential bellwether as surging insurance valuations continue to entice US banks to cash out.

Source: S&P Global | Published on March 6, 2024

Truist sale of insurance business

Truist Financial Corp.’s massive sale of its remaining insurance business stands out as a response to impending heightened capital requirements and a potential bellwether as surging insurance valuations continue to entice US banks to cash out.

The banking giant agreed to sell the remaining 80% stake in its insurance business, Truist Insurance Holdings LLC, to an investor group led by Stone Point Capital LLC and Clayton Dubilier & Rice LLC in an all-cash transaction Feb. 20. The $7.6 billion deal value makes it by far the largest deal of its kind announced since at least 2017, beating only Truist’s own partial 2023 sale of 20% of Truist Insurance Holdings to the same investor group in a deal valued at $1.95 billion.

The sale will boost Truist’s common equity Tier 1 (CET1) ratio by 230 basis points under current capital rules and 255 basis points under Basel III proposed rules. Part of regulators’ reactions to the collapses of Silicon Valley Bank, Signature Bank and First Republic Bank — representing the third-, fourth- and second-largest bank failures in US history, respectively — was heightened capital requirements for banks with more than $100 billion in assets.

Selling the remaining 80% of its insurance ops, which valued the business at $15.5 billion, was likely motivated in part by large banks’ recent emphasis on stockpiling cash in anticipation of the final Basel III rule, experts said.

“If you go back to last February, this sale was a good idea that was available because the price was high and it was a very attractive offer for 20% of the business that [Truist] had a hard time refusing,” said Christopher Marinac, director of research at Janney Montgomery Scott. “The world changed less than a month after the fact because we had the bank failures, and it soon became clear that the [Federal Reserve System] was going to react.”

In the company’s investor presentation on the deal, “significantly improving Truist’s relative capital position” was listed as the first strategic reason for selling.

Moreover, insurance brokerages are trading at higher multiples, and banks are trying to unleash that hidden value and increase their financial flexibility by building up capital, according to John Mackerey, senior vice president of North American Financial Institutions for Morningstar DBRS.

“There’s a lot of change coming for the banks, with regulatory overhauls, and so I think anticipating that they’ll need to hold higher levels of capital in the future is jumpstarting these broker sales,” said Mackerey.

For the first time in at least eight years, US banks in 2023 sold off their insurance units at a quicker pace than they acquired them. In 2023, the banking industry announced 10 insurance business sales, outpacing the number of acquisitions by four.

In addition to Truist, some of the most active net acquirers historically have changed their tune in recent years and announced full or partial sales of their insurance operations, such as Eastern Bankshares Inc. and Cadence Bank, both of which announced sales of their insurance units in 2023.

Marinac does not expect the pace to slow down.

“I think it’s going to be episodic, but a couple sales does usually indicate a trend and I think we’ll talk about more of these type of unit sales again, if not this quarter than soon afterward,” Marinac said.