CIBC sells insurance units

Canadian Imperial Bank of Commerce has completed its retreat from the insurance underwriting business with the sale of its home and auto insurance operations.

CIBC announced yesterday that it has agreed to sell its two remaining insurance operations to Desjardins-Laurentian Financial Corp. for $330-million.

The deal, which follows the sale of its life insurance operation last year, is part of CIBC's broader push under the leadership of chairman John Hunkin to focus on areas that generate higher returns.

"The bank, under Mr. Hunkin's care, has really dedicated itself to focusing its investments on those areas which will generate the greatest growth and return to our shareholders," said Kenn Lalonde, head of CIBC Insurance Management Co. Ltd. "We've agreed to sell those businesses today based on that commitment."

The insurance business does not appear to have lived up to the bank's optimistic growth targets. CIBC was the first Canadian bank to push aggressively into the insurance sector after Ottawa introduced reforms in 1992 that allowed banks to set up separate insurance subsidiaries. Eight years ago, CIBC entered the automobile and life insurance business amid much fanfare.

CIBC is selling Personal Insurance Co. of Canada and CIBC General Insurance Co. Ltd., its property and casualty subsidiaries, at 1.5 times their combined book value. The two companies have more than 400,000 policies in force, a premium base in excess of $300-million and 570 employees.

But it is not abandoning the business entirely. The bank will continue to sell policies underwritten by other insurers through its branches, including third-party creditor and travel medical insurance.

This is part of a broader thrust by CIBC to distribute other companies' products rather than manufacture its own. Earlier this year, the bank announced plans to distribute other companies' mutual funds through its branches. To that end, it recently won regulatory approval in three provinces to have branch staff licensed to sell both traditional bank products and other companies' mutual funds. The bank eventually plans to have 2,000 branch employees -- or 10 per cent of the total -- selling other companies' funds.

On the insurance front, the bank also wants to leverage its distribution strength, Mr. Lalonde said. It will do so by selling creditor and travel insurance products through its branches, he said.

Mr. Lalonde would not comment on whether CIBC was disappointed with the returns it earned on the insurance underwriting operations beyond saying: "This is an intensely competitive category to operate in."

In the second quarter this year, the insurance operations generated revenue of $42-million, accounting for 1.4 per cent of the bank's total revenue. This is a far cry from 1993, when bank executives stated publicly that they hoped the insurance unit would generate annual revenue of $500-million by 1998.

Back then, bank executives may have been counting on Ottawa to broaden the banks' powers to sell insurance. Although Ottawa allowed the banks to set up insurance arms in 1992, it barred them from using data about their banking customers to target insurance products, and from selling life or auto policies through their vast branch networks.

Under the new financial services rules unveiled last week, those prohibitions remain in place. Mr. Lalonde said CIBC's decision to sell its home and auto insurance units is unrelated to the new legislation -- much of which had been outlined by the federal government a year ago in its white paper.

However, he added, "CIBC continues to support in-branch distribution, and we hope consumers will be given that choice some day."

CIBC operates the insurance companies almost entirely through direct sales -- that is, selling by telephone, mail and the Internet, not through independent brokers or agents.

For Desjardins, which is already ranked among the top general insurers in Quebec, the acquisition will make it one of the largest general insurers in Canada. The agreement is subject to regulatory approval.