U.S. financial services integration: an evidence in banking and insurance.

Yuan, Yuan

INTRODUCTION AND MOTIVATION

The enactment of the Financial Services Modernization Act (1) of 1999 (known as the Gramm-Leach-Bliley Act) promised the most fundamental reform in the U.S. financial services regulation in more than half century. The Gramm-Leach-Bliley Act (GLB) repealed the depression era laws and reflected the policy views of many competing political and business constituencies. GLB intensified competition in financial services industry by eliminating legal and regulatory barriers among different types of financial institutions. GLB permitted affiliations among financial entities and allowed banks, insurers, securities firms and other financial services institutions to engage in a complete set of financial activities, including commercial banking, insurance underwriting, securities issuance, merchant banking, brokerage, etc. With the same kind of choices as they do in other industries, financial services consumers could take advantage of GLB and benefit from one-stop shopping convenience.

When GLB was passed after a decade debate, almost no one doubted the potential for GLB to have a profound impact on U.S. financial markets. As the end of 2003--under the GLB Act--more than 600 companies operated as Financial Holding Companies (FHC) representing 78 percent of the total assets of all Bank Holding Companies (BHC). In addition, more than 1,300 FHCs/BHCs became engaged in insurance agency or underwriting business and more than 2,500 insurance companies, either through agents or risk bearing underwriters, were affiliated with commercial banks and thrift institutions (BHC Statutory Financial Report multiple years and Federal Reserve Report to Congress, 2003).

GLB opened the door for further consolidation and it was expected to spur waves of cross-sector mergers and acquisitions (M&As). However, massive cross-sector M&As did not occur. Instead, banks bought specialized securities firms and acquired insurance agencies and brokerages rather than acquiring insurance underwriting companies as had been predicted. Banks now control some of the largest insurance brokerages companies. Insurance companies applied for new thrift charters instead of commercial bank charters. (2)

GLB represents a sharp break with traditional policy in the U.S., and it has already produced radical changes in banking and insurance industry, and more is in prospect. However, the specific ways in which GLB has affected the financial system are still widely open to question, especially the extent to which formerly separate sectors of the financial services industries have combined to take advantage of the newly permissive activities under GLB through the integration across sectors.

The research questions we investigate are as follows: 1) How were insurers involved in banking, and how were banks involved in insurance prior to GLB? 2) What is the impact of GLB on banks entering insurance and vise versa? 3) To what extent have firms in the banking and insurance industries combined to proceed into each other's traditional lines of business under GLB? 4) What are the characteristics and performance of the firms that have chosen to go beyond their traditional product lines? The answers to questions like these will be invaluable to a variety of constituents as they will the need to make policy recommendations based almost solely upon anecdotal stories and survey data following passage of GLB.

The remainder of this paper is organized as follows: Section 2 discusses the history of U.S. financial integration and reviews GLB and its effects on banking and insurance industries. Section 3 reviews the literature and Section 4 describes the construction of dataset. In Section 5 we identify the domestic assurbanks and bancassurers. Sections 6 and 7 present the market analysis and discuss the results. Section 8 concludes the study.

HISTORY OF U.S. FINANCIAL INTEGRATION AND GLB ACT

Prior to 1999, U.S. financial services were statutorily separated into three broad sectors: banking, insurance, and securities. The securities sector was one area of the financial services industry that exhibited significant crossover with banks. The Glass-Steagall Act of 1933 established a wall between commercial banking and investment banking after the failure of 11,000 commercial banks during the Great Depression. The 1933 Act prohibited banks from principally engaging in underwriting securities. However, in 1986, Federal Reserve Board (FRB) eased these restrictions by raising the limits of bank-ineligible securities activities to less than 5 percent of BHC's total revenue. The revenue limit was raised to 10 percent in 1989 and to 25 percent in 1996. These securities subsidiaries are called "Section 20 companies."

Unlike affiliations between banks and securities companies, affiliations between banks and insurance companies have been highly restricted since the early 1900s. GLB totally lifted barriers which restricted competition across financial sectors. Because of the lack of data for security firms relevant to banking and insurance, this study focuses on the integration across U.S. banking and insurance sectors.

Definition of Assurbanking and Bancassurance

A financial conglomerate is commonly defined as any group of companies under common management control that provides services, predominantly in two or more of the three major financial services sectors (Skipper & Kwon, 2007, p.p. 656). We differentiate between bank-initiated and insurer-initiated financial conglomerates and, therefore, define bancassurance and assurbanking as follows: Bancassurance is the process of a bank selling insurance products manufactured by insurance subsidiaries that are owned by the bank, either through its own distribution channels or through outside agents. Assurbanking is the process of an insurance company selling banking products manufactured by banking subsidiaries that are owned by the insurer. Instead of focusing on distribution and cross-selling, our definition focuses on the manufacturing of cross-sector financial service product, and encompasses integration of production, management, and controlling rights.

Insurance Involvement in Banking Pre-GLB

Insurance companies have been highly constrained in their ability to penetrate the banking market compared to the access of their banking counterparts. In the early 1900s, in New York (and a few other states), policies restricted the ability of insurance companies to invest in common stocks. Insurance companies were required to divest themselves of bank stocks and were prohibited from acting as underwriters for securities or engaging in securities syndications. In competition with banks, insurance companies in the 1950s began entering the home mortgage market and made commercial loans. In the 1960s, a series of M&As occurred in the insurance industry, which sometimes involved non-insurance businesses including banks and thrifts. In response, the National Association of Insurance Commissioners (NAIC) approved a model insurance holding company statue to impose restrictions on companies intending to acquire insurers and on target companies the insurers intended to acquire. The model statue was subsequently adopted by most states. Under the model statue, state regulators had the power to oversee the activities of an insurance holding company and its non-insurance subsidiaries.

Prior to GLB, in an effort to meet bank competition, insurers found ways around the Bank Holding Company Act (BHCA) prohibition of affiliating banking and insurance activities. The most popular strategy involved insurers acquiring unitary thrift holding companies, non-bank banks, and limited purpose trust companies. The Savings and Loan Holding Company Act (SLHCA) of 1967 (3) provided that a company owning only one single thrift was a unitary thrift holding company and was not subject to any restrictions on other activities undertaken. Therefore, an insurance company or its holding company could legally purchase one and only one thrift institution. A second strategy allowing insurers to enter banking was to operate non-bank banks. The BHCA of 1956 defined a bank as an institution that "both accepted demand deposits and made commercial loans." Insurance companies exploited this definition by establishing a non-bank bank that either accepted saving deposits but not demand deposits, or one that made consumer loans not commercial loans. (4) A third strategy was to establish a limited purpose trust company, which was not considered a bank if it accepted only trust funds (not demand deposits) and did not offer FDIC insurance on these deposits.

Bank Involvement in Insurance Pre-GLB

From a historical perspective, BHCs, national banks, state-chartered banks and thrift saving banks have long possessed federal and state permission to engage in a range of insurance activities. (5) In 1916, Section 92 of National Banking Act (NBA), (6) the first time, prescribed the legislative scheme for giving national banks the authority to sell insurance. National banks were empowered to locate and sell insurance in any place with no more than 5,000 in population--the famous "place of 5,000" provision. During the Great Depression era, banking and securities activities were separated, and affiliations between commercial banks and securities companies were highly prohibited by the Glass-Steagall Act of 1933.

For BHCs, Section 4(c)(8) of the Bank Holding Company Act (BHCA) of 1956 (7) permitted BHCs to engage in activities of a "financial, fiduciary or insurance nature," which included insurance agency activities. However, FRB still did not approve general insurance underwriting for BHCs during 1950 to 1970. In 1971, FRB first promulgated a list of permissible non-banking activities for BHCs, including permissible insurance activities in what was known as Regulation Y. However, a decade later, Congress passed the Garn-St. Germain Act (GSGA) of 1982 (8) that rolled back Regulation Y and prohibited BHCs from providing insurance as principal underwriters, agents or brokers, with such exemptions as: BHCs could underwrite and sell credit life insurance, credit accident and health insurance, and mortgage related insurance; BHCs could act as agent or broker for property insurance on loan collateral; BHCs could sell general insurance in towns of less than 5,000 inhabitants; small BHCs with total assets of less than $50 million could engage in any insurance agency activities, except for annuities and life insurance sales; BHCs engaging in insurance agency activities before, 1982 were allowed to continue. Under Regulation K, BHCs were allowed to own foreign insurance companies and were permitted to underwrite or sell any type of insurance overseas without restriction. (9)

National banks, which are chartered by the Office of the Comptroller of the Currency (OCC), could exercise the powers contained in NBA and the regulations promulgated by OCC. There are two sources of authority for national banks engaging in insurance activities: Section 24 and the "place of 5,000" exception in Section 92 of NBA. Section 24 did not permit national banks to engage in insurance agency or underwriting business in general. However, OCC recognized exceptions to this general rule and approved the underwriting and selling of title insurance, credit related insurance, and mortgage guaranty reinsurance, as well as acted as an agent in the sale of municipal bond insurance, mortgage reinsurance, and crop insurance. Since 1986, OCC expanded national banks' insurance powers under the "place of 5,000" exception by allowing national banks or their branches, located in any place with a population of 5000 or less, to sell insurance to their customers located anywhere in the nation.

State banks are chartered by individual states, and their ability to diversify into insurance industry varies by state. For years, a number of states allowed their state banks to provide insurance services to customers, e.g., South Dakota and Delaware led the way in authorizing insurance activities for banks chartered in their states. In 1991, Federal Deposit Insurance Corporation Improvement Act (FDICIA) (10) limited the activities of any FDIC-insured state-chartered banks acting as a principal to the activities permissible for national banks. However, state-chartered banks could still engage in agency activities authorized by state-chartered authorities. Other insurance activities could be authorized under FDICIA if permitted under state law. FDICIA specifically prohibited state banks from underwriting insurance except to the extent permitted for national banks and grandfathered underwriting activities. By the end of 1998, 40 states allowed state banks to operate insurance agencies, increasing from 22 states in 1995.

The Office of Thrift Supervision (OTS) is the regulatory supervisor of federally chartered saving banks and federal and state-chartered saving associations and their holding companies. (11) Since the 1970s, insurance selling has been a pre-approved activity for thrift institutions. Under federal law, thrifts may engage in non-thrift activities through their service corporation subsidiaries. Multiple savings and loan holding companies12 were generally limited in their non-thrift activities, but they were permitted to engage in insurance agency business. However, a unitary savings and loan holding company and its non-thrift subsidiaries were not restricted with respect to the activities they could engage in. Thus, unitary savings and loan holding companies could legally own insurance companies (either agents or risk-bearing underwriters). By licensing with OTS as a unitary savings and loan holding company, insurance companies could purchase one, and only one, thrift institution. In summary, insurance companies in the U.S. have historically had a difficult time offering a wide range of banking products prior to the passage of GLB. Banks, however, could act as agents or brokers selling insurance products but were severely limited in what they could do as far as underwriting insurance products. Given regulations prohibiting most banks from producing insurance prior to GLB, some U.S. banks attempted to enter the insurance business by designing new products, which incorporated insurance features. These insurance-like products included, for example, municipal bond guarantee insurance, which was allowed by OCC in 1985, and the CD annuity introduced by several small banks, which permitted the annuitization of an amount deposited into a CD.

Gramm-Leach-Bliley Act of 1999

On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act. The law allowed banks of all sizes to be able to offer their customers a wide range of financial products and services manufactured by the same financial service conglomerate. In addition, other types of financial companies--insurance and securities companies, or even, financial technology companies were able to more readily form into a single financial operation. Numerous financial products across sectors were permitted to be manufactured under one roof.

Impact on Banks Entering Insurance

GLB provides two vehicles to allow financial institutions to engage in new types of financial activities or to affiliate with other financial companies: financial holding companies (FHCs) and financial subsidiaries. FHCs, the more flexible of the two, may engage in new activities that are financial in nature, including banking, merchant banking, securities, insurance underwriting or agency through a holding company affiliate regulated by FRB. BHCs can apply and elect to be FHCs and then conduct any activities permitted under GLB and BHCA. These activities must be 1) financial in nature or incidental to such financial activity or 2) complementary to a financial activity and present no substantial risk to the safety or soundness of the financial institutions or the financial system. As of March 11, 2000, the effective date of GLB, FRB announced a list of the first 117 FHCs (Federal Reserve Board statistic release).

GLB provides banks with an alternative of using subsidiaries rather than FHCs as the vehicle in new financial activities. A financial subsidiary, which can engage in most of the newly-authorized activities, must be a direct subsidiary of a bank. The most important difference between FHCs and the financial subsidiaries is that the latter is prohibited from engaging in certain financial activities as a "principal." (13) Therefore, there is no requirement that a bank organization has to be part of an FHC to engage in new activities (except for prohibited activities). Under GLB, neither national banks nor their subsidiaries may underwrite insurance unless underwriting was permitted by OCC rulings before January 1, 1999. National banks may still act as an insurance agent in offices of the national bank located in a place of less than 5,000 inhabitants. In general, state banks are prohibited by FDICIA from engaging in insurance underwriting even if permitted under state law, except to the extent that the activity is permitted for national banks. The new insurance underwriting restrictions for national banks in GLB also apply to state banks. A state bank may own a subsidiary that engages in activities comparable to those permitted by GLB for the financial subsidiaries of national banks.

GLB substantially expands the ability of banks to affiliate with any financial institutions, such as insurance company or security firm. However, with limited exceptions, GLB withholds the longstanding prohibition on banks affiliating with commercial companies. Recognizing that thrift institutions have become much more similar to banks, GLB also prohibits commercial companies from affiliating with thrift institutions and specifically acquiring a thrift institution through the "unitary thrift holding company" vehicle.

Impact on Insurance Entering Banking

Taking advantage of power granted by GLB, an insurance company and its holding company can apply to become an FHC so that it can engage in any newly permissible activities. If an insurance company elects to become an FHC, it may continue all prior lawful non-banking activities as of September 30, 1999. In addition, insurance companies still have the option to expand into the banking industry through the vehicle of saving and loan holding companies (SLHC). Following GLB, OTS ruled that SLHCs are eligible to engage in the same list of activities permissible for FHCs (Federal Register, November 8, 2001 issue). SLHCs generally are subject to revenue and other restrictions applicable to BHCs and have to abide by conditions imposed by the Federal Reserve on FHCs.

Since the passage of GLB, the majority of insurers that have entered the banking sector have done so by using SLHCs instead of FHCs. By 2005, more than 40 insurers were approved by OTS as SLHCs and engaged in banking business through their thrift subsidiaries. (14) Only one insurance company, MetLife, chose to become an FHC and own a small commercial bank. The most likely reason for this is the regulatory burden. FHCs and commercial banks are regulated by various regulators. For example, federally chartered commercial banks are regulated by OCC; state chartered commercial banks are regulated by the state banking regulatory authorities; insured commercial banks are also monitored by FDIC, and FHCs are regulated by the Federal Reserve. However, the only regulator for thrifts and SLHCs is OTS. In addition, thrifts have much more freedom in establishing branches and offices nationwide. Thrifts may do business in any state without restrictions. In order to expand business to other states, commercial banks have to meet a variety of requirements imposed by different states, e.g., branch restrictions.

LITERATURE REVIEW

The available research on U.S. financial integration has been limited and mostly focused on the immediate wealth effects of GLB and on the potential efficiency effects. Using event-study methodology, Carow (2001a) and Johnston & Madura (2000) investigated the 1999 merger of Citicorp with Travelers, which signaled impending financial modernization, and found positive market value gains for the merged entity, life insurers, large banks, and brokerage firms. Carow & Heron (2002) examined the capital market reaction to GLB and found that only insurance and investment companies were predicted to benefit from GLB. Carow (2001b) examined how a reduction in the insurance industry's barriers to bank entry affected firm market value. His evidence suggested that insurance companies experienced a significant reduction in wealth surrounding OCC and Supreme Court rulings while bank stock prices did not change significantly. However, Mamun, Hassan & Maroney (2005a) and Neale & Peterson (2005) suggested that the main winners from GLB were property-liability insurers followed by life insurers, and larger insurance companies benefited more from GLB than others.

The results of wealth effects on the banking industry are mixed. Akhigbe & Whyte (2001) found positive valuation effects of GLB on the banking industry. Hendershott, Lee & Tompkins (2002), on the other hand, did not find significant wealth effect of GLB on banks. A recent study by Mamun, Hassan & Maroney (2005b) found the impact of GLB on the banking industry, including welfare gains and decreased systematic risks exposures.

A second series of papers attempted to estimate the potential efficiency gains of consolidation. For example, Berger (2000) and Saunders & Walter (1994) argued that allowing universal banking would enhance the efficiency of the financial service industry, without increasing the risks to the financial system stability. Cummins, Tennyson & Weiss (1999) examined the relationship between diversifying M&As, efficiency, and scale economies in the U.S. life insurance industry over 1988-1995. They found that diversifying M&As within the life insurance industry had a beneficial effect on efficiency (also see Gardner & Grace, 1993; Cummins & Zi, 1998). Berger, Cummins, Weiss & Zi (2000) investigated economies of scope in the U.S. insurance industry by studying diversified and specialist insurers for the period 1988-1992 and found cost scope economies and revenue scope diseconomies, as a result of providing life insurance and property-liability insurance jointly. Berger, Hancock & Humphrey (1993) showed that diversification was more efficient for banks in limited branching and statewide branching regulatory environments, and specialization was more efficient for others in unit banking regulatory environments. Berger, Humphrey & Pulley (1996) found little or no revenue scope efficiency between deposits and loans in term of charging customers for joint consumption benefits.

Although a number of studies have been done across products within a sector, only a handful of studies exist on the cross-industry integration of the U.S. financial services. Yuan & Phillips (2008) investigated efficiency effects from possible economies of scope and found a significant cost scope diseconomies, revenue scope economies, and weak profit scope economies in the post-GLB U.S. integrated banking and insurance sectors. By comparing the performance of BHCs/FHCs before and after passage of GLB, Yeager, Yeager & Harshman (2007) did not find the evidence of cost reductions or profit enhancements. They didn't find significant synergies for banks engaging in commercial banking, insurance underwriting, and merchant banking. However, their study focused on bancassurers only and still leaves the question open for assurbanks, the insurers who are doing banking business. Whalen (1999a, 1999b) examined the overseas insurance activities and securities activities of U.S. BHCs for the period from 1987 to 1997. Whalen found that average returns on both foreign insurance and securities activities were higher than traditional banking activities and that the combination of insurance and securities business in banks can noticeably improve a bank's risk and return opportunities.

Berger (2000) and Malkonen (2004) theoretically analyzed the efficiency and competitive implications of financial conglomeration. Berger (2000) suggested that integration across financial services industry increased the potential for efficiency gains and that integration may bring greater revenue efficiency gains than cost efficiency gains with most of the gains coming from risk diversification benefits. Malkonen (2004) suggested that conglomeration triggers competition in the credit market and increases profits in insurance. His model showed that cost-efficiency gains were fully passed to consumers and aggregate risk in the financial markets was reduced, suggesting lower capital requirements for financial conglomerates.

Since affiliation across industries was prohibited prior to GLB, research in this area has mostly progressed using simulated data. Boyd, Graham & Hewitt (1993) examined the effect of BHC mergers with non-bank financial firms. Using simulated data, they found that BHC mergers with life and property/casualty insurance companies reduced risk. Wall, Reichert & Mohanty (1993) focused on the question of whether deregulating commercial bank activities would affect a banks' riskiness by examining the portfolio effects of combining bank activities with non-bank financial activities. Their results suggested that portfolios, along with certain industries in which banks have been seeking to remove barriers to growth, offer significant opportunities for increasing return while lowering risk. Reichert & Wall (2000) and Wall, et al. (1993) suggested that efficient diversification may change over time, perhaps due to such factors as macroeconomic environments or advancing technologies. Allen & Jagtiani (2000) created a synthetic financial conglomerate consisting of one bank, one securities firm, and one insurance company. They showed lower overall risk but higher systematic risk in the banking industry because of integration.

DATA

The regulatory data sets in the U.S. covering financial service firms are product specific. We use a unique dataset by Yuan & Phillips (2008), who constructed a linking variable to match the unique company identifiers between the banking and insurance regulatory datasets. The datasets come from a variety of sources, including National Association of Insurance Commissioners (NAIC) insurance data sets, Bank Holding Company Financial Report (BHCFR, Federal Reserve's FR Y9C), Commercial Banks Call Report (CALL), and Thrift Financial Report (TFR), Federal Reserve Structure Report (FEDSR), and Thrift Holding Company Structure Report (THCFR). These data sets contain financial and domicile information for almost all insurance companies, BHCs, FHCs, commercial banks, and thrifts operating in the United States for our research period over 2003 2005. (15)

Firms under common ownership in the combined data set are aggregated to the group level. We separately aggregate each group's life, property-liability, commercial banks, and saving bank subsidiaries to obtain the divisional totals. A firm is treated as a single producer with up to four business divisions--life insurance division, property-liability insurance division, commercial banking division, and thrift division. Inactive firms with non-positive total assets, liabilities, or net worth are eliminated, which leaves the data sets 90 joint producers, (16) 1,346 insurance specialists, and 7,261 bank specialists for the year 2003. Since almost all joint producers in our data are large, we then focus on large financial institutions licensed as insurers or banks in the U.S. Following the literature (e.g., Berger & Mester, 1997, 2003), we further excluded joint producers with less than $1 billion total assets, banks with less than $1 billion total assets, and insurers with less than $600 million total assets. The final data sample consists of 88 joint producers, 204 insurance specialists, and 461 bank specialists for the year 2003. These firms include 182 life insurers, 191 property-liability insurers, 437 commercial banks, and 185 thrifts, which account for about 98 percent life insurance industry assets, 94 percent property-liability insurance assets, 88 percent commercial banks assets, and 81 percent thrifts assets. (17)

ASSURBANKS AND BANCASSURERS: WHO ARE THEY?

We first identify the major assurbanks and bancassurers in the post-GLB U.S. economy. Table 1 presents a summary of assurbanks and bancassurers over the period 2003-2005. The statistical patterns in Table 1 are similar and stable over the three year period. (18)

Assurbanks

By the end of 2003, 44 insurance groups had banking operations and were classified as "assurbanks." Table 2 Panel A lists the ten largest assurbanks for the year 2003 in terms of asset size. MetLife, with $12.1 million net loss from its banking businesses, was the only insurer to elect to be organized as FHC. Among them, 33 assurbanks utilized the SLHC vehicle into the banking market. The remaining assurbanks, grandfathered by various exemption provisions, owned either non-bank banks or trust companies. Among the top ten assurbanks, only AIG, ING, and Nationwide had net income gains from their banking activities, with all others reporting losses in their banking subsidiaries. Of the 44 assurbanks included in the study, 24 had net income gains from banking activities with an average of 12.4 percent total net income earned from banking business (Table 1) while almost half earned less than 3 percent profit from banking activities (median 2.3 percent).

ING Direct is a thrift subsidiary of ING Group. Its successful banking operation in the U.S. makes it stand out from the others. Opened for business in September 2000, ING Direct has become the country's largest internet-based bank and the fourth-largest thrift bank. As a standalone thrift division of the Dutch financial service conglomerate, ING Direct USA runs on a direct-to-the-customer operation, and does not cross-sell with its affiliates. There are no branches, no ATMs, no fees, and no minimum deposits. Only a limited number of products are offered: savings accounts, a few certificates of deposit, and a handful of mutual funds. The simplicity of the model allows them to operate at very low cost. Although ING Direct is an example of a conglomeration, it is one which affiliates with various financial institutions but shows no effort to integrate. Instead, their standalone, simple, straight forward business model creates their success. However, under pressure from various stakeholders including the European Commission following ING's acceptance of state aid from the Dutch Government during the financial crisis of 2008, ING has decided to sell its insurance subsidiaries and ING Direct in a strategy the company referred to as its "Back to Basics" strategy.

Bancassurers

From the enactment date of GLB to the end of 2003, more than 630 BHCs have converted to FHC status. Although the number of FHCs was much smaller than the number of BHCs, these FHCs controlled 78 percent of all commercial banking assets as of the first quarter of 2003 (Federal Reserve Board Report to Congress, 2003). In 2003, 44 top tier FHCs/BHCs (19) reported general insurance underwriting business and 1,251 top tier FHCs/BHCs reported insurance agency business (with or without insurance underwriting) in their regulatory financial report. Table 2 Panel B lists the top 10 banking groups in terms of total insurance underwriting income. Not surprisingly, Citigroup is at the top of the list. It is interesting to note that even though Citigroup spun off its property-liability segment in 2002 and its life segment in 2005, 7.04 percent of its net income was from its insurance businesses in 2003. Unlike the largest 10 assurbanks, all the top 10 bancassurers reported gains from their insurance underwriting subsidiaries.

Table 1 shows that bancassurers average 19.5 percent of total group net income from insurance underwriting, but half average less than 3 percent. As fee income has become a more important source of revenue for banks, these banking groups average 8.09 percent non-interest income from insurance agency and underwriting income (median 3.99 percent). In addition to insurance underwriting, banking groups sell insurance products through agencies they own. We identify 1,251 FHCs/BHCs that conduct insurance business only as agents, whose insurance agency business accounts for 5.6 percent of their total non-interest income (median 1.72 percent). In thrift sector, only 9 thrifts took advantage of OTS rules allowing insurance underwriter subsidiaries without becoming an FHC. Except for Washington Mutual Bank Group, these thrifts are much smaller in size and have inconsequential effects on the thrift industry.

INSURANCE INDUSTRY IN INTEGRATION

We next analyze the post-GLB U.S. banking and insurance industries from the aspects of industry structure and firm performance. Individual insurers are divided into three groups: Nonaffiliated insurance companies (those without any affiliation with banks either through direct control or through holding companies to which they belong); assurbanking-affiliated insurance companies (20) (insurers affiliated with banks by either directly owning banks or through their holding companies); bancassurance-affiliated insurance companies (21) (those directly owned by banks or owned through their insurance holding companies owned by banks); and bank-affiliated insurance companies (referring to either assurbanking-affiliated or bancassurance-affiliated insurance companies).

Market Structure--Distribution and Size of Firms

As reported in Table 3, our data sample contains 36 assurbanking-affiliated life insurance companies, 36 bancassurance-affiliated life insurance companies, and 110 non-affiliated life insurance companies in 2003. Assurbanking-affiliated life insurance companies represented 19.8 percent of the life insurers in number, but accounted for 57.7 percent of total assets, 51.6 percent of premiums written, and 53.4 percent of net income. Representing 19.8 percent of the life insurance companies, bancassurance-affiliated life insurers accounted for only 7.3 percent of total assets, 7.0 percent of premiums written, and 9.8 percent of net income. The 60.4 percent non-affiliated life insurers took the remaining one-third life insurance market share.

Table 3.1 shows the distribution of property-liability insurers. In 2003, 25 assurbanking-affiliated property-liability insurance companies represented 13.1 percent of the firms in number and approximately one-third of industry assets, premiums written and profits. The 22 bancassurance-affiliated property-liability insurers held 3.5 percent property-liability industry assets. The remaining 144 non-affiliated property-liability insurers controlled an approximate two-thirds share of the industry assets, premiums written, and net income. This pattern suggests that banks appear less interested in property-liability sector compared with life sector, supporting the argument that banks are more likely to begin their insurance business in the life sector (Carow, 2001b).

Table 4 and 4.1 show the average firm size in terms of total assets, premiums written, and net income. Assurbanking-affiliated life and property-liability insurers were significantly larger than non-affiliated and bancassurance-affiliated insurers regardless of the metric used. Bancassurance-affiliated life and property-liability insurers were the smallest, but the average bancassurance affiliated life insurer was not statistically different from the average non-affiliated life insurers in terms of total assets and net income.

Firm Performance

We discuss insurers' A.M. Best Strength Rating, business geographic patterns, and product mix and diversification. We then explore the operating performance of the three insurer groups (nonaffiliated, assurbanking-affiliated, and bancassurance-affiliated) by conducting profitability, leverage, and liquidity test.

A.M. Best Ratings

A.M. Best's Financial Strength Rating is an independent rating based on a comprehensive quantitative and qualitative evaluation of an insurance company's balance sheet strength, operating performance, and business profile.22 Table 5 Panel A shows that 83 percent of assurbanking-affiliated life insurers had A.M. Best ratings of A- or higher, compared with 58 percent of bancassurance-affiliated life insurers and 68 percent of non-affiliated life insurers. For property-liability insurers, 89 percent of assurbanking-affiliated property-liability insurers, 62 percent of bancassurance-affiliated property-liability insurers, and 78 percent of non-affiliated property-liability insurers had A.M. Best ratings of A- or higher. Insurance companies that have banking subsidiaries tend to have higher ratings than those owned by banks or non-affiliated insurers.

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Geographic Diversification

We use the number of states in which insurers are licensed as a proxy to business geographic diversification. Table 6 suggests that, on average, assurbanking-affiliated insurers were more geographically diversified, e.g., half of assurbanking-affiliated life insurers obtained licenses and conducted business in 48 and more states, and similarly half of assurbanking-affiliated property-liability insurers were licensed and did business in 45 or more states. Bancassurance-affiliated life insurers were the least geographically diversified compared with non-affiliated and assurbanking-affiliated.

Product Mix and Diversification

We categorize life insurance products as individual life, individual annuity, credit life, group life, group annuity, and accident & health insurance; we categorize the property-liability products as personal property, personal liability, commercial property, and commercial liability (Leverty 2005; Cummins & Phillips, 2005; Cummins, et al., 2008; Berger, et al., 2000). Table 7 demonstrates that bank-affiliated life insurers were more interested in personal products, especially individual annuities and credit life compared with non-affiliated life insurers, suggesting that affiliation with banks plays an important role in developing a business portfolio due to banks' experience in selling annuities and credit insurance. Bank-affiliated life insurers accounted for approximately one-third of each product line in number, but their premium income share was more than 60 percent of each sub-market except for accident & health insurance. For the property-liability sector, the pattern is that bank-affiliated property-liability insurers were more interested in personal products than commercial products. Bank-affiliated property-liability insurance companies represented no more than one-fourth of each property-liability product market in number, but accounted for about 50 percent of the personal products underwriting and one-third of commercial products underwriting (Table 7.1).

Since we know bank-affiliated insurance companies are more diversified across industries, it is interesting to ask whether they are also more diversified on their traditional products within the insurance sector. Some studies have suggested efficiency gains and economies of scale and scope in U.S. insurance industry (Cummins, Weiss & Zi, 2008; Segal, 2003; Berger, et al., 2000; Cummins & Weiss, 1993, 2000; Cummins & Zi, 1998; Cummins, Tennyson & Weiss, 1999). Such efficiency gains may prompt these within-industry diversified insurers to extend to the banking industry. The results support this hypothesis. Table 8 shows the products Herfindahl Index for life and property-liability insurers. (23) Table 8 Panel A and Panel B show that compared with specialized insurers, bank-affiliated insurance companies were more diversified within both life and property-liability insurance markets.

Overall Performance--ROA, ROE

We use the widely accepted measures, return on assets (ROA) and return on equity (ROE), to compare insurers' overall performance. Table 9 suggests that in the life insurance sector, assurbanking-affiliated insurers had significantly higher ROE. Among the three insurance groups, ROA was not statistically significant. In the property-liability sector, interestingly, bancassurance-affiliated insurers, on average, had the highest ROA and ROE, and the difference is significant. Assurbanking-affiliated property insurers had significantly higher ROA and ROE than the nonaffiliated. Generally, bank-affiliated insurers had better overall profitability than non-affiliated insurers.

Profitability Test

We compare the profitability of life insurers using accounting measures of profitability widely used in the industry and commonly accepted by regulators:

* Total Benefits Paid as a percentage of Net Premiums Written--Total benefits paid include death benefits, matured endowments, annuity benefits, accident and health benefits, disability and surrender benefits, and other miscellaneous benefits.

* Commissions and Expenses Incurred as a percentage of Net Premiums Written--Commissions and expenses include payments on both direct and assumed business, general insurance expenses, insurance taxes, licenses and fees, increase in loading and other miscellaneous expenses, and exclude commissions and expense allowances received on reinsurance ceded.

* Net Operating Gain (after taxes) as a percentage of Total Assets--Total assets are the mean of current and prior year admitted assets; and this ratio measures insurance earnings in relation to the company's total asset base.

* Yield on Invested Assets--The ratio of annual net investment income divided by investment assets. Investment assets are the mean of current and prior year cash and invested assets plus accrued investment income minus borrowed money.

Table 10.1 Panel A shows that bank-affiliated life insurance companies performed better in terms of insurance expense ratio and net operating gains to assets. Bank-owned life insurers had significantly lower investment yield. However, they had a higher benefit incurred ratio than non-affiliated life insurers. Assurbanking-affiliated life insurers had a significantly higher investment yield. The difference on the benefits paid as a percentage of net premiums written was not statistically significant among the life insurers.

For property-liability insurers, we compare five profitability measures:

* Loss Ratio--The ratio of incurred losses and loss adjustment expenses to Net Premiums Earned. This ratio measures the company's underlying profitability or loss experience on its total book of business.

* Expense Ratio--The ratio of underwriting expenses (including commissions) to Net Premiums Written. This ratio measures the company's operational efficiency in underwriting its book of business.

* Combined Ratio--This ratio is the sum of the Loss Ratio and Expense Ratio. It measures a company's overall underwriting profitability. A combined ratio of less than one indicates the company has reported an underwriting profit.

* Yield on Invested Assets--The ratio of annual net investment income divided by the mean of cash and net invested assets. This ratio measures the average return on a company's invested assets, before capital gains or losses and income taxes.

* Return on Policyholders' Surplus (PHS)--This ratio measures a company's efficiency in utilizing its surplus on a total return basis. "Return" is calculated as the overall after-tax profit from underwriting and investment activity, including unrealized capital gains.

Table 10.1 Panel B summarizes the profitability tests for property-liability insurers. It shows that bank-affiliated property-liability insurance companies had a significantly lower loss ratio compared with non-affiliated property-liability insurers. Although their expense ratio was higher, it was offset by the lower loss ratio and led to lower combined ratios. Similar to assurbanking-affiliated life insurers, assurbanking-affiliated property-liability insurers had the best investment earnings with an average investment yield of 4.6 percent. The return on PHS ratio indicated that bank-affiliated property-liability insurers, including both assurbanking-affiliated and bancassurance-affiliated, were more efficient in utilizing their surplus on a total return basis.

Leverage Test

Following industry accepted measures of leverage, we compare the following life insurers' operating leverage measures:

* Net Premium Written to Capital and Surplus--This ratio reflects the leverage of the company's current volume of net business in relation to its capital and surplus after reinsurance assumed and ceded. This test measures the company's exposure to pricing errors in its current book of business.

* Best's Capital Adequacy Ratio (BCAR)--The BCAR compares an insurer's adjusted surplus relative to the required capital necessary to support its operating and investment risks.24

* Capital and Surplus to Liability--This test measures the relationship of capital and surplus to the company's unpaid obligations after reinsurance assumed and ceded. It reflects the extent to which the company has levered its capital and surplus base. On an individual company basis, this ratio will vary due to differences in product mix, balance sheet quality, and spread of insurance risk.

* Reinsurance Leverage Ratio--The relationship of total reserves ceded plus commissions and expenses due on reinsurance ceded plus other refunds due or recoverable from reinsurers to total capital and surplus.

Table 10.2 Panel A shows that the ratio of NPW to surplus was statistically lower for bancassurance-affiliated life insurers than for bancassurance-affiliated and non-affiliated life insurers. About 50 percent of assurbanking-affiliated and non-affiliated life insurers had "strong balance sheet" BCARs (median 174 percent, 163 percent, respectively), while bancassurance-affiliated life insurers had much more secure BCARs (median 194 percent). It suggests that bank-owned life insurers were more securely capitalized. This argument can also be supported by the capital-to-liability ratio where we see that bancassurance-affiliated life insurers had significantly higher capital-to-liability ratios compared with assurbanking-affiliated and non-affiliated life insurers. The results of the reinsurance leverage ratio test suggest that bank-affiliated life insurers used less reinsurance than non-affiliated life insurers. In sum, assurbanking-affiliated life insurers carried the highest leverage ratio, and bancassurance-affiliated life insurers were significantly less levered than non-affiliated insurers.

For property-liability insurers we look at the following industry accepted measures of leverage:

* Net Premium Written to Policyholders' Surplus--This ratio measures an insurer's net retained premium in relation to its surplus and the company's exposure to pricing errors in its current book of business.

* Net Leverage Ratio--This ratio equals the sum of an insurer's Net Premiums Written to Policyholders' Surplus Ratio and the Net Liabilities to Policyholders' Surplus Ratio. It measures the combination of a company's net exposure to pricing errors in its current book

of business and errors of estimation in its net liabilities after reinsurance, in relation to policyholders' surplus.

* Gross Leverage Ratio--This ratio equals the sum of Net Leverage and Ceded Reinsurance Leverage. (25) It measures a company's gross exposure to pricing errors in the current book of business, to errors of estimating its liabilities, and exposure to its reinsurers.

* Best's Capital Adequacy Ratio (BCAR)--The BCAR compares an insurer's adjusted surplus relative to the required capital necessary to support its operating and investment risks. (26)

Table 10.2 Panel B shows that bancassurance-affiliated property-liability insurers had the lowest NPW to PHS ratio. But the difference among insurers was not significant. The bank-affiliated property-liability insurers presented lower net leverage ratio and gross leverage ratio than nonaffiliated insurers, but the gross leverage ratio was not significantly different between bank-affiliated and non-affiliated property-liability insurers. On average, all the property-liability insurers had "very strong balance sheet strength" with higher than 200 percent BCAR. However, the average BCAR for bancassurance-affiliated property-liability insurers was about 50 percent higher than the average BCAR for assurbanking-affiliated and non-affiliated insurers. In sum, non-affiliated property-liability insurers were more levered than the bank-affiliated, and assurbanking-affiliated property-liability insurers were more levered than the bancassurance-affiliated.

Liquidity Test

We calculate four liquidity ratios for life insurers:

* Quick Liquidity Ratio--The ratio of unaffiliated quick assets to liabilities.27 This test measures the proportion of liabilities covered by cash and quickly convertible investments. It indicates a company's ability to meet its maturing obligations without requiring the sale of long-term investments or the borrowing of money.

* Current Liquidity Ratio--The ratio of unaffiliated invested assets to liabilities, excluding mortgages and real estate. It measures the proportion of liabilities covered by cash, and it measures unaffiliated investment assets holdings.

* Operating Cash Flow to Total Assets--Operating cash flow is the change in cash and invested assets attributable to net underwriting and net investment income after policyholder dividends and federal income taxes. It measures a company's ability to meet current obligations through the internal generation of funds from insurance operations. Negative balances typically indicate unprofitable underwriting results or low yielding assets.

* Non-Investment Grade Bonds to Capital--This test measures exposure to non-investment grade bonds as a percentage of capital and surplus. Generally, non-investment grade bonds carry higher default and liquidity risks. The designation as non-investment grade utilizes the bond quality classifications, which coincide with different bond ratings assigned by major credit rating agencies.

Table 10.3 Panel A consistently shows that bancassurance-affiliated life insurers had higher liquidity ratios but lower operating cash flows than their non-affiliated and assurbanking-affiliated counterparts at the year-end 2003. In addition, they invested the least in non-investment grade bonds. Non-affiliated life insurers had the lowest quick and current liquidity ratios and the difference was significant.

The liquidity ratios used for property-liability insurers are similar to those used for life insurers: quick liquidity, current liquidity, operating cash flow ratio, and ratio of non-investment grade bonds to PHS. Table 10.3 Panel B shows similar liquidity rations between property-liability insurers and life insurance companies. Bancassurance-affiliated property-liability insurers had significantly higher liquidity ratios but lower operating cash flows than non-affiliated and assurbanking-affiliated property-liability insurers, and they invested the least in non-investment grade bonds. Non-affiliated property-liability insurers had the lowest quick and current liquidity ratios, and they invested the most in the non-investment grade bonds. The evidence suggests that insurance subsidiaries of assurbanks and bancassurers retained more costly liquid and short-term assets, and showed prudence on settling their outstanding liabilities.

BANKING INDUSTRY IN INTEGRATION

Banks under GLB can be categorized as: Non-affiliated Commercial Banks (CBs) are those without any affiliation (either direct control or through holding companies they belong to) with insurance companies. Bancassurance-affiliated Commercial Banks (CBs) (28) are those affiliated with insurance companies by directly holding insurers or through their FHCs/BHCs, which own insurance companies. Assurbanking-affiliated Commercial Banks (CBs) (29) are those directly owned by insurers or owned through their FHCs/BHCs, which are owned by insurers. Insurer-affiliated Commercial Banks (CBs) refer to either assurbanking-affiliated or bancassurance-affiliated commercial banks. Similarly, in the thrift savings sector, there are Non-affiliated Saving Banks (SBs), Bancassurance-affiliated Saving Banks (SBs), Assurbanking-affiliated Saving Banks (SBs), and Insurer-affiliated Saving Banks (SBs).

We identify 110 FHCs/BHCs reporting insurance underwriting income in FR Y9-C filed with FRB. However, some of the bancassurers have only in-house insurance underwriting, such as credit-related insurance and mortgage-related insurance. Some of these bancassurers have insurance subsidiaries not filing reports with NAIC, such as title insurance companies, captive insurance companies, and single state insurers. In addition, according to Regulation K, banks are allowed to own insurance subsidiaries overseas, which are not required to file with NAIC if not involved in domestic business. Thus, we present statistics for the insurer-affiliated CBs or SBs that have insurer affiliates filing with NAIC. The non-affiliated CBs or SBs include banks subsidiaries of those FHCs/BHCs who report insurance underwriting income to FRB but have no insurance subsidiaries filing with NAIC.

By analyzing the business profile of these FHCs/BHCs (bancassurers with no insurance subsidiaries), we find that the insurance business they conducted mainly supported their banking business or just appeared to be by-products of their banking operations, such as credit related insurance and mortgage insurance. Because these banks are different from bancassurers with full line insurance subsidiaries, we classify them as non-affiliated commercial banks with insurance underwriting business reported. The assurbanking-affiliated CBs are all small trust banks or grandfathered non-bank banks. Since they are small in size and no more than 10 in number, we merge these banks to bancassurance-affiliated CBs. Hence, we have the following structure for CBs:

* Bancassurance-affiliated CBs

* Non-affiliated CBs

** Non-affiliated INS CBs--with insurance underwriting

** Non-affiliated NOINS CBs--without insurance underwriting

Market Structure--Distribution and Size of Firms

The data sample contains 48 bancassurance-affiliated CBs, 46 non-affiliated INS CBs, and 343 non-affiliated NOINS CBs in 2003. Table 11 shows that bancassurance-affiliated CBs represented 11 percent of the commercial banks in number, but they accounted for over half of market total assets, deposits, and net income. Non-affiliated INS CBs were 10.5 percent of the commercial banks in number and about 20 percent of market total assets, deposits, and net income. So, important players in the commercial banking industry have been involved in the insurance underwriting business through either in-house production or manufacturing affiliates. The remaining non-affiliated NOINS CBs represented the majority of the commercial banking market in number (78.5 percent), but they accounted for only one-fourth market share in terms of total assets, deposits, and net income.

In the thrift sector, 39 assurbanking-affiliated SBs, 14 bancassurance-affiliated SBs, and 132 non-affiliated SBs were identified. Similar to the commercial banking sector, bancassurance-affiliated SBs were 7.6 percent of the thrift saving market in number and accounted for a 29.1 percent share of total assets, 27.6 percent of deposits, and 33.4 percent of net income (Table 11.1). Assurbanking-affiliated SBs were 21.1 percent of the thrifts in number, 5 percent of the total assets, 6.3 percent of deposits, and 2.7 percent of net income. Non-affiliated SBs represented the remaining 71.4 percent of thrifts and approximately two-thirds of market total assets, deposits, and net income.

Table 12 and 12.1 show the average bank size in terms of total assets, deposits, and net income. Table 12 shows a pattern that on average bancassurance-affiliated CBs were significantly larger than non-affiliated ones regardless of the metric used. However, the variance on firm size was higher among bancassurance-affiliated CBs than non-affiliated INS CBs. The firm size disparity in thrift sector is shown in Table 12.1. We can see a significant firm size difference: assurbanking-affiliated SBs are significantly smaller than bancassurance-affiliated SBs and non-affiliated SBs. Although bancassurance-affiliated SBs on average were the largest among SBs, the size difference is not statistically significant. Because of the super large thrifts in the data, e.g., Washington Mutual, Golden West Financial, the variance on firm size is much higher among bancassurance-affiliated SBs. The evidence suggests that large commercial and saving banks are more likely to affiliate with full line insurance companies, and insurance companies are more likely to extend their traditional business to banks through small-size thrifts.

Firm Performance

Portfolio of Banking Products

The traditional banking products are deposits on the liability side of the balance sheet and loans on the asset side. We compare three banking product measures: total deposits, interest bearing deposits, and total loans and leases. Total deposits include deposits and savings accounts that either require interest payments or are not allowed to pay interest. Interest bearing deposits include only those requiring interest payments, such as savings accounts and time deposits. Total loans and leases include loans to individuals, commercial and industrial loans, and all other loans and leases. Table 13 Panel A shows the average total deposits, interest bearing deposits and total loan and lease. To control for size effects they are scaled by assets. The evidence indicates that non-affiliated NOINS CBs had more deposits than non-affiliated INS CBs and bancassurance-affiliated CBs. And nonaffiliated INS CBs had more deposits than bancassurance-affiliated CBs. The differences were statistically significant. On the asset side, bancassurance-affiliated CBs had statistically less loan portfolios than non-affiliated CBs. Non-affiliated NOINS CBs in turn had significantly more loan portfolios than bancassurance-affiliated CBs.

In the thrift sector, Table 13 Panel B shows that non-affiliated SBs had significantly more deposits compared with assurbanking-affiliated and bancassurance-affiliated SBs. On the asset side, assurbanking-affiliated SBs had statistically less loans portfolios than other SBs. Loan portfolio differences between bancassurance-affiliated SBs and non-affiliated SBs were not statistically significant. The evidence suggests that, on average, CBs and SBs without insurance business had more deposits and loans than those with insurance business or affiliates.

Interest Income and Non-Interest Income

Interest income is the main source of revenue for banks and includes interest and fee income on loans, income from lease financing receivables, interest income on balances due from depository institutions, interest and dividend income on securities, and other interest income. Non-interest income comes from fiduciary activities, service charges on deposit accounts, investment banking, advisory, brokerage, and underwriting fees and commissions. To control for the size effect, we scale the interest income and non-interest income by asset. Table 13.1 Panel A indicates that, on average, bancassurance-affiliated CBs had significantly higher interest income and non-interest income than non-affiliated CBs. We then calculate the ratio of non-interest income to interest income. The results show that both the mean and median measure presented the same trend suggesting that bancassurance-affiliated CBs conducted significantly more non-interest related business than non-affiliated CBs.

The evidence in the thrift saving industry is shown in Table 13.1 Panel B. Assurbanking-affiliated SBs had the lowest interest income, but the highest non-interest income was observed. The interest income of the non-affiliated and the bancassurance-affiliated were not statistically different. The interesting thing is that non-affiliated SBs had a significantly higher ratio of non-interest income to interest income than both bancassurance-affiliated and assurbanking-affiliated SBs. It suggests that for non-interest income generating business, bank-affiliated saving banks were involved less in the non-insurance related business.

Overall Performance--ROA, ROE, Net Operating Income to Assets

To compare banks' overall performance, we use return on assets (ROA), return on equity (ROE), and net operating income to assets ratio. CBs, affiliating with insurers or conducting limited insurance underwriting business, had consistently higher ROA, ROE, and net operating income to assets ratios than those without any insurance business (Table 14 Panel A). The evidence in thrift saving sector is different: on average assurbanking-affiliated saving banks performed worse than the other two SBs groups (Table 14 Panel B) evidenced by negative average ROE and net operating losses. This evidence suggests that although assurbanking-affiliated SBs had profitable interest business (discussed next), their lower non-interest related return still couldn't be offset and, as a result, contributed to their lower overall return.

Interest Margin and Non-Interest Margin

The interest margin and non-interest margin measure the profitability of banks and are two important ratios in evaluating banks' performance and conditions. Interest margin is defined as the dollar difference between interest income and interest expense as a percentage of earning assets. Similarly, the non-interest margin is defined as the dollar difference between non-interest income and non-interest expense as a percentage of earning assets. Table 14.1 Panel A indicates that, on average, bancassurance-affiliated CBs had significantly higher interest and non-interest margins than non-affiliated CBs. And non-affiliated INS CBs had significantly higher non-interest margins but lower interest margins than non-affiliated NOINS CBs. The evidence in the thrift saving industry is different. Table 14.1 Panel B shows that bancassurance-affiliated SBs had the highest interest margins and assurbanking-affiliated SBs had the lowest interest and non-interest margins among thrift institutions. However, all three thrifts groups showed negative non-interest margins on average.

RBC Ratio, Loan to Deposit Ratio, and Net Charge-Off to Loan Ratio

We then compare three key ratios highly monitored by bank regulators: risk-based capital (RBC) ratio, loan to deposit (LTD) ratio, and net charge-offs to loan ratio. Table 14.2 Panel A and B show RBC ratios for the commercial banking sector and the thrift sector, respectively. In the commercial banking industry, bancassurance-affiliated CBs had significantly higher RBC ratios than non-affiliated CBs. In thrifts, the evidence is different: assurbanking-affiliated SBs had the highest RBC ratios. Bancassurance-affiliated SBs had the lower RBC ratios than non-affiliated SBs, but the difference was not significant. Incorporating the evidence discussed in Section 6, these results indicate commercial banking and insurance subsidiaries of bancassurers presented higher RBC ratios in the banking and insurance industry. Thrift subsidiaries of assurbanks showed the highest RBC ratios in the thrift saving industry, and insurance subsidiaries of assurbanks presented market average RBC ratios in the insurance industry.

The loan to deposit (LTD) ratio is used as a measure of liquidity in banking sector; it often receives the most attention. The LTD ratio, measured as the value of a bank's gross outstanding loans divided by total deposits, indicates the percentage of a bank's loans funded through deposits. An upswing in the LTD may indicate that a bank has less of a cushion to fund its growth and to protect itself against a sudden recall of its funding, especially a bank that relies on deposits to fund growth. The evidence in Table 14.2 Panel A shows that non-affiliated NOINS CBs' had the lowest LTD ratio suggesting that they had higher liquidity than those commercial banks with insurance business or affiliated with insurers. In the thrift saving sector, bancassurance-affiliated SBs showed the lowest liquidity level and non-affiliated SBs had lower liquidity levels than assurbanking-affiliated SBs, but the difference was not statistically significant (Table 14.2 Panel B).

Charge-offs are loans written off as uncollectable by the banks and are loans recognized as losses. Charge-offs are measured on a net basis and are calculated as loans charged off as losses minus recoveries on loans preciously charged off. The net charge-off ratio is calculated as net loan charge-offs divided by the total loans. Table 14.2 Panel A shows that bancassurance-affiliated CBs had statistically higher loan charge-off ratios than non-affiliated INS CBs, and non-affiliated INS CBs had higher loan charge-off ratios than non-affiliated NOINS CBs. It suggests that commercial banks affiliated with insurers had higher losses on default loans than those with in-house insurance business. And commercial banks with in-house insurance underwriting business had higher losses on default loans than those without any insurance affiliates or insurance underwriting business. For savings banks, Table 14.2 Panel B presents similar evidence: insurance-affiliated SBs (including bancassurance-affiliated and assurbanking-affiliated) had significantly higher loan charge-off ratios than non-affiliated SBs.

CONCLUSIONS

The Gramm-Leach-Bliley Act of 1999 is a landmark financial services legislation, which promised the most fundamental reform in the U.S. financial services regulation in more than half a century. Few doubted the potential for GLB to have a profound impact on financial service providers and on the market. However, there is a lack of empirical research on the effects of cross-sector diversification by financial firms. We have sought to contribute new evidence on the impact of the U.S. banking and insurance integration in the post-Gramm-Leach-Bliley era.

Using a unique dataset which link the banking and insurance regulatory data, we first identify domestic assurbanks and bancassurers, and all the unique subsidiaries of all financial service companies in the U.S. licensed as a commercial bank, thrift, or insurance company. We next investigate the effects of combining the banking and insurance of the economy in the U.S. We evaluate market structure, firm characteristics, and firm operating performance in the integrated banking and insurance industry. The empirical results suggest that both domestic "assurbanks" and "bancassurers" are large in size and account for significant portions of banking and insurance industries. Large commercial or saving banks are more interested in small-size life and property-liability insurance companies, and large insurance companies are more likely to extend their traditional business into banking through small-size thrifts. Banks appear more interested in life insurance than property-liability insurers, and insurers prefer to affiliate with thrift saving banks than with commercial banks.

Insurance companies owning banking subsidiaries are more geographically diversified and have relatively higher A.M. Best ratings than insurance specialists and, therefore, they have presumably lower default risks. Joint producers are more engaged in personal lines than commercial lines of insurance and are more diversified in their traditional products. Joint firms have higher non-interest income than bank specialists even after controlling firm size effects. Firms jointly producing banking and insurance services have higher overall profitability in their traditional lines of business. Bancassurers perform well in the insurance business, but most assurbanks lose money in their banking division, evidenced by their negative interest and non-interest margins. Joint producers generally keep higher equity capital in the non-traditional business divisions, which is evidenced by higher RBC ratios and lower leverage ratios.

After the passage of GLB, we did not observe the wave of cross-sector conglomerations as expected in the U.S. banking and insurance industries. Our results show banks' and insurers' hesitation on exercising the new power granted by GLB Act. U.S. banks and insurers have opted for integration at the marketing level rather than the production level.

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ENDNOTES

(1) Pub. L. 106-102, 113 Stat. 1338 (1999).

(2) For example, Regions Financial Corp acquired Rebsamen Insurance Inc., a full-line general insurance broker, and Morgan Keegan, a large investment firm. Some insurers, such as Allstate, MetLife, Principal Financial, and State Farm have started their own federal savings banks.

(3) Pub. L. 90-255, 82 Stat. 5 (1968).

(4) Competitive Equality Banking Act (CEBA) of 1987, Pub. L. 100-86, 101 Stat. 552 (1987), redefined "bank" to include any institution with FDIC deposit insurance. However, CEBA grandfathered non-bank banks existing before March 5, 1987, also known as CEBA banks.

(5) Banking industry has a dual chartering system. State chartered banks may conduct business under the mandates of state law. Nationally chartered banks are empowered to engage in a specific set of activities under National Banking Act. Their parent holding companies are regulated under the BHCA by FRB. BHCs and their non-banking subsidiaries (e.g., finance and mortgage companies), before GLB, were limited to those closely related to banking.

(6) Ch. 106, 13 Stat. 99 (1864).

(7) Ch. 240, 70 Stat. 133 (1956).

(8) Pub. L. 97-320, 96 Stat. 1469 (1982).

(9) To improve the international competitiveness of U.S. banking organizations, FRB expanded permissible activities abroad and reduced associated regulatory burden. BHCs, therefore, could establish offshore insurance abroad.

(10) Pub. L. 102-242, 105 Stat. 2236 (1991).

(11) Saving institutions include saving banks and saving associations, and throughout this study we refer to them as thrift institutions or thrift saving banks.

(12) A multiple savings and loan holding company controls directly or indirectly two or more federally or state- chartered thrift institutions insured by FDIC.

(13) The prohibited activities are insurance underwriting and annuity issuance, real estate development or investment, and merchant banking.

(14) Thrift Holding Company Structure Report. For example: State Farm owned Sate Farm Bank; Allstate owned Allstate Bank; American International Group owned AIG Federal Saving Bank.

(15) We waited until 2003 to use the data, leaving several years for the firms to complete their integration and achieve gains/losses if any. 2005 data is the most recent data available to us at the time of this study. Thus, conducting a future study with a longer time series would be interesting.

(16) Throughout the paper, joint producers refer to financial conglomerates producing both banking and insurance products, i.e., bancassurers and assurbanks.

(17) The data show the similar figures over the three year period 2003 - 2005. For example, the original data contains 90, 86 and 87 joint producers, 1346, 1401 and 1412 insurance specialists, 7261, 7110 and 7046 bank specialists for the year 2003, 2004 and 2005, respectively.

(18) The market structure and performance analysis results are similar over the three year period, therefore in the remaining of the paper the analysis is presented for the year 2003 only.

(19) Top tier FHCs/BHCs are defined as FHCs or BHCs without parent holding companies, and lower tier FHCs/BHCs are those owned by top tier FHCs/BHCs.

(20) Assurbanking-affiliated insurance companies are insurance subsidiaries of assurbanks.

(21) Bancassurance-affiliated insurance companies are insurance subsidiaries of bancassurers.

(22) Best's ratings scale are as follows: A++, A+ (Superior); A, A- (Excellent); B++, B+ (Very Good); B, B- (Fair); C++, C+ (Marginal); C, C- (Weak); D (Poor); E (Under Regulatory Supervision); F (In Liquidation); S (Rating Suspended). Best's Key Rating Guide, 2004 Edition.

(23) The product Herfindahl Index for an insurer producing n types of products is measured as (P1^2 + P2^2 + ...+ Pn^2 ) / (P1 + P2 + ... + Pn)^2, where Pi is the ith product net premium written.

(24) Life insurers with a BCAR score of more than 100 percent are considered to have "adequate" balance sheet strength, and firms with a BCAR score of more than 175 percent are believed to have a "very strong" balance sheet. Risk Based Capital ratio is also shown, which shows the consistent results with BCAR.

(25) Ceded Reinsurance Leverage is calculated as reinsurance recoverable, ceded balances payable and ceded premiums written, less funds held, divided by policyholders' surplus.

(26) Property-Liability insurers are deemed to have "adequate" balance sheet strength if they generate a BCAR score of over 100 percent, and deemed to have "very strong" balance sheet strength if generating a BCAR score over 200 percent.

(27) Quick assets include 80 percent of unaffiliated common stock, cash, short-term investments, Government bonds maturing in five years or less and all other bonds (excluding affiliates) maturing in one year or less.

(28) Bancassurance-affiliated commercial banks are the banking subsidiaries of bancassurers.

(29) Assurbanking-affiliated commercial banks are the banking subsidiaries of assurbanks.

Table 1: Insurance Underwriting Net Income -Total Net Income, Insurance
Income -Non-interest Income

This table provides three years statistics summary for insurers with
banking business (Assurbanks), banks with insurance underwriting
business (Bancassurers), and banks with insurance agency business only.
The statistics reported include the number of firms, the mean and
median of the ratio of net insurance underwriting income to total net
income, and the mean and median of the ratio of insurance income to
non-interest income.

Panel A: 2003
                                       % ins. underwriting
                                            net income

                            # Firms      Mean      Median

Assurbanks                     44       87.58%     97.74%
Bancassurers                   44       19.50%     3.00%
Banks w/ ins. agency only     1251        NA         NA
Panel B: 2004
Assurbanks                     41       89.27%     99.16%
Bancassurers                   45       23.67%     2.94%
Banks w/ ins. agency only     1327        NA         NA
Panel C: 2005
Assurbanks                     42       90.61%     99.28%
Bancassurers                   45       24.93%     4.01%
Banks w/ ins. agency only     1331        NA         NA

Panel A: 2003
                            % ins. Income / non-
                              interest income

                              Mean      Median

Assurbanks                     NA         NA
Bancassurers                 8.09%      3.99%
Banks w/ ins. agency only    5.60%      1.72%
Panel B: 2004
Assurbanks                     NA         NA
Bancassurers                 10.57%     5.60%
Banks w/ ins. agency only    5.84%      1.80%
Panel C: 2005
Assurbanks                     NA         NA
Bancassurers                 10.09%     5.23%
Banks w/ ins. agency only    5.91%      1.74%

Table 2: Top 10 Assurbanks and Bancassurers.

This table lists the top 10 assurbanks and the top 10 bancassurers,
their structure types, and some selected key operating information.

Panel A: Top 10 Assurbanks (in terms of Total Asset)

Assurbanks Name         Structure        Total       Underwrit
                          Type           Asset        Income
                                         ($M)          ($M)

American Intrnl Grp       SLHC          370,656      52,613.6
Metlife, Inc.              FHC          326,842      34,125.5
Prudential of Amer        SLHC          245,757      19,902.5
Tiaa Family of co         SLHC          154,415       8,973.1
Ing Usa Holding Corp      SLHC          166,490      20,533.2
State Farm                SLHC          148,548      48,899.9
New York Life Grp         SLHC          138,694      14,955.9
Nationwide Corp           SLHC          136,052      25,198.8
Allstate Corporation      SLHC          121,354      33,543.9
Northwestern Mut          SLHC          113,890      10,277.6

Assurbanks Name         Underwrit        Bank        Bank Net
                       Net Income      Interest       Income
                          ($M)          Income         ($M)
                                         ($M)
American Intrnl Grp      6,370.9         31.9           7.6
Metlife, Inc.            2,121.5         33.2          -12.1
Prudential of Amer       1,122.7         42.2          -8.2
Tiaa Family of co        1,314.1          0.5          -7.8
Ing Usa Holding Corp      527.9          563.0         68.2
State Farm               2,835.8         299.7         -20.5
New York Life Grp         864.1           0.3          -0.5
Nationwide Corp          1,763.7          0.5           3.3
Allstate Corporation     3,618.1         27.5          -3.3
Northwestern Mut          552.9           0.2          -2.3

Assurbanks Name         Total Net     % Bank Net
                         Income      Inc. to Total
                          ($M)         Net Inc.

American Intrnl Grp      6,378.4         0.12%
Metlife, Inc.            2,109.4        -0.57%
Prudential of Amer       1,114.5        -0.74%
Tiaa Family of co        1,306.4        -0.59%
Ing Usa Holding Corp      596.1         11.45%
State Farm               2,815.2        -0.730%
New York Life Grp         863.6         -0.06%
Nationwide Corp          1,767.0         0.19%
Allstate Corporation     3,614.8        -0.09%
Northwestern Mut          550.5         -0.42%

Panel B: Top 10 Bancassurers (in terms of Underwriting Income)

Bancassurers Name             Structure        Total       Underwrit
                                Type           Asset        Income
                                               ($M)          ($M)

Citigroup Inc.                   FHC         1,264,032      2,550.0
Countrywide Financial            FHC          97,958         732.8
Wells Fargo & Company            FHC          387,798        233.0
Bank One Corporation             FHC          326,563        151.0
J.P. Morgan Chase & Co.          FHC          770,912        104.0
HSBC North America Inc.          FHC          125,950        72.3
Bank of America Corp             FHC          736,487        69.2
CIBC Delaware Holdings           FHC          39,210         62.6
Wachovia Corporation             FHC          401,032        60.0
National City Corporation        FHC          113,933        55.6

Bancassurers Name             Underwrit        Bank        Total Net
                             Net Income      Interest       Income
                                ($M)          Income         ($M)
                                               ($M)
Citigroup Inc.                 1,256.0       57,047.0      17,853.0
Countrywide Financial           102.2         6,116.2       2,373.0
Wells Fargo & Company           579.0        19,418.0       6,202.0
Bank One Corporation            67.0         12,631.0       3,535.0
J.P. Morgan Chase & Co.         20.0         23,444.0       6,719.0
HSBC North America Inc.          9.3          4,592.8        996.9
Bank of America Corp            74.8         31,056.3      10,810.5
CIBC Delaware Holdings          34.2           969.6         -93.1
Wachovia Corporation            33.0         15,080.0       4,264.0
National City Corporation       16.9          5,978.8       2,117.1

Bancassurers Name             %Underwrt    %Ins. Inc. to
                             Net Inc. to   Non-interest
                              Total Net        Inc.
                                Inc.
Citigroup Inc.                  7.04%         10.57%
Countrywide Financial           4.31%         20.40%
Wells Fargo & Company           9.34%          8.65%
Bank One Corporation            1.90%          5.95%
J.P. Morgan Chase & Co.         0.30%          1.38%
HSBC North America Inc.         0.93%          6.63%
Bank of America Corp            0.69%          0.90%
CIBC Delaware Holdings           NA            5.90%
Wachovia Corporation            0.77%          3.28%
National City Corporation       0.80%          3.40%

Note: Assurbanks are insurers who sell banking products manufactured
by their banking subsidiaries that are owned and controlled.
Bancassurers are banks who sell insurance products, either through
their own distribution channels or outside agents, manufactured by
their insurance subsidiaries that are owned and controlled.

FHC: Financial Holding Co.

SLHC: Saving and Loan Holding Co.

NA: Total net income is negative

Table 3 Distribution of Firms by Num., Assets, Premiums, and Net
Income (Life-Health Insurers)

This table provides the distribution and market share of Life/Health
(L/H) Insurers in terms of number of firms, total asset, premium income
(net premium earned), and net income.

                    # Firms    % Firms    % Assets    %Premiums

ALL                   182
--Non-affiliated      110       60.4%       35.0%       41.4%
--Affiliated           72       39.6%       65.0%       58.6%
  --Assurbanking       36       19.8%       57.7%       51.6%
  --Bancassurance      36       19.8%       7.3%         7.0%

                    % Net Income

ALL
--Non-affiliated       36.8%
--Affiliated           63.2%
  --Assurbanking       53.4%
  --Bancassurance       9.8%

Non-affiliated L/H insurers are those without any affiliation (either
direct control or through holding companies they belong to) with
banks. Assurbanking-affiliated L/H insurers are those directly owned by
banks or owned through their holding companies, which are owned or
controled by banks. Bancassurance-affiliated L/H insurers are those
affiliated with banks by directly holding banks or through their
holding companies, which own or control banks. Affiliated L/H insurers
refer to either Assurbanking-affiliated L/H insurers or Bancassurance-
affiliated L/H insurers.

Table 3.1 Distribution of Firms by Num., Assets, Premiums, and Net
Income (Property-Liability Insurers)

This table provides the distribution and market share of Property/
Liability (P/L) Insurers in terms of number of firms, total asset,
premium income (net premium earned), and net income.

                    # Firms    % Firms    % Assets    %Premiums

ALL                     191
--Non-affiliated        144      75.4%       65.7%        58.0%
--Affiliated             47      24.6%       34.3%        42.0%
  --Assurbanking         25      13.1%       30.9%        39.1%
  --Bancassurance        22      11.5%        3.5%         2.9%

                    % Net Income

ALL
--Non-affiliated           66.7%
--Affiliated               33.3%
  --Assurbanking           32.8%
  --Bancassurance           0.4%

Non-affiliated P/L insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking-affiliated P/L insurers are those directly owned by banks
or owned through their holding companies, which are owned or
controled by banks. Bancassurance-affiliated P/L insurers are those
affiliated with banks by directly holding banks or through their
holding companies, which own or control banks. Affiliated P/L insurers
refer to either Assurbanking-affiliated P/L insurers or Bancassurance-
affiliated P/L insurers.

Table 4 Firm Size by Total Assets, Premiums, and Net Income--(Life-
Health Insurers)

This table provides average and median Life-Health (L-H) insurers' firm
size in terms of total asset, premium income (net premium earned), and
net income. The P-value of t-test is also provided.

Mean ($ Million)

                          Non-Affi.             Affiliated

# Firms                         110                       72
Total Assets              11,164.46                34,530.79
Premium Income             1,685.11                 3,978.30
Net Income                   103.84                   297.05

Median ($ Million)

                          Non-Affi.             Affiliated

Total Assets               2,282.10                 2,656.45
Premium Income               484.48                   363.93
Net Income                    21.68                    32.28

t--Test (P-value)

                   Non-affi.~ Affi.    Non-affi. ~ Assurb.

Total Assets                   0.00                     0.00
Premium Income                 0.00                     0.00
Net Income                     0.01                     0.01

Mean ($ Million)

                          Assurbanking       Bancassurance

# Firms                              36                 36
Total Assets                  61,317.55           7,744.03
Premium Income                 7,003.38             953.22
Net Income                       501.71              92.40

Median ($ Million)

                          Assurbanking       Bancassurance

Total Assets                  21,231.63             125.96
Premium Income                 3,095.84               9.63
Net Income                       273.51               1.82

t--Test (P-value)

                  Non-affi. ~ Bancass.    Assurb.~Bancass.

Total Assets                       0.22               0.00
Premium Income                     0.09               0.00
Net Income                         0.41               0.00

Non-affiliated L/H insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking-affiliated L/H insurers are those directly owned by banks
or owned through their holding companies, which are owned or controled
by banks. Bancassurance-affiliated L/H insurers are those affiliated
with banks by directly holding banks or through their holding
companies, which own or control banks. Affiliated L/H insurers refer to
either Assurbanking-affiliated L/H insurers or Bancassurance-
affiliated L/H insurers.

Table 4.1 Firm Size by Total Assets, Premiums, and Net Income--
(Property-Liability Insurers)

This table provides average and median Property-Liability (P-L)
insurers' firm size in terms of total asset, premium income (net
premium earned), and net income. The P-value of t-test is also
provided.

                              Mean ($ Million)

                        Non-Affi.             Affiliated

# Firms                       144                     47
Total Assets             5,131.53               9,077.07
Premium Income           1,336.28               3,273.66
Net Income                 131.98                 222.54

                             Median ($ Million)

                        Non-Affi.             Affiliated

Total Assets             1,475.96               1,055.72
Premium Income             469.69                 409.98
Net Income                  22.68                  36.11

                              t-Test (P-value)

                 Non-affi.~ Affi.    Non-affi. ~ Assurb.

Total Assets                 0.11                   0.04
Premium Income               0.06                   0.03
Net Income                   0.22                   0.08

                               Mean ($ Million)

                         Assurbanking       Bancassurance

# Firms                            25                  22
Total Assets                15,344.38            1,955.13
Premium Income               5,733.38              478.52
Net Income                     413.09                6.00

                              Median ($ Million)

                         Assurbanking       Bancassurance

Total Assets                 3,341.98              225.31
Premium Income               1,312.96               58.51
Net Income                      59.69                8.87

                               t-Test (P-value)

                 Non-affi. ~ Bancass.    Assurb.~Bancass.

Total Assets                     0.02                0.01
Premium Income                   0.01                0.01
Net Income                       0.01                0.02

Non-affiliated P/L insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking-affiliated P/L insurers are those directly owned by banks
or owned through their holding companies, which are owned or controlled
by banks. Bancassurance-affiliated P/L insurers are those affiliated
with banks by directly holding banks or through their holding
companies, which own or control banks. Affiliated P/L insurers refer to
either Assurbanking-affiliated P/L insurers or Bancassurance-
affiliated P/L insurers.

Table 5 A.M. Best Rating

This table provides A.M. Best Financial Strength Rating for insurers.
A.M. Best's Financial Strength Rating is an independent opinion, based
on a comprehensive quantitative and qualitative evaluation, of an
insurance company's balance sheet strength, operating performance and
business profile. Since the A.M. Best Rating is assigned to individual
firms not groups, the firms analyzed here are non-grouped life or
property-liability insurers.

Panel A: Life-Health Insurers' A.M. Best Rating

                        Non-Affi.    All Affi.    Assurbanking

A++, A+ (Superior)             74          108              83
A, A- (Excellent)             177           70              47
B++, B+(Very Good)             46           12               4
B, B- (Fair)                   13            4               0
<= C++ (Weak or Poor)           4            1               0
NR (Not Rated)                 55           48              25
Total                         369          243             159

                        Bancassurance

A++, A+ (Superior)                 25
A, A- (Excellent)                  23
B++, B+(Very Good)                  8
B, B- (Fair)                        4
<= C++ (Weak or Poor)               1
NR (Not Rated)                     23
Total                              84

Non-affiliated L/H insurers are those without any affiliation (either
direct control or through holding companies they belong to) with
banks. Assurbanking-affiliated L/H insurers are those directly owned by
banks or owned through their holding companies, which are owned or
controled by banks. Bancassurance-affiliated L/H insurers are those
affiliated with banks by directly holding banks or through their
holding companies, which own or control banks. Affiliated L/H
insurers refer to either Assurbanking-affiliated L/H insurers or
Bancassurance-affiliated L/H insurers.

Table 5 Panel B: Property-Liability Insurers' A.M. Best Rating

                        Non-Affi.    All Affi.    Assurbanking

A++, A+ (Superior)            261          103             102
A, A- (Excellent)             491          203             161
B++, B+(Very Good)             53           16              13
B, B- (Fair)                   47            3               1
<= C++ (Weak or Poor)          13            1               0
NR (Not Rated)                103           43              22
Total                         968          369             299

                        Bancassurance

A++, A+ (Superior)                  1
A, A- (Excellent)                  42
B++, B+(Very Good)                  3
B, B- (Fair)                        2
<= C++ (Weak or Poor)               1
NR (Not Rated)                     21
Total                              70

Non-affiliated P/L insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking-affiliated P/L insurers are those directly owned by banks
or owned through their holding companies, which are owned or controled
by banks. Bancassurance-affiliated P/L insurers are those affiliated
with banks by directly holding banks or through their holding
companies, which own or control banks. Affiliated P/L insurers refer to
either Assurbanking-affiliated P/L insurers or Bancassurance-
affiliated P/L insurers.

Table 6 Geographic Diversification: Number of States Insurers
Licenced in.

This table show s insurers' geographic diversification. It reports the
average and median number of states in the U.S. L-H and P-L insurers
licenced in to do insurance business. The P-value of t-test is provided
below .

Panel A: Life-Health Insurers' Geographic Diversification : Num. of
States Insurers Licensed in.

                                 Non-Affi.              All Affi.

Average Num. of States                  33                     32
  Licenced in
Median Num. of States                   47                     47
  Licenced in

                                     t-Test (P-value)

                          Non-affi.~ Affi.    Non-affi. ~ Assurb.

Average Num. of States                0.25                   0.10
  Licenced in

                                  Assurbanking       Bancassurance

Average Num. of States                      36                  25
  Licenced in
Median Num. of States                       48                  24
  Licenced in

                                      t-Test (P-value)

                          Non-affi. ~ Bancass.    Assurb.~Bancass.

Average Num. of States                    0.00                0.00
  Licenced in

Non-affiliated L/H insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking-affiliated L/H insurers are those directly owned by banks
or owned through their holding companies, which are owned or controled
by banks. Bancassurance-affiliated L/H insurers are those affiliated
with banks by directly holding banks or through their holding
companies, which own or control banks. Affiliated L/H insurers refer to
either Assurbanking-affiliated L/H insurers or Bancassurance-
affiliated L/H insurers.

Table 6 Panel B: Property-Liability Insurers' Geographic
Diversification : Num. of States Insurers Licensed in.

                                  Non-Affi.              All Affi.

Average Num. of States                   27                     41
  Licenced in
Median Num. of States                    28                     43
  Licenced in

                                         t-Test (P-value)

                           Non-affi.~ Affi.    Non-affi. ~ Assurb.

Average Num. of States                 0.25                   0.14
  Licenced in

                                   Assurbanking       Bancassurance

Average Num. of States                       44                  33
  Licenced in
Median Num. of States                        45                  26
  Licenced in

                                         t-Test (P-value)

                           Non-affi. ~ Bancass.    Assurb.~Bancass.

Average Num. of States                     0.23                0.11
  Licenced in

Non-affiliated P/L insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking/affiliated P/L insurers are those directly owned by banks
or owned through their holding companies, which are owned or controled
by banks. Bancassurance-affiliated P/L insurers are those affiliated
with banks by directly holding banks or through their holding
companies, which own or control banks. Affiliated P/L insurers refer to
either Assurbanking-affiliated P/L insurers or Bancassurance-
affiliated P/L insurers.

Table 7 Number of Affiliated vs. Non-Affiliated by Insurance Line--
(Life-Health Insurers)

This table examines the product mix of Life/Health (L/H) insurers. L/H
insurance products are categorized as (1) individual life, (2)
individual annuity, (3) credit life, (4) group life, (5) group annuity,
and (6) accident & health insurance.

                              Non-Affiliated

                                 # firms w/ business
Product Line          # Firms             share >50%

Individual Life           112                     31
Individual Annuity        102                     27
Credit Life                25                      1
Group Life                102                      1
Group Annuity              66                      8
Accident & Health         106                     28

                              Affiliated

                                 # firms w/ business
Product Line          # Firms             share >50%

Individual Life            57                     16
Individual Annuity         50                     15
Credit Life                28                      4
Group Life                 48                      2
Group Annuity              31                      2
Accident & Health          56                     11

                                      Non-Affiliated

                      % firm w/ share
Product Line                     >50%    % Firms    Prem Inc. ($M)

Individual Life                 27.7%      93.3%          27,127.1
Individual Annuity              26.5%      85.0%          66,659.0
Credit Life                      4.0%      20.8%             342.0
Group Life                       1.0%      85.0%           8,988.1
Group Annuity                   12.1%      55.0%          34,136.5
Accident & Health               26.4%      88.3%          64,949.7

                                      Affiliated

                      % firm w/ share
Product Line                     >50%    % Firms    Prem. Inc ($M)

Individual Life                 28.1%      79.2%          68,767.0
Individual Annuity              30.0%      69.4%          93,352.0
Credit Life                     14.3%      38.9%             507.6
Group Life                       4.2%      66.7%          15,657.6
Group Annuity                    6.5%      43.1%          68,448.1
Accident & Health               19.6%      77.8%          39,493.6

Non-affiliated L/H insurers are those without any affiliation (either
direct control or through holding companies they belong to) with
banks. Assurbanking-affiliated L/H insurers are those directly owned by
banks or owned through their holding companies, which are owned or
controled by banks. Bancassurance-affiliated L/H insurers are those
affiliated with banks by directly holding banks or through their
holding companies, which own or control banks. Affiliated L/H insurers
refer to either Assurbanking-affiliated L/H insurers or Bancassurance-
affiliated L/H insurers.

Table 7.1 Number of Affiliated vs. Non-Affiliated by Insurance Line
(Property-Liability Insurers)

This table examines the product mix of Property/Liability (P/L)
insurers. P/L insurance products are categorized as (1) personal
property, (2) personal liability, (3) commercial property, and (4)
commercial liability. Table 15 lists detail P/L products and lines of
business definitions.

                               Non-Affiliated

                                   # firms w/ business
Product Line            # Firms             share >50%

Personal Property           117                      3
Personal Liability          114                     26
Commercial Property         137                     17
Commercial Liability        149                     88

                                Affiliated

                                   # firms w/ business
Product Line            # Firms             share >50%

Personal Property            34                      2
Personal Liability           32                     14
Commercial Property          41                      9
Commercial Liability         36                     10

                                          Non-Affiliated

                        % firm w/ share
Product Line                       >50%    % Firms    Prem. Inc. ($M)

Personal Property                  2.6%      73.6%            30857.9
Personal Liability                22.8%      71.7%            57650.1
Commercial Property               12.4%      86.2%            31575.3
Commercial Liability              59.1%      93.7%            92384.6

                                            Affiliated

                        % firm w/ share
Product Line                       >50%    % Firms     Prem. Inc ($M)

Personal Property                  5.9%      72.3%            33887.7
Personal Liability                43.8%      68.1%            66375.4
Commercial Property               22.0%      87.2%            14774.0
Commercial Liability              27.8%      76.6%            39269.5

Non-affiliated P/L insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking-affiliated P/L insurers are those directly owned by banks
or owned through their holding companies, which are owned or controled
by banks. Bancassurance-affiliated P/L insurers are those affiliated
with banks by directly holding banks or through their holding
companies, which own or control banks. Affiliated P/L insurers refer to
either Assurbanking-affiliated P/L insurers or Bancassurance-
affiliated P/L insurers.

Table 8 Insurers Products Concentration Herfindahl Index (Focused vs.
Multi-lines)

This table show s insurers products concentration level in insurance
industry. The products concentration level was measured by herfindahl
index, which approach to one w hen insurers are more focused
producing. L/H insurance products are categorized as individual life,
individual annuity, credit life, group life, group annuity, and
accident & health insurance. P/L insurance products are categorized as
personal property, personal liability, commercial property, and
commercial liability.

Panel A: Life-Health Insurers Product Concentration Herfindahl Index
(Focused vs. Multi-lines)

                                      Product Herfindahl Index

                                   Non-Affi.             Affiliated

Mean                                   56.6%                  58.1%
Median                                 52.8%                  53.5%

                                          t-Test (P-value)

                            Non-affi.~ Affi.    Non-affi. ~ Assurb.

Product Herfindahl Index                0.37                   0.35

                                      Product Herfindahl Index

                                    Assurbanking       Bancassurance

Mean                                       52.2%               65.5%
Median                                     47.5%               61.2%

                                           t-Test (P-value)

                            Non-affi. ~ Bancass.    Assurb.~Bancass.

Product Herfindahl Index                    0.43                0.46

Table 8 Panel B Property-Liability Insurers Product Concentration
Herfindahl Index (Focused vs. Multi-lines)

                                     Product Herfindahl Index

                                    Non-Affi.              All Affi.

Mean                                    62.5%                  58.8%
Median                                  51.7%                  49.9%

                                          t-Test (P-value)

                            Non-affi. ~ Affi.    Non-affi. ~ Assurb.

Product Herfindahl Index                 0.11                   0.00

                                      Product Herfindahl Index

                                    Assurbanking       Bancassurance

Mean                                       49.2%               69.8%
Median                                     43.6%               65.2%

                                          t-Test (P-value)

                            Non-affi. ~ Bancass.    Assurb.~Bancass.

Product Herfindahl Index                    0.27                0.01

Table 9 Insurers Return on Asset (ROA), Return on Equity (ROE)

This table reports insurers' overall performance--Return on Asset
(ROA), and Return on Equity (ROE). The P-value of t-test is provided
below in both Panel A and Panel B.

Panel A: Life-Health Insurers ROA , ROE

                         Mean (%)

              Non-Affi.             Affiliated

ROA                1.4%                   1.8%
ROE                6.6%                   8.7%

                        Median (%)

              Non-Affi.             Affiliated

ROA                0.7%                   0.8%
ROE                8.1%                   8.3%

                    t-Test (P-value)

      Non-affi. ~ Affi.    Non-affi. ~ Assurb.

ROA                0.23                   0.48
ROE                0.19                   0.01

                           Mean (%)

              Assurbanking       Bancassurance

ROA                   1.3%                2.3%
ROE                  13.4%                3.9%

                           Median (%)

              Assurbanking       Bancassurance

ROA                   0.8%                0.7%
ROE                  10.6%                5.9%

                      t-Test (P-value)

      Non-affi. ~ Bancass.    Assurb.~Bancass.

ROA                   0.16                0.17
ROE                   0.18                0.00

Non-affiliated L/H insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking-affiliated L/H insurers are those directly owned by banks
or owned through their holding companies, which are owned or
controled by banks. Bancassurance-affiliated L/H insurers are those
affiliated with banks by directly holding banks or through their
holding companies, which own or control banks. Affiliated L/H
insurers refer to either Assurbanking-affiliated L/H insurers or
Bancassurance-affiliated L/H insurers.

Table 9 Panel B: Property-Liability Insurers ROA, ROE

                        Mean (%)

             Non-Affi.              All Affi.

ROA               1.7%                   5.8%
ROE               1.5%                  10.5%

                        Median (%)

             Non-Affi.              All Affi.

ROA               1.9%                   3.1%
ROE               5.6%                   7.0%

                     t-Test (P-value)

      Non-affi.~ Affi.    Non-affi. ~ Assurb.

ROA               0.01                   0.08
ROE               0.00                   0.03

                         Mean (%)

              Assurbanking       Bancassurance

ROA                   2.5%                9.7%
ROE                   6.1%               15.5%

                        Median (%)

              Assurbanking       Bancassurance

ROA                   2.7%                3.5%
ROE                   6.3%                8.3%

                     t-Test (P-value)

      Non-affi. ~ Bancass.    Assurb.~Bancass.

ROA                   0.02                0.03
ROE                   0.01                0.05

Non-affiliated P/L insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking-affiliated P/L insurers are those directly owned by banks
or owned through their holding companies, which are owned or controled
by banks. Bancassurance-affiliated P/L insurers are those affiliated
with banks by directly holding banks or through their holding
companies, which own or control banks. Affiliated P/L insurers refer to
either Assurbanking-affiliated P/L insurers or Bancassurance-
affiliated P/L insurers.

Table 10.1 Insurers Profitability Test

Panel A: Life-Health Insurers Profitability Test

This table provides results of the profitability test for Life-Health
(L/H) insurers. Four profitability ratios are compared: (1) Total
Benefits Paid as a percentage of Net Premiums Written; (2) Commissions
and Expenses Incurred as a percentage of Net Premiums Written; (3) Net
Operating Gain (after taxes) as a percentage of Total Assets; (4) Net
investment income as a percent of invested assets.

                                                 Mean

                                        Non-Affi.    All Affi.

Benefits Paid to NPW (%)                   104.1%       104.9%
Comm and EEcpenses to NPW (%)               66.3%        35.1%
NOG to Total Assets (%)                      1.8%         2.9%
Yield On Invested Assets (%)                 5.4%         5.3%

                                                Median

                                        Non-Affi.    All Affi.

Benefits Paid to NPW (%)                    64.5%        62.4%
Comm and Expenses to NPW (%)                26.5%        18.4%
NOG to Total Assets (%)                      1.0%         1.0%
Yield On Invested Assets (%)                 5.6%         5.6%

                                           t-Test (P-value)

                                                     Non-affi.
                                 Non-affi.~ Affi.    ~ Assurb.

Benefits Paid to NPW (%)                     0.48         0.41
Comm and Expenses to NPW (%)                 0.00         0.01
NOG to Total Assets (%)                      0.02         0.18
Yield On Invested Assets (%)                 0.43         0.20

                                                Mean

                                 Assurbanking       Bancassurance

Benefits Paid to NPW (%)               108.2%               98.8%
Comm and EEcpenses to NPW (%)           36.3%               33.0%
NOG to Total Assets (%)                  2.4%                3.9%
Yield On Invested Assets (%)             5.5%                4.9%

                                               Median

                                 Assurbanking       Bancassurance

Benefits Paid to NPW (%)                64.5%               58.7%
Comm and Expenses to NPW (%)            18.1%               19.3%
NOG to Total Assets (%)                  1.0%                1.1%
Yield On Invested Assets (%)             5.8%                5.0%

                                            t-Test (P-value)

                                    Non-affi.
                                   ~ Bancass.    Assurb.~Bancass.

Benefits Paid to NPW (%)                 0.40                0.35
Comm and Expenses to NPW (%)             0.00                0.38
NOG to Total Assets (%)                  0.01                0.05
Yield On Invested Assets (%)             0.04                0.01

Non-affiliated L/H insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking-affiliated L/H insurers are those directly owned by banks
or owned through their holding companies, which are owned or controled
by banks. Bancassurance-affiliated L/H insurers are those affiliated
with banks by directly holding banks or through their holding
companies, which own or control banks. Affiliated L/H insurers refer to
either Assurbanking-affiliated L/H insurers or Bancassurance-
affiliated L/H insurers.

Table 10.1 Panel B: Property-Liability Insurers Profitability Test

This table provides results of the profitability test for Property-
Liability (P/L) insurers. Five profitability ratios are compared: (1)
Loss Ratio; (2) Expense Ratio; (3) Combined Ratio; (4) Yield on
Invested Assets; (5) Return on Policyholders' Surplus (PHS).

                                                   Mean

                                      Non-Affi.              All Affi.

Loss Ratio (%)                            89.4%                  73.0%
Expense Ratio (%)                         41.2%                  56.4%
Combined Ratio (%)                       121.6%                 111.4%
Yield on Invested Assets (%)              3.99%                  4.60%
Return on PHS (%)                          7.9%                 1 3.2%

                                                  Median

                                      Non-Affi.              All Affi.

Loss Ratio (%)                            72.1%                  68.8%
Expense Ratio (%)                         27.4%                  27.9%
Combined Ratio (%)                       100.2%                  96.3%
Yield on Invested Assets (%)              4.10%                  4.30%
Return on PHS (%)                          6.8%                   7.5%

                                              t-Test (P-value)

                               Non-affi.~ Affi.    Non-affi. ~ Assurb.

Loss Ratio (%)                             0.02                   0.14
Expense Ratio (%)                          0.08                   0.10
Combined Ratio (%)                         0.15                   0.24
Yield on Invested Assets (%)               0.01                   0.01
Return on PHS (%)                          0.00                   0.00

                                            Mean

                               Assurbanking       Bancassurance

Loss Ratio (%)                        79.5%               51.5%
Expense Ratio (%)                     57.4%               52.6%
Combined Ratio (%)                   113.8%              103.1%
Yield on Invested Assets (%)          4.60%               4.57%
Return on PHS (%)                     11.6%               20.0%

                                           Median

                               Assurbanking       Bancassurance

Loss Ratio (%)                        69.5%               56.7%
Expense Ratio (%)                     27.6%               30.2%
Combined Ratio (%)                    96.3%               96.4%
Yield on Invested Assets (%)          4.40%               3.70%
Return on PHS (%)                      7.4%                8.6%

                                        t-Test (P-value)

                                Non-affi. ~
                                   Bancass.    Assurb.~Bancass.

Loss Ratio (%)                         0.00                0.00
Expense Ratio (%)                      0.24                0.40
Combined Ratio (%)                     0.18                0.31
Yield on Invested Assets (%)           0.14                0.48
Return on PHS (%)                      0.07                0.15

Non-affiliated P/L insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking-affiliated P/L insurers are those directly owned by banks
or owned through their holding companies, which are owned or controled
by banks. Bancassurance-affiliated P/L insurers are those affiliated
with banks by directly holding banks or through their holding
companies, which own or control banks. Affiliated P/L insurers refer to
either Assurbanking-affiliated P/L insurers or Bancassurance-
affiliated P/L insurers.

Table 10.2 Insurers Leverage Test

Panel A: Life-Health Insurers Leverage Test

This table shows the results of the leverage test for Life-Health (L/
H) Insurers. Four leverage measures are compared: (1) Net Premium
Written (NPW) to Capital and Surplus; (2) Best's Capital Adequacy
Ratio; (3) Capital and Surplus to Liability; (4) Reinsurance Leverage
Ratio.

                                                 Mean

                                        Non-Affi.      All Affi.

NPW to Capital and Surplus (%)               200%        181.66%
Best's Capital Adequacy                      225%           288%
  Ratio (BCAR) (%)
RBC Ratio (%)                                324%           374%
Capital and Surplus to                       137%           185%
  Liability (%)
Reinsurance Leverage (%)                     163%           114%
Change in Capital (%)                      13.65%         13.88%

                                                 Median

                                        Non-Affi.      All Affi.

NPW to Capital and Surplus (%)               130%        130.00%
Best's Capital Adequacy                      163%           176%
  Ratio (BCAR) (%)
RBC Ratio (%)                                324%           748%
Capital and Surplus to                        22%            23%
  Liability (%)
Reinsurance Leverage (%)                      59%            23%

                                             t-Test (P-value)

                                                     Non-affi. ~
                                  Non-affi.~ Affi.       Assurb.

NPW to Capital and Surplus (%)               0.22           0.31
Best's Capital Adequacy                      0.02           0.21
  Ratio (BCAR) (%)
RBC Ratio (%)                                0.01           0.02
Capital and Surplus to                       0.03           0.28
  Liability (%)
Reinsurance Leverage (%)                     0.01           0.09

                                                Mean

                                  Assurbanking      Bancassurance

NPW to Capital and Surplus (%)         212.67%            122.86%
Best's Capital Adequacy                   207%               430%
  Ratio (BCAR) (%)
RBC Ratio (%)                             367%               415%
Capital and Surplus to                    154%               244%
  Liability (%)
Reinsurance Leverage (%)                  129%                80%
Change in Capital (%)                   14.21%             13.25%

                                              Median

                                  Assurbanking      Bancassurance

NPW to Capital and Surplus (%)         150.00%             50.00%
Best's Capital Adequacy                   174%               194%
  Ratio (BCAR) (%)
RBC Ratio (%)                             414%               905%
Capital and Surplus to                     17%                86%
  Liability (%)
Reinsurance Leverage (%)                   24%                21%

                                          t-Test (P-value)

                                   Non-affi. ~
                                      Bancass.    Assurb.~Bancass.

NPW to Capital and Surplus (%)            0.00               0.00
Best's Capital Adequacy                   0.00               0.00
  Ratio (BCAR) (%)
RBC Ratio (%)                             0.03               0.10
Capital and Surplus to                    0.00               0.02
  Liability (%)
Reinsurance Leverage (%)                  0.00               0.04

Non-affiliated L/H insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking-affiliated L/H insurers are those directly owned by banks
or owned through their holding companies, which are owned or controled
by banks. Bancassurance-affiliated L/H insurers are those affiliated
with banks by directly holding banks or through their holding
companies, which own or control banks. Affiliated L/H insurers refer to
either Assurbanking-affiliated L/H insurers or Bancassurance/-
affiliated L/H insurers.

Table 10.2 Panel B: Property-Liability Insurers Leverage Test

This table provides the results of leverage test for Property-
Liability (P/L) insurers. Four leverage ratios are compared: (1) Net
Premium Written (NPW) to Policyholders' Surplus; (2) Net Leverage
Ratio; (3) Gross Leverage Ratio; (4) Best's Capital Adequacy Ratio.

                                           Mean

                                  Non-Affi.      All Affi.

NPW to Policyholders'                  102%           102%
  Surplus (%)
Net Leverage (%)                       392%           215%
Gross Leverage (%)                     494%           385%
Best's Capital Adequacy                201%           239%
  Ratio (BCAR) (%)
RBC Ratio (%)                          234%           279%

                                          Median

                                  Non-Affi.      All Affi.

NPW to Policyholders'                   90%           100%
  Surplus (%)
Net Leverage (%)                       230%           150%
Gross Leverage (%)                     290%           220%
Best's Capital Adequacy                184%           188%
  Ratio (BCAR) (%)
RBC Ratio (%)                          268%           419%

                                     t-Test (P-value)

                                               Non-affi. ~
                            Non-affi.~ Affi.       Assurb.

NPW to Policyholders'                  0.49           0.36
  Surplus (%)
Net Leverage (%)                       0.05           0.05
Gross Leverage (%)                     0.21           0.22
Best's Capital Adequacy                0.00           0.00
  Ratio (BCAR) (%)
RBC Ratio (%)                          0.19           0.19

                                         Mean

                            Assurbanking      Bancassurance

NPW to Policyholders'               104%                95%
  Surplus (%)
Net Leverage (%)                    208%               249%
Gross Leverage (%)                  386%               381%
Best's Capital Adequacy             227%               304%
  Ratio (BCAR) (%)
RBC Ratio (%)                       277%               309%

                                       Median

                            Assurbanking      Bancassurance

NPW to Policyholders'               105%                60%
  Surplus (%)
Net Leverage (%)                    130%               170%
Gross Leverage (%)                  220%               220%
Best's Capital Adequacy             184%               217%
  Ratio (BCAR) (%)
RBC Ratio (%)                       343%               503%

                                    t-Test (P-value)

                             Non-affi. ~
                                Bancass.    Assurb.~Bancass.

NPW to Policyholders'               0.37               0.33
  Surplus (%)
Net Leverage (%)                    0.10               0.16
Gross Leverage (%)                  0.21               0.48
Best's Capital Adequacy             0.01               0.03
  Ratio (BCAR) (%)
RBC Ratio (%)                       0.29               0.44

Non-affiliated P/L insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking-affiliated P/L insurers are those directly owned by banks
or owned through their holding companies, which are owned or controled
by banks. Bancassurance-affiliated P/L insurers are those affiliated
with banks by directly holding banks or through their holding
companies, which own or control banks. Affiliated P/L insurers refer to
either Assurbanking-affiliated P/L insurers or Bancassurance-
affiliated P/L insurers.

Table 10.3 Insurers Liquidity Test

Panel A: Life-Health Insurers Leverage Test

This table provides the results of leverage test for Life-Health (L-H)
insurers. Four leverage ratios are compared: (1) Quick Liquidity Ratio;
(2) Current Liquidity Ratio; (3) Operating Cash Flow to Total Assets;
(4) Non-Investment Grade Bonds to Capital.

                                                   Mean

                                         Non-Affi.      All Affi.

Quick Liquidity (%)                         88.13%        116.55%
Current Liquidity (%)                      191.63%        229.67%
Operating CF to Total Asset (%)              2.92%          4.54%
Non-Invest. Grade Bonds to                   41.2%            41%
  Capital and Surplus (%)

                                                  Median

                                         Non-Affi.      All Affi.

Quick Liquidity (%)                         17.95%         15.20%
Current Liquidity (%)                      105.90%        108.80%
Operating CF to Total Asset (%)              3.64%          2.75%
Non-Invest. Grade Bonds to                   30.4%            33%
  Capital and Surplus (%)

                                          t-Test (P-value)

                                                      Non-affi. ~
                                  Non-affi.~ Affi.        Assurb.

Quick Liquidity (%)                           0.09           0.18
Current Liquidity (%)                         0.04           0.21
Operating CF to Total Asset (%)               0.11           0.01
Non-Invest. Grade Bonds to                    0.48           0.22
  Capital and Surplus (%)

                                              Mean

                                  Assurbanking       Bancassurance

Quick Liquidity (%)                     110.7%             129.34%
Current Liquidity (%)                   212.2%              267.8%
Operating CF to Total Asset (%)           5.9%                2.0%
Non-Invest. Grade Bonds to               44.8%               33.4%
  Capital and Surplus (%)

                                             Median

                                  Assurbanking       Bancassurance

Quick Liquidity (%)                      13.3%              23.00%
Current Liquidity (%)                   103.3%              139.8%
Operating CF to Total Asset (%)           3.8%                0.5%
Non-Invest. Grade Bonds to               39.6%               20.4%
  Capital and Surplus (%)

                                         t-Test (P-value)

                                   Non-affi. ~
                                      Bancass.    Assurb.~Bancass.

Quick Liquidity (%)                       0.10                0.31
Current Liquidity (%)                     0.01                0.08
Operating CF to Total Asset (%)           0.34                0.04
Non-Invest. Grade Bonds to                0.09                0.03
  Capital and Surplus (%)

Non-affiliated L/H insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking-affiliated L/H insurers are those directly owned by banks
or owned through their holding companies, which are owned or controled
by banks. Bancassurance-affiliated L/H insurers are those affiliated
with banks by directly holding banks or through their holding
companies, which own or control banks. Affiliated L/H insurers refer to
either Assurbanking-affiliated L/H insurers or Bancassurance-
affiliated L/H insurers.

Table 10.3 Panel B: Property-Liability Insurers Liquidity Test

This table provides the results of leverage test for Property-
Liability (P-L) insurers. The liquidity ratios used for P-L insurers
are similar to those for L-H insurers: (1) Quick Liquidity Ratio; (2)
Current Liquidity Ratio; (3) Operating Cash Flow to Total Assets; (4)
Non-Investment Grade Bonds to Capital.

                                                   Mean

                                          Non-Affi.      All Affi.

Quick Liquidity (%)                          216.4%         293.8%
Current Liquidity (%)                        325.6%         465.9%
Operating CF to Total Asset (%)                4.8%           3.8%
Non-Invest. Grade Bonds to                     7.0%           4.8%
  Capital and Surplus (%)

                                                   Median

                                          Non-Affi.      All Affi.

Quick Liquidity (%)                           54.1%          69.7%
Current Liquidity (%)                        141.5%         225.3%
Operating CF to Total Asset (%)                5.2%           5.0%
Non-Invest. Grade Bonds to                     3.8%           2.9%
  Capital and Surplus (%)

                                           t-Test (P-value)

                                                       Non-affi. ~
                                  Non-affi. ~ Affi.        Assurb.

Quick Liquidity (%)                            0.00           0.00
Current Liquidity (%)                          0.00           0.00
Operating CF to Total Asset (%)                0.02           0.02
Non-Invest. Grade Bonds to                     0.00           0.02
  Capital and Surplus (%)

                                               Mean

                                  Assurbanking       Bancassurance

Quick Liquidity (%)                     291.3%              306.3%
Current Liquidity (%)                   470.5%              442.4%
Operating CF to Total Asset (%)           5.1%                3.8%
Non-Invest. Grade Bonds to                5.2%                3.2%
  Capital and Surplus (%)

                                              Median

                                  Assurbanking       Bancassurance

Quick Liquidity (%)                      63.6%              102.2%
Current Liquidity (%)                   217.8%              242.0%
Operating CF to Total Asset (%)           5.2%                2.5%
Non-Invest. Grade Bonds to                3.0%                1.2%
  Capital and Surplus (%)

                                         t-Test (P-value)

                                   Non-affi. ~
                                      Bancass.    Assurb.~Bancass.

Quick Liquidity (%)                       0.04                0.39
Current Liquidity (%)                     0.01                0.30
Operating CF to Total Asset (%)           0.39                0.03
Non-Invest. Grade Bonds to                0.00                0.04
  Capital and Surplus (%)

Non-affiliated P/L insurers are those without any affiliation (either
direct control or through holding companies they belong to) with banks.
Assurbanking/affiliated P/L insurers are those directly owned by banks
or owned through their holding companies, which are owned or controled
by banks. Bancassurance-affiliated P/L insurers are those affiliated
with banks by directly holding banks or through their holding
companies, which own or control banks. Affiliated P/L insurers refer
to either Assurbanking/affiliated P/L insurers or Bancassurance-
affiliated P/L insurers.

Table 11 Distribution of Firms by Num., Assets, Deposits, and Net
Income--(Commercial Banks)

This table provides the distribution and market share of Commercial
Banks (CBs) in terms of number of firms, total asset, total deposit,
and net income.

                    # firms    % Firms    % Assets    % Deposits

ALL                     437
--Bancassurance          48      11.0%       57.6%         55.0%
--Non-Affiliated        389      89.0%       42.4%         45.0%
  --w/ ins.              46      10.5%       19.1%         19.9%
  --w/o ins.            343      78.5%       23.3%         25.1%

                     %Net Income

ALL
--Bancassurance            57.1%
--Non-Affiliated           42.9%
  --w/ ins.                19.9%
  --w/o ins.               23.0%

Bancassurance-affiliated CBs are those affiliated with insurers by
directly holding insurers or through their holding companies, which
own or control insurers. Assurbanking-affiliated CBs are those directly
owned by insurers or owned through their holding companies, which
are owned or controled by insurers. Since the assurbanking-affiliated
CBs are tiny in size and no more than 10 in number, w e merge them to
bancassurance-affiliated CBs. Non-affiliated CBs WITHOUT INS are those
without any affiliation (either direct control or through holding
companies they belong to) with insurance companies. Non-affiliated CBs
WITH INS are those without any affiliation with insurance companies,
but underwriting such inhouse insurance products as credit related
insurance, mortgage insurance.

Table 11.1 Distribution of Firms by Num., Assets, Deposits, and Net
Income--(Thrift Saving Banks)

This table provides the distribution and market share of Thrift Saving
Banks (SBs) in terms of number of firms, total asset, total deposit,
and net income.

                    # Firms    % Firms    % Assets    % Deposits

Final Data              185
--Affiliated             53      28.6%       34.1%         34.0%
  --Assurbanking         39      21.1%        5.0%          6.3%
  --Bancassurance        14       7.6%       29.1%         27.6%
--Non-Affiliated        132      71.4%       65.9%         66.0%

                    %Net Income

Final Data
--Affiliated              36.1%
  --Assurbanking           2.7%
  --Bancassurance         33.4%
--Non-Affiliated          63.9%

Non-affiliated SBs are those without any affiliation (either direct
control or through holding companies they belong to) with insurance
companies. Assurbanking-affiliated SBs are those directly owned by
insurers or owned through their holding companies, which are owned or
controled by insurers. Bancassurance-affiliated SBs are those
affiliated with insurers by directly holding insurers or through their
holding companies, which own or control insurers. Affiliated SBs refer
to either Assurbanking-affiliated SBs or Bancassurance-affiliated SBs.

Table 12 Firm Size by Assets, Total Deposits, Net Income ($ M)--
(Commercial Banks)

This table provides average and median Commercial Banks' (CBs) firm
size in terms of total asset, premium income (net premium earned), and
net income. The P-value of t-test is also provided.

                                   Mean ($ Million)

                         Bancassurance          Non-Affiliated

# Firms                             48                     389
Total Assets                  82,018.7                 8,531.7
Total Deposits                49,757.7                 5,764.2
Net Income                     1,120.1                   119.3

                                   Median ($Million)

                         Bancassurance          Non-Affiliated

Total Assets                   4,213.1                 2,210.1
Total Deposits                 2,845.4                 1,610.2
Net Income                        58.3                    26.1

                                   t-Test (P-value)

                                          Bancass. ~ Non-affi.
                  Bancass. ~ Non-affi.                  w/ins.

Total Assets                      0.00                    0.03
Total Deposits                    0.00                    0.03
Net Income                        0.01                    0.04

                                  Mean ($ Million)

                     Non-affi. w/ ins.     Non-affi. w/o ins.

# Firms                             46                    343
Total Assets                  28,333.9                5,422.8
Total Deposits                18,743.9                3,726.4
Net Income                       407.2                   74.1

                                  Median ($Million)

                     Non-affi. w/ ins.     Non-affi. w/o ins.

Total Assets                  11,689.0                1,974.2
Total Deposits                 8,044.4                1,480.2
Net Income                       121.4                   23.2

                                  t-Test (P-value)

                  Bancass. ~ Non-affi.    Non-affi. w/ ins. ~
                               w/oins.     Non-affi. w/o ins.

Total Assets                      0.00                   0.00
Total Deposits                    0.00                   0.00
Net Income                        0.00                   0.00

Bancassurance-affiliated CBs are those affiliated with insurers by
directly holding insurers or through their holding companies, which own
or control insurers. Assurbanking-affiliated CBs are those directly
owned by insurers or owned through their holding companies, which are
owned or controled by insurers. Since the assurbanking-affiliated CBs
are tiny in size and no more than 10 in number, we merge them to
bancassurance-affiliated CBs. Non-affiliated CBs WITHOUT INS are those
without any affiliation (either direct control or through holding
companies they belong to) with insurance companies. Non-affiliated CBs
WITH INS are those without any affiliation with insurance companies,
but underwriting such inhouse insurance products as credit related
insurance, mortgage insurance.

Table 12.1 Firm Size by Assets, Total Deposits, Net Income ($ M)--
(Thrift Saving Banks)

This table provides average and median Thrift Saving Banks' (SBs) firm
size in terms of total asset, premium income (net premium earned), and
net income. The P-value of t-test is also provided.

                               Mean ($ Million)

                    Non-Affiliated             Affiliated

# Firms                        132                     53
Total Assets               5,185.6                6,690.6
Total Deposits             3,165.5                4,058.9
Net Income                    65.0                   91.6

                               Median ($Million)

                    Non-Affiliated             Affiliated

Total Assets               2,191.2                  179.1
Total Deposits             1,449.5                  133.8
Net Income                    22.2                    0.9

                               t-Test (P-value)

                  Non-affi.~ Affi.    Non-affi. ~ Assurb.

Total Assets                  0.37                   0.00
Total Deposits                0.37                   0.00
Net Income                    0.34                   0.00

                                 Mean ($ Million)

                          Assurbanking       Bancassurance

# Firms                             39                  14
Total Assets                   1,327.4            21,630.8
Total Deposits                 1,028.6            12,500.5
Net Income                         9.3               321.0

                                 Median ($Million)

                          Assurbanking       Bancassurance

Total Assets                      94.8             1,259.0
Total Deposits                    57.5               757.0
Net Income                         0.2                27.9

                               t-Test (P-value)

                  Non-affi. ~ Bancass.    Assurb.~Bancass.

Total Assets                      0.17                0.12
Total Deposits                    0.17                0.12
Net Income                        0.15                0.10

Non-affiliated SBs are those without any affiliation (either direct
control or through holding companies they belong to) with insurance
companies. Assurbanking-affiliated SBs are those directly owned by
insurers or ow ned through their holding companies, which are owned
or controled by insurers. Bancassurance-affiliated SBs are those
affiliated with insurers by directly holding insurers or through their
holding companies, which own or control insurers. Affiliated SBs
refer to either Assurbanking-affiliated SBs or Bancassurance-
affiliated SBs.

Table 13 Total Deposit, Interest Bearing Deposit, Total Loan & Lease

This table shows the portfolio of traditional banking products. The
traditional banking products are deposits on the liability side of the
balance sheet and loans on the asset side. Total deposits include
deposits and saving accounts that either require interest payment or
are not allowed to pay interest. Interest bearing deposits only include
those requiring interest payment, such as savings accounts and time
deposits. Total loans and lease include loans to individuals,
commercial and industrial loans, and all other loan and lease. To
smooth out size effects we scale Total Deposits, Interest Bearing
Deposits, and Total Loans & Lease by total asset.

Panel A: Commerical Banks: Total Deposit, Interest Bearing Deposit,
Total Loan & Lease

                                        Mean

                            Bancassurance    Non-Affiliated

Total Deposit                        0.64              0.74
Interest Bearing Deposit             0.55              0.61
Total Loan & Lease                   0.57              0.63

                                       Median

                            Bancassurance    Non-Affiliated

Total Deposit                        0.71              0.76
Interest Bearing Deposit             0.59              0.63
Total Loan & Lease                   0.61              0.65

                                    t-Test (P-value)

                                                 Bancass. ~
                               Bancass. ~         Non-affi.
                                Non-affi.           w/ ins.

Total Deposit                        0.00              0.07
Interest Bearing Deposit             0.03              0.17
Total Loan & Lease                   0.04              0.03

                                        Mean

                             Non-affi.
                              w/ ins.       Non-affi. w/o ins.

Total Deposit                     0.70                    0.75
Interest Bearing Deposit          0.58                    0.62
Total Loan & Lease                0.64                    0.63

                                       Median

                             Non-affi.
                               w/ ins.      Non-affi. w/o ins.

Total Deposit                     0.70                    0.77
Interest Bearing Deposit          0.58                    0.64
Total Loan & Lease                0.66                    0.65

                                   t-Test (P-value)

                            Bancass. ~
                             Non-affi.     Non-affi. w/ ins. ~
                              w/o ins.      Non-affi. w/o ins.

Total Deposit                     0.00                    0.00
Interest Bearing Deposit          0.02                    0.01
Total Loan & Lease                0.05                    0.28

Bancassurance-affiliated CBs are those affiliated with insurers by
directly holding insurers or through their holding companies, which own
or control insurers. Assurbanking-affiliated CBs are those directly
owned by insurers or owned through their holding companies, which are
owned or controled by insurers. Since the assurbanking-affiliated CBs
are tiny in size and no more than 10 in number, we merge them to
bancassurance-affiliated CBs. Non-affiliated CBs WITHOUT INS are those
without any affiliation (either direct control or through holding
companies they belong to) with insurance companies. Non-affiliated CBs
WITHINS are those without any affiliation with insurance companies, but
underwriting such inhouse insurance products as credit related
insurance, mortgage insurance.

Table 13 Panel B: Thrift Saving Banks: Total Deposit, Interest Bearing
Deposit, Total Loan & Lease

This table shows the portfolio of traditional banking products for
Thrift Saving Banks (SBs). The traditional banking products are deposits
on the liability side of the balance sheet and loans on the asset side.
Total deposits include deposits and saving accounts that either require
interest payment or are not allowed to pay interest. Interest bearing
deposits only include those requiring interest payment, such as savings
accounts and time deposits. Total loans and lease include loans to
individuals, commercial and industrial loans, and all other loan and
lease. To smooth out size effects we scale Total Deposits, Interest
Bearing Deposits, and Total Loans & Lease by total asset.

                                               Mean

                             Non-Affiliated             Affiliated

Total Deposit                          0.67                   0.53
Interest Bearing Deposit               0.63                   0.48
Total Loan & Lease                     0.64                   0.42

                                              Median

                             Non-Affiliated             Affiliated

Total Deposit                          0.68                   0.64
Interest Bearing Deposit               0.62                   0.61
Total Loan & Lease                     0.66                   0.53

                                      t-Test (P-value)

                           Non-affi.~ Affi.    Non-affi. ~ Assurb.

Total Deposit                          0.00                   0.00
Interest Bearing Deposit               0.00                   0.01
Total Loan & Lease                     0.00                   0.00

                                                Mean

                                   Assurbanking       Bancassurance

Total Deposit                              0.52                0.55
Interest Bearing Deposit                   0.49                0.45
Total Loan & Lease                         0.36                0.60

                                              Median

                                   Assurbanking       Bancassurance

Total Deposit                              0.64                0.61
Interest Bearing Deposit                   0.61                0.52
Total Loan & Lease                         0.35                0.72

                                         t-Test (P-value)

                           Non-affi. ~ Bancass.    Assurb.~Bancass.

Total Deposit                              0.05                0.37
Interest Bearing Deposit                   0.01                0.32
Total Loan & Lease                         0.34                0.02

Non-affiliated SBs are those without any affiliation (either direct
control or through holding companies they belong to) with insurance
companies. Assurbanking-affiliated SBs are those directly owned by
insurers or owned through their holding companies, which are owned or
controled by insurers. Bancassurance-affiliated SBs are those
affiliated with insurers by directly holding insurers or through their
holding companies, which own or control insurers. Affiliated SBs refer
to either Assurbanking-affiliated SBs or Bancassurance-affiliated SBs.

Table 13.1 Interest Income and Non-Interest Income

Panel A: Commercial Banks Performance: Interest Income, Non-Interest
Income, %Non-interest Income to

This table provides the statistics of Commercial Banks' (CBs) Interest
Income, Non-Interest Income, and Ratio of Non-interest Income to
Interest Income between banks.

                                    Mean

                        Bancassurance     Non-Affiliated

Interest Income                 0.061              0.048
Non-Interest Income             0.076              0.017
%Non-interest Income            0.753              0.385
  to Interest income

                                   Median

                        Bancassurance     Non-Affiliated

Interest Income                 0.046              0.048
Non-Interest Income             0.022              0.011
%Non-interest Income            0.429              0.234
  to Interest income

                                t-Test (P-value)

                       Bancass.~ Non-    Bancass. ~ Non-
                                affi.      affi. w/ ins.

Interest Income                  0.06               0.05
Non-Interest Income              0.04               0.05
%Non-interest Income             0.01               0.02
  to Interest income

                                          Mean

                          Non-affi. w/ ins.     Non-affi. w/o ins.

Interest Income                       0.047                  0.049
Non-Interest Income                   0.020                  0.017
%Non-interest Income                  0.432                  0.377
  to Interest income

                                         Median

                          Non-affi. w/ ins.     Non-affi. w/o ins.

Interest Income                       0.048                  0.048
Non-Interest Income                   0.016                  0.011
%Non-interest Income                  0.323                  0.222
  to Interest income

                                      t-Test (P-value)

                       Bancass. ~ Non-affi.    Non-affi. w/ ins. ~
                                   w/o ins.     Non-affi. w/o ins.

Interest Income                        0.06                   0.17
Non-Interest Income                    0.04                   0.14
%Non-interest Income                   0.01                   0.23
  to Interest income

Bancassurance-affiliated CBs are those affiliated with insurers by
directly holding insurers or through their holding companies, which own
or control insurers. Assurbanking-affiliated CBs are those directly
owned by insurers or owned through their holding companies, which are
owned or controled by insurers. Since the assurbanking-affiliated CBs
are tiny in size and no more than 10 in number, we merge them to
bancassurance-affiliated CBs. Non-affiliated CBs WITHOUT INS are those
without any affiliation (either direct control or through holding
companies they belong to) with insurance companies. Non-affiliated CBs
WITH INS are those without any affiliation with insurance companies,
but underwriting such inhouse insurance products as credit related
insurance, mortgage insurance.

Table 13.1 Panel B: Thrift Saving Banks Performance: Interest Income,
Non-Interest Income, %Non-Interest Income to

This table provides the statistics of Thrift Saving Banks' (SBs)
Interest Income, Non-Interest Income, and Ratio of Non-interest Income
to Interest Income between banks.

                                            Mean

                          Non-Affiliated             Affiliated

Interest Income                    0.048                  0.038
Non-Interest Income                0.008                  0.109
%Non-interest Income               0.609                  0.052
  to Interest income

                                           Median

                          Non-Affiliated             Affiliated

Interest Income                    0.047                  0.039
Non-Interest Income                0.005                  0.017
%Non-interest Income               0.111                  0.004
  to Interest income

                                    t-Test (P-value)

                       Non-affi. ~ Affi.    Non-affi. ~ Assurb.

Interest Income                     0.00                   0.00
Non-Interest Income                 0.00                   0.01
%Non-interest Income                0.03                   0.04
  to Interest income

                                            Mean

                               Assurbanking       Bancassurance

Interest Income                       0.034               0.049
Non-Interest Income                   0.110               0.105
%Non-interest Income                  0.060               0.030
  to Interest income

                                          Median

                               Assurbanking       Bancassurance

Interest Income                       0.036               0.046
Non-Interest Income                   0.010               0.020
%Non-interest Income                  0.003               0.004
  to Interest income

                                       t-Test (P-value)

                       Non-affi. ~ Bancass.    Assurb.~Bancass.

Interest Income                        0.40                0.00
Non-Interest Income                    0.06                0.47
%Non-interest Income                   0.09                0.20
  to Interest income

Non-affiliated SBs are those without any affiliation (either direct
control or through holding companies they belong to) with insurance
companies. Assurbanking-affiliated SBs are those directly owned by
insurers or owned through their holding companies, which are owned or
controled by insurers. Bancassurance-affiliated SBs are those
affiliated with insurers by directly holding insurers or through their
holding companies, which own or control insurers. Affiliated SBs refer
to either Assurbanking-affiliated SBs or Bancassurance-affiliated SBs.

Table 14 Banks Operating Performance: Return on Asset (ROA), Return on
Equity (ROE), and Net Operating Income to Assets

This table reports banks' overall performance--Return on Asset (ROA),
Return on Equity (ROE), and Ratio of Net Operating Income to Asset. The
P-value of t-test is also provided.

Panel A: Commercial Banks: ROA, ROE, and Net Operating Income to Assets

                                         Mean (%)

                           Bancassurance          Non-Affiliated

ROA                                6.15%                   3.19%
ROE                               35.70%                  35.58%
Net Operating                      5.80%                   3.09%
  Income to Asset

                                        Median (%)

                           Bancassurance          Non-Affiliated

ROA                                2.26%                   1.53%
ROE                               17.30%                  17.15%
Net Operating                      2.11%                   1.46%
  Income to Asset

                                      t-Test (P-value)

                                            Bancass. ~ Non-affi.
                    Bancass. ~ Non-affi.                 w/ ins.

ROA                                 0.03                    0.14
ROE                                 0.49                    0.12
Net Operating                       0.04                    0.18
  Income to Asset

                                      Mean (%)

                       Non-affi. w/ ins.     Non-affi. w/o ins.

ROA                                4.39%                  3.00%
ROE                               47.46%                 33.71%
Net Operating                      4.27%                  2.90%
  Income to Asset

                                     Median (%)

                       Non-affi. w/ ins.     Non-affi. w/o ins.

ROA                                3.19%                  1.48%
ROE                               28.09%                 16.15%
Net Operating                      3.09%                  1.39%
  Income to Asset

                                  t-Test (P-value)

                    Bancass. ~ Non-affi.    Non-affi. w/ ins. ~
                                w/o ins.     Non-affi. w/o ins.

ROA                                 0.02                   0.03
ROE                                 0.41                   0.05
Net Operating                       0.03                   0.03
  Income to Asset

Bancassurance-affiliated CBs are those affiliated with insurers by
directly holding insurers or through their holding companies, which own
or control insurers. Assurbanking-affiliated CBs are those directly
owned by insurers or owned through their holding companies, which are
owned or controled by insurers. Since the assurbanking-affiliated CBs
are tiny in size and no more than 10 in number, we merge them to
bancassurance-affiliated CBs. Non-affiliated CBs WITHOUT INS are those
without any affiliation (either direct control or through holding
companies they belong to) with insurance companies. Non-affiliated CBs
WITH INS are those without any affiliation with insurance companies,
but underwriting such inhouse insurance products as credit related
insurance, mortgage insurance.

Table 14 Panel B: Thrift Saving Banks: ROA, ROE and Net Operating
Income to Assets

                                        Mean

                       Non-Affiliated             Affiliated

ROA                             1.18%                 -0.97%
ROE                            12.86%                  4.75%
Net Operating                   0.82%                 -1.43%
  Income to Asset

                                      Median (%)

                       Non-Affiliated             Affiliated

ROA                             1.04%                  0.40%
ROE                            11.06%                  4.27%
Net Operating                   0.88%                  0.24%
  Income to Asset

                               t-Test (P-value)

                     Non-affi.~ Affi.    Non-affi. ~ Assurb.

ROA                              0.02                   0.01
ROE                              0.00                   0.00
Net Operating                    0.01                   0.02
  Income to Asset

                                         Mean

                             Assurbanking       Bancassurance

ROA                                -1.65%               0.93%
ROE                                 0.30%              17.16%
Net Operating                      -1.98%               0.10%
  Income to Asset

                                      Median (%)

                             Assurbanking       Bancassurance

ROA                                 0.24%               1.33%
ROE                                 2.25%              16.48%
Net Operating                       0.17%               0.78%
  Income to Asset

                                   t-Test (P-value)

                     Non-affi. ~ Bancass.    Assurb.~Bancass.

ROA                                  0.42                0.07
ROE                                  0.21                0.00
Net Operating                        0.24                0.10
  Income to Asset

Non-affiliated SBs are those without any affiliation (either direct
control or through holding companies they belong to) with insurance
companies. Assurbanking-affiliated SBs are those directly owned by
insurers or owned through their holding companies, which are owned or
controled by insurers. Bancassurance-affiliated SBs are those
affiliated with insurers by directly holding insurers or through their
holding companies, which own or control insurers. Affiliated SBs refer
to either Assurbanking-affiliated SBs or Bancassurance-affiliated SBs.

Table 14.1 Banks Operation Performance: Interest Margin, Non-Interest
Margin

This table shows Interest Margin and Non-interest Margin measuring the
profitability of banks. (1) Interest margin is defined as the dollar
difference between interest income and interest expense as a percentage
of earning assets. (2) Similarly, non-interest margin is defined as the
dollar difference between non-interest income and non-interest expense
as a percentage of earning assets.

Panel A: Commercial Banks Performance: Interest Margin, Non-interest
Margin

                                          Mean (%)

                             Bancassurance          Non-Affiliated

Interest Margin                      5.12%                   3.99%
Non-Interest Margin                  1.11%                  -1.54%

                                         Median (%)

                             Bancassurance          Non-Affiliated

Interest Margin                      3.98%                   3.92%
Non-Interest Margin                 -1.41%                  -1.69%

                                       t-Test (P-value)

                                              Bancass. ~ Non-affi.
                      Bancass. ~ Non-affi.                 w/ ins.

Interest Margin                       0.07                    0.04
Non-Interest Margin                   0.11                    0.13

                                         Mean (%)

                         Non-affi. w/ ins.     Non-affi. w/o ins.

Interest Margin                      3.75%                  4.03%
Non-Interest Margin                 -1.32%                 -1.58%

                                        Median (%)

                         Non-affi. w/ ins.     Non-affi. w/o ins.

Interest Margin                      3.71%                  3.97%
Non-Interest Margin                 -1.34%                 -1.75%

                                      t-Test (P-value)

                      Bancass. ~ Non-affi.    Non-affi. w/ ins. ~
                                  w/o ins.     Non-affi. w/o ins.

Interest Margin                       0.08                   0.01
Non-Interest Margin                   0.10                   0.02

Bancassurance-affiliated CBs are those affiliated with insurers by
directly holding insurers or through their holding companies, which own
or control insurers. Assurbanking-affiliated CBs are those directly
owned by insurers or owned through their holding companies, which are
owned or controled by insurers. Since the assurbanking-affiliated CBs
are tiny in size and no more than 10 in number, we merge them to
bancassurance-affiliated CBs. Non-affiliated CBs WITHOUT INS are those
without any affiliation (either direct control or through holding
companies they belong to) with insurance companies. Non-affiliated CBs
WITH INS are those without any affiliation with insurance companies,
but underwriting such inhouse insurance products as credit related
insurance, mortgage insurance.

Table 14.1 Panel B: Thrift Saving Banks Operation Performance: Interest
Margin, Non-interest Margin

                                           Mean (%)

                          Non-Affiliated             Affiliated

Interest Margin                    3.09%                  3.10%
Non-Interest Margin               -1.54%                 -4.38%

                                          Median (%)

                          Non-Affiliated             Affiliated

Interest Margin                    3.27%                  3.04%
Non-Interest Margin               -1.62%                 -2.26%

                                    t-Test (F-value)

                       Non-affi. ~ Affi.    Non-affi. ~ Assurb.

Interest Margin                     0.49                   0.04
Non-Interest Margin                 0.05                   0.07

                                           Mean (%)

                               Assurbanking       Bancassurance

Interest Margin                       2.67%               4.30%
Non-Interest Margin                  -4.96%              -2.76%

                                          Median (%)

                               Assurbanking       Bancassurance

Interest Margin                       2.49%               3.89%
Non-Interest Margin                  -2.41%              -1.99%

                                      t-Test (F-value)

                       Non-affi. ~ Bancass.    Assurb.~Bancass.

Interest Margin                        0.03                0.01
Non-Interest Margin                    0.25                0.22

Non-affiliated SBs are those without any affiliation (either direct
control or through holding companies they belong to) with insurance
companies. Assurbanking-affiliated SBs are those directly owned by
insurers or owned through their holding companies, which are owned or
controled by insurers. Bancassurance-affiliated SBs are those
affiliated with insurers by directly holding insurers or through their
holding companies, which own or control insurers. Affiliated SBs refer
to either Assurbanking-affiliated SBs or Bancassurance-affiliated SBs.

Table 14.2 Banks OperationPerformance: Risk-Based Capital (RBC) Ratio,
Loan to Deposit (LTD) Ratio, Net Charge-

This table provides bank's Risk-Based Capital (RBC) Ratio, Loan to
Deposit (LTD) Ratio, and Loan Charge-offs Ratio. (1) RBC ratio is
calculated as the ratio of total risk-based capital to risk-weighted
assets. (2) LTD ratio is used as a measure of bank's liquidity and is
calculated as a bank's gross loans divided by total deposits,
indicating the percentage of a bank's loans funded through deposits.
(3) Charge-offs are loans written off as uncollectable by the banks and
are measured on a net basis, loans charged off as losses minus
recoveries on loans preciously charged off, The loan charge-offs ratio
is calculated as net loan charge-offs divided by the total loans.

Panel A: Commercial Banks Performance: RBC Ratio, Net Loan to Deposit
Ratio, Net Charge-off to

                                     Mean (%)

                         Bancassurance     Non-Affiliated

RBC Ratio                      117.27%             48.72%
Loan to Deposit Ratio          344.74%            239.63%
Net Charge-off                   3.54%              1.11%
  to Loan Ratio

                                    Median (%)

                         Bancassurance     Non-Affiliated

RBC Ratio                       33.54%             14.15%
Loan to Deposit Ratio          117.37%             98.99%
Net Charge-off                  1.1 4%              0.38%
  to Loan Ratio

                                 t-Test (P-value)

                        Bancass.~ Non-    Bancass. ~ Non-
                                 affi.     affi. w / ins.

RBC Ratio                         0.06               0.25
Loan to Deposit Ratio             0.23               0.39
Net Charge-off                    0.00               0.11
  to Loan Ratio

                                           Mean (%)

                           Non-affi. w/ ins.     Non-affi. w/o ins.

RBC Ratio                             85.58%                 42.94%
Loan to Deposit Ratio                303.30%                230.50%
Net Charge-off                         2.17%                  0.95%
  to Loan Ratio

                                          Median (%)

                           Non-affi. w/ ins.     Non-affi. w/o ins.

RBC Ratio                             32.13%                 13.89%
Loan to Deposit Ratio                166.87%                 95.96%
Net Charge-off                         0.87%                  0.35%
  to Loan Ratio

                                       t-Test (P-value)

                        Bancass. ~ Non-affi.    Non-affi. w/ ins. ~
                                    w/o ins.     Non-affi. w/o ins.

RBC Ratio                               0.05                   0.02
Loan to Deposit Ratio                   0.21                   0.10
Net Charge-off                          0.00                   0.04
  to Loan Ratio

Bancassurance-affiliated CBs are those affiliated with insurers by
directly holding insurers or through their holding companies, which own
or control insurers. Assurbanking-affiliated CBs are those directly
owned by insurers or owned through their holding companies, which are
owned or controled by insurers. Since the assurbanking-affiliated CBs
are tiny in size and no more than 1 0 in number, we merge them to
bancassurance-affiliated CBs. Non-affiliated CBs WITHOUT INS are those
without any affiliation (either direct control or through holding
companies they belong to) with insurance companies. Non-affiliated CBs
WITH INS are those without any affiliation with insurance companies,
but underwriting such inhouse insurance products as credit related
insurance, mortgage insurance.

Table 14.2 Panel B: Thrift Saving Banks Performance: RBC Ratio, Net
Loan to Deposit Ratio, Net Charge-off to

                                         Mean (%)

                          Non-Affiliated             Affiliated

RBC Ratio                         16.96%                 47.43%
Loan to Deposit Ratio             98.70%                 89.76%
Net Charge-off                     0.39%                  0.55%
  to Loan Ratio

                                        Median (%)

                          Non-Affiliated             Affiliated

RBC Ratio                         14.31%                 15.23%
Loan to Deposit Ratio             98.06%                 72.59%
Net Charge-off                     0.06%                  0.12%
  to Loan Ratio

                                    t-Test (P-value)

                        Non-affi.~ Affi.    Non-affi. ~ Assurb.
RBC Ratio                           0.00                   0.00
Loan to Deposit Ratio               0.37                   0.31
Net Charge-off                      0.26                   0.28
  to Loan Ratio

                                           Mean (%)

                                Assurbanking       Bancassurance

RBC Ratio                             55.97%              23.65%
Loan to Deposit Ratio                 81.38%             113.13%
Net Charge-off                         0.27%               1.12%
  to Loan Ratio

                                          Median (%)

                                Assurbanking       Bancassurance

RBC Ratio                             15.65%              14.17%
Loan to Deposit Ratio                 49.87%             103.58%
Net Charge-off                         0.10%               0.35%
  to Loan Ratio

                                       t-Test (P-value)

                        Non-affi. ~ Bancass.    Assurb.~Bancass.
RBC Ratio                               0.18                0.02
Loan to Deposit Ratio                   0.30                0.24
Net Charge-off                          0.12                0.08
  to Loan Ratio

Non-affiliated SBs are those without any affiliation (either direct
control or through holding companies they belong to) with insurance
companies. Assurbanking-affiliated SBs are those directly owned by
insurers or owned through their holding companies, which are owned or
controled by insurers. Bancassurance-affiliated SBs are those
affiliated with insurers by directly holding insurers or through their
holding companies, which own or control insurers. Affiliated SBs refer
to either Assurbanking-affiliated SBs or Bancassurance-affiliated SBs.

Figure 3.a

Distribution of Films by Assets--(Life-Health Insurers)

Non-affiliated       35%
Assurbanking         58%
Bancassurance         7%

Note: Table made from pie chart.

Figure 3.b

Market Share by Number, Assets, Premiums, Net income-(Life-Health
Insurers)

                Bancassurance   Assurbanking   Non-affiliated

%Firms              19.8%          19.8%         60.4%
%Assets              7.3%          57.%          35.0%
%Premiums            7.0%          51.6%         41.4%
%Net Income          9.8%          53.4%         36.8%

Note: Table made from bar graph.

Figure 3.1.a

Distribution of Firms by Assets--(Property-Liability Insurers)

Non-affiliated       66%
Assurbanking         31%
Bancassurance         3%

Note: Table made from pie chart.

Figure 3.1.b

Market share by Number, Assets, Premiums, Net
Income--(Property-Liability Insurers)

                   Bancassurance   Assurbanking   Non-affiliated

% Firms                11.5%          13.1%         75.4%
% Assets                3.5%          30.9%         65.7%
% Premiums              2.9%          39.1%         58.0%
% Net Income            0.4%          32.8%         66.7%

Note: Table made from bar graph.

Figure 4.a

Firms Size by Assets, Premiums, Net Income(mean)
($M)--(Life-Health Insurers)

                     Non-affl.   Assurbanking   Bancassurance

Total Assets          11,164       61,318          7,744
Premium Income         1,685        7,003            953
Net Income               104          502             92

Note: Table made from bar graph.

Figure 4.b

Firm Size by Assets, Premium, Net Income(median)
($M)--(Life-Health Insurers)

                   Non-Affi.   Assurbanking   Bancassurance

Total Assets       2,282          21,232       126
Premium Income       484           3,096        10
Net Income            22             274         2

Note: Table made from bar graph.

Figure 4.1.a

Firm Size by Assets, Premium, Net Income(mean)
($M)--(Property-Liability Insurers)

                  Non-Affi.   Assurbanking   Bancassurance

Total Assets       5132         15344          1955
Premium Income     1336          5733           479
Net Income          132           413             6

Note: Table made from bar graph.

Figure 4.1.b

Firm Size by Assets, Premium, Net Income(median)
($M)--(Property-Liability Insurers)

                   Non-Affi.   Assurbanking   Bancassurance

Total Assets       1,475.96     3,341.98       225.31
Premium Income       469.69     1,312.96        58.51
Net Income            22.68        59.69         8.87

Note: Table made from bar graph.

Figure 6.a

Number of States insurer Licenced in--(Life-Health Insurers)

                          Non-Affi.   Assurbanking   Bancassurance

Average Num. of States      33            36             25
Licenced in

Median Num. of States       47            48             24
Licenced in

Note: Table made from bar graph.

Figure 6.b

Number of States insurer Licenced in--(Property-Liability Insurers)

                          Non-Affi.   Assurbanking   Bancassurance

Average Num. of States      27            44             33
Licenced in

Median Num. of States       28            45             26
Licenced in

Note: Table made from bar graph.

Figure 7.a

Firms with >50% Business Share in each Product
Line--(Life-Health Insurers)

                       Non-Affiliated   Affiliated

Individual Life           27.7%           28.1%
Individual Annuity        26.5%           30.0%
Credit Life                4.0%           14.3%
Group Life                 1.0%            4.2%
Group Annuity             12.1%            6.5%
Accident & Health         26.4%            9.6%

Note: Table made from bar graph.

Figure 7.b

Premium Income by Products Line--(Life-Health Insurers)

                       Non-Affiliated   Affiliated

Individual Life           68,767           27,127
Individual Annuity        93,352           66,659
Credit Life                  508              342
Group Life                15,658            8,988
Group Annuity             68,448           34,136
Accident & Health         39,494           64,950

Note: Table made from bar graph.

Figure 7.1.a

% of Firms with >50% Business Share by each Product
Line--(Property-Liability Insurers)

                         Non-Affiliated   Affiliated

Personal Property           2.6%            5.9%
Personal Liability         22.8%           43.8%
Commercial Property        12.4%           22.0%
Commercial Liability       59.1%           27.8%

Note: Table made from bar graph.

Figure 7.1.b

Premium Income by Products Line--(Property-Liability Insurers)

                         Non-Affiliated   Affiliated

Personal Property          33,888           30,858
Personal Liability         66,375           57,650
Commercial Property        14,774           31,575
Commercial Liability       39,270           92,385

Note: Table made from bar graph.


Figure 8.a

Product Concentration Herfindahl Index--(Life-Health Insurers)

                Non-Aff.   Assurbanking   Bankassurance

Mean            56.6%       52.2%            65.5%
Median          52.8%       47.5%            61.2%

Note: Table made from bar graph.

Figure 8.b

Product Concentration Herfindahl Index--(Property-Liability Insurers)

                Non-Aff.   Assurbanking   Bankassurance

Mean             62.5%       49.2%         69.8%
Median           51.7%       43.6%         65.2%

Note: Table made from bar graph.

Figure 9.a

Financial Conditions--(ROA, ROE(mean)--(Life-Health Insurers)

       Non-Aff.   Assurbanking   Bankassurance

ROA    1.4%         1.3%            2.3%
ROE    6.6%        13.4%            3.9%

Note: Table made from bar graph.

Figure 9.b

Financial Conditions--(ROA, ROE(mean)--(Property-Liability Insurers)

       Non-Aff.   Assurbanking   Bankassurance

ROA     1.7%        2.5%           9.7%
ROE     1.5%        6.1%          15.5%

Note: Table made from bar graph.

Figure 11.a

Distribution of Firms by Assets--(Commercial Banks)

Bancassurance         58%
Non-Affi. w/ins       19%
Non-Affi. No ins.     23%

Note: Table made from pie chart.

Figure 11.b

Market Share by Number, Assets, Deposits, Net
Income--(Commercial Banks)

                  Bancassurance   Non-affi.w/ins.  Non-affi.no ins.

% Firms                11.0%         10.5%            78.5%
% Assets               57.6%         19.1%            23.3%
% Deposits             55.0%         19.9%            25.1%
% Net Income           57.1%         19.9%            23.0%

Note: Table made from bar graph.

Figure 11.1.a

Distribution of firms by Assets--(ThriftSaving Banks)

Bancassurance          29%
Non-affiliated         66%
Assurbanking            5%

Note: Table made from pie chart.

Market Share by Number, Assets, Deposits, Net
Income--(Thrift Saving Banks)

              Bancassurance  Assurbanking  Non-affiliated

% Firms          7.6%           21.1%       71.4%
% Assets        29.1%            5.0%       65.9%
% Deposits      27.6%            6.3%       66.0%
% Net Income    33.4%            2.7%       63.9%

Note: Table made from pie chart.

Figure 12.1.a

Firm Size by Assets, Total Deposits, and Net Income (mean)
(SM)--(Thrift Saving Banks)

                  Non-affiliated   Assurbanking   Bancassurance

Total Assets        5,186            1,327          21,631
Total Deposits      3,466            1,029          12,500
Net Income             65                9             321

Note: Table made from bar graph.

Figure 12.1.b

Firm Size by Assets, Total Deposits, and Net Income (median)
($M)--(Thrift Saving Banks)

                   Non-affiliated   Assurbanking  Bancassurance

Total Assets          2,191             95          1,259
Total Deposits        1,450             57            757
Net Income               22              0             28

Note: Table made from bar graph.

Figure 13.a

Deposit, Interest Bearing Deposit, Total Loan & Lease
(scaled by Asset) (mean)--(Commercial Banks)

                   Non-affi. w/o ins.  Non-Affi. w/ins.  Bancassurance

Total Deposit           0.75                 0.70           0.64
Interest                0.62                 0.58           0.55
Deposit                 0.63                 0.64           0.57
Total Loan
& Lease

Note: Table made from bar graph.

Figure 13.b

Deposit, Interest Bearing Deposit, Total Loan & Lease
(scaled by Asset) (mean)--(Thrift Saving Banks)

                    Non-affiliated   Assurbanking  Bancassurance

Total Deposit          0.67             0.52           0.55
Interest Bearing       0.63             0.49           0.45
Deposit
Total Loan & Lease     0.64             0.36           0.60

Note: Table made from bar graph.

Figure 13.1.a

Interest Income and Non-Interest Income
(scaled by asset) (mean)--(Commercial Banks)

                      Non-affi. w/o   Non-Affi. w/   Bancassurance
                        ins.              ins.

Interest Income         0.049             0.047         0.061
Non-Interest Income     0.017             0.020         0.076

Note: Table made from bar graph.

Figure 13.1.b

Interest Income and Non-Interest Income
(scaled by Asset) (mean)--(Thrift Saving Banks)

                    Non-affiliated   Assurbanking  Bancassurance

Interest Income         0.048           0.034          0.049
Non-Interest            0.008           0.110          0.105
Income

Note: Table made from bar graph.

Figure 14.a

Performance--ROA, ROE, Ratio of Net Operating Inc. to Assets
(mean)--(Commercial Banks)

                 Non-affi. w/o ins.  Non-affi. w/ ins.  Bancassurance

ROA                   3.0%              4.4%               6.2%
ROE                  33.7%             47.5%              35.7%
Net Operating         2.9%              4.3%               5.8%
Income to Asset

Note: Table made from bar graph.

Figure 14.b

Performance--ROA, ROE, Ratio of Net Operating Inc. to Assets
(mean)--(Thrift Saving Banks)

                  Non-affiliated   Assurbanking  Bancassurance

ROA                  1.18%            -1.65%         0.93%
ROE                 12.86%             0.30%        17.16%
Net Operating        0.82%            -1.98%         0.10%
Income to Asset

Note: Table made from bar graph.

Figure 14.1.a

Interest Margin, Non-Interest Margin (mean)--(Commercial Banks)

                  Non-affi. w/o ins.  Non-affi. w/ins.  Bancassurance

Interest Margin        4.03%              3.75%            5.12%
Non-Interest          -1.58%             -1.32%            1.11%
Margin

Note: Table made from bar graph.

Figure 14.1b

Interest Margin, Non-Interest Margin (mean)--(Thrift Saving Banks)

                  Non-affiliated   Assurbanking  Bancassurance

Interest Margin      3.09%            2.67%         4.30%
Non-Interest        -1.54%           -4.96%        -2.76%
Margin

Note: Table made from bar graph.

Figure 14.2.a

Performance--RBC Ratio, Net Charge-off to Loan Ratio
(median)--(Commercial Banks)

                 Non-affi. w/o ins.  Non-affi. w/ ins.  Bancassurance

RBC Ratio             13.89%             32.13%            33.54%
Net Charge-off         0.35%              0.87%             1.14%
to Loan Ratio

Note: Table made from bar graph.

Figure 14.2.b

Performance4--RBC Ratio, Net Charge-off to Loan Ratio
(median)--(Thrift Saving Banks)

                  Non-affiliated   Assurbanking  Bancassurance

RBC Ratio             14.31%          15.65%       14.17%
Net Charge-off         0.06%           0.10%        0.35%
to Loan Ratio

Note: Table made from bar graph.