The Financial Services Roundtable Insurance Information Institute

Transcription

and
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Page 1 (2,1)
FINANCIAL
SERVICES
FACT
BOOK
110 William Street
New York, NY 10038
(212) 669-9200
http//www.iii.or g
Insurance
Information
Institute
The Financial
Services
Roundtable
2004
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T he
Page i
FINA N C IAL
SERV I C E S
FACT
BOOK
2004
Insurance Information Institute
The Financial Services Roundtable
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Page ii
TO THE READER
More people than ever before are benefiting from the products and services of the financial
services industry: more people own houses, more people have retirement funds, more people
have transaction accounts. The Financial Services Fact Book, a joint venture of the
Insurance Information Institute and The Financial Services Roundtable, has become a valuable resource for those seeking to understand financial services. We hope this edition, which
includes a new chapter on mortgage financing and housing, will further understanding of
this key sector of our economy.
This third edition of the Financial Services Fact Book includes new charts for all
segments of the financial services industry. In particular, the chapter on mortgages and
housing offers a fascinating glimpse into homeownership demographics in the United States
and recent refinancing activity. To make it easier to navigate the book, we have modified the
graphics at the top of the page. We have also added, in a separate index, the names of financial services companies listed in the book.
This endeavor to integrate information on trends in financial services with basic
facts on the major industry sectors could not succeed without the help of many organizations, consultants and others who collect industry data and who have generously given permission to use their data in this book. However, the bulk of the work involved in collecting,
integrating and interpreting the material was done by the Insurance Information Institute,
which accepts editorial responsibility for the book.
Your questions, comments and suggestions are most welcome. Please feel free to
contact us.
Gordon Stewart,
Steve Bartlett,
President
President and Chief Executive Officer
©2004 Insurance Information Institute. ISSN 1537-6257 2004
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Page iii
Contents
Financial Services at a Glance .................................................................................V
Chapter 1: The Financial Services Industry ...............................................................1
Overview ...........................................................................................................................1
Assets.................................................................................................................................2
Consolidation....................................................................................................................3
Employment .....................................................................................................................5
Gross Domestic Product ..................................................................................................6
Convergence ...................................................................................................................10
Leading Companies........................................................................................................13
Chapter 2: Savings, Investment and Debt Ownership ..............................................15
National Savings ............................................................................................................15
Investments.....................................................................................................................16
Debt .................................................................................................................................19
Household Assets ...........................................................................................................21
Educational Plans and Loans ........................................................................................25
Consumer and Business Debt .......................................................................................28
Bankruptcy .....................................................................................................................30
Chapter 3: Asset Management/Retirement Funds ..................................................31
Retirement Assets...........................................................................................................31
Annuities .........................................................................................................................36
Mutual Funds .................................................................................................................39
Chapter 4: Insurance ...........................................................................................41
Overview .........................................................................................................................41
All Sectors .......................................................................................................................43
Property/Casualty: Financial .........................................................................................49
Property/Casualty: Premiums By Line ..........................................................................54
Property/Casualty: Specialty Lines................................................................................57
Property/Casualty: Reinsurance ....................................................................................62
Property/Casualty: Capital Markets ..............................................................................63
Life/Health: Financial ....................................................................................................66
Life/Health: Premiums By Line .....................................................................................71
Life/Health: Banks in Insurance ...................................................................................73
Chapter 5: Banking ..............................................................................................75
Overview .........................................................................................................................75
All Sectors .......................................................................................................................76
Convergence ...................................................................................................................81
Commercial Banks .........................................................................................................86
Thrift Institutions...........................................................................................................92
Credit Unions .................................................................................................................98
Industrial Banks ...........................................................................................................102
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Page iv
Chapter 6: Securities .........................................................................................103
Overview .......................................................................................................................103
Capital Markets ............................................................................................................111
Asset-backed Securities................................................................................................115
Derivatives ....................................................................................................................117
Exchanges.....................................................................................................................119
Mutual Funds ...............................................................................................................121
Chapter 7: Finance Companies ............................................................................125
Overview .......................................................................................................................125
Assets and Liabilities ...................................................................................................127
Profitability...................................................................................................................128
Receivables ...................................................................................................................129
Concentration ...............................................................................................................132
Leading Companies......................................................................................................133
Chapter 8: Mortgage Finance and Housing ...........................................................135
Mortgages .....................................................................................................................135
Home Ownership .........................................................................................................139
Home Equity Loans .....................................................................................................143
Leading Companies......................................................................................................144
Chapter 9: Technology ........................................................................................145
IT Spending ..................................................................................................................145
Electronic Commerce ..................................................................................................147
Electronic Payments ....................................................................................................149
ATMs .............................................................................................................................151
Wireless Technology.....................................................................................................154
Chapter 10: World Rankings ...............................................................................155
Appendices ........................................................................................................159
Summary of Gramm-Leach-Bliley ..............................................................................159
Glossary ........................................................................................................................162
Brief History .................................................................................................................164
Financial Services Organizations ................................................................................167
Company Index ............................................................................................................173
Index .............................................................................................................................176
III and The Financial Services Roundtable Member Companies ................................182
III and The Financial Services Roundtable Staff .....................................................184
III and The Financial Services Roundtable Board Members .....................................186
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Page v
Chapter Head
•
Financial Services at a Glance
The financial services sector’s contribution to the gross domestic product (GDP)
totaled 9.0 percent in 2001, the latest data available. The total GDP grew
2.6 percent in 2001, compared with 2000, while the financial services sector
grew 6.1 percent.
•
The assets of the financial services sector grew 0.8 percent from $37.6 trillion
in 2001 to $37.9 trillion in 2002.
•
Banks acquired 74 insurance agencies and 60 securities firms in 2002.
•
In 2002, homeowners withdrew $97 billion in cash when they refinanced their
mortgages.
•
U.S. households’ financial assets rose 84.1 percent from $14.5 trillion in 1992
to $26.7 trillion in 2002.
•
Household debt rose 10.0 percent, 2001-2002, and business debt rose 1.4 percent.
•
From 1996 to 2002, the asset share of the top 10 companies grew in the
following financial sectors:
Property/casualty insurance --- from 35 percent to 55 percent
Life/health insurance --- from 38 percent to 51 percent
Commercial banks --- from 33 percent to 45 percent
Savings institutions --- from 20 percent to 45 percent
In the securities sector, the asset share of the top 10 companies fell from
61 percent to 53 percent during the same period (see chart below).
ASSET SHARE OF THE TOP TEN FINANCIAL SERVICES FIRMS,
1996-2002
Source: TowerGroup.
The Financial Services Fact Book 2004 V
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Chapter 1: The Financial Services Industry
OVERVIEW
The financial services industry is changing, though perhaps not
as envisioned by many when the Gramm-Leach-Bliley Financial
Services Modernization Act was passed in 1999, see appendix,
page 159. At that time, observers predicted that massive mergers
would transform everything. Mergers did occur, but for the most
part not among the leading players. Banks bought specialized
securities firms and insurance agencies, rather than insurance
companies as had been predicted. Insurance companies applied
for thrift charters to open new banks instead of buying existing
ones. The arrangement that provided a major impetus for the
Gramm-Leach-Bliley Act partially dissolved in March 2002,
when Citigroup began to spin off Travelers’ property/casualty
insurance unit.
Nevertheless the convergence of products and services that
began in the 1970s continues to gather momentum. Today most
of the top financial services companies do business across sectors, offering their customers an ever-broadening range of financial tools, see chart, page 10. In 2003, Bank One Corp., based in
Chicago, said it would acquire key components of Zurich Life,
adding life insurance underwriting to its financial services operations. According to the Federal Deposit Insurance Corp., 3 percent of commercial and federally-insured savings banks were
involved in insurance underwriting in the first quarter of 2003.
Consolidation is increasing the size of the leading players in
most segments of the industry. In all sectors except securities,
the top 10 firms have increased their share of assets since 1995,
see chart page v, while the number of participants is shrinking,
a trend that began long before the passage of Gramm-LeachBliley. The number of commercial banks fell from about 25,000
before World War I to 7,887 in 2002; securities brokers and
dealers numbered 9,515 in 1987 and only 6,766 in 2002; life
insurance underwriters fell from about 2,200 in 1985 to 1,506 in
2001. The number of property/ casualty insurers, now numbering 3,163, is expected to fall by 30 percent over the next decade.
Consolidation is occurring both within sectors and across sectors, but at a slower pace than in the late 1990s.
1916 National Bank Act
limiting bank insurance
sales except in small
towns
1933 Glass-Steagall Act pr ohibiting commercial banks
and securities firms from
engaging in each other’ s
business
1956 Bank Holding Company
Act restricting bank hold ing company activities
1980 Banks receive federal
authorization to combine
securities sales and invest ment advisory services
1995 Valic U.S. Supreme
Court decision allowing
banks to sell annuities
1996 Barnett Bank U.S.
Supreme Court decision
allowing banks to sell
insurance nationwide
1999 Gramm-Leach-Bliley Act
allowing banks, insurance
companies and securities
firms to affiliate and sell
each other’s products
2001 U.S. House of
Representatives Banking
Committee renames itself
the Financial Services
Committee
2002 Citigroup spins off its
Travelers’ property/casual ty insurance unit
The Financial Services Fact Book 2004 1
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THE FINANCIAL SERVICES INDUSTR Y
ASSETS
ASSETS OF
FINANCIAL SERVICES
SECTORS, 1997
($ billions)
ASSETS OF FINANCIAL SERVICES SECTORS, BY INDUSTRY, 2002
($ billions, end of year)
Sector
Assets
Banking
Commercial banking1
Savings institutions2
Credit unions
Bank personal trusts and estates
Total
$7,342.5
1,357.4
560.8
807.9
$10,068.6
Insurance
Life insurance companies
All other insurers
Total
$3,331.2
915.5
$4,246.7
Securities
Mutual and closed-end funds
Securities broker/dealers 3
Total
$6,013.3
1,335.4
$7,348.7
Pensions
Private pension funds 4
State and local government pension funds
Total
$3,657.7
1,966.5
$5,624.2
Government-related
Government lending enterprises
Federally-related mortgage pools
Total
$2,543.3
3,158.2
$5,701.5
Other
Finance companies
Real estate investment trusts
Mortgage companies
Asset-backed securities issuers
Funding corporations
Total
$1,185.1
92.8
32.1
2,398.6
1,153.5
$4,862.1
2002
($ billions)
Source: Board of Governors of the
Federal Reserve System.
Total All Sectors
1
$37,851.8
Commercial banking includes U.S.-chartered commercial banks, foreign banking offices in the United States, bank holding companies,
and banks in U.S.-affiliated areas.
2
Savings institutions include savings and loan associations, mutual savings banks and federal banks.
3
Securities broker/dealers include investment banks.
3
Private pension funds include defined benefit and contribution plans [including 401(k)s] and the Federal Employees Retirement Thrift
Savings Plan.
Source: Board of Governors of the Federal Reserve System.
2 The Financial Services Fact Book 2004
www.financialservicesfacts.org
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THE FINANCIAL SERVICES INDUSTRY
CONSOLIDATION
NUMBER AND VALUE OF ANNOUNCED MERGERS AND ACQUISITIONS BY SECTOR, 1998-2002
($ billions)
1998
Deals Value
Securities1
1999
Deals Value
2000
Deals Value
150
$7.6
149
$12.8
239
34.8
212
19.2
157
Banks
411
265.2
283
68.9
Thrifts
93
23.9
74
7.5
401
85.8
394
38.4
82
29.4
53
16.4
Specialty finance
2
Insurance
Life/health
Property/casualty
2001
Deals
Value
191 $67.8
2002
Deals Value
213
$14.0
155
$7.8
37.5
97
23.4
104
23.6
213
90.2
206
32.1
178
8.6
67
4.4
55
8.5
51
9.0
321
23.6
287
65.1
286
9.7
52
13.3
43
58.6
30
3.2
106
44.1
67
20.1
56
9.5
49
2.2
44
0.4
Brokers and agents 184
2.6
235
0.4
188
0.5
179
1.1
192
1.1
Managed care
9.6
39
1.5
25
0.3
29
Total
1,294 417.3
1,112 146.8
949 223.5
1
Includes securities and investment companies, broker/dealers, and investment advisers.
2
Specialty finance firms range from small finance companies to major credit card operations.
16
3.2
20
4.9
858
143.1
774
58.7
Source: SNL Financial LC.
NUMBER OF ANNOUNCED FINANCIAL SERVICES
MERGERS AND ACQUISITIONS, 1999-2002
•
In 2002, the number of
financial services deals
■ Securities
■ Specialty finance
fell to 774 from 858 in
2001. Deal value fell 59
■ Banks/thrifts
■ Insurance
percent from 2001 to
2002.
•
The number of deals
increased in only one
sector, specialty finance.
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CONSOLIDATION
VALUE OF ANNOUNCED FINANCIAL SERVICES
MERGERS AND ACQUISITIONS, 1999-2002
•
($ billions)
The value of insurance
sector mergers and
■ Securities
acquisitions in 2002
was $9.7 billion, down
■ Specialty finance
■ Banks/thrifts
$55 billion or 85 per -
■ Insurance
cent from 2001. The
decline, which was the
greatest among all the
financial services sec tors, was almost exclu sively due to the drop in
the value of life/health
insurance deals from
$59 billion in 2001 to
$3 billion in 2002.
TOP TEN CROSS-INDUSTRY ACQUISITIONS ANNOUNCED IN 2002, UNITED STATES1
Buyer
HSBC Holdings Plc
Industry
Bank
Country
U.K.
Target
Household
International Inc.
ABB Ltd.’s Structured
Finance operations
Part of Global
Securities Services
Trendwest Resorts
Inc.
Australian Guarantee
Corp. Ltd.
State Street’s
corporate trust business
Telmark LLC
Industry
Country
Deal value 2
($ millions)
Specialty
U.S. $14,861.2
lender
General Electric Co.
Not classified
U.S.
Specialty
U.K.
2,300.0
lender
State Street Corp.
Bank
U.S.
Investment
U.S.
1,499.4
adviser
Cendant Corp.
Not classified
U.S.
Specialty
U.S.
977.8
lender
Not classified
U.S.
Specialty
Australia
894.9
lender
U.S. Bancorp
Bank
U.S.
Investment
U.S.
725.0
adviser
Wells Fargo & Co.
Bank
U.S.
Specialty
U.S.
650.0
lender
Not classified
U.S.
50% of Monogram
Specialty
U.S.
531.0
Credit Services LLC
lender
Deutsche Bank AG
Bank
Germany
RoPro U.S.
Investment
U.S.
490.0
Holding Inc.
adviser
Not classified
U.S.
Deutsche Financial
Specialty
U.S.
450.0
Svcs.’ inventory finance
lender
1
At least one of the companies involved is a U.S.-domiciled company. List does not include terminated deals.
2
At announcement.
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EMPLOYMENT
Over the three years, 2000 to 2002, employment in the financial services industry averaged
5.2 percent of total U.S. employment.
EMPLOYMENT IN THE FINANCIAL SERVICES INDUSTRY, 1998-2002
(000)
Year
Depository
credit
Monetary
intermeauthorities
diation
Nondepository
credit
intermediation
Activities
related to
credit
intermediation
Securities,
commodity
contracts,
investments
Insurance
carriers
and
related
activities
Funds/
trusts
Total
1998
21.7
1,708.9
615.7
207.3
692.2
2,209.4
76.9
5,532.0
1999
22.6
1,709.7
656.3
224.9
737.3
2,236.1
81.5
5,668.4
2000
22.8
1,681.2
644.4
222.3
804.5
2,220.6
84.8
5,680.4
2001
23.0
1,701.2
660.7
235.7
830.5
2,233.7
88.3
5,773.1
2002
23.1
1,738.2
690.1
254.0
800.8
2,223.1
85.6
5,814.9
Note: In June, 2003 the Bureau of Labor Statistics introduced employment data based on the North American Industry Classification
System (NAICS), an organizational framework that groups companies into industries based on the activity in which they are primarily
engaged. It replaces the Standard Industrial Code (SIC) system, which grouped firms with others producing or handling the same
products.
Source: U.S. Department of Labor, Bureau of Labor Statistics.
FINANCIAL SERVICES EMPLOYMENT BY INDUSTRY, 2002
(000)
•
The Department of Labor
does not include real
estate in financial activi ties.
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GROSS DOMESTIC PRODUCT
FINANCIAL SERVICES CONTRIBUTION TO GROSS DOMESTIC PRODUCT
Gross domestic product (GDP) is the total value of all final goods and services produced in
the economy. The GDP growth rate is the primary indicator of the state of the economy.
GROSS DOMESTIC PRODUCT OF FINANCIAL SERVICES, SHARES BY
COMPONENT, INCLUDING REAL ESTATE, 2001
•
When real estate transac tions (e.g., development,
mortgages and related
services, property sales
and rentals) are included,
financial services account ed for nearly 21 percent
of GDP in 2001, com pared with 20 percent in
2000.
Includes finance companies, mortgage bankers and brokers.
1
Source: U.S. Department of Commerce, Bureau of Economic Analysis.
GROSS DOMESTIC PRODUCT OF FINANCIAL SERVICES, SHARES BY
COMPONENT, EXCLUDING REAL ESTATE, 2001
•
With real estate excluded,
the remaining financial
service industries con tributed 9 percent to the
GDP in 2001, compared
with 8.7 percent in 2000.
Includes finance companies, mortgage bankers and brokers.
1
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GROSS DOMESTIC PRODUCT OF THE FINANCIAL SERVICES INDUSTRY, 1997-2001 1
($ billions)
1997
Total GDP
Total financial services industr y
Industry % of total GDP
Depository institutions
1998
1999
2000
2001
$8,318.4
$8,781.5
$9,274.3
$9,824.6
$10,082.2
1,569.9
1,708.5
1,798.8
1,976.7
2,076.9
18.9%
19.5%
19.4%
20.1%
20.6%
$273.9
$300.0
$330.3
$361.1
$359.8
49.9
52.8
57.7
69.5
88.8
Security and commodity brokers
120.8
143.9
128.2
150.8
175.0
Insurance carriers
146.1
150.2
153.8
182.4
170.1
51.3
56.4
61.5
61.6
66.5
Nondepository institutions
2
Insurance agents, brokers, and
service personnel
Holding and other investment offices
Total real estate
Nonfarm housing services
7.7
23.4
16.8
27.7
45.0
920.1
981.6
1,050.5
1,123.7
1,171.7
679.1
718.7
766.9
811.4
845.1
262.9
283.5
312.3
326.6
Other real estate
241.0
Includes real estate.
2
Includes finance companies and mortgage bankers and brokers.
1
FINANCIAL SERVICES SECTOR’S SHARE OF GROSS DOMESTIC PRODUCT, 1997-20011
Percent of total gross domestic product
1997
1998
1999
2000
2001
Depository institutions
3.3%
3.4%
3.6%
3.7%
3.6%
Nondepository institutions 2
0.6
0.6
0.6
0.7
0.9
Security and commodity brokers
1.5
1.6
1.4
1.5
1.7
Insurance carriers
1.8
1.7
1.7
1.9
1.7
Insurance agents, brokers, and service personnel
0.6
0.6
0.7
0.6
0.7
Holding and other investment offices
Total real estate
1
Includes real estate.
2
Includes finance companies and mortgage bankers and brokers.
0.1
0.3
0.2
0.3
0.4
11.1
11.2
11.3
11.4
11.6
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FINANCIAL SERVICES VS. TOTAL U.S. GROSS DOMESTIC PRODUCT GROWTH, 1991-2001
($ billions)
Total U.S.
gross domestic
product
Year
Percent
change
from prior
year
Finance,
insurance
and real estate
Percent
change
from prior
year
3.2%
$1,072.2
6.1%
Finance
and insurance1
$383.1
Percent
change
from prior
year
1991
$5,986.2
11.2%
1992
6,318.9
5.6
1,140.9
6.4
415.7
8.5
1993
6,642.3
5.1
1,205.3
5.6
453.7
9.1
1994
7,054.3
6.2
1,254.8
4.1
463.4
2.1
1995
7,400.5
4.9
1,347.2
7.4
514.6
11.0
1996
7,813.2
5.6
1,436.8
6.7
565.2
9.8
1997
8,318.4
6.5
1,569.9
9.3
649.8
15.0
1998
8,781.5
5.6
1,708.5
8.8
726.9
11.9
1999
9,274.3
5.6
1,798.8
5.3
748.3
2.9
2000
9,824.6
5.9
1,976.7
9.9
853.0
14.0
2001
10,082.2
2.6
2,076.9
5.1
905.2
6.1
1
Includes depository and nondepository institutions, security and commodity brokers, insurance carriers, insurance agents, brokers
and service personnel, and holding and investment offices.
FINANCIAL SERVICES INDUSTRY SECTOR PERCENT OF GROSS DOMESTIC PRODUCT, 2001
1
Includes insurance carriers and insurance agents, brokers and service personnel.
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FINANCIAL SERVICES PERCENTAGE SHARE OF GROSS STATE PRODUCT, 2001
(Excludes real estate)
State
Percent
State
Percent
State
Percent
Alabama
7.6%
Louisiana
4.7%
Oklahoma
5.9%
Alaska
3.2
Maine
7.3
Oregon
5.3
Arizona
7.8
Maryland
6.5
Pennsylvania
8.7
Arkansas
5.3
Massachusetts
11.2
Rhode Island
15.3
California
7.1
Michigan
6.3
South Carolina
Colorado
5.1
7.3
Minnesota
9.5
South Dakota
Connecticut
15.2
Mississippi
5.4
Tennessee
7.2
Delaware
34.6
Missouri
7.9
Texas
6.7
District of Columbia
8.0
Montana
6.3
Utah
Florida
7.6
Nebraska
8.6
Vermont
6.1
Georgia
7.3
Nevada
7.8
Virginia
6.9
Hawaii
5.2
New Hampshire
Washington
5.6
Idaho
4.1
New Jersey
9.0
West Virginia
4.9
Illinois
10.7
New Mexico
3.9
Wisconsin
7.4
10.0
16.0
11.8
Indiana
6.4
New York
20.1
Wyoming
3.7
Iowa
9.1
North Carolina
11.0
Total U.S.
8.9
Kansas
6.5
North Dakota
7.8
Kentucky
5.5
Ohio
8.9
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Page 10
CONVERGENCE
•
CONVERGENCE
Competition is strongest in
the areas of asset manage ment and securities, wher e
43 out of 56 companies
offer products from each of
the two categories.
Below are the top 10 companies, ranked by revenues, in each of
the major financial services sectors included in the Fortune 500.
(Note: there are six savings institutions because only six
savings institutions meet Fortune’s criteria.) The chart, which
is based on a survey conducted by the Insurance Information
Institute in August 2003, does not differentiate between the
“manufacturers” of a product and its “distributors.”
The chart shows that the nation’s largest financial services
companies are very diverse. While many are clearly becoming
financial service supermarkets, selling a wide range of products
outside their core business, some have chosen to specialize.
FINANCIAL PRODUCTS AVAILABLE THROUGH MAJOR FINANCIAL SERVICES COMPANIES
(As of August, 2003)
Auto/ homeLife/
owners
health
insurance insurance
Sectors1
Commercial
insurance
Annuities
X
X
Asset management/
retirement
funds2
Personal
banking
Mortgages/
credit cards/
Securities/
personal/
investment Commercial business
banking
banking
loans3
Diversified Financials
General Electric
X
X
X
Fannie Mae
Freddie Mac
X
X
X
American Express
X
X
X
4
X
X
X
Marsh & McLennan
X
Household Int’l. Inc.
X
X
Capital One Financial
X
X
X
X
Aon
X
X
X
X
X
X
X
X
X
X
Countrywide Financial
X
X
X
X
X
X
X
X
X
X
X
X
CIT Group
X
X
Securities
Morgan Stanley Dean
Witter
X
X
X
Merrill Lynch
X
X
X
Goldman Sachs Group
X
X
X
X
X
X
X
X
(table continues)
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CONVERGENCE
FINANCIAL PRODUCTS AVAILABLE THROUGH MAJOR FINANCIAL SERVICES COMPANIES (Cont’d)
Sectors1
Auto/ homeLife/
owners
health
insurance insurance
Commercial
insurance
Lehman Brothers
Holdings
Annuities
Asset management/
retirement
funds2
X
X
X
X
X
X
X
Bear Stearns
X
X
Charles Schwab
X
Franklin Resources
A.G. Edwards
E*Trade Group
Personal
banking
X
X
Legg Mason
X
X
X
X
X
X
X
Mortgages/
credit cards/
Securities/
personal/
banking
banking
loans3
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Commercial Banks
Citigroup
X
X
Bank of America
X
X
J.P. Morgan Chase
X
X
X
X
X
X
X
X
X
Wells Fargo
X
X
X
X
X
X
X
X
X
Wachovia Corp.
X
X
X
X
X
X
X
X
X
Bank One Corp.
X
X
X
X
X
X
X
X
X
X
X
FleetBoston
U.S. Bancorp
MBNA
National City Corp.
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Savings Institutions
Washington Mutual
Golden West
Financial Corp.
Sovereign Bancorp
X
X
X
X
X
X
X
X
X
Greenpoint Financial
X
X
X
X
X
X
X
X
X
Astoria Financial
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Westcorp
(table continues)
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Page 12
CONVERGENCE
FINANCIAL PRODUCTS AVAILABLE THROUGH MAJOR FINANCIAL SERVICES COMPANIES (Cont’d)
Sectors1
Auto/ homeLife/
owners
health
insurance insurance
Commercial
insurance
Annuities
Asset management/
retirement
funds2
Personal
banking
Mortgages/
credit cards/
Securities/
personal/
banking
banking
loans3
Property/Casualty
Insurance
American
International
Group
X
X
X
X
X
X
X
X
State Farm
Insurance Cos.
X
X
X
X
X
X
X
X
Berkshire Hathaway
X
X
X
Allstate
X
X
X
X
X
X
X
X
Loews (CNA)
X
X
X
X
Nationwide Insurance
Enterprises
X
X
X
X
X
X
X
Hartford Financial
Services
X
X
X
X
X
X
Liberty Mutual
Insurance Group
X
X
X
X
Progressive
X
United Services
Automobile Assn.
X
X
MetLife
X
X
Prudential
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Life/Health Insurance
New York Life
Insurance
X
X
X
X
Mass Mutual Life
Insurance
X
X
X
X
TIAA-CREF
X
Northwestern Mutual
X
AFLAC
X
UnumProvident
X
John Hancock
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Principal Financial
X
X
X
X
X
X
1
Sectors defined by Fortune. 2Includes annuities, mutual funds and IRAs. 3Includes home equity and auto loans. 4Acquired by HSBC Group.
Source: Fortune; Insurance Information Institute.
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Page 13
LEADING COMPANIES
LARGEST U.S. FINANCIAL SERVICES FIRMS, 20021
($ millions)
Profits as a percent of
Rank Company
Revenues
Profits
Revenues Assets
Industry
Employees
$131,698
$14,118
11%
3%
Diversified financial
315,000
100,789
15,276
15
1
Banking
252,500
1
General Electric
2
Citigroup
3
American Intl. Group
67,723
5,519
8
1
Insurance
4
Fannie Mae
52,901
4,619
9
1
5
State Farm Insurance
49,654
-2,796
-6
-2
Insurance
6
Bank of America Corp.
45,732
9,249
20
1
Banking
133,944
7
J.P. Morgan Chase
43,372
1,663
4
0
Banking
94,335
8
Berkshire Hathaway
42,353
4,286
10
3
Insurance
9
Freddie Mac
39,663
5,764
15
1
10
MetLife
34,055
1,605
5
1
Insurance
48,512
11
Morgan Stanley
32,415
2,988
9
1
Securities
55,726
12
Allstate
29,579
1,134
4
1
Insurance
13
Wells Fargo
28,473
5,434
19
2
Banking
14
Merrill Lynch
28,253
2,513
9
1
Securities
52,400
15
Prudential Financial
26,797
194
1
0
Insurance
54,086
16
New York Life
24,721
424
2
0
Insurance
7,500
17
American Express
23,807
2,671
11
2
75,400
18
Wachovia Corp.
23,591
3,579
15
1
Banking
80,778
19
Goldman Sachs Group
22,854
2,114
9
1
Securities
19,739
20
Bank One Corp.
22,171
3,295
15
1
Banking
73,685
21
Mass. Mutual Life Ins.
20,247
1,430
7
2
Insurance
11,797
22
TIAA-CREF
19,791
-137
-1
0
Insurance
6,467
23
Washington Mutual
19,037
3,896
21
2
Banking
24
Loews (CNA)
16,898
941
6
1
Insurance
27,820
25 Lehman Brothers Hldgs. 16,781
1
Ranked by revenues.
1,031
6
0
Securities
12,343
81,000
4,700
76,938
146,500
4,000
40,300
127,500
52,459
Source: Fortune.
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Page 14
LEADING COMPANIES
TOP TWENTY-FIVE FINANCIAL SERVICES COMPANIES:
NUMBER OF COMPANIES BY SECTOR, 20021
1
Based on the revenues of the top 25 financial services companies included in the Fortune 500.
Source: Fortune.
TOP TWENTY-FIVE FINANCIAL SERVICES COMPANIES:
REVENUES BY SECTOR, 2002 1
($ millions)
Based on the revenues of the top 25 financial services companies included in the Fortune 500.
1
Source: Fortune.
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Page 15
Chapter 2: Savings, Investment and Debt Ownership
NATIONAL SAVINGS
SAVINGS, INVESTMENT AND DEBT OWNERSHIP
Individuals and businesses seek to increase their assets through savings and investments.
They also borrow to purchase assets or finance business opportunities. The financial services
industry exists to manage these activities, bringing savers, investors and borrowers together, a
process known as financial intermediation. The banking industry acts as an intermediary by
taking deposits and lending the funds to those who need credit. The securities industry fulfills
the role of intermediary by facilitating the process of buying and selling corporate debt and
equity to investors. The insurance industry safeguards the assets of its policyholders by investing the premiums it collects in corporate and government securities. Finance companies provide credit to both individuals and businesses, funded in large part by issuing bonds, commercial paper and asset-backed securities.
NATIONAL SAVINGS
Gross national savings is the excess of production over cost, or earnings over spending. Gross
national savings grew in the late 1990s, fueled largely by increased saving by federal, state and
local governments, but fell in 2001 and 2002, reflecting declining government saving. In 2001,
total government saving dropped 40 percent from 2000 due to federal personal income tax
refunds and reduced tax revenues at all levels of government, a result of the slowing economy.
Governments spent more than they saved in 2002 as persistent economic weakness continued
to erode tax receipts and increased demand for public assistance, and expenditures for security and military programs rose in the wake of the September 11 terrorist attacks. Personal saving is the excess of personal disposable income over spending.
GROSS NATIONAL SAVINGS, 1997-2002
($ billions)
•
Total gross savings fell
$89.5 billion from 2001 to
2002.
Includes individuals (including proprietors and partnerships), nonprofit institutions primarily
serving individuals, life insurance carriers, and miscellaneous entities.
1
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Page 16
INVESTMENTS
OWNERSHIP OF EQUITIES AND CORPORATE AND MUNICIPAL BONDS
Equity and debt markets offer individuals and institutional investors the opportunity to
participate in the development and expansion of publicly-traded companies and in municipalities. Equity investments provide an ownership interest in a company through stocks.
Debt securities, generally bonds, represent money a corporation or municipality has borrowed from investors and must repay at a specific time and usually at a specific interest
rate. Municipal bonds may be tax exempt.
U.S. HOLDINGS OF CORPORATE EQUITIES, 1997-20021
($ billions, market value at end of year)
1997
Total
1998
1999
2000
2001
2002
Percent change,
1997-2002
$13,292.8 $15,548.5 $19,545.7 $17,606.5 $15,267.1 $11,833.9
Household sector
-11.0%
6,219.9
7,023.3
9,017.4
7,402.9
6,077.9
4,327.1
-30.4
79.0
102.0
115.0
115.1
126.3
115.4
46.1
952.9
1,250.3
1,611.5
1,625.5
1,533.8
1,350.4
41.7
2.6
23.3
6.8
24.5
11.3
23.8
11.9
24.2
8.9
27.9
3.5
29.1
34.6
24.9
Bank personal
trusts and estates
362.2
360.1
407.3
356.8
280.7
217.1
-40.1
Life insurance
companies
558.6
733.2
964.5
940.8
855.2
748.5
34.0
State and local
governments
Rest of the world
2
Commercial banking
Savings institutions
Other insurance
companies
186.0
200.1
207.9
194.3
173.9
156.0
-16.1
Private pension funds
1,696.4
1,990.7
2,325.7
2,195.1
1,925.8
1,487.8
-12.3
State and local gov’t.
retirement funds
Mutual funds
1,084.8
2,018.7
1,233.9
2,506.2
1,343.2
3,376.7
1,335.1
3,226.9
1,221.9
2,836.1
1,004.3
2,188.4
-7.4
8.4
49.8
6.7
47.4
15.6
40.6
33.9
35.0
65.6
30.7
83.0
33.3
-33.1
98.2 1,365.7
54.4
66.9
77.2
85.1
74.9
Closed-end funds
Exchange-traded funds
Brokers and dealers
51.9
Excludes mutual fund shares.
2
Holdings of U.S. issues by foreign residents.
1
44.3
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Page 17
INVESTMENTS
INSTITUTIONAL INVESTOR MARKET IN CORPORATE EQUITIES, 20021
($ billions)
Market value of holdings, as of December 31, 2002.
1
U.S. HOLDINGS OF CORPORATE AND FOREIGN BONDS, 1997-2002
1997
Total
$3,607.2
Household sector
1998
1999
$4,187.4 $4,626.4
2000
2001
2002
Percent change,
1997-2002
$5,022.9
$5,692.7
$6,220.6
72.4%
570.0
695.4
716.5
702.5
779.1
890.0
56.1
51.0
61.2
71.3
75.0
84.4
88.7
73.9
501.6
607.8
752.1
920.6
1,126.3
1,292.8
157.7
143.1
180.9
220.5
278.6
376.4
379.1
164.9
58.7
88.6
111.9
109.4
83.9
79.9
36.1
Bank personal trusts
and estates
31.1
28.5
39.8
44.9
38.3
35.6
14.5
1,046.0
1,130.4
1,173.2
1,222.2
1,342.4
1,451.8
38.8
Other insurance
companies
159.5
171.1
181.1
187.5
196.4
197.9
24.1
278.7
300.3
301.9
320.7
330.5
340.4
22.1
retirement funds
244.5
279.6
310.0
339.7
351.1
363.0
48.5
36.4
81.2
123.7
161.9
163.0
170.7
369.0
State and local
governments
Rest of the world
1
Commercial banking
Life insurance
companies
Money market mutual
funds
Mutual funds
273.8
339.0
368.2
361.9
420.0
470.9
72.0
Closed-end funds
26.0
30.5
31.7
29.2
25.1
25.3
-2.7
Government-sponsored
enterprises
47.1
67.8
91.5
117.2
132.7
139.7
196.6
REITs
Brokers and dealers
6.5
6.1
5.7
4.9
7.0
11.7
80.0
100.0
81.4
93.4
112.7
161.3
192.0
92.0
33.8
33.9
74.8
89.4
170.1
33.1
37.6
Holdings of U.S. issues by foreign residents.
1
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Page 18
INVESTMENTS
U.S. HOLDINGS OF MUNICIPAL SECURITIES AND LOANS, 1997-2002
($ billions, market value at end of year)
1997
Total
Household sector
Nonfinancial
corporate business
Nonfarm noncorporate
business
State and local
governments
Commercial banking
$1,318.7
1998
1999
$1,402.9 $1,457.2
2000
2001
2002
Percent change,
1997-2002
$1,480.9
$1,603.6
$1,770.6
422.6
428.2
452.3
463.7
511.7
619.5
34.3%
46.6
27.4
25.7
25.0
31.9
29.4
28.1
2.6
3.2
2.8
2.7
2.4
2.6
2.8
-12.5
3.9
2.5
1.0
1.6
1.9
0.5
-87.2
96.7
104.8
110.8
114.1
120.2
121.7
25.9
2.1
2.5
3.0
3.2
4.5
5.5
161.9
and estates
90.7
89.5
100.3
99.1
95.6
100.9
11.2
Life insurance
companies
16.7
18.4
20.1
19.1
18.7
21.2
26.9
191.6
208.1
199.0
184.1
173.8
189.5
-1.1
Other insurance
companies
retirement funds
1.5
3.3
3.0
1.6
1.4
0.5
-66.7
Money market mutual
funds
167.0
193.0
210.4
244.7
281.0
282.8
69.3
Mutual funds
219.8
242.6
239.4
230.5
253.4
277.4
26.2
57.4
59.2
67.6
64.7
75.6
85.9
49.7
5.2
9.2
10.6
8.8
14.8
13.2
153.8
11.9
11.3
19.0
21.0
59.1
Closed-end funds
enterprises
Brokers and dealers
13.2
13.1
U.S. HOLDINGS OF CORPORATE EQUITIES, 20021
1
Market value of holdings, as of December 31, 2002. 2Holdings of foreign issues by U.S. residents.
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Page 19
INVESTMENTS/DEBT
MUTUAL FUNDS BY HOLDER, 1998 AND 2002
•
($ billions)
1998
Household sector
2002
According to the
Securities Industr y
Association, in 2002, 75
$2,447.4
$2,625.3
Nonfinancial corporate business
95.5
90.5
liquid financial assets —
State and local governments
21.3
26.0
those readily convertible
Commercial banking
9.1
19.6
to cash — were in securi -
Credit unions
3.6
3.5
344.7
303.1
23.3
38.0
668.2
533.5
Total
$3,613.1
$3,639.4
Bank personal trusts and estates
percent of households’
ties products, and just
25 percent in bank
deposits and CDs. In
1975, 55 percent wer e
in bank deposits.
MUTUAL FUND SHARES BY HOLDER, 1998 AND 2002
1998
2002
DEBT
OWNERSHIP OF FEDERAL GOVERNMENT DEBT
The buying and selling of government securities is a crucial component of each of the financial sectors. Debt is issued and sold, based on the changing needs of the federal government. This fluctuation is reflected in the surplus and deficit levels of the gross federal debt.
The average daily trading volume in U.S. Treasury securities hit $226.6 billion in 1998,
dropped in 1999, and began to rise again in 2000. By March 31, 2003, it had reached $387.7
billion, according to the Bond Market Association.
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Page 20
DEBT
ESTIMATED OWNERSHIP OF U.S. PUBLIC DEBT SECURITIES, 1993-20021
Year
Total
Individuals2
$2,988.5
1994
3,148.2
19.1
9.9
9.4
7.6
1995
3,310.3
16.6
9.8
10.1
7.3
1996
3,479.9
19.7
7.3
8.2
6.2
1997
3,467.9
16.9
7.3
8.5
5.1
1998
3,372.7
16.3
8.0
7.5
4.2
1999
3,298.2
19.9
7.5
6.2
3.7
2000
3,019.7
14.9
7.9
6.6
3.6
2001
3,016.1
12.6
8.9
6.3
3.5
2002
3,254.3
11.5
8.9
6.7
4.1
U.S. monetary
authorities
Percent of total
State and
local
governments6
Foreign
and
international
Other7
Year
11.2%
10.0%
11.5%
Insurance
companies
1993
Pension
funds5
13.8%
Percent of total
Mutual funds/
Banking
trusts3
institutions4
7.8%
1993
10.8%
11.1%
19.9%
3.8%
1994
11.1
11.6
7.4
20.1
3.7
1995
10.1
11.4
5.3
25.4
3.9
1996
9.9
11.3
4.6
30.2
2.7
1997
10.4
12.4
3.7
33.5
2.4
1998
9.8
13.4
3.1
35.1
2.6
1999
9.7
14.5
3.0
32.8
2.7
2000
10.1
16.9
2.7
34.0
3.3
2001
9.3
18.3
3.7
34.5
2.9
2002
8.7
19.3
3.7
34.9
2.0
Includes all public debt securities except for savings bonds and state and local government series. 2Excludes U.S. savings bonds, of
which $196.9 billion were outstanding as of March 31, 2003. 3Includes mutual and money market funds, closed-end funds, and bank
personal trusts and estates. 4Includes commercial banks, savings institutions, credit unions, and brokers and dealers. 5Includes state
and local government pension funds and private pensions funds. 6Excludes state and local government pension funds and state and
local government series. 7Includes nonfinancial corporate institutions, nonfarm noncorporate institutions and government-sponsored
enterprises.
1
Source: Board of Governors of the Federal Reserve System; Treasury Bulletin; The Bond Market Association.
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Page 21
HOUSEHOLD ASSETS
ASSETS OF HOUSEHOLDS
Where people save their money, how much they save, and where they look for investment
returns is influenced by many factors including people’s appetite for risk, the state of the
economy, the investment products available, as well as incentives to save, such as tax advantages and matching funds provided by employers who offer retirement plans.
ASSETS AND LIABILITIES OF HOUSEHOLDS, 1982-20021
Value
Total financial assets
Foreign deposits
Checkable deposits and cur rency
Time and savings deposits
Money market fund shares
Securities
Percent of total
1982
1992
2002
$5,412
$14,515
$26,696
1982
100.0%
1992
2002
100.0%
100.0%
2
16
56
0.0
0.1
0.2
321
661
644
5.9
4.6
2.4
1,442
2,352
3,784
26.7
16.2
14.2
180
352
1,136
3.3
2.4
4.3
1,289
5,129
9,281
23.8
35.3
34.8
Open market paper
30
30
35
0.6
0.2
0.1
U.S. savings bonds
68
157
195
1.3
1.1
0.7
104
485
413
1.9
3.3
1.5
1
30
174
0.0
0.2
0.7
Other Treasury securities
Agency securities
Municipal securities
171
579
622
3.2
4.0
2.3
24
271
890
0.5
1.9
3.3
Corporate equities2
833
2,869
4,327
15.4
19.8
16.2
Mutual fund shares
57
707
2,625
1.1
4.9
9.8
Private life insurance reserves
223
422
912
4.1
2.9
3.4
Private insured pension reserves
243
693
1,471
4.5
4.8
5.5
Private noninsured pension reserves
687
2,060
3,726
12.7
14.2
14.0
Gov’t. insurance and pension reserves
376
1,423
2,856
7.0
9.8
10.7
Investment in bank personal trusts
289
661
841
5.3
4.6
3.1
Miscellaneous and other assets
359
747
1,988
6.6
5.1
7.4
Corporate and foreign bonds
(table continues)
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Page 22
HOUSEHOLD ASSETS
ASSETS AND LIABILITIES OF HOUSEHOLDS, 1982-20021 (Cont’d)
Value
1982
Total liabilities
1992
Percent of total
2002
1982
1992
2002
$2,490
$5,600
$12,051
100.0%
100.0%
100.0%
1,069
2,951
6,444
42.9
52.7
53.5
472
894
1,461
19.0
16.0
12.1
397
825
1,762
15.9
14.7
14.6
Policy loans
54
73
107
2.2
1.3
0.9
Security credit
26
54
148
1.0
1.0
1.2
Mortgage debt on nonfarm homes
Other mortgage debt
2
Consumer credit
Other liabilities3
472
804
2,130
18.9
14.4
17.7
1
Combined statement for household sector, nonfarm noncorporate business, and farm business. 2Only those directly held and those in
closed-end and exchange-traded funds. Other equities are included in mutual funds, life insurance and pension reserves, and bank personal trusts. 3Includes corporate farms.
U.S. HOUSEHOLD OWNERSHIP OF MUTUAL FUNDS, 1980-20021
(Percent of all U.S. households)
1
Households owning mutual funds in 1980 and 1984 were estimated from data on the number of accounts held by individual shareholders and the number of funds owned by households; data for 1980 through 1992 exclude households owning mutual funds only
through employer-sponsored retirement plans; data for 1994 through 2002 include households owning mutual funds only through
employer-sponsored retirement plans. Data for 1998 through 2002 include fund ownership through variable annuities.
Source: Investment Company Institute.
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HOUSEHOLD ASSETS
FINANCIAL ASSETS HELD BY FAMILIES, BY TYPE OF ASSET, 1995-2001
Any
financial
asset2
Percent of families
owning asset 1
Transaction
accounts3
Certificates
of
deposit
Savings
bonds
Bonds4
Stocks4
Mutual
funds5
Retirement
accounts6
Life
insurance7
Other
assets8
1995
91.0%
87.0% 14.3%
22.8%
3.1% 15.2% 12.3% 45.2%
32.0% 15.0%
1998
92.9
90.5
15.3
19.3
3.0
19.2
16.5
48.9
29.6
15.3
2001
93.1
90.9
15.7
16.7
3.0
21.3
17.7
52.2
28.0
15.9
Under 35 years old
89.2
86.0
6.3
12.7
NA
17.4
11.5
45.1
15.0
12.5
35 to 44 years old
93.3
90.7
9.8
22.6
2.1
21.6
17.5
61.4
27.0
12.6
45 to 54 years old
94.4
92.2
15.2
21.0
2.8
22.0
20.2
63.4
31.1
14.9
55 to 64 years old
94.8
93.6
14.4
14.3
6.1
26.7
21.3
59.1
35.7
23.6
65 to 74 years old
94.6
93.8
29.7
11.3
3.9
20.5
19.9
44.0
36.7
20.3
95.1
93.7
36.5
12.5
5.7
21.8
19.5
25.7
33.3
18.5
Less than 20
74.8
70.9
10.0
3.8
NA
3.8
3.6
13.2
13.8
8.4
20-39.9
93.0
89.4
14.7
11.0
NA
11.2
9.5
33.3
24.7
13.2
40-59.9
98.3
96.1
17.4
14.1
1.5
16.4
15.7
52.8
25.6
15.3
60-79.9
99.6
98.8
16.0
24.4
3.7
26.2
20.6
75.7
35.7
17.5
80-89.9
99.8
99.7
18.3
30.3
3.9
37.0
29.0
83.7
38.6
21.5
90-100
99.7
99.2
22.0
29.7
12.7
60.6
48.8
88.3
41.8
29.2
By age of family head - 2001
75 years old and over
Percentiles of income - 2001
9
Percent distribution of amount of financial assets of all families
1995
100.0
13.9
5.6
1.3
6.3
15.6
12.7
28.1
7.2
9.2
1998
100.0
11.4
4.3
0.7
4.3
22.7
12.4
27.6
6.4
10.3
2001
100.0
11.5
3.1
0.7
4.6
21.6
12.2
28.4
5.3
12.5
1
Families include one-person units. 2Includes other types of financial assets, not shown separately. 3Includes checking, savings, and
money market deposit accounts, money market mutual funds, and call accounts at brokerages. 4Covers only those stocks and bonds
that are directly held by families outside mutual funds, retirement accounts and other managed assets. 5Excludes money market mutual
funds and funds held through retirement accounts or other managed assets. 6Covers IRAs, Keogh accounts, and employer-provided
pension plans. Employer-sponsored accounts are those from current jobs [restricted to those in which loans or withdrawals can be
made, such as 401(k) accounts] held by the family head and that person’s spouse or partner as well as those from past jobs held by
them. Those from past jobs are restricted to accounts from which the family expects to receive the account balance in the future. 7Cash
value. 8Includes personal annuities and trusts with an equity interest, managed investment accounts and miscellaneous assets. 9Ranges
listed below represent percentiles rather than income levels. A percentile is a statistical ranking point. The 50th percentile represents
the midpoint of all values. For example, at the 50th percentile, half of the families in the ranking fall above this income level and half fall
below. NA=Data not available. Note: Latest data available. Based on surveys conducted every three years.
Source: Survey of Consumer Finances, Board of Governors of the Federal Reserve System.
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HOUSEHOLD ASSETS
NONFINANCIAL ASSETS HELD BY FAMILIES, BY TYPE OF ASSET, 1995-2001
Percent of families
owning asset1
Vehicles
Primary
residence
Other
Equity in
residential nonresidential Business
property
property
equity
Any
nonfinancial
Other
asset
Total
1995
84.1%
64.7%
11.8%
9.4%
11.1%
9.0%
90.9%
96.3%
1998
82.8
66.2
12.8
8.6
11.5
8.5
89.9
96.8
2001
84.8
67.7
11.3
8.3
11.8
7.6
90.7
96.7
Under 35 years old
78.8
39.9
3.4
2.8
7.0
6.9
83.0
93.1
35 to 44 years old
88.9
67.8
9.2
7.6
14.2
8.0
93.2
97.4
45 to 54 years old
90.5
76.2
14.7
10.0
17.1
7.2
95.2
98.1
55 to 64 years old
90.7
83.2
18.3
12.3
15.6
7.9
95.4
98.2
65 to 74 years old
81.3
82.5
13.7
12.9
11.6
9.7
91.6
97.1
75 years old and over
73.9
76.2
15.2
8.3
2.4
6.2
86.4
97.8
Less than 20
56.8
40.6
3.1
2.8
2.5
2.9
67.7
85.3
20-39.9
86.7
57.3
5.4
6.7
7.1
6.1
93.1
98.3
40-59.9
91.6
66.0
7.9
6.7
8.8
6.2
95.6
99.8
60-79.9
94.8
81.8
14.2
7.2
12.0
8.9
97.8
100.0
80-89.9
95.4
90.9
19.7
12.1
18.7
9.4
99.4
100.0
By age of family head - 2001
Percentiles of
income - 20012
90-100
92.8
94.4
32.8
23.9
38.9
18.0
99.5 100.0
Families include one-person units. 2Ranges listed below represent percentiles rather than income levels. A percentile is a statistical
ranking point. The 50th percentile represents the midpoint of all values. For example, at the 50th percentile, half of the families in the
ranking fall above this income level and half fall below.
1
Note: Latest data available. Based on surveys conducted every three years.
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EDUCATIONAL PLANS AND LOANS
EDUCATIONAL SAVINGS PLANS AND LOANS
To encourage households to save for college education, all
states have developed Section 529 college savings plans, named
after a part of the Internal Revenue tax code that allows earnings to accumulate free of federal income tax and to be withdrawn to pay for college costs tax-free. Slow to gain acceptance
initially, these plans are now growing fast. There are two types
of plans: savings and prepaid tuition. Plan assets are managed
either by the state’s treasurer or an outside investment company. Most offer a range of investment options.
•
There were 4.4 million
529 plan accounts in
2002, according to the
National Association of
State T reasurers.
DOLLARS INVESTED AND NUMBER OF 529 PLAN ACCOUNTS,
1999-2002
Source: National Association of State Treasurers.
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TOP TEN 529 SAVINGS PLAN PROVIDERS BY ASSETS, 20021
($ millions, end of year)
Rank
•
The top 10 providers
Provider
Assets
1
TIAA-CREF
of assets, according to
2
Alliance Capital
2,597.3
Cerulli Associates.
3
Fidelity Investments
2,326.3
4
American Funds
2,046.7
5
Putnam Investments
1,919.0
6
Merrill Lynch
1,294.1
7
Citigroup Asset Management
1,124.7
8
Manulife2
400.0
9
American Express
378.9
T. Rowe Price
362.7
control about 75 percent
10
$3,138.7
Top 10 Providers
$15,588.4
Ranked by assets. Excludes private label plans under a program manager.
2
Estimated.
1
Source: Cerulli Associates.
FEDERAL STUDENT LOANS
The most significant source of federal educational loans is the Stafford Loan Program,
which accounted for 67 percent of all federally-supported student aid in 2001-2002. Stafford
loans may come directly from the federal government under the Ford Direct Loan Program
or through the Federal Family Education Loan Program (FFELP), which makes federallyguaranteed loans available through private lenders such as banks.
The Stafford Loan Program provides subsidized loans (awarded on the basis of need,
interest free up to six months after a student leaves college) and unsubsidized loans. The
FFELP made some $30 billion in student loans available in 2001-2002 and is more than
twice the size of the direct program.
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TOP TEN ORIGINATORS OF FFELP LOANS, FISCAL YEARS 2001-2002 1
($ millions)
New guarantees
Lender name, City, State
Fiscal year 2001
Fiscal year 2002
Bank One Ed. Finance Group, Columbus, OH
$2,203.3
$2,680.7
Citibank, Student Loan Corp., Sioux Falls, SD
2,167.0
2,541.6
J.P. Morgan Chase Bank, Garden City, NY
2,295.0
2,497.7
Sallie Mae, Reston, VA
1,383.5
2,317.0
Bank of America, Kansas City, MO
1,639.6
1,937.9
Wells Fargo Education Financial Services, Sioux Falls, SD
1,774.1
1,899.2
Wachovia Bank/Classnotes (Educaid), Sacramento, CA
1,248.7
1,553.8
National City Bank, Brecksville, OH
896.6
1,115.7
U.S. Bank, St. Paul, MN
798.6
931.4
Pittsburgh National Corp., Pittsburgh, PA
538.6
618.5
1
Federal Family Education Loan Program, available to the parents of dependent students. Includes Stafford loans (subsidized and
unsubsidized) and PLUS loans. Excludes consolidation loans.
Source: U.S. Department of Education, National Student Loan Data Service.
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CONSUMER AND BUSINESS DEBT
Compared with the 1990s, in 2002 business borrowing slowed but consumers continued to
pile on debt.
CREDIT MARKET DEBT OUTSTANDING, OWED BY SECTOR,
1993-20021
($ billions)
•
Year
Household
sector
Nonfinancial
corporate
business
1993
$4,260.3
$2,523.9
1994
4,574.5
2,655.0
1995
4,913.8
2,879.9
business debt. Over the
1996
5,223.9
3,092.2
10 years, 1993-2002,
1997
5,556.9
3,382.0
business debt rose
1998
6,009.6
3,791.2
94.5 percent, com -
1999
6,507.8
4,204.0
2000
7,072.7
4,538.9
2001
7,686.4
4,841.1
Household debt rose
10 percent from 2001
to 2002, compared
with 1.4 percent for
pared with 98.4 per cent for household
debt.
2002
8,454.4
1
Excludes corporate equities and mutual fund shares.
DEBT GROWTH BY SECTOR, 1993-2002
(Percent change from prior year)
4,908.5
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DEBT HELD BY FAMILIES, BY TYPE OF DEBT AND LENDING INSTITUTION, 1995-2001
Type of debt
1995
1998
2001
100.0%
100.0%
100.0%
Home-secured debt
73.1
71.3
75.1
Installment loans
11.9
13.0
12.3
Other residential property
7.7
7.7
6.4
Credit card balances
3.9
3.9
3.4
Other debt
2.8
3.7
2.3
Other lines of credit
0.6
0.3
0.5
100.0%
100.0%
100.0%
70.3
67.7
70.7
Other residential property
8.2
7.9
6.6
Vehicles
7.6
7.6
7.8
Goods and services
5.7
6.1
5.7
Education
2.7
3.4
3.1
Investment, excluding real estate
1.0
3.3
2.8
Home improvement
2.0
2.1
1.9
Unclassifiable loans against pension accounts
0.2
0.4
0.3
Other
2.2
1.5
1.1
Total
Purpose of debt
Total
Home purchase
(table continues)
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CONSUMER AND BUSINESS DEBT/BANKRUPTCY
DEBT HELD BY FAMILIES, BY TYPE OF DEBT AND LENDING INSTITUTION, 1995-2001 (Cont’d)
Type of lending institution
1995
1998
2001
100.0%
100.0%
100.0%
Mortgage or real estate lender
32.8
35.5
38.0
Commercial bank
34.9
32.8
34.1
Thift institution
10.8
9.7
6.1
Credit union
4.5
4.2
5.5
Finance or loan company
3.2
4.2
4.3
Credit and store cards
3.9
3.9
3.7
Brokerage
1.9
3.8
3.1
Individual lender
5.0
3.3
2.0
Other nonfinancial
0.8
1.3
1.4
Government
1.2
0.6
1.1
Pension account
0.2
0.4
0.3
Total
1
Other loans
0.7
0.3
0.5
1
Savings and loan association or savings bank. Note: Latest data available. Based on surveys conducted every three years.
BANKRUPTCY
There are three major types of bankruptcies: Chapter 7 is a liquidation, under which assets
are distributed by a court-appointed trustee and, if there are no assets, the debt is discharged and creditors receive nothing. Chapter 11 is a reorganization, used mostly for businesses, under which debts are restructured and a payment schedule is worked out. Chapter
13 is a debt repayment plan, under which debts are repaid in part or in full over a period of
time, normally three years, under the supervision of a trustee. Chapter 7 filings have risen
in recent years, according to the Administrative Office of the U.S. Courts.
BANKRUPTCY PETITIONS FILED, BY TYPE, 1998-2002
(Year ending June 30)
Year
Business
Nonbusiness
Total
1998
50,202
1,379,249
1,429,451
1999
39,934
1,352,030
1,391,964
2000
36,910
1,240,012
1,276,922
2001
37,135
1,349,471
1,386,606
2002
39,201
1,466,105
1,505,306
Source: Administrative Office of the U.S. Courts.
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Chapter 3: Asset Management/Retirement Funds
RETIREMENT ASSETS
OVERVIEW
Competition is intense in the asset management arena, with some companies providing
complete asset management services while others offer specific products. One major aspect
of asset management is planning for retirement. Retirement plans are generally administered
by a bank, life insurance company, mutual fund, brokerage firm or pension fund manager.
Because payouts are relatively predictable, pension funds invest primarily in long-term securities. They are among the largest investors in the stock market. Pension plan assets made up
15 percent of total financial services assets in 2002.
RETIREMENT FUNDS, ASSETS AND ASSET MIX
Retirement fund assets have dropped as stock market prices declined in recent years.
ASSETS OF PRIVATE PENSION FUNDS, BY TYPE OF ASSET, 1998-20021
1998
Security repurchase agreements
Credit market instruments
Open market paper
U.S. government securities
1999
2000
2001
2002
$4,177.8
$4,630.4
$4,515.4
$4,173.5
$3,657.7
5.7
6.6
7.1
6.1
6.5
147.7
144.7
147.6
151.8
152.6
63.4
75.1
79.6
69.0
71.8
28.8
28.6
29.6
30.4
32.3
651.2
668.2
701.6
717.9
755.4
34.3
37.5
35.8
33.5
44.4
307.3
318.5
333.7
341.1
356.1
Treasury
112.5
109.8
108.4
104.2
113.6
Agency
194.8
208.8
225.2
236.9
242.5
300.3
301.9
320.7
330.5
340.4
Mortgages
9.3
10.3
11.5
12.8
14.5
1,990.7
2,325.7
2,195.1
1,925.8
1,487.8
Mutual fund shares
668.2
753.8
733.6
651.5
533.5
Miscellaneous assets
622.2
627.7
621.3
621.0
617.8
384.6
393.5
378.4
369.0
362.8
Contributions receivable
114.9
110.1
111.3
112.6
113.9
Other
122.7
124.1
131.6
139.4
141.0
Corporate equities
Unallocated insurance contracts
2
Pension fund reserves (liabilities)
4,231.9
4,687.9
4,576.4
4,238.3
3,726.4
1
Private defined benefit plans and defined contribution plans [including 401(k) type plans], and the Federal Employees Retirement
System Thrift Savings Plan. 2Assets of private pension plans held at life insurance companies (e.g., GICs, variable annuities).
3
Equal to the value of tangible and financial assets. These liabilities are assets of the household sector.
3
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ASSET MANAGEMENT/RETIREMENT FUNDS
RETIREMENT ASSETS
ASSETS OF STATE AND LOCAL GOVERNMENT EMPLOYEE RETIREMENT FUNDS,
BY TYPE OF ASSET, 1998-2002
1998
1999
2000
2001
2002
$2,054.1
$2,226.8
$2,289.6
$2,179.6
$1,966.5
10.0
9.2
9.1
9.5
7.7
2.0
1.7
1.1
0.6
0.7
37.5
40.4
44.7
45.3
45.5
704.6
751.4
806.0
788.4
804.9
37.5
40.4
44.7
45.3
45.5
360.1
376.4
398.5
365.7
364.3
Treasury
217.7
211.2
195.7
177.4
176.3
Agency
142.4
165.3
202.8
188.3
188.0
Security repurchase agreements
Open market paper
Mortgages
3.3
3.0
1.6
1.4
0.5
279.6
310.0
339.7
351.1
363.0
24.1
21.5
21.5
24.9
31.6
1,233.9
1,343.2
1,335.1
1,221.9
1,004.3
66.1
81.0
93.5
113.8
103.4
Pension fund reserves (liabilities) 1
2,085.4
2,262.3
2,331.5
2,226.4
1
Equal to the value of tangible and financial assets. These liabilities are assets of the household sector.
2,016.1
Corporate equities
There are two basic types of pension funds: defined benefit and defined contribution plans.
In a defined benefit plan, the income the employee receives in retirement is stipulated in a
contract, and is based on that person’s earnings and number of years with the company. In
a defined contribution plan, a type of savings plan in which taxes on earnings are deferred
until funds are withdrawn, the amount of retirement income depends on the contributions
made and the earnings generated by the securities purchased. The employer generally
matches the employee contribution up to a certain level and the employee selects investments from among the options the employer’s plan offers.
The Individual Retirement Account (IRA) is a tax-deductible savings plan for those who
are self-employed, or those whose earnings are below a certain level, or whose employers
do not offer retirement plans. Others may make limited IRA contributions on a tax-deferred
basis. The Roth IRA, a special kind of retirement account created in 1997, may offer greater
tax benefits to certain individuals. There are several other types of retirement funds, such
as profit-sharing plans and Keogh plans which are tax-deferred programs for the selfemployed and employees of small businesses.
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RETIREMENT ASSETS
RETIREMENT FUNDS ASSET MIX, 2002
Private Defined Benefit Plans
Private Defined Contribution Plans
• In defined contribution
plans, investments in equi ties dropped while invest ments in bonds increased
from 2001 to 2002.
Source: Securities Industry Association.
INVESTMENT MIX OF DEFINED BENEFIT PLAN ASSETS, 1998-2002
($ billions)
Other
assets
Total
assets
$145
$195
$1,885
129
152
196
2,102
124
158
196
2,004
479
108
153
189
1,818
473
85
160
185
1,585
Bonds
Mutual
funds
Year
Equity
1998
$987
$457
$101
1999
1,157
468
2000
1,046
480
2001
889
2002
682
Cash
items
INVESTMENT MIX OF DEFINED CONTRIBUTION PLAN ASSETS, 1998-2002
($ billions)
Year
Equity
Bonds
Mutual
funds
Cash
items
Other
assets
Total
assets
1998
$1,004
$159
$567
$135
$427
$2,292
1999
1,168
163
625
141
431
2,529
2000
1,149
186
610
142
425
2,511
2001
1,037
205
544
138
432
2,355
2002
806
238
448
148
432
2,073
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RETIREMENT ASSETS
IRA MARKET SHARES, BY HOLDER, 1998 TO 2002
By holder
Commercial banking
1998
1999
2000
2001
2002
$151.5
$148.1
$157.0
$160.1
$165.6
Saving institutions
61.8
58.7
56.4
54.6
53.9
Credit unions
35.3
36.2
36.7
39.9
43.3
190.1
245.5
245.5
247.1
238.2
Money market mutual funds
116.0
137.0
143.0
161.0
177.0
Mutual funds
826.0
1,083.0
1,060.0
987.0
850.0
Other self-directed accounts
769.3
942.5
930.4
890.2
805.1
$2,150.0
$2,651.0
$2,629.0
$2,540.0
$2,333.0
Total
IRA MARKET SHARES BY HOLDER
1998
•
Money market mutual funds gained
three percentage
points of the IRA
market between
1998 and 2002.
2002
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RETIREMENT ASSETS
ASSETS IN 401(K) PLANS, 1991-2002
($ billions)
Mutual fund
401(k) plan assets
Other 401(k)
plan assets
Total
$46
$394
$440
1992
82
471
553
1993
140
476
616
1994
184
491
675
1995
266
598
864
1996
347
714
1,061
1997
471
793
1,264
1998
605
1999
793
1,0052
1,798 2
2000
799
9912
1,790 2
770
960 2
1,730 2
687
853
1,540 2
Year
1991
2001
2002
1
Preliminary data. 2Estimated.
1
936
1,541
2
Note: Components may not add to totals due to rounding.
AVERAGE ASSET ALLOCATION FOR ALL 401(K) PLAN BALANCES, 2001
Note: Funds include mutual funds and other pooled investments.
Source: Investment Company Institute
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ANNUITIES
SALES OF FIXED AND VARIABLE ANNUITIES
Fixed annuities guarantee that a specific sum of money will be paid each period, generally
on a monthly basis, regardless of fluctuations in the value of the annuity issuer’s underlying
investments. Variable annuity payments are based on the portfolio of stocks in which the
issuer invests so that the monthly payment may fluctuate, depending on whether the value
of the investments goes up or down. Annuities may also be classified as immediate, which
begin to pay as soon as the premium is received, or deferred, which accumulate assets
before payments begin, generally at retirement, see also life insurance, pages 71-74.
A hybrid annuity product is the equity index annuity, which guarantees a minimum
return and at the same time offers an opportunity to benefit from increases in the equity
index. Until recently, most index annuities were sold as fixed annuities. Beginning in 2002,
equity index annuities were also sold as securities. Total sales in 2002 reached about $13
billion, according to the Advantage Group.
INDIVIDUAL ANNUITY CONSIDERATIONS, 1996-2002 1
($ billions)
•
Variable annuity sales
rebounded in 2002,
•
Year
Variable
Fixed
Total
jumping 7.5 percent.
1996
$72.8
$38.0
$110.8
Sales in 2001 wer e
1997
87.9
38.2
126.1
down 19.1 percent from
1998
99.5
32.0
131.5
the previous year .
1999
121.8
41.7
163.5
Fixed annuity sales grew
2000
137.2
52.7
189.9
by about 40.0 percent
2001
111.0
74.3
185.3
in both 2001 and 2002.
2002
119.3
103.8
1
Considerations are LIMRA’s estimates of the total annuity sales market.
Total annuity sales rose
20.4 percent in 2002.
223.1
Source: LIMRA International.
ANNUITY DISTRIBUTION SYSTEMS
The difference in distribution channels between fixed and variable annuities is related to
the nature of the product. Variable annuities are similar to stock market-based investments
and therefore attract a different type of customer from fixed annuities, which tend to be
associated with other fixed rate products such as certificates of deposit sold by banks. In
addition, state and federal regulators require people who sell variable annuities to register
with the National Association of Securities Brokers as securities dealers. Career agents,
agents who sell mostly the products of a single life insurance company, are more likely to
sell variable annuities than independent agents because they have stronger ties to the company marketing them.
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ANNUITIES
SALES OF FIXED ANNUITIES BY DISTRIBUTION CHANNELS,
1995 AND 2002
1995
2002
•
Over the seven-year peri od, 1995-2001, banks
increased their share of
fixed annuity sales by 14
percentage points. By
contrast, career agents’
share fell 14 percentage
points.
SALES OF VARIABLE ANNUITIES BY DISTRIBUTION CHANNELS,
1995 AND 2002
1995
2002
•
Between 1995 and
2002, stockbrokers’
sales of variable annu ities grew 11 percent age points.
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ANNUITIES
ANNUITY ASSET GROWTH AND INVESTMENT MIX
TOTAL NET ASSETS OF VARIABLE ANNUITIES, 1992-2002
($ billions)
Source: Info-One/VARDS.
VARIABLE ANNUITY ASSETS BY INVESTMENT OBJECTIVE, 20021
•
The fixed income/gener al account segment
grew from 21 percent
in 2001 to 30 percent
in 2002.
1
As of December 31, 2002.
Source: Info-One/VARDS.
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Page 39
MUTUAL FUNDS
MUTUAL FUND RETIREMENT ASSETS, 1992–2002
($ billions)
Employer-sponsored
accounts1
IRAs
Total
retirement
1992
$199
$237
$436
1993
285
322
607
1994
337
349
686
1995
464
475
939
1996
596
596
1,192
1997
779
775
1,554
1998
988
976
1,964
1999
1,281
1,264
2,546
2000
1,254
1,247
2,500
2001
1,188
1,189
2,377
Year
2002
1,057
1,067
2,124
Includes private defined contribution plans [401(k), 403(b), 457, and others], state and local government employee retirement funds,
and private defined benefit plans. 2Preliminary data.
2
1
Note: Components may not add to totals due to rounding.
MUTUAL FUND RETIREMENT ASSETS BY TYPE OF PLAN, 1992 AND 2002
($ billions)
1992
1
20021
Preliminary data.
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Page 40
MUTUAL FUNDS
MUTUAL FUND INDUSTRY NET ASSETS AND
SHAREHOLDER ACCOUNTS, 1940-2002
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Page 41
Chapter 4: Insurance
OVERVIEW
The insurance industry safeguards the assets of its policyholders, ensuring that they or their
families can get their lives back on track and continue to contribute to the economy even after
a disaster. Insurance companies act as financial intermediaries in that they invest the premiums they collect for providing this service. Insurance company size is usually measured by net
premiums written, that is, premium revenues less amounts paid for reinsurance.
The insurance industry is divided into two groups, life/health and property/casualty.
Many large insurers offer both property/casualty and life/health insurance and a number are
expanding into other financial services sectors, including banking and mutual funds. About
20 percent of the life/health sector’s premiums consists of accident and health products,
including a small amount of “pure” health insurance, such as coverage from HMOs. Due to
the massive involvement of the federal government in health care financing, pure health
insurance data are hard to isolate and generally not compatible with other insurance data.
For this reason, specific health insurance data are not included in this book.
Insurance is a product that transfers risk from an individual or business to an insurance
company. It differs from most products in that insurers must price and sell their policies
before the full cost of coverage is known. In property/casualty insurance, claims may be
more frequent and costly than anticipated and investment income may not fully offset the
shortfall. In life insurance, expected returns from investments may not be sufficient to fund
annuity contracts, especially fixed dollar annuities. If there is a downturn in the economy,
policyholders may cancel life insurance policies before the company can recoup its selling
expenses.
REGULATION
All types of insurance are regulated by the states, with each state having its own set of
statutes and rules. The McCarran-Ferguson Act, passed by Congress in 1945, speaks of continued state regulation of the insurance industry as being in the public interest, but there
have been and continue to be challenges to state regulation. Some insurers and other
groups, including banks, which can choose a federal or state charter, are developing proposals for an optional federal regulatory system.
State insurance departments oversee insurer solvency, market conduct and, to a greater or
lesser degree, review and rule on requests for rate increases for coverage, among other things.
Personal lines of the property/casualty insurance business, such as auto and homeowners
insurance, and workers compensation, in commercial lines, are the most highly regulated,
largely because these coverages are generally mandated by state law or required by banks and
other lenders. The National Association of Insurance Commissioners develops model rules
and regulations for the industry, many of which must be approved by state legislatures before
they can be implemented.
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INSURANCE
OVERVIEW
How Statutory Accounting Principles and Generally Accepted Accounting Principles Differ
Insurers are required to use a special accounting system when filing annual financial reports
with state regulators and the Internal Revenue Service. This system is known as statutory
accounting principles (SAP). SAP accounting is more conservative than generally accepted
accounting principles (GAAP), as defined by the Financial Accounting Standards Board, to
ensure that insurers have sufficient capital and surplus to cover insured losses. The two systems differ principally in matters of timing of expenses, tax accounting, the treatment of capital gains and accounting for surplus. Simply put, SAP recognizes liabilities earlier or at a
higher value and recognizes assets later or at a lower value. GAAP accounting focuses on a
business as a going concern, while SAP accounting treats insurers as if they were about to be
liquidated. SAP accounting is defined by state law according to uniform codes established by
the National Association of Insurance Commissioners. Insurance companies reporting to the
Securities and Exchange Commission must maintain and report another set of figures that
meet GAAP standards.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) COMPARED WITH STATUTORY
ACCOUNTING PRINCIPLES (SAP)
GAAP
SAP
Sales Costs
Accounted for over the period in which
the premium is earned, i.e., the policy period.
Accounted for immediately on the
sale of a policy.
Unearned
income
Taxes on unearned income can be deferred
until the income is earned.
Some taxes must be paid on a portion of
unearned premium.
Loss reserve
discounting
Reserves held to pay known losses in future
need not be discounted for tax purposes.
Loss reserves must be discounted for tax
purposes.
Reinsurance
recoverables
Net worth may include reinsurance payments
that may not be recoverable.
Net worth cannot include potentially
unrecoverable reinsurance payments.
Nonadmitted
assets
Certain assets, e.g., furniture and equipment,
can be included in net worth.
Such assets cannot be included in net
worth.
Taxes on
unrealized
capital gains
Deferred taxes on unrealized capital gains
cannot be included in net worth.
Those anticipated taxes need not be
deducted from net worth.
Bonds
Requires insurers to car ry certain bonds
at fair market value.
Most bonds can be carried
at their amortized value.
Surplus notes
Surplus notes, a highly subordinated form of
debt, must be carried as liabilities.
Surplus notes can be carried as part of
policyholder’s surplus.
Source: Insurance Information Institute.
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Page 43
INSURANCE
ALL SECTORS
MERGERS AND ACQUISITIONS
THE TOP TEN INSURANCE-RELATED MERGERS AND
ACQUISITIONS REPORTED IN 20021
($ millions)
Rank
Transaction
value2
Seller
Buyer
1
Trigon Healthcare Inc.
Anthem Inc.
$3,980.8
2
Government of Mexico
MetLife Inc.
966.8
ers and acquisitions
3
Skandia Insurance Co.
Prudential Financial Inc.
926.0
dropped from 391 deals
4
AmeriChoice Corp.
UnitedHealth Group Inc.
517.0
worth $76.9 billion in
5
Long Miller & Associates
Clark/Bardes Inc.
404.1
1998, to 295 deals
6
Hobbs Group LLC
Hilb Rogal and Hamilton Co.
242.6
7
Sun Life Financial Services
Sammons Enterprises Inc.
238.0
8
CIGNA Corp.
Welsh Carson Anderson & Stowe 235.0
9
Assicurazioni Generali S.p.A. Royal Bank of Canada
•
The total number of
insurance-related mer g-
worth $9.6 billion in
2002.
220.0
10
ANFI Inc.
Fidelity National Financial
135.2
1
At least one of the companies involved is a U.S.-domiciled company. List does not include terminated deals. 2At announcement.
PROFITABILITY
ANNUAL RATE OF RETURN, GAAP ACCOUNTING,
PROPERTY/CASUALTY AND LIFE/HEALTH INSURANCE, 1995-2002
Year
Property/casualty1
Life/health2
8.7%
11.0%
1996
9.3
10.0
1997
11.6
12.0
1998
8.5
11.0
1999
6.0
13.0
2000
5.9
10.0
2001
-1.2
7.0
1995
2002
2.2
1.0
1
Return on average net worth, Insurance Services Office, Inc. (ISO). 2Combined stock and mutual companies from data reported by
Fortune as calculated by the Insurance Information Institute.
Source: Insurance Services Office, Inc. (ISO); Fortune.
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INSURANCE
ALL SECTORS
PREMIUMS BY TYPE OF INSURER, 20011
1
Gross direct premiums. Total premiums for 2001 were $1,003.9 billion. 2Includes hospital, medical and dental indemnity, fraternal, limited benefit plans, and all other insurance. 3Health maintenance organizations.
Source: National Association of Insurance Commissioners. Reprinted with permission. Further reprint or redistribution strictly prohibited without written permission of NAIC.
U.S. NONLIFE AND LIFE
INSURANCE, 2001
Nonlife
51%
GROWTH IN U.S. PREMIUMS, NONLIFE AND LIFE INSURANCE,
1992-2001
Life
49%
Source: Swiss Re, sigma, No. 6/2002
1
Net premiums written, includes health insurance premiums written by commercial insurers.
Source: Swiss Re, sigma, various issues.
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Page 45
INSURANCE
ALL SECTORS
EMPLOYMENT
Data compiled by the U.S. Bureau of Labor Statistics show the insurance industry provided
2.2 million jobs in 2002.
EMPLOYMENT IN INSURANCE, 1993-2002
(000)
Insurance companies1
Year
Life, health
and
and medical
Property/
casualty
Insurance
agencies,
brokerages
and related
Reinsurers services2
Total
industry
1993
790.4
568.9
39.2
684.0
2,082.5
1994
812.0
568.8
37.7
700.3
2,118.8
1995
807.4
552.0
36.3
712.6
2,108.2
1996
788.0
558.2
35.4
726.4
2,108.0
1997
797.4
566.9
35.1
744.1
2,143.6
1998
816.8
592.0
34.3
766.3
2,209.4
1999
815.3
603.9
33.5
783.4
2,236.1
2000
808.8
591.6
32.3
787.8
2,220.6
2001
807.7
591.3
31.4
803.2
2,233.7
•
Over the last 10 years,
employment in the insur ance industry (all sec tors) has averaged 2.1
percent of the total U.S.
employment.
2002
785.4
586.3
30.5
820.9
2,223.1
1
Described by the Bureau of Labor Statistics as “direct insurers.” 2Includes claims adjusters,
third party administrators of insurance funds and other service personnel such as advisory and
insurance ratemaking services.
Note: In June 2003 the Bureau of Labor Statistics introduced employment data based on the
North American Industry Classification System (NAICS), an organizational framework that
groups companies into industries based on the activity in which they are primarily engaged. It
replaces the Standard Industrial Code (SIC) system, which grouped firms with others producing or handling the same products.
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Page 46
INSURANCE
ALL SECTORS
U.S. INSURANCE COMPANIES
An insurance company is said to be “domiciled” in the state that issued its primary license;
it is “domestic” in that state. Once licensed in one state, it may seek licenses in other states
as a “foreign” insurer. An insurer incorporated in a foreign country is called an “alien”
insurer in the U.S. states in which it is licensed.
DOMESTIC INSURANCE COMPANIES BY STATE BY TYPE,
END OF YEAR 2001
•
According to the
State
National Association of
Alabama
Insurance Commissioners
Alaska
Other3
14
25
3
3
1
1
6
0
7
1
0
0
0
0
315
51
12
8
0
1
11
Arkansas
41
12
1
5
0
2
13
California
31
152
NA
NA
6
10
20
pared with 3,215 in
Colorado
12
23
12
13
2
3
9
2000. Many are part of
Connecticut
33
75
2
8
1
1
12
larger organizations.
Delaware
46
84
6
6
2
0
0
The life/health insurance
D.C.
4
9
1
6
1
0
2
industry consisted of
Florida
24
109
30
32
0
5
1
1,506 companies in
Georgia
19
36
1
14
0
0
36
4
32
5
5
0
0
71
(NAIC), there wer e
3,163 property/casualty
companies in the United
States in 2001, com -
•
Blue Cross/
Blue Shield,
Life/ Property/ limited benefits,
health casualty
HMDI1
HMO Fraternal2 Title
2001, compared with
1,549 in 2000, accor ding to the NAIC.
Arizona
Hawaii
Idaho
6
11
2
2
0
0
2
Illinois
83
202
18
9
18
0
116
Indiana
43
75
0
16
3
5
41
Iowa
30
57
1
4
1
0
127
Kansas
14
31
1
9
0
2
0
Kentucky
11
10
7
7
0
0
17
Louisiana
65
35
1
13
2
3
28
3
14
3
3
0
0
10
Maine
Maryland
13
50
16
14
0
1
2
Massachusetts 18
57
3
11
3
2
0
Michigan
18
68
16
28
2
0
10
Minnesota
18
53
3
11
8
1
0
Mississippi
32
17
0
7
4
2
8
(table continues)
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Page 47
INSURANCE
ALL SECTORS
DOMESTIC INSURANCE COMPANIES BY STATE BY TYPE,
END OF YEAR 2001 (Cont’d)
State
Life/
health
Blue Cross/
Blue Shield,
Property/ limited benefits,
casualty
HMDI1
HMO Fraternal2 Title
Other3
Missouri
37
57
7
18
2
3
123
Montana
3
4
3
4
0
1
13
Cross/Blue Shield, limit -
23
41
6
5
1
0
37
ed benefits and HMDI
Nevada
2
7
10
6
0
0
14
New Hampshire
4
35
2
4
1
0
3
New Jersey
7
73
3
12
4
2
0
New Mexico
1
7
5
6
0
0
0
108
203
14
28
6
10
136
North Carolina
7
53
2
18
0
2
15
North Dakota
4
18
4
1
0
0
15
Ohio
44
125
5
24
14
12
51
Oklahoma
31
53
5
9
1
5
0
3
17
26
0
0
3
90
Pennsylvania
37
200
18
25
27
6
0
Rhode Island
5
20
3
3
0
0
2
13
28
1
6
0
2
0
2
17
2
4
0
1
26
18
29
3
18
1
2
40
179
240
5
54
10
4
20
18
13
6
7
0
1
0
2
402
2
1
0
0
3
Virginia
15
19
5
18
0
2
23
Washington
13
26
21
4
2
3
0
Nebraska
New York
Oregon
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
West Virginia
Wisconsin
Wyoming
2
4
1
2
0
0
11
31
175
18
21
9
0
101
0
2
1
1
0
0
0
•
The number of Blue
companies dropped to
323 in 2001 from 334
in 2000.
•
Fraternal companies
totaled 132 in 2001,
compared with 145 the
prior year .
•
Title insurance companies
numbered 98 in 2001,
compared with 100 in
2000.
Countrywide 1,506
3,163
323
533
132
98 1,265
1
Limited benefit plans cover only specified accidents or sicknesses; hospital, medical and dental indemnity (HMDI) plans provide stipulated payments to an insured person during hospital confinement, for virtually all costs related to hospital stays, other medical expenses, and for dental services and supplies. 2Fraternal groups provide insurance plans for their members. 3Includes county mutuals, auto
services companies and specialty companies. NA=Data not available.
Source: Insurance Department Resources Report, 2001, published by the National Association of Insurance Commissioners. Reprinted
with permission. Further reprint or redistribution strictly prohibited without written permission of NAIC.
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Page 48
INSURANCE
ALL SECTORS
WORLD LIFE AND NONLIFE
INSURANCE PREMIUMS,
2001
Nonlife
40%
Life 60%
WORLD INSURANCE MARKET
Outside the United States, the insurance industry is usually classified as life and nonlife, or general insurance. The latter
includes every form of insurance except life. Reinsurance, insurance for insurance companies, is purchased by both life and
nonlife insurers.
The number of countries in the survey of world insurance
premiums below, conducted by Swiss Re, increased from 66 in
1992 to 89 in 2001. To be included, countries must have had reliable data and direct premiums of over $100 million from 1992
to 1998, and over $150 million thereafter.
Source: Swiss Re, sigma,
No. 6/2002
WORLD LIFE AND NONLIFE INSURANCE PREMIUMS, 1992-2001
(Direct premiums written, U.S. $ millions)
•
•
Over the 10-year period,
1992 to 2001, total
Year
Life
Total
world insurance premi -
1992
$697,503
$768,436
$1,465,939
ums grew 64.3 percent.
1993
792,087
1,010,490
1,802,731
Nonlife premiums grew
1994
846,600
1,121,186
1,967,787
38.9 percent over the
1995
906,781
1,236,627
2,143,408
same 10 years, while life
1996
909,100
1,196,736
2,105,838
1997
896,873
1,231,798
2,128,671
1998
891,352
1,275,053
2,166,405
1999
912,749
1,424,203
2,336,952
2000
926,503
1,518,401
2,443,904
1,439,177
2,408,252
business grew 87.3 per cent.
•
In 2001, the inflationadjusted growth rate
from 2000 for the total
world insurance market,
Nonlife1
2001
969,074
1
Includes accident and health insurance.
at 1.0 percent, was the
lowest since 1980. Life
Source: Swiss Re, sigma, various issues.
premiums dropped 1.8
percent, while nonlife pr emiums grew 5.4 percent.
These changes were cal culated using local cur rencies.
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Page 49
INSURANCE
PROPERTY/CASUALTY: FINANCIAL
PROPERTY/CASUALTY INSURANCE
Property/casualty insurance covers the property and liability losses of businesses and individuals. These losses range from damage and injuries resulting from car accidents to the
cost of lawsuits stemming from faulty products and professional misconduct. In terms of
premiums written, private auto insurance is by far the largest single line of business, nearly
four times greater than the next largest line, homeowners. Property/casualty insurance companies tend to specialize in commercial or personal insurance but some sell both and a
number of companies are expanding into other financial services sectors, including personal banking and mutual funds.
Because property/casualty losses are more volatile than those in life insurance, property/casualty insurers invest largely in high-quality liquid securities which can be sold quickly
to pay for claims resulting from a major hurricane, earthquake or man-made disaster such
as the destruction of the World Trade Center.
ASSETS AND LIABILITIES OF NONLIFE INSURANCE COMPANIES, 1998 AND 20021
1998
Checkable deposits and cash
2002
$876.4
$915.5
4.0
25.9
42.7
38.6
521.1
554.1
140.0
164.7
208.1
189.5
171.1
197.9
2.0
1.9
200.1
156.0
Trade receivables
61.5
78.8
47.0
62.1
543.1
635.5
15.4
25.6
Security repurchase agreements 2
Commercial mortgages
Corporate equities
Total liabilities
Taxes payable
3
Miscellaneous liabilities
527.7
609.9
1
Nonlife insurance includes every form of insurance except life. 2Short-term agreements to sell and repurchase government securities
by a specified date at a set price. 3Largely reserves, i.e., money held to pay known and anticipated claims.
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Page 50
INSURANCE
CAPITAL AND SURPLUS
A property/casualty insurer must maintain a certain level of capital and surplus to underwrite risks. This capital is known as “capacity.” When the industry is hit by high losses,
such as after the World Trade Center terrorist attack, capacity is diminished. It can be
restored by increases in net income, favorable investment returns, reinsuring more risk,
and/or raising additional capital. When there is excess capacity, usually because of a high
return on investments, premiums tend to decline as insurers compete for market share. As
premiums decline, underwriting losses are likely to grow, reducing capacity and causing
insurers to raise rates and tighten conditions and limits.
Property/casualty insurers rarely show an overall underwriting profit, i.e., a net gain
from premiums after costs of sales, dividends to policyholders, loss payments, and loss
adjustment costs (which include litigation costs). Some lines of insurance do produce a
steady underwriting profit, but others record combined ratios (costs in excess of premiums)
that are above 100 year after year. In 2002, the combined ratio was 107, which means
insurers paid out $1.07 for every dollar in earned premium. The difference is generally covered by investment income from a number of sources, including capital and surplus accounts,
money set aside for loss reserves and unearned premium reserves, and capital gains.
PROPERTY/CASUALTY INSURANCE INDUSTRY
INCOME ANALYSIS, 1998-2002
($ billions)
1998
•
In 2002, net income
after taxes bounced back
to $2.9 billion, from a net
loss of $7.0 billion in
2001, the industry’s first
ever net aftertax loss.
1999
2000
2001
2002
Written premiums
$281.6 $286.9 $299.7 $323.5 $369.0
Percent change
1.8%
1.9%
5.3%1
8.0%
14.1%
Earned premiums
$277.7 $282.8 $294.0 $311.5 $348.2
Losses incurred
175.3
184.6
200.9
234.5 237.7
Loss adjustment
expenses incurred
36.5
37.7
37.8
40.9
44.8
Other underwriting expenses
77.9
80.3
82.6
86.4
94.3
Policyholder dividends
4.7
3.3
3.9
2.4
1.9
Underwriting gain/loss
-16.8
-23.1
-31.2
-52.6
-30.5
Investment income
39.9
38.9
40.7
37.7
36.7
Miscellaneous income/loss
0.2
-1.4
0.4
1.1
-0.9
Operating income/loss
23.4
14.4
9.9
-13.8
5.3
Realized capital gains/losses
18.0
13.0
16.2
6.6
-1.1
Federal income taxes/credit
10.6
5.6
5.5
-0.2
1.2
Net income after taxes
30.8
21.9
20.6
-7.0
2.9
1
ISO adjusted the growth rate to mitigate distortion caused by a significant insolvency.
Source: Insurance Services Offices, Inc. (ISO).
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INSURANCE
ASSETS
The chart below shows financial assets held by property/casualty insurers.
PROPERTY/CASUALTY INSURER FINANCIAL ASSET DISTRIBUTION, 2002
($ billions)
1997
1998
1999
2001
2002
$843.5
$876.4
$875.1
$866.1
$863.0
$915.5
4.2
4.0
4.3
3.7
13.1
25.9
35.2
42.7
28.3
38.3
30.2
38.6
515.3
521.1
518.2
509.4
518.4
554.1
161.9
140.0
136.2
136.2
146.3
164.7
Treasury
91.1
70.4
60.6
52.1
52.0
63.0
Agency
70.8
69.7
75.5
84.1
94.2
101.7
191.6
208.1
199.0
184.1
173.8
189.5
159.5
171.1
181.1
187.5
196.4
197.9
2.2
2.0
1.9
1.6
1.9
1.9
186.0
200.1
207.9
194.3
173.9
156.0
Trade receivables
59.9
61.5
63.6
64.6
69.9
78.8
1
RPs are repos (repurchase agreements).
42.8
47.0
53.0
55.8
57.5
62.1
Security RPs
1
Commercial mortgages
Corporate equities
2000
PROPERTY/CASUALTY INSURER FINANCIAL ASSETS, 1997-2002
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INSURANCE
TOP TWENTY U.S. PROPERTY/CASUALTY COMPANIES, BY REVENUES, 2002
($ millions)
Rank
Group
Revenues
1
American International Group
$67,723
$561,000
2
State Farm Insurance Cos.
49,654
117,811
3
Berkshire Hathaway
42,353
169,544
4
Allstate
29,579
117,426
5
Loews (CNA)
16,898
75,509
6
Nationwide
15,949
129,565
7
Hartford Financial Services
15,907
182,043
8
Liberty Mutual Insurance Group
14,544
55,827
9
Progressive
9,294
13,564
10
USAA
9,222
38,203
11
Chubb
9,140
34,114
12
St. Paul Cos.
8,918
39,920
13
Safeco
7,065
34,656
14
American Family Insurance Group
5,145
10,840
15
Fidelity National Financial
5,083
5,246
16
First American Corp.
4,704
3,398
17
American Financial Group
3,750
19,500
18
Auto-Owners Insurance
3,514
8,175
19
Erie Insurance Group
3,440
10,271
20
Allmerica Financial
3,419
26,518
Source: Fortune.
Assets
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Page 53
INSURANCE
DISTRIBUTION CHANNELS
Property/casualty insurance was once sold almost exclusively by agents — either by captive
agents representing one insurance company or by independent agents representing several
companies. Insurance companies selling through captive agents and/or by mail, telephone,
or via the Internet are called “direct writers.” In the 1990s, these distinctions blurred as
insurers began to use multiple channels to reach potential customers.
In the 1980s, banks began to explore the possibility of selling insurance through independent agents, usually buying agencies for that purpose, see pages 70,76 and 84. Other distribution channels include sales through professional organizations and workplaces.
The sale of insurance via the Internet, either at proprietary Web sites or at so-called
“insurance malls,” remains a very small portion of total sales. Most Internet sales are of
“commodity” insurance products, i.e., auto, some homeowners, term and whole life, and
other relatively simple coverages that do not require much explanation or customized risk
analysis.
The Independent Insurance Agents & Brokers of America says that in 2000 (latest data
available) on average personal property/casualty insurance accounted for 53 percent of
agencies’ insurance revenues. Commercial lines accounted for 39 percent of revenues, life
and health insurance for 5 percent, and employee benefits for 3 percent.
MARKET SHARE, PERCENT OF COMMERCIAL LINES AND PERSONAL LINES,
1999-20001
Commercial lines
1999
Personal lines
2000
1999
2000
National agency companies
47.48%
47.50%
14.50%
14.59%
Regional agency companies
26.07
25.75
18.87
19.08
Captive agency companies
26.13
25.29
58.79
57.83
0.32
1.46
7.85
8.49
Direct response companies
1
Based on direct premiums written.
Source: Independent Insurance Agents & Brokers of America, Inc.
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INSURANCE
PROPERTY/CASUALTY: FINANCIAL/PREMIUMS BY LINE
PROPERTY/CASUALTY INSURANCE INDUSTRY CONCENTRATION
According to the Insurance Services Office, Inc., concentration in the property/casualty
insurance sector increased from 229 in 1980 to 312 in 2002 on the Herfindahl scale, used to
measure market concentration. The U.S. Department of Justice classifies any score under
1,000 as unconcentrated. A score of 10,000 represents a monopoly.
MARKET SHARE TRENDS BY SIZE OF INSURER, 1982-20021
1
Based on net premiums written.
Source: Insurance Services Office, Inc. (ISO).
PREMIUMS BY LINE
DIRECT PREMIUMS WRITTEN BY LINE,
PROPERTY/CASUALTY INSURANCE, 1997 AND 2001 1
1997
Lines of insurance
Direct
premiums
written
($000)
2001
Percent
of total
Direct
premiums
written
($000)
Percent
of total
Private passenger auto
Liability
$72,136,812
25.3%
$76,248,477
23.1%
Collision and comprehensive
43,811,122
15.8
56,411,503
17.4
Total private passenger auto
115,947,934
41.9
132,659,980
41.0
13,795,530
5.0
17,447,356
5.4
5,134,156
1.9
6,789,611
2.1
18,929,686
6.8
24,236,967
7.5
Commercial auto
Liability
Collision and comprehensive
Total commercial auto
(table continues)
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INSURANCE
PROPERTY/CASUALTY: PREMIUMS BY LINE
DIRECT PREMIUMS WRITTEN BY LINE,
PROPERTY/CASUALTY INSURANCE, 1997 AND 2001 1 (Cont’d)
1997
Lines of insurance
Fire
Allied lines
Earthquake
2001
Direct
premiums
written
($000)
Percent
of total
$5,103,894
1.8%
Direct
premiums
written
($000)
$6,596,038
Percent
of total
2.0%
3,492,944
1.3
4,702,433
1.5
920,385
0.3
1,128,761
0.3
1,458,547
0.5
1,783,964
0.6
Homeowners multiple peril
29,184,284
10.6
37,644,373
11.6
Commercial multiple peril
21,080,907
7.6
25,860,300
8.0
Ocean marine
2,117,315
0.8
2,364,405
0.7
Inland marine
7,267,788
2.6
9,606,701
3.0
10,084,955
3.6
14,022,307
4.3
29,974,055
10.8
38,875,408
12.0
Farmowners multiple peril
Accident and health
2
Workers compensation
Medical malpractice
1,210,103
0.4
7,607,893
2.4
23,136,648
8.4
31,490,752
9.7
Products liability
2,068,098
0.7
2,550,260
0.8
Aircraft
1,459,074
0.5
1,895,374
0.6
Burglary and theft
133,849
0.0
130,916
0.0
Boiler and machinery
800,100
0.3
932,467
0.3
Fidelity
884,978
0.3
927,727
0.3
Surety
2,952,316
1.1
3,613,918
1.1
Other liability 3
Credit
463,827
0.2
620,550
0.2
Mortgage guaranty
2,793,824
1.0
4,129,924
1.3
Financial guaranty
1,210,103
0.4
2,159,443
0.7
6,203,666
2.1
12,532,800
3.4
Other lines
4
Total, all lines
$293,853,688
100.0%
$368,073,661
100.0%
1
Before reinsurance transactions. 2Premiums from certain insurers that write primarily health insurance but file financial statements with
state regulators on a property/casualty rather than life/health basis. 3Coverages protecting against legal liability resulting from negligence, carelessness, or failure to act. Some examples are contingent liability, errors and omissions, environmental pollution and
umbrella and liquor liability insurance. 4Includes international, space and miscellaneous coverages.
Source: National Association of Insurance Commissioners. Reprinted with permission. Further reprint or redistribution strictly
prohibited without written permission of NAIC.
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INSURANCE
PROPERTY/CASUALTY: PREMIUMS BY LINE
DIRECT PREMIUMS WRITTEN BY LINE, PROPERTY/CASUALTY INSURANCE, 20011
($000)
Fidelity
927,727
DIRECT PREMIUMS
WRITTEN,
PERSONAL AND
COMMERCIAL LINES,
2001
Boiler and machinery
932,467
($ billions)
Burglary and theft
Credit
Earthquake
$130,916
620,550
1,128,761
Farmowners multiple peril
1,783,964
Aircraft
1,895,374
Financial guaranty
Commercial
lines
$197.8
2,159,443
Ocean marine
2,364,405
Products liability
2,550,260
Surety
Mortgage guaranty
Allied lines
4,702,433
Inland marine
Accident and health
3
Personal
lines
$170.3
4,129,924
Medical malpractice
Other lines
6,596,038
7,607,893
9,606,701
12,532,800
14,022,307
Commercial auto
24,236,967
Commercial multiple peril
Other liability
46.3%
3,613,918
Fire
2
53.7%
25,860,300
4
31,490,752
Workers compensation
38,875,408
Homeowners multiple peril
37,644,373
Private passenger auto
132,659,980
1
Before reinsurance transactions. 2Includes international, space and miscellaneous coverages. 3Premiums from certain insurers that
write primarily health insurance but file financial statements with state regulators on a property/casualty rather than life/health basis.
4
Coverages protecting against legal liability resulting from negligence, carelessness, or failure to act. Some examples are contingent liability, errors and omissions, environmental pollution and umbrella and liquor liability insurance.
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INSURANCE
PROPERTY/CASUALTY: SPECIALTY LINES
SURETY BONDS
Some kinds of insurance provide financial guarantees. The oldest type, a personal contract
of suretyship, dates back to biblical times, when one person would guarantee the creditworthiness or the promise to perform of another. Surety bonds in modern times are primarily
used to guarantee the performance of contractors.
A surety bond is a contract guaranteeing the performance of a specified obligation.
Simply put, it is a three-party agreement under which one party, the surety company,
answers to a second party, the owner, creditor or “obligee,” for a third party’s debts, default
or nonperformance. Before it issues the bond, the insurer investigates the background and
financial condition of the contractor to satisfy itself that the firm is capable of doing the job
as set out in the contract. If the contractor fails to perform, the surety company is obligated
to get the work completed or pay for the loss up to the bond “penalty.” Surety bonds are
generally required on large federal, state and local public works projects.
SURETY BONDS, 1993-2002
Year
Direct
premiums written
($000)
1993
$2,247,299.2
1994
2,353,113.4
4.7%
1995
2,471,961.8
5.1
1996
2,656,150.9
7.5
1997
2,769,298.9
4.3
1998
2,918,747.5
5.4
1999
3,401,012.3
16.5
2000
3,490,219.5
2.6
2001
3,473,100.6
-0.5
2002
3,756,651.5
8.2
Annual
percent change
NA
NA=Data not available.
Source: Surety Association of America.
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INSURANCE
TOP TEN SURETY COMPANIES, 2002
($000)
Rank
Group
Direct premiums written
1
Travelers Property Casualty Corporation
$522,288.1
2
The St. Paul Companies
450,448.8
3
CNA Insurance Companies
360,372.3
4
Zurich Group
260,158.2
5
ACE USA Group
202,140.8
6
Chubb Group of Insurance Companies
172,651.4
7
Safeco Insurance Companies
164,611.3
8
Liberty Mutual Group
150,209.4
9
Kemper Insurance Companies
122,815.8
10
The Hartford Insurance Group
122,075.1
Source: Surety Association of America.
FINANCIAL GUARANTY INSURANCE
Insurers also provide other financial guarantees which help expand the financial markets
by increasing borrower and lender leverage. Starting in the 1970s, surety bonds began to be
used to guarantee the principal and interest payments on municipal obligations. This made
the bonds more attractive to investors and at the same time benefited bond issuers because
the insurance lowered their borrowing costs. This kind of surety bond became known as
financial guaranty insurance. Initially, financial guaranty insurance was considered a special category of surety covering the risk involved in financial transactions. It became a separate line of insurance in 1986.
The companies that insure bonds are specialized, highly-capitalized companies that traditionally have the highest rating. The insurer’s high rating attaches to the bonds, lowering
the riskiness of the bonds to investors. With their credit rating thus enhanced, municipalities can issue bonds that pay a lower interest rate, enabling them to borrow more for the
same outlay of funds. Investors typically have to sacrifice some yield, generally about 2 to 3
percent, in exchange for the security that bond insurance provides.
The leading municipal bond insurers have diversified since their inception and now
provide insurance and reinsurance for corporate bonds and other forms of credit as well as
for foreign government and corporate borrowings. They have also become insurers of assetbacked securities, pools of credit default swaps, and other structured financial transactions.
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INSURANCE
FINANCIAL GUARANTY INSURANCE INCOME STATEMENT, 1998-2002
($ millions)
1998
Premiums written
1999
2000
2001
2002
•
In 2002, U.S. municipal
bonds was the largest
$1,569
$1,520
$1,572
Net premiums earned
933
1,013
1,042
1,274
1,648
Net investment income
962
942
1,025
1,189
1,282
Other income
163
-9
-8
2
8
Losses and loss expenses
incurred
213
43
42
76
191
Other underwriting expenses
356
367
441
447
548
1,489
1,536
1,576
1,942
2,199
percent of all insurance,
311
327
315
500
572
written and outstanding,
1,178
1,209
1,261
1,442
1,628
Net income before taxes
Income taxes
Net income
$2,161 $3,037
sector insured by finan cial guaranty insurers,
up 33 percent from the
previous year, according
to Fitch Ratings.
Insurance on U.S. munic ipals accounted for 45
by financial guaranty
insurers.
Source: Association of Financial Guaranty Insurors.
•
In 2002, insurance on
asset-backed securities,
which accounted for 38
TOP SEVEN FINANCIAL GUARANTY INSURERS, 20021
percent of financial guar -
(Adjusted gross premiums written, $ millions)
Rank Company
1
MBIA
2
3
U.S.
municipal
anty insurance written
U.S.
nonmunicipal International
and outstanding, fell 1
Total
$419
$288
$346
$1,053
Ambac
418
257
299
974
FSA
222
354
120
696
4
FGIC
135
30
0
165
5
XL Capital Assurance
23
51
57
131
6
Radian Asset Assurance
65
30
7
102
7
ACA
16
0
4
20
percent from 2001.
Total
1,298
1,010
821
3,142
Ranked by adjusted gross premiums written. Based on companies covered by Fitch Ratings.
1
Source: Fitch Ratings.
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Page 60
INSURANCE
CREDIT INSURANCE FOR SHOR T-TERM TRADE RECEIVABLES
Credit insurance protects the policyholder, the product seller, against the risk of a customer’s protracted default on its obligation to pay for goods or services or its insolvency.
Credit insurance covers outstanding receivables over and above the level of losses for which
a company would typically set up bad debt reserves and often is sold with a large package
of credit management services. Credit insurance facilitates financing, enabling insured
companies to get better credit terms from banks. (Export credit insurance is provided by
private insurers under the sponsorship of the Export-Import Bank, a federal agency.)
CREDIT INSURANCE, 1997-2001
Direct premiums written 1
($000)
Year
Annual percent
change
1997
$463,827
4.9%
1998
485,957
4.8
1999
463,674
-4.6
2000
511,144
10.2
2001
620,550
21.4
1
Before reinsurance transactions.
TOP TEN CREDIT INSURANCE COMPANIES, 20011
Rank
Group
Direct premiums written
($000)
Market
share
$141,372.8
22.78%
1
EULER American Credit Ind. Co.
2
Household Finance Corp.
56,996.2
9.18
3
CNA Ins. Group
55,691.2
8.97
4
ACE Ltd.
52,790.4
8.51
5
Royal & Sun Alliance USA
45,042.5
7.26
6
Radian Group
40,695.2
6.56
7
Swiss Re Group
37,926.6
6.11
8
White Mountains Group
35,074.1
5.65
9
Zurich Ins. Group
31,197.3
5.03
10
Great American E&S Ins. Co.
Ranked by direct premiums written.
22,368.8
3.60
1
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INSURANCE
MORTGAGE GUARANTEES
Private mortgage insurance (PMI), known as mortgage guaranty insurance, guarantees that,
in the event of a default, the insurer will pay the mortgage lender for any loss resulting
from property foreclosure up to a specific amount. PMI, purchased by the borrower, is
sometimes confused with mortgage insurance, a life insurance product that pays off the
mortgage if the borrower dies before the loan is repaid. Banks generally require PMI for all
borrowers with down payments less than 20 percent. With PMI, therefore, prospective
homeowners with only enough cash for a 10-percent down payment can buy a home immediately rather than waiting to save enough to pay 20 percent.
MORTGAGE GUARANTY INSURANCE, 1999-2002
($000)
1999
2000
2001
2002
Net premiums written
$3,008,562
$3,324,382
$3,656,387
$3,789,257
Net premiums earned
3,039,180
3,299,936
3,649,250
3,835,948
Losses
588,041
483,285
681,539
831,973
Expenses
782,925
700,929
806,767
899,493
1,668,214
2,115,722
2,160,944
2,104,483
Underwriting income
Loss ratio
19.35%
14.65%
18.68%
21.69%
Expense ratio
26.02
21.08
22.06
23.74
Combined ratio
45.37
Source: Mortgage Insurance Companies of America.
35.73
40.74
45.43
TOP SEVEN PRIVATE MORTGAGE INSURANCE COMPANIES, 20021
Rank
Group
Direct
premiums written
($ billions)
Market
share
$83.50
24.8%
1
Mortgage Guaranty Insurance Corp.
2
PMI Mortgage Insurance Company
60.53
18.0
3
United Guaranty Corp.
51.09
15.2
4
Radian Guaranty Inc.
48.66
14.4
5
GE Capital Mortgage Insurance Corp.
46.10
13.7
6
Republic Mortgage Insurance Co.
34.81
10.3
12.36
3.7
7
Triad Guaranty Insurance Corp.
Ranked by direct premiums written.
1
Source: Inside Mortgage Finance Publications, Inc.
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INSURANCE
PROPERTY/CASUALTY: REINSURANCE
REINSURANCE
Reinsurance is essentially “insurance for insurance companies.” It is a way for primary
insurance companies to protect against unforeseen or extraordinary losses. Depending on
the contract, reinsurance can enable the insurer to improve its capital position, expand its
business, limit losses and stabilize cash flow, among other things. In addition, the reinsurer,
drawing information from many primary insurers, will usually have a far larger pool of
data for assessing risks, information that can help the primary insurer.
Reinsurance can take a variety of forms. It may represent a layer of risk such as losses
within certain limits, say $5 million to $10 million, for which a premium is paid, or a sharing of both losses and profits for a certain type of business.
Reinsurance is an international business. About 75 percent of the reinsurance business
that comes from U.S. insurance companies is written by non-U.S. reinsurers. Some investment banks are now setting up reinsurers as part of a move to develop alternative risk
financing deals such as catastrophe bonds.
TOP TEN U.S. PROPER TY/CASUALTY REINSURERS, 20021
Rank
Net premiums
written
($ millions)
Company
1
General Reinsurance Corp.
$3,631.6
2
Employers Reinsurance Corp.
2,853.2
3
National Indemnity Co.
2,666.3
4
Transatlantic Reinsurance Co.
2,219.8
5
Everest Reinsurance Co.
2,119.2
6
Odyssey America Reinsurance Co.
1,439.2
7
Swiss Reinsurance America Corp.
1,283.0
8
American Reinsurance Co.
1,169.4
9
Converium Reinsurance North America Inc.
1,064.1
10
Berkley Insurance Co.
Ranked by net premiums written.
940.5
1
Source: Standard and Poors.
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Page 63
INSURANCE
PROPERTY/CASUALTY: CAPITAL MARKETS
THE SECURITIZATION OF INSURANCE RISK
Insurers and reinsurers typically issue catastrophe bonds through an issuer known as a special purpose vehicle or reinsurer, a specialized company set up specifically for this purpose.
The bonds pay high interest rates and diversify an investor’s portfolio because natural disasters occur randomly and are not associated with economic factors. Depending on how the
bond is structured, if losses reach the threshold specified in the bond offering, the investor
may lose all or part of the principal or interest. There is growing interest in securitizing life
insurance company portfolios and a catastrophe bond public fund has been launched in
Europe for individual investors.
CATASTROPHE BOND TRANSACTIONS, 2002
Special
purpose vehicle
Sponsor
Peril
Risk location
Redwood
Swiss Re
$194.0
Earthquake
California
Capital II
Swiss Re
6.0
Earthquake
California
St. Agatha Re
Lloyd’s - Syndicate 33
33.0
Earthquake
California, New Madrid
K3
Hannover Re
230.0
Earthquake,
hurricane, wind
U.S., Japan, Europe
Residential Re 2002
USAA
125.0
Fujiyama Ltd.
Nissay Dowa
Pioneer 2002 Ltd.
Pioneer 2002 Ltd.
(Sep. takedown)
Swiss Re
Swiss Re
Risk amount
($ millions)
Hurricane
East/Gulf Coast, Hawaii
68.0
Earthquake
Tokyo, Tokai (Japan)
2.1
Earthquake
Tokyo, Tokai (Japan)
85.0
Hurricane
North Atlantic
50.0
Windstorm
Europe
30.0
Earthquake
California
40.0
Earthquake
Central U.S.
25.0
Earthquake
Japan
25.0
All of the above
All of the above
5.0
Windstorm
Europe
20.5
Earthquake
California
1.8
Earthquake
Central U.S.
(table continues)
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INSURANCE
CATASTROPHE BOND TRANSACTIONS, 2002 (Cont’d)
Special
purpose vehicle
Sponsor
Pioneer 2002
(Dec. takedown)
Swiss Re
Risk amount
($ millions)
Peril
Risk location
$8.5
Hurricane
North Atlantic
21.0
Windstorm
Europe
15.7
Earthquake
California
25.5
Earthquake
U.S.
30.6
Earthquake
Japan
All of the above
All of the above
150.0
Earthquake
Southern California
25.0
Earthquake
Southern California
3.0
Studio Re Ltd.
Vivendi S.A.
(through Swiss Re)
Source: Guy Carpenter.
WEATHER-RELATED HEDGES
Weather-related derivatives and insurance allow such businesses as ski resorts, oil and
propane gas distributors, and others that may experience large swings in annual sales due
to weather conditions, to hedge their weather-related risk.
Developed initially by an energy company in the late 1990s and now being offered by
insurers and reinsurers (the insurers of insurance companies), weather derivatives typically
are indexes derived from average temperatures, snowfall or rainfall. Weather derivatives
come in the form of options or swaps. A weather option is a trade that pays an agreed
amount at a specific time, based on the occurrence of certain weather conditions, such as
summer temperatures more than five degrees below average. A weather swap is an
exchange of funds between two entities likely to experience different conditions. Money
changes hands for every point above or below a certain threshold. Contracts can be tailored
to meet specific needs.
Companies can also buy an insurance policy. These policies generally have a dual trigger, one weather-related, such as heating degree days, and the other based on reduced sales
or some other economic indicator. These products are treated differently from derivatives
in terms of accounting and taxation.
Weather-related hedge products are different from other kinds of weather insurance,
such as policies that protect against specific events being cancelled by poor weather, and
different from catastrophe bonds, see previous page.
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INSURANCE
GLOBAL WEATHER RISK PRODUCTS, VALUE AND NUMBER
OF CONTRACTS, 1998-2002 1
Year
Notional value ($ millions)
•
Number
1998
$1,836
695
1999
3,003
1,285
2000
2,517
2,759
2001
4,339
3,397
According to a survey by
Weather Risk Management Association and
PricewaterhouseCoopers,
from 2001 to 2002, the
number of transactions
in the global weather
2002
4,188
4,517
1
Based on companies responding to a survey conducted by PricewaterhouseCoopers for the
Weather Risk Management Association.
market grew by 33 per cent and the value of
those transactions
Source: PricewaterhouseCoopers.
decreased 4 percent.
PARTICIPANTS IN THE 2003 WEATHER RISK
MANAGEMENT ASSOCIATION SURVEY 1
•
In the North American
market, the industry’ s
Participation by main line of business
largest, there were 2,217
Banking
3
Energy
7
percent over last year’ s
Insurance
5
2,712 contracts. The
Other
4
number of contracts in
contracts, a decline of 18
the European and Asian
Participation by location of respondent
markets increased 90
Asia
6
Europe
5
respectively, during the
North America
7
same period.
Other
1
percent and 85 percent,
Total
19
1
Based on companies responding to a survey covering 2002/2003 conducted by
PricewaterhouseCoopers for the Weather Risk Management Association.
Source: PricewaterhouseCoopers.
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INSURANCE
LIFE/HEALTH: FINANCIAL
LIFE/HEALTH INSURANCE
The primary business of life/health insurance companies is no longer traditional life insurance, but the underwriting of annuities — contracts that guarantee a fixed or variable payment over a given period of time. Nevertheless, the sale of such life insurance products as
whole life and term life policies in particular remains an important part of the business.
Life insurance is essentially an investment of savings that offers a tax-free sum to the
beneficiary at some point in the future. Life insurers invest the premiums they collect primarily in government and corporate bonds, but also in mortgage loans (mostly commercial). Besides annuities and life insurance, life insurers may offer other types of financial
services such as asset management.
ASSETS AND LIABILITIES OF
LIFE INSURANCE COMPANIES, 1998 AND 2002
1998
•
Growth in total assets of
life insurance companies
has slowed in recent
years, from an average
$2,769.5
2002
$3,331.2
5.4
32.6
110.4
163.8
1,828.0
2,286.5
288.4
383.8
annual rate of 10.9 per -
cent, 1996-1999, to
Open market paper
73.4
74.8
2.5 percent, 2000-
18.4
21.2
1,130.4
1,451.8
Policy loans
103.8
105.5
Mortgages
213.6
249.4
733.2
748.5
Mutual fund shares
23.3
38.0
69.2
62.0
2,599.7
3,144.2
2.5
5.1
Life insurance reserves
684.7
912.1
1
1,248.1
1,471.4
14.9
22.1
2002.
Corporate equities
Total liabilities
Loans and advances
Pension fund reserves
Taxes payable
649.5
733.5
1
Excludes unallocated contracts held by private pension funds which are included in miscellaneous liabilities.
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INSURANCE
CAPITAL AND SURPLUS
Capital, in a publicly-owned life insurance company, is the shareholders’ equity. In a mutual
company, capital is retained earnings. Surplus in both cases is what is left when basic liabilities (unearned premiums and reserves for unpaid claims) are subtracted from assets
(earned premiums, investments, reinsurance).
The life/health insurance industry’s net income fell to $15.3 billion in 2001, down $10.6
billion or 40.9 percent from 2000. Net income was down $10.8 billion or 41.5 percent from
1997.
LIFE/HEALTH INSURANCE INDUSTRY: SELECTED OPERATING DATA, 1997-2001
($ millions)
1997
Premiums and annuity
considerations1
1998
1999
2000
2001
$257,079.2
$270,019.7
$272,659.5
$303,288.6
$479,108.1
132,712.2
133,032.9
135,374.2
139,192.2
142,134.9
8,332.1
7,484.8
8,228.8
7,135.4
4,834.3
32,173.5
26,492.2
31,133.0
31,607.6
24,454.4
2,225.2
2,878.2
2,201.9
1,356.0
-4,364.7
Net income
26,066.7
21,885.7
25,106.2
25,828.2
15,255.4
Dividends to stockholders
-12,685.2
-16,263.5
-12,287.4
-14,669.0
-25,977.1
203,383.6
218,842.1
226,760.4
Net investment income
Federal and foreign income
taxes2
Net gain from operations
3
Net realized capital
gains/losses4
Capital and surplus
(end of year)
174,217.9
197,502.3
1
Life and accident and health policies and contracts.
2
Incurred (excluding tax on capital gain).
3
After dividends to policyholders and before federal income taxes.
4
Less capital gains tax and transfers to the interest maintenance reserve (IMR).
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INSURANCE
ASSETS
The chart below shows financial assets held by life/health insurers.
LIFE/HEALTH INSURER FINANCIAL ASSET DISTRIBUTION, 1997-2002
($ billions)
Asset type
1997
1998
1999
2000
2001
2002
$2,514.8
$2,769.5
$3,067.9
$3,135.7
8.1
5.4
5.5
5.0
36.8
32.6
92.8
110.4
133.8
142.3
185.3
163.8
1,751.1
1,828.0
1,886.0
1,943.9
2,074.8
2,286.5
Open market paper
Treasury
Agency
$3,224.6 $3,331.2
65.9
73.4
75.8
71.2
59.3
74.8
312.1
288.4
287.1
293.5
307.2
383.8
85.5
71.3
62.8
58.1
53.7
70.9
226.7
217.0
224.4
235.4
253.5
312.9
16.7
18.4
20.1
19.1
18.7
21.2
1,046.0
1,130.4
1,173.2
1,222.2
1,342.4
1,451.8
Policy loans
103.7
103.8
99.0
101.9
104.1
105.5
Mortgages
206.8
213.6
230.8
235.9
243.0
249.4
Corporate equities
558.6
733.2
964.5
940.8
855.2
748.5
Mutual fund shares
38.4
23.3
43.3
48.1
44.3
38.0
65.7
69.2
34.9
55.6
28.1
62.0
LIFE/HEALTH INSURER FINANCIAL ASSETS, 1997-2002
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INSURANCE
TOP TWENTY U.S. LIFE/HEALTH INSURANCE GROUPS AND COMPANIES, BY REVENUES, 2002
($ millions)
Rank
Group
Revenues
Assets
1
MetLife
$34,055
$277,385
2
Prudential Financial
26,797
292,746
3
New York Life Insurance
24,721
117,228
4
Mass. Mutual Life Ins.
20,247
94,267
5
TIAA-CREF
19,791
261,588
6
Northwestern Mutual
15,916
102,935
7
AFLAC
10,257
45,058
8
UnumProvident
9,560
45,260
9
John Hancock Financial Services
8,911
97,864
10
Principal Financial
8,868
89,861
11
Guardian Life of America
8,136
29,856
12
Conseco
6,148
6,905
13
Thrivent Financial for Lutherans
5,618
44,823
14
Lincoln National
4,636
93,133
15
Mutual of Omaha Ins.
4,353
15,203
16
Pacific LifeCorp
3,816
57,305
17
Jefferson-Pilot
3,480
30,609
18
Torchmark
2,738
12,361
19
Phoenix Companies
2,453
25,246
20
Unitrin
2,298
7,706
Source: Fortune.
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INSURANCE
DISTRIBUTION CHANNELS
Life insurance was once sold primarily by career life agents, captive agents that represent a
single insurance company and by independent agents who represent several insurers. Now
life insurance company products are also sold by direct mail, telephone, and the Internet,
directly to the public. In addition, in the 1980s, insurers began to market annuities and
term life insurance through banks and financial advisors, professional organizations and
workplaces. A large portion of variable annuities, which are based on stock market performance, and a small portion of fixed annuities, are sold by stockbrokers.
MARKET SHARE, LIFE/HEALTH INSURANCE DISTRIBUTION, 2001 1
PIE CHART
1
Based on the top 25 life/health groups.
WORKSITE LIFE INSURANCE SALES, BY
LINE OF BUSINESS, 2002 1
•
Worksite sales of life
and health insurance
products doubled from
$2 billion in 1997 to
$4 billion in 2002,
according to a survey
by Eastbridge
Consulting Group.
1
Worksite marketing is the selling of voluntary (employee-paid) insurance and financial
products at the worksite. The products may be on either an individual or group platform and
are usually paid through periodic payroll deductions.
Source: Eastbridge Consulting Group, Inc.
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INSURANCE
LIFE/HEALTH: PREMIUMS BY LINE
PREMIUMS BY LINE
The dominant products of life insurers are the annuity and life insurance. Annuities fall
into two major categories: fixed and variable. Fixed annuities, sometimes called fixed dollar
annuities, guarantee that a specific sum of money will be paid in the future, generally a
monthly benefit, for as long as the annuitant lives, regardless of fluctuations in the insurer’s
underlying investment returns. With variable annuities, fluctuations in the insurer’s investment earnings over time affect the amount of funds available for benefit payments. Once
payments start, they may be fixed and guaranteed or vary according to current investment
earnings or combine the two payment features.
The big growth in annuity sales began in the 1970s when investors began demanding
returns that better reflected inflation and stock market values. This demand resulted in the
variable annuity, an instrument so closely aligned to the stock markets that it is sold by
stockbrokers and its underwriters and agents must register as securities dealers with the
Securities and Exchange Commission.
LIFE/HEALTH INSURANCE INDUSTRY PREMIUM, BY LINE, 1997 AND 2001
($000)
1997
Net premiums
written
Lines of insurance
Life
$117,214,776
2001
Percent of total
Net premiums
written
28.0%
$138,907,465
Percent of total
23.8%
Annuity considerations
47,987,556
11.4
164,140,022
28.1
Accident and health
94,113,979
22.4
110,184,296
18.9
159,946,211
38.1
84,685,778
14.5
NA
NA
86,389,884
14.8
Deposit-type contract funds
Other considerations
1
Total, all lines
$419,262,523
100.0%
$584,307,446
100.0%
1
New statutory accounting rules effective 2001 bring statutory accounting principles closer to generally accepted accounting principles.
This change requires life insurers to report deposit-type contracts as liabilities, not revenues, resulting in a decline in 2001 of net premium reported for deposit-type contract funds.
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INSURANCE
LIFE/HEALTH: PREMIUMS BY LINE
TOP TEN WRITERS OF VARIABLE ANNUITIES, BY NEW SALES, 2002
($ millions)
Rank
Company
1
TIAA-CREF
2
Hartford Life Insurance Company
3
AIG/SunAmerica/VALIC
7,657.3
4
Aegon/Transamerica
6,569.0
5
MetLife/NEF/Gen Am/MLI
6,384.3
6
Equitable Life Assurance Society of the U.S.
6,299.7
7
ING Group of Companies
5,560.0
8
Nationwide Life Insurance Company
4,394.3
9
Pacific Life Insurance Company
4,257.8
Lincoln National Life Insurance Company
3,990.4
10
New sales
$12,772.6
10,397.9
Source: AnnuityNet/VARDS.
TOP TEN PRODUCERS OF EQUITY INDEX ANNUITIES BY TOTAL SALES, 20021
($ millions)
Rank
Company
Total sales
1
Allianz Life
$3,417.2
2
Midland National
2,293.7
3
Amer Equity
1,476.3
4
North American Life
819.1
5
AmerUs Group
656.7
6
Jackson National Life
397.9
7
Keyport Life (Sun)
344.7
8
Jefferson-Pilot
274.6
9
ING USG
244.9
10
Lafayette Life
Excludes companies that declined to be featured in ranking.
1
Source: The Advantage Group.
199.7
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INSURANCE
LIFE/HEALTH: PREMIUMS BY LINE/BANKS IN INSURANCE
CREDIT LIFE INSURANCE
Credit life insurance, which is a form of decreasing term insurance, protects creditors such
as banks. The borrower pays the premium, generally as part of the credit transaction, to
cover the outstanding loan in the event the borrower dies. The face value of a credit life
insurance policy decreases as the loan is paid off until both equal zero. When loans are paid
off early, premiums for the remaining term must be returned to the policyholder. Credit
accident and health is a similar product that makes monthly payments in the event the borrower becomes disabled.
CREDIT LIFE AND ACCIDENT AND HEALTH INSURANCE
DIRECT PREMIUMS WRITTEN, 1998-2001 1
($000)
Year
Accident
and health
Life
1998
$1,994,001
$1,790,393
1999
1,970,566
1,724,447
2000
1,849,525
1,675,211
2001
1,627,984
1,543,073
1
Group and individual.
BANKS IN INSURANCE
LEADING INSURERS, LIFE INSURANCE SALES
THROUGH BANKS, 2002 1
($ millions)
Rank
Company
2002
$38.1
Percent change
from 2001
•
26%
Bank sales of life insur -
1
Nationwide
2
Hartford
17.0
12
3
CUNA Mutual
15.2
13
premiums, and 34 per -
4
Liberty Life
11.2
19
cent, based on “weighted
5
AXA
10.0
NA
premiums,” a formula
6
Aegon
9.9
90
that gives recurring pr e-
7
AIG
9.7
14
mium products mor e
8
Great West
7.8
95
9
CGU Life
7.6
94
ance rose 42 percent in
2002, based on overall
weight than single premi um products.
10
Allstate
6.1
-8
1
Ranked by 2002 weighted premium, which is 100% of first-year recurring premium plus 10%
of single-premium sales. NA=Not applicable.
Source: Kenneth Kehrer Associates.
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INSURANCE
BANKS IN INSURANCE
TOP TEN WRITERS OF FIXED ANNUITIES SOLD THROUGH BANKS, 20021
($ billions)
Rank
Company
Sales
1
AIG/American General
2
Aegon/Transamerica
5,142
3
Nationwide
2,244
4
John Hancock
2,189
5
Jackson National
2,085
6
Allstate Life Group
1,973
7
GE Companies
1,763
8
Sun Life Financial
1,637
9
Lincoln National
1,254
Western-Southern
1,205
10
Ranked by total 2002 sales.
$8,575
1
TOP TEN WRITERS OF VARIABLE ANNUITIES SOLD THROUGH BANKS, 20021
($ billions)
Rank
Company
Sales
1
Hartford
$3,176
2
Nationwide
1,398
3
American Enterprise
1,125
4
AIG/SunAmerica
833
5
Pacific Life
674
6
Aegon/Transamerica
664
7
AXA
605
8
Allstate Life Group
521
9
ING/Aetna
335
Travelers
307
10
Ranked by total 2002 sales.
1
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Page 75
Chapter 5: Banking
OVERVIEW
OVERVIEW
Banking, the largest sector within the financial services industry, includes all depository institutions, from commercial banks and thrifts (savings and loan associations and savings banks)
to credit unions. In their role as financial intermediaries, banks use the funds they receive
from depositors to make loans and mortgages to individuals and businesses, seeking to earn
more on their lending activities than it costs them to attract depositors. However, in so doing
they must manage many risk factors, including interest rates, which can result in a mismatch
of assets and liabilities.
Over the past decade, many banks have diversified and expanded into new business lines
such as credit cards, stock brokerage and investment management services, see page 11. They
are also moving into the insurance business, selling annuities and life insurance products in
particular, often through the purchase of insurance agencies. Banks can be federally or state
chartered. Except for industrial banks, only data for federally chartered institutions are included here.
REGULATION
Consumers rely on banking institutions to maintain their savings for retirement, emergencies
and other situations that cannot be financed out of current income. The concept of depository
insurance was introduced during the Great Depression, when many people lost their lifetime
savings, to restore confidence in the banking system. Under the program administered by the
Federal Depository Insurance Corporation (FDIC), which is an independent agency within the
federal government, deposits in commercial banks and thrifts are insured for up to $100,000.
The FDIC is also charged with liquidating failing banks or disposing of their insured liabilities
by selling them to a solvent institution.
The FDIC regulates the activities of insured banks and sets guidelines for their investment
portfolios to safeguard the assets of depositors. The Office of Thrift Supervision performs a
similar function for savings and loan associations, and the National Credit Union
Administration does much the same for credit unions.
The Federal Reserve system was established by Congress in 1913 to regulate the money
supply according to the needs of the U.S. economy. The Federal Reserve attempts to do this
by changing bank reserve requirements and the discount rate that banks pay for loans from
the Federal Reserve system and by increasing or decreasing its open-market operations, the
buying and selling of federal securities. When the Federal Reserve buys Treasury bills,
reserves in the federal banking system rise. When it sells, reserves in the system shrink. This
tends to push up interest rates and therefore the cost of credit. Because of banks’ sensitivity to
interest rates, Federal Reserve policy has a major impact on the banking sector.
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BANKING
ALL SECTORS
TOP TEN BANK AND THRIFT DEALS ANNOUNCED IN 20021
Buyer (Location)
Target (State)
Deal value2
($ millions)
1
Citigroup, Inc. (NY)
Golden State Bancorp Inc. (CA)
$5,807.1
2
M&T Bank Corp. (NY)
Allfirst Financial Inc. (MD)
3
Banknorth Group, Inc. (ME)
American Financial Holdings, Inc. (CT)
743.4
4
Marshall & Ilsley Corporation (WI)
Mississippi Valley Bancshares, Inc. (MO)
510.0
5
Royal Bank of Scotland Group, Plc (U.K.) Commonwealth Bancorp Inc. (PA)
498.1
6
Royal Bank of Scotland Group, Plc (U.K.) Medford Bancorp Inc. (MA)
281.9
7
BB&T Corporation (NC)
Regional Financial Corporation (FL)
274.6
8
Umpqua Holdings Corp. (OR)
Centennial Bancorp (OR)
221.1
9
Fifth Third Bancorp (OH)
Franklin Financial Corporation (TN)
218.7
Rank
2,880.0
10
Rabobank Group (Netherlands)
VIB Corp. (CA)
212.7
Deals where the entire operation of the bank or thrift is acquired by the buyer, including all property, assets and charters. At least one
of the companies that is involved is a U.S.-domiciled company. List does not include terminated deals.
2
At announcement.
1
BANK PURCHASES OF INSURANCE AGENCIES,
1999 - 2002 1
•
1999
2000
2001
2002
66
77
63
74
$141.9
$393.4
$124.6
percent from
Deal value ($ millions)
$121.7
1
List does not include terminated deals.
2
At announcement.
2001, but the
In 2002, the
number of
bank/agency deals
increased by 17
Number of deals
2
value of those
deals decreased
68 percent.
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BANKING
ALL SECTORS
PROFITABILITY
In their efforts to maximize profits, commercial banks and other depository institutions
must balance credit quality and future economic conditions with liquidity needs and regulatory mandates.
PROFITABILITY OF SAVINGS AND COMMERCIAL BANKS AND CREDIT UNIONS, 1998-2002
Year
Savings banks
Return on equity
Commercial banks
Return on average assets
Credit unions
1998
11.40%
13.93%
0.95%
1999
12.20
15.31
0.94
2000
11.60
14.02
1.02
2001
13.10
13.09
0.96
2002
12.36
14.53
1.08
Source: Office of Thrift Supervision; Federal Deposit Insurance Corporation; National Credit Union Administration.
NET INCOME OF SAVINGS INSTITUTIONS, COMMERCIAL BANKS AND
CREDIT UNIONS, 1993-2002
($ millions)
•
Commercial banks saw
their net income grow
22.3 percent in 2002,
compared with 2001.
Net income increased
14.2 percent for savings
institutions and 19.9
percent for credit
unions.
1
FDIC-insured.
Federally insured state-chartered credit unions.
2
Source: Federal Deposit Insurance Corporation; National Credit Union Administration.
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Page 78
BANKING
ALL SECTORS
ASSETS
Although assets of credit unions are very small in relation to those of commercial banks,
they are growing faster.
FINANCIAL ASSETS OF BANKING INSTITUTIONS, 1980-2002
•
Assets of credit unions
Commercial
banking
Year
Savings
institutions
Credit
unions
grew 27.2 percent
1980
$1,482
$792
$68
from 2000 to 2002,
1990
3,338
1,323
217
faster than commercial
1998
5,629
1,089
392
banks at 13.5 percent
1999
5,983
1,151
415
2000
6,469
1,218
441
2001
6,829
1,299
506
2002
7,343
1,357
561
and savings banks at
11.4 percent.
CREDIT MARKETS
Until about 1950, commercial banks dominated the credit market. Commercial banks’ credit
market share continues to decrease, falling from 16.1 percent in 1998 to 15.8 percent in 2002.
While depository institutions continue to be the leading holders of credit assets, asset shares
of federal mortgage pools, government-sponsored corporations and ABS issuers have risen.
CREDIT MARKET ASSET HOLDINGS, 1998-20021
1998
1999
Total credit market
assets held
$23,433.8
By financial sectors:
17,624.1
Monetary authority
452.5
U.S.-chartered
commercial banks
3,761.4
Foreign banking offices
in the U.S.
504.5
Bank holding companies
26.5
Banks in U.S.-affiliated areas
43.8
964.7
Credit unions
324.2
and estates
194.1
$25,598.4
19,385.4
478.1
2000
2001
$27,344.4 $29,397.8
20,996.4
22,750.9
511.8
551.7
2002
$31,725.2
24,561.6
629.4
Percent of
2002 total
100.0%
77.4
2.0
4,080.0
4,419.5
4,610.1
5,003.9
15.8
487.4
32.7
48.3
1,032.4
351.7
511.3
20.5
55.0
1,088.6
379.7
510.7
24.7
65.0
1,131.4
421.2
516.9
27.8
71.6
1,166.8
463.9
1.6
0.1
0.2
3.7
1.5
222.0
222.8
194.7
195.6
0.6
(table continues)
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Page 79
BANKING
ALL SECTORS
CREDIT MARKET ASSET HOLDINGS, 1998-20021 (Cont’d)
1998
1999
$1,828.0
Nonlife insurance companies
521.1
651.2
Public pension funds
704.6
Money market mutual funds
965.9
Mutual funds
1,028.4
Closed-end funds
98.4
Exchange-traded funds
0.0
corporations
1,252.3
Federal mortgage pools
2,018.4
ABS issuers
1,219.4
Finance companies
645.5
Mortgage companies
32.1
Real Estate Investment Trusts
45.5
Brokers and dealers
189.4
152.3
By the federal government
219.0
By others, domestic
3,312.6
By others, foreign
2,278.2
1
Excluding corporate equities and mutual fund shares.
2000
2001
2002
$1,886.0
518.2
668.2
751.4
1,147.8
1,076.8
106.9
0.0
$1,943.9
509.4
701.6
806.0
1,290.9
1,097.8
100.6
0.0
$2,074.8
518.4
717.9
788.4
1,536.9
1,223.8
107.4
0.0
$2,286.5
554.1
755.4
804.9
1,511.6
1,365.4
116.7
3.7
1,543.5
2,292.2
1,413.6
742.5
32.1
42.9
154.7
276.0
258.0
3,600.5
2,354.6
1,807.1
2,491.6
1,585.4
850.5
32.1
35.8
223.6
311.0
265.3
3,461.6
2,621.1
2,114.3
2,830.1
1,877.3
844.8
32.1
42.5
316.0
216.7
271.3
3,421.2
2,954.4
2,320.9
3,158.2
2,128.9
862.0
32.1
65.6
344.4
175.1
280.1
3,535.9
3,347.6
Percent of
2002 total
7.2%
1.7
2.4
2.5
4.8
4.3
0.4
0.0
7.3
10.0
6.7
2.7
0.1
0.2
1.1
0.6
0.9
11.1
10.6
COMMUNITY DEVELOPMENT LENDING, 2002 1
($000)
Number
of loans
Asset size of lender
($ millions)
Total
Percent
Amount of loans
($000)
Total
$138,430
Percent
0.5%
Lending by
affiliates
Number Percent
95
Community
development loans
Number
Percent
extending
extending
Less than $100
111
0.4%
4.8%
27
2.2%
$100 to $249
571
1.9
233,928
0.8
165
8.3
70
5.6
$250 to $999
8,718
28.5
3,747,971
13.5
1,218
61.3
723
58.4
$1,000 or more
21,154
69.2
23,689,850
85.2
508
25.6
419
33.8
Total
30,554
100.0
27,810,179
100.0
1,986 100.0
1,239
100.0
Lending by all
affiliates
396
1.3
913,524
3.3
30
2.4
1
As per the Community Reinvestment Act (CRA), enacted in 1977 to encourage banks to help meet the needs of the communities in
which they operate, including low and moderate income neighborhoods.
Source: Federal Financial Institutions Examination Council.
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Page 80
BANKING
ALL SECTORS
EMPLOYMENT
EMPLOYMENT IN THE BANKING INDUSTRY, 1993-2002
(000)
•
Year
Commercial
banks
Savings
banks
Credit
unions
Total
1993
1,308.7
295.1
156.6
1,760.4
unions rose 3.1 per -
1994
1,297.4
277.7
161.7
1,736.8
cent from 2001. Over
1995
1,281.7
251.5
167.1
1,700.3
the same period ther e
1996
1,275.1
242.6
173.7
1,691.4
was a 2.1 percent rise
1997
1,277.9
237.3
181.3
1,696.5
1998
1,286.0
234.6
188.3
1,708.9
1999
1,281.2
232.6
196.0
1,709.8
2000
1,250.5
229.2
201.5
1,681.2
2001
1,258.4
233.6
209.2
1,701.2
2002
1,284.7
237.9
215.6
1,738.2
In 2002, the number of
employees in credit
in employees in com mercial banks and a
1.8 percent increase in
employees in savings
institutions.
BANK BRANCHES
Consolidation in commercial banking has substantially reduced the number of these institutions, but has not reduced consumers’ access to their deposits as the number of commercial bank branches and ATMs continues to grow. However, there are fewer savings institutions than in 1990, both in terms of banks and branches. In addition, since 1990, the number of credit unions has dropped by 5 percent.
BANKING OFFICES BY TYPE OF BANK, 1990-2002
1990
1998
1999
2000
2001
2002
All banking offices
96,951
97,367
98,442
97,745
98,593
98,339
Commercial banks
62,346
70,150
71,664
71,784
73,027
73,454
Number of banks
12,329
8,756
8,563
8,297
8,062
7,870
Number of branches
50,017
61,394
63,101
63,487
64,965
65,584
24,445
16,222
16,150
15,645
15,582
15,197
Number of banks
Number of branches
Credit unions
2,815
1,690
1,642
1,589
1,534
1,467
21,630
14,532
14,508
14,056
14,048
13,730
10,160
10,995
10,628
10,316
9,984
9,688
Source: Federal Deposit Insurance Corporation; National Credit Union Administration.
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Page 81
BANKING
ALL SECTORS/CONVERGENCE
ASSETS OF FOREIGN BANKING OFFICES IN THE UNITED STATES, 1998-2002 1
1998
$806.5
Reserves at Federal Reserve
1999
2000
2001
2002
$750.9
$789.4
$791.9
$801.1
1.0
1.4
0.5
0.6
1.2
Total bank credit
568.7
543.0
610.2
603.0
615.0
152.2
166.9
166.7
154.5
178.3
Treasury
84.8
94.5
94.0
103.8
116.7
Agency
67.4
72.4
72.7
50.7
61.6
46.9
42.4
50.7
81.3
81.6
369.6
333.8
392.8
367.2
355.2
0.3
0.6
0.6
0.0
0.0
Total loans
Open market paper
Other bank loans
282.4
260.0
274.6
256.1
237.5
Mortgages
20.4
15.9
17.1
17.9
19.0
Security credit
66.5
57.2
100.5
93.3
98.7
2.2
1.6
1.6
1.0
0.6
234.5
204.9
177.1
187.2
1
Branches and agencies of foreign banks, Edge Act and Agreement corporations and American Express Bank.
184.2
Customers’ liability on acceptances
CONVERGENCE
BANK SALES OF LIFE INSURANCE: NEW (FIRST YEAR) PREMIUM,
1999 - 2002
($ millions)
•
Bank life insurance sales
1999
$225
2000
345
2001
452
the previous year, and by
2002
642
31 percent in 2001,
increased by 42 percent
in 2002, compared with
compared with 2000.
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Page 82
BANKING
CONVERGENCE
BANK SALES OF INSURANCE AND MUTUAL FUNDS
Financial services firms are increasingly selling products traditionally associated with other
financial services sectors. This trend is most visible in the banking industry.
TOP TEN THRIFTS, ANNUITY SALES, 20021
Rank
1
Annuity sales
($ millions)
Thrift
Washington Mutual Bank
2
$3,177.5
2
Citibank (West), FSB
3
Sovereign Bank
449.5
4
Guaranty Bank
427.9
5
Greenpoint Bank
423.8
6
Astoria FS & LA
305.9
7
World Savings Bank, FSB
258.6
8
Commercial FB, FSB
196.9
9
Webster Bank
174.2
10
Citibank, FSB
Ranked by annuity sales. 2Formerly California Federal Bank in 2001.
875.2
152.7
1
Source: Singer’s Bank Investment and Insurance Data, www.singerpubs.com.
TOP TEN BANKS AND THRIFTS, INCOME FROM MUTUAL FUND AND ANNUITY SALES, 2002
Rank
Income from mutual funds and annuities1
($ millions)
Bank
1
Bank of America NA
2
Mellon Bank NA
$686.0
629.4
3
Wachovia Bank NA
590.0
4
PNC Bank NA
526.0
5
Fleet NA Bank
405.0
6
JPMorgan Chase Bank
334.0
7
Washington Mutual Bank, FA
210.5
8
Bank of New York
207.4
9
Citibank NA
155.0
10
Suntrust Bank
126.6
1
Ranked by income from the sale and servicing of mutual funds and annuities. This is primarily gross commissions, but it may also
include investment advisory fees.
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Page 83
BANKING
CONVERGENCE
BANK SALES OF RETAIL MUTUAL FUNDS, 1997-2002
($ billions)
•
Bank sales of retail
mutual funds were up
7.8 percent from 2001
to 2002.
BANK INSURANCE PREMIUMS, BY TYPE
OF COVERAGE, 2002 1
•
In 2002, bank insurance
premiums increased by
($ billions)
26 percent to an esti mated $69.5 billion from
$55.2 billion the previ ous year, according to a
survey conducted by the
American Bankers
Insurance Association.
•
IIn 2002, sales of credit
coverages dropped to 4
percent of bank premi ums, down from 10 per cent in 1997.
1
Total estimated at $69.5 billion.
Commercial property/casualty and group benefits premium.
2
Source: American Bankers Insurance Association.
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Page 84
BANKING
CONVERGENCE
Commercial lines premiums have increased from 10 percent of total bank insurance premiums in 1997 to about 16 percent in 2002.
ESTIMATED BANK-PRODUCED PREMIUMS, 1997-2002
($ billions)
1997
1998
1999
2000
2001
2002
Percent
change,
1997-2002
$18.8
$19.6
$24.2
$31.0
$37.1
$47.7
153.7%
2.8
4.0
4.4
5.4
8.9
11.5
310.7
Personal property/casualty
2.0
2.9
3.1
3.7
4.1
5.0
150.0
Credit coverages
2.8
2.9
2.9
2.7
2.8
2.5
-10.7
Individual life/health
1.3
1.5
1.8
2.1
2.3
2.8
115.4
$27.7
$30.9
$36.4
$44.9
$55.2
$69.5
150.9
Annuities
Commercial lines
1
Total
Annual growth
NA
11.6%
1
Includes commercial property/casualty and group benefits premium.
17.8%
23.4%
22.9%
26.0%
NA
NA=Not applicable.
BANK INSURANCE DISTRIBUTION CHANNELS
PRIMARY BANK DISTRIBUTION CHANNELS, 2002
(Percent)
Property/casualty
Personal
Commercial
Acquired agency
De novo
1
Individual
Life/health
Group benefits
65.1%
65.7%
33.8%
57.9%
19.3
14.8
24.5
17.9
Joint venture2
9.2
11.1
11.9
12.6
Third-party marketer
2.8
4.6
9.3
6.3
3.7
20.5
5.3
Carrier direct
3.7
1
Agency originated by the bank without acquisition of a platform agency.
2
Joint venture or marketing alliance with an insurance agency.
.
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Page 85
BANKING
CONVERGENCE
TOP TEN FINANCIAL HOLDING COMPANIES
WITH SECURITIES SUBSIDIARIES, 2002 1
Rank
Company
•
Assets
Under Gramm-Leach-Bliley ,
FHCs may engage in secu -
1
Citigroup Inc.
$1,097,190
2
J.P. Morgan Chase & Co.
758,800
ing, and market-making
3
Bank Of America Corporation
660,458
activities, as well as oth -
4
Wells Fargo & Company
349,259
ers of a financial natur e
5
Wachovia Corporation
341,839
6
Bank One Corporation
277,383
7
Taunus Corporation2
209,578
8
Fleetboston Financial Corporation
190,589
9
U.S. Bancorp
180,027
rities underwriting, deal -
as long as they do not
pose a substantial risk to
the safety and soundness
of the institution.
•
The average asset size of
financial holding compa -
10
ABN AMRO North America Holding Company
139,605
1
Ranked by assets.
2
Taunus’ Deutsche Bank division is an FHC.
Source: Board of Governors of the Federal Reserve System; Federal Financial Institutions
Examination Council.
nies (FHCs) as of March
2003 was $11.1 billion,
according to the Financial
Market Center .
•
FHCs accounted for 19
percent of all U.S. finan -
TOP TEN FINANCIAL HOLDING COMPANIES, INCOME FROM
MUTUAL FUND AND ANNUITY SALES, 2002
cial sector assets as of
March 2003, according to
($ millions)
the Financial Market
Rank
Bank holding company
Income from mutual
funds and annuities 1
1
Citigroup Inc.
2
Franklin Resources, Inc.
1,706.6
3
Wachovia Corp.
1,373.0
4
Charles Schwab Corp.
1,088.6
5
Metlife, Inc.
1,004.0
6
Mellon Financial Corp.
743.7
7
PNC Financial Services
735.7
8
FleetBoston Financial
701.0
9
686.0
Center.
$2,185.0
10
U.S. Bancorp
428.9
Ranked by income from the sale and servicing of mutual funds and annuities. This is primarily
gross commissions, but it may also include investment advisory fees.
1
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Page 86
BANKING
COMMERCIAL BANKS
COMMERCIAL BANKS
Commercial banks vary greatly in size from the “money center” banks located in the
nation’s financial centers that offer a broad array of traditional and nontraditional banking
services, including international lending, to the smaller regional and local community
banks engaged in more typical banking activities, such as consumer and business lending.
Commercial banks’ revenue stream comes from many sources including check writing, and
trust account management fees, investments, loans and mortgages. Some banks are beginning to receive revenue from consumers’ use of Internet banking services.
The number of small commercial banks continues to drop while the number of larger
banks grows. There were 318 fewer commercial banks with assets of less than $100 million
in 2002 than in the previous year, but 120 more in the $100 million to $1 billion asset size,
and five more in the $1 billion or more category.
ASSETS AND LIABILITIES
A bank’s assets and liabilities are managed to maximize revenues and maintain liquidity.
The lending business’s susceptibility to changes in interest rates, domestic and international
economies, and credit quality can make revenue streams unpredictable. Banks hold substantial amounts of U.S. Treasury and government agency obligations, which are highly liquid, although the asset mix does include equity as well as other asset classes.
ASSETS OF FDIC-INSURED COMMERCIAL BANKS, 2002
1
Includes assets held in trading accounts, bank premises and fixed assets, other real estate owned, intangible assets, and all other
assets.
Source: Federal Deposit Insurance Corporation.
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Page 87
BANKING
COMMERCIAL BANKS
ASSETS AND LIABILITIES OF FDIC-INSURED COMMERCIAL BANKS
GROUPED BY ASSET SIZE, 2002
Total
commercial
banks
Number of institutions
Total assets
7,887
$7,075,212
Less than
$100
million
4,168
$211,267
By asset size
$100
million to
$1 billion
$1 billion
or more
3,314
$869,517
405
$5,994,429
Foreign
offices
132
$752,618
Cash and funds due from
depository institutions
383,876
12,675
40,715
330,487
93,625
Noninterest-bearing
264,796
8,968
32,195
223,632
NA
Interest-bearing
119,081
3,706
8,520
106,855
NA
Securities
1,333,888
50,647
200,109
1,083,132
NA
Federal funds sold and re-repos1
312,066
11,513
30,319
270,234
NA
Loans and leases, net
4,083,045
127,081
555,470
3,400,493
NA
Plus: allowance for losses
and allocated transfer
risk reserve
76,957
1,871
8,296
66,790
NA
Loans and leases, total
4,160,001
128,952
563,766
3,467,283
288,857
Assets held in trading accounts2
396,879
1
118
396,760
105,133
Bank premises and fixed assets
79,235
3,884
15,528
59,823
NA
Other real estate owned
4,444
336
1,219
2,889
NA
Intangible assets
124,830
580
5,046
119,203
NA
All other assets
356,948
4,550
20,991
331,408
NA
Total liabilities, limited-life
prefer red stock, and
equity capital
$7,075,212
$211,267
$869,517 $5,994,429
NA
Total liabilities
6,427,288
187,759
783,565
5,455,964 $876,987
Deposits, total
4,689,519
178,302
707,074
3,804,143
658,033
Noninterest-bearing
936,556
27,423
110,097
799,036
33,320
Interest-bearing
3,752,963
150,879
596,977
3,005,107
624,713
Federal funds purchased and repos3
571,296
1,635
20,822
548,839
NA
Trading liabilities
243,977
0
1
243,976
NA
Other borrowed money
598,231
6,233
46,377
545,622
33,068
Subordinated notes and debentures
94,734
14
514
94,206
NA
All other liabilities
229,531
1,576
8,777
219,178
NA
Total equity capital
$647,924
$23,507
$85,951
$538,465
NA
Perpetual preferred stock
6,002
29
183
5,790
NA
Common stock
30,142
3,289
7,365
19,488
NA
Surplus
320,189
9,243
33,208
277,738
NA
Undivided profits
291,592
10,946
45,196
235,449
NA
1
Re-repos are security resale agreements, reverse repos. 2The foreign office component of “assets held in trading accounts” is only
available for institutions with $1 billion or more in total assets or $2 billion or more in off-balance sheet contracts. 3Repos are repurchase agreements. NA=Data not available.
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Page 88
BANKING
COMMERCIAL BANKS
DEPOSITS
In the depository process, banks pay interest to depositors and gain income by lending and
investing deposits at higher rates. Banks must balance the generation of revenue from these
deposits with the maintenance of liquidity, according to FDIC guidelines. These guidelines
have a similar impact on the banking industry that statutory accounting practices have on
the insurance industry — to promote solvency, see page 42.
DEPOSITS, INCOME AND EXPENSES OF FDIC-INSURED COMMERCIAL BANKS, 1998-2002
Number of institutions
1998
1999
2000
2001
8,756
8,562
8,298
8,062
7,871
$3,704,684 $3,951,529
8,513
12,281
160,216
172,282
275,611
207,226
$4,186,738
30,0744
196,841
237,574
Total deposits (domestic
and foreign) individuals,
partnerships, corps.
$3,257,578
U.S. government
7,182
States and political subdivisions
136,715
All other
253,576
Total domestic and
foreign deposits
3,655,051
Interest-bearing
2,940,157
Noninterest-bearing
714,893
Domestic office deposits
Demand deposits
582,632
Savings deposits
1,341,997
Time deposits
1,158,565
Total domestic deposits
3,083,194
Transaction
746,442
Nontransaction
2,336,752
Income and expenses
Total interest income
359,588
Total interest expense
177,972
Net interest income
181,616
Total noninterest
income (fees, etc.)
123,405
Total noninterest expense
193,157
Provision for loan and lease losses
22,114
Pretax net operating income
89,750
Securities gains (losses)
3,091
Income taxes
31,905
Net extraordinary items
507
Net income
61,443
$3,389,920
7,486
150,539
255,5573
3,803,501
3,104,980
698,521
4,149,024
3,397,412
751,613
4,343,318
3,476,424
866,894
4,651,228
3,719,342
931,886
523,089
1,413,398
1,211,639
3,148,126
679,575
2,468,551
526,612
1,559,684
1,356,315
3,442,611
672,062
2,770,549
570,692
1,870,009
1,273,363
3,714,064
737,699
2,976,365
525,802
2,197,498
1,270,357
3,993,657
701,299
3,292,358
363,981
173,471
190,510
424,448
222,182
202,266
398,737
185,706
213,031
353,947
119,127
234,820
143,994
203,056
21,5801
109,868
175
39,224
169
70,988
152,724
214,923
29,734
110,332
-2,278
37,736
-32
70,286
157,021
221,406
43,020
105,625
4,437
36,571
-240
73,252
171,479
231,686
47,846
126,767
6,396
43,909
-70
89,184
2002
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Page 89
BANKING
COMMERCIAL BANKS
INVESTMENT MIX
SECURITIES OF FDIC-INSURED COMMERCIAL BANKS, 2002
Total
commercial
banks
Less than
$100
million
By asset size 1
$100
million to
$1 billion
Securities (debt and equity)
$1,333,888
Securities held-to-maturity
(amortized cost)
97,491
Securities available-for-sale (fair value)
1,236,397
By security type: 2
U.S. Treasury securities and U.S.
agency and corporation obligations
909,769
U.S. Treasury securities
63,898
U.S. government agency and
corporation obligations
845,871
Securities issued by states and
political subdivisions
102,590
Other domestic debt securities 3
129,956
Foreign debt securities 3
64,364
Equity securities
22,538
$50,647
$200,109
$1,083,132
9,132
41,515
29,049
171,060
59,310
1,023,822
38,519
2,537
144,973
8,783
726,277
52,578
35,981
136,190
673,699
9,344
2,246
4
471
36,979
13,171
249
3,764
56,267
114,540
64,111
18,303
$1 billion
or more
Other items: 2
Pledged securities
677,522
17,957
84,682
574,883
Mortgage-backed securities
702,134
13,041
73,214
615,879
Certificates of participation in
pools of residential mortgages
458,010
9,444
46,180
402,386
Issued or guaranteed by the U.S.
448,512
9,424
45,995
393,093
Privately issued
9,497
19
185
9,293
Collateralized mortgage obligations
163,234
3,396
23,962
135,876
Issued by FNMA or FHLMC
(includes REMICs)
357,325
7,005
34,403
315,917
Privately issued
91,188
2,420
11,592
77,176
1
Grouped by asset size and insurance fund membership.
2
Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value.
3
Institutions with less than $100 million in total assets include “foreign debt securities” in “other domestic debt securities.”
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Page 90
BANKING
COMMERCIAL BANKS
CONCENTRATION
As a result of consolidation over the past two decades, small banks are dropping in number
and in percentage of assets and deposits held. A large share of the nation’s banking business is held by a relatively small number of big banks.
COMMERCIAL BANKS’ CONCENTRATION, NUMBERS AND ASSETS, 1997 AND 2002
By asset size
Less than Percent
$100
Percent $1 billion
$100
of
million to
of
to $10
million
total
$1 billion
total
billion
1997
Number of banks
Total assets
Total deposits
Return on assets
Return on equity
2002
Number of banks
Total assets
Total deposits
Return on assets
Return on equity
NA=Not applicable.
Percent
More
of
than
total
$10 billion
Percent
of
total
Total
banks
5,853
$267.8
230.4
1.18
10.91
64.0% 2,922
5.3
$727.7
6.7
602.1
NA
1.34
NA
13.98
32.0%
301
14.5
$902.6
17.6
624.6
NA
1.36
NA
14.92
3.3%
66
18.0
$3,116.7
18.3
1,964.6
NA
1.18
NA
15.30
0.7% 9,142
62.1 $5,014.8
57.4
3,421.7
NA
1.23
NA
14.70
4,168
$211.3
178.3
1.02
9.08
52.8
3.0
3.8
NA
NA
42.0
12.3
15.1
NA
NA
4.1
13.2
13.6
NA
NA
1.0
71.5
67.5
NA
NA
3,314
$869.5
707.1
1.33
12.85
325
$936.7
639.6
1.53
14.88
80
$5,057.7
3,164.5
1.32
15.06
7,887
$7,075.2
4,689.5
1.33
14.53
TOP TEN U.S. COMMERCIAL BANKS, BY REVENUES, 20021
($ millions)
Rank
Company
Revenues
1
Citigroup
$100,789
2
45,732
3
J.P. Morgan Chase
43,372
4
Wells Fargo
28,473
5
Wachovia Corp.
23,591
6
Bank One Corp.
22,171
7
FleetBoston
15,868
8
U.S. Bancorp
15,422
9
MBNA
10,431
10
Ranked by revenues.
National City Corp.
1
Source: Fortune.
8,728
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BANKING
COMMERCIAL BANKS
TOP TEN U.S. COMMERCIAL BANKS, BY ASSETS, 20021
($ millions)
Rank
Company
Assets
1
The Chase Manhattan Bank
2
Bank of America, NA
565,382
3
Citibank, N.A.
498,676
4
First Union National Bank
318,870
5
Bank One, NA
217,537
6
Wells Fargo Bank, NA
183,712
7
Fleet National Bank
179,362
8
Firstar Bank, NA
176,050
9
Suntrust Bank
115,149
10
Ranked by assets.
$622,388
HSBC Bank USA
86,416
1
TOP TEN U.S. BANK HOLDING COMPANIES, 20021
($ millions)
Rank
Company
Assets
1
Citigroup Inc.
2
758,800
3
Bank of America Corporation
660,458
4
349,259
5
341,839
6
Bank One Corporation
277,383
7
Taunus Corporation
209,578
8
FleetBoston Financial Corporation
190,589
9
U.S. Bancorp
180,027
ABN AMRO North America Holding Company
139,605
10
1
Ranked by assets.
$1,097,190
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Page 92
BANKING
THRIFT INSTITUTIONS
THRIFT INSTITUTIONS
Savings and loan associations and savings banks fall into the category of thrift institutions.
Thrifts were originally established to promote personal savings through savings accounts
and homeownership through mortgage lending, but now provide a range of services similar
to many commercial banks. Savings banks tend to be small and are located mostly in the
northeastern states.
Like other banking institutions with a significant portion of mortgages on their books,
thrifts may belong to the Federal Home Loan (FHL) Bank System. In exchange for holding a
certain percentage of their assets in mortgage-backed securities and residential mortgages,
these financial institutions may borrow funds from the FHL Bank System at favorable rates.
Thrifts are declining in number. At their peak in the late 1960s, there were more than
4,800. But a combination of factors has reduced their ranks significantly. These include
sharp increases in interest rates in the late 1970s, which immediately raised the cost of
funds without a similar rise in earnings from thrifts’ principal assets, long-term fixed rate
mortgages. In addition, the recession of the early 1980s increased loan defaults. By yearend 2002, due mostly to acquisitions by or conversions to commercial banks or state-chartered savings banks, the number of thrifts had fallen to 974.
SELECTED INDICATORS, FDIC-INSURED SAVINGS INSTITUTIONS, 1998-2002
1998
Return on assets (%)
1.01%
1999
1.00%
2000
0.92%
2001
1.07%
2002
1.16%
Return on equity (%)
Core capital (leverage) ratio (%)
11.35
7.85
11.73
7.86
11.14
7.80
12.33
7.77
12.36
8.05
Noncurrent assets plus other
real estate owned to assets (%)
0.72
0.58
0.56
0.65
0.69
Net charge-offs to loans (%)
0.22
0.17
0.20
0.28
0.29
Asset growth rate (%)
6.06
5.52
5.99
8.17
3.24
Net interest margin (%)
3.10
3.10
2.96
3.20
3.35
Net operating income growth (%)
7.71
16.62
3.05
6.65
5.46
1,690
1,642
1,589
1,534
1,467
Number of institutions reporting
Percentage of unprofitable
institutions (%)
5.27%
8.28%
8.56%
8.67%
6.68%
Number of problem institutions
15
13
18
19
17
Assets of problem institutions ($ billions)
$6
$6
$7
$4
$3
0
1
1
1
1
Number of failed/assisted institutions
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Page 93
BANKING
THRIFT INSTITUTIONS
OTS-REGULATED THRIFT INDUSTRY INCOME STATEMENT DETAIL, 1998-2002
1998
Interest income
1999
2000
2001
2002
$54,900
$57,006
$64,199
$65,233
$55,455
Interest expense
33,402
34,104
40,925
37,618
25,468
Net interest income befor e
provisions for losses
21,497
22,902
23,275
27,615
29,986
1,585
1,312
1,659
2,532
2,853
19,912
21,590
21,616
25,083
27,134
Provision for losses for
interest bearing assets 1
Net interest income after
provisions for losses
2
Non-interest income
9,897
9,063
10,023
13,137
14,122
Non-interest expense
18,210
17,706
19,238
22,591
22,999
Net income before taxes
and extraordinary items
11,599
12,947
12,400
15,629
18,256
3,940
4,729
4,382
5,696
6,431
-90
10
-4
269
4
7,569
8,228
8,014
10,202
11,829
5,671
4,836
4,131
4,823
6,644
1,898
3,392
3,883
5,379
5,184
8,059
8,508
8,560
10,826
12,560
Taxes
Other
3
Net income
Other items:
Preferred and common
stock cash dividends
Reinvested earnings
4
Net income of profitable thrifts
Net losses of unprofitable thrifts
-490
-280
-546
-611
-732
1
Loss provisions for non-interest-bearing assets are included in non-interest expense.
2
Net gain (loss) on sale of assets is reported in non-interest income.
3
Defined as extraordinary items, net of tax effect, and cumulative effect of changes in accounting principles. Extraordinary items are
material events and transactions that are unusual and infrequent.
4
Reinvested earnings is the portion of a corporation’s earnings distributed back into the business. It is calculated by subtracting preferred and common stock cash dividends from net income.
Source: U.S. Department of the Treasury, Office of Thrift Supervision.
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Page 94
BANKING
THRIFT INSTITUTIONS
BALANCE SHEET OF THE FEDERALLY-INSURED THRIFT INDUSTRY, 1998-2002
1998
1999
2000
2001
2002
1,687
1,640
1,590
1,532
1,467
Cash and invested securities
$92,300
$98,271
$97,724
$123,721
$129,654
Mortgage-backed securities
207,061
221,723
213,826
196,512
209,691
1-4 family loans
Number of thrifts
Assets
518,055
530,225
574,341
597,867
609,170
Multi-family development
54,469
55,591
56,797
58,990
62,267
Construction and land loans
23,370
29,073
34,832
38,397
37,448
Nonresidential loans
47,840
53,418
59,765
63,140
72,721
Consumer loans
52,581
62,099
65,286
69,421
68,805
Commercial loans
21,040
26,534
34,420
36,754
41,887
1,578
1,125
1,003
1,050
1,092
69,390
70,875
84,641
113,157
126,739
1,087,684
1,148,934
1,222,635
1,299,009
1,359,474
Deposits
704,531
707,097
738,234
797,822
879,134
FHLB advances
143,081
231,449
261,495
254,271
216,454
Other borrowings
127,306
95,770
98,250
111,140
103,835
18,339
19,659
21,098
26,158
31,372
993,257
1,053,975
1,119,077
1,189,391
1,230,795
Real estate owned
Other assets
Total assets
Liabilities and equity
Other liabilities
Total liabilities
Equity capital
Total liabilities and equity
94,427
94,959
103,558
109,618
128,679
1,087,684
1,148,934
1,222,635
1,299,009
1,359,474
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Page 95
BANKING
THRIFT INSTITUTIONS
INVESTMENT SECURITIES OF FDIC-INSURED SAVINGS INSTITUTIONS, 1993-2002
U.S.
Treasury
U.S. agencies
and corporations
U.S. Treasury,
agencies and
corporations
States
and political
subdivisions
Other debt
securities
1993
$26,456.4
$188,449.3
$214,905.8
$1,858.0
$50,378.4
1994
26,933.4
207,526.2
234,459.6
1,940.4
47,248.4
1995
18,409.4
213,365.2
231,774.6
1,947.1
47,418.3
1996
10,236.4
202,507.5
212,744.0
2,066.6
39,410.1
1997
6,933.8
199,772.4
206,706.2
2,095.9
31,430.9
1998
4,264.0
217,847.7
222,111.7
3,171.0
35,217.8
1999
2,997.8
232,787.7
235,785.5
3,599.2
42,954.2
2000
2,136.5
223,581.8
225,718.3
3,831.6
42,697.3
2001
3,260.0
231,187.8
234,447.8
4,486.6
45,500.3
2002
2,792.0
240,509.6
243,301.6
5,715.6
39,781.3
Year
Equity
securities
Less:
contra
accounts1
Less:
trading
accounts
1993
$7,956.6
$-1,116.5
$1,727.2
$274,488.0
$197,742.0
1994
6,413.0
-595.6
415.5
290,241.6
213,992.5
1995
7,469.9
-537.2
607.6
288,539.6
215,661.4
1996
8,647.9
-357.3
946.6
262,279.3
193,021.1
1997
9,380.7
27.1
914.6
248,672.0
180,645.4
1998
10,974.2
23.0
1,956.5
269,495.3
207,287.4
1999
10,077.8
1.2
1,028.1
291,387.4
221,713.2
2000
10,484.8
1.4
758.6
281,972.1
212,652.7
2001
10,169.2
1.7
1,816.7
292,785.5
203,372.0
Year
Total investment
securities2
2002
11,438.5
0.9
1,581.0
298,655.1
1
Balance in account that offsets another account. Reserves for loan losses, for example, offset the loan account.
2
Book value.
Memo:
mortgagebacked securities
209,676.2
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Page 96
BANKING
THRIFT INSTITUTIONS
THRIFT INDUSTRY MORTGAGE LENDING ACTIVITY, 1993-2002
($ millions)
Mortgage-backed
securities
outstanding
Mortgage
portfolio total
Mortgage portfolio
as a percent of
of total assets
Year
Mortgage
refinancing
Mortgage loans
outstanding
1993
$57,319
$446,670
$119,570
$566,240
1994
20,939
449,820
127,554
577,374
74.59
1995
12,808
446,930
125,457
572,388
74.24
1996
19,020
486,640
110,977
597,617
77.68
1997
19,512
483,288
103,815
587,103
75.60
1998
51,665
491,968
93,322
585,290
71.62
1999
41,983
506,963
94,759
601,722
69.69
2000
24,622
556,958
93,106
650,064
70.03
2001
125,889
578,974
92,360
671,333
68.66
2002
218,586
599,700
90,060
689,760
68.66
TOP SIX U.S. THRIFT COMPANIES, RANKED BY REVENUES, 2002
($ millions)
Rank
Company
Revenues
1
Washington Mutual
2
Golden West Financial
3,744
3
Sovereign Bancorp
2,492
4
Greenpoint Financial
1,768
5
Astoria Financial
1,374
6
Westcorp
1,233
Source: Fortune.
$19,037
73.08%
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Page 97
BANKING
THRIFT INSTITUTIONS
TOP TEN U.S. THRIFT COMPANIES, RANKED BY ASSETS, 20031
($ millions)
Rank
Assets1
Company
1
Washington Mutual, Inc.
$268,298
2
Golden West Financial Corporation
68,406
3
Sovereign Bancorp, Inc.
39,524
4
GreenPoint Financial Corporation
21,814
5
Astoria Financial Corporation
21,698
2,3
6
Guaranty Bank
17,471
7
Hudson City Bancorp, Inc. (MHC)
14,145
8
E*TRADE Bank 3,4
13,877
9
Webster Financial Corporation
13,468
10
Commercial Federal Corporation
13,081
As of February 11, 2003. Rankings account for all bank and thrift acquisitions that were announced or completed subsequent to the
buyer’s most recent financial reports and were valued in excess of $500 million at announcement. Combined asset and deposit values
are summations of the most recent figures reported by each merging company and assume no divestitures or accounting adjustments.
2
Subsidiary of Temple-Inland Inc. 3Assets as of September 30, 2002. 4Subsidiary of E-TRADE Group Inc.
1
MAJOR INSURERS THAT HAVE APPLIED FOR BANK CHARTERS,
JANUARY 1, 1997-AUGUST 29, 2003 1
Applicant
Bank entity
Allstate Insurance Co.
Allstate Federal Savings Bank
American Financial Group Inc.
Great American Savings Bank
American International Group Inc.
AIG FSB
AmerUs Group
AmerUs Home Equity Bank F.A.
CNA Financial Corp.
CNA Trust Corp.
Conseco Inc.
Conseco Bank FSB
First American Financial Corp.
First American Trust FSB
Guardian Life Insurance Co.
Guardian Trust Co. FSB
Hartford Group
The Hartford Bank
Massachusetts Mutual Life Insurance Co.
The MassMutual Trust Co.
Metropolitan Life Insurance Co.
Metlife Bank & Trust Co. FSB
MONY Group Inc.
Advest Bank & Trust Co.
(chart continues)
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Page 98
BANKING
THRIFT INSTITUTIONS/CREDIT UNIONS
MAJOR INSURERS THAT HAVE APPLIED FOR BANK CHARTERS,
JANUARY 1, 1997-AUGUST 29, 20031 (Cont’d)
Applicant
Bank entity
Nationwide Insurance
Nationwide Trust Co. FSB
New York Life Insurance Co.
New York Life Trust Co. FSB
Northwestern Mutual Life Insurance Co.
Northwestern Mutual Trust Co.
Phoenix Home Life Mutual Insurance Co.
New London Trust FSB
Principal Life Insurance Co.
Principal Bank
State Farm Mutual Auto Insurance Co.
State Farm Bank FSB
Teachers Insurance & Annuity Association
TIAA-CREF Trust Co. FSB
United Services Automobile Association
USAA Federal Savings Bank
1
Based on companies in the 2002 Fortune 500 that filed applications with the Office of Thrift Supervision between January 1997 and
September 2003.
Source: The Office of Thrift Supervision; Fortune.
CREDIT UNIONS
Credit unions, generally set up by groups of individuals with a common link, such as membership in a labor union, are not-for-profit financial cooperatives that offer personal loans
and other consumer banking services. Originating in Europe, the first credit union in this
country was formed in Manchester, New Hampshire in 1909. Credit unions now serve more
than 80 million people in the United States. New federal rules have made it easier for credit
unions to expand.
In 1934, President Roosevelt signed the Federal Credit Union Act into law, authorizing
the establishment of federally-chartered credit unions in all states. The purpose of the federal law was “to make more available to people of small means credit for provident [provisions for the future] purposes through a national system of cooperative credit...” In 1970,
the National Credit Union Administration, which charters and supervises credit unions,
was created along with the National Credit Union Share Insurance Fund, which insures
members’ deposits. Individual credit unions are served by 35 federally-insured corporate
credit unions, which provide investment, liquidity and payment services for their members.
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Page 99
BANKING
CREDIT UNIONS
FEDERAL CREDIT UNIONS AND FEDERALLY-INSURED STATE
CHARTERED CREDIT INSTITUTIONS, 1980-2002
(end of year)
1980
1990
1995
2000
2001
2002
12,440
8,511
7,329
6,336
6,118
5,953
4,910
239
4,349
164
4,358
22
3,980
29
3,866
22
3,735
15
Federal
24,519
36,241
42,163
43,883
43,817
44,611
State
Assets ($ millions)
12,338
19,454
24,927
33,705
35,532
36,336
$40,092
$130,073
$193,781
$242,881
20,870
68,133
112,861
195,363
$26,350
$83,029
$120,514
$163,851
14,852
44,102
71,606
137,485
$36,263
$117,892
$170,300
$210,188
State
18,469
Source: National Credit Union Administration.
62,082
99,838
169,053
Operating credit unions
Federal
State
Number of failed institutions
Members (000)
Federal
State
$270,125 $301,238
231,280
255,838
Loans ($ millions)
Federal
State
$170,326 $181,767
152,014
160,881
Savings ($ millions)
Federal
CREDIT UNION MEMBERS, 1980-2002
•
(000)
$235,202 $261,819
201,807
222,377
From 1980 to 2002, feder al and federally-insured
state credit union assets
grew from $61 billion to
$557 billion. In 2002,
assets increased $56 bil lion, or 11 percent, from
2001.
•
There are cur rently fewer
than 500 nonfederallyinsured state chartered
credit unions.
04.05fs.FINAL
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Page 100
BANKING
CREDIT UNIONS
ASSETS AND LIABILITIES OF CREDIT UNIONS, 1998-2002
1998
Federal funds and security repos
Open market paper
1999
2000
2001
2002
$391.5
$414.5
$441.1
$505.5
$560.8
9.1
26.4
26.7
36.8
38.4
23.4
16.6
15.5
23.0
24.5
6.8
9.3
4.0
2.5
1.7
324.2
351.7
379.7
421.2
463.9
0.4
1.9
1.2
2.4
3.6
71.5
70.9
69.2
88.0
105.1
Treasury
13.1
9.6
8.2
7.4
7.8
Agency
58.4
61.3
60.9
80.6
97.3
Home mortgages
96.9
111.0
124.9
141.3
159.4
155.4
167.9
184.4
189.6
195.7
Consumer credit
Mutual fund shares
3.6
2.5
2.2
3.7
3.5
24.3
8.0
12.9
18.3
28.7
Total liabilities
355.3
376.1
398.1
458.9
509.0
Shares/deposits
349.0
366.7
389.1
450.2
496.9
Checkable
43.0
45.4
51.3
54.7
59.7
287.5
299.8
312.7
361.3
394.4
18.5
21.6
25.1
34.1
42.8
Other loans and advances
1.1
3.4
3.4
4.9
6.9
5.2
6.0
5.6
3.8
5.1
Small time and savings
Large time
04.05fs.FINAL
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Page 101
BANKING
CREDIT UNIONS
CREDIT UNION DISTRIBUTION BY ASSET SIZE, 20021
Number of
credit unions
Percent change
from Dec. 2001
$0 - $.2
233
-12.7%
$29
-11.2%
$.2 - $.5
415
-10.9
144
-10.3
$.5 - $1
573
-13.1
420
-14.0
$1 - $2
808
-9.9
1,184
-10.4
$2 - $5
1,525
-8.0
5,113
-8.6
$5 - $10
1,578
-1.1
11,487
-0.3
$10 - $20
1,430
-1.4
20,479
-1.2
$20 - $50
1,599
-0.9
51,266
-1.3
$50 - $100
796
4.7
55,895
3.6
$100 - $200
504
6.1
70,063
4.6
$200 - $500
374
7.2
115,101
5.3
More than $500
206
24.8
243,507
26.4
10,041
-3.0
574,687
11.7
Asset size ($ millions)
Total
1
From Credit Union Call Reports.
Assets
($ millions)
Percent change
from Dec. 2001
TOP TEN U.S. CREDIT UNIONS, 20021
($ millions)
Rank
Company
Assets
1
Navy
2
State Employees’
9,789.7
3
Pentagon
5,175.3
4
Boeing Employees’
4,402.4
5
The Golden 1
4,275.1
6
United Airlines Employees’
4,138.2
7
Orange County Teachers
4,005.7
8
American Airlines
3,882.7
9
Suncoast Schools
3,529.0
Kinecta
2,996.8
10
1
Ranked by assets.
$17,573.4
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BANKING
INDUSTRIAL BANKS
INDUSTRIAL BANKS
Industrial banks, known originally as state-chartered loan companies, were formed in the
early part of the 20th century to make consumer loans and offer deposit accounts as part
of a move to secure credit for blue collar workers. Many later merged with commercial
banks and although 12 states still have industrial bank-charter options on their books,
most of the remaining industrial banks now exist in a few states, mainly in the west. Many
serve niche markets such as real estate lending and automobile loans. The banks are not
regulated by the Federal Reserve and may be owned by firms in other financial services
businesses such as banks, finance companies, credit card issuers, securities firms or by
nonfinancial businesses such as automakers and department stores. Legislation being
considered by Congress would greatly expand the powers of industrial banks.
TOP TEN FDIC-INSURED INDUSTRIAL BANKS, 20021
($000)
State
Total
assets
Salt Lake City
UT
$68,117,478
American Express Centurion Bank
Midvale
UT
18,758,816
3
Fremont Investment & Loan
Anaheim
CA
6,363,082
4
Morgan Stanley Bank
West Valley City
UT
4,243,920
5
USAA Savings Bank
Las Vegas
NV
3,917,904
6
Mill Creek Bank
Salt Lake City
UT
3,042,016
7
GE Capital Financial Inc.
Salt Lake City
UT
2,327,566
8
Providian Bank
Salt Lake City
UT
1,748,383
9
Imperial Capital Bank
La Jolla
CA
1,602,490
Salt Lake City
UT
1,094,686
Rank
Bank
City
1
Merrill Lynch Bank USA
2
10
BMW Bank of North America
Ranked by assets.
1
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Chapter 6: Securities
OVERVIEW
OVERVIEW
The securities industry consists of securities brokers and dealers, investment banks and
advisers, and stock exchanges. Together, these entities facilitate the flow of funds from
investors to companies and institutions seeking to finance expansions or other projects.
Firms that make up the securities sector may specialize in one segment of the business or
engage in a wide range of activities that includes brokerage, asset management and advisory services, as well as investment banking. As part of their asset management activities,
some firms sell their own and others’ annuities.
Investment banking involves the underwriting of new debt securities (bonds) and equity
securities (stocks) issued by private or government entities to finance new projects.
Investment banks buy the new issues and, acting essentially as wholesalers, sell them, primarily to institutional investors such as banks, mutual funds and pension funds. Investment
banks may also be called securities dealers or broker/dealers because many also participate
in the financial market as retailers, selling to individual investors. The primary difference
between a broker and dealer is that dealers buy and sell securities, whereas brokers act as
intermediaries for investors who wish to purchase or sell securities. Dealers make money by
selling at a slightly higher price than they paid. Like underwriters/wholesalers, they face the
risk that the securities in their inventory will drop in price before they can resell them.
REGULATION
The Securities and Exchange Commission (SEC), established by Congress in 1934, regulates the U.S. securities markets. Its mission is to protect
investors and maintain the markets’ integrity by enacting new regulations and interpreting
and enforcing existing laws.
A component of the Securities Act of 1933 is the requirement that publicly-held companies disclose their financial information to provide transparency, ensuring that potential
investors have access to key information needed for investment decisions. A new regulation
was passed in 2000 to give individual and institutional investors equal access to critical
investment information. A company must now make announcements about earnings and
other substantial market-moving news to both groups of investors, not just institutional
investors and stock market analysts.
The National Association of Securities Dealers: The National Association of Securities Dealers
(NASD) is a self-regulated body which was developed under the National Recovery Act of
1933. The NASD has created greater transparency in over-the-counter (OTC) markets by
automating and providing greater access to pricing and other key information with the
national electronic stock market quotation system (NASDAQ).
Securities and Exchange Commission:
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SECURITIES
OVERVIEW
MERGERS AND ACQUISITIONS
The value of the top ten mergers and acquisitions deals in the securities industry dropped by
$2.6 billion in 2002, compared with 2001. However, banks continued to target securities firms.
TOP TEN SECURITIES AND INVESTMENT FIRMS MERGERS AND ACQUISITIONS, 20021
Rank
Buyer
Industry
Target
Industry
Deal value 2
($ millions)
1
State Street Corp.
Bank
Global securities services
of Deutsche Bank AG
Investment
adviser
$1,499.4
2
Ameritrade Holding
Corp.
Broker/
dealer
Datek Online Holdings Corp.
Broker/
dealer
3
U.S. Bancorp
Bank
Corporate trust
business of State Street Corp.
Investment
adviser
725.0
4
Westpac Banking
Corp. Ltd.
Bank
Assets of BT Financial Group
Investment
adviser
570.4
5
Instinet Group Inc.
Broker/
dealer
Island ECN Inc.
Broker/
dealer
507.3
6
Deutsche Bank AG
Bank
RoPro U.S. Holding Inc.
Investment
adviser
490.0
7
Nationwide Mutual
Insurance Co.
Insurance
94% of Gartmor e
Global Invts. Inc.
Investment
adviser
352.2
8
E*TRADE Group Inc.
Broker/
dealer
Tradescape
subsidiaries
Broker/
dealer
280.0
9
Northern Trust Corp.
Bank
Passive equity/fixed income
business of Deutsche Bank AG
Investment
adviser
260.0
1,403.2
10
Fahnestock Viner
Broker/ US Oppenheimer private client/asset
Investment
240.1
Holdings Inc.
dealer
management divisions
adviser
1
At least one of the companies involved is a U.S.-domiciled company. List does not include terminated deals. 2 At announcement.
MERGERS AND ACQUISITIONS OF U.S. SECURITIES FIRMS,
1997-20021
•
Bank purchases of
securities firms
accounted for 38 per cent of security indus try mergers and acqui sitions from 1997 to
2002.
1
At least one of the companies involved is a U.S.-domiciled company. List does not include terminated deals. Source: SNL Financial LC.
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SECURITIES
OVERVIEW
PROFITABILITY
•
Securities industry profitability, at 8 percent in 2002, was at its
lowest since 1994.
According to the Securities
Industry Association, rev enues of the U.S. securities
industry dropped to $149
SECURITIES INDUSTRY PRETAX RETURN ON EQUITY,
1993-2002
billion in 2002, a 39.2 per cent decline from a recor d
high of $245 billion in
2000.
•
Pretax net income dropped
to $6.9 billion, down 67.1
percent from the record of
$21.0 billion set in 2000.
SECURITIES INDUSTRY PRETAX PROFITS, 1993-2002
($ billions)
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SECURITIES
OVERVIEW
BROKER/DEALERS
There are four categories of broker/dealers. The largest is the National Full Line (NFL),
which are full service broker/dealers with an extensive national and international branch
network system. NFL broker/dealers are also known as wirehouses, a term that harks back
to when only the largest firms had access to high speed communications. Primarily headquartered in New York City, they command the largest share of revenues and employees.
Many NFL firms have substantial investment banking operations.
Another category is regional brokers. Operating on a somewhat smaller scale than their
New York City counterparts, they offer a range of investment services based on their size
and business specialty. Because of their regional expertise, these brokers participate in
underwriting securities for businesses that are centered in their region.
The third category of broker/dealers, known as New York City-based, is made up mostly
of broker/dealer subsidiaries of U.S. and foreign banks and securities organizations, excluding those that fall into other listed categories. The last of the four groups is discounters.
Discounters are broker/dealers primarily engaged in the discount brokerage business.
SECURITIES INDUSTRY PRETAX RETURN ON EQUITY BY FIRM CATEGORY, 1993-2002
Year
National
Full Line
Large
investment
bank
Regional
1993
28.4%
23.8%
43.7%
1994
4.8
-7.2
21.7
-2.5
26.4
3.3
1995
20.3
11.5
33.8
17.3
38.5
20.9
1996
28.2
26.2
40.2
17.3
42.6
29.1
1997
32.8
23.4
32.8
12.8
37.4
27.9
1998
26.1
16.4
13.7
-1.0
29.7
17.9
1999
32.5
28.0
21.2
4.7
46.3
25.6
2000
32.9
24.6
24.9
10.7
48.6
26.5
2001
11.5
20.9
9.5
4.1
2.5
12.2
NYC-based
17.1%
Discounter
39.1%
Total
firms1
27.1%
2002
11.3
10.8
2.6
4.3
-0.9
8.0
Total firms, a proxy for total industry, consists of all New York Stock Exchange member broker/dealers doing public business.
Although small in number, this group accounts for between 60 percent and 80 percent of revenues, capital, assets, and other financial
parameters of all broker/dealers in the United States.
1
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SECURITIES
OVERVIEW
SECURITIES INDUSTRY INCOME STATEMENT, 20021
($ millions)
Revenue
Commissions
2002
$27,569.4
Listed equity on an exchange
16,705.8
Expenses
2002
Total compensation
$53,095.3
Registered representative compensation 21,210.6
Listed equity (OTC) 2
1,562.5
Clerical employee compensation
Listed options
1,332.3
Voting officer compensation
1,820.0
All other
7,968.8
Other employee compensation
(FOCUS IIA Only)
1,580.5
Trading gain (loss)
From OTC market making
From OTC market making in listed equity
From debt trading
From listed options market making
From all other trading
Investment account gain (loss)
13,650.4
1,179.0
11.6
14,193.3
-225.7
-1,496.2
174.2
28,484.2
Total floor costs
4,505.3
Floor brokerage paid to brokers
1,252.2
Commissions and clearance
paid to other brokers
1,955.1
Clearance paid to non-brokers
911.7
Commissions paid to
non-brokers (FOCUS IIA Only)
386.3
Realized gain
417.1
Communications expense
4,499.0
Unrealized gain
-218.6
Occupancy and equipment costs
6,444.6
Underwriting revenue
13,178.5
Promotional costs
1,849.1
3,226.5
Interest expense
Margin interest
5,992.2
Losses from error accounts and bad debts
Mutual fund sale revenue
5,882.5
Data processing costs
Fees, asset management
12,485.0
Equity underwriting revenue
Research revenue
Commodities revenue
Other revenue related to the
securities business
Other revenue
156.4
4,957.4
48,439.8
9,290.2
Total revenue
$148,674.2
1
New York Stock Exchange members doing a public business.
2
Over the counter equities not listed and traded on an organized
exchange.
905.7
Non-recurring charges
715.9
Other expenses
18,373.5
$141,755.3
Pre-tax net income
6,918.9
Federal income tax (tax benefit)
1,653.3
Income (loss) from unconsolidated
subsidiaries
1,093.5
Extraordinary gain (loss)
Cumulative effect of accounting changes
2,459.1
Regulatory fees and expenses
Total expenses
55,338.
468.0
Net income
-5.2
-1,914.2
$4,439.7
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SECURITIES
OVERVIEW
ASSETS AND LIABILITIES OF SECURITIES
BROKER/DEALERS, 1998-2002
1998
• Total assets of security
broker/dealers dropped
Checkable deposits
and currency
1999
2000
2001
2002
$921.2 $1,001.0 $1,221.4 $1,465.6 $1,335.4
25.4
28.7
30.3
47.1
44.2
189.4
154.7
223.6
316.0
344.4
26.0
39.2
48.2
43.5
8.9 percent in 2002, to
Credit market
instruments
$1.3 trillion, from $1.5
Open market paper
28.0
trillion in 2001.
U.S. government
securities
66.7
23.3
60.4
87.6
87.9
Treasury
15.8
-42.6
-3.3
9.8
-3.9
Agency
50.9
66.0
63.7
77.8
91.8
13.1
11.9
11.3
19.0
21.0
81.4
93.4
112.7
161.3
192.0
Corporate and foreign
bonds
Corporate equities
54.4
66.9
77.2
85.1
74.9
Security credit
152.8
227.9
235.1
196.4
148.2
499.3
522.8
655.1
821.0
723.7
Total liabilities
866.8
932.8
1,150.4
1,383.1
1,246.7
Security repos (net)
208.2
245.2
302.2
353.2
344.2
Corporate bonds
42.5
25.3
40.9
42.3
40.6
Trade payables
18.9
30.9
35.9
39.2
37.4
Security credit
419.5
448.7
587.6
629.5
590.6
Customer credit
balances
276.7
323.9
412.4
454.3
412.7
From banks
142.8
124.8
175.2
175.2
177.9
1.3
2.2
2.1
1.9
1.3
176.4
180.5
181.7
317.0
232.5
10.7
353.5
-187.8
10.9
415.5
-245.8
19.1
454.2
-291.6
14.5
501.1
-198.6
9.4
527.9
-304.8
Taxes payable
Misc. liabilities
Foreign direct
investment in U.S.
Due to affiliates
Other
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SECURITIES
OVERVIEW
SECURITIES INDUSTRY EMPLOYMENT, 1997-2002
(000)
1997
1998
1999
2000
2001
2002
Securities, commodity contracts,
investments (total industry)
636.1
692.2
737.3
804.5
830.5
800.8
Securities and commodity
contracts brokerages and
exchanges
460.2
495.5
519.4
565.7
576.9
538.7
284.2
306.2
321.5
350.1
355.1
328.6
Other financial investment activities
Securities brokerage
175.9
196.7
217.9
238.8
253.6
262.1
Miscellaneous intermediation
19.6
21.7
23.1
24.2
24.3
25.3
Portfolio management
66.8
75.2
83.1
91.4
97.1
98.7
Investment advice
51.8
58.0
65.6
72.4
79.1
86.5
All other financial investment activities 37.7
41.8
46.1
50.8
52.9
51.6
CONCENTRATION
As in the banking and insurance sectors, the largest companies are now increasing their
share of total revenue and capital, reversing a trend in the 1990s when second-tier companies were gaining at the expense of the top 10.
SECURITIES INDUSTRY CONCENTRATION BY TOTAL REVENUE, 1992, 1997 AND 20021
1
New York Stock Exchange member firms doing a public business.
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SECURITIES
OVERVIEW
SECURITIES INDUSTRY CONCENTRATION BY TOTAL CAPITAL, 1993-20021
($ billions)
Year
Top 10
Next 15
Rest of industry
Capital
1993
63.4%
18.0%
18.6%
$56.3
1994
60.9
18.7
20.4
56.8
1995
59.3
18.1
22.6
64.3
1996
58.5
18.8
22.7
70.7
1997
55.5
21.5
23.0
92.5
1998
57.1
21.8
21.1
105.7
1999
56.6
22.7
20.7
121.5
2000
53.8
23.1
23.2
141.5
2001
56.3
22.3
21.4
148.8
2002
59.6
22.4
1
New York Stock Exchange member firms doing a public business.
18.0
144.6
TOP TEN U.S. SECURITIES FIRMS, BY REVENUES, 2002
($ millions)
Rank
Company
Revenues
1
Morgan Stanley
$32,415
2
Merrill Lynch
28,253
-27.2
3
Goldman Sachs Group
22,854
-26.6
4
Lehman Brothers Hldgs.
16,781
-25.1
5
Bear Stearns
6,891
-20.8
6
Charles Schwab
4,480
-15.2
7
Franklin Resources
2,519
7.0
8
A.G. Edwards
2,364
-16.7
9
E*Trade Group
1,902
-7.8
Legg Mason
1,579
2.8
10
Source: Fortune.
Percent change from 2001
-25.9%
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SECURITIES
OVERVIEW/CAPITAL MARKETS
TOP TEN U.S. SECURITIES AND INVESTMENT COMPANIES, BY ASSETS, 2002
Rank
Company
Assets
1
Merrill Lynch & Co., Inc.
2
Morgan Stanley 1
$462,000
3
Alliance Capital Management L.P.
420,000
386,579
4
Goldman Sachs Group, Inc.
5
Citigroup Global Markets Holdings, Inc.
310,200
6
BlackRock, Inc.
272,841
7
Franklin Resources, Inc.
257,735
8
Federated Investors, Inc.
195,353
9
Legg Mason, Inc.
184,700
10
T. Rowe Price Group, Inc.
1
As of November 30, 2002.
1
348,000
140,600
Source: SNL Financial LC
CAPITAL MARKETS
INVESTMENT BANKING
Investment banks underwrite securities for the business community and offer investment
advice. The type of equity deals they bring to market reflects a variety of factors including
investor sentiment, the economy and market cycles. Examples of how these market factors
drive this segment of the securities business are the recent rise and retreat of technology
stocks; the varying levels of initial public offerings, where new stock issues are first offered
to the public; and fluctuations in merger and acquisition activity.
The largest U.S. investment banks are located in New York City. They have branch networks, principally in money market centers such as Chicago and San Francisco; participate
in both national and international markets; and serve mainly institutional investors.
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SECURITIES
CAPITAL MARKETS
CORPORATE UNDERWRITING, 1997-2002
($ billions)
Value of U.S. corporate underwritings
Year
Debt
Equity
Number of U.S. corporate underwritings
Total
Debt
Equity
Total
1997
$1,163.9
$153.4
$1,317.3
10,435
1,619
12,054
1998
1,715.6
152.7
1,868.3
12,322
1,200
13,522
1999
1,768.0
191.7
1,959.8
12,722
1,201
13,923
2000
1,646.6
204.5
1,851.0
11,980
961
12,941
2001
2,365.4
169.7
2,535.1
14,449
766
15,215
2002
2,427.2
154.0
2,581.1
9,841
731
10,572
EQUITY AND DEBT OUTSTANDING, 1993-2002
•
Year
Corporate
equities
Corporate
bonds
Total U.S.
government
securities
Municipal
bonds
1993
$6,296.9
$2,346.8
$5,216.9
$1,377.5
1994
6,318.2
2,504.0
5,665.0
1,341.7
1995
8,474.8
2,848.1
6,013.5
1,293.5
high of $19.5 trillion
1996
10,276.4
3,209.4
6,389.9
1,261.8
at the end of 1999.
1997
13,292.8
3,607.2
6,625.9
1,318.7
By contrast, from
1998
15,548.5
4,187.4
7,044.2
1,402.9
year-end 1999 to
1999
19,545.7
4,626.4
7,564.9
1,457.2
2000
17,606.5
5,022.9
7,702.6
1,480.9
2001
15,267.1
5,692.7
8,323.6
1,603.6
2002
11,833.9
6,220.6
9,135.2
1,770.6
Over the period 1993
to 1999, the value of
corporate equities
tripled, reaching a
year-end 2002, the
value of equities out standing dropped 39.5
percent.
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SECURITIES
CAPITAL MARKETS
MUNICIPAL BONDS
Municipal bonds represent a small part of all government debt, about 3 percent, and average daily trading volume runs between $8 billion and $10 billion. Nevertheless, the bonds
play a significant role in portfolios because their yield is tax-free.
The principal and interest on revenue bonds are paid out of revenues of the local government operation that issued the bonds, e.g., the municipal transportation authority. General
obligation bond principal and interest are backed by the “full faith and credit” of the local
government and paid for out of the municipality’s general revenues. The principal and
interest of many general obligation bonds are insured by companies specializing in insuring
municipal bonds.
Municipal bonds are usually sold in blocks to securities dealers, who either submit competitive bids for the bonds or negotiate a sale price. Negotiation is the prevailing form when
the issuer is new to the financial markets or when the issue is particularly complex.
Negotiation enables the underwriting dealer to become familiar with the issuer and the
bonds and to help the municipality structure a complex issue.
NUMBER AND VALUE OF LONG-TERM MUNICIPAL BOND
UNDERWRITINGS, 1992-2002 1
($ billions)
Revenue bonds
Year
Value
Number
General
obligation bonds
Value
Number
Total
municipal bonds
Value
Number
•
The rise or fall in the
number and value of
1992
$151.6
6,232
$81.5
6,159
$233.1
12,391
municipal bond issues
1993
195.6
6,633
92.3
7,030
287.9
13,663
each year is determined
1994
104.2
5,408
57.7
5,358
161.9
10,766
largely by prevailing inter -
1995
95.2
4,874
59.8
4,957
155.0
9,831
1996
115.7
5,272
64.5
5,538
180.2
10,810
1997
142.6
5,790
72.0
5,786
214.6
11,576
1998
187.0
7,150
92.8
7,251
279.8
14,401
1999
149.2
6,342
69.8
5,914
219.0
12,256
rose 6 percent from
2000
129.7
5,310
64.3
5,149
194.0
10,459
2001, while the value
2001
181.8
6,413
101.8
6,822
283.5
13,235
jumped by 25 percent.
2002
230.0
6,475
125.4
7,498
355.4
1
Excludes taxable municipal bonds and bonds with maturities under 13 months.
13,973
est rates. As rates fall,
the number and value of
municipal bond issues
tend to rise. In 2002, the
number of underwritings
Source: Thompson Financial Securities Data; Securities Industry Association.
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SECURITIES
CAPITAL MARKETS
PRIVATE PLACEMENTS
Investment banks may distribute new security issues in a public offering to individual and
institutional investors or they may arrange for the sale of all the securities of an issuer to a
single institutional investor such as a bank or insurance company or a small group of them
through private placement.
PRIVATE PLACEMENTS, 1997-2002
($ billions)
Value of U.S. private placements
Year
Debt
Equity
Total
1997
$286.3
$80.4
$366.7
1998
376.9
89.5
466.3
1999
368.8
77.7
2000
358.7
2001
2002
Number of U.S. private placements
Debt
Equity
Total
2,925
670
3,595
3,555
526
4,081
446.5
3,285
462
3,747
124.4
483.2
2,879
661
3,540
510.5
80.6
591.1
2,063
809
2,872
303.0
40.7
343.7
1,766
569
2,335
Source: Thompson Financial Securities Data; Securities Industry Association.
FOREIGN HOLDINGS OF U.S. SECURITIES, 1993-2002
Year
Treasuries1
Stocks
Corporate bonds
1993
$373.5
$273.3
$702.4
$1,349.2
1994
397.7
311.4
757.7
1,466.8
1995
527.6
369.5
996.1
1,893.2
1996
672.4
433.2
1,222.4
2,328.0
1997
952.9
501.6
1,375.1
2,829.6
1998
1,250.3
607.8
1,412.8
3,270.9
1999
1,611.5
752.1
1,380.6
3,744.2
2000
1,625.5
920.6
1,471.4
4,017.5
2001
1,533.8
1,126.3
1,594.4
4,254.5
2002
1,350.4
1
Includes agency issues.
1,292.8
1,789.3
4,432.5
Total
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SECURITIES
CAPITAL MARKETS/ASSET-BACKED SECURITIES
U.S. HOLDINGS OF FOREIGN SECURITIES, 1993-2002
Year
Stocks
Bonds
Total
1993
$543.9
$230.1
$774.0
1994
627.5
242.3
869.8
1995
776.8
299.4
1,076.2
1996
1,002.9
366.3
1,369.2
1997
1,207.8
427.7
1,635.5
1998
1,476.2
462.6
1,938.8
1999
2,026.6
476.7
2,503.3
2000
1,832.4
500.6
2,333.0
2001
1,564.7
486.8
2,051.5
2002
1,304.8
467.6
1,772.4
ASSET-BACKED SECURITIES
Asset-backed securities (ABS) are bonds that represent pools of loans of similar types, duration and interest rates. By selling their loans to ABS packagers, the original lenders recover
cash quickly, enabling them to make more loans. The asset-backed securities market has
grown as different types of loans are securitized and sold in the investment markets. Assetbacked securities may be insured by bond insurers.
ASSET-BACKED SECURITIES OUTSTANDING, 2002
($ billions)
Credit card
Amount outstanding
Percent of total
$397.9
25.8%
Home equity
286.5
18.6
CBO/CDO1
234.5
15.2
Automobile
221.7
14.4
Other
215.4
14.0
Student loan
74.4
4.8
Equipment leases
68.3
4.4
Manufactured housing
44.5
2.9
Total
1,543.2
1
Collateralized bond obligations/collateralized debt obligations.
100.0
•
Home equity loans
accounted for 18.6 per cent of asset-backed
securities outstanding in
2002, up from 10.5 per cent in 1995.
Source: The Bond Market Association.
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SECURITIES
ASSET-BACKED SECURITIES
ASSET-BACKED SECURITY SOURCES, 1998 AND 2002
1
Securities of federal mortgage pools backing privately issued collateralized mortgage obligations (CMOs). In CMOs, mortgage principal
and interest payments are separated into different payment streams to create bonds that repay capital over differing periods of time.
ASSET-BACKED SECURITY SOURCES, 1985-2002
Year
Agency
securities1
Mortgages
Consumer
loans
Student
loans
Business
loans
Trade
receivables
Total
1985
$10.1
$24.7
$0.0
$0.0
$0.0
$2.4
$37.2
1990
103.0
68.5
76.7
0.0
4.3
17.4
269.9
1995
132.9
278.2
211.6
1.0
29.6
55.7
709.1
1996
137.8
326.3
265.8
6.3
37.7
80.7
854.6
1997
142.3
406.2
313.1
14.1
62.1
128.1
1,065.8
1998
180.2
563.0
372.4
17.9
85.9
165.9
1,385.4
1999
220.4
656.1
435.1
19.4
82.6
187.0
1,600.6
2000
224.7
739.8
500.1
29.9
90.9
220.0
1,805.4
2001
267.0
885.9
580.3
30.7
113.3
245.9
2,123.2
2002
336.8
1,024.1
621.4
35.8
110.8
269.7
2,398.6
1
Securities of federal mortgage pools backing privately issued collateralized mortgage obligations (CMOs). In CMOs, mortgage principal
and interest payments are separated into different payment streams to create bonds that repay capital over differing periods of time.
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SECURITIES
DERIVATIVES
DERIVATIVES
Financial derivatives are contracts that derive their value from the performance of an
underlying financial asset, such as publicly-traded securities and foreign currencies. They
are used as hedging instruments to protect assets against changes in value. There are many
kinds of derivatives including futures, options and swaps. Futures and options contracts are
traded on the floors of exchanges. Swaps are over-the-counter privately-negotiated agreements between two parties. Futures contracts traded on U.S. exchanges grew 35 percent in
2002, compared with 2001, accounting for the largest increase of the past 10 years.
Credit derivatives are contracts that lenders, large bondholders and others can purchase
to protect against the borrower defaulting on bonds. Credit derivative products can take
many forms, such as credit default options, credit limited notes and total return swaps.
Large banks use credit derivatives to manage their credit risk. According to the
International Swaps and Derivatives Association (ISDA), credit default swaps, which ISDA
began to survey at mid-year 2001, grew 134 percent to $2,148.5 billion at the end of 2002
from the $918.9 billion reported in June 2001. Bond insurers write coverage for credit
default swaps.
NUMBER OF FUTURES CONTRACTS TRADED ON U.S. EXCHANGES, 1993-2002
(millions)
Agricultural
commodities
Energy
products
Foreign
currency
Equity
indices
Precious
metals
Nonprecious
metals
Other
Total
Year
Interest
rate
1993
173.8
56.7
45.6
30.8
15.0
14.7
2.1
0.4
339.1
1994
248.7
58.7
49.7
29.7
20.6
15.7
2.7
0.4
426.3
1995
223.6
63.5
47.2
23.2
20.7
14.1
2.5
0.5
395.3
1996
212.5
74.9
47.2
22.6
22.2
14.9
2.3
0.8
397.4
1997
244.6
74.9
52.9
26.6
25.8
15.4
2.4
1.1
443.7
1998
279.2
73.3
63.8
27.0
42.4
13.8
2.5
1.2
503.2
1999
240.7
73.0
75.1
23.7
46.7
14.5
2.9
1.3
477.9
2000
248.7
73.2
73.1
19.4
62.8
10.2
2.8
1.3
491.5
2001
342.2
72.3
72.5
21.7
107.2
9.6
2.9
0.7
629.0
2002
418.8
79.2
92.1
23.5
221.5
12.4
2.9
1.0
851.3
Source: Futures Industry Association; Securities Industry Association.
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SECURITIES
DERIVATIVES
NUMBER OF OPTIONS CONTRACTS TRADED ON U.S. EXCHANGES,
1993-2002
(millions)
•
Equity
1993
131.7
87.7
13.1
1994
149.9
121.1
1995
174.4
to 2002, compared with
1996
198.6
a jump of 15.5 percent
1997
in 2001, and 32.0 per -
1998
The number of options
contracts traded on U.S.
exchanges increased by
4.7 percent from 2001
cent in 2000.
Stock index
Foreign
currency
Year
Interest
rate
Futures
Total
0.1
81.9
314.5
10.1
0.2
100.9
382.2
107.9
5.0
0.1
94.2
381.5
92.4
3.2
0.1
102.0
396.2
269.6
78.2
2.6
0.1
111.1
461.5
325.8
74.8
1.8
0.1
127.5
530.0
1999
444.8
62.3
0.8
1
115.0
622.9
2000
665.3
53.3
0.5
1
103.1
822.2
0.6
1
168.2
949.4
2001
701.1
79.5
1
2002
679.4
100.6
0.4
213.1
993.6
1
Less than 50,000 interest rate contracts traded.
Sources: Options Clearing Corporation; Futures Industry Association; Securities Industry
Association.
GLOBAL DERIVATIVES MARKET, 1993-20021
Year
Exchange-traded
Over-the-counter (OTC)
Total
1993
$7,761
$8,475
$16,236
1994
8,898
11,303
20,201
1995
9,283
17,713
26,996
1996
10,018
25,453
35,471
1997
12,403
29,035
41,438
1998
13,932
80,318
94,250
1999
13,522
88,202
101,724
2000
14,278
95,199
109,477
2001
23,798
111,178
134,976
2002
23,874
141,737
1
Notional principal value outstanding. Data after 1998 not strictly comparable to prior years.
Source: Bank for International Settlements.
165,611
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SECURITIES
EXCHANGES
EXCHANGES
Exchanges are markets where sales of securities are transacted. Most stock exchanges are
auction markets where stocks are traded through competitive bidding in a central location.
The oldest exchanges in the United States are the New York Stock Exchange (NYSE) and the
American Stock Exchange (AMEX). The National Association of Securities Dealers operates
a national electronic stock market, the NASDAQ, for over-the-counter (OTC) securities.
Securities traded in the OTC market are generally those not listed by major exchanges. They
include technology and small company stocks, asset-backed securities, and U.S. government
and corporate bonds. In contrast to organized exchanges, business in the OTC market is carried out through dealers in different locations who buy and sell NASDAQ securities.
There are also seven regional exchanges and others that specialize in commodities and
derivatives. The Chicago Mercantile Exchange and the Chicago Board of Trade, for example,
are markets where both futures and options on financial and agricultural products are traded.
Advances in technology have enabled exchanges to keep up with the demands of
growing investor participation. Exchanges are transacting increasingly large volumes of
trades, especially in times of heavy market activity due to unexpected news about earnings
or interest rates, or other announcements that can cause sudden swings in value. In the
past decade, the use of the Internet, for trading as well as investment research, and the
tremendous growth in institutional and individual investor participation have helped set
trading records for the equity market.
EXCHANGE LISTED COMPANIES, 1993-2002
Year
NASDAQ
NYSE
AMEX
1993
4,611
2,361
869
1994
4,902
2,570
824
1995
5,122
2,675
791
1996
5,556
2,907
751
1997
5,487
3,047
771
1998
5,068
3,114
770
1999
4,829
3,025
769
2000
4,734
2,862
765
2001
4,109
2,798
691
2002
3,663
2,783
698
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SECURITIES
EXCHANGES
The volume of shares traded on the New York Stock Exchange in 2002 rose 18 percent
from 2001, while the average share price dropped 17 percent.
EXCHANGE ACTIVITIES, 1993-2002
Year
NYSE
Reported
Value of
share
shares
volume
traded
(millions)
($ millions)
AMEX
Value of
Share
shares
volume
traded
(millions) ($ millions)
1993
66,923 $2,283,390
4,582
$56,737
1994
73,420
2,454,242
4,523
1995
87,217
3,082,916
5,072
1996
104,636
4,063,655
1997
133,312
5,777,602
1998
169,745
1999
203,851
NASDAQ
Value of
Share
shares
volume
traded
(millions)
($ millions)
Regional
Value of
Share
shares
volume
traded
(millions) ($ millions)
66,540 $1,350,100
9,809
$284,569
58,511
74,353
1,449,301
9,514
279,514
72,717
101,158
2,398,214
11,446
355,879
5,628
91,330
138,112
3,301,777
12,289
414,201
6,170
143,230
163,882
4,481,691
14,809
573,212
7,317,949
7,280
287,929
202,040
5,758,558
19,888
753,110
8,945,205
8,231
477,822
272,605 11,013,192
27,794 1,147,556
2000
262,478 11,060,046
13,318
945,391
442,753 20,395,335
40,058 1,716,869
2001
307,509 10,489,323
16,317
817,042
471,217 10,934,572
42,990 1,206,088
2002 363,136 10,311,156
16,063
642,183
441,706
87,394
7,254,595
963,542
STOCK MARKET PERFORMANCE INDICES, 1993-2002
(End of year)
Year
DJIA1
S&P 500
1993
3,754.09
466.45
1994
3,834.44
1995
1996
NYSE Composite
AMEX Composite2
NASDAQ Composite
2,739.44
477.15
776.80
459.27
2,653.37
433.67
751.96
5,117.12
615.93
3,484.15
550.00
1,052.13
6,448.27
740.74
4,148.07
572.34
1,291.03
1997
7,908.25
970.43
5,405.19
684.61
1,570.35
1998
9,181.43
1,229.23
6,299.93
688.99
2,192.69
1999
11,497.12
1,469.25
6,876.10
876.97
4,069.31
2000
10,786.85
1,320.28
6,945.57
897.75
2,470.52
2001
10,021.50
1,148.08
6,236.39
847.61
1,950.40
2002
8,341.63
879.82
5,000.00
824.38
1
Dow Jones Industrial Average. 2Amex Market Value Index through 1994; Amex Composite Index thereafter.
1,335.51
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SECURITIES
MUTUAL FUNDS
MUTUAL FUNDS
A mutual fund is a pool of assets that is managed by professional investment managers.
Embraced as an investment vehicle by those who do not want to actively manage their
investment accounts but who believe they can earn higher returns in the securities markets
than through traditional savings bank products, mutual funds have experienced tremendous
growth over the past two decades. In 1940, there were only 68 funds and about 300,000
shareholder accounts. By 1980, there were 564 funds and 12 million accounts. From 1985
to 1990, by most measures, the industry had doubled in size. According to data from the
Investment Company Institute, the trade association for the mutual fund industry, nearly
one out of two American households owned mutual funds in 2002.
Mutual funds are regulated by the Investment Management Act of 1940, which stipulates that all investment advisers disclose to investors the methods and investment guidelines of their funds. Institutional fund managers have a substantial presence in the securities markets as they trade and manage the securities within the mutual funds they oversee.
•
MUTUAL FUND INDUSTRY NET ASSETS, NUMBER OF FUNDS AND
SHAREHOLDER ACCOUNTS, 1985-2002
At year-end 2002,
mutual funds account ed for 21 percent of
the U.S. retirement
Year
Total net assets
($ millions)
Number of
funds
Number of
shareholder accounts
market, or $2.1 tril lion. This amount repr e-
1985
$495,385.1
1,528
34,098,401
1990
1,065,190.2
3,079
61,947,955
1995
2,811,292.2
5,725
131,219,221
1996
3,525,800.8
6,248
150,045,888
1997
4,468,200.6
6,684
170,264,389
percent of all U.S. cor -
1998
5,525,209.3
7,314
194,073,595
porate equity .
1999
6,846,339.2
7,791
226,412,794
2000
6,964,667.0
8,155
244,748,546
2001
6,974,975.9
8,307
248,759,332
2002
6,391,570.8
8,256
250,981,045
sented about one-thir d
of all mutual fund
assets.
•
Mutual funds own 20
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SECURITIES
MUTUAL FUNDS
MUTUAL FUND INDUSTRY NET ASSETS BY TYPE OF FUND, 1985-2002
($ billions)
Year
Equity funds
Hybrid funds
Bond funds
Taxable money
market funds
Tax-exempt money
market funds
Total
1985
$111.3
$17.6
$122.6
$207.5
$36.3
$495.4
1990
239.5
36.1
291.3
414.7
83.6
1,065.2
1995
1,249.1
210.3
598.9
630.0
123.0
2,811.3
1996
1,726.0
252.6
645.4
762.0
139.8
3,525.8
1997
2,368.0
317.1
724.2
898.1
160.8
4,468.2
1998
2,978.2
364.7
830.6
1,163.2
188.5
5,525.2
1999
4,041.9
378.8
812.5
1,408.7
204.4
6,846.3
2000
3,962.0
346.3
811.1
1,607.2
238.1
6,964.7
2001
3,418.2
346.3
925.1
2,012.9
272.4
6,975.0
2002
2,667.1
327.4
1,125.1
1,997.2
274.8
6,391.6
MUTUAL FUND INDUSTRY NET ASSETS BY TYPE OF FUND, 2002
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SECURITIES
MUTUAL FUNDS
NUMBER OF MUTUAL FUNDS BY TYPE, 1985-2002
Year
Equity funds
Hybrid funds
Bond funds
Taxable money Tax-exempt money
market funds
market funds
Total
1985
562
103
403
348
112
1,528
1990
1,099
193
1,046
506
235
3,079
1995
2,139
412
2,177
674
323
5,725
1996
2,570
466
2,224
666
322
6,248
1997
2,951
501
2,219
682
331
6,684
1998
3,513
525
2,250
685
341
7,314
1999
3,952
532
2,262
702
343
7,791
2000
4,385
523
2,208
703
336
8,155
2001
4,717
484
2,091
689
326
8,307
2002
4,756
475
2,036
679
310
8,256
NUMBER OF MUTUAL FUNDS BY TYPE, 2002
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SECURITIES
MUTUAL FUNDS
TOP TEN MUTUAL FUND COMPANIES, 20031
($000)
Rank
Company
Total net assets
1
$749,790,982
2
Vanguard Group
632,585,655
3
Capital Research & Management
409,073,727
4
Merrill Lynch Investment Managers
188,073,891
5
Federated Investors
186,267,592
6
Morgan Stanley
180,487,477
7
Franklin Templeton Investments
176,552,270
8
Putnam Funds
164,790,610
9
Dreyfus Corporation
157,229,607
10
SchwabFunds/U.S. Trust
As of May 2003. Includes members of Investment Company Institute only. Ranked by assets.
1
156,630,360
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Chapter 7: Finance Companies
OVERVIEW
Finance companies, which supply credit to businesses and consumers, are often categorized
as nondepository institutions, along with mortgage bankers and brokers, because they make
loans without taking in deposits. They acquire funds to make these loans largely by issuing
commercial paper and bonds and securitizing their loans. As financial intermediaries, finance
companies compete with banks, savings institutions and credit unions. The sector is twice as
large as the credit union sector, about the same size as thrifts and one-fifth as large as commercial banks. Accounts receivable, or receivables, rather than assets or revenues, determine
a company’s standing within the industry.
Finance companies are diverse. Captive finance companies, which are affiliated with
motor vehicle or appliance manufacturers, finance dealer inventories and consumer purchases of their products, sometimes at below-market rates. Consumer finance companies make
loans to consumers who want to finance purchases of large household items, such as furniture; make home improvements; or refinance small debts. Business finance companies offer
commercial credit, making loans secured by the assets of the business to wholesalers and
manufacturers and purchasing accounts receivable at a discount. Increasingly, finance companies are participating in the real estate market but, according to the Federal Reserve,
despite their expansion in this area, they still account for a very small share of the total. They
also offer credit cards and engage in motor vehicle, aircraft and equipment leasing. There is
no federal registry of the number of companies.
TOP TEN SPECIALTY LENDER MERGERS AND ACQUISITIONS, 2002 1
Deal value3
($ millions)
2
Buyer
Industry
Target
HSBC Holdings Plc
Bank
Household International Inc.
Not classified4
ABB Ltd.’s Structured Finance operations
Cendant Corp.
Not classified
Trendwest Resorts Inc.
977.8
Not classified4
Australian Guarantee Corp. Ltd.
894.9
Wells Fargo & Co.
Bank
Telmark LLC
650.0
Not classified
50% of Monogram Credit Services LLC
531.0
Not classified4
Deutsche Finl. Svcs. inventory finance
450.0
AFSA Data Corp.
410.0
Affiliated Computer Svcs. Inc. Not classified
Lone Star Funds
5
4
6
Investment adviser Hanvit Leasing and Finance Co.
$14,861.2
2,300.0
327.9
Not classified
Time Retail Finance Ltd.
209.8
1
At least one of the companies involved is a U.S.-domiciled company. List does not include terminated deals. 2The target industry is spe cialty lender. 3At announcement. 4Classified as “Diversified financial” by Fortune Magazine. 5Classified as “Miscellaneous” by Fortune
Magazine. 6Classified as “Computer and data services” by Fortune Magazine.
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FINANCE COMPANIES
OVERVIEW
FINANCE COMPANY EMPLOYMENT, 1998-2002
(000)
Nondepository credit intermediation
Credit card issuing
1998
1999
2000
2001
615.7
656.3
644.4
660.7
690.1
134.3
140.8
144.0
144.4
131.8
98.2
105.3
111.3
113.2
112.0
383.2
410.3
389.1
403.1
446.3
Sales financing
Other nondepository credit
intermediation
2002
Consumer lending
78.1
83.6
88.4
94.3
99.6
Real estate credit
232.6
250.8
223.4
231.2
269.9
72.6
75.9
77.3
77.6
76.8
Miscellaneous nondepository
credit intermediation
NUMBER OF FINANCE COMPANIES, 1996 AND 2000
(As of June 30)
•
There was a 20.5
percent drop in the num -
Size of company by net assets, $ millions
1996
2000
1
11
ber of finance companies
$20,000 and more
30
from 1996 to 2000,
$1,000-$19,000
33 2
57
with the smallest entities
$200-$999
54
61
declining by 25 percent.
$50-$199
87
57
$10-$49
138
128
Less than $10
895
670
1,237
984
Total
$5,000 or more.
2
$1,000 - $4,999.
1
Source: Board of Governors of the Federal Reserve System, based on Survey of Finance
Companies 2000.
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FINANCE COMPANIES
ASSETS AND LIABILITIES
ASSETS AND LIABILITIES OF FINANCE COMPANIES, 1998-20021
1998
1999
2000
2001
2002
$852.7
$1,003.0
$1,137.9
$1,155.7
$1,185.1
22.8
25.3
27.9
30.8
33.8
645.5
742.5
850.5
844.8
862.0
Other loans and advances
340.9
395.1
458.4
447.0
455.3
Mortgages
121.2
145.8
172.3
161.3
174.5
Consumer credit
183.3
201.5
219.8
236.6
232.3
184.4
235.3
259.5
280.1
289.3
Total liabilities
856.6
994.6
1,159.5
1,179.6
1,239.1
625.5
695.7
776.9
776.7
814.4
Open market paper
233.3
230.4
238.8
158.6
141.5
Corporate bonds
365.6
429.9
502.2
567.4
624.9
Other bank loans
26.5
35.4
35.9
50.8
48.0
7.3
8.1
9.1
10.2
11.6
223.8
290.7
373.5
392.6
413.1
Foreign direct investment in U.S.
37.2
49.8
65.3
71.5
67.9
Investment by parent
34.3
87.8
102.5
99.2
88.2
152.3
153.1
205.6
221.9
257.0
Taxes payable
Other
Consumer leases not included above2
96.6
102.9
108.2
103.5
83.3
Includes retail captive finance companies.
2
Receivables from operating leases, such as consumer automobile leases, are booked as current income when payments are received
and are not included in financial assets (or household liabilities). The leased automobile is a tangible asset.
1
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FINANCE COMPANIES
ASSETS AND LIABILITIES/PROFITABILITY
SOURCES OF FINANCE COMPANY FUNDING, 1996 AND 2000
(As of June 30)
Amount
($ billions)
Percentage change,
1996-2000
Average
Cumulative
annual
Category
1996
2000
Liabilities
$725.7
$1,113.4
53.4%
11.3%
17.7
32.8
85.7
16.7
169.6
224.3
32.3
7.2
Bank loans
Commercial paper
Debt due to parent
Share of total
1996
2000
89.0%
88.4%
2.2
2.6
20.8
17.8
56.3
95.1
68.9
14.0
6.9
7.6
Debt not elsewhere classified
319.0
483.7
51.6
11.0
39.1
38.4
Other
163.2
277.5
70.1
14.2
20.0
22.0
89.7
145.7
62.4
12.9
11.0
11.6
Total
815.4
1,259.0
54.4
11.5
100.0
100.0
Securitized receivables
122.4
198.1
61.9
12.8
13.1
13.6
Total managed assets
937.8
1,457.1
55.4
11.6
100.0
100.0
Capital, surplus, and undivided profits
Source: Board of Governors of the Federal Reserve System, based on Survey of Finance Companies 2000.
PROFITABILITY
BUSINESS AND CONSUMER FINANCE COMPANIES, RETURN ON EQUITY, 1998-2002 1
Business finance companies
return on average equity 2
Median
Average
Year
Consumer finance companies
return on average equity 3
Median
Average
1998
14.53%
13.25%
17.67%
20.55%
1999
9.02
-4.76
17.98
11.24
2000
9.85
-1.48
18.67
6.37
2001
9.31
2.03
10.94
-29.90
2002
5.22
-5.14
18.81
20.89
1
Net income as a percentage of average equity.
2
Consists of 26 publicly-traded commercial finance companies including niche and diversified commercial and equipment finance companies. Does not include GSEs, finance REITs, or mortgage and real estate companies.
3
Consists of 29 publicly-traded consumer finance companies including auto finance, credit card, niche and diversified consumer companies and pawn shops. Does not include GSEs, finance REITs or mortgage and real estate companies.
Source: SNL Financial Services M&A DataSource.
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FINANCE COMPANIES
RECEIVABLES
TOTAL RECEIVABLES AT FINANCE COMPANIES, 1998-2002 1
($ billions, as of March 2003)
1998
Total
1999
2000
2001
2002
$907.0
$1,030.4
$1,185.6
$1,246.6
$1,270.2
Consumer2
370.0
409.8
464.4
513.3
513.1
Real estate
150.3
174.0
198.9
207.7
216.5
Business
386.7
446.6
522.3
525.6
540.6
1
Includes finance company subsidiaries of bank holding companies but not of retailers and banks. 2Includes previously unreported
assets beginning in 2000.
TOTAL RECEIVABLES AT FINANCE COMPANIES, BY CATEGORY, 1998 AND 2002 1
1998
1
2
2002
Includes finance company subsidiaries of bank holding companies but not of retailers and banks.
Includes previously unreported assets.
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FINANCE COMPANIES
RECEIVABLES
BUSINESS RECEIVABLES AT FINANCE COMPANIES, 1998-2002
Percent of total
1998
Total
1999
2000
2001
2002
$389.9 $449.6 $525.0 $527.9 $542.7
Motor vehicles
Retail loans
1998
1999
2000
2001
2002
100.0% 100.0% 100.0% 100.0% 100.0%
64.8
69.4
75.5
54.0
60.7
16.6
15.4
14.4
10.2
11.2
19.5
21.1
18.3
16.1
15.4
5.0
4.7
3.5
3.0
2.8
Wholesale
loans1
32.8
34.8
39.7
20.3
29.3
8.4
7.7
7.6
3.8
5.4
Leases
12.5
13.6
17.6
17.6
16.0
3.2
3.0
3.4
3.3
2.9
212.2
238.7
283.5
289.4
292.1
54.4
53.1
54.0
54.8
53.8
59.2
64.5
70.2
77.8
83.3
15.2
14.3
13.4
14.7
15.3
Equipment
Loans
153.0
174.2
213.3
211.6
208.8
39.2
38.7
40.6
40.1
38.5
Other business
receivables2
Leases
63.9
87.0
99.4
103.5
102.5
16.4
19.4
18.9
19.6
18.9
Securitized
assets3
49.0
54.5
66.5
81.0
87.5
12.6
12.1
12.7
15.3
16.1
Motor vehicles
29.2
31.5
37.8
50.1
50.2
7.5
7.0
7.2
9.5
9.3
Retail loans
2.6
2.9
3.2
5.1
2.4
0.7
0.6
0.6
1.0
0.4
24.7
26.4
32.5
42.5
45.9
6.3
5.9
6.2
8.1
8.5
Wholesale
loans
Leases
1.9
2.1
2.2
2.5
1.9
0.5
0.5
0.4
0.5
0.4
13.0
14.6
23.1
23.2
20.2
3.3
3.2
4.4
4.4
3.7
Loans
6.6
7.9
15.5
16.4
13.0
1.7
1.8
3.0
3.1
2.4
Leases
6.4
6.7
7.6
6.8
7.2
1.6
1.5
1.4
1.3
1.3
Equipment
Other business
receivables2
6.8
8.4
5.6
7.7
17.1
1.7
1.9
1.1
1.5
3.2
1
Credit arising from transactions between manufacturers and dealers, that is, floor plan financing.
2
Includes loans on commercial accounts receivable, factored commercial accounts, and receivable dealer capital; small loans used primarily for business or farm purposes; and wholesale and lease paper for mobile homes, recreation vehicles, and travel trailers.
3
Outstanding balances of pools upon which securities have been issued; these balances are no longer carried on the balance sheets of
the loan originator.
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FINANCE COMPANIES
RECEIVABLES
CONSUMER RECEIVABLES AT FINANCE COMPANIES, 1998-2002
1998
1999
2000
2001
$372.5
$412.7
$468.3
$518.1
$518.4
113.5
129.2
141.6
173.9
160.2
Motor vehicle leases
96.6
102.9
108.2
103.5
83.3
Revolving2
31.9
32.5
37.6
31.5
38.9
37.9
39.8
40.7
31.1
33.1
Motor vehicle loans
54.8
73.1
97.1
131.9
151.9
Motor vehicle leases
12.7
9.7
6.6
6.8
5.7
5.5
6.7
19.6
25.0
31.1
Total consumer
1
Motor vehicle loans
Other
Securitized assets
2002
3
Revolving
Other
19.6
18.8
17.1
14.3
14.0
The level of consumer credit outstanding in 2000 includes previously unreported assets, and thus represents a break in this series.
2
Excludes revolving credit reported as held by depository institutions that are subsidiaries of finance companies.
3
1
REAL ESTATE RECEIVABLES AT FINANCE COMPANIES, 1998-2002
Total real estate
1998
1999
2000
2001
2002
$150.3
$174.0
$198.9
$207.7
$216.5
One- to four-family
90.0
108.2
130.6
120.1
135.0
Other
31.2
37.6
41.7
41.2
39.5
29.0
28.0
24.7
40.7
39.7
Securitized real estate assets 1
One- to four-family
Other
0.1
0.2
1.9
5.7
2.2
1
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FINANCE COMPANIES
CONCENTRATION
•
The top 20 companies
TOTAL RECEIVABLES AT TOP TWENTY FINANCE COMPANIES,
1996 AND 2000
increased their share of
($ billions, as of June 30)
nonsecuritized con sumer loans by 3.0
All finance
companies
percentage points and
nonsecuritized real
1996
estate receivables by
3.9 percentage points
between 1996 and
•
Total
2000
$749.1 $1,119.6
Owned
Twenty largest finance companies 1
Share of all finance
Amount
company receivables
1996
2000
$524.9 $770.3
1996
2000
70.1% 68.8%
626.7
921.5
459.1
639.9
73.3
69.4
2000.
Business
305.7
441.9
194.5
232.0
63.6
52.5
The top 20 companies’
Consumer
240.6
321.8
203.5
281.8
84.6
87.6
Real estate
80.4
157.7
61.1
126.1
76.0
79.9
122.4
198.1
65.8
130.4
53.8
65.8
Total net assets 815.4
1
Based on total net assets.
1,259.0
615.9
962.5
75.5
76.4
share of securitized
loans grew 12 percent age points during the
same period.
Securitized
Source: Board of Governors of the Federal Reserve System, based on Survey of Finance
Companies 2000.
TOTAL OWNED RECEIVABLES AT THE TWENTY LARGEST FINANCE COMPANIES,
1996 AND 2000
($ billions)
1996
2000
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FINANCE COMPANIES
LEADING COMPANIES
TOP TEN U.S. CONSUMER AND COMMERCIAL FINANCE COMPANIES, 20021
($ millions)
Rank
Total managed receivables2
Company
1
General Electric Capital Corporation
$233,086.0 3
2
Ford Motor Credit Company
202,528.3
3
Citigroup Inc. (Credit Card)
130,400.0
4
Household International Inc.
107,495.8
5
MBNA Corporation
107,257.8
6
SLM Corporation
79,557.0
7
First USA, Inc.
74,000.0
8
American Express Company
73,800.0
9
Capital One Financial Corporation
59,746.5
10
Discover Bank
1
Ranked by total managed receivables. Excludes mortgage and real estate companies.
2
On-balance sheet receivables and loans sold that are still serviced and managed.
3
On-balance sheet receivables.
51,565.1
TOP TEN U.S. CONSUMER FINANCE COMPANIES, 20021
($ millions)
Rank
Company
Total managed receivables 2
1
$170,891.1
2
Citigroup, Inc. (Credit Card)
130,400.0
3
MBNA Corporation
107,257.8
4
Household International, Inc.
107,032.8
5
SLM Corporation
78,355.0
6
First USA, Inc.
74,000.0
7
American Express Company
73,800.0
8
65,408.0 3
9
Capital One Financial Corporation
59,746.5
10
Discover Bank
1
Excludes mortgage and real estate companies.
2
3
51,559.6
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FINANCE COMPANIES
LEADING COMPANIES
TOP TEN U.S. COMMERCIAL FINANCE COMPANIES, 20021
($ millions)
Rank
Total managed receivables 2
Company
1
2
General Motors Acceptance Corporation
45,246.03
3
CIT Group Inc.
40,182.8
4
31,631.2
5
International Lease Finance Corporation
25,660.33
6
FleetBoston Financial Corporation (Equipment)
18,408.0
7
Caterpillar Financial Services Corporation
17,030.0
8
IBM Credit LLC
13,230.7
9
John Deere Capital Corporation
12,755.9
10
Boeing Capital Corporation
1
Excludes mortgage and real estate companies.
2
3
10,933.8
$167,678.03
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Chapter 8: Mortgage Finance and Housing
MORTGAGES
Mortgage financing has become an increasingly important element in the economy, involving a wide range of financial institutions from commercial banks, thrifts and credit unions
to finance companies, life insurers and government-sponsored corporations like Fannie
Mae. In 2002, home mortgage debt outstanding alone amounted to $6.5 trillion.
Demographic factors such as the size of various age groups within the population and
changes in disposable income, interest rates and the desirability of other investment
options influence the residential mortgage market. The commercial market has expanded in
response to business growth.
Overall, the mortgage market grew 11.6 percent in 2002 from the previous year. In the
home mortgage sector, commercial banks’ and savings institutions’ mortgage holdings rose
12.7 percent, credit unions’ holdings rose 12.8 percent, and finance companies’ holdings
rose 12.4 percent.
The term mortgage origination refers to the original transaction, the point at which the
homeowner purchases the mortgage, in person or online, from a financial services company
such as a bank.
Mortgages may be sold and packaged as securities, which frees up funds for the mortgage originator to make additional mortgages available. Mortgage-backed securities are
sold by asset-backed securities (ABS) issuers.
The bank that originates the mortgage does not always “service” the mortgage itself. It
may sell the servicing of the mortgage, which includes collecting and processing monthly
payments, to another company. The servicing business of many of the leading mortgage
originators is much larger than their origination business.
TOTAL MORTGAGES OUTSTANDING, 1997-2002
1997
1998
2001
2002
$5,201.1
$5,712.5
$6,316.6
$6,890.3
$7,600.8
$8,486.0
3,978.3
4,362.9
4,787.2
5,205.4
5,738.1
6,460.0
Multifamily residential
300.1
331.5
369.1
405.0
453.3
498.4
Commercial
832.7
921.6
1,057.9
1,171.0
1,293.0
1,401.8
90.0
96.6
102.3
108.9
116.3
125.8
Total mortgages
Home
Farm
1999
2000
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MORTGAGE FINANCE AND HOUSING
MORTGAGES
HOME MORTGAGES BY HOLDER, 1997-20021
1997
1998
$3,978.3
$4,362.9
$4,787.2
Household sector
86.5
85.3
Nonfinancial
corporate business
29.8
Total assets
Nonfarm noncorporate
business
1999
2000
2001
2002
$5,205.4
$5,738.1
$6,460.0
84.2
83.2
82.2
81.2
27.1
20.2
21.4
23.1
24.2
7.0
10.0
9.0
8.7
9.7
11.0
State and local
governments
65.8
69.1
72.6
76.3
80.1
84.1
Federal government
19.1
18.8
18.4
17.7
17.1
16.2
Commercial banking
745.5
797.0
879.6
965.6
1,023.9
1,222.5
520.7
533.5
548.2
594.2
620.6
631.4
86.0
96.9
111.0
124.9
141.3
159.4
and estates
3.0
2.8
2.2
2.3
2.5
2.3
7.2
6.6
5.9
4.9
4.9
5.3
5.7
5.8
6.7
7.8
9.2
10.9
retirement funds
5.6
8.4
7.5
7.5
8.7
11.1
194.3
199.6
189.3
205.1
225.3
270.7
1,788.1
1,970.2
2,234.7
2,425.6
2,748.5
3,063.7
Credit unions
enterprises
Federally related
mortgage pools
ABS issuers
310.7
405.2
455.0
499.8
591.2
691.9
Finance companies
67.5
90.0
108.2
130.6
120.1
135.0
Mortgage companies
21.8
21.8
21.8
21.8
21.8
21.8
REITs
14.0
14.8
12.4
7.9
7.9
17.4
416.2
476.7
532.8
630.6
699.4
829.1
174.0
176.9
189.5
235.0
258.6
303.3
55.5
55.9
59.7
72.8
77.9
78.5
Credit unions
29.0
29.7
33.4
40.7
44.9
48.1
ABS issuers
90.2
124.2
141.9
151.5
197.8
264.3
Home equity loans
included above2
Commercial banking
Finance companies
67.5
90.0
108.2
130.6
120.1
135.0
Mortgages on 1-4 family properties. 2Loans made under home equity lines of credit and home equity loans secured by junior liens.
Excludes home equity loans held by mortgage companies and individuals.
1
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MORTGAGES
1-4 FAMILY HOME MORTGAGE ORIGINATIONS, 1991-2001
•
($ millions)
Year
Total volume
According to Inside
Mortgage Technology ,
Adjustable rate
mortgage (ARM)
share1
the online retail mor t-
31%
23%
first quarter of 2003,
Refinance
share
gage lending business
grew 4.7 percent in the
1991
$562,074
1992
893,681
47
20
even though originations
1993
1,019,861
52
20
as a whole were down
1994
768,748
24
39
4.7 percent over the
1995
639,436
21
33
period. An estimated
1996
785,233
29
27
1997
858,070
29
22
1998
1,511,070
50
12
1999
1,306,000
34
22
2000
1,047,000
19
25
2001
2,079,500
59
1
ARM share is percent of total volume of conventional purchase loans.
$45 billion of retail mor tgages were processed in
significant measur e
through the Internet.
12
Source: HUD Survey of Mortgage Lending Activity; Mortgage Bankers Association of America;
Federal Housing Finance Board.
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MORTGAGES
MORTGAGE STATUS AND REFINANCING ACTIVITY OF HOMEOWNERS, 2001
($000)
Most recent mortgage
Homeowners with mortgages
Distribution
Mean
interest
rate1
Mean
mortgage
amount1
Mean
home
equity1
Mean
Share of
loan-to- mortgage
value ratio
debt2
62.8%
7.33%
$100.2
$110.4
54.0
100.0%
Never refinanced
50.9
7.55
94.8
85.1
57.6
47.0
Have refinanced
49.1
7.09
105.8
135.7
50.5
52.8
Last refinanced in 2001 or early 2002
46.6
6.82
128.8
110.7
61.6
30.8
Those who took cash out
44.8
6.85
125.9
104.8
62.9
13.6
40.3
21.4
Refinancers
Last refinanced at an earlier time
53.4
7.30
84.2
159.2
Average. 2Percentages may not sum to 100 because of rounding and a small number of missing observations.
1
Note: All survey data are based on weighted observations.
Source: Surveys of Consumers, University of Michigan Survey Research Center.
CASH OUT HOME MORTGAGE REFINANCING, 1993-20021
(Billions of 2002 dollars)
1
Represents homeowners’ cash withdrawals from home mortgage refinance transactions. Includes prime conventional loans only and
are net of retirement of outstanding second mortgages.
Source: Freddie Mac.
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MORTGAGES/HOME OWNERSHIP
MORTGAGE DELINQUENCY AND FORECLOSURE RATES, 1980-2002
(Percent, annual average)
Delinquency rates
Conventional
VA
loans
loans
FHA
loans
Total
Foreclosure rates
Conventional
VA
loans
loans
FHA
loans
Year
Total
1980
5.0%
3.1%
5.3%
6.5%
0.3%
0.1%
0.4%
0.5%
1985
5.8
4.0
6.6
7.4
0.8
0.5
0.9
1.0
1990
4.7
3.0
6.4
6.7
0.9
0.6
1.3
1.4
1995
4.3
2.8
6.5
7.6
0.9
0.6
1.3
1.4
1996
4.3
2.8
6.7
8.0
1.0
0.7
1.6
1.6
1997
4.3
2.8
6.9
8.1
1.1
0.7
1.8
2.0
1998
4.4
2.9
7.1
8.5
1.1
0.7
1.8
2.2
1999
4.0
2.5
6.8
8.6
1.0
0.7
1.8
2.2
2000
4.0
2.6
6.9
9.1
0.9
0.6
1.4
1.8
2001
4.6
3.0
7.7
10.8
1.0
0.7
1.2
1.9
2002
4.6
3.1
7.9
11.5
1.1
0.8
1.5
2.5
Source: Mortgage Bankers Association of America.
HOME OWNERSHIP
SNAPSHOT OF HOUSING IN AMERICA, 2001-2002
2001
2002
Percent change
Homeownership rate
67.8%
67.9%
0.1%
New home sales
908,000 units
976,000 units
7.7
Existing home sales
5.3 million units
5.6 million units
5.7
Existing home price (median)
$153,193
$161,043
5.1
Home equity
$7.3 trillion
$7.6 trillion
4.1
Mortgage debt
$5.5 trillion
$6.1 trillion
10.9
Mortgage refinancing
$1.1 trillion
$1.4 trillion
27.3
Residential fixed investment
$442.4 billion
$462.4 billion
Remodeling
1
Estimated.
$160 billion
$164 billion
1
4.5
2.5
Note: All dollar figures are in 2002 dollars.
Source: Board of Governors of the Federal Reserve System; Bureau of Economic Analysis; Mortgage Bankers Association of America;
Census Bureau.
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HOME OWNERSHIP
•
MEDIAN SALES PRICE OF EXISTING SINGLE FAMILY HOMES,
1968-2002
The national median price
for existing single family
homes increased to
Year
Median
sales price
Year
Median
sales price
Percent
change
1968
$20,100
NA
1986
$80,300
6.4%
1969
$229,000, a 10% rise,
1970
21,800
8.5%
1987
85,600
6.6
23,000
5.5
1988
89,300
4.3
according to the National
1971
24,800
7.8
1989
89,500
0.2
Association of Realtors
1972
26,700
7.7
1990
92,000
2.8
(NAR).
1973
28,900
8.2
1991
97,100
5.5
Regionally, prices of exist -
1974
32,000
10.7
1992
99,700
2.7
ing homes in July 2003
1975
35,300
10.3
1993
103,100
3.4
1976
38,100
7.9
1994
107,200
4.0
1977
42,900
12.6
1995
110,500
3.1
1978
48,700
13.5
1996
115,800
4.8
in the West and 5.1%
1979
55,700
14.4
1997
121,800
5.2
higher in the Midwest. The
1980
62,200
11.7
1998
128,400
5.4
NAR projects that nation -
1981
66,400
6.8
1999
133,300
3.8
ally prices will increase by
1982
67,800
2.1
2000
139,000
4.3
1983
70,300
3.7
2001
147,800
6.3
1984
72,400
3.0
2002
158,200
7.0
1985
75,500
4.3
$182,100 in July, 2003,
a 12.1% increase from
the previous year, and the
average price rose to
•
were 17.6% higher in the
South than in July 2002,
16.3% higher in the
Northeast, 11.7% higher
5.5% to 6% in 2003 and
then 4% to 4.5% in 2004.
Percent
change
Source: National Association of Realtors.
BARRIERS TO HOME OWNERSHIP
According to an online survey of consumers conducted in March 2003 by the Mortgage Insurance
Companies of America, the biggest hurdles that renters face in trying to buy a home are:
■ coming up with enough money for the down payment: 51 percent
■ being able to make a long-term commitment to owning a home: 19 percent
■ making the monthly mortgage payment: 10 percent
■ credit problems: 8 percent
■ finding the right home/location: 5 percent
■ other: 7 percent
Source: Mortgage Insurance Companies of America.
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HOME OWNERSHIP
U.S. HOME OWNERSHIP RATES BY RACE AND ETHNICITY, 1996-2002
1996
1997
1998
1999
20001
20012
2002 3Q2
United States
65.4
65.7
66.3
66.8
66.2
66.6
68.0
Whites
71.7
72.0
72.6
73.2
72.4
72.9
71.6
Blacks
44.5
45.4
46.1
46.7
46.3
46.8
47.1
Hispanics
42.8
43.3
44.7
45.5
45.7
46.7
48.3
Asians/others 51.5
53.3
53.7
54.1
53.3
54.4
54.1
2000 Census enumeration. The 2000 Decennial Census and Home Vacancy Survey provide different homeownership rates. Home
Vacancy Survey numbers are calibrated to the 1990 Decennial Census. Pre-2000 statistics are based on the Home Vacancy Survey.
2
Based on the 2000 Census adjusted by the rate of change in the Home Vacancy Survey’s ownership rates between 2000 and 2001.
1
Source: 2000 Census, Housing Vacancy Survey; Freddie Mac.
HOME OWNERSHIP RATES BY REGION, 1990-20021
(End of year)
Year
United States
Northeast
Midwest
South
West
1990
64.1%
62.8%
67.8%
65.7%
58.3%
1995
65.1
61.6
70.1
67.5
59.0
1996
65.4
62.3
70.8
67.6
58.9
1997
65.7
62.7
70.4
67.8
59.8
1998
66.4
62.0
71.5
69.0
60.4
1999
66.9
63.2
72.5
69.1
60.6
2000
67.5
63.2
73.1
69.8
61.6
2001
68.0
64.0
73.5
70.1
62.3
70.3
62.6
2002
68.3
64.9
73.3
1
The percentage of households that are homeowners based on the total number of households.
Source: U.S. Census Bureau.
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HOME OWNERSHIP
SELECTED CHARACTERISTICS OF HOMEOWNERS, 1995 AND 2001
(000)
1995
Total owner occupied units
2001
Percent change,
1995-2001
63,544
72,365
13.9%
56,507
62,552
10.7
Black
5,137
6,327
23.2
Other1
1,900
3,486
83.5
Hispanic2
3,245
4,734
45.9
$0-$14,999
10,319
9,579
-7.2
$15,000-$29,999
13,909
11,854
-14.8
$30,000-$49,999
14,568
14,385
-1.3
$50,000-$99,000
18,169
23,543
29.6
By race
White
By household income
$100,000 or more
6,579
12,903
96.1
1
Other = American Indian, Eskimo, Aleut, Asian and Pacific Islander.
2
Hispanic is considered an ethnic origin rather than a race and is tallied separately. Hispanics may report themselves as any race.
Source: U.S. Department of Commerce, Bureau of the Census.
HOME OWNERSHIP RATES BY INCOME, 2001
Source: 2001 American Housing Survey.
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HOME OWNERSHIP/HOME EQUITY LOANS
CONVENTIONAL HOME PURCHASE LOANS BY RACIAL/ETHNIC IDENTITY
AND INCOME OF BORROWERS, 1993-2002
(Percent change)
19931994
19961997
19971998
19981999
19992000
20002001
20012002
19932002
American Indian
23.8%
-1.0%
17.1%
59.1%
-5.5%
-40.8%
21.5%
64.9%
Asian
18.6
12.7
14.8
16.9
10.3
4.2
21.9
146.5
Black
54.7
2.6
13.4
12.5
1.3
-7.8
14.1
133.4
Hispanic
42.0
-2.1
22.3
21.8
14.1
11.8
25.0
244.8
White
15.7
2.0
14.9
1.5
-4.8
-0.5
6.3
43.2
Less than 80
27.0
2.3
24.8
14.9
-1.8
-0.9
12.1
119.3
80-99
19.1
2.3
19.8
6.3
-0.9
3.5
12.9
91.7
100-119
15.7
2.3
19.7
3.9
-0.2
4.2
11.6
79.8
Racial /ethnic identity
Income
1
120 or more
12.5
6.7
15.9
3.9
4.4
2.4
6.7
80.8
Percentage of metropolitan area median. Metropolitan area median is the median family income of the metropolitan area in which the
property related to the loan is located.
1
Source: Federal Financial Institutions Examination Council.
HOME EQUITY LOANS
HOME EQUITY LOANS BY HOLDER, 1997-20021
1997
1998
1999
2000
$416.2
$476.7
$532.8
$630.6
$699.4
$829.1
174.0
176.9
189.5
235.0
258.6
303.3
55.5
55.9
59.7
72.8
77.9
78.5
Credit unions
29.0
29.7
33.4
40.7
44.9
48.1
ABS issuers
90.2
124.2
141.9
151.5
197.8
264.3
Total
Commercial banking
2001
2002
Finance companies
67.5
90.0
108.2
130.6
120.1
135.0
Loans made under home equity lines of credit and home equity loans secured by junior liens, such as second mortgages, which are
subordinate to another mortgage. Excludes home equity loans held by mortgage companies and individuals.
1
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HOME EQUITY LOANS/LEADING COMPANIES
SUBPRIME RESIDENTIAL LENDING ACTIVITY
IN THE UNITED STATES, 1998-2002
($ billions)
•
In 2001, 44 percent of
Year
the home equity loan mar -
1998
ket was subprime, mean ing that bor rowers’ credit
ratings were A- or lower .
Dollar volume
Year
Dollar volume
$150
20011
$170
1999
160
1
210
2000
140
2002
1
Projected.
Source: www.dismalscience.com; Inside Mortgage Finance; Freddie Mac.
LEADING COMPANIES
TOP TEN MORTGAGE FINANCE COMPANIES, 2002
($ millions)
Rank
Total managed
mortgaged receivables1
Company
1
Washington Mutual Bank (Mortgage)
$723,100.0
2
Wells Fargo Home Mortgage Inc.
570,312.0
3
Countrywide Financial Corp.
452,405.0
4
Chase Manhattan Mortgage Corp.
429,020.0
5
General Motors Acceptance Corp.
418,351.0
6
Bank of America Consumer Real Estate Lending
264,500.0
7
ABN AMRO Mortgage Group Inc.
184,456.0
8
National City Mortgage Co.
123,099.2
9
CitiMortgage Inc.
118,629.7
10
Cendant Mortgage Services
115,847.0
1
TOP FIVE SUBPRIME RESIDENTIAL LENDERS, 2002-20031
($ millions)
Rank
Organization
Location
1
Household Financial Services 3,4
Prospect Heights, IL
2
CitiFinancial
3
4
5
Subprime volume
2002
2003
Percent
change
Market
share2
37.9%
22.2%
$4,800
$6,620
Baltimore, MD
4,412
4,773
8.2
16.0
New Century Financial Corp.
Irvine, CA
2,656
4,700
77.0
15.8
Washington Mutual
Seattle, WA
4,089
4,538
11.0
15.2
Orange, CA
2,414
4,200
74.0
14.1
Ameriquest Mortgage Corp
3
Top 5 Totals:
18,371
24,831
35.2
83.3
First quarter. 2Based on estimated subprime production of $73.74 billion in first quarter 2003. 3Estimate. 4Household was sold to
HSBC in March 2003.
Source: Thomson Media.
1
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Chapter 9: Technology
IT SPENDING
IT SPENDING
Information technology (IT) has transformed the financial services industry, making available many products and services that would have otherwise been impossible to offer. New
features range from asset-backed securities, personal cash management accounts and automated teller machines that were introduced in 1970s to more recent innovations such as
online banking. At the same time, IT has improved efficiency and reduced labor costs.
INFORMATION TECHNOLOGY SPENDING BY
U.S. COMMERCIAL BANKS, 2003-2007 1
•
($ billions)
IT spending by commer cial banks is expected
to grow slowly through
2007, from a total of
$33.8 billion in 2003
to $38.2 billion in
2007, a compound
annual growth rate of
3.3 percent, according
to TowerGroup.
1
Estimated.
Source: TowerGroup.
INFORMATION TECHNOLOGY SPENDING, BY TYPE OF
INSURANCE COMPANY, 1993-2001
($ billions)
Source: TowerGroup.
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TECHNOLOGY
IT SPENDING
INFORMATION TECHNOLOGY SPENDING,
BY TYPE OF INSURANCE COMPANY, 1991 AND 2001
1991
2001
Source: TowerGroup.
•
The two largest com -
INFORMATION TECHNOLOGY SPENDING BY U.S. SECURITIES FIRMS,
2003
($ billions)
ponents of IT spending
Operations
by securities compa -
Institutional sales and trading
nies in 2003 wer e
Brokerage - back office
7.0
Retail brokerage
5.4
Asset management
4.4
institutional sales and
trading operations and
back office operations,
each accounting for
roughly one-third of
total spending.
Clearing and custody
Total
1.5
$25.6
Source: Celent Communications.
INFORMATION TECHNOLOGY SPENDING BY U.S. SECURITIES FIRMS, 2003
$7.3
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TECHNOLOGY
ELECTRONIC COMMERCE
ELECTRONIC COMMERCE
Using advanced information technology, banks have transformed some of their core services, such as personal banking. Consumers can now conduct many banking activities over
the telephone and online as well as in traditional branch offices. The use of personal computers to conduct personal finance has increased as consumers have become more comfortable with making routine purchases online. By 2005, about one-third of households are
expected to use online banking services.
FINANCIAL AND OTHER ONLINE ACTIVITIES,
UNITED STATES, 2000-2002
•
2000
Millions
of
Percent
users
2002
Millions
of
Percent
users
A TowerGroup survey of
households not using online
Percent
increase
2000-2002
banking found the main bar rier was security concerns
(26 percent). Twenty-two
Bank online
17%
14
32%
37
164%
Buy or make a
reservation for travel
36
31
50
59
90
comfortable with banking
Buy a product
48
41
62
73
78
online and 21 percent said
Participate in online auction
15
13
20
22
69
they prefer red to do busi -
Play a game
34
29
37
42
45
Buy or sell stocks
12
10
12
14
40
percent said they were not
Get hobby information
76
65
77
90
38
Get financial information
44
37
42
49
32
ness face to face.
Source: Pew Internet & American Life Project Surveys, March 2000, January 2002, May-June
2002, June-July 2002, September 2002.
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TECHNOLOGY
ELECTRONIC COMMERCE
BANKS OFFERING INTERNET LENDING, 2000-2005
BANKS OFFERING INTERNET BANKING, 2001-2003
Assets
2001
2003
More than $70 billion
100%
100%
$30 billion - $70 billion
100
100
95
100
93
100
57
87
39
75
Less than $5 billion
27
53
TOTAL AND E-COMMERCE REVENUE, SECURITIES AND COMMODITY CONTRACTS, 2000-2001
($ millions)
Revenues
2000
Total
Total selected finance 1
$338,071
2001
E-commerce
$5,976
Total
E-commerce
$293,981 $3,754
E-commerce
as a percent
of total
revenues
Percent change,
2000-2001
Total E-commerce
revenues revenues 2000
-13.0%
-37.2%
1.8%
Securities and commodity
contracts, intermediation
and brokerage
232,798
5,664
195,667
3,570
-15.9
-37.0
2.4
1
Includes securities and commodity contracts intermediation and brokerage, portfolio management, and investment advice.
Source: U.S. Department of Commerce, Bureau of the Census.
2001
1.3%
1.8
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TECHNOLOGY
ELECTRONIC PAYMENTS
ELECTRONIC PAYMENTS
Over the past quarter-century, electronic alternatives to the traditional way of paying bills by
check have revolutionized payments infrastructure. While credit cards continue to contribute the largest share, newer choices such as PIN and signature debit and Automated
Clearing House (ACH) payments have grown rapidly. Debit cards have become increasingly
popular in large part because of the availability of more secure forms of signature.
ACH payments were launched in the early 1970s as a reliable and efficient alternative to
the check. The ACH electronic funds transfer system continues to expand, with larger volumes transacted each year and new types of payments transacted. In fact, ACH payment
can now be initiated by telephone or on the Web. Electronic Benefits Transfers give consumers more flexible access to Social Security, Veterans’ Pensions and other benefits disbursed by the federal government.
TOTAL ESTIMATED VOLUME AND DOLLAR VALUE OF ELECTRONIC PAYMENTS, 2000
Electronic payment instrument
Transaction
volume
(millions)
Dollar
volume
($ millions)
Average
payment
value
General purpose credit cards
12,300.2
$1,072,555
$87.20
2,748.6
162,819
59.24
5,268.6
209,980
39.85
Private label credit cards
Offline debit (signature-based)
1
Online debit (PIN-based)
3,010.4
138,151
45.89
2
5,622.0
5,674,851
1,009.40
Electronic Benefits Transfer (EBT) 3
537.7
13,744
25.56
Automated Clearing House (ACH)
Total
29,487.5
$7,272,100
$246.62
1
Debit card transactions that require the customer’s signature as a means of authentication. 2Allows credits and debits to be processed
between financial institutions. 3Allows a recipient to authorize transfer of government benefits from a federal account to a retailer
account to pay for products received.
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TECHNOLOGY
ELECTRONIC PAYMENTS
CHECK VS. ELECTRONIC PAYMENTS, 2000-2005
Source: Global Concepts, Inc.
NUMBER OF CHECK AND RETAIL ELECTRONIC PAYMENT TRANSACTIONS, 1979-2000
Retail ACH 1
Credit car d
Debit car d
Check
1
Automated Clearing House, an electronic payments network allowing credit and debit payments between depository institutions.
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TECHNOLOGY
ATMs
ATMs
The growth of online banking, electronic payments and deposits, and automated teller
machine (ATM) usage has been driven by customer demand for greater convenience. ATMs
were introduced in the mid-1970s. By 2003, there were some 371,000 in the United States,
more than four times the number of bank and thrift branches. ATMs increasingly are being
installed in places where consumers may want access to their money, such as supermarkets,
convenience stores and transportation terminals.
The ATM business consists of three major entities: ATM cardholders’ banks, the ATM
network that links banks in other locations, and the owners of the ATM machines, which
may or may not be banks. Most banks allow customers to withdraw money from their own
bank’s ATMs free of charge but charge a fee to other banks’ customers. These charges help
offset the cost of ATMs and fees banks must pay to the ATM network system.
OFF-PREMISE ATM DEPLOYMENT, 1997-20031
Year
Total ATMs
Off-premise ATMs
Percent off-premise
1997
165,000
67,000
40.6%
1998
187,000
84,000
44.9
1999
227,000
117,000
51.5
2000
273,000
156,000
57.1
2001
324,000
193,000
59.6
2002
352,000
220,100
62.5
2003
371,000
1
ATMs located away from financial institution branches.
Source: ATM & Debit News.
238,000
64.2
BANK REVENUES FROM ATM TRANSACTION FEES, 1995-2001
($ billions)
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TECHNOLOGY
ATMs
ANNUAL PIN-BASED VOLUME, 1993-2003 1
•
The first U.S. ATM
was installed in 1971
•
Year
ATM volume
(millions)
POS volume2
Total volume
at the Citizens &
1993
7,705
430
8,135
Southern National
1994
8,454
624
9,078
Bank in Atlanta.
1995
9,689
775
10,464
ATM maintenance
1996
10,684
1,096
11,780
costs, including cash
1997
10,980
1,600
12,580
replenishment, servic -
1998
11,160
2,000
13,160
ing, telephone costs
1999
10,889
2,428
13,317
2000
12,840
3,107
15,947
2001
13,584
3,648
17,232
10,598
4,926
15,524
and rent, range from
$12,000 to $15,000
a year.
3
2002
3
2003
10,828
5,944
16,772
1
PIN (personal identification number) volume. Annualized projections based on March data for
1999-2003, June data for 1997-1998, August data for 1996 and September data for all other
years. 2POS (point of sale) is a retail payment system that allows funds to be transferred
electronically from a customer’s account to a retailer, for example from a debit card. 3Adjusted
to eliminate double-counting caused by two networks reporting a transaction. After 2001,
transactions are reported only by the authorizing network.
A JUNE 2003 STUDY BY THE FEDERAL RESERVE BANK SHOWS:
■ The percentage of banks that charge their customers for withdrawals from their own ATMs remained stable at about 3 percent from 2001 to 2002. However, the percentage of banks that charge their depositors for cash withdrawals from ATMs owned by other banks dropped about 10 percentage points to 70
percent. Some 90 percent charged for cash withdrawals by noncustomers, about the same as in 2001.
■ Ninety-three percent of banks and savings and loan associations (S&Ls) offered ATM services in 2002, up
2.5 percentage points from 2001.
■ In 2002, 10.3 percent of banks and S&Ls charged an annual fee for ATM services, a decrease of 0.4
percentage points from the previous year. The average fee was $11.65.
■ In 2002, 4 percent of banks and S&Ls charged a fee to issue an ATM card (on average $6.39), a rise of
0.5 percentage points from 2001. The average charge rose $1.88.
■ In 2002, banks and S&Ls that charged their depositors for withdrawals using “foreign” ATMs imposed an
average fee of $1.14, about the same as in 2001. Banks that imposed surcharges on noncustomers
using their ATM services charged an average $1.36 in 2002, up 3 percent from 2001.
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TECHNOLOGY
ATMs
ATM TRANSACTIONS, 1993-2003 1
Total transactions 2
(millions)
Average monthly ATM
transactions
Terminals
1993
6,772
94,822
642.1
1994
6,459
109,080
704.5
1995
6,580
122,706
807.4
1996
6,399
139,134
890.3
1997
5,515
165,000
910.0
1998
4,973
187,000
930.0
1999
3,997
227,000
907.4
2000
3,919
273,000
1,070.0
2001
3,494
324,000
1,132.0
2002
2,509
352,000
Year
883.23
2003
2,432
371,000
902.33
1
June data for 1993-1998, March data for 1999-2003. 2Total network transactions include all deposits, withdrawals, transfers, payments, and balances inquiries performed on ATMs in the network, whether or not those transactions are switched through the network
data center, as well as point of sale transactions on network terminals. 3Adjusted to eliminate double-counting caused by two networks
reporting a transaction. After 2001, transactions are reported only by the authorizing network.
TOP TEN ATM OWNERS, 2002-2003 1
Number of ATMs
Rank
Owner
2002
2003
12,000 2
14,200 2
American Express
7,400
7,1003
3
U.S. Bancorp
6,108
6,663
4
Wells Fargo
6,488
6,353
5
Wachovia
4,675
4,560
6
Cardtronics
NA
4,500
7
Bank One
5,141
3,700
8
PNC
3,283
3,556
9
FleetBoston
3,750
1
Bank of America
2
10
E•Trade
420
January data. 2Estimate. 3AmEx sold 1,704 of these ATMs to Cardtronics in August 2003.
3,500
2
3,000
1
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TECHNOLOGY
WIRELESS TECHNOLOGY
WIRELESS TECHNOLOGY
Despite the popularity of wireless technologies such as cell phones and personal digital
assistants, the number of consumers using them to conduct financial services transactions
has been declining since 2001. At the same time, wireless networks are rapidly becoming a
cost-effective alternative for providing network connectivity in business organizations. To
address security concerns, in February, 2002 the Federal Deposit Insurance Corporation
issued guidelines on managing risks associated with wireless networks and wireless customer access.
INFORMATION TECHNOLOGY SPENDING ON WIRELESS RETAIL
FINANCIAL SERVICES IN NORTH AMERICA, 1998-20021
•
($ millions)
In an August 2001 report,
Forrester Research found
that while more than
40 million Americans wer e
both online and owned a
device that could conduct
wireless transactions, bar ely 1 percent of consumers
conducted financial transac tions using a wireless
device.
1
Includes banking and securities. 2Estimated.
WIRELESS BANKING AND BROKERAGE USERS, 1998-20031
(Number of units)
1
Wireless devices include cell phones and personal digital assistants (PDAs) such as Palm Pilots. Laptop-based applications are not
included. 2Estimated.
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Chapter 10: World Rankings
FINANCIAL SERVICES
WORLD’S LARGEST FINANCIAL SERVICES FIRMS, 20021
($ millions)
Rank Company
Revenues
Profits
$131,698
$14,118
Allianz
101,930
-1,103
3
Citigroup
100,789
4
ING Group
5
American
International Group
6
1
General Electric
2
Profits as a percent of
Revenues Assets Country
11%
Industry
3%
U.S.
-1
0
Germany
Insurance
15,276
15
1
U.S.
Banking
88,102
4,255
5
1
Netherlands
Insurance
67,482
5,519
8
1
U.S.
Insurance
AXA
62,051
897
1
0
France
Insurance
7
Nippon Life Insurance
61,175
927
2
0
Japan
Insurance
8
Assicurazioni Generali
53,599
-713
-1
0
Italy
Insurance
9
Fannie Mae
52,901
4,619
9
1
U.S.
10
Deutsche Bank
52,133
375
1
0
Germany
Banking
11
Credit Suisse
52,122
-2,126
-4
0
Switzerland
Banking
12
Munich Re Group
51,980
1,022
2
1
Germany
Insurance
13
BNP Paribas
51,127
3,115
6
0
France
Banking
14
49,654
-2,796
-6
-2
U.S.
Insurance
15
Aviva
49,533
-802
-2
0
U.K.
Insurance
16
45,732
9,249
20
1
U.S.
Banking
17
Fortis
43,598
503
1
0
Belgium/
Netherlands
Banking
18
43,372
1,663
4
0
U.S.
Banking
19
Dai-ichi Mutual Life
Insurance
43,134
464
1
0
Japan
Insurance
20
Berkshire Hathaway
42,353
4,286
10
3
U.S.
Insurance
21
UBS
42,330
2,271
5
0
Switzerland
Banking
22
Zurich Financial Services
40,638
-3,430
-8
-1
Switzerland
Insurance
23
HSBC Holdings
39,730
6,239
16
1
U.K.
Banking
24
Freddie Mac
39,663
5,764
15
1
U.S.
France
Banking
25 Crédit Agricole
36,745
2,172
6
0
1
Ranked by revenues. Based on an analysis of companies in the Global Fortune 500.
Source: Fortune.
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WORLD RANKINGS
INSURANCE
TOP TEN GLOBAL PROPERTY/CASUALTY INSURANCE COMPANIES, BY REVENUES, 20021
($ millions)
Rank
Revenues2
Company
$101,930
Country
1
Allianz
Germany
2
American International Group
67,482
U.S.
3
Munich Re Group
51,980
Germany
4
49,654
U.S.
5
Berkshire Hathaway
42,353
U.S.
6
Zurich Financial Services
40,638
Switzerland
7
Allstate
29,579
U.S.
8
Millea Holdings
24,038
Japan
9
Swiss Reinsurance
22,109
Switzerland
10
Royal & Sun Alliance
19,700
U.K.
Ranked by revenues. Based on an analysis of companies in the Global Fortune 500. Includes stock and mutual companies.
2
Revenues include premium and annuity income, investment income and capital gains or losses but excludes deposits; includes consolidated subsidiaries, excludes excise taxes.
1
Source: Fortune.
TOP TEN GLOBAL LIFE/HEALTH INSURANCE COMPANIES, 20021
($ millions)
Rank
Company
Revenues
Country
1
ING Group
$88,102
Netherlands
2
AXA
62,051
France
3
Nippon Life Insurance
61,175
Japan
4
Assicurazioni Generali
53,599
Italy
5
Aviva
49,533
U.K.
6
Dai-ichi Mutual Life Insurance
43,134
Japan
7
Sumitomo Life Insurance
36,305
Japan
8
Prudential
35,819
U.K.
9
MetLife
34,104
U.S.
10
Aegon
29,445
1
Source: Fortune.
Netherlands
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WORLD RANKINGS
REINSURANCE/BANKS
TOP TEN GLOBAL REINSURERS, 20021
($ millions)
Rank Company
Net reinsurance
premiums written
Country
$24,924.3
Germany
1
Munich Re Group
2
Swiss Re Group
21,600.0
Switzerland
3
Berkshire Hathaway Re Group
13,083.0
U.S.
4
Hannover Re Group
8,526.4
Germany
5
Employers Re Group
7,892.0
U.S.
6
Lloyd’s
6,808.6
U.K.
7
SCOR Re Group
4,693.4
France
8
Allianz Re Group
4,584.7
Germany
4,463.3
Germany
9
Gerling Global Re Group
2
10 XL Re Group
3,544.2
Bermuda
Ranked by net reinsurance premiums written.
2
Ceased underwriting new business in the nonlife reinsurance market in October 2002; this business is now in run-off. Life reinsurance business will be continued in a new company, Gerling Life Reinsurance GmbH.
1
Source: Standard & Poors.
TOP TEN GLOBAL COMMERCIAL AND SAVINGS BANKS, 20021
($ millions)
Rank Company
Revenues
$100,789
Country
1
Citigroup
2
Deutsche Bank
52,133
Germany
3
Credit Suisse
52,122
Switzerland
4
BNP Paribas
51,127
France
5
45,732
U.S.
6
Fortis
43,598
Netherlands
7
43,372
U.S.
8
UBS
42,330
Switzerland
9
HSBC Holdings
39,730
U.K.
10 Crédit Agricole
36,745
1
U.S.
France
Source: Fortune.
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WORLD RANKINGS
SECURITIES/DIVERSIFIED FINANCIAL
TOP FOUR GLOBAL SECURITIES FIRMS, 20021
($ millions)
Rank
Company
Revenues
Country
1
Morgan Stanley
$32,415
U.S.
2
Merrill Lynch
28,253
U.S.
3
Goldman Sachs Group
22,854
U.S.
4
Lehman Brothers Hldgs.
16,781
U.S.
1
Source: Fortune.
TOP SIX GLOBAL DIVERSIFIED FINANCIAL COMPANIES, 20021
($ millions)
Rank
Company
1
General Electric
2
3
Revenues
Country
$131,698
U.S.
Fannie Mae
52,901
U.S.
Freddie Mac
39,663
U.S.
4
American Express
23,807
U.S.
5
Household International
14,672
U.S.
6
Marsh & McLennan
10,440
1
Source: Fortune.
U.S.
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Appendices
SUMMARY OF THE GRAMM-LEACH-BLILEY ACT
The Gramm-Leach-Bliley Act (GLB) was signed into law on November 12, 1999, culminating almost a decade of efforts to pass such a measure. The legislation essentially ended
regulations that prevented companies in the various financial sectors from engaging in
each other’s businesses. The law repeals major sections of the Glass-Steagall Act of 1933,
the Bank Holding Company Act of 1956 and other federal banking laws. The following
explains some of the law’s provisions.
Financial Holding Companies
GLB expanded permissible activities for bank holding companies, entities that control one
or more commercial banks, by creating a new type of financial services company, the
financial holding company (FHC). Under the act, securities firms, banks, insurance companies and other entities engaged in financial services may affiliate under an FHC umbrella and cross-sell an affiliate’s products within a regulatory system overseen by the Federal
Reserve Board.
An FHC may engage in many financial activities, including any future activity the
Federal Reserve, in conjunction with the Secretary of the Treasury, considers to be financial in nature, incidental to finance, or complementary to a financial activity as long as it
does not pose a substantial risk to the safety and soundness of the institution. More than
500 bank holding companies elected to become FHCs within the first 12 months that the
option was available.
Commercial (Nonfinancial) Business
Prior to the passage of GLB, banks and others had been concerned about the possibility of
commercial entities such as big retail stores entering the banking business. While a financial firm engaged in nonfinancial activities is not required to divest itself of these activities
for at least 10 years if they do not constitute more than 15 percent of its business, the act
bars expansion of such activities by mergers and nonfinancial company ownership of commercial banks. In addition, while existing thrift nonfinancial activities are protected by a
grandfather provision, commercial companies are prohibited from buying thrifts. Securities
firms may continue existing nonfinancial business activities on a limited basis for a limited
time.
Regulation
All financial services activities are essentially regulated by the agency that oversaw such
transactions before the passage of the law. Thus, whether insurance is sold by a bank or
insurance company, the sale is regulated by the states. This is known as “functional regulation.” Functional regulation particularly addressed the fears of some insurers that the system of state regulation of insurance would be summarily disbanded and replaced by a fedThe Financial Services Fact Book 2004 159
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eral regulatory framework. At the same time, forms of federal regulation have support from
many from within the insurance industry and state vs. federal regulation is one of its most
controversial subjects.
National Banks
National banks are commercial banks with a national as opposed to state charter. Those
that meet the GLB’s capitalization and management requirements may establish financial
operating subsidiaries. These subsidiaries can sell any financial product and assume the
risk as dealer for most financial products. However, national banks may not underwrite
insurance (except credit-related insurance) or engage in real estate development, real estate
investment, or merchant banking because these are riskier businesses requiring more capital and more safeguards to protect that capital. Merchant banking, an investment bank
activity in which the bank raises funds or lends its own capital for a period to finance a
transaction, may be allowed starting in 2004. National banks may continue to underwrite
municipal revenue bonds, an activity that was not barred under Glass-Steagall.
Independent banks, which are not affiliated with multibank holding companies, and
which are also known as community banks because they are locally owned and operated,
may sell financial products through joint ventures with other bank and thrift institutions.
Insurance
GLB’s response to the concern of banks and insurance agents that regulatory agencies create a level playing field for the sale of insurance products is a framework to resolve disputes over regulatory practices and how a new product should be classified — as an insurance or a banking product. GLB sets up procedures for resolving these disputes.
In addition, federal regulators must establish consumer protection regulations for
banks selling insurance. In case of conflict with state laws, only federal standards stricter
than state laws pre-empt those laws.
Securities
General bank exemption from registration with the Securities and Exchange Commission
(SEC) as a broker has been replaced with a list of specific exempt activities such as trust
and custodial activities, employment benefit plan management, and others. Banks can continue to create and trade in derivatives, swaps and other similar securities products. The
SEC, in consultation with the Federal Reserve Board, is authorized to rule on whether a
specific product is a security which can only be sold by a broker/dealer affiliate.
Privacy
The issue of privacy, which tended to divide consumer groups wanting tight restrictions on
personal information from financial services companies seeking broad access for cross160 The Financial Services Fact Book 2004
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APPENDICES
marketing purposes, was partially resolved through compromise. Financial institutions may
share customer information with affiliates and joint venture partners, but are barred from
disclosing customer account numbers or access codes to unaffiliated third parties for marketing purposes, with certain narrow exceptions necessary for the conduct of the customers’
business or compliance with regulations. Other customer information may be shared with
third parties, but customers must be informed and have the right to bar such sharing. Any
attempt to gain private customer information by fraud or deception is made a federal crime
punishable by up to five years in prison.
SUMMARY OF
THE GRAMM-LEACH-BLILEY FINANCIAL SERVICES MODERNIZATION ACT OF 1999
Titles of the Act
Provisions
TITLE I: Affiliations among Banks,
Allows banks, securities firms, insurance companies and other firms engaged in
Securities Firms and Insurance
financial services to affiliate under a financial holding company (FHC) structure
Companies
TITLE II: Functional Regulation
Specifies that all financial activities will be functionally regulated by the
relevant regulatory body: banking (Federal Reserve), securities (Securities
and Exchange Commission) and insurance (state regulators)
TITLE III: Insurance Regulation
Covers state regulation of insurance, redomestication of mutual insurers, National
Association of Registered Agents and Brokers, rental car agency insurance activities and confidentiality
TITLE IV: Unitary Thrift Holding
Prohibits unitary savings and loan holding companies from engaging in
Company Provisions
nonfinancial activities or affiliating with nonfinancial entities
TITLE V: Privacy
Requires all financial institutions to disclose to customers their privacy policy
for nonpublic information
TITLE VI: Federal Home Loan Bank
Establishes a new capital structure for FHLBs, increases access to funds for
(FHLB) System Modernization
smaller member banks, and discusses regulatory changes
TITLE VII: Other Provisions
Addresses ATM fee reform, the Community Reinvestment Act and other
regulatory improvements
Source: TowerGroup.
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APPENDICES
GLOSSARY
Assets: Something that has commercial
or exchange value owned by an individual or business.
In the insurance industry, state laws require a conservative valuation of assets. Insurance companies are not
allowed to list some assets whose values are uncertain,
such as furniture, fixtures, debit balances, and
accounts receivable that are more than 90 days past
due.
Bank Holding Company: A company that owns or controls one or more banks. The Federal Reserve has
responsibility for regulating and supervising bank holding company activities, such as approving acquisitions
and mergers and inspecting the operations of such companies. This authority applies even though a bank
owned by a holding company may be under the primary
supervision of the Comptroller of the Currency or the
FDIC.
Basis Point: Unit of measure used to describe
interest rates and bond yields. One basis point equals
0.01 percent.
Bond: A security that obligates the issuer to pay interest at specified intervals and to repay the principal
amount of the loan at maturity.
Capital: In the insurance industry, shareholder’s equity
(for publicly-traded insurance companies) and retained
earnings (for mutual insurance companies). Each state
has its own requirements. There is no general measure
of capital adequacy for property/casualty insurers.
Capital Market: The market in which corporate equity
and longer-term debt securities (those maturing in
more than one year) are issued and traded.
Collateral: Property that is offered to secure a loan or
other credit and that becomes subject to seizure on
default. (Also called security.)
Combined Ratio: Percentage of each premium dollar a
property/casualty insurer spends on claims and expenses. When the ratio is over 100, the insurer has an underwriting loss.
Credit: The promise to pay in the future in order to
buy or borrow in the present. The right to defer payment of debt.
Demand Deposit: Customer assets that are held in a
checking account. Funds can be readily withdrawn by
check, “on demand.”
Depository Institution: Financial institution that
obtains its funds mainly through deposits from the
public. Includes commercial banks, savings and loan
associations, savings banks, and credit unions.
Derivatives: Contracts that derive their value from an
underlying financial asset, such as publicly-traded
securities and foreign currencies. Often used as a
hedge against changes in value.
Direct Premiums: Property/casualty premiums collected by the insurer from policyholders, before reinsurance premiums are deducted. Insurers may share some
direct premiums and the risk involved with their reinsurers.
Earned Premiums: The portion of premium that
applies to the expired part of the policy period.
Insurance premiums are payable in advance, but the
insurance company does not fully earn them until the
policy period expires.
Equity: In investments, the ownership interest of shareholders. In a corporation, stocks as opposed to bonds.
Federal Funds: Reserve balances that depository
institutions lend each other, usually on an overnight
basis. In addition, Federal funds include certain other
kinds of borrowings by depository institutions from
each other and from federal agencies.
Futures: Agreement to buy a security for a set price at
a certain date. Futures contracts usually involve commodities, indexes or financial futures.
Intermediation: The process of bringing savers,
investors and borrowers together so that savers and
investors can obtain a return on their money and borrowers can use the money to finance their purchases or
projects through loans.
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GLOSSARY
Liability Insurance: Insurance for what the policyholder is legally obligated to pay because of harm
caused to another entity.
Liquidity: The ability and speed with which a security
can be converted into cash.
Money Supply: Total supply of money in the economy,
composed of currency in circulation and deposits in savings and checking accounts. By changing the interest
rates the Federal Reserve seeks to adjust the money supply to maintain a strong economy.
Net Premiums Written: See Premiums Written.
Options: Contracts that allow, but do not oblige, the
buying or selling of property or assets at a certain date
at a set price.
Over-the-counter (OTC): Security that is not listed or
traded on an exchange such as the New York Stock
Exchange. Business in over-the-counter securities is
conducted through dealers using electronic networks.
Premiums Written: The total premiums on all policies
written by an insurer during a specified period of time,
regardless of what portions have been earned. Net premiums written are premiums written after reinsurance
transactions.
Primary Market: In the securities industry, the market
for new issue securities where the proceeds go directly
to the issuer.
Prime Rate: Interest rate that banks charge to their
most creditworthy customers. Banks set this rate
according to their cost of funds and market forces.
Private Placement: Securities that are not registered
with the Securities and Exchange Commission and are
sold directly to investors.
Repur chase Agreement (Repo): Agreement between a
buyer and seller where the seller agrees to repurchase
the securities at an agreed upon time and price.
Repurchase agreements involving U.S. government
securities are utilized by the Federal Reserve to control
the money supply.
Secondary Market: Market for previously issued and
outstanding securities.
Securities Outstanding: Stock held by shareholders.
Surplus: The remainder after an insurer’s liabilities are
subtracted from its assets. The financial cushion that
protects policyholders in case of unexpectedly high
claims.
Swaps: The simultaneous buying, selling or exchange
of one security for another among investors to change
maturities in a bond portfolio, for example, or because
investment goals have changed.
Time Deposit: Funds that are held in a savings account
for a predetermined period of time at a set interest rate.
Banks can refuse to allow withdrawals from these
accounts until the period has expired or assess a penalty for early withdrawals.
Transparency: A term used to explain the way information on financial matters, such as financial reports
and actions of companies or markets, are communicated so that they are easily understood and frank.
Treasury Securities: Interest-bearing obligations of the
U.S. government issued by the Treasury as a means of
borrowing money to meet government expenditures not
covered by tax revenues. Marketable Treasury securities
fall into three categories — bills, notes and bonds.
Marketable Treasury obligations are cur rently issued in
book entry form only; that is, the purchaser receives a
statement, rather than an engraved certificate.
Underwriting Income: The insurer’s profit on the
insurance sale after all expenses and losses have been
paid. When premiums aren’t sufficient to cover claims
and expenses, the result is an underwriting loss. Underwriting losses are typically offset by investment income.
Volatility: A measure of the degree of fluctuation in a
stock’s price. Volatility is exemplified by large, frequent
price swings up and down.
Volume: Number of shares a stock trades either per day
or per week.
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BRIEF HISTORY
YEAR
1601
EVENT
First insurance legislation in the U.K. enacted. Modern insurance has its root in this law concerning coverages for
merchandise and ships.
1735
Friendly Society, first insurance company in the U.S., established in Charleston, S.C. The mutual insurer went out of
business in 1740.
1759
First life insurance company established in Philadelphia by the Synod of the Presbyterian Church.
1762
Equitable Life Assurance founded. Was the world’s oldest mutual insurer until it failed in 2001.
1782
Pennsylvania chartered first bank in the U.S.
1790
The federal government refinanced all federal and state Revolutionary War debt, issuing $80 million in bonds. These
became the first major issues of publicly-traded securities, marking the birth of the U.S. investment markets.
1791
Secretary of the Treasury, Alexander Hamilton, established first Bank of the United States.
1792
Insurance Company of North America, first stock insurance company, established.
The Buttonwood Agreement, pact between 24 brokers and merchants to trade securities on a common commission
basis, marks origins of The New York Stock Exchange. Bank of America is first listed stock.
1809
Rhode Island was the scene of first bank failure.
1849
New York passed first general insurance law in the U.S.
1850
Franklin Health Assurance Company of Massachusetts offered first accident and health insurance.
1863
Office of the Comptroller of the Currency established in the U.S. Treasury Department. Authorized to charter banks
and issue national currency.
1875
American Express established first pension plan in the U.S.
1880
First corporate surety company established.
1890
First policies providing benefits for disabilities from specific diseases offered.
1898
Travelers Insurance Company issued first automobile insurance policy in the U.S.
1909
St. Mary’s Cooperative, first U.S. credit union, formed in New Hampshire.
Massachusetts passed first state credit union law.
1911
Group life insurance for employees introduced.
1913
Federal Reserve established to replace J.P. Morgan as lender of last resort.
1916
National Bank Act, limiting bank insurance sales except in small towns, passed.
1920
Financial options introduced.
1924
First mutual funds established in Boston.
1929
Stock market crash. Nearly 10,000 U.S. banks failed.
1932
Federal Home Loan Bank Act established Federal Home Loan Bank System to act as central credit system for savings and loans institutions.
1933
Glass-Steagall Act, separating banking and securities industries, passed by Congress.
Federal Deposit Corporation, guaranteeing accounts up to $2,500, opened.
Securities Act of 1933, to regulate registration and offering of new securities, including mutual funds, to the public,
passed.
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BRIEF HISTORY
YEAR
1934
EVENT
Securities Exchange Act passed. Authorized Securities and Exchange Commission to provide for fair and equitable
securities markets.
Federal Savings and Loan Insurance Corporation established by Congress to insure savings and loans deposits.
Replaced by Savings Association Insurance Fund in 1989.
Federal Credit Union Act of 1934 authorized establishment of federally-chartered credit unions in all states.
1936
Revenue Act of 1936 established tax treatment of mutual funds.
1940
Investment Company Act set structure and regulatory framework for modern mutual fund industry.
1944
National Association of Investment Companies, predecessor to the Investment Company Institute, formed and began
collecting statistics.
1950
First package policies for homeowners insurance introduced.
1955
First U.S.-based international mutual fund introduced.
1956
Bank Holding Company (BHC) Act, putting multiple bank holding companies under federal supervision, passed.
Stipulates that nonbanking activities of BHCs must be "closely related to the business of
banking."
1960
Bank Merger Acts of 1960 and 1966 set standards for mergers and placed them under federal authority.
1961
Banking industry introduced fixed rate certificates of deposit.
1962
Keogh plans, providing savings opportunities for self-employed individuals, introduced under the Self Employed
Individuals Tax Retirement Act.
1968
Mortgage insurance introduced.
1970
U.S. government introduced mortgage-related securities to increase liquidity.
National Credit Union Administration created to charter and supervise federal credit unions.
National Credit Union Share Insurance Fund created by Congress to insure members’ deposits in credit unions up to
the $100,000 federal limit. Administered by the National Credit Union Administration.
1971
Municipal bonds insured for first time in arrangement between American Municipal Bond Assurance Corporation
(predecessor to Ambac Assurance Corporation) and Borough Medical Arts Building in Alaska.
1972
Money market mutual funds introduced.
1974
Automated teller machines (ATMs) widely introduced.
Employee Retirement Income Security Act (ERISA) set minimum standards for pension plans in private industry;
established the federal Pension Benefit Guaranty Corporation to protect pension benefits. private industry
1975
SEC deregulated broker commissions by eliminating fixed commissions brokers charged for all securities transactions.
1976
First individual variable life insurance policy issued.
1977
Banking industry introduced variable rate certificates of deposit.
Community Reinvestment Act passed to encourage banks to meet credit needs of their local communities.
1978
International Banking Act limited the extent to which foreign banks could engage in securities activities in the U.S.
1979
Congress created the Central Liquidity Facility, credit union lender of last resort.
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BRIEF HISTORY
YEAR
1980
EVENT
Depository Institutions Deregulation and Monetary Control Act provided universal requirements for all financial institutions, marking first step toward removing restrictions on competition for deposits.
The Office of the Comptroller of the Currency and the Federal Reserve authorized banks to establish securities subsidiaries to combine the sale of securities with investment advisory services.
1982
Garn-St.Germain Depository Institutions Act authorized money market accounts and expanded thrifts’ lending powers.
Stock market futures contracts introduced.
1983
Federal government introduced collateralized mortgage obligations.
Bank of America bought discount securities broker, Charles Schwab. Schwab reacquired the discounter in 1987.
1987
Federal Reserve ruling interpreting Section 20 of Glass-Steagall as permitting separately capitalized affiliates of commercial bank holding companies to engage in a variety of securities activities on a limited basis.
1989
Financial Institutions Reform, Recovery and Enforcement Act, providing government funds to insolvent savings and
loan institutions (S&Ls) from the Resolution Trust Corporation and incorporating sweeping changes in the examination and supervision of S&Ls, established.
Savings Association Insurance Fund, deposit insurance fund operated by the FDIC, established.
1990
J.P. Morgan permitted to underwrite securities.
1992
European Union’s Third Non-Life Insurance Directive became effective, establishing a single European market for
insurance.
1994
Riegle-Neal Interstate Banking and Branching Efficiency Act allowed bank holding companies to acquire banks in any
state and, as of June 1, 1997, to branch across state lines.
1995
U.S. Supreme Court ruled in NationsBank vs. Variable Annuity Life Insurance Company that annuities are not a form
of insurance under the National Bank Act, thus allowing national banks to sell annuities without limitation.
1996
Barnett Bank U.S. Supreme Court decision allowed banks to sell insurance nationwide.
Section 20 of Glass-Steagall amended to allow commercial bank affiliates to underwrite up to
25 percent of revenue in previously ineligible securities of corporate equity or debt.
1997
The Financial Services Agreement of the General Agreement on Trade in Services provided framework to reduce or
eliminate barriers that prevent financial services from being freely provided across national borders, or that discriminate against foreign-owned firms.
1998
Citibank and Travelers merged to form Citigroup, a firm engaged in all major financial services sectors.
1999
Financial Services Modernization Act (Gramm-Leach-Bliley Act) allowed banks, insurance companies and securities
firms to affiliate and sell each other’s products. Restructured the Federal Home Loan Bank System.
2001
U.S. House of Representatives Banking Committee renamed itself the Financial Services Committee.
2002
Citigroup spun off its Travelers’ property/casualty insurance unit.
J.P. Morgan Chase introduced an annuity, becoming one of the first banking companies to underwrite an insurance
product under the Gramm-Leach-Bliley Act.
Sarbanes-Oxley Act enacted to increase the accountability of the boards of publicly held companies to their shareholders. Strengthens the oversight of corporations and their accounting firms.
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FINANCIAL SERVICES ORGANIZATIONS
Advantage Group • 1610 Des Peres Rd., Suite 370. St. Louis, MO 63131. Tel. 314-984 – 0028. Fax. 314-984
– 0068. http://www.indexannuity.org/ — Provides research and consulting services to insurance companies
and financial service firms in all aspects of index annuities.
Alliance of American Insurers • 3025 Highland Pkwy, Suite 800, Downers Grove, IL 60515. Tel. 630-7242100. Fax. 630-724-2190. http://www.allianceai.org — Trade association of property/casualty insurers providing educational, legislative, promotional and safety services to its members.
A.M. Best Company, Inc. • Ambest Rd., Oldwick, NJ 08858. Tel. 908-439-2200. Fax. 908-439-2237.
http://www.ambest.com — Rating organization and publisher of books and periodicals relating to the insurance industry.
American Association of Health Plans • 1129 20th St., NW, Suite 600, Washington, DC 20036-3421. Tel.
202-778-3200. Fax. 202-331-7487. http://www.aahp.org/ — Supports the health maintenance organization
industry. (Merging with the Health Insurance Association of America in 2004.)
American Bankers Association • 1120 Connecticut Ave., NW, Washington, DC 20036. Tel. 800-BANKERS.
Fax. 202-663-7543. http://www.aba.com — Represents banks of all sizes on issues of national importance
for financial institutions and their customers. Brings together all categories of banking institutions, including community, regional and money center banks and holding companies, as well as savings associations,
trust companies and savings banks.
American Bankers Insurance Association • 1120 Connecticut Ave., NW, Washington, DC 20036. Tel. 202663-5163. Fax. 202-828-4546. http://www.theabia.com — A separately chartered affiliate of the American
Bankers Association. A full service association for bank insurance interests dedicated to furthering the policy and business objectives of banks in insurance.
American Council of Life Insurers • 101 Constitution Ave, NW Ave., Washington, DC 20001-2133. Tel. 202624-2000. Fax. 202-624-2317. http://www.acli.com/ — Trade association responsible for the public affairs,
government, legislative and research aspects of the life insurance business.
American Financial Services Association • 919 18th St., NW, Suite 300, Washington, DC 20006. Tel. 202296-5544. Fax. 202-223-0321. http://www.americanfinsvcs.com — The national trade association for market
funded providers of financial services to consumers and small businesses.
American Insurance Association • 1130 Connecticut Ave., NW, Suite 1000, Washington, DC 20036. Tel.
202-828-7100. Fax. 202-293-1219. http://www.aiadc.org/ — Trade and service organization for
property/casualty insurance companies. Provides a forum for the discussion of problems and provides
safety, promotional and legislative services.
Annuitynet/VARDS • 2350 Corporate Park Dr., Sixth Fl., Herndon, VA 20171. Tel. 703-234-0150.
http://www.annuitynet.com/aboutus/index.asp — Software technology and research data firm that helps
annuity manufacturers, distributors, and financial advisors implement new technology and business practices in the sale and servicing of annuities.
Association of Financial Guaranty Insurors • c/o TowersGroup, 15 West 39th St., 14th Fl., New York, NY
10018. Tel. 212-354-5020. Fax. 212-391-6920. http://www.afgi.org — Trade association of the insurers and
reinsurers of municipal bonds and asset-backed securities.
Bank Administration Institute • One N. Franklin, Suite 1000, Chicago, IL 60606. Tel. 800-224-9889. Fax.
800-375-5543. http://www.bai.org — A professional organization devoted exclusively to improving the performance of financial services companies through strategic research and information, education and training.
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Bank for International Settlements • Centralbahnplatz 2 and Aeschenplatz 1, PO Box CH-4002, Basel,
Switzerland. Tel. 41-61-280-8080. Fax. 41-61-280-9100. http://www.bis.org — An international organization
which fosters cooperation among central banks and other agencies in pursuit of monetary and financial stability.
Bank Insurance Market Research Group • 154 E. Boston Post Rd., Mamaroneck, NY 10543. Tel. 800-3737723. Fax: 914-381-6947. http://www.singerpubs.com — Provides market research and investment sales data
to the bank and insurance industries, based on in-depth surveys of depository and insurance entities augmented by analysis of government data.
Bank Insurance & Securities Association • 303 West Lancaster Avenue, Suite 2C, Wayne, PA 19087. Tel.
610-989-9047. Fax: 610-989-9102. http://www.bisanet.org — Fosters the full integration of securities and
insurance businesses with depository institutions’ traditional banking businesses. Participants include executives from the securities, insurance, investment advisory, trust, private banking, retail, capital markets, and
commercial divisions of depository institutions. Formed by the merger of the Bank Securities Association
and the Financial Institutions Insurance Association.
Bond Market Association • 360 Madison Ave., New York, NY 10017. Tel. 646-637-9200. Fax. 646-637-9126.
http://www.bondmarkets.com/ — Represents securities firms and banks that underwrite, trade and sell debt
securities, both domestically and internationally.
Celent Communications • 183 State St, 5th Fl., Boston, MA 02109. Tel. 617-573-9450. Fax. 617-573-9455.
http://www.celent.com/contact.htm — Research and consulting firm dedicated to technology in the financial service industry.
College Savings Plan Network • PO Box 11910, Lexington, KY 40578-1910. Tel. 877-277-6496. Fax. 859244-8053. http://www.collegesavings.org/about.htm — The College Savings Plans Network is as an affiliate to
the National Association of State Treasurers. The Network serves as a clearinghouse for information among
college savings programs.
Commercial Finance Association • 225 W. 34th St., Suite 1815, New York, NY 10122. Tel. 212-594-3490.
Fax. 212-564-6053. http://www.cfa.com — The trade group of the asset-based financial services industry,
with members throughout the U.S., Canada and around the world.
Commodity Futures Trading Commission • Three Lafayette Centre, 1155 21st St., NW, Washington, DC
20581. Tel. 202-418-5000. Fax. 202-418-5521. http://www.cftc.gov — Independent agency created by
Congress to protect market participants against manipulation, abusive trade practices and fraud.
Conference of State Bank Supervisors • 1155 Connecticut Ave., NW, 5th Fl. Washington, DC 20036. Tel.
202-296-2840. Fax: 202-296-1928. http://www.csbs.org — National organization that advocates on behalf of
the nation’s state banking system.
Consumer Bankers Association • 1000 Wilson Blvd., Suite 2500, Arlington, VA 22209-3912. Tel. 703-2761750. Fax. 703-528-1290. http://www.cbanet.org/ — The Consumer Bankers Association is the recognized
voice on retail banking issues in the nation’s capital.
Eastbridge Consulting Group, Inc. • 50 Avon Meadow Lane, Avon, CT 06001. Tel. 860-676-9633. Fax. 860677-4233. http://www.eastbridge.com — Provides consulting, marketing, training and research services to
financial services firms, including those involved in worksite marketing and the distribution of individual
and employee benefits products.
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Federal Deposit Insurance Corporation (FDIC) • Division of Finance, 550 17th St., NW, Washington, DC
20429-9990. Tel. 202-736-0000. http://www.fdic.gov — FDIC’s mission is to maintain the stability of and
public confidence in the nation’s financial system. To achieve this goal, the FDIC has insured deposits and
promoted safe and sound banking practices since 1933.
Federal Financial Institutions Examination Council •
2000 K St., NW, Suite 310, Washington, DC 20006.
Tel. 202-872-7500. http://www.ffiec.gov/ — A formal interagency body empowered to prescribe uniform
principles, standards, and report forms for the federal examination of financial institutions by the Board of
Governors of the Federal Reserve System.
Federal Reserve • 20th St. and Constitution Ave., NW, Washington, DC 20551. Tel. 202-452-3000.
http://www.federalreserve.gov/default.htm — Central bank of the United States, founded by Congress in
1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system.
Financial Markets Center • PO Box 334, Philomont, VA 20131. Tel. 540-338-7754. Fax. 540-338-7757.
http://www.fmcenter.org/ — An independent, nonprofit institute that provides research and education
resources to grassroots groups, unions, policymakers and journalists interested in the Federal Reserve
System and financial markets.
Financial Services Coordinating Council • 101 Constitution Ave., NW, Suite 800, Washington DC 20001.
Tel. 202-624-2192. Fax. 202-624-2414. http://www.fsccnews.com — A coalition including the American
Insurance Association, the American Council of Life Insurers, the American Bankers Association, the
Securities Industry Association and the Investment Company Institute, representing the diversified financial services industry.
Financial Services Forum • 745 Fifth Ave., Suite 1602, New York, NY 10151. Tel. 212-308-3420. Fax. 212308-7383. http://financialservicesforum.org — An organization of 20 chief executive officers of major U.S.
financial services firms dedicated to the execution and coordination of activities designed to promote the
development of an open and competitive financial services industry.
Financial Services Industry Council • 2000 Pennsylvania Ave. NW, Suite 6000, Washington, DC 20006. Tel.
202-777-5000. Fax. 202-777-5100. http://www.financialservicesindustrycouncil.com — A unique forum for
insight into the financial services industry. Members gain access to the strategies and practices of the
world’s leading financial institutions.
The Financial Services Roundtable • 1001 Pennsylvania Avenue, NW, Suite 500 South, Washington, DC
20004. Tel. 202-289-4322. Fax. 202-289-1903. http://www.fsround.org/ — A forum for U.S. financial industry
leaders working together to determine and influence the most critical public policy concerns related to the
integration of the financial services industry.
Fitch Ratings • One State Street Plaza, New York, NY 10004. Tel. 212-908-0500. Fax. 212-480-4435.
http://www.fitchratings.com/ — Assigns claims-paying ability ratings to insurance companies.
Futures Industry Association • 2001 Pennsylvania Ave., NW, Suite 600, Washington, DC 20006. Tel. 202466-5460. Fax. 202-296-3184. http://www.futuresindustry.org — Association representative of all organizations that have an interest in the futures market.
Health Insurance Association of America • 555 13th St., NW, Suite 600 East, Washington, DC 20004-1109.
Tel. 202-824-1600. Fax. 202-824-1722. http://www.hiaa.org/ — Central source of health insurance information, responsible for public relations, government relations, legislation and research on behalf of the private
commercial health insurance industry. (Merging with the American Association of Health Plans in 2004.)
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Independent Insurance Agents & Brokers of America, Inc. • 127 S. Peyton St., Alexandria, VA 22314 Tel.
800-221-7917. Fax. 703-683-7556. http://www.independentagent.com — Trade association of independent
insurance agents.
Insurance Information Institute • 110 William St., New York, NY 10038. Tel. 212-346-5500. Fax. 212-7911807. http://www.iii.org/ — A primary source for information, analysis, and referral on insurance subjects.
Insurance Services Office, Inc. (ISO) • 545 Washington Blvd., Jersey City, NJ 07310-1686. Tel. 800-8884476. Fax. 201-469-1472. http://www.iso.com — Provides statistical information, actuarial analyses and consulting, policy language, and related information and technical services to participants in the property/casualty insurance market. Through its Property Claim Service unit, ISO also provides claims information.
International Finance and Commodities Institute • 2, Cours de Rive, 1204 Geneva, Switzerland. Tel. 41-22312-5678. Fax. 41-22-312-5677. http://riskinstitute.ch — Nonprofit foundation created with the objective of
promoting global understanding of commodity trading as well as financial futures and options.
International Swaps and Derivatives Association • 360 Madison Ave., 16th Fl, New York, NY 10020-2302.
Tel. 212-901-6000. Fax. 212-901-6001. http://www.isda.org — The association’s primary purpose is to encourage the prudent and efficient development of the privately negotiated derivatives business.
Investment Company Institute • 1401 H St., NW, Washington, DC 20005. Tel. 202-326-5800. Fax. 202-3265874. http://www.ici.org — The national association of the American investment company industry. Founded
in 1940, its membership includes 8,414 mutual funds, 489 closed-end funds, and eight sponsors of unit
investment trusts.
Kenneth Kehrer Associates • PO Box 7346, Princeton, NJ 08542-3852. Tel. 609-924-8766.
http://www.kenkehrer.com/ — Leading consultant to banks on improving their insurance and securities programs. Conducts studies of sales penetration, profitability, compensation, and compliance.
LIMRA • 300 Day Hill Rd., Windsor, CT 06095-4761. Tel. 860-688-3358. Fax. 860-298-9555.
http://www.limra.com/ — Principal source of life insurance industry sales and marketing statistics.
LOMA (Life Office Management Association) • 2300 Windy Ridge Pkwy., Suite 600, Atlanta, GA 303398443. Tel. 770-951-1770. Fax. 770-984-0441. http://www.loma.org — Worldwide association of insurance
companies specializing in research and education, with a primary focus on home office management.
Moody’s Investors Service • 99 Church St., New York, NY 10007. Tel. 212-553-1658. Fax. 212-553-4062.
http://www.moodys.com — Global credit analysis and financial information firm.
Mortgage Bankers Association of America • 1919 Pennsylvania Ave., NW, Washington, DC 20006-3438.
Tel. 202-557-2700. Fax. 202-557-2700. http://www.mbaa.org/ — Represents the real estate finance industry.
Mortgage Insurance Companies of America (MICA) • 727 15th St., NW, 12th Fl., Washington, DC 20005.
Tel. 202-393-5566. Fax. 202-393-5557. http://micanews.com — Represents the private mortgage insurance
industry. MICA provides information on related legislative and regulatory issues, and strives to enhance
understanding of the vital role private mortgage insurance plays in housing Americans.
National Association of Federal Credit Unions • 3138 10th St. North Arlington, VA 22201-2149. Tel. 703522-4770. Fax. 703-524-1082. http://www.nafcunet.org/ — Trade association that exclusively represents the
interests of federal credit unions before the federal government and the public.
Michael White Associates • 823 King of Prussia Rd., Radnor, PA 19087. Tel. 610-254-0440. Fax. 610-2545044. http://www.indexannuity.org/ — Consulting firm that helps clients plan, develop and implement bank
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insurance sales programs. Conducts research on bank insurance trends.
Museum of American Financial History • 26 Broadway, Rm. 947, New York, NY 10004.
Tel. 212-908-4110. Fax: 212-908-4601. http://www.financialhistory.org — An affiliate of the Smithsonian
Institution, the museum is the nation’s only independent public museum dedicated to celebrating the spirit
of entrepreneurship and the democratic free market tradition.
National Association for Variable Annuities • 11710 Plaza America Dr., Suite 100, Reston, VA 20190. Tel.
703-707-8830. http://www.navanet.org — Promotes the growth, acceptance and understanding of annuity
and variable life products to retirement-focused Americans; provides educational and informational
resources.
National Association of Health Underwriters • 2000 N. 14th St., Suite 450, Arlington, VA 22201. Tel. 703276-0220. Fax. 703-841-7797. http://www.nahu.org/ — Professional association of persons who sell and service disability income, and hospitalization and major medical health insurance.
National Association of Independent Insurers • 2600 River Rd., Des Plaines, IL 60018. Tel. 847-297-7800.
Fax. 847-297-5064. http://www.naii.org — Trade association of fire, property/casualty and surety insurers.
National Association of Insurance and Financial Advisors • 2901 Telestar Ct., PO Box 12012, Falls
Church, VA 22042-1205. Tel. 703-770-8100. Fax. 703-770-8224. http://www.naifa.org/ — Professional association representing health and life insurance agents.
National Association of Mutual Insurance Companies • 3601 Vincennes Rd., PO Box 68700,
Indianapolis, IN 46268. Tel. 317-875-5250. Fax. 317-879-8408. http://www.namic.org — Trade association of
property/casualty mutual insurance companies.
National Association of Professional Insurance Agents • 400 N. Washington St., Alexandria, VA 22314.
Tel. 703-836-9340. Fax. 703-836-1279. http://www.pianet.com — Trade association of independent insurance
agents.
National Association of Securities Dealers • 1735 K St., NW, Washington, DC 20006. Tel. 202-728-8000.
Fax. 301-590-6506. http://www.nasd.com/ — Largest securities industry self-regulatory organization in the
United States. Facilitates capital formation by creating the markets of choice — operated and regulated to
achieve the most liquid, cost-efficient, technologically advanced, and fair securities markets in the world —
for the benefit and protection of investors.
National Credit Union Administration • 1775 Duke St., Alexandria, VA 22314-3428. Tel. 703-518-6300. Fax.
703-518-6671. http://www.ncua.gov — An independent agency in the executive branch of the federal government responsible for chartering, insuring, supervising and examining federal credit unions.
National Council on Compensation Insurance Holdings, Inc. • 901 Peninsula Corporate Circle, Boca
Raton, FL 33487. Tel. 561-893-1000. Fax. 561-893-1191. http://www.ncci.com/ — Develops and administers
rating plans and systems for workers compensation insurance.
National Futures Association • 200 W. Madison St., Suite 1600, Chicago, IL 60606. Tel. 312-781-1300.
Fax. 312-781-1467. http://www.nfa.futures.org — Industry-wide self-regulatory organization for the commodity futures industry.
National Home Equity Mortgage Association • 3833 Schaefer Ave., Suite K, Chino, CA 91710. Tel. 800342-1121. Fax. 909-590-8128. http://www.nhema.org/ — Association committed to keeping consumers
informed and able to take advantage of the benefits afforded by home equity mortgages.
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Office of Thrift Supervision • 1700 G St., NW, Washington, DC 20552. Tel. 202-906-6000. Fax. 202-8980230. http://www.ots.treas.gov/ — The primary regulator of all federal and many state-chartered thrift institutions, which include savings banks and savings and loan associations.
Options Industry Council • The Options Clearing Corporation, One North Wacker Drive, Suite 500,
Chicago, IL 60606. Tel. 888-678-4667. Fax. 312-977-0611. http://www.optionscentral.com — Nonprofit association created to educate the investing public and brokers about the benefits and risks of exchange-traded
options.
Securities and Exchange Commission • 450 Fifth St., NW, Washington, DC 20549. Tel. 202-942-7040.
http://www.sec.gov/ — Primary mission is to protect investors and maintain the integrity of the securities
markets.
Securities Industry Association • 1425 K St., NW, 7th Fl., Washington, DC 20005-3500. Tel. 202-216-2000.
Fax. 202-216-7119. http://www.sia.com/ — Association bringing together the shared interests of securities
firms to accomplish common goals.
SNL Financial LC • One SNL Plaza, PO Box 2124, Charlottesville, VA 22902. Tel. 434-977-1600. Fax. 434977-4466. http://www.snl.com — Research firms that collects, standardizes and disseminates all relevant corporate, financial, market and M&A data plus news and analytics for the industries it covers: banking, specialized financial services, insurance, real estate and energy.
Society of Financial Services Professionals • 270 S. Bryn Mawr Ave., Bryn Mawr, PA 19010-2195. Tel. 610526-2500. http://www.financialpro.org/ — Advances the professionalism of credentialed members with state
of the art resources to serve their clients’ financial needs.
Standard & Poor’s Rating Group • 55 Water St., New York, NY 10041. Tel. 212-438-2000. Fax. 212-4387290. http://www.standardandpoors.com — Monitors the credit quality of bonds and other financial instruments of corporations, governments and supranational entities.
Surety Association of America • 1101 Connecticut Ave., NW, Suite 800, Washington, DC 20036. Tel. 202463-0600. Fax. 202-463-0606. http://www.surety.org — Statistical, rating, development, and advisory organization for surety companies.
Thomson Financial • Metro Center, One Station Place, Stamford, CT 06902. Tel. 203-969-8700. Fax. 203977-8354. http://www.thomson.com/financial/financial.jsp — Complete source for integrated information
and technology applications in the global financial services industry.
TowerGroup • Two Charles River Place, 63 Kendrick St., Needham, MA 02494-2708. Tel. 781-292-5200. Fax.
781-449-6982. http://www.towergroup.com/ — Research and advisory firm focused exclusively on the global
financial services industry.
Weather Risk Management Association (WRMA) • 1156 15th St., NW, Suite 900, Washington, DC 20005.
Tel. 202-289-3800. Fax. 202-393-9741. http://wrma.org — The goal of the WRMA is to serve the weather risk
management industry by providing forums for discussion and interaction with others associated with financial weather products.
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Company Index
A
A.G. Edwards, 11, 110
ABB Ltd.'s Structured Finance
operations, 4, 125
ABN AMRO, 85, 91, 144
ACA, 59
ACE, 58, 60
Advest Bank & Trust Co., 98
Aegon, 72, 73, 74, 156
Aetna, 74
Affiliated Computer Services Inc.,
125
AFLAC, 12, 69
AFSA Data Corp., 125
Allfirst Financial Inc., 76
Alliance Capital, 26, 111
Allianz, 72, 155, 156, 157
Allmerica Financial, 52
Allstate, 12, 13, 52, 73, 74, 97, 156
Ambac, 59
Amer Equity, 72
American Airlines [credit union],
101
American Enterprise, 74
American Express, 10, 13, 26, 102,
133, 153, 158
American Family Ins. Group, 52
American Financial, 52, 76, 97
American Funds, 26
American General, 74
American International Group,
(AIG), 13, 52, 72, 73, 74, 97,
155, 156
American Reinsurance Co., 62
AmeriChoice Corp., 43
Ameriquest Mortgage Corp., 144
Ameritrade Holding Corp., 104
AmerUs Group, 72, 97
Anthem Inc., 43
Aon, 10
Assicurazioni Generali S.p.A., 43,
155, 156
Astoria Financial, 11, 82, 96, 97
Australian Guarantee Corp. Ltd., 4,
125
Auto-Owners Ins., 52
Aviva, 155, 156
AXA, 73, 74, 155, 156
B
Bank of America Corp., 11, 13, 27,
82, 85, 90, 91, 144, 153, 155, 157
Bank of New York, 82
Bank One Corp., 1, 11, 13, 27, 85,
90, 91, 153
Banknorth Group, Inc., 76
BB&T Corp., 76
Bear Stearns, 11, 110
Berkley Ins. Co., 62
Berkshire Hathaway, 13, 52, 155,
156, 157
BlackRock, Inc., 111
BMW Bank of North America, 102
BNP Paribas, 155, 157
Boeing, 101, 134
BT Financial Group, 104
C
Capital One Financial Corp., 10,
133
Capital Research & Management,
124
Cardtronics, 153
Caterpillar Financial Services Corp.,
134
Cendant Corp., 4, 125, 144
Centennial Bancorp, 76
CGU Life, 73
Charles Schwab Corp., 11, 85, 110
Chase Manhattan, 91, 144
Chubb Group of Ins. Companies,
52, 58
CIGNA Corp., 43
CIT Group Inc., 10, 134
Citibank, 27, 82, 91
CitiFinancial, 144
Citigroup, 1,11 ,13, 26 ,76, 85, 90,
91, 111, 133, 155, 157
CitiMortgage Inc., 144
Citizens & Southern National Bank,
152
Clark/Bardes Inc., 43
CNA, 58, 60, 97
Commercial FB, FSB, 82
Commercial Federal Corp., 97
Commonwealth Bancorp Inc., 76
Conseco Inc., 69, 97
Converium Reinsurance North
America Inc., 62
Countrywide Financial Corp., 10,
144
Credit Suisse, 155, 157
Crédit Agricole, 155, 157
CUNA Mutual, 73
D
Dai-ichi Mutual Life Ins., 155, 156
Datek Online Holdings Corp., 104
Deutsche Bank AG, 4, 104, 155, 157
Deutsche Financial Services, 4, 125
Discover Bank, 133
Dreyfus Corp., 124
E
E*Trade Group, 97, 11, 104, 110,
153
Employers Re Group, 62, 157
Equitable Life Assurance Society of
the U.S., 72
Erie Insurance Group, 52
EULER American Credit Ind. Co.,
60
Everest Reinsurance Co., 62
F
Fahnestock Viner Holdings Inc.,
104
Fannie Mae, 10, 13, 155, 158
Federated Investors, Inc., 111, 124
FGIC, 59
Fidelity Investments, 26, 124
Fidelity National Financial, 43, 52
Fifth Third Bancorp, 76
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First American Financial Corp., 52,
97
First American Trust FSB, 97
First Union National Bank, 91
First USA, Inc., 133
Firstar Bank, NA, 91
Fleet National Bank, 91, 82
FleetBoston Financial Corp., 11, 85,
90, 91, 134, 153
Ford Motor Credit Co., 133, 134
Fortis, 155, 157
Franklin Financial Corp., 76
Franklin Resources, Inc., 11, 85,
110, 111
Franklin Templeton Investments,
124
Freddie Mac, 10, 13, 155, 158
Fremont Investment & Loan, 102
FSA, 59
G
Gartmore Global Invts. Inc., 104
Gen Am, 72
General Electric/GE, 4, 10, 13, 61,
74, 102, 104, 125, 133, 134,
155, 158
General Motors Acceptance Corp.,
134, 144
General Reinsurance Corp., 62
Gerling Global Re Group, 157
Global Securities Services, 4
Golden State Bancorp Inc., 76
Golden West Financial Corp., 11,
96, 97
The Golden 1 [credit union], 101
Goldman Sachs Group, Inc., 10, 13,
110, 111, 158
Great Amer E&S Ins. Co., 60
Great American Savings Bank, 97
Great West, 73
GreenPoint Financial Corp., 11, 96,
97
Greenpoint Bank, 82
Guaranty Bank, 82, 97
Guardian, 69, 97
Page 174
H
Hannover Re Group, 63, 157
Hanvit Leasing and Finance Co.,
125
Hartford Financial Services, 12, 52,
97, 58, 72, 73, 74
Hilb Rogal and Hamilton Co., 43
Hobbs Group LLC, 43
Household Finance Corp., 60
Household Financial Services, 144
Household Intl., Inc., 4, 10, 125,
158
HSBC, 4, 91,125, 155, 157
Hudson City Bancorp, Inc. (MHC),
97
I
IBM Credit LLC, 134
Imperial Capital Bank, 102
ING Group, 72, 74, 155, 156
Instinet Group Inc., 104
International Lease Finance Corp.,
134
Island ECN Inc., 104
J
J.P. Morgan Chase, 11, 13, 27, 82,
85, 90, 91, 155, 157
Jackson National Life, 72, 74
Jefferson-Pilot, 69, 72
John Deere Capital Corp., 134
John Hancock Financial Services,
12, 69, 74
K
Kemper Insurance Companies, 58
Keyport Life (Sun), 72
Kinecta [credit union], 101
L
Lafayette Life, 72
Legg Mason, Inc., 11, 110, 111
Lehman Brothers Holdings, 11, 13,
110, 158
Liberty Life, 73
Liberty Mutual Insurance Group,
12, 52, 58
Lincoln National Life Insurance
Co., 69, 72, 74
Lloyd's, 33, 63, 157
Loews (CNA), 12, 52
Lone Star Funds, 125
Long Miller & Associates, 43
M
M&T Bank Corp., 76
Manulife, 26
Marsh & McLennan, 10, 158
Marshall & Ilsley Corp., 76
Massachusetts Mutual Life Ins. Co.,
12, 13, 69, 97
The MassMutual Trust Co., 97
MBIA, 59
MBNA Corp., 11, 90, 133
Medford Bancorp Inc., 76
Mellon Bank, 82, 85
Merrill Lynch, 10,13, 26, 110, 111,
124, 158
MetLife, 12, 13, 43, 69, 72, 85, 97,
56
Midland National, 72
Mill Creek Bank, 102
Millea Holdings, 156
Mississippi Valley Bancshares, Inc.,
76
MLI, 72
Monogram Credit Services LLC,
4, 125
MONY Group Inc., 97
Morgan Stanley Dean Witter, 10,
13, 102, 110, 111, 124, 158
Mortgage Guaranty Ins. Corp., 61
Munich Re Group, 155, 156, 157
Mutual of Omaha Ins., 69
N
National City, 11, 27, 90, 144
National Indemnity Co., 62
Nationwide, 12, 52, 72, 73, 74, 98,
104
Navy [credit union], 101
NEF, 72
New Century Financial Corp., 144
New London Trust FSB, 98
New York Life, 12, 13, 69, 97, 98
04.11fs.appendFINAL
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Nippon Life Ins., 155, 156
Nissay Dowa, 63
North American Life, 72
Northern Trust Corp., 104
Northwestern Mutual, 12, 69, 98
O
Odyssey America Reinsurance Co.,
62
Orange County Teachers [credit
union], 101
P
Pacific Life, 69, 72, 74
Pentagon [credit union], 101
Phoenix Companies, 69
Phoenix Home Life Mutual
Ins. Co., 98
Pittsburgh National Corp., 27
PMI Mortgage Ins. Co., 61
PNC 82, 85, 153
Principal Bank, 98
Principal Financial, 12, 69
Principal Life Ins. Co., 98
Progressive, 12, 52
Providian Bank, 102
Prudential, 12, 13, 43, 69, 56
Putnam, 26, 124
R
Rabobank Group, 76
Radian, 59, 60, 61
Regional Financial Corp., 76
Republic Mortgage Ins. Co., 61
RoPro U.S. Holding Inc., 4, 104
Royal & Sun Alliance USA, 60, 156
Royal Bank of Canada, 43
Royal Bank of Scotland Group, Plc,
76
S
Safeco Ins. Companies, 52, 58
Sallie Mae, 27
Sammons Enterprises Inc., 43
SchwabFunds, 124
SCOR Re Group, 157
Skandia Ins. Co., 43
Page 175
SLM Corp., 133
Sovereign Bancorp, Inc., 11, 96, 97
Sovereign Bank, 82
The St. Paul Companies, 52, 58
State Employees' [credit union],
101
State Farm, 13, 52, 58, 98, 101, 155,
156
State Street Corp., 4, 104
Sumitomo Life Ins., 156
Sun Life Financial Services, 43, 74
SunAmerica, 72, 74
Suncoast Schools [credit union],
101
Suntrust Bank, 82, 91
Swiss Re, 48, 62, 63, 64, 156, 157
T
T. Rowe Price Group, Inc., 26, 111
Taunus Corp., 85, 91
Teachers Insurance & Annuity
Association, 98
Telmark LLC, 4, 125
Thrivent Financial for Lutherans,
69
TIAA-CREF, 12, 13, 26, 69, 72, 98
Time Retail Finance Ltd., 125
Torchmark, 69
Tradescape, 104
Transamerica, 62, 72, 74
Travelers Property Casualty Corp.,
1, 58, 74
Trendwest Resorts Inc., 4, 125
Triad Guaranty Ins. Corp., 61
Trigon Healthcare Inc., 43
U
U.S. Bancorp, 4, 11, 85, 90, 91, 104,
153
U.S. Bank, 27
U.S. Trust, 124
UBS, 155, 157
Umpqua Holdings Corp., 76
United Airlines Employees [credit
union], 101
United Guaranty Corp., 61
United Services Automobile
Association (USAA),
12, 52, 63, 98, 102
UnitedHealth Group Inc., 43
Unitrin, 69
UnumProvident, 12, 69
US Oppenheimer, 104
V
VALIC, 72
Vanguard Group, 124
VIB Corp., 76
Vivendi S.A., 64
W
Wachovia Corp., 11, 13, 27, 82, 85,
90, 91, 153
Washington Mutual, 11, 13, 82, 96,
97, 144
Webster Bank, 82
Webster Financial Corp., 97
Wells Fargo & Co., 4, 11, 13, 27, 85,
90, 91, 125, 144
Welsh Carson Anderson & Stowe,
43
Westcorp, 11, 96
Western-Southern, 74
Westpac Banking Corp. Ltd., 104
White Mountains Group, 60
World Savings Bank, FSB, 82
X
XL Re Group, 157
XL Capital, 59
Z
Zurich Financial Services, 155, 156
Zurich Group, 58
Zurich Ins. Group, 60
Zurich Life, 1
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Subject Index
401(k) plans, asset allocation, 35
A
American Stock Exchange (AMEX), 119
annuities
asset growth, 38
considerations, 36
distribution channels, 36-37
fixed, 71
sales of, 36-37
producers of, top ten, 72
sales, by financial holding companies, 85
variable, 71
sales of, 36-37
writers of, top ten, 72
acquisitions. See mergers and acquisitions
asset-backed securities (ABS), 115
insurance on, 59
sources, 116
assets, v
banking, 2
banking institutions, 78, 86-87
broker/dealers, 108
by industry, 2
credit market, 78-79
credit unions, 77, 78, 100, 101
distribution
life/health insurance, 68
property/casualty insurance, 51
family, 23, 24
FDIC insured commercial banks, 86-87
finance companies, 127
foreign banking offices, in U.S., 81
government-related, 2
insurance, 2
life insurance companies, 66
pensions, 2
private pension funds, 31
retirement funds, 33
government employees, 32
securities, 2
ATMs, 151
deployment, off premise, 151
Federal Reserve Bank Study, 152
owners, top ten, 153
transaction fees, bank revenues from, 151
transactions, 153
volume, 152
Automated Clearing House (ACH) payments, 149
automated teller machines. See ATMs
B
bank and thrift deals, top ten, 76
bank branches, by type of bank, 80
bank holding companies, top ten, 85, 91
Bank Holding Company Act of 1956, 1, 159
bank insurance, distribution channels, 84
banking industry. See also banks; commercial banks
assets, 2, 78, 86-87
concentration, 90
employment, 80
IT spending, 145
wireless technology users, 154
bankruptcies, by type, 30
banks
annuity sales, top ten, 82
in insurance, 73
mutual fund income, top ten, 82
Barnett Bank U.S. Supreme Court decision, 1
brokerages, wireless technology users, 154
brokers and dealers, 106
assets and liabilities, 108
business debt, 28
C
catastrophe bonds, 63-64
Chicago Board of Trade, 119
Chicago Mercantile Exchange, 119
college savings plans, 25-26
providers, top ten, 26
commercial banks
assets, 86-87
branches and offices, 80
by asset size, 90
consolidation, 80
credit market share, 78-79
employment, 80
FDIC insured, 86
deposits, income and expenses, 88
securities, 89
information technology spending, 145
liabilities, 86-87
net income, 77
profitability, 77
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return on average assets, 77
top ten
by asset, 91
global, 157
by revenues, 90
community development lending, 79
consolidation, 1. See also mergers and acquisitions
consumer debt, 28
convergence, 10, 81
corporate bonds, U.S. holdings, 17
corporate equities
and debt, 112
institutional investor market, 17
ownership, 16
U.S. holdings, 16, 18
corporate underwriting, 112
credit insurance, 60
credit insurance companies, top ten, 60
credit life insurance, 73
credit life and accident and health, direct premiums
written, 73
credit market, 78-79
credit unions, 98-101
branches and offices, 80
distribution by asset size, 101
employment, 80
members, 99
net income, 77
profitability, 77
state chartered vs. federally chartered, 99
top ten, 101
D
debt
business, 28
consumer, 28
corporate equities, 112
federal government, 19
growth, 28
household, 28
ownership, 15
public, 20
debt securities, 16
defined benefit plans, 32
asset allocation, 33
defined contribution plans, 32
asset allocation, 33
depository insurance, 75
deposits, 88
derivatives, 117
global market, 118
distribution channels, annuities, 36-37
bank insurance, 84
diversified financial firms, top six, global, 158
E
educational savings plans and loans, 25-26
top ten, 26
electronic commerce, 147
securities firms, 148
electronic payments, 149-150
employment, banking industry, 80
finance company, 126
financial services industry, 5
insurance industry, 45
securities industry, 109
equity index annuities, 36
producers, top ten, 72
exchange activities, 120
exchange listed companies, 119
F
Federal Credit Union Act, 98
Federal Depository Insurance Corporation (FDIC), 75
federal educational loans, 26-27
Federal Family Education Loan Program
(FFELP), 26-27
originators, top ten, 27
federal government debt, ownership of, 19
Federal Home Loan (FHL) Bank System, 92
Federal Reserve system, 75
FFELP. See Federal Family Education Loan
Program, 27
finance companies, 125-134
concentration, 132
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employment, 126
funding sources, 128
number of, 126
profitability, 128
receivables, 129-132
top companies, 133-134
financial guaranty insurance, 58-59
income statement, 59
financial guaranty insurers, top seven, 59
financial holding companies, top ten, 85
financial intermediation, 15
financial services companies. See also other
individual sectors
asset share, top ten, v
commercial banks, 11
diversified financials, 10
financial products available, 10-12
savings institutions, 11
securities, 10-11
U.S., largest, 13
world’s largest, 155
fixed annuities, 71
writers of, top ten, 74
foreign banking offices, in U.S., assets, 81
foreign bonds, U.S. holdings, 17
futures contracts, 117
rates by region, 141
homes, single family, median sales price, 140
households
assets, 21-22
debt, 28
lending institutions, 30
purpose of, 29
type of, 29
liabilities, 21-22
housing. See homeownership
G
generally accepted accounting principles (GAAP), 42
Glass-Steagall Act of 1933, 1, 159
government securities, ownership of, 19
government-related, assets, 2
Gramm-Leach-Bliley Financial Services Modernization
Act, 1, 159-161
gross domestic product (GDP), v, 6-8
financial services industry, 7-8
gross national savings, 15
gross state product, financial services share, 9
I
Individual Retirement Account (IRA), 32
market shares, 34
industrial banks, 102
information technology (IT), 145-146
spending on wireless technology, 154
insurance, 41
assets, 2
bank sales of, 82
employment, 45
number of companies, 46
regulation, 41
insurance agencies, bank purchases of, 76
insurance companies, applications for thrift
charters, 97-98
information technology spending, 145-146
insurance industry, property/casualty insurance,
income analysis, 50
world market, 48
insurance premiums, banks, by type of coverage, 83
insurers, sales through banks, leading, 73
International Swaps and Derivatives Association
(ISDA), 117
Internet, 53
Internet banking, 148
Internet lending, 148
investment banks, 111, 114
Investment Management Act of 1940, 121
investments, 15
H
history, financial services, 164-166
home equity loans, 143
home purchase loans, 143
homeowners, characteristics of, 142
homeownership, 139
barriers to, 140
rates by income, 142
rates by race and ethnicity, 141
L
liabilities
broker/dealers, 108
credit unions, 100
FDIC commercial banks, 86-87
life insurance companies, 66
life insurance, bank sales of, 81
sales, leading writers, 73
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sales through banks, 73
worksite sales, 70
life insurance companies, assets and liabilities, 66
asset distribution, 68
companies
global, top ten, 156
U.S., top twenty, 69
distribution channels, 70
net income, 67
net premiums written, 71
operating data, 67
M
market share, commercial lines, 53
personal lines, 53
McCarran-Ferguson Act, 41
mergers and acquisitions, 3-4
banking-related, 76
by sector, 3-4
number of, 3
value of, 3-4
cross-industry, top ten, 4
insurance-related, top ten, 43
securities firms, top ten, 104
specialty lender, top ten, 125
value of, 4
mortgage finance companies, top ten, 144
mortgage guaranty insurance. See private mortgage
insurance (PMI)
mortgage lending, thrift industry, 96
mortgage market, 135
mortgages, by holder, 136
delinquency and foreclosure rates, 139
originations, 137
refinancing, 138
total outstanding, 135
municipal bonds, 16, 59
insurers, 58
number and value of, 113
municipal loans, U.S. holdings, 18
municipal securities, U.S. holdings, 18
mutual funds, 121
assets, 2
bank sales of, 82
by holder, 19
companies, top ten, 124
net assets, 40
by number of funds, 121
by type of funds, 122
number of, by type, 123
ownership of, U.S. household, 22
retail, bank sales of, 83
retirement assets, 39
sales, 85
shareholder accounts, 40
N
NASDAQ, 103, 119-120
National Association of Securities Dealers (NASD), 103,
119
National Bank Act, 1
national banks, 160
National Credit Union Administration, 98
National Credit Union Share Insurance Fund, 98
National Full Line (NFL), 106
National Recovery Act of 1933, 103
New York City-based broker/dealers, 106
New York Stock Exchange (NYSE), 119, 120
nonlife insurance, assets and liabilities, 49
nonlife insurance. See also property/casualty insurance
O
Office of Thrift Supervision, 75
online activities, 147. See also electronic commerce;
information technology, Internet
options contracts, 118
P
pension funds, types of, 32
pensions, assets, 2
premiums
banks, by type of coverage, 83
by type of insurer, 44
credit life and accident and health, 73
direct written, world, 48
growth in, 44
property/casualty, 54-56
privacy, 160
private mortgage insurance (PMI), 61
private mortgage insurance companies, top seven, 61
private placements, 114
profitability, commercial banks, 77
credit unions, 77
insurance, 43
savings banks, 77
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asset distribution, 51
capital and surplus, 50
combined ratio, 50
companies, top 20, U.S., 52
concentration, 54
direct premiums written, by line, 54-56
distribution channels, 53
income analysis, 50
property/casualty insurance companies, top ten, global,
156
property/casualty reinsurers, top ten, 62
R
rankings
ATM owners, 153
bank and thrift deals, 76
bank holding companies, 85, 91
banks, annuity sales, 82
banks, mutual fund income, 82
college savings plans, 26
commercial banks
by asset, 91
by revenues, 90
global, 157
credit insurance companies, 60
credit unions, 101
cross-industry acquisitions, 4
diversified financial firms, global, 158
educational savings plans and loans, 26
equity index annuities, producers of, 72
FFELP loans, originators, 27
financial guaranty insurers, 59
financial services companies, 155
by sector, number of companies, 14
by sector, revenues, 14
fixed annuities, sales through banks, 74
industrial banks, 102
insurance-related mergers, 43
leading insurers, sales through banks, 73
life insurance sales, 73
life/health insurance companies
by revenues, 69
global, 156
mergers and acquisitions, securities industr y, 104
mortgage finance companies, 144
mutual fund companies, 124
private mortgage insurance companies, 61
property/casualty insurance companies,
global, 156
property/casualty reinsurers, 62
reinsurance companies, global, 157
savings banks, global, 157
securities and investment firms, by asset, 111
securities firms, 110
global, 158
specialty lender mergers and acquisitions, 125
subprime residential lenders, 144
surety companies, 58
thrift companies
by asset, 97
by revenues, 96
thrifts, annuity sales, 82
thrifts, mutual fund income, 82
U. S. financial services firms, 13
U.S. property casualty companies, 52
variable annuities, sales through banks, 74
variable annuities, writers of, 72
rate of return
real estate, gross domestic product, 6
receivables at finance companies, 131
regional brokers, 106
regulation, 159
banking, 75
reinsurance, 62
companies, top ten, global, 157
residential lending activity, 144
retirement funds, 31-33
return on average assets
commercial banks, 77
savings banks, 77
return on equity. See profitability
S
savings, 15
savings banks, branches and offices, 80
employment, 80
net income, 77
profitability, 77
savings institutions
FDIC insured, 92
top ten, global, 157
Section 529 college savings plans, 25
providers, top ten, 26
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securities, 160-161
assets, 2
FDIC insured commercial banks, 89
U.S., foreign holdings, 115
Securities Act of 1933, 103
Securities and Exchange Commission (SEC), 103, 160
securities firms, information technology spending, 146
by asset, top ten, 111
global, top four, 158
U.S., top ten, 110
securities industry
assets, 2
concentration, by capital, 110
concentration, by revenues, 109
employment, 109
mergers and acquisitions, top ten, 104
pretax return on equity, 106
profitability, 105
top companies
global, 158
U.S., 110, 111
short-term trade receivables, 60
Stafford Loan Program, 26
state by state tables
domestic insurance companies, 46-47
gross state product, 9
state insurance departments, 41
state-chartered loan companies. See industrial banks
statutory accounting principles (SAP), 42
stock market performance indices, 120
subprime residential lenders, top five, 144
surety bonds, 57
surety companies, top ten, 58
T
thrift industry, 93-98
balance sheet, 94
investment securities, 95
mortgage lending activity, 96
top companies
by asset, 97
by revenues, 96
thrift institutions, 92
thrifts, annuity sales, top ten, 82
Treasury bills, 75
U
U.S. House of Representatives Banking Committee, 1
U.S. House of Representatives Financial Services, 1
U.S. public debt securities, ownership of, 20
U.S. Treasury securities, average daily trading, 19
V
Valic U.S. Supreme Court decision, 1
variable annuities, 71
writers of, top ten, 72, 74
W
weather risk products, 65
weather-related hedges, 64-65
wirehouses, 106
wireless technology, 154
World Trade Center terrorist attacks, 50
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I.I.I. Member Companies
ACE USA
Allstate Insurance Group
American Agricultural Insurance Company
American International Group, Inc.
American Re-Insurance Company
Atlantic Mutual Companies
Bituminous Insurance Companies
Chubb Group of Insurance Companies
CNA
CUMIS Insurance Society, Inc.
De Smet Farm Mutual Insurance Company
of South Dakota
Dryden Mutual Insurance Company
Erie Insurance Group
Farmers Group, Inc.
Foundation Reserve Insurance Company
GE Employers Reinsurance Corporation
GEICO
Gen Re
The Harford Mutual Insurance Companies
The Hartford Financial Services Group
Holyoke Mutual Insurance Company
Kaye Insurance Associates, Inc.
Liberty Mutual Group
Lloyd’s
Marsh, Inc.
MetLife Auto & Home
Millville Mutual Insurance Company
Nationwide
The Norfolk & Dedham Group
Selective Insurance Group
State Farm Mutual Automobile Insurance
Company
Swiss Reinsurance America Corporation
The Tokio Marine and Fire Insurance Co.,
Ltd.
Travelers Property Casualty
Trenwick America Reinsurance Corporation
Unitrin Property and Casualty Insurance
Group
USAA
Utica National Insurance Group
Westfield Group
XL Global Services
XL Insurance Company, Ltd.
Zurich North America
Associate Members
Allegany Co-Op Insurance Company
ChamberBiz Insurance Agency Services,
LLC
Farmers Mutual Fire Insurance of
Tennessee
Livingston Mutual Insurance Company
Mutual Assurance Society of Virginia
Randolph Mutual Insurance Company
Slavonic Mutual Fire Insurance Association
Sompo Japan Research Institute, Inc.
OneBeacon Insurance Group
Prudential Property & Casualty Insurance
Company
SAFECO Insurance Companies
The St. Paul Companies, Inc.
Scor U.S. Corporation
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The Financial Services Roundtable Member Companies
ACE INA Holdings, Inc.
Fifth Third Bancorp
AEGON USA, Inc.
First Commonwealth Financial
Corporation
Allianz Life Insurance
Company of North America
Allied Capital Corporation
American General Finance
Corporation
First National of Nebraska, Inc.
First Tennessee National
Corporation
Minnesota Life Insurance
Company
National City Corporation
National Commerce Financial
Corporation
Nationwide
FleetBoston Financial Corp.
Northern Trust Corporation
AmSouth Bancorporation
Old National Bancorp
Aon Corporation
Fortis, Inc.
Associated Banc-Corp
Fulton Financial Corporation
The PNC Financial Services
Group, Inc.
AXA Financial, Inc.
General Electric Company
Provident Financial Group, Inc.
BancorpSouth, Inc.
GMAC Financial Services
BancWest Corporation
Bank of America Corporation
The Goldman Sachs
Group, Inc.
Providian Financial
Corporation
Bank of Hawaii Corporation
Guaranty Financial Services
Raymond James Financial, Inc.
The Bank of New York
Company, Inc.
Harris Bankcorp, Inc.
RBC Centura Banks, Inc.
Hibernia Corporation
Regions Financial Corporation
BANK ONE CORPORATION
HSBC USA Inc. (Household
International Group, Inc.)
Riggs National Corporation
Hudson United Bancorp
The St. Paul Companies, Inc.
Huntington Bancshares
Incorporated
State Farm Insurance
Companies
ING Americas
State Street Corporation
Charter One Financial, Inc.
Jefferson-Pilot Corporation
SunTrust Banks, Inc.
The Chubb Corporation
Synovus
Citigroup Inc.
KeyCorp
Union Planters Corporation
Citizens Financial Group, Inc.
LaSalle Bank Corporation
UnionBanCal Corporation
City National Corporation
Legg Mason, Inc.
U.S. Bancorp
Comerica Incorporated
M&T Bank Corporation
United Bankshares, Inc.
Commerce Bancshares, Inc.
Marshall & Ilsley Corporation
UBS
Compass Bancshares, Inc.
MassMutual Financial Group
USAA
Countrywide Financial
Corporation
MBNA Corporation
Mellon Financial Corporation
Waddell & Reed Financial, Inc.
Credit Suisse First Boston
Mercantile Bankshares
Corporation
Washington Mutual, Inc.
Cullen/Frost Bankers, Inc.
Edward Jones
Merrill Lynch & Co., Inc.
Whitney Holding Corporation
F.N.B. Corporation
MetLife, Inc.
Zions Bancorporation
BB&T Corporation
Capital One Financial
Corporation
The Charles Schwab
Corporation
Prudential Financial Inc.
Sky Financial Group, Inc.
Zurich North America
The Financial Services Fact Book 2004
183
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110 William Street
New York, NY 10038
Tel. 212-346-5500. Fax. 212-732-1916. http://www.iii.org
President – Gordon Stewart
Senior Vice President – Programs and Operations – Cary Schneider
Senior Vice President and Chief Economist – Robert P. Hartwig, Ph.D., CPCU
Vice President – Public Affairs – P.J. Crowley
Fact Book
Senior Vice President and Editor – Issues Analysis – Ruth Gastel, CPCU
Vice President – Information Services and Research – Madine Singer
Publications Editor – Neil Liebman
Research and Production – Mary-Anne Firneno
Web and Information Services Manager – Shorna Lewis
Production Assistant – Dolores Sanchirico
Media Offices
Washington, D.C. Media Office: Vice President – Carolyn Gorman
Tel. 202-833-1580. Fax. 202-223-5779.
West Coast Media Offices:
Insurance Information Network of California:
Executive Director – Candysse Miller
Tel. 213-738-5333. Fax. 213-738-7556.
Northern California:
Communications Specialist – Omar Morales
Tel. 925-969-2223. Fax. 925-969-2188.
Insurance Information Institute Representatives
Special Counsel William E. Bailey
Tel. 617-884-2461. Fax. 617-884-2593.
Davis Communications William Davis, Atlanta
Tel. 770-321-5150. Fax. 770-321-5150.
Chartrand Communications David V. Chartrand, Kansas City
Tel. 913-768-4700. Fax. 913-768-4900.
04.11fs.appendFINAL
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1001 Pennsylvania Avenue, NW
Suite 500 South
Washington, DC 20004
Tel. 202-289-4322. Fax. 202-289-1903. http://www.fsround.org
President and Chief Executive Officer – Steve Bartlett
Executive Director and General Counsel – Richard M. Whiting
Senior Vice President for Meetings – Karen L. Wise
Senior Vice President for Government and Public Affairs – Lisa S. McGreevy
Vice President of Insurance, Technology and International Affairs – Andrew Barbour
Vice President of Banking and Securities – Irving E. Daniels, Jr.
Vice President for Tax and Judicial Policy and Counsel – Scott E. Talbott
Research Director & Chief Regulatory Counsel – John A. Beccia III
Director of Communications – Kate Ennis
Director of Government Affairs, Housing Policy Council – Paul Leonard
Director of Membership Services – Marti K. Finkelman
Director of Information Services – Susan L. Gentry
Director of Human Resources and Administrative Affairs – Carrie M. Neckorcuk
Government Affairs Administrator – Janice Preston Clarke
Government Affairs Manager – Joel T. Kopperud
Front Office Manager & Assistant for Meetings – Christine B. Phelps
Manager of PAC Operations, Media Relations and Research – Jonathan E. Smith
Government Affairs Assistant – Katie Stevens
Assistant for Membership and Information Services – Kristen M. Washington
Senior Executive Assistant to the Executive Director – Kim A. Wheelbarger
Executive Assistant to the President – Nancy G. Wilkins
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THE FINANCIAL SERVICES ROUNDTABLE
OFFICERS
Martin G. McGuinn, Chairman, Mellon Financial Corporation
Donald J. Shepard, Chairman-Elect, AEGON USA, Inc.
Edward B. Rust, Jr., Immediate Past Chairman, State Farm Insurance Companies
James E. Rohr, BITS Chairman, The PNC Financial Services Group, Inc.
Timothy C. Coughlin, Treasurer, Riggs National Corporation
DIRECTORS
William F. Aldinger, Household International, Inc.
John W. Bachmann, Edward Jones
James Dimon, BANK ONE CORPORATION
John D. Finnegan, The Chubb Corporation
Lawrence K. Fish, Citizens Financial Group, Inc.
Rufus A. Fulton, Jr., Fulton Financial Corporation
Frederick W. Geissinger, American General Corporation
Charles K. Gifford, FleetBoston Financial Corporation
Russell Goldsmith, City National Corporation
Bruce L. Hammonds, MBNA Corporation
L. Phillip Humann, SunTrust Banks, Inc.
Thomas A. James, Raymond James Financial, Inc.
Carl E. Jones, Jr., Regions Financial Corporation
D. Paul Jones, Jr., Compass Bancshares, Inc.
William G. Jurgensen, Nationwide
Kerry K. Killinger, Washington Mutual, Inc.
Kenneth D. Lewis, Bank of America Corporation
E. Stanley O’Neal, Merrill Lynch & Co., Inc.
Aubrey B. Patterson, Jr., BancorpSouth, Inc.
David A. Stonecipher, Jefferson-Pilot Corporation
G. Kennedy Thompson, Wachovia Corporation
Robert B. Willumstad, Citigroup, Inc.
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INSURANCE INFORMATION INSTITUTE
BOARD OF DIRECTORS
Martin D. Feinstein, Chairman, President & Chief Executive Officer, Farmers Group, Inc., Chairman
Brian Duperreault, Chairman & Chief Executive Officer, ACE Limited
Edward M. Liddy, Chairman, President & Chief Executive Officer, Allstate Insurance Company
Maurice R. Greenberg, Chairman & Chief Executive Officer, American International Group, Inc.
Albert J. Beer, President-Domestic Operations, American Re-Insurance Company
Klaus G. Dorfi, Chairman & Chief Executive Officer, The Atlantic Mutual Companies
Gregory Ator, President, Chief Executive Officer & Chairman of the Board, Bituminous
Insurance Companies
John D. Finnegan, President & Chief Executive Officer, The Chubb Corporation
Stephen W. Lilienthal, Chairman & Chief Executive Officer, CNA Financial Corporation
Jan R. Van Gorder, Senior Executive Vice President, Erie Insurance Group
Ronald R. Pressman, Chairman, President & Chief Executive Officer, GE Employers Reinsurance
Corporation
Olza M. Nicely, Chairman, President & Chief Executive Officer, GEICO
J. Daniel Hickey, President-North American Treaty Reinsurance, Gen Re
Salvatore D. Zaffino, Chairman & Chief Executive Officer, Guy Carpenter & Company, Inc.
Ramani Ayer, Chairman & Chief Executive Officer, The Hartford Financial Services Group, Inc.
Edmund F. Kelly, Chairman, President & Chief Executive Officer, Liberty Mutual Group
Lord Levene, Chairman, Lloyd’s
Catherine A. Rein, President & Chief Executive Officer, MetLife Auto & Home
William G. Jurgensen, Chief Executive Officer, Nationwide
John Cavoores, President & Chief Executive Officer, OneBeacon Insurance Group
Roger L. Desjadon, President, Chairman & Chief Executive Officer, Prudential Property & Casualty
Insurance Company
Michael S. McGavick, President & Chief Executive Officer, Safeco Corporation
Jay S. Fishman, Chairman & Chief Executive Officer, The St. Paul Companies, Inc.
Gregory E. Murphy, Chairman, President & Chief Executive Officer, Selective Insurance Group
Vincent J. Trosino, President, Vice Chairman & Chief Operating Officer, State Farm Mutual
Automobile Insurance Company
Andres Beerli, Chief Executive Officer-Americas Division, Swiss Re
Douglas G. Elliot, Chief Operating Officer, Travelers Property Casualty
Donald G. Southwell, President & Chief Operating Officer, Unitrin, Inc.
General Henry Viccellio, Jr., President-Property & Casualty Insurance Group, USAA
J. Douglas Robinson, President & Chief Executive Officer, Utica National Insurance Group
Roger McManus, President, Westfield Insurance
John Amore, Chief Executive Officer, Zurich North America
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THE FINANCIAL SERVICES FACT BOOK
•
Unique and comprehensive guide with more than 200 graphs and
charts on insurance, banking, securities, finance companies,
mortgage financing and on financial services as a whole.
• Key to understanding how the financial services sectors both
11
New Y
(
h
work together and compete with each other.
• Valuable tool for the media, corporate executives and
researchers.
PUBLISHED JOINTLY BY:
•
•
110 William Street
1001 Pennsylvania Avenue, NW
New York, NY 10038
Suite 500 South
www.iii.org
Washington, DC 20004
www.insurance.info
www.fsround.org
Insurance
Information
Institute
The Financial
Services
Roundtable
The online source for
the new, comprehensive
Financial Services Fact Book 2004
ISSN 1537-6257 2004
2

The Financial Services Roundtable Insurance Information Institute

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