In theory, it’s a great time for a bank to buy an insurance agency – if banks were willing to spend the money to do so.

Bank and insurance analysts say economic forces make many agencies a good buy in 2009, in a continuation of the depressed values that led to a buying spree in 2008: the property/casualty market is still soft, competition is fierce and many agent principals are still looking to retire.

But these days, banks are watching their capital levels pretty strictly, said Hope Aldrich, head of Eastern Bank’s Eastern Insurance.

Boston-based Eastern is still growing its insurance operations by acquisition – it bought Danvers’ Walker Insurance in January and has its eye on another small-agency purchase – but Aldrich says even Eastern isn’t pursuing growth as aggressively as in the recent past.

‘Quite A Tribute’

Insurance, by and large, has been a good bet for banks in the past year, said Michael White of Pennsylvania consultancy Michael White Associates. The largest bank holding companies, such as Citigroup, stumbled in insurance fee income – but overall, most large bank holding companies increased total insurance income by 7.2 percent, up to $10.88 billion.

That’s particularly noteworthy, White said, considering that total insurance income across the industry declined in 2008, and few banks were growing by acquisition.

“It’s really quite a tribute on the part of these companies, that they’ve been able to maintain their income like this,” he said.

“[Banks] have had to run faster just to stay in place with the softer property/casualty marketplace. They’ve really had to grow organically,” he said.

Although White emphasized banks’ ability to grow without acquiring new agencies, a report from consultant MarshBerry noted that 2008 was an acquisition-heavy year in general. Public agency acquisitions hit its second-highest level in the past decade, at 264 publicly announced deals. But Marsh researchers believe that number is a small slice of the number of deals that actually went down – roughly two-thirds of all acquisitions are private, which puts the estimated number up to 750.

Agencies might still be up for the taking, according to the report, especially among shops with less than $3 million in business. Even so, 2009 is likely to be a much slower year.

Still, 2009’s slowed activity is just a hiccup in terms of bank incursion into insurance distribution, says Alan Dobbins, research analyst with Connecticut-based Conning & Co.

Conning put out a study this month outlining the fierce competition brokers and agents are facing in insurance distribution. The report made much of Internet-aided direct distribution and Web aggregators, but also brought up an old fear – banks.

It Is Worth Noting…

Banks have been legally allowed to sell insurance for nearly a decade; although agents and brokers initially feared banks would stomp their businesses, skeptics now say banks have been largely unsuccessful at selling insurance products.

But Dobbins says banks aren’t to be discounted, even though they haven’t yet come to dominate the scene: “In terms of potential, the potential of banks to be a significant player in this is worth noting.”

Combined with the threat to agents from direct-distribution insurers and Web aggregators that find quotes for customers, agents and brokers have to be particularly on their game to keep from losing more ground against threats from all sides, he said.

In the last decade, banks have accounted for about 25 percent of all publicly announced agency or brokerage mergers and acquisitions. According to Dobbins, two of the top 10 brokers of U.S. insurance are now bank-owned.

Despite criticism that banks as an industry haven’t succeeded in capturing insurance dollars very well, Eastern Bank’s Aldrich noted insurance is still a very attractive target. Citing a May study from Bank Insurance Market Research Group, she said banks with insurance operations had a median net income 69 percent higher than the median net income for all banks in 2008. That’s up from 2007, when the net income was 44 percent higher.

As for Eastern itself, Aldrich estimates insurance operations will be slightly down for the year, but making a strong showing despite the tough insurance environment.

“We’re contributing to the bank’s results, which they appreciate, of course,” she said.