Independent insurance agents and brokers are growing albeit not at the pace they were in 2013 according to the latest quarterly study by the Reagan Consulting Group. Each quarter since 2008, the consulting firm has conducted its Organic Growth and Profitability Survey to gauge the growth and profitability of agencies and brokers. According to the survey, approximately 130 mid-size and large agencies and brokers participate with nearly half of the industry’s 100 largest firms taking part. The median revenue of the participating firms is about $17 million.
Organic Growth Reaches 5.9% in Q2 2015
“Industry organic growth has now been in a relatively tight band of five percent to seven percent for 14 consecutive quarters,” commented Kevin Stipe, president of Reagan Consulting, a management consulting and merger-and-acquisition advisory firm for the insurance distribution system. “Times are good for insurance brokers.”
The strong organic growth also translated into increased profitability as well, with surveyed agencies reporting their profitability at 24.6 percent, the highest second-quarter performance since the start of the survey. Second quarter 2015 also saw a rise in group benefits as well. For the first time in four years, group benefits increased by a 6.8 percent rate, outpacing even commercial lines which only posts a 5.4 percent rate.
Commercial lines continuing to show softening prices
According to Reagan, the trend towards softening prices in commercial lines continues for the second straight year. The consulting firm expects “more and potentially deeper softening” in commercial property/casualty pricing going forward, signaled by P/C insurers’ historically strong net income during the first quarter of this year as recorded by the Insurance Services Office. “If this happens, commercial lines growth will likely decelerate further and pull agency-wide organic growth down,” Mr. Stipe said. Commercial lines makes up more than two-thirds of the revenue of the approximately 130 mid-size and large agencies and brokerage firms in the Organic Growth and Profitability survey group.
- The median “Rule of 20” score was 19.0, the highest second-quarter mark in the seven years of the survey. Reagan’s Rule of 20 is a benchmark that correlates with shareholder returns — a score of 20 or higher is indicative of outstanding shareholder returns. It is calculated by adding half of an agency’s EBITDA margin to its organic growth rate. Nearly one-third of OGP participants expect to reach a score of 20 or higher this year.
- Personal lines growth slipped to 1.8 percent versus 2.2 percent in Q2 2014.
- Agents and brokers project a 20.0 percent EBITDA margin and a 6.7 percent organic growth rate for the full year.
Reagan Consulting Group
The author of the study, Reagan Consulting Group, offers insurance agents, brokers and financial institutions consulting services and M&A advisory services, its clients include more than 60 of the top 100 agents and brokers and more than 150 banks and savings institutions.
For more information on its services, click here: Reagan Consulting