Reagan Consulting surveys agents and brokers each quarter for this study
The median organic growth for independent insurance agents and brokers in the third quarter of 2015 was down 1.6% over last year’s numbers says the Reagan Consulting Group in its most recent Organic Growth and Profitability (OGP) quarterly survey.
According to the Consulting Group, which has tracked organic growth and profitability since 2008, independent insurance agents/brokers grew only 4.4% the third quarter of 2015 as opposed to 6.0% in the third quarter of 2014.
Transaction activity, however, continued at a record pace in 2015 although this is not measured in the official OGP survey. With 294 deals announced in 2015, Reagan Consulting says the pace this year is 28 percent ahead of 2014, assuring a record year for mergers and acquisitions.
“Agent/broker organic growth is slowing – for privately-owned and public brokers — because commercial property-casualty insurance rates are officially in a soft market,” explained Kevin Stipe, president of Reagan Consulting, adding that P-C rates have softened for four consecutive quarters, as measured by the Council of Insurance Agents and Brokers. Profit margins tend to increase during times of strong organic growth and decrease when growth rates slow,” noted Stipe.
In addition to the lower third quarter numbers, profitability was also down for this period to 21.9 percent in the third quarter of 2015 as compared with 22.4 percent for the third quarter of 2014. Profitability rates are measured and included in the survey using EBITDA (earnings before interest, taxes, depreciation and amortization).
The disappointing numbers mark the slowest growth rate for independent agents and brokers since 2011. More importantly, the survey noted it marks the first time in 14 quarters that broker growth rates dipped below 5 percent.
A major part of profitability for both agencies and brokers comes from commercial lines. Commercial insurance rates typically comprise 60-70 percent of the revenue for the 130 agencies queried. As such, these rates are “substantial drivers of organic growth. Brokers may witness further deceleration of growth rates until p-c pricing stabilizes,” commented Stipe.
About the Organic Growth and Profitability Quarterly Survey
Based in Georgia, Reagan Consulting is a management consulting firm which provides strategic consulting, valuation, and merger-and-acquisition (M&A) services to the independent insurance distribution system.
Each quarter it surveys the organic growth and profitability of independent insurance agents and brokers using the confidential submissions of approximately 130 mid-size and large agencies and brokerage firms. Almost half of the industry’s 100 largest firms participated in this quarter’s survey. The median revenue of the firms participating in the survey is almost $18 million.
This quarter marks the arrival of a new component that is factored into the OGP Survey. Sales Velocity (the total written new business as a percentage of the prior year’s total commissions and fees) is now a factor that is considered in determining growth rate. “Sales Velocity is the single-biggest driver of organic growth,” notes Reagan. “The firms with the highest Sales Velocity more than doubled the organic growth rate of those with the lowest Sales Velocity in 3Q 2015.”