Agent-Broker Revenue Bounces Up in the First Quarter of 2016
Agent Broker Growth has seen a bit of a bounce in 2016, says Reagan Consulting in its most recent Organic Growth and Profitability (OGP) Survey. Coming off a more somber look at the end of 2015, Reagan Consulting said things turned positive at the start of the new year. According to their data, the First Quarter of 2016 saw Agent-Broker revenue growth up 5.1% as compared to 4.6% for the entire year of 2015.
“Given the powerful headwinds of softening commercial property and casualty pricing and continued weakness in the U.S. economy, the upward movement in growth is a positive,” commented Kevin Stipe, president of Reagan Consulting, a management consulting and merger-and-acquisition advisory firm for the insurance distribution system.
While revenue growth was up, profit margins were slightly lower in the new year, at 28.5%. In the first quarter of 2015, it was 29%. Median profitability, however, as measured by EBITDA (earnings before interest, taxes, depreciation and amortization), continue to show its historically strong number. While the survey notes that First Quarter profit margin tend to be inflated based on contingent income, 2016 is projected to be another solid year with profit margins finishing at approximately 20%.
Analyzing growth by line of insurance, the employee benefits sector produces the strongest showing this quarter, with a 6.9% growth in FQ1. If numbers like those continue for the employee benefits line, this growth rate would yield the fastest yearly rate since 2011 for this sector. Another trend to take note of is Commercial property-casualty which grew at a 5.1% rate versus the 1.6% rate seen in Personal lines. In commenting on the disparity Mr. Stipe cautioned the pressuring effect this could have on agencies: “If pricing continues to deteriorate and the economy doesn’t pick up, agency growth rates are likely to suffer later this year.”
Other survey findings
In addition to the slowdown in both organic growth and median profit margins, the Reagan OGP study now also measures sale velocity. According to the consulting group tracking sales velocity is the greatest way to differentiate high-growth agencies (new business written as a percentage of prior-year overall commissions and fees). With respect to the First Quarter of 2016, the survey saw firms with a 15% or higher sales velocity grew by 7.1% while firms with a sales velocity less than 10% grew by only 2.2%.
Mergers and acquisitions momentum also continues in 2016
While the Organic Growth and Profitability Survey does not measure mergers and acquisitions, Reagan Consulting President Kevin Stipe did note “the blistering pace” of merger and acquisition activity continues across the country with North American deals already topping 107 for the quarter. “The outside world (represented by private equity) has fallen in love with the investment performance of insurance brokers,” explained Mr. Stipe, driving agency valuations to “levels never before seen.”
This is a quarterly survey published by the Reagan Consulting Group
As it has done every quarter since 2008, the Reagan Consulting Group released its latest “Organic Growth and Profitability Survey” (“OGP”) measuring current agency growth and profitability. The consulting group, also behind the Big “I”‘s Annual Best Practices Survey, uses confidential submissions from approximately 140 mid- and large-size agencies and brokerage firms. According to the consulting firm, almost half of the insurance industry’s 100 largest agents and brokers participated in this most recent survey.