Growth slows to 4%, the lowest rate since 2011 says latest survey
While Agent-Broker Organic growth saw a bit of a bounce in the First Quarter, the Second Quarter of 2016 has not followed suit says Reagan Consulting in its most recent Organic Growth and Profitability (OGP) Survey. In fact, the latest data shows growth falling to 4.0% for the second quarter, the lowest rate since 2011. In comparison, the second quarter of 2015 saw growth of 5.9%. Perhaps tying into this trend is the current growth rate of the U.S. economy. The U.S. economy has only slightly gotten better in the second quarter of 2016, with data from the U.S. Department of Commerce showing a 1.2% annualized rate as opposed to the 0.8% rate for the first quarter.
“The powerful headwinds of soft commercial lines premium rates and a muddling economy are even stronger in 2016, after blowing for more than a year,” commented Jim Campbell, principal of Reagan Consulting, a management consulting and merger-and-acquisition (M&A) advisory firm for the insurance distribution system.
According to the survey, commercial lines organic revenue showed the slowest growth in the second quarter with 3.1%. This number is down from the 5.1% figure logged in the First Quarter. As for the fastest growing line of business, the Reagan Consulting survey found it to be employee benefits, with this line of business tallying an organic growth rate of 6.2%. Personal lines also grew in the second quarter at 1.7%.
In particular, commercial property and casualty rates declined 3.7% in the first quarter of 2016 ( the latest data which is available). Reagan Consulting says this rate, which is measured continually by the Council of Insurance Agents and Brokers, has been the largest decrease since the current trend of market softening started in 2014.
Profit margins, however, was another area which showed a decline during the second quarter of 2016. It declined to 23.1% for the second quarter, as measured by EBITDA (earnings before interest, taxes, depreciation and amortization), as compared to 24.6% for the second quarter of 2015. This number is the lowest pace figure since 2012.
Other survey findings
While the second quarter of 2016 was slower than had been hoped for, the survey noted the optimism that agents and brokers continued to have for the overall profitability in 2016.
More specifically, the survey highlighted the fact that most agents and brokers wereprojecting a year-end EBITDA margin of 20.0%. “If achieved, that would be generally consistent with the 20.1% margin achieved in 2015,” commented Campbell.
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.