This is a quarterly publication 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.
Latest results show growth slowed somewhat in 2015
In 2015, agent-broker organic revenue growth showed signs of slowing down. According to Reagan, growth slowed to 4.6 percent last year as opposed to the 6.2 percent growth seen each year from 2012-2014.
After reaching record profitability in 2014, agent-broker profit margins declined to 20.1 percent in 2015. In comparison, profit margins measured 21 percent in 2014. To determine median profitability, EBITDA is used, which stands for earnings before interest, taxes, depreciation and amortization.
“The results show a downward tick. But they are still fairly solid from a historical perspective,” commented Kevin Stipe, president of Reagan Consulting, a management consulting and merger-and-acquisition advisory firm for the insurance distribution system. “In the past eight years of the OGP survey, the organic growth rate of 4.6 percent ranks fourth best, while the EBITDA margin of 20.1 percent ranks second best.”
The following graph charts both Broker Organic Growth Rate percentages over the past seven years along with EBITDA Margin during the same time period.
Other survey findings
In addition to the slowdown in both organic growth and median profit margins, the survey also noted a decrease in growth for all three major lines on insurance business: property/casualty, personal property/casualty, and employee benefits. According to Reagan there are three factors it sees affecting both growth and profitability:
- A soft market for commercial P/C premiums,
- continued slow growth of the U.S. economy; and
- a sharp decline in crude oil prices.
“The boom that drove oil prices to more than $100 per barrel in 2013 turned into an oil bust in 2015 with prices reaching the high-$30s range,” commented Stipe. “Insurance brokers in oil-producing states once benefited from economic activity stimulated by high oil prices, and outpaced peers in other states. That has flipped: oil-state firms grew at only a 2.5 percent rate in 2015, 2.3 percentage points slower than other OGP firms.”
Mergers and acquisitions continued to increase in 2015
While the Organic Growth and Profitability Survey does not measure mergers and acquisitions, the consulting firm nonetheless took note of the continued growth in the marketplace of such transactions. According to the firm, mergers and acquisitions activity was at an all-time high in 2015 with North American deals topping 400 for the first time in history. Commenting on the phenomenon, Mr. Stipe added as a final note that “…valuations hit record levels for firms of all sizes.”