NAPSLO Survey Shows Net Revenues for MGAs, Brokers Grow

Average pretax profit and net retained revenues for MGAs and brokers increased in 1999, according to the results of the Income & Expense Survey recently completed for the National Association of Professional Surplus Lines Offices Ltd. (NAPSLO).

The 2000 Survey showed that net retained revenues of all survey respondents grew by an average of 8.2 percent, which is higher than last year’s 5.9 percent and the highest growth rate in the last five years.

Survey administrators Russell Miller said that this robust revenue growth may seem inconsistent with the downward trend of retained commission rates; however, external growth through ac-quisition presumably accounts for a good portion of this growth.

Total retained revenues per employee of all survey respondents ($101,409) changed only slightly from the prior year ($102,242) and are virtually unchanged from five years ago ($97,596).

Revenue growth rates were directly related to size; i.e., the under $10 million premium segment had the lowest revenue growth rate at 0.5 percent, while the over-$30-million premium segment had the highest revenue growth rate at 16.4 percent. The over-$30-million segment’s revenue growth rate was notable for its magnitude as well as its increase over the prior year (6.1 percent).

Brokers grew more than MGAs, as was the case in the previous year. The top performers grew by 18.8 percent, which was considerably higher than the previous year (13.8 percent).

All survey respondents placed an average of 55.3 percent of their premiums with their three top markets. Premium concentration was inversely related to size; i.e., the under-$10-million segment had the highest premium concentration and the over-$30-million segment had the lowest premium concentration. MGA/underwriters had considerably greater premium concentration than wholesale brokers. The top performers had considerably less premium concentration than the average concentration of all survey respondents.

Profitability

Over the past ten years, the annual net revenues per employee were directly and proportionately correlated to pretax profit margin; i.e. over 10 years, these indicators have gone up and down together in like amounts.

The average pretax profit margin of all survey respondents increased over the prior year from 10 percent in the 1999 survey to 11 percent in the 2000 survey.

Likewise, pretax profits plus owner compensation increased from 22.1 percent in the 1999 survey to 24.9 percent in the 2000
survey.

Among all size segments, agencies in the over-$30-million premium segment had the highest revenues per employee ($108,665). Brokers had considerably higher revenues per employee ($124,008) than did MGA/underwriters ($83,728). The top performers reported average revenues per employee of $104,178 (vs. $140,552 during the prior year).

Pretax profits per employee for all survey respondents, on average, increased for the second consecutive year. Among all size segments, agencies in the over-$30-million premium segment had the highest pretax profits per employee ($16,217). Brokers had considerably higher pretax profits per employee ($20,482) than did MGA/underwriters ($10,130). The top performers reported an average pretax profit per employee of $25,265.

Individual employees of all survey respondents handled, on average, more accounts than during the prior year, although the average retained revenues generated by such accounts went down from recent years. This could be a result of the sustained drop in retained commission rates. People are working harder to stay in place.

Commissions

The average retained commission rates of all survey respondents (11.1 percent on MGA business and 9.2 percent on wholesale broker business) were down from the prior year and at their lowest level in the past three years.

Average liquidity of all survey respondents has decreased marginally over the past five years (though the average liquidity of all respondents demonstrated in the 2000 survey is certainly not dangerously low).

Russell Miller, which has conducted the Income and Expense Survey for 16 years, mailed the 2000 questionnaire to more than 500 NAPSLO and American Association of Managing General Agents (AAMGA) members and 76 completed questionnaires were returned, earning a response rate of 15 percent. The survey was commissioned by NAPSLO to provide a tool for its members for benchmarking operations against others in the industry.

Source: NAPSLO

Topics Trends Profit Loss Agencies Excess Surplus Insurance Wholesale