Insurance agencies and brokerage firms reported that their organic growth rebounded to 4.6 percent in the second quarter of 2017, a reversal from the 3.9 percent reported in the first quarter, which was the weakest growth rate since 2011.
Several factors appear to have reversed the earlier slippage, according to Kevin Stipe, president of Reagan Consulting, the merger-and-acquisition advisory firm that issued the report, Reagan Consulting’s Organic Growth and Profitability (OGP) Survey. The factors include a stronger-than-expected U.S. economy, more favorable property/casualty pricing and organic growth gains in both commercial and personal lines,
“Agency and brokerage firms have shown remarkable resiliency after a disappointing first quarter of 2017,” Stipe said.
Organic growth in commercial lines rose to 3.9 percent from 3.1 percent a year earlier, while in personal lines it rose to 2.3 percent from 1.7 percent — the fastest growth rate since 2013.
“What makes the personal lines result even more encouraging for agencies and brokerages is the fact that many observers suggest this business is vulnerable to technology-driven disruption and potential disintermediation,” Stipe said.
Profitability, defined as agent-broker earnings before interest, taxes, depreciation and amortization (EBITDA), also reversed course, rising to 24.6 percent in the second quarter, up from 23.1 percent in the same quarter last year.
In previous quarters, EBITDA margins had continued to recede and first-quarter 2017 was the lowest among Reagan Consulting’s surveyed brokers in five years. Reagan Consulting cautioned that EBITDA margins tend to hit their highest level in the first quarter, due to the reporting of contingent income, and decline over the course of the year.
Firms participating in OGP survey are reporting greater confidence, forecasting 5 percent growth for the remainder of the year.
Merger and acquisition activity remains very strong, with historically high deal volume over the last two years. That pace is continuing in 2017, with 255 deals reported by SNL Financial in the first six months, ahead of the 221 reported in the same period of 2016, according to the report.
However, there are more new agencies being formed than are being lost to mergers, notedReagan, citing the 2016 Agency Universe Study by FutureOne, a collaboration between the Independent Insurance Agents and Brokers of America and various insurers. That study found the number of agencies has actually increased during the last 10 years.
“Simply put, don’t count out agency and brokerage firms. They are showing great resilience and growth, and they continue to attract capital. The distribution channel has its challenges, but it’s as good a time to be in this business as it ever has been,” said Stipe.
Reagan Consulting’s quarterly survey uses submissions from more than 150 midsize and large agencies and brokerage firms.
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