Organic revenue growth slowed for the country’s large and midsize insurance agencies last year, a new report from Atlanta-based Reagan Consulting shows.
The quarterly study, which uses confidential submissions from roughly 140 privately held agencies and brokerage firms, reveals that organic growth slowed to 4.6% in 2015 – down from 6.2% each year from 2012 to 2014.
Profit margins also declined to 20.1% a year after reaching record profitability in 2014, which measured 21% measured by EBITDA (earnings before interest, taxes, depreciation and amortization). Pace of growth for all three major lines of business – commercial property/casualty, personal property/casualty and employee benefits – slowed as well.
Reagan Consulting noted three factors affecting both growth and profitability for agencies and brokerages: a soft market for commercial property/casualty premiums, continued slow growth in the US economy of only 2.4% 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,” said firm President Kevin 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% rate in 2015, 2.3 percentage points slower than other OGP firms.”
Though not measured in the survey, merger and acquisition activity also reached an all-time high in 2015. Reported North American deals topped 400 for the first time ever, and Reagan Consulting noted that valuations hit record levels for firms of all sizes.
Nevertheless, Stipe stressed that the numbers are still “fairly solid from a historical perspective.”
“In the past eight years of the OGP survey, the organic growth rate of 4.6% ranks fourth best, while the EBITDA margin of 20.1% ranks second best,” he said in a news release.
Reagan Consulting has conducted its OGP survey since 2008. Median revenue of the firms completing the survey is approximately $17 million.