After dipping slightly in 2015, organic revenue growth for US insurance agencies and brokerages bounced to 5.1% for the first quarter of 2016 – up from 4.6% for the full year 2015, the latest survey from advisory firm Reagan Consulting reveals.
Profit margins, meanwhile, were slightly lower at 28.5%, compared to 29.0% during the same period last year.
Median profitability – measured as earnings before interest, taxes, depreciations and amortization – was still strong by historic standards, however, commented Kevin Stipe, president of Reagan Consulting.
“Given the powerful headwinds of softening commercial property and casualty pricing and continued weakness in the US economy, the upward movement in growth is a positive,” Stipe said.
The annual Reagan Consulting Organic Growth and Profitability survey also looked at lines of business growth, finding the strongest trends in the employee benefits sector (6.9% growth during the first quarter). If growth continues at that pace, it would yield the fastest yearly rate for employee benefits since 2011.
Commercial property/casualty, meanwhile, grew at a 5.1% rate, while personal lines grew at 1.6%.
While this marks an improvement over 2015, Stipe cautioned that commercial rates and the sluggish growth rate are pressuring agencies.
“If pricing continues to deteriorate and the economy doesn’t pick up, agency growth rates are likely to suffer later this year,” he said.
That may have something to do with the ongoing merger-and-acquisition activity among agents and brokers, which continues at what Stipe calls a “blistering pace.” Though not measured by the survey, reported North American deals topped 107 for the quarter, compared with the all-time record of 124 in the first quarter of 2015.
“The outside world (represented by private equity) has fallen in love with the investment performance of insurance brokers,” Stipe said, driving agency valuations to “levels never before seen.”
Reagan Consulting has conducted its quarterly survey of agency growth and profitability since 2008, using confidential submissions from approximately 140 mid-size and large agencies and brokerage firms. Roughly half of the industry's 100 largest firms participated in the most recent survey. Median revenue of the firms completing the survey is approximately $17 million.