Large and mid-size private agencies and brokerage firms experienced a slight increase in median organic growth during the second quarter of 2015, up 5.9% from 5.8% during the first quarter according to the latest Reagan Consulting Organic Growth and Profitability (OGP) survey.
The consulting firm, which regularly reports growth in the agent/broker sector, reported that the continued strong organic growth among agencies helped boost profitability to 24.6% in the second quarter – the highest second-quarter performance since Reagan began monitoring results in 2008.
“Industry organic growth has now been in a relatively tight band of 5% to 7% for 14 consecutive quarters,” said Reagan Consulting President Kevin Stipe. “Times are good for insurance brokers.”
Growth was uneven, however, thanks to a softening in pricing for some market segments. For the first time in four years, group benefits outgrew commercial lines, with a 6.8% increase and a 5.4% increase respectively.
Reagan said it expects “more and potentially deeper softening” in commercial property/casualty pricing going forward, given insurers’ strong net income during 2015’s first quarter as reported by the Insurance Services Office.
“If this happens, commercial lines growth will likely decelerate further and pull agency-wide organic growth down,” Stipe commented.
That trend will likely affect a significant portion of agencies, given that commercial lines represents more than two-thirds of the revenue of agencies and brokerage firms surveyed by Reagan.
Other results of the survey include:
- The median "Rule of 20" score was 19.0, the highest second-quarter mark in the seven years of the survey. Reagan's Rule of 20 is a benchmark that correlates with shareholder returns -- a score of 20 or higher is indicative of outstanding shareholder returns. It is calculated by adding half of an agency's EBITDA margin to its organic growth rate. Nearly one-third of OGP participants expect to reach a score of 20 or higher this year.
- Personal lines growth slipped to 1.8 percent versus 2.2 percent in Q2 2014.
- Agents and brokers project a 20.0 percent EBITDA margin and a 6.7 percent organic growth rate for the full year.
Though not specifically measured in this survey, Reagan also reported that transaction activity is on a record pace in 2015, thanks to investors’ desire for investment return, low interest rates and strength in market prices of publicly traded brokers.
More than 200 deals were announced during the first half of the year, and five of the top 100 insurance brokers were acquired in that same time period.
