Public US insurance brokers are at the start of what could be a promising year, according to the latest report from Fitch Ratings.
In its 2016 US Insurance Broker Outlook analysis, the ratings service suggested that revenues and earnings for brokers are likely to modestly improve this year compared to reported results from the first nine months of 2015.
Driving this increase is better near-term operating performance and balance sheet strength among some of the country’s largest players. Debt servicing capabilities are also anticipated to remain steady, and revenues from diverse product and geographic platforms – such as healthcare and benefits consulting – along with the slowly improving economy put brokers in a strong position heading into 2016.
Despite this movement, however, Fitch does not expect to change ratings for public brokers within the next 12 to 18 months, with one exception: Willis Group Holdings PLC.
Willis is on a Rating Watch Positive with the group due to its likely merger with Towers Watson & Co. The formerly uncertain transaction gained validity with a favorable December 11 vote from Towers Watson shareholders. The $8.9 billion merger is also supported by Willis shareholders.
Otherwise, brokers still face pressure from a soft reinsurance market and declining premium rate changes, which may impact organic growth and profit margins in the upcoming year.
Fitch noted that financial data for some of the largest publicly traded brokers suggest profit margins were relatively flat in 2015, with two of the five peers reporting reduced margins in part from one-time items.
Financial leverage increased for several groups, including the three largest brokers, while interest coverage continues to be favorable and supportive of current rating levels.
The full report '2016 Outlook: U.S. Insurance Broker Industry' is available at '
www.fitchratings.com.'
