NU Online News Service, Jan. 30, 2:42 p.m.EST

The universe of publicly held brokerage firms could expandwithin the next two years, with two firms that are now in the handsof private-equity interests re-entering the public sphere in theUnited States.

In an analyst's report from Stifel Nicolaus titled, “InsuranceBrokers & Risk Managers, A Comprehensive Overview,” the firmsuggests that there are at least four firms that are potentialcandidates for initial public offerings over the next 24months.

Two are retail brokers based in the United States—HubInternational, based in Chicago, and USI Holdings, based inBriarcliff Manor, N.Y.

Hub was traded on the New York Stock Exchange and Toronto StockExchange until 2007 when it was acquired by the private equityfirms Apax Partners and Morgan Stanley Principal Investments. Thefirm operates 250 offices across North America.

USI has 80 offices in 23 states and is owned by Goldman SachsCapital Partners, a private equity division of Goldman, Sachs &Co. It also went private in 2007.

Both firms are considered to be among the top 15 brokers in theworld.

The firm suggests Cooper Gay Swett & Crawford and HyperionInsurance Group may also consider going public. Both are based inLondon and Stifel Nicolaus suggests they are potential candidatesfor foreign initial public offerings.

Cooper Gay was formed in 2010 with the merger of Cooper Gay inLondon and San Francisco-based wholesaler Swett & Crawford. Thefirm employs 1,400 people operating in North America, SouthAmerica, Europe and Asia.

Hyperion Insurance Group has 50 offices in 25 countriesemploying 850 people. It is an insurance-brokerage firm that alsooperates an underwriting unit.

The insurance-brokerage marketplace as a whole, Stifel Nicolaussays, will benefit from an insurance market that is continuing toshow signs of rate increases. Rate increases will mean an increasein commission revenue and margin expansion as “expense will remainlargely unchanged.”

A projected 10 percent rise in insurance rates “could boostoperating margins by 160 basis points,” the report says.

During the last hard market that ran from 2000 to 2004, the fivepublic brokers (Aon, Arthur J. Gallagher, Brown & Brown, Marshand Willis) reported average operating earnings per share, compoundannual growth rate of almost 19 percent, says Stifel Nicolaus.

The analyst notes that rates are pressured from the steadydecline in prior-period reserve development and the rise incommercial lines combined ratios that are expected to hit 110 for2011. Insurers are also unable to offset their underwriting losseswith investment income as investments suffer from low interestrates.

While the brokers are expected to benefit from rising rates,among the publicly held brokers, Willis could experience marginpressure as it works to “reverse recessionary expense controls.”Brown & Brown will deal with pressure on organic growth fromthe “economically weakest domestic regions” where it does business,primarily Florida.