Five major insurance brokers will find it difficult to grow revenues through 2007, as they continue to be challenged by the soft market and making adjustments to life without contingent commissions, say financial analysts.
A research report issued by David Small and Brandon Young of Bear Stearns said insurance brokers will be faced with a "challenging operating environment" over the next 12 to 18 months.
The soft market will impact organic revenue growth coupled with diminished increases in the southeast from the hard property market. They said they also expect intense competition among the brokers and pricing discipline to continue to remain issues.
However, restructuring initiatives that began in 2004, following the contingency fee scandal, could help improve income in 2007, they said.
"We project industry-wide insurance broking revenue will be in the low single digits in 2007," the analysts forecasted, adding that the situation will remain constant until the market cycle changes.
Of the five major brokers Bear Stearns covers, they said, Willis, Arthur J. Gallagher, and Hilb Rogal & Hobbs are expected to achieve "more impressive top line results" than Marsh or Aon.
The three with good results have been hiring new, top line producers, primarily from Marsh & McLennan, the parent company of Marsh, and these new hires are expected to reach full productivity going into 2007. This should improve organic growth, they said.
Risk managers' buying habits are also changing, the analysts pointed out, as they move away from using one broker for their insurance needs and seek to diversify their books. This should also help Willis, Gallagher and HRH, they said.
They predicted that Willis, Gallagher and HRH will remain active acquirers, while Marsh and Aon are not expected to be players.
Of the five, Willis was declared the analyst's favorite for strong operating profit per employee, superior operating margins, expense controls, and the ability to grow both organically and through acquisitions.
Willis, Gallagher, and HRH were also noted to have strong sales cultures by the analysts.
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