NU Online News Service, Feb. 3, 3:07 p.m. EST
Profitability for insurance brokerages is expected to remain stable for this year despite continued challenges from the soft market and global economic conditions, said a report from Fitch Ratings.
In its report, Insurance Broker Industry Outlook, Fitch said profitability for insurance brokers remained relatively stable in 2009 and the same is expected this year, at least in the near term.
The brokers achieved those results by reducing headcount and streamlining operations, said Fitch. Although profitability is expected to fall short of its peak in 2002 and 2003, the rating service believes there will be sufficient cash flow "to support debt-servicing requirements."
Fitch tracks the five publicly traded insurance brokers–Marsh, Aon, Willis, Arthur J. Gallagher and Brown & Brown–but only rates the first three. All five saw their organic growth turn negative in 2009, the rating service said. However, consolidated operating income rose by an average 19 percent, reflecting accretion from acquisitions in 2008 and lower restructuring expense for the bottom line.
Fitch said it "expects the overall industry profitability to be flat to modestly improve in 2010, but organic growth and meaningful operating margin improvement could continue to prove elusive."
The consulting businesses at Marsh & McLennan Companies, the parent company of Marsh, and Aon Corp. could be dampened by the ongoing economic downturn, but they are expected to remain profitable, according to Fitch.
Concerning the three firms Fitch rates, Aon has good financial flexibility, Marsh's financial flexibility has increased, and Willis could be challenged to see the expected benefits of its acquisition of Hilb Rogal & Hobbs due to the soft market, the report said.
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