Fitch: 2011 Insurance Broker Growth Expected To Be Modest

NU Online News Service, Feb. 1, 3:09 p.m. EST

Insurance broker revenues are expected to grow modestly this year as the soft market and the fallout from the economic crisis continue to put a damper on earnings, according to a report from Fitch Ratings.

In its “2011 Outlook: U.S. Insurance Broker Industry,” Fitch said “competitive fundamentals” within the property and casualty insurance market coupled with limited demand for broker services from the economic crisis will be the primary drivers affecting brokers’ earnings in 2011.

A modest growth in earnings is expected over the next 12 months despite the soft market, Fitch said, but organic growth will remain a challenge.

Additionally, Fitch said non-organic growth through acquisitions “will be constrained” from a shrinking supply of acquisition targets. However, Fitch said it expects overall revenue growth to continue to be driven by mergers and acquisitions.

Fitch noted that acquisition activity picked up in 2010 compared to 2009. The strong track record of the major brokerage firms to integrate acquisitions will override concerns regarding integration risk and goodwill impairments, Fitch said.

With the lifting of the ban on contingent commissions among the major brokers, Fitch said it believes the major brokers will pursue smaller acquisition targets that accept that kind of commission.

The overall industry outlook for brokers was placed at stable. Fitch said a “near-term shift to a positive industry rating outlook” was unlikely.

Of the five major public insurance brokers Fitch examined, only Aon is expected to see an increase in earnings, due to its acquisition of human resource outsourcing firm Hewitt.