The latest Reagan Consulting Organic Growth and Profitability (OGP) survey of independent agents and brokers shows median organic growth of 5.8% for the first quarter of 2015, a drop from 6.2% from the first quarter of 2014.
According to the survey, all lines—commercial, personal and group benefits—grew at a slower pace in 2015's first quarter than in the same time in 2014. Commercial lines grew at a rate of 6.6% compared with 8.4% growth in the prior year period, attributable primarily to softening pricing and an inconsistent U.S. economy.
"Growth is holding relatively strong despite the decline in pricing," said Kevin Stipe, president of Reagan Consulting, a management consulting and merger-and-acquisition advisory firm for the insurance distribution system. Rates declined by 2.3% in the first quarter, according to the Council of Insurance Agents and Brokers commercial property and casualty (P&C) survey, and the pace of P&C pricing declines is the fastest since 2010. "This signals the industry has moved from flat pricing to true softening," Stipe said.
The OGP survey is now tracking sales velocity as a metric to measure the amount of new business written during a given period against the underlying book of business. The OGP survey found that the sales velocity of the top 25% of performers in the OGP survey was 16.7%, while the bottom 25% reached only 8.8%.
The quarterly survey of 130 mid-size and large agencies and brokerage firms also found that:
- Benefits growth, at 4.5% percent, slipped from the 5% growth rate of Q1 2014.
- Personal lines growth slipped to 1.3% versus 2.8% in Q1 2014.
- Agents and brokers project a 6% organic growth rate for 2015.
Q1 Organic Growth & Profitability: 2009-2015 (Source: Reagan Consulting)
Profitability as measured by pro forma EBITDA (earnings before interest, taxes, depreciation and amortization) margin declined to 29% in Q1 2015 from 29.9% in Q1 2014, which Reagan Consulting noted was an all-time high for first-quarter profitability. Although Q1 results are inflated by cash-basis contingent income received after year-end, and quarterly results tend to decline throughout the year, agents and brokers project full-year 2015 EBITDA of 20%.
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Strong margins
Reagan Consulting pointed out that, even with the decline, margins continue to be strong. Contingent income grew at 6.6% for the median firm in Q1 2015, less than half of Q1 2014's 15% growth.
The OGP survey doesn't measure transaction activity, which is heavily influenced by growth and profitability performance. Stipe noted that Reagan Consulting hosted more than 150 agent/broker leaders at its biennial mergers-and-acquisitions and perpetuation workshop in April. Much of the discussion at the event was about the record-high valuation multiples in the marketplace today, and how those multiples are impacting brokers.
[Related: Record high for agent, broker valuations]
"The deal multiples being delivered have steadily increased in recent years. In fact, multiples have increased by roughly 8-10% over just the past 12 to 18 months," said Stipe. "These record multiples create opportunity for potential sellers, are a major nuisance for those desiring to remain independent, or are a source of frustration for buyers who struggle to get deals done or fail to get strong financial returns based on the valuation they must deliver."
About the survey
Reagan Consulting has conducted its quarterly survey of agency growth and profitability since 2008, using confidential submissions from approximately 130 mid-size and large agencies and brokerage firms. About half of the industry's 100 largest firms participated in the most recent survey. Median revenue of the firms completing the survey is approximately $15 million.
Each participating agency receives a customized, confidential report of its performance compared with the overall survey results, as well as Reagan's quarterly commentary of industry trends impacting agents and brokers. For information on participating in the OGP survey, contact Michelle Appelbaum by phone at (404) 233-5545 or by email to michelle@ReaganConsulting.com.
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