Agent, broker organic growth reaches 5.9% in Q2 2015 [Survey]

In a positive sign for the insurance industry, independent agents and brokers posted median organic growth of 5.9 % for the second quarter of 2015, slightly higher than the 5.8% recorded in the first quarter of 2015 and second quarter of 2014, as measured by the Reagan Consulting Organic Growth and Profitability (OGP) quarterly survey.

“Industry organic growth has now been in a relatively tight band of 5% to 7% for 14 consecutive quarters,” commented Kevin Stipe, president of Reagan Consulting, a management consulting and merger-and-acquisition advisory firm for the insurance distribution system. “Times are good for insurance brokers.”

The second quarter of 2015 saw continued strong organic growth that boosted profitability to 24.6%, the highest second-quarter performance since the survey launched in 2008. Reagan noted that margins typically are inflated by cash-basis recognition of contingent income during the first half of each calendar year.

According to the survey, for the first time in four years, group benefits—with a 6.8% rate—“outgrew” commercial lines, which were only 5.4%. Softening pricing in commercial lines affected that line for the second straight year, Reagan reported.

More ‘softening’ on the horizon

Reagan expects “more and potentially deeper softening” in commercial property and casualty (P&C) pricing going forward, signaled by P&C insurers’ historically strong net income during the first quarter of this year as recorded by the Insurance Services Office. “If this happens, commercial lines growth will likely decelerate further and pull agency-wide organic growth down,” Stipe said. Commercial lines represents more than two-thirds of the revenue of the approximately 130 mid-size and large agencies and brokerage firms in the Organic Growth and Profitability survey group.

The quarterly survey also found:

• The median “Rule of 20” score was 19.0, the highest second-quarter mark in the seven years of the survey. Reagan’s Rule of 20 is a benchmark that correlates with shareholder returns: A score of 20 or higher is indicative of outstanding shareholder returns. It’s calculated by adding half of an agency’s EBITDA (earnings before interest, taxes, depreciation and amortization) margin to its organic growth rate. Nearly one-third of OGP participants expect to reach a score of 20 or higher this year.
• Personal lines growth slipped to 1.8% versus 2.2% in Q2 2014.
• Agents and brokers project a 20.0% EBITDA margin and a 6.7% organic growth rate for the full year.

(Photo: Shutterstock/designer491)

More deals?

Transaction activity, although not measured by the OGP survey, is on a record pace in 2015, noted Reagan, driven by investors’ desire for investment return, low interest rates and strength in market prices of publicly traded brokers. He added that more than 200 deals were announced, and five of the top 100 insurance brokers were acquired in the first two quarters of the year.

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. Nearly half of the industry’s 100 largest firms participated in the most recent survey. Median revenue of the firms completing the survey is approximately $17 million.

For further information about the study or to participate, contact Kevin Stipe of Reagan Consulting at (404) 869-2532 / kevin@ReaganConsulting.com.