ATLANTA – Independent insurance agents/brokers reported median organic growth of 5.8% for the first quarter of 2015, a drop from 6.2% from the first quarter of 2014, as measured by the Reagan Consulting Organic Growth and Profitability (OGP) survey, released in mid May.
All lines (commercial, personal and group benefits) grew at a slower pace in Q1 2015 than in Q1 2014, Reagan Consulting reported. Notably, commercial lines posted a rate of 6.6% growth compared with 8.4% growth in the prior-year period. Key factors were softening pricing and an inconsistent U.S. economy.
"But growth is holding relatively strong despite the decline in pricing," pointed out Kevin Stipe, president of Reagan Consulting, a management consulting and merger-and-acquisition advisory firm for the insurance distribution system. Noting that rates declined by 2.3% in the first quarter according to the Council of Insurance Agents and Brokers commercial P/C survey, Stipe pointed out that the pace of property/casualty pricing declines is the fastest since 2010. "This signals the industry has moved from flat pricing to true softening," Stipe said.
Reagan noted it is now tracking "sales velocity" as a metric in the OGP survey to measure the amount of new business written during a given period against the underlying book of business. The sales velocity of the top 25% of performers in the OGP survey was 16.7%, while the bottom 25% logged only 8.8%.
Other key findings of the quarterly survey of 130 mid-size and large agencies and brokerage firms included:
- Benefits growth, at 4.5%, 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.
Profitability as measured by pro forma EBITDA (earnings before interest, taxes, depreciation and amortization) margin was 29% percent in Q1 2015, a decline from 29.9% in Q1 2014, which was an all-time high for first-quarter profitability. Agents and brokers project full-year 2015 EBITDA of 20%. Q1 results are inflated by cash-basis contingent income received after year-end, and tend to decline throughout the year.
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.
Transaction activity, while not measured by the OGP survey, 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
"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."
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. Roughly 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.
For further information and commentary, contact Kevin Stipe of Reagan Consulting at (404) 869-2532 / [email protected].
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 at (404) 233-5545 or by email to [email protected]
About Reagan Consulting: Reagan Consulting is a management consulting firm providing strategic consulting, valuation, and merger-and-acquisition (M&A) services to the independent insurance distribution system. The firm's services include appraisals of fair market value, strategic planning, M&A advisory, ownership perpetuation planning, key employee compensation and equity plans, and agency performance benchmarking. Reagan Consulting co-developed the well-known Best Practices study and produces the quarterly Organic Growth & Profitability benchmark survey.
- 20 ways to make clients feel valued
- Autonomous vehicles predicted to radically shrink auto insurance sector, change type, amount of coverage sold
- Premium increases become sticking point for U.S. auto insurance customers, J.D. Power finds
- Company looks to make buying LTCI coverage common by selling through worksite
- CBO: $321 billion reduction in deficit, 22 million more uninsured over next decade with new Senate health bill
- Something to think about on National Insurance Awareness Day: 37% of adults skip life insurance
- Trio of big storm systems lead to 42% drop in 1Q net income for P&C insurers
- MetLife’s individual life, annuity business spin off to Brighthouse clears final regulatory hurdle