FOR IMMEDIATE RELEASE
CONTACT: Kevin Stipe, Reagan Consulting, 404.869.2532, kevin@ReaganConsulting.com
Reagan Consulting: Brokers Show Resilience as Growth Rebounds
Stronger Economy, Pricing among Factors Lifting Agent-Broker Organic Revenue Growth
ATLANTA (August 3, 2017) — Agencies and brokerage firms reported that their organic growth rebounded to 4.6% in the second quarter of 2017, a surprising reversal from the 3.9% reported in the first quarter, which was the weakest growth rate since 2011.
Several factors appear to have reversed the earlier slippage. These include a stronger-than-expected U.S. economy, more favorable property-casualty pricing and organic growth gains in both commercial and personal lines, said Kevin Stipe, president of Reagan Consulting, a management consulting and merger-and-acquisition advisory firm for the insurance distribution system.
“To coin a Mark Twain phrase, rumors of the industry’s demise are greatly exaggerated,” Stipe said. “Agency and brokerage firms have shown remarkable resiliency after a disappointing first quarter of 2017. Firms participating in Reagan Consulting’s Organic Growth and Profitability (OGP) Survey are reporting greater confidence, forecasting 5% growth for the remainder of the year.”
Profitability, defined as agent-broker earnings before interest, taxes, depreciation and amortization (EBITDA), also reversed course, surging to 24.6% in the second quarter, Stipe noted. “In previous quarters, EBITDA margins have continued to recede, and first-quarter 2017 was the lowest among our surveyed brokers in five years. That changed in the second quarter, though, when brokers reported an EBITDA margin of 24.6%, up from 23.1% in the year-earlier quarter,” he said. Reagan Consulting cautioned that EBITDA margins tend to hit their highest level in the first quarter, due to the reporting of contingent income, and decline over the course of the year.
EBITDA: Earnings Before Interest, Taxes, Depreciation & Amortization
Source: Reagan Consulting Organic Growth and Profitability Survey (ReaganConsulting.com)
“Pleasant surprises in the second quarter were robust organic growth in commercial lines, which rose to 3.9% from 3.1% a year earlier, and in personal lines (2.3% from 1.7%). The 2.3% organic growth in personal lines was the fastest growth rate since 2013,” Stipe said. “What makes the personal lines result even more encouraging for agencies and brokerages is the fact that many observers suggest this business is vulnerable to technology-driven disruption and potential disintermediation,” he said.
Merger and acquisition activity remains very strong, with historically high deal volume over the last two years, Stipe pointed out. “That pace is continuing in 2017, with 255 deals reported by SNL Financial in the first six months, ahead of the 221 reported in the same period of 2016. The question on many people’s minds is, ‘How long can this trend last?’ When Reagan Consulting looked closely, we made a stunning discovery,” he said.
“In the most active era of consolidation witnessed so far, the number of agencies has actually increased during the last 10 years, according to the 2016 Agency Universe Study by FutureOne, a collaboration between the Independent Insurance Agents and Brokers of America and various insurers. What happened during that time is agencies have regenerated at a rate greater than consolidation,” Stipe explained. “Simply put, don’t count out agency and brokerage firms. They are showing great resilience and growth, and they continue to attract capital. The distribution channel has its challenges, but it’s as good a time to be in this business as it ever has been.”
Reagan Consulting has conducted its quarterly survey of agency growth and profitability since 2008, using confidential submissions from more than 150 midsize and large agencies and brokerage firms. Nearly half of the industry’s 100 largest firms regularly participate in the survey. The OGP study is the industry’s preeminent survey of midsize and large privately held brokers.
For further information and commentary, contact Kevin Stipe of Reagan Consulting at 404.869.2532 or kevin@ReaganConsulting.com.
Each participating agency receives a customized, confidential report of its performance compared with the overall survey results, along with Reagan’s quarterly commentary of industry trends affecting agents and brokers. For information on participating in the OGP survey, contact Michelle Appelbaum at 404.233.5545 or michelle@ReaganConsulting.com.
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 for insurance agents and brokers, bank-owned agencies and other participants in the insurance distribution marketplace include: appraisals of fair market value, mergers and acquisitions advisory, ownership perpetuation planning, strategic planning facilitation, key employee compensation and equity plan design, and agency performance benchmarking. Reagan Consulting co-developed the well-known Best Practices Study and produces the quarterly Organic Growth & Profitability benchmark survey.
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