By IFAwebnews Staff
Posted: February 17, 2014
Reagan Consulting reports new highs in 3 major value creation categories
Independent insurance agents and brokers posted new highs in all three major value creation categories of the Reagan Consulting Organic Growth and Profitability (OGP) survey, but caution was urged for continued improvement.
The survey, which began in 2008, revealed the following:
- Median organic growth for 2013 was 6.2%, beating 6.1% for 2012.
- EBITDA (earnings before interest, taxes, depreciation and amortization) margins jumped almost a point from 18.4% in 2012 to 19.3% in 2013.
- Rule of 20 scores were 16.5, while the top 25% of brokers all exceeded 20 for the first time.
Reagan Consulting uses the Rule of 20 to measure agency value creation. The Rule of 20 is the sum of an agency’s organic growth rate and one-half of its EBITDA margin; if the sum equals or exceeds 20, an agency is driving strong shareholder returns.
“Broker performance has progressed significantly in the last five years,” commented Kevin Stipe, president of Reagan Consulting, a management consulting and merger-and-acquisition advisory firm for the insurance distribution system.
“It wasn’t too long ago, in 2009, when brokers were shrinking organically (-1.9% median organic growth) and posting mid-single-digit Rule of 20 scores (6.9),” Stipe said. “Agents and brokers have capitalized on a firming market, a recovering economy and new business initiatives to make large strides forward in performance and shareholder returns.”
Reagan Consulting has conducted its quarterly survey of agency growth and profitability since 2008, using confidential submissions from approximately 140 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, making it the industry’s preeminent survey of mid-size and large privately held brokers.
Stipe cautioned on continued performance improvement.
“We do not necessarily think that brokers will go backwards, but we are wondering if brokers can maintain their impressive run of consistently improving results,” stated Stipe, noting that organic growth was up just 0.1% and Rule of 20 scores just 0.4 points.
Brokers surveyed forecast a median organic growth rate of 6.1% in 2014, very slightly below 2013 (6.2%). Brokers are almost evenly split on whether they believe organic growth will increase or decrease for their firm in 2014.