Independent Agencies Post Performance Highs: Reagan

February 11, 2014
Peak Performance Success

Independent insurance agents and brokers posted new highs in revenue growth and profitability in the fourth quarter of 2013, according to a survey of large and mid-sized agencies by Reagan Consulting.

The consulting firm said agencies performed well in all three of the major value creation categories of the Reagan Consulting Organic Growth and Profitability (OGP) survey:

  • Median organic growth for 2013 was 6.2 percent, beating 6.1 percent for 2012.
  • EBITDA (earnings before interest, taxes, depreciation and amortization) margins jumped almost a point from 18.4 percent in 2012 to 19.3 percent in 2013.
  • Rule of 20 scores were 16.5, while the top 25 percent 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,” said Kevin Stipe, president of Reagan Consulting, a management consulting and merger-and-acquisition advisory firm for the insurance distribution system.

Reagan 2011 Survey: Organic Growth and Profitability Continues to Improve

Stipe said it wasn’t too long ago, in 2009, when brokers were shrinking organically (-1.9 percent median organic growth) and posting mid-single-digit Rule of 20 scores (6.9).

“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,” he said.

Earnings before Interest, Taxes, Depreciation & Amortization   Source: Reagan Consulting Organic Growth and Profitability Survey

Earnings before Interest, Taxes, Depreciation & Amortization
Source: Reagan Consulting Organic Growth and Profitability Survey

For its survey, Reagan Consulting said it uses confidential submissions from approximately 140 mid-size and large agencies and brokerage firms. The firms said about half of the industry’s 100 largest firms participated. Median revenue of the firms completing the survey is approximately $15 million.

While the performance results are impressive, Stipe wonders if they can be sustained.

“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,” said Stipe, noting that organic growth was up just 0.1 percent and Rule of 20 scores just 0.4 points.

Source: Reagan Consulting

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