View this article online: https://www.insurancejournal.com/news/national/2018/05/16/489364.htm
Insurance agencies and brokerage firms recorded the second consecutive quarter of accelerating growth, and their outlook for the remainder of 2018 continues to be optimistic, according to a new industry survey of mid-to-large privately held firms.
All lines of business experienced the highest organic growth since 2015 in the first quarter of this year, according to the survey of 150 midsize and large firms by Reagan Consulting, an insurance management consulting and merger-and-acquisition advisory firm.
Overall, first quarter agency organic growth reported by the firms participating in Reagan Consulting’s Organic Growth and Profitability (OGP) Survey rose to 5.6 percent, representing a 44 percent increase over Q1 2017 and a 24 percent increase over Q4 2017.
Personal lines provided the “biggest surprise,” according to Brian McNeely, partner at Reagan Consulting. It was the highest Q1 performance — at 3.9 percent — in the survey’s history.
“We believe this is driven, at least in part, by hardening in the personal auto market in certain states as well as agents and brokers continuing to focus on high-end personal lines, which tends to grow faster than main street personal lines,” said McNeely.
The group benefits category has experienced the strongest growth, coming in at 7.3 percent, which represents a 40 percent increase over Q4 2017. Reagan analysts attribute the growth to the continued escalation of healthcare costs and brokers’ ongoing investment in additional producers and client-facing resources.
In contrast to overall growth, earnings before interest, taxes, depreciation and amortization (EBITDA) margin lowered slightly to 26.9 percent when compared to the 27.6 percent EBITDA margin reported in Q1 2017. “Given the consistency of contingent income versus Q1 2017 combined with the organic growth increase, we would have expected the EBITDA margins to increase in Q1 of 2018,” McNeely said.
McNeely said that the Q1 2018 operating profit was down 0.5 percent to 9.9 percent, seeming “to confirm a concern that many of our clients have voiced in this year’s valuation conversations — brokers are feeling margin pressure.”
Reagan Consulting said it does not expect that pressure to lessen and predicts EBITDA margins will fall slightly in 2018 versus 2017.
Reagan Consulting uses confidential submissions from more than 150 midsize and large privately held agencies and brokerage firms for its survey.