Agent-broker organic revenue growth fell to 4.0% for the second quarter of 2016, down sharply from 5.9% for the second quarter of 2015, as measured by the latest Reagan Consulting Organic Growth and Profitability (OGP) survey.
“The powerful headwinds of soft commercial lines premium rates and a muddling economy are even stronger in 2016, after blowing for more than a year,” said Jim Campbell, principal of Reagan Consulting, a management consulting and merger-and-acquisition (M&A) advisory firm for the insurance distribution system.
Reagan Consulting found that commercial lines organic revenue growth slowed to 3.1% for the second quarter, down from 5.1% for the first quarter of 2016. Employee benefits was the fastest-growing line of business, with organic growth of 6.2%, while personal lines grew at 1.7%.
Profit margins declined to 23.1% for the second quarter, as measured by EBITDA (earnings before interest, taxes, depreciation and amortization). This was the lowest second-quarter pace since 2012 and down from the 24.6% margin for second quarter 2015.
Commercial P-C rates declined 3.7% in the first quarter of 2016 (most recent figures available), as measured by the Council of Insurance Agents and Brokers, the largest decrease since the current trend of market softening started in 2014. The U.S. economy grew at merely a 1.2% annualized rate during the second quarter of 2016, following a 0.8% rate for the first quarter, showed figures from the U.S. Department of Commerce.
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 survey. Median revenue of the firms completing the survey is approximately $18 million, making the study the preeminent survey of the industry’s mid-size and large privately held brokers.
Agents and brokers in the Reagan Consulting OGP survey expressed optimism for full-year profitability, projecting a year-end EBITDA margin of 20%. “If achieved, that would be generally consistent with the 20.1% margin achieved in 2015,” commented Campbell.
Merger-and-acquisition activity among agents and brokers, while not measured by the survey, is on track for the second most-active year on record. Data from SNL Financial showed 207 announced deals in the second quarter of 2016. Campbell noted that 2015’s M&A transaction level exceeded the previous record year by more than 40%.
For further information, contact Jim Campbell of Reagan Consulting at 404-869-2538 or[email protected].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 publicly owned and privately held independent 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.