FOR IMMEDIATE RELEASE
CONTACT: Kevin Stipe, Reagan Consulting, 404.869.2532, [email protected]
Agencies, Brokers Soar through Second Quarter of 2018
All Revenue Lines Show ‘Significant Growth’
ATLANTA (August 7, 2018) — Reagan Consulting reports good news for the independent insurance channel: Organic growth for 2018 remains on target to reach levels not seen since 2014.
As revealed by the firm’s quarterly Organic Growth and Profitability (OGP) survey, the industry’s organic growth for the first quarter (Q1) of 2018 was 5.6% and has risen to 6.1% through Q2. It’s notable that the industry has not seen two consecutive quarters of organic growth at or above 6.0% since 2014. Organic growth in 2017 was 4.5%.
Source: Reagan Consulting
The high performer of 2018 continues to be group benefits, at 6.3% growth in Q2 2018. “That’s 1.4% higher than the 4.9% growth posted in Q2 2017,” observes Kevin Stipe, president of Reagan Consulting. Also in Q2 2018, commercial lines increased 5.2%, versus 3.9% in Q2 2017, and personal lines increased 4.6%, versus 2.3% in Q2 2017, representing “significantly high growth,” he says.
In addition, the industry’s sales velocity so far this year is “slightly above historical levels,” says Stipe, adding that sales velocity “is among the most important drivers of organic growth.” Reagan figures show median sales velocity was 13.9% for the industry through Q2 2018.
Sales velocity is a proprietary Reagan metric to benchmark an agency’s new business results against other firms. It is expressed as a percentage and calculated by dividing a firm’s new business written in the current year by the prior year’s commissions and fees. Stipe explains that a firm consistently posting sales velocity figures in the top 25% of the industry (18.5% or higher in Q2 2018) “likely will generate above-industry growth, assuming normal levels of client retention.”
Independent agencies and brokers also project a solid increase in rule of 20 scores for 2018, demonstrating “their positive outlook for organic growth,” says Stipe. At 17.8, the rule of 20 score for all reporting firms is up from last year’s score of 14.3.
The rule of 20 is Reagan Consulting’s metric to benchmark an agency’s shareholder returns. It is calculated by adding half of an agency’s earnings before interest, taxes, depreciation and amortization (EBITDA) margin to its organic revenue growth rate. An outcome of 20 or higher means a firm likely is generating a shareholder return of about 15% to 17%, which is a typical return under normal market conditions.
Despite the increases in organic growth, sales velocity and rule of 20 scores, firms have had to reduce their initial prognostications for 2018 by a percentage point to 6.0%, largely because their EBITDA margin dropped by almost 2 points, from 24.6% in Q2 2017 to 22.7% in Q2 2018. Furthermore, margins in all three lines of business have declined slightly versus last year. Stipe explains that “contingent income is relatively flat year over year, pushing margins down.” He adds that year-to-date profitability numbers “are inflated by cash-basis contingent income recorded through Q2, so margins will come down throughout the year.”
Firms do project a 20.0% margin for 2018, which is “in line with the 2017 full-year margin of 20.4%,” Stipe says.
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 at Reagan Consulting, 404.869.2532, [email protected].
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 [email protected]
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.
Reagan Consulting: 3495 Piedmont Road, NE, Building 10, Suite 920, Atlanta, Georgia 30305
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