By Insurance Journal

Posted:  February 9, 2016

Insurance Agency Growth, Profits Slipped in 2015 on Oil Bust, Soft Market: Reagan

Link to Article:

Insurance agency and brokerage organic revenue growth slowed to 4.6 percent for 2015, according to the latest Reagan Consulting Organic Growth and Profitability (OGP) survey. That was down from the organic growth of 6.2 percent seen each year from 2012-14.

The soft market and the oil bust are partly to blame for the slowdown, say the Reagan analysts.

Profit margins declined to 20.1 percent, a year after reaching record profitability in 2014. That median profitability, measured by EBITDA (earnings before interest, taxes, depreciation and amortization), was 21 percent in 2014, according to the survey.

“The results show a downward tick. But they are still fairly solid from a historical perspective,” said Kevin Stipe, president of Reagan Consulting, a management consulting and merger-and-acquisition advisory firm for the insurance distribution system.

Stipe said that the organic growth rate of 4.6 percent ranks fourth best out of the eight years his firm has been doing the OGP survey, while the EBITDA margin of 20.1 percent ranks second best.

Kevin Stipe Reagan Consulting

Kevin Stipe
Reagan Consulting

Reagan Consulting’s study also found the pace of growth slowed in all three major lines of business: commercial property/casualty, personal property/casualty and employee benefits.

The firm cited three key factors affecting both growth and profitability: a soft market for commercial property/casualty premiums, continued slow growth in the U.S. economy of only 2.4 percent, and a sharp decline in crude oil prices.

“The boom that drove oil prices to more than $100 per barrel in 2013 turned into an oil bust in 2015 with prices reaching the high-$30s range,” said Stipe. “Insurance brokers in oil-producing states once benefited from economic activity stimulated by high oil prices, and outpaced peers in other states. That has flipped: oil-state firms grew at only a 2.5 percent rate in 2015, 2.3 percentage points slower than other OGP firms.”

Reagan Consulting has conducted its quarterly survey of agency growth and profitability since 2008, using submissions from 140 mid-size and large agencies and brokerage firms. The firms said that the median revenue of the firms completing the survey is $17 million.

Merger and acquisition activity among agents and brokers, while not measured by the OGP survey, was at an all-time high in 2015, noted Reagan Consulting. Reported North American deals topped 400 for the first time ever, and “valuations hit record levels for firms of all sizes,” said Stipe.

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

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