Reagan Consulting: 3Q Organic Growth Drops Nearly a Point From Prior Year, But Agents/Brokers Remain Optimistic
Survey Measures Large & Mid-Size Private Agencies & Brokerage Firms
FOR IMMEDIATE RELEASE
Kevin Stipe: (404) 869-2532; [email protected]
ATLANTA (November 11, 2014) — Independent insurance agents and brokers reported median organic growth of 6.0 percent for the third quarter of 2014, a weakening from 6.8 percent for the third quarter of 2013, as measured by the Reagan Consulting Organic Growth and Profitability (OGP) survey. The pace of organic growth was up, however, from 5.8 percent for the second quarter of 2014.
3Q Organic Growth & Profitability: 2009-2014
Source: Reagan Consulting Organic Growth and Profitability Survey (www.ReaganConsulting.com)
“The year 2014 is turning out to be a solid but not spectacular year for agents and brokers. Organic growth is a bit slower than a year ago, and concerns about a softening market in commercial property and casualty insurance are building,” stated Kevin Stipe, president of Reagan Consulting, a management consulting and merger-and-acquisition advisory firm for the insurance distribution system.
“The third-quarter commercial P&C pricing survey from the Council of Insurance Agents and Brokers (CIAB) indicates that we are currently in an ebb tide. Rates are neither increasing nor decreasing,” Stipe explained.
Despite the growth concerns, OGP survey participants remain optimistic. They are projecting a 2014 organic growth rate of 7.0 percent, which would be the highest level in the survey’s seven-year history. “Despite falling short of seven percent in each of the first three quarters, brokers are holding to their forecast of 7.0 percent for the year. We hope their optimism proves to be well-founded,” Stipe said.
Profit margins, as measured by median EBITDA (earnings before interest, taxes, depreciation and amortization), increased to 22.4 percent in 3Q 2014 from 22.1 percent in 3Q 2013. These margins typically decline in the fourth quarter, due to the fact that contingent income is booked on a cash basis and thus inflates profit margins before the fourth quarter. But brokers are still projecting that 4Q margins will top 20 percent for the first time in the survey’s seven-year history.
The OGP survey reported a projected 2014 growth rate of 7.0 percent for agents/brokers. “Despite missing seven percent in each of the first three quarters, brokers maintain their full-year forecast,” Stipe said.
Two other key findings of the quarterly survey of 150 mid-size and large agencies and brokerage firms were:
- The Rule of 20 score for 3Q 2014 was 16.7, down nearly two points from last year’s 3Q score of 18.6. The Rule of 20, Reagan Consulting’s measure of agency value creation, 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.
- Organic growth posted by publicly held brokers through the third quarter was 4.1 percent, falling short of the overall broker group.
Reagan Consulting has conducted its quarterly survey of agency growth and profitability since 2008, using confidential submissions from approximately 150 mid-size and large agencies and brokerage firms. Nearly half of the industry’s 100 largest firms participated in the most recent survey. Median revenue of the firms completing the survey is approximately $15 million.
For further information and commentary, contact Kevin Stipe of Reagan Consulting at (404) 869-2532 / [email protected].
Each participating agency receives a customized, confidential report of its performance compared with the overall survey results, as well as Reagan’s quarterly commentary of industry trends impacting agents and brokers. For information on participating in the OGP survey, contact Michelle Appelbaum at (404) 233-5545 or by email to [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 include appraisals of fair market value, strategic planning, M&A advisory, ownership perpetuation planning, key employee compensation and equity plans, and agency performance benchmarking. Reagan Consulting co-developed the well-known Best Practices study and produces the quarterly Organic Growth & Profitability benchmark survey.
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