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Increasing property/casualty rates, more demand for benefits consulting, a slowly improving economy plus healthy merger and acquisition activity helped drive revenue in 2013 in the commercial insurance brokerage sector.
In fact, among Business Insurance's 2014 ranking of the world's 10 largest brokerages, only one — Wells Fargo Insurance Services USA Inc. — reported a decline in brokerage revenue. Wells Fargo has been divesting parts of its insurance business to concentrate on expanding its middle-market brokerage portfolio in select U.S. regional markets.
Among the 10 largest brokers of U.S. business, Brown & Brown Inc. posted the largest percentage gain of domestic brokerage revenue at 14.0%, followed by Lockton Cos. L.L.C. at 12.4% and Arthur J. Gallagher & Co. at 10.7%.
Wells Fargo's 14.3% drop last year in U.S. brokerage revenue was the biggest in Business Insurance's 2014 ranking of the top 100 brokers of U.S. business to report a decline; it was one of only nine brokers in the 100 that reported 2013 brokerage revenue was less than 2012.
Further down the ranking at No. 14, London-based Jardine Lloyd Thompson Group Ltd., reported a 97.6% jump in U.S. brokerage revenue — the second-biggest increase among the top 100 — partly because of its acquisition of Towers Watson & Co.'s reinsurance brokerage business last year.
Even further down the list at No. 42, Caledonia, Michigan-based Acrisure L.L.C. boosted 2013 U.S. brokerage revenue by 161.1% due largely to acquisitions. That was the biggest jump in brokerage revenue among the top 100 brokers.
Five brokers cracked our top 100 ranking for the first time. They are: BroadStreet Partners Inc., No. 19; Cross Financial Corp., No. 41; Gowrie Group, No. 84; James G. Parker Insurance Associates, No. 86; and Ansay & Associates L.L.C., No. 99. BroadStreet, Cross Financial, Gowrie Group and James G. Parker Insurance are each privately-held holding companies that own several small or midsized regional brokerages or insurance agencies.
Columbus, Ohio-based BroadStreet grew substantially in 2013 through 18 acquisitions, finishing last year with $151.1 million in brokerage revenue, up 31.4% from 2012. That growth spurt enabled BroadStreet, the biggest of the five newcomers to our U.S. broker ranking, to land just inside the top 20.
Experts caution that the recent period of rate increases may be ending, and that business generated by concern about the effects of the Patient Protection and Affordable Care Act is not being spread equally among producers, with the bulk of the business going to a relatively small group of brokers.
In addition, organic growth has been harder for brokers to achieve because of economic uncertainty, some analysts say.
For now, however, the brokerage sector's performance has been impressive, said Meyer Shields, managing director at Keefe, Bruyette & Woods Inc. in Baltimore.
“Brokers did pretty well compared to the S&P 500,” Mr. Shields said, noting that four of the top five public brokers outperformed that index.
“Overall, we haven't seen a significant slowdown in revenue,” said Phil Trem, a vice president at Willoughby, Ohio-based Marsh Berry & Co. Inc.
While “it appeared carriers were trying to gain rate” early in 2013, there was a shift in the second half of the year to focus more on market share, he said. “There still is growth in most cases, but not as competitive.”
“On average in (the first quarter of 2014), we saw pricing for large, medium and small accounts ease up a bit, rising at a rate of 1.5% compared with 2.1% in (the fourth quarter of) 2013,” Ken A. Crerar, president and CEO of the Council of Insurance Agents & Brokers, said in an email. “Our members overall seem to be positive about the market. They are making investments in their businesses and in talent.”
“What's a little bit different in this marketplace is we've shifted from a hardening to a kind of stable market,” said Tim Cunningham, managing director at Optis Partners L.L.C. in Chicago.
“Organic growth definitely is more difficult,” Mr. Shields said. With smaller increases, insurance rates are “slowly transforming from a modest tailwind to a modest headwind.”
But Bobby Reagan, CEO of Reagan Consulting Inc. in Atlanta, said judging from his firm's quarterly survey, organic growth actually improved in 2013 and this year, running slightly more than 6% on average.
A slightly improving economy and firming prices in the property/casualty market get the credit, as does brokerages' greater focus on business development, he said.
However, “we are hearing a lot of concern about some softening in the P/C market and some question as to whether it's going to level off or see some declines in pricing,” Mr. Reagan said. There are “a lot of questions as to whether we're going to see much improvement in the overall economy” in 2014, he said.
One way brokers have enhanced organic growth is to buy wholesale brokerages, Marsh Berry's Mr. Trem said. There were 36 wholesale broker transactions in 2012 and again in 2013; already there have been 40 this year.
In addition, brokers are focusing more on niche business. “Being a generalist is much more challenging than it was in the past. Organic growth is being helped by niche focus and specialty focus,” Mr. Trem said.
To that end, the private brokerage holding companies that debuted in our top 100 have kept the names of their respective regional brokerages and agencies in their local markets where they are well-known for their niche businesses.
“A practical asset of the agency is its name,'' Mr. Reagan said. Over time, the acquiring company may change the name of the local agency to that of the parent, “but they'll do it with a slow gradual transition,'' he said.
Health care reform also has set up growth opportunities.
“The Affordable Care Act has created significant opportunities in the mid-market, where the client both needs and is willing to pay for good advice,” said John Wicher, a principal at John Wicher & Associates in San Francisco.
Mergers and acquisitions continued to support brokerage growth last year and into 2014.
“Buyers have come out of their cave and have been on the hunt over the last 31/2 years,” Mr. Wicher said. “Given the low cost of capital, expect to see more acquisitions.”
Hub, Gallagher, Brown & Brown and USI Holdings “have demonstrated that they can court and close deals with brokers who share their vision of success,'' Mr. Wicher said.
“Economic growth in the developing world far outpaces that of the U.S. or the eurozone. This has prompted even second-tier brokers to look at Latin America as an example for new markets.”
While many brokerages see retaining employees as a priority, some say they could put more effort into attracting talented workers.