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2016 brokerage revenue: $1.43 billion
Percent increase (decrease): 7.3%
Lockton Cos. L.L.C.’s position as one of the largest privately held brokers allows it to take the long view without worrying about short-term results, its executive chairman says.
Brokerages that are either publicly held or owned by private equity firms as investments are by definition “very interested in near-term financial returns,” said David M. Lockton, executive chairman of the Kansas City, Missouri-based brokerage.
“The Lockton family is interested in the next quarter of a century, not the next quarter.” “The reality is that they have a business model which is different and effective for them,” said John Wicher, principal of John Wicher & Associates in San Francisco.
“They historically have not required the same sort of earnings that other brokers require, and they’ve been prepared to invest in people,” Mr. Wicher said. And because they have not grown through acquisitions, the company has not required access to the capital markets, he added.
Lockton reported $1.43 billion in 2016 brokerage revenue, up 7.3% from a year earlier, and retained its No. 9 position in Business Insurance’s 2017 ranking of the world’s largest commercial insurance brokers. Gross revenue increased 7.2%, to $1.43 billion.
During the past year, the broker was “able to expand geographically and vertically through some of our areas of expertise,” said Mr. Lockton.
The company opened in eight new U.S. locations — Sacramento, California; Miami, Tampa and Naples, Florida; Portland, Oregon; Greenville, South Carolina; Seattle; and Detroit — and internationally in Aguascalientes, Mexico, and Casablanca, Morocco.
It has also been increasing its presence in manufacturing, food processing and distribution, design and construction, health care and real estate.
“More clients are looking for in-depth knowledge of their industries. That’s been something we’ve been successful in delivering,” Mr. Lockton said.
“The property/casualty market is obviously soft, and we’re planning for it to be that way for the balance of the year. And although it’s challenging, we’ve managed to continue to grow and be resilient,” said Glenn Spencer, president and CEO of Lockton’s global operations.
One promising area of growth is in the cyber arena, said Mr. Lockton. “There’s a higher level of advice that (clients are) looking for on risk analysis, exposure, quantifying the risk — and more and more companies are buying insurance,” he said.
Mr. Lockton said the brokerage has a client retention rate of about 96%. “That’s an important measurement of our success for us,” he said.
Company executives are also proud that in December, Lockton was named the highest-performing insurance broker in Costa Mesa, California-based J.D. Power & Associates’ 2016 customer satisfaction survey of the large commercial sector.
Lockton has seen some major changes in its top echelon of executives within the past year.
Mr. Spencer assumed his current position with John L. Lumelleau’s retirement, effective May 1.
Filling Mr. Spencer’s former spot as U.S. president and chief operating officer, also effective May 1, is Kansas City, Missouri-based Peter Clune, who was previously executive vice president of operations.
In addition, Alistair Rivers will begin in August as London-based global head of transportation, while Miami-based Hiram Marrero was named executive vice president of operations. Both had previously been executives with Willis Towers Watson P.L.C.
“We hired about 1,000 associates globally last year, so we’re inviting in people all the time,” said Mr. Spencer.
“Our biggest challenge is not as much finding business as it is finding great people,” Mr. Lockton said.
Lockton did not make any major acquisitions this past year. “We’re open to acquisitions, but it will never be our predominant source of growth,” Mr. Lockton said.
If a potential acquisition allows Lockton to enter a new specialty, or if “there’s a good culture match, we’ll entertain that,” he said.
Commercial insurance brokers continue to face strong headwinds in 2017 as they strive to grow in the soft market and a still-sluggish economy.