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The rating outlook for U.S. insurance brokers remains stable with limited potential for rating changes over the next 12 to 18 months, according to a report released Wednesday by Fitch Ratings Inc.
Organic growth may have peaked, however, and brokers may face challenges expanding margins further even amid pricing increases in many lines of insurance.
Brokers’ efforts to optimize business are paying off but leaving them little further room for improvement, the report said.
“Profitability levels remain favorable, but may be at or nearing a peak as efforts to drive substantial efficiencies and margin improvement over the last decade approach conclusion,” New York-based Fitch said. “Restructuring and integration efforts to reap efficiencies remain prevalent, but future gains may prove more challenging to achieve.”
Organic growth among brokers has maintained momentum through 2019 and is expected to remain at or around 5% for the next 12 to 18 months, according to Fitch, with recent economic growth bolstering commission and fee-based revenues
Such growth, however, “is likely at near peak levels, despite property/casualty pricing momentum in several segments,” Fitch cautions, and may not increase further.
The report also noted merger and acquisition activity remains robust as private equity and hybrid buyers complete two-thirds of broker and agency transactions, driven by “interest rates and available debt funding,” which “drive appetites and valuations among private equity buyers.”
A busy year of consolidation of the 2019 Business Insurance Top 100 agents and brokers also created opportunities for new entrants to our annual brokers to watch — brokers that ranked 101 to 120, just outside of the BI top 100.