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While the largest publicly traded commercial insurance brokers enjoyed solid first-half results, analysts say the health insurance exchanges they have established did not provide material contributions to their earnings.
“One thing I'm keeping an eye on is the development of the health care exchanges,” said Greg Dickerson, New-York-based analyst at Fitch Ratings Inc. “I think right now we're in the very early stages of that business, so you haven't seen that business making a meaningful financial impact for brokers.”
Marsh & McLennan Cos. Inc. and Aon P.L.C. “are making a lot of investments in their private exchanges, which I think down the line could reap a lot of benefits,” said Julie Herman, New York-based analyst at Standard & Poor's Corp. “But you're not seeing that impact in terms of a positive for 2014 results, because right now the investments are up front. You need to build out scale to get that accretive boost to margin”
The exchanges are still evolving and taking shape.
“There is uncertainty because so far there has been no consensus in terms of exactly what the full suite of products brokers deliver to their clients should be,” said Timothy J. Cunningham, managing director at Chicago-based investment banking and consulting firm Optis Partners L.L.C. “Brokers have built out a lot of tools and a lot of value-added features and analytics, but there's still a big unknown in terms of where that business is going.”
A slowdown in rate increases, an uptick in weather-related and other property losses, and ongoing low investment returns weighed on the largest commercial property/casualty insurers' first-half results.