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The red-hot market for brokerage mergers and acquisitions continued to reshape the rankings of the largest global and U.S. brokers last year, with some substantial and longtime firms being absorbed by even larger rivals.
The biggest name to disappear was London-based Jardine Lloyd Thompson Group PLC — previously the seventh-largest brokerage in the world — which was bought by Marsh & McLennan Cos. Inc., extending its lead as the longtime largest brokerage (see profile).
Marsh & McLennan and its operating units also bought up several other brokerages among the Top 100 brokers of U.S. business over the past 12 months, including Wortham Insurance & Risk Management, which ranked No. 33 last year, Bouchard Insurance Inc., ranked 74th, and Lovitt & Touche Inc., ranked 77th.
Other significant names no longer in the Business Insurance Top 100 include 2018’s No. 21, Integro Group Holdings LP, which sold its U.S. operations to EPIC Insurance Brokers & Consultants; No. 22, Hays Companies, which was bought by Brown & Brown Inc.; and No. 32, Regions Insurance Group Inc., bought by BB&T Insurance Holdings Inc.
In addition, an increasingly large group of highly acquisitive brokerage firms continued to buy numerous small brokers and agents. Leading the pack was Acrisure LLC, which bought more than 100 firms last year, has continued on a tear in 2019 and is now the 10th-largest brokerage worldwide (see profile).
The roll-up of smaller rivals widens the gap between the largest brokers in the Top 100 and the rest, with 13th-place NFP Corp. reporting nearly twice the 2018 brokerage revenue of the 14th-place firm, BroadStreet Partners Inc., which also grew significantly.
Many of the acquisitive brokers are backed by private equity firms, which are attracted by the repeat revenue that brokers typically provide through high client retention ratios and annual premium and commission payments.
And as technology plays a bigger role in the brokerage business, many smaller firms are more willing to sell because “the average firm doesn’t really have the skills, capabilities and resources to really understand how to position themselves, and there’s a lot of anxiety,” said John Wepler, chairman and CEO of Marsh, Berry & Co. Inc., a consultant and M&A advisory firm in Woodmere, Ohio.
As a result of the need for technology and other factors, brokerage M&As will likely accelerate even more over the next several years, including mergers involving private equity-backed firms, he said. “Of the 25 private equity-funded brokers, we think there will be three of those in the next 12 months that transact to another firm,” Mr. Wepler said.
But it’s not just acquisitions driving growth; increasing insurance rates and a buoyant economy are also contributing to organic growth for brokerages.
“The two primary drivers of growth are premium volume — how much stuff there is to insure — and how much does it cost to insure it; that is, GDP and rates,” said Meyer Shields, managing director at Keefe, Bruyette & Woods Inc. in Baltimore.
Rate increases vary but are being seen across many lines, brokerage executives say.
“If you look at the average rate increases across the full industry, I think you’re still within a 2% to 3% range,” said John Howard, chairman and CEO of BB&T Insurance in Parsippany, New Jersey. “There are certain lines of business that are really challenged now, and those lines of business have seen some pretty significant rate increases and appetite changes,” he said.
Average increases are in the low single digits, said John Doyle, president and CEO of Marsh LLC.
“Prices were up in the first quarter by 3%, which is a couple of hundred basis points higher than a year ago and close to 100 basis points higher than the fourth quarter. But it’s quite uneven. There are products and geographies where prices continue to decline, and then there are products and geographies where prices are up a bit more consistently,” he said.
“There’s a little bit of a tailwind in terms of rates, but it’s modest … our clients growing will have a greater impact,” said Gregory L. Williams, president and CEO of Acrisure in Caledonia, Michigan.
General economic growth is driving business and increasing demand for brokerage services, said Peter Clune, U.S. president and chief operating officer of Lockton Cos. LLC in Kansas City, Missouri.
“Our clients have had great success in the economy over the past few years,” Mr. Clune said. They “require advice to make sure their balance sheets are correctly protected.”
Overall, rate increases are being smoothed out by greater use of data and analytics, said J. Patrick Gallagher Jr., chairman, president and CEO of Arthur J. Gallagher & Co. in Rolling Meadows, Illinois.
“Management is considerably more well-informed today than they were, and that comes down to data and the ability to mine their data, so CEOs know if they need rate or don’t need rate, they know where that is geographically, and they know it by line,” he said.
And brokers can help clients manage through rate increases, said Marc Cohen, CEO of Hub International Inc. in Chicago.
“That process needs to begin 120 to 180 days before a renewal, where we begin to educate the client about the marketplace, about the reasons why insurance rates are going up, and start to have the discussion about alternative insurance products and structures that could be options for them as they think about their insurance program moving forward,” he said.
Angela Childers, Gloria Gonzalez, Judy Greenwald and Matthew Lerner contributed to this story.
Business Insurance subscribers can view rankings of the World’s Largest Brokers, the 100 Largest Brokers of U.S. business and other exclusive broker rankings in the July issue.
2018 brokerage revenue: $1.38B