Organic revenue growth among independent insurance agencies and brokerages fell sharply in the second quarter of 2016 as a stuttering economy and softening commercial market continue to pressure the sector, according to the latest report from management consulting firm Reagan Consulting.
The analysis, which collects information from 140 mid-size and large firms, shows a decline to 4.0% growth from 5.9% during the same period in 2015. Commercial lines organic revenue growth also slowed, from 5.1% in the first quarter of 2016 to 3.1% in the second quarter.
Employee benefits was the fastest-growing line of business, with organic growth of 6.2%, while personal lines grew at 1.7%.
All told, it represents the slowest period of growth for agents and brokers since 2011.
“The powerful headwinds of soft commercial lines premium rates and a muddling economy are even stronger in 2016, after blowing for more than a year,” said Reagan Consulting Principal Jim Campbell.
Profit margins, as measured by EBITDA (earnings before interest, taxes, depreciation and amortization) were also down in the second quarter, from 24.6% in 2015 to 23.1%. It marks the lowest second-quarter pace since 2012, the firm said.
This follows a Council of Insurance Agents and Brokers report reflecting a 3.7% decline in commercial property/casualty rates in the first quarter of 2016 – the largest decrease since observable market softening began in 2014.
US economic growth is also slowing, increasing 1.2% during the second quarter following a 0.8% rate for the first quarter, according to figures from the US Department of Commerce.
Still, there are some signs of positive growth for the sector. Despite their submissions in the Reagan Consulting survey, agents and brokers expressed optimism for full-year profitability. Respondents projected a year-end EBITDA margin of 20.0%, a “generally consistent” result with the 20.1% margin achieved in 2015, Campbell said.
Merger-and-acquisition activity among agents and brokers is also on track for the second most-active year on record. Though not measured by the survey, data from SNL Financial shows 207 announced deals in the second quarter. The M&A transaction level exceeded the previous record year by more than 40%.
Reagan Consulting has conducted its quarterly survey of agency growth and profitability since 2008, using confidential submissions from agencies and brokerages. Roughly half of the industry’s 100 largest firms participated in the survey. Median revenue of the firms completing the survey is approximately $18 million.
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