Stable outlook for broker sector, says report

The outlook for the global insurance brokerage sector remains stable, driven by expectations of a modest global economic recovery in 2012-13, according to Moody’s Investors Services.

Moody’s latest publication “Global Insurance Brokerage Outlook” said the outlook reflects brokers’ steady performance through shifting economic and market conditions.

“Insurance brokers held up relatively well through the financial crisis,” said vice-president and co-author of the report Bruce Ballentine, “and we expect that they will retain their overall health, despite the slow pace of economic growth.”

He added, however, that the sector’s credit strengths were tempered by integration risks associated with acquisitions and by the approaching debt maturities of some of the more leveraged firms.

The study revealed that brokers were benefiting from a favourable pricing trend in the US commercial property and casualty (P&C) insurance market, which translated to higher commissions for the brokers.

“Rate increases, along with the gradual economic recovery, should support single-digit organic revenue growth for brokers over the next couple of years,” said associate analyst and co-author Ben Goldberg.

While healthcare reform in the US has raised uncertainty about the structure and regulation of that market, Moody’s expects healthcare and related benefit programmes to remain largely employer-based, especially for firms with 50 or more employees, so brokers will remain keenly involved in this business, concluded the report.

The research also found that the insurance brokerage sector remained ripe for further consolidation, particularly in the highly-fragmented US market, where acquisition candidates included thousands of regional and local firms. Moody’s also expects the leading brokers to continue their strategy of acquiring smaller players to supplement organic growth.