Top 50 Brokers: High points of a low year

Our observation last year that a more stable exchange rate would have big benefits for the London market has shown through in this year’s table. While it is not the only factor that has allowed the London market brokers to achieve excellent growth results, it has certainly not hindered them either.

During 2009 and the first half of 2010, there’s been a return to business that’s more or less normal. Stock markets have recovered – albeit tentatively and nervously at times – and there are varying opinions on whether or not we are out of recession, but there is a general consensus that the worst is over.

Interest rates have remained low throughout the period under review, which has had a notable impact on profits, although our focus has been on EBITDA excluding interest.

London market brokers have enjoyed a second excellent year of growth, though much of this has been down to acquisition. Nevertheless, there have been some excellent individual performances where the structure of the business has allowed the drive for growth to flow through to the bottom line. While London brokers achieve high levels of growth and income per employee, the employees are expensive and in most cases income growth seems to be more for the benefit of employees than driving up shareholder value.

Recession and recovery have had a varied impact on the Top 50 brokers. UK regional commercial lines brokers have suffered most. As their clients have struggled in the recession and insurance rates remained soft, they have had to invest much of their time and resources into preventing incomes from sliding backwards. Plenty have failed in this task and many others just marked time. Achieving growth has called for something extra from commercial brokers over the past 12 months.

Merger restraint

The subdued merger and acquisition climate of 2009 has continued into this year as a result of the tighter financial markets. So far 2010 has seen some recovery in transaction activity. Some of this has been opportunistic – Marsh’s acquisition of HSBC Insurance Brokers and Fortis’ of Kwik-Fit. Other moves have been more strategic, such as Cooper Gay’s purchase of Swett & Crawford.

The personal lines sector has weathered the tough times well and the slow rise in motor rates this year will continue to help.

Seven of the top 10 positions for best EBITDA margins have been taken up by personal lines brokers, which – given the modest income growth during the period – must indicate good cost control by the managers of these companies.

While technology and its potential to open up niche areas continues to develop, it is still slow to break out of the mass personal lines market. The commercial lines sector has remained resistant – though it is not clear whether this is because the approach has not been right or that there is genuine customer resistance to the concept. There are examples of progress but, more often than not, there is a lot of talk and little action.

Logic suggests the application of technology is the only way for both the customer and the insurance market to conduct genuine small ticket commercial business economically – though clearly logic can be defied. Perhaps the demise of Coverzones, the specialist commercial lines SME aggregator site, has highlighted the risks involved.

2010 Winners

RK Harrison

On the podium twice in the past five years, this year it has achieved good growth, respectable margins and good margin per employee. Such consistent performance over the years and real achievement this year make it a winner.

Abbey Protection

Growth of almost 19%, the best EBITDA margin in the Top 50 and a top-three EBITDA per employee make this an excellent all round performance from this company. The parent company is quoted and has seen it share price move from 58p at the start of 2009 to more than 80p, an increase of 40% when the FTSE 100 index increased by only 18% over the equivalent period.

Cooper Gay

While slightly behind other London brokers in terms of growth, Cooper Gay achieved 21% and, more important, maintained a 19% EBITDA margin – just outside the top 10 performances.

Best of the rest

Berry Palmer & Lyle (BPL)

The company is a new entry into the top 50 this year on the back of significant growth in income and profits in a specialist sector, international political risk and trade credit insurance. High rankings in a number of charts suggest it fits all of our criteria as a winner – but is this performance sustainable?

A-Plan

A company long destined for the Top 50, A-Plan has until now kept its performance under wraps. The 2009 accounts show this is a growing business with a good margin, which generated significant shareholder value for its originators when ownership changed and is expected to continue doing so for current principal owner Barclays Private Equity. It is notable for being the second highest-margin broker operating on the high street – a reflection of considerable management expertise in cost control.

Windsor

On the podium the past two years, Windsor just missed out this time. A consistent performer in the margin and employee stakes, it stumbled at the growth hurdle.

Adrian Flux

This personal lines broker has kept many of its talents hidden but achieved 35% growth in a sector that overall only achieved 7.4%. If we had seen evidence that this excellent performance had been achieved with good profitability, it could have reached the podium.

Henderson

A newcomer from the north, this broker has achieved 22.5% growth on the back of acquisition and organic development. With an increasing footprint and strong management, we believe this growth will flow though to the bottom line and make it a podium contender in years to come.

Howden (Hyperion Insurance Group)

Consistently knocking on the Top 50 door, in 2009/10 Hyperion’s broking arm has delivered excellent growth of just under 34% and most of this has flowed through to the EBITDA. However, overall margin is still below a podium finish rate, at 13.3%.

Arthur J Gallagher

As expected from a London broker, Gallagher displayed good growth and high productivity by staff – it came second in the top income per employee league. The company is let down somewhat by its EBITDA margin of 12.3%, but this is a material improvement on last year.

Cobra

AIM-listed and growing, this broker and network provider achieved spectacular annualised growth of 57%. But because this has yet to flow though to the profit line in terms of margin, it has not made it onto the podium this year. IT

Olly Laughton-Scott is managing partner of IMAS