The global insurance brokerage sector enjoys a stable outlook for 2015, according to a new report from Moody’s Investors Service.

The rating agency says that over the next 12 to 18 months, it expects moderate growth in demand for insurance products and services and an increasingly competitive pricing environment. “Organic revenue growth will be lower than in recent years,
given the growing competition among commercial insurance carriers in property lines, slowing rate increases across casualty lines and double-digit rate declines in property catastrophe reinsurance,” it says.

Yet, notwithstanding the expectations of slower organic growth, Moody’s expects brokers’ margins to remain relatively stable, generally in the mid to high 20% range.

It also notes that consolidation will likely continue to drive growth for the leading brokers. While acquisition targets are becoming more expensive, “the industry remains ripe for yet more consolidation, particularly in the fragmented U.S. market, where brokers have been able to issue substantial amounts of debt at low interest rates to help fund acquisitions,” it says.

“In addition to our macroeconomic forecasts, our outlook for the global insurance brokerage industry takes into account the sector’s steady profitability and cash flows, as well as consistent demand for its products and services,” says Benjamin Goldberg, a Moody’s analyst and author of the report. “However, the brokers’ organic growth will be constrained by decelerating P&C pricing trends.”

Moody’s says that sales of employee benefits products and services will continue to complement the brokers’ P&C product offerings, which can help stabilize insurance brokerage results through the P&C pricing cycle.

Finally, Moody’s says that continued earnings growth will allow most of the private brokers to “decrease the leverage they have built up to fund leveraged buyouts, acquisitions and dividends to shareholders.” However, it notes that “a decline in profitability and operating cash flow could place substantial pressure on a firm’s financial condition.”