Assuming a modest global economic recovery over the next couple of years, the outlook for the global insurance brokerage sector remains stable, says Moody’s Investors Service in a new report.
The rating agency says that this stable outlook for the industry reflects brokers’ steady performance through shifting economic and market conditions. “Insurance brokers held up relatively well through the financial crisis,” says Moody’s 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.”
Moody’s notes that brokers are benefiting from a favourable pricing trend in the U.S. commercial property & casualty insurance market, which translates to higher commissions for them. “Rate increases, along with the gradual economic recovery, should support single-digit organic revenue growth for brokers over the next couple of years,” says Ben Goldberg, associate analyst and co-author of the report.
That said, Moody’s also notes that the insurance brokerage sector remains ripe for further consolidation, particularly in the highly fragmented U.S. market, where acquisition candidates include thousands of regional and local firms. Moody’s expects the leading brokers to continue their strategy of acquiring smaller players to supplement organic growth.
Although, it notes that the this consolidation may be bring integration risks that will weigh on the sector’s credit strengths, as will approaching debt maturities that some of the more leveraged firms face.