Page 11 - March2017

INDUSTRY

Reagan Consulting: Brokers Bullish on

Organic Growth in 2017

Agent-Broker Organic Revenue Slides in 2016,
but Firms See Positive Signs Ahead

::: hotel insurance Organic revenue growth among agencies and brokerage
firms fell in 2016 to 4.2% - its lowest annual rate since
2011. The year ended on a positive note, however, as
program :: :::: fourth-quarter organic growth outpaced the 3.6% recorded
in the third quarter.

“The fourth-quarter uptick was among several factors
:::::: : ::: that are making brokers optimistic that better days are
ahead,” said Kevin Stipe, president of Reagan Consulting,
a management consulting and merger-and-acquisition
advisory firm for the insurance distribution system. “In
fact, brokers participating in Reagan Consulting’s Organic
Growth and Profitability (OGP) Survey are projecting 6.0%
organic growth in 2017.”

Broker optimism for 2017 seems to be driven, in part, by
a new administration widely perceived to be business-
friendly and intent on driving faster economic growth. With
property and casualty prices expected to remain soft for at EBITDA: Earnings Before Interest, Taxes, Depreciation & Amortization
least another year, faster economic growth will likely be Source: Reagan Consulting Organic Growth and Profitability Survey
necessary for brokers to achieve their expectations, Stipe
::: ::::: said. (ReaganConsulting.com)

“Since 2013, broker organic growth has been levitating Reagan Consulting has conducted its quarterly survey
:: y::':: :: above weak GDP growth and declining p-c pricing,” Stipe of agency growth and profitability since 2008, using
commented. “Organic revenue growth can’t continue to
confidential submissions from over 150 mid-size and large
defy gravity, so GDP will need to increase if brokers are
::c: f:: moree going to achieve their growth goals.” agencies and brokerage firms. Roughly half of the industry’s
100 largest firms regularly participate in the survey. The

OGP study is the industry’s preeminent survey of mid-size
A look at trends by line of business shows an interesting
divergence - with group benefits once again outpacing and large privately held brokers.
commercial p-c. Group benefits growth accelerated
to 6.8%, versus 5.5% in 2015. On the other hand, For further information and commentary, contact Kevin
Stipe of Reagan Consulting at (404) 869-2532 or
commercial p-c declined again, falling to 3.3% from 5.3%
Program Highlights: the year before. kevin@ReaganConsulting.com.

:::::: ::::::: :::::: Agency profit margins, as measured by earnings before Each participating agency receives a customized,
confidential report of its performance compared with
interest, taxes, depreciation and amortization (EBITDA)
experienced virtually no change in 2016, at 20.0%. the overall survey results, along with Reagan’s quarterly
::::: :::: ::: ::: : ::: ::::: :::::: Operating margins, which have continued a three- commentary of industry trends affecting agents and
brokers. For information on participating in the OGP
year decline, fell to 12.2% in 2016. Unlike EBITDA,
operating margins do not include contingent income, survey, contact Michelle Appelbaum at (404) 233.5545 or
which represents a growing percentage of revenue for michelle@ReaganConsulting.com.
many agencies and brokerage firms. Stipe cautioned that
(800) 613-2600 profit margins could shrink if contingent income returns
to historical levels in the 7.0%-7.5% range. In 2016,
contingent income reported by participants in the OGP
www.AIU-USA.com was 8.5% of revenue.

march 2017 insight 11