Broker revenue growth, consolidation expected to slow
Slower economic growth and smaller property/casualty rate hikes will likely lead to lower organic revenue growth among insurance brokers this year, and higher borrowing costs will crimp acquisitions, Moody’s Investors Service said in a report released Thursday.
Gross domestic product growth among leading rich and developing nations will likely slow from 2.7% in 2022 to 2% in 2023 and 2.4% in 2024, and the U.S. economy will likely stall, the New York-based rating agency said.
And industry surveys show aggregate year-over-year U.S. commercial lines rates tapering, Moody’s said.
Even with the slowing economy and lower rate increases, many insurance coverages are critical or mandatory, the report said.
“We expect most brokers to report healthy organic growth in the mid-single digits in 2023, with some specialty and wholesale operations reporting faster growth,” the report said. Average organic revenue growth for publicly traded brokers hit 10.7% in the second quarter of 2021 and remained at 7.2% in the fourth quarter of 2022, Moody’s said.
Meanwhile, faced with higher interest rates and weaker economic conditions, “insurance brokers are increasingly selective in their acquisitions,” the report said.
But the sector remains fragmented so consolidation will continue and multiples of earnings paid for companies will remain high, Moody’s said.
The rating agency changed its outlook for the insurance brokerage sector to stable from positive.