| Organic Revenue Growth Trends Among the Leading Brokers
As seen in the accompanying table, public brokers posted a composite
organic revenue growth rate just south of 1% in second quarter while the
median organic growth rate was 1.1%.
Figure 1 (click to enlarge)
Organic revenue growth rates swung slightly positive in the second
quarter. However, it is expected that throughout the remainder of 2008
organic revenue growth rates will continued to trend with the decline in
property and casualty premium rates. Mediocre organic growth rates will
continue to put pressure on public brokers to acquire revenue growth
which will in turn lead to continued consolidation in the brokerage
space. The second quarter announcement that Willis Group Holdings Ltd.
will acquire Hilb Rogal & Hobbs Co. reinforces the likelihood that
industry consolidation, even among the top 100 brokers, is likely to
continue throughout the remainder of 2008 and into 2009.
Barring an unforeseen change in market conditions, it is highly likely
that we will see the organic growth rate composite for public brokers
oscillate around zero over the next several quarters as conditions are
expected to remain soft while competition is expected to intensify for
certain highly sought after classes of risk.
Continued compression in product rates requires a more intensive and
reinvigorated approach to generating new business. Because of elevated
competition and flattening or declining average revenues per account,
many brokers are being forced to increase marketing activities, spend
more on client relations and offer a greater number of value add risk
management solutions, all of which will tend to increase expenses and
further compress profit margins.
Revenue growth for many of the national insurance brokers is heavily
reliant on acquisitions, which is part of their core strategies for
growth. The accompanying table highlights the breakdown of each
company's revenue growth separated into organic and acquired/other
growth for the three months ended June 30, 2008. Under pressures from
shareholders and Wall Street analysts to deliver revenue and earnings
growth, the public brokers often have little choice but to use
acquisitions as a tool to try to meet expectations.
Figure 2 (click to enlarge)
The results among the industry leaders are largely indicative of the
results sustained by many private brokers. The struggle to grow
organically in a soft market represents a macro issue and is not
isolated to one segment, broker, or product line.
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