Organic Revenue Growth Trends Among Leading Brokers
Until there is a major shift in the product rate environment, material organic growth from within the brokerage sector will remain elusive. Over the fourth quarter, Willis Group Holdings Ltd. continued a precedent set in the third quarter by being the only broker in our survey group to attain positive organic growth. We continue to expect that organic growth rates will trend modestly higher over the mid to long-term as product rates stabilize and economic conditions further improve. However, our anticipation that there will be a material shift toward wholesale positive organic growth during the later part of 2010 has diminished. Through 2010 we anticipate the median organic growth rate of our survey participants to be flat to potentially a slight uptick at best. Only time will tell but given the current relatively stagnant macroeconomic environment, coupled with the protracted soft product rate environment, organic growth rates are unlikely to materially improve in 2010. The near-term organic growth potential of our survey participants should become abundantly clear post the first quarter renewal season.
Of note this quarter, Brown & Brown, Inc. finished its 2009 organic revenue slide by posting a quarter-over-quarter organic growth rate of -8.3%. Over the 6+ years that Hales has been compiling this survey only Marsh & McLennan Co., Inc. has posted lower quarter-over-quarter organic growth results and that was in the midst of the Spitzer bid rigging / contingent commission investigation fallout in late 2004 and early 2005. Anecdotally, Wall Street appears to be expecting more of the same with respect to Brown & Brown’s organic growth trend during the first quarter of 2010. Year-to-date through the end of February, of the brokers included in our survey, only Brown & Brown has failed to outperform either the Dow Jones Industrial Average or the S&P 500.
Taking the public peer group as a whole, the median quarterly organic growth rate of -1.9% posted for the fourth quarter reflected a slight rebound from the dismal result posted in the third quarter but was still the second worst result seen in the 6+ years that Hales has been compiling this survey.
The accompanying table and graph illustrate an uptick in the composite and median public broker organic revenue growth rates in the fourth quarter over the dismal results posted in the third quarter.
Figure 1 (click to enlarge)
Figure 2 (click to enlarge)
The accompanying table highlights the breakdown of each company's revenue growth separated into organic and acquired/other growth for the three months ended December 31, 2009.
Figure 3 (click to enlarge)
As can be observed from the chart below, Aon lead the peer group in terms of overall growth followed a distant second by Marsh & McLennan. Brown & Brown, which has historically been a leader in overall revenue growth, was materially impacted due to the slowdown in insurance distribution acquisitions in 2009 and was the only broker in the peer group to post negative overall growth quarter-over-quarter. In short, acquired revenue was not enough to offset lackluster organic growth.
Figure 4 (click to enlarge)
An uptick in acquisition activity that began during the latter half of 2009 is expected to positively impact overall public broker revenue growth in 2010. However, until the soft market materially subsides it is unlikely that public broker organic growth rates will materially improve. The struggle to grow organically in a soft market, coupled with an economy sheepishly climbing out of a recession, represent macro issues that are not isolated to one segment, broker, or product line.
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