The insurance distribution industry had another strong quarter, with six of the publicly traded brokers (Baldwin Risk Partners [BRP], AON plc [AON], Willis Towers Watson [WLTW], Marsh & McLennan Companies, Inc. [MMC], Arthur J. Gallagher & Co. [AJG] and Brown & Brown, Inc. [BRO]) reporting second quarter results that came in ahead of consensus analyst expectations. Results at these firms were largely driven by strong organic growth, an improving macroeconomic environment, mergers and acquisitions (M&A) and new business.
The stock performance of the publicly traded insurance brokers continues to be robust. Even as the S&P 500 and Dow Jones Industrial Average (DJIA) hit new highs, the insurance brokerage companies turned in an even better performance vs. the DJIA and kept pace with the S&P 500, attesting to the strength and growth prospects of the sector.
Year-to-date through August 10, 2021, MarshBerry’s Insurance Broker Index, comprised of the six publicly traded brokers, increased by 18.2%, while the Dow Jones Industrial Average rose 15.9% and the S&P 500 rose 18.2%.
There were several themes that contributed to the business momentum that the insurance brokers saw in the second quarter:
- The continued improvement in economic conditions boosted business at the brokers. For example, AJG projected solid organic growth in its risk management business largely due to the rebound in economic activity and employment.
- Continued tailwinds in the global Property & Casualty (P&C) market were another factor that contributed to favorable results and outlooks at insurance brokers. AJG noted that global P&C rates were firm across all geographics in the second quarter and saw premiums continuing to increase going forward. MMC sees pricing increase in the second half of 2021 but at a more moderate and measured pace.
- Strategic partnerships are still contributing to growth at brokers, many of which still see M&A as a key component of their future expansion. BRP attributed some of the momentum across its business in the second quarter to positive contributions from new partnerships and noted that its M&A pipeline is robust. The company gave guidance for third quarter organic growth above its target range of 10%-15%, citing strength across its business.
Going into the second half of the year, the large public insurance brokers were generally optimistic about organic growth prospects, favorable conditions in the P&C market, and the overall economic environment. Although several companies cited more challenging comparisons and increasing expenses in the second half of the year some, like WLTW, still project margin expansion for the full year and the long-term. MarshBerry continues to believe the insurance distribution industry has superior fundamentals and views the stock performance of the industry as indicative of its strength.
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Source: Performance from 12/31/20 – 8/10/21. Yahoo Finance of 08/10/21 at close. Insurance Broker Index includes BRP, BRO, AON, AJG, MMC, WLTW. This information is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities, financial instruments or to participate in any particular trading strategy. These materials are based solely on information contained in publicly available documents and Marsh, Berry & Co., Inc. has not independently attempted to investigate or to verify such information. Past performance is not necessarily indicative of future results.
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This earnings summary has been prepared by Marsh, Berry & Co., Inc. and is not intended to provide investment recommendations on any company. It is not a research report, as such term is defined by applicable laws and regulations, and it does not contain sufficient information upon which to make an investment decision.