With most re/insurance brokers having now reported their results for the first half of the year, analysts at Fitch ratings are confident that the industry will maintain its stable rating and sector outlook, despite the challenges caused by the coronavirus pandemic.
The rating agency noted that risks from the ongoing recession appear to have been mitigated for the most part by stability in brokers’ revenue platforms and operating efficiency.
A compilation of mid-year 2020 results reveals still-positive but slower organic revenue growth rates and slightly improved consolidated profit margins and interest coverage.
Fitch anticipates that greater pressure for both commission and fee-based revenue will probably emerge in the second half of the year, but expects overall revenue growth to remain positive and aided by acquisitions.
While organic growth remained positive in H1 due to insurance premium rate increase momentum, particularly in reinsurance business, growth in consulting and other service operations suffered as corporate budget pressures and economic uncertainty restricted new projects
However, brokers’ risk management expertise and service capabilities may be more highly valued by clients amid the heightened uncertainty brought on by the pandemic.
Additionally, Fitch notes that brokers’ abilities to demonstrate their ‘information advantage’ in value-added services and products, data and analytics capabilities and insights into emerging risks has supported customer retention.
Going forward, larger brokers may have opportunities to add scale and gain further operating efficiencies, but future gains may prove more challenging to achieve.
Analysts further believe that large acquisitions, including MMC’s completed purchase of JLT and the pending merger of Aon and Willis Towers Watson present considerable potential benefits from expense synergies and leveraging investments in technology and data analytics.
On the other hand smaller, private-equity owned brokers may face greater operating challenges in a virtual operating environment due to more diffused technology platforms and vulnerability to potential revenue declines in prime individual segments or regions.
