Analysts at KBW are forecasting “solid growth prospects” for reinsurance broking unit Gallagher Re over the next two years, following comments at Arthur J. Gallagher’s recent investor day.
It’s thought that Gallagher Re could be set to “go on to strong offense” in 2023 as reinsurance rates rise, especially for property catastrophe business.
This should also help to contribute to parent company AJG’s 2022 and 2023 organic growth and margins, which are expected to remain strong even if real GDP growth slows or reverses.
“We believe management effectively communicated its strong organic growth prospects in light of persistently-refined technological tools, expanding product depth, and a still-favorable operating environment,” KBW analysts reported after the investor day.
“We remain particularly optimistic about AJG’s 2023 organic growth – augmented by likely accelerating growth within Gallagher Re – that should drive solid margin expansion.”
Comments by AJG CFO Doug Howell suggest that the firm continues to see a favourable operating environment comprising growing exposure units and persistent rate increases, with renewal premium change up 9.3% in Q4 2022, down modestly from “a little above 10%” in Q2 and Q3.
“While there is incremental competition within D&O and professional lines and cyber rate increases are decelerating, most geographies’ and product lines’ rates are still rising, including accelerating increases for all catastrophe-exposed property lines,” KBW said.
Brokerage organic growth guidance of 7-9% also anticipates a relatively stable renewal premium change from 2022’s 9% pace, notwithstanding easing nominal inflation and slowly decelerating rate increases.
In terms of M&A strategy, US Wholesale Brokerage President Joel Canvass noted the programs space as an attractive M&A opportunity, while Employee Benefits CEO Bill Ziebell cited traditional employee benefits and retirement consulting as opportunities.
Additionally, KBW views international retailers with wholesale brokerages and some reinsurance brokerage boutiques as additional tuck-in M&A opportunities for AJG, which it believes the broker could “easily fund” with $4 billion of M&A capacity expected in 2023.
