Moody’s has provided a stable outlook for insurance brokers in 2021, positively reflecting developing economic recovery and the industry’s resilient business model.
Insurance brokers are expected to maintain fairly stable Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) margins and debt-to-EBITDA ratios, despite COVID-19 and the resulting economic disruptions of 2020.
Moody’s Vice President Bruce Ballentine noted, “Insurance brokers can navigate economic uncertainty based on their good value proposition, partly variable cost structure, low capital expenditures and healthy cash flow.
“The brokers implemented cost-saving measures as the coronavirus pandemic took hold. They shifted to remote work, reduced discretionary spending, postponed nonessential capital expenditures, and slowed the pace of acquisitions, helping stabilise their earnings and free cash flow.”
Moody’s adds underlines how brokers have become more active in the credit markets, with over $75 billion of rated debt and equivalents outstanding.
In 2020, they have so far issued more than $25 billion of new, add-on and replacement debts and credit facilities, helping them lower their borrowing rates, extend debt maturities, boost liquidity and fund acquisitions.
Insurance brokers also increased their acquisition pace in the second half of 2020 after a pause in the second quarter.
Private equity is a catalyst to drive further consolidation along with readily available debt financing and low market interest rates.