Standard & Poor’s (S&P) Global Ratings has recently released a report that predicts better organic growth and margins for brokers in the coming year, and says ratings for brokers and service providers remain stable.
The ratings agency reports that companies have successfully adapted to evolving but overall stable business conditions, and that growth is likely to be driven from the benefits of insured pricing and exposure trends over 2018.
The report also forecasts an end to years of negative pricing in the property and casualty (P&C) insurance market, with a modest uplift expected for brokers this year.
Julie Herman, S&P Global Ratings credit analyst, said: “Broadly speaking, we believe sector fundamentals for the insurance brokers remain sound going into 2018.
“Although insurance rate trends will vary significantly by segment, we expect overall P/C rates of flat to up low-single digits throughout 2018 as insurers increase rates in response to the catastrophes in 2017 and continued rising liability costs.”
The insurance-services industry is dominated by ratings in the ‘B’ category, which reflects the high debt levels and weak credit-protection measures that result from widespread aggressive financial sponsor ownership in this area.
Herman continued: “The effect of tax reform will be mixed across the portfolio, but will likely not in and of itself drive rating changes. We expect the continued insatiable merger and acquisition appetite among our rated brokers, private equity activity, and shareholder initiatives to result in continued high debt issuance, which will temper earnings and cash-flow gains and result in largely steady financial leverage and credit-protection measures across the space.”
Insurance-services companies work within the insurance sector without taking on significant risk themselves. S&P mainly rates brokers in this sector, but also covers health insurance and cost-containment servicers, claims managers, and warranty administrators.
