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Insurance Brokerage Outlook Sanguine on M&As, Rising Rates
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The Zacks Insurance - Brokerage industry comprises companies that primarily offer insurance and reinsurance products and services. Insurance brokers act on behalf of their clients and offer advice keeping in mind clients' interests against brokerage fees. Some of these companies are also involved in providing risk management, third-party administration and managed health care services.
Per London-based Technavio, the global insurance brokerage market size is estimated to grow by about $14.5 billion during 2018-2022.
Here are the industry's three major themes: • Some of the revenue drivers of the industry are premium pricing, insured exposure and retention levels. The current environment is positive for this space given an increase in premium rates for all the areas of the insurance market. To put this into perspective, global property and casualty pricing is up about 5%. Also, insured exposure continues to move higher. Moreover, growth in aging population is driving demand for retirement benefit products. The rising population of baby boomers and millennials is boosting demand for medical insurance, life insurance, accidental insurance and other forms of insurance. This, in turn, should lead to higher revenues as policy prices rise and volumes increase. • The insurance brokerage industry is witnessing fast-paced consolidation. Mergers and acquisitions (M&A) in this space have been rife in recent years. The industry has been traditionally fragmented with a number of small players. One of the factors driving mergers and acquisitions is the need of the companies to become specialized in their businesses. Also, small brokerage firm owners have to take big decisions about the future course of action as most of them belong to the baby bomber era and are ageing. Some other factors driving M&A are the interest that private equity is showing in this sector, growing competition and a lack of organic growth. • To maintain competitiveness in the industry, players are embracing technological change. The threat comes from new entrants, such as technology companies, Insurtech start-up companies and others. These players are focused on using technology and innovation, including artificial intelligence, robotics and blockchain, to simplify and improve client experience, increase efficiencies, alter business models and bring about other disruptive changes in industries in which the existing players operate. While investments in technology help increase business efficiency, expenses associated with such investments increase operating costs.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Insurance - Brokerage industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #60, which places it in the top 24% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, signifies solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 24% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are upbeat in this group’s earnings growth potential.
Before we present a few insurance broker stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 and Sector
The Insurance Brokerage Industry has outperformed the Zacks S&P 500 Composite and the broader Zacks Finance Sector over the past year.
The industry has rallied 23.7% compared with the S&P 500's increase of 15.4%. Meanwhile, the broader sector has gained 7.12%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 5.85X compared with the S&P 500's 4.33X and the sector's 2.7X.
Over the last five years, the industry has traded as high as 5.98X, as low as 3.32X and at the median of 4.34X.
Trailing 12-Month Price-to-Book (P/B) Ratio
Trailing 12-Month Price-to-Book (P/B) Ratio
Bottom Line
Strong customer retention and increase in the number of insured will help the industry generate higher revenues. Per Technavio, the global insurance brokerage market is estimated to witness CAGR of 4.9% during 2018-2022.
However, increasing expenses pose a near-term challenge.
The Zacks Insurance Brokerage space has one stock carrying a Zacks Rank #2 (Buy).
Erie Indemnity Company (ERIE - Free Report) : provides private health insurance exchange services to individuals, families, and small businesses in the United States and China. It came up with an average positive earnings surprise of 4.9% in the trailing four quarters. The Zacks Consensus Estimate for 2019 EPS indicates a year-over-year rise of 12.89%.
Aon plc (AON - Free Report) : The Zacks Consensus Estimate for 2019 EPS indicates a year-over-year rise of 2.17%. This London, United Kingdom-based provider of advisory and solutions based on risk, retirement and health has an estimated long-term earnings growth rate of 12%. It delivered average positive earnings surprise of 0.57% in the last four quarters.
Price and Consensus
Marsh & McLennan Companies, Inc. (MMC - Free Report) : This New York-based provider of advice and solutions to clients in the areas of risk, strategy, and people worldwide delivered average positive surprise of 6.67% in the trailing four quarters. The company has an estimated long-term earnings growth rate of 12.3%. The Zacks Consensus Estimate for 2019 EPS indicates a year-over-year rise of 12.18%.
Price and Consensus
Brown & Brown, Inc. (BRO - Free Report) : The Zacks Consensus Estimate for 2019 EPS indicates a year-over-year rise of 13%. This London, United Kingdom-based provider of advisory and solutions based on risk, retirement, and health has an estimated long-term earnings growth rate of 10%. It delivered average positive earnings surprise of 6.12% in the last four quarters.
Price and Consensus
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This outperformance has not just been a recent phenomenon. From 2000 – Q3 2019, while the S&P averaged +5.6% per year, our top strategies averaged up to +54.1% per year.
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Insurance Brokerage Outlook Sanguine on M&As, Rising Rates
The Zacks Insurance - Brokerage industry comprises companies that primarily offer insurance and reinsurance products and services. Insurance brokers act on behalf of their clients and offer advice keeping in mind clients' interests against brokerage fees. Some of these companies are also involved in providing risk management, third-party administration and managed health care services.
Per London-based Technavio, the global insurance brokerage market size is estimated to grow by about $14.5 billion during 2018-2022.
Here are the industry's three major themes:
• Some of the revenue drivers of the industry are premium pricing, insured exposure and retention levels. The current environment is positive for this space given an increase in premium rates for all the areas of the insurance market. To put this into perspective, global property and casualty pricing is up about 5%. Also, insured exposure continues to move higher. Moreover, growth in aging population is driving demand for retirement benefit products. The rising population of baby boomers and millennials is boosting demand for medical insurance, life insurance, accidental insurance and other forms of insurance. This, in turn, should lead to higher revenues as policy prices rise and volumes increase.
• The insurance brokerage industry is witnessing fast-paced consolidation. Mergers and acquisitions (M&A) in this space have been rife in recent years. The industry has been traditionally fragmented with a number of small players. One of the factors driving mergers and acquisitions is the need of the companies to become specialized in their businesses. Also, small brokerage firm owners have to take big decisions about the future course of action as most of them belong to the baby bomber era and are ageing. Some other factors driving M&A are the interest that private equity is showing in this sector, growing competition and a lack of organic growth.
• To maintain competitiveness in the industry, players are embracing technological change. The threat comes from new entrants, such as technology companies, Insurtech start-up companies and others. These players are focused on using technology and innovation, including artificial intelligence, robotics and blockchain, to simplify and improve client experience, increase efficiencies, alter business models and bring about other disruptive changes in industries in which the existing players operate. While investments in technology help increase business efficiency, expenses associated with such investments increase operating costs.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Insurance - Brokerage industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #60, which places it in the top 24% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, signifies solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 24% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are upbeat in this group’s earnings growth potential.
Before we present a few insurance broker stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 and Sector
The Insurance Brokerage Industry has outperformed the Zacks S&P 500 Composite and the broader Zacks Finance Sector over the past year.
The industry has rallied 23.7% compared with the S&P 500's increase of 15.4%. Meanwhile, the broader sector has gained 7.12%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 5.85X compared with the S&P 500's 4.33X and the sector's 2.7X.
Over the last five years, the industry has traded as high as 5.98X, as low as 3.32X and at the median of 4.34X.
Trailing 12-Month Price-to-Book (P/B) Ratio
Trailing 12-Month Price-to-Book (P/B) Ratio
Bottom Line
Strong customer retention and increase in the number of insured will help the industry generate higher revenues. Per Technavio, the global insurance brokerage market is estimated to witness CAGR of 4.9% during 2018-2022.
However, increasing expenses pose a near-term challenge.
The Zacks Insurance Brokerage space has one stock carrying a Zacks Rank #2 (Buy).
Erie Indemnity Company (ERIE - Free Report) : provides private health insurance exchange services to individuals, families, and small businesses in the United States and China. It came up with an average positive earnings surprise of 4.9% in the trailing four quarters. The Zacks Consensus Estimate for 2019 EPS indicates a year-over-year rise of 12.89%.
Price and Consensus
You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.
Aon plc (AON - Free Report) : The Zacks Consensus Estimate for 2019 EPS indicates a year-over-year rise of 2.17%. This London, United Kingdom-based provider of advisory and solutions based on risk, retirement and health has an estimated long-term earnings growth rate of 12%. It delivered average positive earnings surprise of 0.57% in the last four quarters.
Price and Consensus
Marsh & McLennan Companies, Inc. (MMC - Free Report) : This New York-based provider of advice and solutions to clients in the areas of risk, strategy, and people worldwide delivered average positive surprise of 6.67% in the trailing four quarters. The company has an estimated long-term earnings growth rate of 12.3%. The Zacks Consensus Estimate for 2019 EPS indicates a year-over-year rise of 12.18%.
Price and Consensus
Brown & Brown, Inc. (BRO - Free Report) : The Zacks Consensus Estimate for 2019 EPS indicates a year-over-year rise of 13%. This London, United Kingdom-based provider of advisory and solutions based on risk, retirement, and health has an estimated long-term earnings growth rate of 10%. It delivered average positive earnings surprise of 6.12% in the last four quarters.
Price and Consensus
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through Q3 2019, while the S&P 500 gained +39.6%, five of our strategies returned +51.8%, +57.5%, +96.9%, +119.0%, and even +158.9%.
This outperformance has not just been a recent phenomenon. From 2000 – Q3 2019, while the S&P averaged +5.6% per year, our top strategies averaged up to +54.1% per year.
See their latest picks free >>