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6 Brokerage Stocks Making the Most of the Rising Demand for Insurance
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Better pricing, prudent underwriting, rising demand for insurance products and global expansion have been driving revenues of Zacks Insurance Brokerage industry players. Fast-paced consolidations in this traditionally fragmented industry are expected to benefit Marsh & McLennan Companies (MMC - Free Report) , Aon plc (AON - Free Report) , Arthur J. Gallagher (AJG - Free Report) , Willis Tower Watson , Brown & Brown (BRO - Free Report) , and Erie Indemnity (ERIE - Free Report) .
Increasing adoption of technology and higher spending on technology will help in faster claims processing, thus improving operational performance and increaseing efficiency. This in turn ensure smooth functioning of the industry, though such huge investments increase operating costs.
About the Industry
The Zacks Brokerage Insurance 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. Thus, their business is directly linked with clients’ level of business. Some of these companies are also involved in providing risk management, third-party administration, and managed health care services. Per a report by Allied Market Research, the global insurance brokerage market is projected to grow $395 billion by 2027 or at a eight-year (2020-2027) CAGR of 7.3%. Technavio analysts forecast the global insurance brokerage market to rise by $20.52 billion or at a CAGR of 5.7% during 2021-2025 in their market research report. Increased digitization helps in improving operational result.
3 Trends Shaping the Future of Insurance Brokerage Industry
Increased Demand for Products to Drive Revenues: Industry players are continually expanding globally, cross selling products, increasing rates, tightening underwriting standards, and controlling expenses. Growth in the aging population is driving demand for retirement benefit products while the rising population of baby boomers and millennials is boosting demand for medical insurance, life insurance, accidental insurance, and other forms of insurance. The operational results of the industry players are affected directly by clients’ level of business activity, which, in turn, depends on the extent of economic activity in the industries and markets that they serve. Though the industry was hit by the pandemic, reopening of the economy, increased vaccination and improved economic growth estimates instill confidence.
Mergers and Acquisitions: The insurance brokerage industry is witnessing fast-paced consolidation. 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. Some other factors driving M&A are the interest shown by private equity firms in this sector, growing competition, and lack of organic growth.
Increased Adoption of Technology: To maintain competitiveness in the industry, players are embracing technological change. The threat comes from new entrants, including technology companies like Insurtech, start-ups, 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. Increased digitization will help in faster claims processing, thus improving operational performance. Per a WNS report, global spending on technology is estimated to increase 48% on a compound annual growth basis to $1.4 billion by 2021. While investments in technology help increase business efficiency, the expenses associated with such investments increase operating costs.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Insurance - Brokerage industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #50, which places it in the top 20% 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 50% 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 about 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 Underperforms Both S&P and Sector
The Insurance Brokerage industry has underperformed both the Zacks Finance Sector and the Zacks S&P 500 composite over the past year.
The industry has gained 14.5% compared with the S&P 500's increase of 30.2% and the broader sector’s rally of 39.8% in the said time frame.
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 5.08X compared with the S&P 500's 7.03X and the sector's 3.36X.
Over the last five years, the industry has traded as high as 6.85X, as low as 3.64X and at the median of 5.03X.
Brown & Brown: This Daytona Beach, FL based company markets and sells insurance products and services in the United States, England, Canada, Bermuda, and the Cayman Islands. The company is poised to benefit from strategic acquisitions and mergers as well as investments to boost organic growth and expand margin.
It beat estimates in each of the last four reported quarters with the average beat being 21.40%. The Zacks Consensus Estimate for 2021 and 2022 EPS indicates a respective increase of 24.6% and 5.8% year over year. The consensus estimates for 2021 and 2022 have moved 5.6% and 3.8% north in the past 60 days.
Price and Consensus: BRO
Marsh & McLennan Companies: This New York-based company provides advice and solutions to clients in the areas of risk, strategy, and people worldwide. This c company is well poised to grow on significant investments and acquisitions made within its operating units, launch of products, enhanced digital capabilities, and new businesses.
It delivered a four-quarter average surprise of 13.88%. The Zacks Consensus Estimate for 2021 and 2022 earnings indicates 22.1% and 8.1% year-over-year increase, respectively. The consensus estimates for 2021 and 2022 have moved 7.8% and 7.2% north in the past 60 days. The expected long-term earnings growth rate is pegged at 12.5%, better than the industry average of 11.5%.
Price and Consensus: MMC
Aon plc: Headquartered in London, this British multinational corporation offers risk management services, insurance and reinsurance brokerage, human resource consulting and outsourcing services worldwide. Divestiture of its non-core operations to streamline its business and focus on more profitable operations, thereby generating higher return on equity; strengthening of its position in the evolving commercial insurance market for small and medium-sized businesses, and cost savings from its restructuring programs bode well for growth.
This company delivered an average earnings surprise of 1.12% in the trailing four quarters. The Zacks Consensus Estimate for 2021 and 2022 indicates respective year-over-year increases of 18.8% and 10.1%. The consensus estimates for 2021 and 2022 have moved 4.4% and 3.8% north in the past 30 days.
Price and Consensus: AON
Willis Towers Watson: This London-based leading global advisory, broking and solutions company should benefit from increasing organic commissions and fees, solid customer retention levels, and growing new business.
The company delivered an average earnings surprise of 13.52% in the trailing four quarters. The Zacks Consensus Estimate for current-year and 2022 earnings has been revised 5.8% and 5.7% upward, respectively over the past 60 days, indicating 15.7% and 8.8% year-over-year increase.
Price and Consensus: WLTW
Investors can also keep a watch on two stocks that currently carry Zacks Rank #3 (Hold).
Arthur J. Gallagher: This Rolling Meadows, IL-provider insurance brokerage, consulting, and third-party claims settlement and administration services in the United States, Australia, Bermuda, Canada, the Caribbean, New Zealand, and the United Kingdom should gain from organic growth at its Brokerage and Risk Management segments.
The Zacks Consensus Estimate for 2021 and 2022 EPS indicates a respective 12.9% and 5.9% increase year over year. It delivered an earnings surprise in the last four reported quarters with the average being 13.51%. The expected long-term earnings growth rate is pegged at 10.6%. The Zacks Consensus Estimate for current-year and 2022 earnings has been revised 4.5% and 7% upward, respectively over the past 30 days.
Price and Consensus: AJG
Erie Indemnity Company: Erie, PA Erie Indemnity Company operates as a managing attorney-in-fact for the subscribers at the Erie Insurance Exchange in the United States. It provides sales, underwriting, policy issuance, and renewal services for the policyholders on behalf of Erie Insurance Exchange. This company should continue to benefit from strong growth in renewal business, focus on expanding agency force, and growth of its customer base.
The Zacks Consensus Estimate for 2021 and 2022 earnings indicates a respective year-over-year increase of 3.7% and 8.8%. It delivered a four-quarter average earnings surprise of 3.43%.
Price and Consensus: ERIE
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6 Brokerage Stocks Making the Most of the Rising Demand for Insurance
Better pricing, prudent underwriting, rising demand for insurance products and global expansion have been driving revenues of Zacks Insurance Brokerage industry players. Fast-paced consolidations in this traditionally fragmented industry are expected to benefit Marsh & McLennan Companies (MMC - Free Report) , Aon plc (AON - Free Report) , Arthur J. Gallagher (AJG - Free Report) , Willis Tower Watson , Brown & Brown (BRO - Free Report) , and Erie Indemnity (ERIE - Free Report) .
Increasing adoption of technology and higher spending on technology will help in faster claims processing, thus improving operational performance and increaseing efficiency. This in turn ensure smooth functioning of the industry, though such huge investments increase operating costs.
About the Industry
The Zacks Brokerage Insurance 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. Thus, their business is directly linked with clients’ level of business. Some of these companies are also involved in providing risk management, third-party administration, and managed health care services. Per a report by Allied Market Research, the global insurance brokerage market is projected to grow $395 billion by 2027 or at a eight-year (2020-2027) CAGR of 7.3%. Technavio analysts forecast the global insurance brokerage market to rise by $20.52 billion or at a CAGR of 5.7% during 2021-2025 in their market research report. Increased digitization helps in improving operational result.
3 Trends Shaping the Future of Insurance Brokerage Industry
Increased Demand for Products to Drive Revenues: Industry players are continually expanding globally, cross selling products, increasing rates, tightening underwriting standards, and controlling expenses. Growth in the aging population is driving demand for retirement benefit products while the rising population of baby boomers and millennials is boosting demand for medical insurance, life insurance, accidental insurance, and other forms of insurance. The operational results of the industry players are affected directly by clients’ level of business activity, which, in turn, depends on the extent of economic activity in the industries and markets that they serve. Though the industry was hit by the pandemic, reopening of the economy, increased vaccination and improved economic growth estimates instill confidence.
Mergers and Acquisitions: The insurance brokerage industry is witnessing fast-paced consolidation. 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. Some other factors driving M&A are the interest shown by private equity firms in this sector, growing competition, and lack of organic growth.
Increased Adoption of Technology: To maintain competitiveness in the industry, players are embracing technological change. The threat comes from new entrants, including technology companies like Insurtech, start-ups, 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. Increased digitization will help in faster claims processing, thus improving operational performance. Per a WNS report, global spending on technology is estimated to increase 48% on a compound annual growth basis to $1.4 billion by 2021. While investments in technology help increase business efficiency, the expenses associated with such investments increase operating costs.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Insurance - Brokerage industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #50, which places it in the top 20% 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 50% 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 about 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 Underperforms Both S&P and Sector
The Insurance Brokerage industry has underperformed both the Zacks Finance Sector and the Zacks S&P 500 composite over the past year.
The industry has gained 14.5% compared with the S&P 500's increase of 30.2% and the broader sector’s rally of 39.8% in the said time frame.
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 5.08X compared with the S&P 500's 7.03X and the sector's 3.36X.
Over the last five years, the industry has traded as high as 6.85X, as low as 3.64X and at the median of 5.03X.
Trailing 12-Month Price-to-Book (P/B) Ratio
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Trailing 12-Month Price-to-Book (P/B) Ratio
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6 Insurance Brokerage Stocks to Keep an Eye On
We are presenting four stocks from the space currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Brown & Brown: This Daytona Beach, FL based company markets and sells insurance products and services in the United States, England, Canada, Bermuda, and the Cayman Islands. The company is poised to benefit from strategic acquisitions and mergers as well as investments to boost organic growth and expand margin.
It beat estimates in each of the last four reported quarters with the average beat being 21.40%. The Zacks Consensus Estimate for 2021 and 2022 EPS indicates a respective increase of 24.6% and 5.8% year over year. The consensus estimates for 2021 and 2022 have moved 5.6% and 3.8% north in the past 60 days.
Price and Consensus: BRO
Marsh & McLennan Companies: This New York-based company provides advice and solutions to clients in the areas of risk, strategy, and people worldwide. This c company is well poised to grow on significant investments and acquisitions made within its operating units, launch of products, enhanced digital capabilities, and new businesses.
It delivered a four-quarter average surprise of 13.88%. The Zacks Consensus Estimate for 2021 and 2022 earnings indicates 22.1% and 8.1% year-over-year increase, respectively. The consensus estimates for 2021 and 2022 have moved 7.8% and 7.2% north in the past 60 days. The expected long-term earnings growth rate is pegged at 12.5%, better than the industry average of 11.5%.
Price and Consensus: MMC
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Aon plc: Headquartered in London, this British multinational corporation offers risk management services, insurance and reinsurance brokerage, human resource consulting and outsourcing services worldwide. Divestiture of its non-core operations to streamline its business and focus on more profitable operations, thereby generating higher return on equity; strengthening of its position in the evolving commercial insurance market for small and medium-sized businesses, and cost savings from its restructuring programs bode well for growth.
This company delivered an average earnings surprise of 1.12% in the trailing four quarters. The Zacks Consensus Estimate for 2021 and 2022 indicates respective year-over-year increases of 18.8% and 10.1%. The consensus estimates for 2021 and 2022 have moved 4.4% and 3.8% north in the past 30 days.
Price and Consensus: AON
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Willis Towers Watson: This London-based leading global advisory, broking and solutions company should benefit from increasing organic commissions and fees, solid customer retention levels, and growing new business.
The company delivered an average earnings surprise of 13.52% in the trailing four quarters. The Zacks Consensus Estimate for current-year and 2022 earnings has been revised 5.8% and 5.7% upward, respectively over the past 60 days, indicating 15.7% and 8.8% year-over-year increase.
Price and Consensus: WLTW
Investors can also keep a watch on two stocks that currently carry Zacks Rank #3 (Hold).
Arthur J. Gallagher: This Rolling Meadows, IL-provider insurance brokerage, consulting, and third-party claims settlement and administration services in the United States, Australia, Bermuda, Canada, the Caribbean, New Zealand, and the United Kingdom should gain from organic growth at its Brokerage and Risk Management segments.
The Zacks Consensus Estimate for 2021 and 2022 EPS indicates a respective 12.9% and 5.9% increase year over year. It delivered an earnings surprise in the last four reported quarters with the average being 13.51%. The expected long-term earnings growth rate is pegged at 10.6%. The Zacks Consensus Estimate for current-year and 2022 earnings has been revised 4.5% and 7% upward, respectively over the past 30 days.
Price and Consensus: AJG
Erie Indemnity Company: Erie, PA Erie Indemnity Company operates as a managing attorney-in-fact for the subscribers at the Erie Insurance Exchange in the United States. It provides sales, underwriting, policy issuance, and renewal services for the policyholders on behalf of Erie Insurance Exchange. This company should continue to benefit from strong growth in renewal business, focus on expanding agency force, and growth of its customer base.
The Zacks Consensus Estimate for 2021 and 2022 earnings indicates a respective year-over-year increase of 3.7% and 8.8%. It delivered a four-quarter average earnings surprise of 3.43%.
Price and Consensus: ERIE