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Better pricing, prudent underwriting, rising demand for insurance products and global expansion have been driving revenues of the Zacks Insurance Brokerage industry players. The fast-paced consolidations in this traditionally fragmented industry are expected to benefit Marsh & McLennan Companies, Aon plc, Brown and Brown, Erie Indemnity and Ryan Specialty Holdings, Inc.
The increasing adoption of technology and higher spending on technology will help in the smooth functioning of the industry.
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 activity. Some of these companies are also involved in providing risk management, third-party administration and managed healthcare services.
Per a report by Allied Market Research, the global insurance brokerage market is projected to rise to $395 billion by 2027 or at an eight-year (2020-2027) CAGR of 7.3%. Research Dive estimates industry players combined to generate $515.3 billion in revenues by 2028, up at an eight-year (2021-2028) CAGR of 5.4%. Increased digitization has been helping to improve operational performance.
3 Trends Shaping the Future of the 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 as well as increasing awareness is boosting demand for medical insurance, life insurance, accidental insurance and other forms of insurance. Government initiatives should also add to the upside.
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 they serve. Also, they must design products that are more appealing to customers. This apart, better pricing ensures higher commissions for the industry players.
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 companies' need 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 insurtechs, 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. Accelerated digitalization is also helping in curbing costs, thus aiding margin expansion. Increased digitization will help in faster claims processing, thus improving operational performance and retention rate.
While investments in technology help increase business efficiency, the expenses associated with such investments increase operating costs. At the same time, players must shield themselves from falling prey to cyber threats.
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 #28, which places it in the top 11% 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 encouraging 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 the result of a 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. The industry's earnings estimate for the current year has moved up 4.8% year to date.
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 Both S&P 500 and Sector
The Insurance Brokerage industry has outperformed the Zacks S&P 500 composite as well as the Zacks Finance Sector over the past year.
The industry has risen 7.5% compared with the S&P 500's increase of 3.2%. The broader sector has declined 2% in the said time frame.
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 6.63X compared with the S&P 500's 5.48X and the sector's 3.03X.
Over the last five years, the industry has traded as high as 7.98X, as low as 4.44X and at the median of 6.12X.
5 Insurance Brokerage Stocks to Keep an Eye On
We are presenting one stock from the space currently carrying a Zacks Rank #1 (Strong Buy), three stocks carrying a Zacks Rank #2 (Buy) and one Zacks Rank #3 (Hold) stock. You can see the complete list of today's Zacks #1 Rank stocks here.
Erie Indemnity: Erie, PA-based Erie Indemnity Company operates as a managing attorney-in-fact for subscribers at the Erie Insurance Exchange in the United States. Focus on improving the combined ratio through rate increase, cost management, prudent underwriting, upgrade of legacy technology platforms and digitalization bodes well for growth.
The Zacks Consensus Estimate for 2023 and 2024 earnings indicates a 32.9% and 16.7% year-over-year increase, respectively. It has a Growth Score of B. The consensus estimate has risen 5.4% for 2023 and 8.3% for 2024 in the past 30 days. ERIE delivered a four-quarter average surprise of 2.05%. It sports a Zacks Rank #1.
Brown and Brown: Headquartered in Daytona Beach, Fl, Brown & Brown markets and sells insurance products and services primarily in the United States, as well as in London, Bermuda, and the Cayman Islands. New businesses, better customer retention, premium rate increases across the majority of business lines, strategic acquisitions and strong financial position should continue to drive growth for this Zacks Rank #2 insurer.
The Zacks Consensus Estimate for BRO's 2023 and 2024 EPS indicates a respective 18% and 9.3% increase year over year. The consensus estimate has risen 7.2% for 2023 and 6.5% for 2024 in the past 30 days. BRO delivered a four-quarter average earnings surprise of 3.98%.
Ryan Specialty Group Holdings: Chicago, IL-based Ryan Specialty Group operates as a service provider of specialty products and solutions for insurance brokers, agents and carriers. This Zacks Rank #2 company is poised to benefit, given its focus on strategic initiatives to increase the scalability of the operating platform, prudent acquisitions and superior performance of the Wholesale Brokerage segment. Given its diverse portfolio of products and solutions, the insurance broker is well poised to capitalize on the growth opportunities in the Excess and Supply market.
The Zacks Consensus Estimate for Ryan Specialty's 2023 and 2024 EPS indicates a 20.9% year-over-year increase each. The consensus estimate has risen 4.5% for 2023 and 2.4% for 2024 in the past 30 days. RYAN delivered a four-quarter average earnings surprise of 2.37%. It has a Growth Score of B.
Marsh & McLennan Companies: New York-based Marsh & McLennan provides advice and solutions to clients in the areas of risk, strategy and people worldwide. This Zacks Rank #2 company is well poised to grow on significant investments and acquisitions made within its operating units, product launches, enhanced digital capabilities and new businesses.
Marsh & McLennan delivered a four-quarter average earnings surprise of 3.44%. The Zacks Consensus Estimate for 2023 and 2024 earnings indicates a respective 12.6% and 9.2% year-over-year increase. The consensus estimate has risen 0.1% for 2023 and 1.3% for 2024 in the past 30 days. The expected long-term earnings growth rate is pegged at 10.5%.
Aon: Dublin, Ireland-based Aon offers risk management services, insurance and reinsurance brokerage, human resource consulting and outsourcing services worldwide. The divestiture of non-core operations to streamline its business and deepen its focus on more profitable operations generates a higher return on equity.
This along with cost-curbing measures bodes well for growth. Aon has an impressive inorganic story. This Zacks Rank #3 insurer broker mainly looks to expand in the health and benefits business, flood insurance solutions, and risk and insurance solution operations.
It delivered an average earnings surprise of 1.64% in the trailing four quarters. The Zacks Consensus Estimate for Aon's 2023 and 2024 earnings indicates a 6.5% and 13.1% year-over-year increase, respectively. The expected long-term growth rate is pegged at 9.2%.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Marsh & McLennan Companies, Aon, Brown and Brown, Erie Indemnity and Ryan Specialty Holdings
For Immediate Release
Chicago, IL – August 21, 2023 – Today, Zacks Equity Research discusses as Marsh & McLennan Companies (MMC - Free Report) , Aon plc (AON - Free Report) , Brown and Brown (BRO - Free Report) , Erie Indemnity (ERIE - Free Report) and Ryan Specialty Holdings, Inc. (RYAN - Free Report) .
Industry: Insurance
Link: https://www.zacks.com/commentary/2138164/5-insurance-brokerage-stocks-to-benefit-from-higher-demand
Better pricing, prudent underwriting, rising demand for insurance products and global expansion have been driving revenues of the Zacks Insurance Brokerage industry players. The fast-paced consolidations in this traditionally fragmented industry are expected to benefit Marsh & McLennan Companies, Aon plc, Brown and Brown, Erie Indemnity and Ryan Specialty Holdings, Inc.
The increasing adoption of technology and higher spending on technology will help in the smooth functioning of the industry.
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 activity. Some of these companies are also involved in providing risk management, third-party administration and managed healthcare services.
Per a report by Allied Market Research, the global insurance brokerage market is projected to rise to $395 billion by 2027 or at an eight-year (2020-2027) CAGR of 7.3%. Research Dive estimates industry players combined to generate $515.3 billion in revenues by 2028, up at an eight-year (2021-2028) CAGR of 5.4%. Increased digitization has been helping to improve operational performance.
3 Trends Shaping the Future of the 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 as well as increasing awareness is boosting demand for medical insurance, life insurance, accidental insurance and other forms of insurance. Government initiatives should also add to the upside.
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 they serve. Also, they must design products that are more appealing to customers. This apart, better pricing ensures higher commissions for the industry players.
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 companies' need 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 insurtechs, 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. Accelerated digitalization is also helping in curbing costs, thus aiding margin expansion. Increased digitization will help in faster claims processing, thus improving operational performance and retention rate.
While investments in technology help increase business efficiency, the expenses associated with such investments increase operating costs. At the same time, players must shield themselves from falling prey to cyber threats.
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 #28, which places it in the top 11% 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 encouraging 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 the result of a 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. The industry's earnings estimate for the current year has moved up 4.8% year to date.
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 Both S&P 500 and Sector
The Insurance Brokerage industry has outperformed the Zacks S&P 500 composite as well as the Zacks Finance Sector over the past year.
The industry has risen 7.5% compared with the S&P 500's increase of 3.2%. The broader sector has declined 2% in the said time frame.
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 6.63X compared with the S&P 500's 5.48X and the sector's 3.03X.
Over the last five years, the industry has traded as high as 7.98X, as low as 4.44X and at the median of 6.12X.
5 Insurance Brokerage Stocks to Keep an Eye On
We are presenting one stock from the space currently carrying a Zacks Rank #1 (Strong Buy), three stocks carrying a Zacks Rank #2 (Buy) and one Zacks Rank #3 (Hold) stock. You can see the complete list of today's Zacks #1 Rank stocks here.
Erie Indemnity: Erie, PA-based Erie Indemnity Company operates as a managing attorney-in-fact for subscribers at the Erie Insurance Exchange in the United States. Focus on improving the combined ratio through rate increase, cost management, prudent underwriting, upgrade of legacy technology platforms and digitalization bodes well for growth.
The Zacks Consensus Estimate for 2023 and 2024 earnings indicates a 32.9% and 16.7% year-over-year increase, respectively. It has a Growth Score of B. The consensus estimate has risen 5.4% for 2023 and 8.3% for 2024 in the past 30 days. ERIE delivered a four-quarter average surprise of 2.05%. It sports a Zacks Rank #1.
Brown and Brown: Headquartered in Daytona Beach, Fl, Brown & Brown markets and sells insurance products and services primarily in the United States, as well as in London, Bermuda, and the Cayman Islands. New businesses, better customer retention, premium rate increases across the majority of business lines, strategic acquisitions and strong financial position should continue to drive growth for this Zacks Rank #2 insurer.
The Zacks Consensus Estimate for BRO's 2023 and 2024 EPS indicates a respective 18% and 9.3% increase year over year. The consensus estimate has risen 7.2% for 2023 and 6.5% for 2024 in the past 30 days. BRO delivered a four-quarter average earnings surprise of 3.98%.
Ryan Specialty Group Holdings: Chicago, IL-based Ryan Specialty Group operates as a service provider of specialty products and solutions for insurance brokers, agents and carriers. This Zacks Rank #2 company is poised to benefit, given its focus on strategic initiatives to increase the scalability of the operating platform, prudent acquisitions and superior performance of the Wholesale Brokerage segment. Given its diverse portfolio of products and solutions, the insurance broker is well poised to capitalize on the growth opportunities in the Excess and Supply market.
The Zacks Consensus Estimate for Ryan Specialty's 2023 and 2024 EPS indicates a 20.9% year-over-year increase each. The consensus estimate has risen 4.5% for 2023 and 2.4% for 2024 in the past 30 days. RYAN delivered a four-quarter average earnings surprise of 2.37%. It has a Growth Score of B.
Marsh & McLennan Companies: New York-based Marsh & McLennan provides advice and solutions to clients in the areas of risk, strategy and people worldwide. This Zacks Rank #2 company is well poised to grow on significant investments and acquisitions made within its operating units, product launches, enhanced digital capabilities and new businesses.
Marsh & McLennan delivered a four-quarter average earnings surprise of 3.44%. The Zacks Consensus Estimate for 2023 and 2024 earnings indicates a respective 12.6% and 9.2% year-over-year increase. The consensus estimate has risen 0.1% for 2023 and 1.3% for 2024 in the past 30 days. The expected long-term earnings growth rate is pegged at 10.5%.
Aon: Dublin, Ireland-based Aon offers risk management services, insurance and reinsurance brokerage, human resource consulting and outsourcing services worldwide. The divestiture of non-core operations to streamline its business and deepen its focus on more profitable operations generates a higher return on equity.
This along with cost-curbing measures bodes well for growth. Aon has an impressive inorganic story. This Zacks Rank #3 insurer broker mainly looks to expand in the health and benefits business, flood insurance solutions, and risk and insurance solution operations.
It delivered an average earnings surprise of 1.64% in the trailing four quarters. The Zacks Consensus Estimate for Aon's 2023 and 2024 earnings indicates a 6.5% and 13.1% year-over-year increase, respectively. The expected long-term growth rate is pegged at 9.2%.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.