Yahoo Finance Zacks Industry Outlook Highlights Marsh & McLennan, Aon, Arthur J. Gallagher, Willis Tower Watson and Brown & Brown
For Immediate Release
Chicago, IL – December 14, 2022 – Today, Zacks Equity Research discusses Marsh & McLennan Companies MMC, Aon plc AON, Arthur J. Gallagher AJG, Willis Tower Watson plc and Brown & Brown Inc. BRO.
Industry: Insurance Brokerage
Link: https://www.zacks.com/commentary/2028087/5-insurance-brokers-to-watch-amid-industry-headwinds
Better pricing, prudent underwriting, rising demand for insurance products and global expansion have been driving revenues of Zacks Insurance Brokerage industry players. The fast-paced consolidations in this traditionally fragmented industry are expected to benefit Marsh & McLennan Companies, Aon plc, Arthur J. Gallagher, Willis Tower Watson plc and Brown & Brown Inc.
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 health care services. Per a report by Allied Market Research, the global insurance brokerage market is projected to grow 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, rising 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-undertaken 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 customizable products that are more appealing to customers.
This apart, better pricing ensures higher commissions for the industry players. Per Deloitte Insights, The Swiss Re Institute projects an increase in demand for insurance, which, in turn, will drive a 3.9% increase in premiums in 2022.
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 improving 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 Bleak Prospects
The Zacks Insurance - Brokerage industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #142, which places it in the bottom 43% 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 dull 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. The industry’s earnings estimate for the current year has moved down 0.3% in a year’s time.
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.
Though the industry has lost 4.2%, the loss was narrower than the S&P 500's decrease of 17.4% and the broader sector’s decline of 11.6% 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 7.82X compared with the S&P 500's 5.48X and the sector's 3.41X.
Over the last five years, the industry has traded as high as 7.98X, as low as 4.22X and at the median of 5.93X.
5 Insurance Brokerage Stocks to Keep an Eye On
We are presenting five stocks from the space currently carrying a Zacks Rank #3 (Hold) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Marsh & McLennan Companies: New York-based Marsh & McLennan provides advice and solutions to clients in the areas of risk, strategy, and people worldwide. This is well poised to grow on significant investments and acquisitions made within its operating units, product launches, enhanced digital capabilities and new businesses. It has a VGM Score of B.
Marsh & McLennan delivered a four-quarter average earnings surprise of 3.20%. The Zacks Consensus Estimate for 2022 and 2023 earnings indicates a respective 9.7% and 8.6% year-over-year increase. The expected long-term earnings growth rate is pegged at 8.3%.
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 generate a higher return on equity. This along with cost-curbing measures bodes well for growth. Aon has an impressive inorganic story. It mainly looks to expand in the health and benefits business, flood insurance solutions, and risk and insurance solution operations.
This Zacks Rank #3 insurance broker delivered an average earnings surprise of 3.76% in the trailing four quarters. The Zacks Consensus Estimate for Aon’s 2022 and 2023 earnings indicates a 9.5% year-over-year increase each. The expected long-term growth rate is pegged at 10.9%
Willis Towers Group: London-based Willis Towers Group is a leading global advisory, broking and solutions company. Willis Towers Watson should benefit from increasing organic commissions and fees, solid customer retention levels, and growing new business.
The Zacks Consensus Estimate for Willis Towers Group’s 2022 and 2023 EPS indicates a 16.4% and 12.6% increase year over year, respectively. WTW delivered an earnings surprise in each of the last four reported quarters, with the average being 3.80%. The expected long-term earnings growth rate is pegged at 16%, better than the industry average of 11.3%.
Arthur J. Gallagher: Rolling Meadows, IL-based Arthur J. Gallagher provides 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. This insurance broker is expected to gain from organic growth at its Brokerage and Risk Management segments. It carries a Growth Score of B.
The Zacks Consensus Estimate for Arthur J. Gallagher’s 2022 and 2023 EPS indicates a respective 41.2% and 11% increase year over year. AJG delivered an earnings surprise in each of the last four reported quarters, with the average being 4.48%. The expected long-term earnings growth rate is pegged at 10.2%.
Brown & Brown: Daytona Beach, FL-based Brown & Brown markets and sells insurance products and services in the United States, England, Canada, Bermuda, and the Cayman Islands. This company is poised to benefit from strategic acquisitions and mergers as well as investments to boost organic growth and expand margin. It carries a VGM Score of B.
The Zacks Consensus Estimate for Brown and Brown’s 2022 and 2023 EPS indicates a respective 2.3% and 13.1% increase year over year. BRO delivered an earnings surprise in each of the last four reported quarters, with the average being 0.49%.
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Marsh & McLennan Companies, Inc. (MMC) : Free Stock Analysis Report
Aon plc (AON) : Free Stock Analysis Report
Arthur J. Gallagher & Co. (AJG) : Free Stock Analysis Report
Brown & Brown, Inc. (BRO) : Free Stock Analysis Report
