Global brokerages benefit from favourable conditions: Moody’s

Rising insurance premiums and a focus on specialty risk advisory services will spur growth for the world’s largest insurance brokerages, according to a recent analysis by Moody’s Investors Services.

The outlook for the global insurance brokerage sector “is stable, reflecting the brokers’ steady performance through shifting economic and market conditions,” Moody’s noted in its Insurance Brokerage Outlook.

“Firming U.S. commercial P&C rates are providing a boost to brokerage revenues,” the report stated. “Recent P&C rate increases have been driven by insurance carriers’ quest for profits in the face of weak investment income, declining reserve adequacy and sizable catastrophe losses (at least through 2011). We expect such rate increases, along with the gradual economic recovery, to support single-digit organic revenue growth for brokers through 2012-13.”

The report’s authors, Bruce Ballentine, vice president and senior credit officer for Moody’s, and Benjamin Goldberg, associate analyst at Moody’s, studied three global, publicly traded brokerage firms and seven midsize and smaller firms.

“The stable sector outlook reflects the valuable service offering of these firms (given the increasingly complex risks faced by clients) along with their high proportion of variable costs, limited capital requirements, lack of underwriting or investment risk and relatively stable cash flows,” the report noted. “These strengths are tempered by the slow pace of global economic growth, particularly in advanced economies, by potential liabilities arising from errors and omissions and by high financial leverage among private brokers.”