North American broker profitability in 2009 expected to be flat or modestly lower

Looking ahead into 2009, the profitability of the North American insurance broker industry is expected to be flat or modestly lower, Fitch Ratings says in a recent report, Review and Outlook 2008-2009.
In making its assessment, Fitch noted the “economic recession and competitive insurance rate environment will continue to challenge brokers to grow organically or improve profit margins.”
Fitch’s report gives an outlook for the North American brokerage industry as a whole. But it also makes a number of specific observations about some of the region’s larger brokerage firms.
In particular, Fitch recognizes the impact of two “significant acquisitions that changed the competitive landscape.” These included the mergers of Willis Group Holdings with Hilb Rogal & Hobbs Company (HRH) and Aon Corp. with the Benfield Group Limited.
“Willis and Aon should incur costs associated with recent acquisitions that could make it difficult for these companies to improve reported profit margins in 2009,” Fitch observes. “As importantly, the difficult operating environment will challenge these companies to achieve the intended benefits of these transactions.”
Fitch also believes the global economic downturn could affect the consulting businesses of MMC (Marsh & McLennan Companies) and Aon, “which are more tied to the economic cycle than the core insurance businesses.”
Fitch believes the tight credit market may prevent brokers in the future from making heavily leveraged acquisitions in the near to medium term.