Revenue, earnings growth for U.S. brokers likely to improve modestly in 2014: Fitch

Insurance brokers in the United States will likely see a modest improvement in their revenue and earnings growth for 2014 over levels for the first nine months of this year, according to a new outlook report from Fitch Ratings.

The firm said its expects operating performance and balance sheet strength to “remain supportive of the existing ratings for the brokers in Fitch’s ratings universe,” leading to a stable rating outlook.

“Despite anticipating modest improvement in key credit fundamentals in 2014, Fitch sees limited potential for upgrades over the next 12 – 24 months,” it noted.

However, the firm also issued a “positive sector outlook,” which is said reflects “the continued but moderating trend of pricing improvement in many commercial insurance business classes should provide a tailwind for organic growth at least through the first half of 2014.”

For larger brokers, “favourable operating fundamentals” are expected to lead to modest profit margin improvement, while new business opportunity will also likely benefit from continued economic improvement, the agency said.

“In 2014, Fitch expects that brokers will continue to supplement modest organic revenue growth through selective acquisitions,” its report also noted.

“The recent trend of middle-market benefits brokers consolidating with larger national and global brokers will also likely continue. There are plenty of buyers with available funds seeking product and/or geographic growth. Recent revenue growth reflects stronger organic growth momentum along with higher free cash flow to drive acquisitions.”