Independent Agencies Post Gains in Organic Growth, Profitability in Q4: Reagan Consulting

Insurance agencies and brokerage firms ended 2017 with gains in organic growth and profitability in the fourth quarter.

The 175 midsize and large agencies and brokerages participating in Reagan Consulting’s Organic Growth and Profitability (OGP) Survey reported overall growth. Agency organic growth in 2017 rose to 4.5 percent from 4.2 percent a year earlier, while the margin of earnings before interest, taxes, depreciation and amortization (EBITDA) went up to 20.4 percent from 20.0 percent.

Commercial lines property/casualty rates and growth in U.S. gross domestic product reversed slides in 2016, increasing in the fourth quarter of 2017 and driving brokers’ organic growth higher, according to Brian Deitz, partner at Reagan Consulting, a merger and acquisition advisory firm.

Group benefits decelerated modestly, to an average growth rate of 5.2 percent, but still remained the fastest-growing line of business for OGP participants.

Merger and acquisition (M&A) transactions surged in 2017 to a record 558, according to the report.

Going forward, Reagan expects that M&A pricing will not decline and might even increase for strategically valuable targets.

Deitz said the Tax Cuts and Jobs Act (TCJA), which will enhance tax cash flows for C-corporations, is likely to provide some lift to valuation.

“Reagan Consulting believes that the improving economy, beneficial impacts of the tax act and relatively flat property/casualty pricing are likely to continue improvements in organic growth and EBITDA,” Deitz said.