Common Themes From Public Broker 2Q20 Earnings
Over the last week, several public insurance brokers reported 2Q20 Earnings Per Share results and there were a number of common themes:
- Worst case scenario outlooks in terms of economic fallout from the global COVID-19 pandemic appear to be off the table, or at least very unlikely. Three months ago, as companies reported 1Q results in mid to late April, there were still unknowns around how the historic levels of unemployment, and rolling national and international shutdowns, would impact companies. Through July, most brokers feel the recovery will be uneven in pace and likely longer in duration than initially thought, but the downturn was not as severe as it could have been.
- Cost cutting (both targeted and naturally occurring) contributed to strong profitability. Most companies that reported over the last week noted they pulled back hard on discretionary spending (investments, hiring) and that selling expenses (travel, entertainment) were down significantly as well. As a result, margin and earnings performance was broadly better than the investment community predicted.
- Pricing continues to offset lackluster organic growth. Brokers across the board noted that commercial lines (professional liability, property, cyber) pricing is accelerating even from increases earlier in the year.
Despite the anemic organic growth results, margin improvement and relative outperformance vs. other investments/indices have supported the stock performance of insurance brokers. MarshBerry’s Insurance Broker Index (composed of six of the publicly traded brokers) shows 8% YTD stock price appreciation, compared to 1.2% for the S&P 500 and a 7.4% decline in the Dow Jones Industrial Average.
The industry passed the proverbial stress test of the “Great Recession.” During 2009, the average insurance broker only declined 3.5% in commission income proving the resilience of the industry and prompting the largest influx of capital to enter the insurance brokerage industry ever witnessed. As noted in Today’s Viewpoint on June 16, 2020, the average expected growth rate of the top brokers is expected to be roughly 5% during 2020. If positive results materialize amidst the largest pandemic in modern history, the industry will have passed yet another stress test. Could this second proof of resilience cause an additional influx of capital that will make the last ten years pale by comparison? What will the industry look like ten years from now? What if the stability of the industry creates just enough of a false sense of security that you don’t evolve? What will those that survive, let alone thrive, look like in ten years? What bold moves are those that control their destiny implementing today? As respects your strategic plan, will you MAKE it happen, WATCH it happen or WONDER what happened?
The COVID-19 pandemic has had significant impacts on business and daily life. To bring you meaningful insights into how insurance brokerage firms are responding to the business implications, MarshBerry is conducting a new Market Pulse survey to gather any changes in sentiment and perspective of the industry’s outlook as the country moves towards a full “open for business.” Take a quick 3-minute MarshBerry Pulse survey to have your thoughts included in the industry’s outlook.
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Sources: Yahoo Finance of 7/31/2020 at close. Aon plc; Arthur J. Gallagher & Co.; Brown & Brown, Inc.; Baldwin Risk Partners; Marsh & McLennan Companies, Inc.; Willis Towers Watson Public Limited Company
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This post has been prepared by Marsh, Berry & Co., Inc. and is not intended to provide investment recommendations on any company. It is not a research report, as such term is defined by applicable laws and regulations, and it does not contain sufficient information upon which to make an investment decision. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities, financial instruments or to participate in any particular trading strategy. These materials are based solely on information contained in publicly available documents and Marsh, Berry & Co., Inc. has not independently attempted to investigate or to verify such information.
