Most U.S. insurance brokers could report low- to mid-single-digit organic growth and modestly improved profit margins in 2013, aided by favorable premium rate trends across many insurance segments, Fitch Ratings anticipates. As a result, the rating agency issues a stable rating outlook for the insurance broker market.
Fitch Ratings says that revenue and earnings growth will remain relatively stable compared to levels ultimately reported in 2012 due to firming pricing, improving economy, stable industry credit fundamentals, and moderate, but active, acquisitions.
The competitive fundamentals of the property/casualty insurance market and tepid pace of the global economic recovery will nevertheless continue to challenge more meaningful improvement in operating performance.
Fitch expects credit trends in 2013 to be favorable, driven by expectations for moderate earnings growth coupled with largely stable outstanding debt levels and modestly lower run rate interest expenses. While performance over time varies by company, Fitch expects that the brokers' performance will remain consistent with investment-grade debt ratings.
The rating agency referenced three specific brokers contributing to the stable outlook:
• Aon plc (‘BBB+’, Stable). Aon’s ratings reflect the company’s strong balance sheet and cash flow generation, very good financial flexibility, and reasonable financial leverage. The ratings continue to reflect Aon’s favorable competitive position among the top three global brokers, with major operations in insurance brokerage, reinsurance brokerage, and human capital consulting/outsourcing.
• Marsh & McLennan Companies (‘BBB’, Stable). Effective January 2013, Dan Glaser will replace Brian Duperreault as CEO of the company. Fitch views this transition as a ratings neutral event. Under Duperreault, MMC’s operating performance improved dramatically, both on an absolute basis and relative to peers, while the company’s key credit metrics have also strengthened signficantly. Fitch belives that MMC can sustain these measures at or near recent levels.
• Willis Group Holdings (‘BBB−’, Stable). Effective Jan. 7 2013, Dominic Casserly will replace Joe Plumeri as CEO of the company. Fitch views this transition as a ratings neutral event. Under Plumeri’s stewardship, Willis’ operating performance has historically been strong relative to peers, while the company has also operated at higher levels of financial leverage than many other insurance brokers. Fitch does not expect that Willis’ solid competitive position and financial performance will change materially in the near to medium term.
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