Fitch: U.S. Insurance Brokers to See Modest 2016 Earnings Growth

CHICAGO--()--Revenues and earnings for U.S. insurance brokers are likely to modestly improve in 2016 relative to levels reported through nine months of 2015, according to Fitch Ratings' 2016 U.S. Insurance Broker Outlook report.

Near-term operating performance and balance sheet strength will remain supportive of a stable credit ratings outlook for the brokers in Fitch's ratings universe. Fitch sees limited potential for rating changes over the next 12 - 18 months, despite anticipating modest improvement in some credit fundamentals in 2016. Willis Group Holdings PLC is an exception however, which is on Rating Watch Positive due to the proposed merger with Towers Watson & Co. Fitch notes that the merger currently faces closing uncertainty tied to gaining Towers Watson shareholder approval.

The sector outlook is stable as debt servicing capabilities are anticipated to remain steady. A soft reinsurance market with flat or declining premium rate changes in primary commercial insurance segments will pressure brokers' 2016 organic growth and profit margins. However, global brokers' revenues from diverse product and geographic platforms, including healthcare and benefits consulting, should help offset these headwinds. Strong retention and insured exposure growth from a slowly improving economic environment will also promote revenue expansion.

In the report, Fitch discusses key factors supporting the Stable Rating Outlook and Stable Sector Outlook for the insurance broker market, including an analysis of trends in key credit fundamentals and operating performance, and brief updates of recent events including acquisitions and health insurance exchanges.

Fitch's analysis of financial data for a group of publicly traded brokers reveals that on average profit margins were relatively flat in 2015 with two of the five peers reporting reduced margins in part from one-time items. Financial leverage increased for several organizations including the three largest brokers while interest coverage remains favorable and supportive of current rating levels.

The full report '2016 Outlook: U.S. Insurance Broker Industry' is available at 'www.fitchratings.com.'

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage' (Aug. 17, 2015);

--'Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis' (Nov. 25, 2014);

--'U.S. Insurance Broker Industry Sector Credit Factors' (May 4, 2012).

2016 Outlook: U.S. Insurance Broker Industry (Stable Credit Trends Continue with Focus on Growth and Expenses)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873919

Applicable Criteria

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 05 Aug 2013)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis (pub. 25 Nov 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=821568

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Contacts

Fitch Ratings
Gretchen K. Roetzer
Director
+1-312-606-2327
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Martha M. Butler, CFA
Senior Director
+1-312-368-3191
or
Media Relations:
Hannah James, +1 646-582-4947
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Gretchen K. Roetzer
Director
+1-312-606-2327
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Martha M. Butler, CFA
Senior Director
+1-312-368-3191
or
Media Relations:
Hannah James, +1 646-582-4947
hannah.james@fitchratings.com