NU Online News Service, July 14, 3:40 p.m. EDT
Acquisition activity is expected to heat up for the second half of the year among the major insurance brokers, despite the strong headwinds they face to revenues, according to a financial analyst's report.
Keefe, Bruyette & Woods, in its second quarter earnings preview of the insurance industry, said potential changes in the capital gains tax and a reversion to "more normalized valuation levels" should increase second-half mergers and acquisitions activity among insurance brokers it follows.
The report said brokers' revenues are expected to see low-single-digit growth in the second quarter as the soft market continues and the weak economy cuts into client purchasing of insurance.
KBW said it remains cautious about the brokers--Aon, Arthur J. Gallagher, Brown & Brown, Marsh & McLennan Companies and Willis.
Organic growth is expected to decline by less than 2 percent on average for brokers, KBW said. Three of the five publicly traded brokers are expected to experience negative growth, the report said.
However, cost cutting initiatives will result in margin expansion for four of the five brokers.
MMC, the parent company of insurance brokerage firm Marsh and reinsurance broker Guy Carpenter, was given a slight edge over the other four by KBW, saying it has amble capital to fund acquisitions, especially in light of the sale of Kroll and settlement of a legal dispute between its consulting firm Mercer and the state of Alaska.
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