The drop in unemployment numbers for December could translate into improved earnings for insurance brokers as increased employment means growth in employee-related premiums, one financial analyst notes.
In a report, Meyer Shields, an analyst with Stifel Nicolaus, says that continued, long-term improvement in the unemployment rate “should benefit head count-related insurance premiums [such as Workers’ Compensation and Employee Benefits].”
“In our view, property and casualty insurance-rate firming is gaining traction and should accelerate in mid-2012,” says Shields. At the same time, premium volumes and commissions should also see positive impact based on improved business earnings or property values.
For specific brokers, Shields says while there is no breakdown of revenue splits for Employee Benefit and P&C insurance, both Aon and Marsh receive a high percentage of fee business “implying more insulation between weak employment numbers and broker revenues.”
On the other hand, brokers such as Willis, Brown & Brown and Arthur J. Gallagher receive more commission-based revenue for Employee Benefit and P&C business. This translates into a boost in revenues as employment slowly recovers.
On Jan. 6, the U.S. Department of Labor released the December figures reporting that unemployment dropped to 8.5 percent—a decline of 0.6 percent since August, the department said. The rate stood at 8.7 percent in November.
Non-farm employment rose by 200,000 in December, the department says, with men receiving the lion’s share of improvement as male unemployment dropped to 8 percent from 8.3 percent in November.
Other categories of workers saw little change, the department says.
Of the five public brokers reviewed by Stifel Nicolaus, all should benefit from the improved employment figures. However, Willis and Brown & Brown will continue to see earnings challenges.
For Willis, says Shields, compensation and other expense growth could “inhibit margin expansion,” while Brown & Brown must deal with the reality that a significant amount of its book of business rests in “the most economically hard-hit geographies of the U.S.” Based in Daytona Beach, Fla., the firm has a substantial amount of business in its home state.
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