Q2 experiences organic growth not seen since 2014, new report details
All revenue lines saw 'significant growth' in Q2 2018.
Reagan Consulting has released the results of its quarterly Organic Growth and Profitability (OGP) survey of independent insurance agents and brokers. The study found that the industry’s organic growth for the first quarter (Q1) of 2018 was 5.6% and has risen to 6.1% through Q2.
Reagan analysts say organic growth for 2018 remains on target to reach levels not seen since 2014 when the insurance industry last saw two consecutive quarters of organic growth at or above 6.0%.
Study identifies significant growth in Q2
The study results show the top performer of 2018 continues to be group benefits, at 6.3% growth in Q2 2018. Commercial lines increased 5.2%, versus 3.9% in Q2 2017, and personal lines increased 4.6%, versus 2.3% in Q2 2017, representing “significantly high growth,” according to a statement from Kevin Stipe, president of Reagan Consulting.
In addition, the industry’s Sales Velocity so far this year is “slightly above historical levels,” said Stipe, adding that Sales Velocity “is among the most important drivers of organic growth.” Reagan figures show median Sales Velocity was 13.9% for the industry through Q2 2018.
Sales Velocity is a proprietary Reagan metric used to benchmark an agency’s new business results against other firms. It is expressed as a percentage and calculated by dividing a firm’s new business written in the current year by the prior year’s commissions and fees.
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Reagan Consulting uses a “Rule of 20″ score to benchmark trends in shareholder returns. It is calculated by adding half of an agency’s earnings before interest, taxes, depreciation and amortization (EBITDA) margin to its organic revenue growth rate. An outcome of 20 or higher means a firm likely is generating a shareholder return of about 15% to 17%, which is a typical return under normal market conditions.
For the Q2 report, Reagan analysts calculated a score of 17.8 for all reporting firms, up from 14.3 in 2017.
Despite evidence of growth across multiple categories, EBITDA margins dropped by almost 2 points, from 24.6% in Q2 2017 to 22.7% in Q2 2018. Stipe explained that the decrease appears to be related to contingent income.
Since contingent income is relatively flat year-over-year, profit margins are under pressure, according to Stipe. He added that year-to-date profitability numbers are inflated by cash-basis contingent income recorded during the first half of the year, so margins typically come down in the second half of the year.
For further information and commentary, contact Kevin Stipe of Reagan Consulting at kevin@ReaganConsulting.com.
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