Insurance Brokers (MMC, AON, AJG, WTW, BRO)

[EgonKuhn]

Thanks for banging the drum here! I follow your posts and this topic for years now always waiting for an entry point. Once you must put the foot in the door and for me it's time.

[dwy000]

2 hours ago, dealraker said:

Ramble here somewhat...

 

So I read the insurance broker analysts discourse from both Wells Fargo and Merrill Lynch as both in my view are are actually quite astute, particularly Wells where in my view years of "nailing it" has ensued.  Contrast that with some of the weakest understanding you can imagine, read Morningstar.  You might say, "Charlie, with your exprience...why would you do this?"  I do it because while I am constantly in and out of discussions of those in the business I am long out of the game and the age thing is also not an advantage point.

 

So I'd sold my decades long Progressive holdings at a good price to make sure I could participate at whatever level I wanted with a multi-family member commercial real estate venture.  Taxes payable sell, but for me the participation/relationship thing is reminiscent of why I post and participate here on COBF, the wife sums it up by saying, "Dear, please live in the present...old men taking past are not attractive and you know us younger types (Angela is younger than me) tend to...you know...walk the other way."

 

B of A or Merrill did this very long report on the brokers vs PGR, they've done a bunch lately, where they decided that hanging with Progressive would be somewhat better than hanging with the brokers, although staying with the brokers would yield quite fine outcomes.   In this report they basically said also, "Now that rates are weakening isn't it sure to come that a discussion of AI interruption something in their game will come to life?"  I pretty much thought this was a logical topic to discuss.

 

But to get to the point, Wells also had a very upbeat view - still - of Progressive.  But Wells has bailed on that positive (on price, they are fine with the business) PGR stock view, lowering their stock price view by about 20%.  The question I ask myself is simply "Do these analysts from both firms soon bail on the broker (stock prices) firms?  Do they lower their so-called "target" prices?

 

Again, you guys say, "What the hell Charlie, that's their bullshit of gotta do something at all times isn't it?"  In other words I'm sort of guessing we may get some really good prices on the brokers in the next year or so.  Of course this is if, and I do always wonder, if the businesses stay as robust as they now are.  Those good prices may be because the analysts do the waffle dance, that they lower their views.

 

The brokers are nothing but a grand operation perpetually undervalued because of their endless earnings gains.  I've been amazed that it hasn't been more successfully attacked!

 

Not proof reading this, just conversation.

 

Life is great...if you can stand it.

So what was the brokers' argument for AI making inroads or disrupting either direct insurance or the brokers?  I can see it being value added to the businesses and potentially cost reducing but I dont see where it could negatively impact the underlying business.  Insurers feel more volatile as capital comes into and out of the industry (and claims rise and fall - where's hurricane season this year??).  But brokers should be stable and growing either way with the impact more on merger multiples. 

[dealraker]

8 minutes ago, dwy000 said:

So what was the brokers' argument for AI making inroads or disrupting either direct insurance or the brokers?  I can see it being value added to the businesses and potentially cost reducing but I dont see where it could negatively impact the underlying business.  Insurers feel more volatile as capital comes into and out of the industry (and claims rise and fall - where's hurricane season this year??).  But brokers should be stable and growing either way with the impact more on merger multiples. 

I don't know what that argument is and it was not specified in the analyst reports I read.  It was simply brought up that this would probably come for "yet again" and whatnot.  So maybe this story has been around?  I'm not aware of it.

[dwy000]

8 minutes ago, dealraker said:

I don't know what that argument is and it was not specified in the analyst reports I read.  It was simply brought up that this would probably come for "yet again" and whatnot.  So maybe this story has been around?  I'm not aware of it.

In that case I think youre right and its just the brokers "having to do something".  I'm sure they see AI headlines and get questions so feel they have to have a view on its impact - and you cant just say it will be minimal even if that's your view, because then you will get accused of not understanding the issue. 

[dealraker]

13 minutes ago, dwy000 said:

In that case I think youre right and its just the brokers "having to do something".  I'm sure they see AI headlines and get questions so feel they have to have a view on its impact - and you cant just say it will be minimal even if that's your view, because then you will get accused of not understanding the issue. 

Yea nobody seems to have a clue, its just the thought that something ought to be in the works but never seems to be.

[tnathan]

1 hour ago, dealraker said:

Yea nobody seems to have a clue, its just the thought that something ought to be in the works but never seems to be.

AI will be really beneficial to brokers -- lots of headcount and process that can be moved towards an AI workflow. Not sure the brokers are really that forward thinking though so will take time. The less standard the policies that are being written, the less likely there is AI impact, IMO

[villainx]

11 hours ago, dealraker said:

I bought WTW again just under $300; AON in the $330 range;  RYAN at $51 or so; and BRO at $91-ish.  We will see, I'd expect to see those prices return a few times.  

 

I'd bought AJG for a family member's trust a couple years ago.

 

Is the idea that there's enough different segment and geography to have multiple winners, that total market is still very large and fragmented, and most of the big players don't necessarily compete but co-exist, occasionally bump into each others but have their specialty/markets?

 

 

[Spekulatius]

11 hours ago, dwy000 said:

In that case I think youre right and its just the brokers "having to do something".  I'm sure they see AI headlines and get questions so feel they have to have a view on its impact - and you cant just say it will be minimal even if that's your view, because then you will get accused of not understanding the issue. 

I guess you can just throw “AI kills this business” on the wall without much substance nowadays and then it’s on the business owners  / investors  to refute a claim. Which is hard to do because there is no substance in the thesis to begin with , so how do you even begin?

 

Its quite something.

Edited September 19, 2025 by Spekulatius

[Marco Van Basten]

1 hour ago, Spekulatius said:

I guess you can just throw “AI kills this business” on the wall without much substance nowadays and then it’s on the business owners  / investors  to refute a claim. Which is hard to do because there is no substance in the thesis to begin with , so how do you even begin?

 

Its quite something.

I actually think that AI may benefit quite a few businesses including this one by reducing costs.  

[villainx]

1 hour ago, villainx said:

Is the idea that there's enough different segment and geography to have multiple winners, that total market is still very large and fragmented, and most of the big players don't necessarily compete but co-exist, occasionally bump into each others but have their specialty/markets?

 

I guess the analogy that I'm thinking of is maybe like small/regional banks?  Even if banks are in same geographical area, they serve different clients/customers in different markets/services.

 

[Spekulatius]

15 minutes ago, Marco Van Basten said:

I actually think that AI may benefit quite a few businesses including this one by reducing costs.  

Yes, a lot of business can and will have to use AI, including brokerages. In my opinion, do own knowledge and custom data will the differentiator and large brokerages will have an edge over smaller ones if they are UT /AI savvy.

[longterminvestor]

dealraker....you have inspired my own rant.  here goes.

 

Insurance carriers collect premium in exchange for promises to pay at a later date, those claim debt promises may never come, or they can come large & lumpy, at a drip pace, or over a very long time depending on life of the risk, known as short tail (think property insurance or physical damage for autos where claims are paid within a 12-24 month period) or long tail business (think work comp or pollution that could take decades).  A typical Insurance company collects $100 of premium, runs costs at about $80 for things like Claims/Losses, Loss Adjustment Expense, and some other misc expenses/taxes.  Typical underwriting profit is about $5 on that $100.  That leaves a remaining $15 on the $100....where...does...that roughly $15 or 15% go?  The rake goes to BROKERS, the distribution system that feeds insurance companies mountains of wanted/needed risk to run their business.  And for the broker, ZERO balance sheet risk when an account is written vs. when an insurance company writes an account, the liability account grows on on balance sheet - called "float".  The difference between a poorly run/well run insurance company is partly judged on how well float is managed but I truly believe the difference maker is more on underwriting profitable business.  Return on float is a business, costless float or negative cost float is great/amazing business but the float can evaporate with bad underwriting.  

 

A poorly run insurance company wakes up every day saying "I need to collect money today to pay for claims made yesterday...and I need that premium so bad I will knowingly take poorly priced risk just to get back to even".  A poorly run insurance company is like a contractor who needs the deposit from a new job to pay off the job(s) they haven't finished.  A well run insurance company...well this crew knows what a well run insurance company looks like...dont need to go down that rabbit hole.

 

In comparison, a poorly run insurance brokerage doesn't have to do anything, the 15% just rolls in - "the renewal".  You wanna know what rocket fuel looks like in business?  Look at a well run insurance brokerage who grows organically year in/year out while being acquisitive.  It's...a...growth...machine.  Insurance company goes out of business, non-renews an account, or raises price/reduced coverage - opportunity for broker to to swoop in, strengthen relationship with buyer holding their hand saying "we will get you through this tough time, we will find you a new carrier, not to worry". Its like the cartoon cat with the feather sticking slightly out of his mouth.

 

Brokers take the $15, run at 35% operating profit and deliver $5.25 of real, take to the bank income while the insurance company, using the same $100 of premium, operate a daily tight rope walk exercise for $5.00 while sweating "the big one".  Someone tell me what the better business is, cause its clear to me insurance distribution is a darn good one relative to risk bearing.  and commissions as percentage of premium?  They have only grown over the past 10 years, boggles the mind actually that they have grown.  

 

Now, rocket fuel in risk bearing is Progressive (PRG) - but they are not a typical insurance company.  Mr. Market will tell you that, trading at 5X+ Book.  Progressive has  been leveraging AI before we even knew what AI was - ie "Telematics" and the "The Bunker" which is a huge data center Progressive has been running for years.  Hence the valuation.  Progressive was also one of the first insurance companies to "transition" from paying the 15% rake to agents and go direct.  Progressive successfully runs a blended agent placed/direct placed business model.  Pretty amazing actually how Progressive pulled that off.  Believe its mostly because Progressive agent force needs Progressive more than Progressive needs its agent force - typical Progressive agent is a small business (no scale, 1 store front, family run) and can not command market moves/bigger commission splits like big brokers do with other carriers - its just a different insurance business.  

 

AI and brokers.  AI will take care of tedious, small, VERY repetitive, clerical tasks for brokers which will free up time for customer service staff to be more client facing and actually give a better work environment.  Will also cut costs for brokers - time will tell how good AI can get - if it gets really good, brokers will be more profitable.  

 

Owning PRG vs Brokers.  Don't have an opinion, just know brokers will be fine over time and Progressive is a machine.  Will be fun to watch Progressive vs. GEICO, what a Formula 1 race to watch with no finish line because both are "forever businesses".  

 

Lastly, because we are all talking about what we are all buying.  I recently bought sized up my RYAN.  I also, finally, after staring at BRO for 11 years I bought a nice chunk.  (Previously owned BRO and sold to use proceeds as seed capital to start my business).  I own them because I understand the businesses extremely well and believe with some sense of certainty, both RYAN and BRO will be bigger businesses in 7-10 years. Will they be 50%, 100%, 200%+ larger? or only 25% larger...who knows...and thats the bet.  They will be larger, they have to be larger...BECAUSE INSURANCE COMPANIES NEED TO BE BIGGER IN 7-10 YEARS.  Forgetting shareholder return and capitalism.  We are talking about the economies/communities/cities/developments/businesses underpinned by insurance will be larger and new ones will start.  Homes, cars, businesses, city footprints, vessel counts, airplanes flying, workers working, healthcare costs tied to insurance premiums tied to broker commissions, ANYTHING AND EVERYTHING needs insurance because a bank requires insurance, a contract mandates insurance, and state/federal law requires insurance.  And the broker 15% rake is so ingrained in the distribution, its wild. 

 

The questions are: How can insurance companies get rid of brokers?  How long will that take for AI to rid brokers of the distribution? What will cause buyers of insurance to trust an incentivized insurance company selling insurance directly vs. an independent broker who specializes in representing the buyers interest in transaction who is compensated by the insurance companies using the buyers money(premium)?  What other business has that kind of value chain? genuinely curious...can not shake from mind either the memory was brokers did not do "as well".  During 2008-2009 when exposure unit drops compounded with soft insurance market pricing, the double whammy is a head wind to overcome for brokers.  Cant time anything like that, could happen anytime - no ones actually knows.  

 

If you think insurance companies are actively trying to figure out how to get brokers out of distribution.  I am sure they are but our friends at RYAN (and other wholesale only shops) have gotten insurance companies to brand themselves as "Wholesale Only" markets meaning they will never take the wholesaler out of the distribution chain cementing RYAN's (and others) place in a world of insurance and when you have wholesale only, there will need a retail facing broker to represent the buyers interest in the transaction. 

 

Beyond 7-10-15 years, picture becomes less certain due to tech and other AI powered solutions, but certain enough for my money today.  and if the brokers drop another 25% near term, I have dry powder ready.  Cheers.

 

 

[dealraker]

9 hours ago, Spekulatius said:

I guess you can just throw “AI kills this business” on the wall without much substance nowadays and then it’s on the business owners  / investors  to refute a claim. Which is hard to do because there is no substance in the thesis to begin with , so how do you even begin?

 

Its quite something.

Sounds good to me Ralf!

[73 Reds]

6 hours ago, longterminvestor said:

dealraker....you have inspired my own rant.  here goes.

 

Insurance carriers collect premium in exchange for promises to pay at a later date, those claim debt promises may never come, or they can come large & lumpy, at a drip pace, or over a very long time depending on life of the risk, known as short tail (think property insurance or physical damage for autos where claims are paid within a 12-24 month period) or long tail business (think work comp or pollution that could take decades).  A typical Insurance company collects $100 of premium, runs costs at about $80 for things like Claims/Losses, Loss Adjustment Expense, and some other misc expenses/taxes.  Typical underwriting profit is about $5 on that $100.  That leaves a remaining $15 on the $100....where...does...that roughly $15 or 15% go?  The rake goes to BROKERS, the distribution system that feeds insurance companies mountains of wanted/needed risk to run their business.  And for the broker, ZERO balance sheet risk when an account is written vs. when an insurance company writes an account, the liability account grows on on balance sheet - called "float".  The difference between a poorly run/well run insurance company is partly judged on how well float is managed but I truly believe the difference maker is more on underwriting profitable business.  Return on float is a business, costless float or negative cost float is great/amazing business but the float can evaporate with bad underwriting.  

 

A poorly run insurance company wakes up every day saying "I need to collect money today to pay for claims made yesterday...and I need that premium so bad I will knowingly take poorly priced risk just to get back to even".  A poorly run insurance company is like a contractor who needs the deposit from a new job to pay off the job(s) they haven't finished.  A well run insurance company...well this crew knows what a well run insurance company looks like...dont need to go down that rabbit hole.

 

In comparison, a poorly run insurance brokerage doesn't have to do anything, the 15% just rolls in - "the renewal".  You wanna know what rocket fuel looks like in business?  Look at a well run insurance brokerage who grows organically year in/year out while being acquisitive.  It's...a...growth...machine.  Insurance company goes out of business, non-renews an account, or raises price/reduced coverage - opportunity for broker to to swoop in, strengthen relationship with buyer holding their hand saying "we will get you through this tough time, we will find you a new carrier, not to worry". Its like the cartoon cat with the feather sticking slightly out of his mouth.

 

Brokers take the $15, run at 35% operating profit and deliver $5.25 of real, take to the bank income while the insurance company, using the same $100 of premium, operate a daily tight rope walk exercise for $5.00 while sweating "the big one".  Someone tell me what the better business is, cause its clear to me insurance distribution is a darn good one relative to risk bearing.  and commissions as percentage of premium?  They have only grown over the past 10 years, boggles the mind actually that they have grown.  

 

Now, rocket fuel in risk bearing is Progressive (PRG) - but they are not a typical insurance company.  Mr. Market will tell you that, trading at 5X+ Book.  Progressive has  been leveraging AI before we even knew what AI was - ie "Telematics" and the "The Bunker" which is a huge data center Progressive has been running for years.  Hence the valuation.  Progressive was also one of the first insurance companies to "transition" from paying the 15% rake to agents and go direct.  Progressive successfully runs a blended agent placed/direct placed business model.  Pretty amazing actually how Progressive pulled that off.  Believe its mostly because Progressive agent force needs Progressive more than Progressive needs its agent force - typical Progressive agent is a small business (no scale, 1 store front, family run) and can not command market moves/bigger commission splits like big brokers do with other carriers - its just a different insurance business.  

 

AI and brokers.  AI will take care of tedious, small, VERY repetitive, clerical tasks for brokers which will free up time for customer service staff to be more client facing and actually give a better work environment.  Will also cut costs for brokers - time will tell how good AI can get - if it gets really good, brokers will be more profitable.  

 

Owning PRG vs Brokers.  Don't have an opinion, just know brokers will be fine over time and Progressive is a machine.  Will be fun to watch Progressive vs. GEICO, what a Formula 1 race to watch with no finish line because both are "forever businesses".  

 

Lastly, because we are all talking about what we are all buying.  I recently bought sized up my RYAN.  I also, finally, after staring at BRO for 11 years I bought a nice chunk.  (Previously owned BRO and sold to use proceeds as seed capital to start my business).  I own them because I understand the businesses extremely well and believe with some sense of certainty, both RYAN and BRO will be bigger businesses in 7-10 years. Will they be 50%, 100%, 200%+ larger? or only 25% larger...who knows...and thats the bet.  They will be larger, they have to be larger...BECAUSE INSURANCE COMPANIES NEED TO BE BIGGER IN 7-10 YEARS.  Forgetting shareholder return and capitalism.  We are talking about the economies/communities/cities/developments/businesses underpinned by insurance will be larger and new ones will start.  Homes, cars, businesses, city footprints, vessel counts, airplanes flying, workers working, healthcare costs tied to insurance premiums tied to broker commissions, ANYTHING AND EVERYTHING needs insurance because a bank requires insurance, a contract mandates insurance, and state/federal law requires insurance.  And the broker 15% rake is so ingrained in the distribution, its wild. 

 

The questions are: How can insurance companies get rid of brokers?  How long will that take for AI to rid brokers of the distribution? What will cause buyers of insurance to trust an incentivized insurance company selling insurance directly vs. an independent broker who specializes in representing the buyers interest in transaction who is compensated by the insurance companies using the buyers money(premium)?  What other business has that kind of value chain? genuinely curious...can not shake from mind either the memory was brokers did not do "as well".  During 2008-2009 when exposure unit drops compounded with soft insurance market pricing, the double whammy is a head wind to overcome for brokers.  Cant time anything like that, could happen anytime - no ones actually knows.  

 

If you think insurance companies are actively trying to figure out how to get brokers out of distribution.  I am sure they are but our friends at RYAN (and other wholesale only shops) have gotten insurance companies to brand themselves as "Wholesale Only" markets meaning they will never take the wholesaler out of the distribution chain cementing RYAN's (and others) place in a world of insurance and when you have wholesale only, there will need a retail facing broker to represent the buyers interest in the transaction. 

 

Beyond 7-10-15 years, picture becomes less certain due to tech and other AI powered solutions, but certain enough for my money today.  and if the brokers drop another 25% near term, I have dry powder ready.  Cheers.

 

 

Interesting post.  I've often wondered why insurance companies really need brokers.  In other industries brokers are becoming less relevant and their profits are diminishing.   

[villainx]

54 minutes ago, 73 Reds said:

Interesting post.  I've often wondered why insurance companies really need brokers.  In other industries brokers are becoming less relevant and their profits are diminishing.   

 

From experience, insurance companies drop or increase premium seemingly arbitrarily.  Businesses and RE owners have to shop insurance even if they don't want to.  

 

 

[dealraker]

7 hours ago, longterminvestor said:

dealraker....you have inspired my own rant.  here goes.

 

Insurance carriers collect premium in exchange for promises to pay at a later date, those claim debt promises may never come, or they can come large & lumpy, at a drip pace, or over a very long time depending on life of the risk, known as short tail (think property insurance or physical damage for autos where claims are paid within a 12-24 month period) or long tail business (think work comp or pollution that could take decades).  A typical Insurance company collects $100 of premium, runs costs at about $80 for things like Claims/Losses, Loss Adjustment Expense, and some other misc expenses/taxes.  Typical underwriting profit is about $5 on that $100.  That leaves a remaining $15 on the $100....where...does...that roughly $15 or 15% go?  The rake goes to BROKERS, the distribution system that feeds insurance companies mountains of wanted/needed risk to run their business.  And for the broker, ZERO balance sheet risk when an account is written vs. when an insurance company writes an account, the liability account grows on on balance sheet - called "float".  The difference between a poorly run/well run insurance company is partly judged on how well float is managed but I truly believe the difference maker is more on underwriting profitable business.  Return on float is a business, costless float or negative cost float is great/amazing business but the float can evaporate with bad underwriting.  

 

A poorly run insurance company wakes up every day saying "I need to collect money today to pay for claims made yesterday...and I need that premium so bad I will knowingly take poorly priced risk just to get back to even".  A poorly run insurance company is like a contractor who needs the deposit from a new job to pay off the job(s) they haven't finished.  A well run insurance company...well this crew knows what a well run insurance company looks like...dont need to go down that rabbit hole.

 

In comparison, a poorly run insurance brokerage doesn't have to do anything, the 15% just rolls in - "the renewal".  You wanna know what rocket fuel looks like in business?  Look at a well run insurance brokerage who grows organically year in/year out while being acquisitive.  It's...a...growth...machine.  Insurance company goes out of business, non-renews an account, or raises price/reduced coverage - opportunity for broker to to swoop in, strengthen relationship with buyer holding their hand saying "we will get you through this tough time, we will find you a new carrier, not to worry". Its like the cartoon cat with the feather sticking slightly out of his mouth.

 

Brokers take the $15, run at 35% operating profit and deliver $5.25 of real, take to the bank income while the insurance company, using the same $100 of premium, operate a daily tight rope walk exercise for $5.00 while sweating "the big one".  Someone tell me what the better business is, cause its clear to me insurance distribution is a darn good one relative to risk bearing.  and commissions as percentage of premium?  They have only grown over the past 10 years, boggles the mind actually that they have grown.  

 

Now, rocket fuel in risk bearing is Progressive (PRG) - but they are not a typical insurance company.  Mr. Market will tell you that, trading at 5X+ Book.  Progressive has  been leveraging AI before we even knew what AI was - ie "Telematics" and the "The Bunker" which is a huge data center Progressive has been running for years.  Hence the valuation.  Progressive was also one of the first insurance companies to "transition" from paying the 15% rake to agents and go direct.  Progressive successfully runs a blended agent placed/direct placed business model.  Pretty amazing actually how Progressive pulled that off.  Believe its mostly because Progressive agent force needs Progressive more than Progressive needs its agent force - typical Progressive agent is a small business (no scale, 1 store front, family run) and can not command market moves/bigger commission splits like big brokers do with other carriers - its just a different insurance business.  

 

AI and brokers.  AI will take care of tedious, small, VERY repetitive, clerical tasks for brokers which will free up time for customer service staff to be more client facing and actually give a better work environment.  Will also cut costs for brokers - time will tell how good AI can get - if it gets really good, brokers will be more profitable.  

 

Owning PRG vs Brokers.  Don't have an opinion, just know brokers will be fine over time and Progressive is a machine.  Will be fun to watch Progressive vs. GEICO, what a Formula 1 race to watch with no finish line because both are "forever businesses".  

 

Lastly, because we are all talking about what we are all buying.  I recently bought sized up my RYAN.  I also, finally, after staring at BRO for 11 years I bought a nice chunk.  (Previously owned BRO and sold to use proceeds as seed capital to start my business).  I own them because I understand the businesses extremely well and believe with some sense of certainty, both RYAN and BRO will be bigger businesses in 7-10 years. Will they be 50%, 100%, 200%+ larger? or only 25% larger...who knows...and thats the bet.  They will be larger, they have to be larger...BECAUSE INSURANCE COMPANIES NEED TO BE BIGGER IN 7-10 YEARS.  Forgetting shareholder return and capitalism.  We are talking about the economies/communities/cities/developments/businesses underpinned by insurance will be larger and new ones will start.  Homes, cars, businesses, city footprints, vessel counts, airplanes flying, workers working, healthcare costs tied to insurance premiums tied to broker commissions, ANYTHING AND EVERYTHING needs insurance because a bank requires insurance, a contract mandates insurance, and state/federal law requires insurance.  And the broker 15% rake is so ingrained in the distribution, its wild. 

 

The questions are: How can insurance companies get rid of brokers?  How long will that take for AI to rid brokers of the distribution? What will cause buyers of insurance to trust an incentivized insurance company selling insurance directly vs. an independent broker who specializes in representing the buyers interest in transaction who is compensated by the insurance companies using the buyers money(premium)?  What other business has that kind of value chain? genuinely curious...can not shake from mind either the memory was brokers did not do "as well".  During 2008-2009 when exposure unit drops compounded with soft insurance market pricing, the double whammy is a head wind to overcome for brokers.  Cant time anything like that, could happen anytime - no ones actually knows.  

 

If you think insurance companies are actively trying to figure out how to get brokers out of distribution.  I am sure they are but our friends at RYAN (and other wholesale only shops) have gotten insurance companies to brand themselves as "Wholesale Only" markets meaning they will never take the wholesaler out of the distribution chain cementing RYAN's (and others) place in a world of insurance and when you have wholesale only, there will need a retail facing broker to represent the buyers interest in the transaction. 

 

Beyond 7-10-15 years, picture becomes less certain due to tech and other AI powered solutions, but certain enough for my money today.  and if the brokers drop another 25% near term, I have dry powder ready.  Cheers.

 

 

Clarification in writing, concisely style, is your talent longterminvestor!  

 

I have 62,500 shares of AIG with a basis of $500k from 1994.  My dividends are about $140k a year I think.

I only invested $8,000 originally in BRO and MMC, but the original BRO is worth right at 1 mil - and I have added now several times.

I've owned AON for about 30 years, again a small outlay with a big outcome, but of course nothing like BRO.  

 

In 1996 or so my brother-in-law and cousin (there was an adoption so...) asked me to manage part of his retirement account, he isn't poor, it was $800,000.  I told him, not being very serious, to put it all in Poe and Brown (which he did) and not to mention me charging him fees ever again.  Of course he loves me dearly today.  He is one of the main owners of the builders supply and millwork business that I am a a partial owner of and we invest in commercial land together.

 

I invested HEAVILY in Hub, Prem Watsa's broker (Fairfax's partially owned broker)...within 2 years I was forced out with a 5 bagger.  "Heavily" back then was about $70k but all the stocks and profits I have today stemming from that opportunity is many-many multiples of the sell proceeds less taxes. It was literally a life changing event to buy into an insurance broker at 10x earnings growing at over 15% a year.

 

In one of John Train's early books he quotes Buffett: "We should have gone into the insurance broker business as it is better than underwriting."

 

I vote "HOLD em and buy more."  Look out below!  LOL.  Now own WTW for about 2 years with a 60% profit and I've got some RYAN and it is good to read your view of RYAN.

 

Have a good day.

 

 

[Castanza]

8 hours ago, longterminvestor said:

dealraker....you have inspired my own rant.  here goes.

 

Insurance carriers collect premium in exchange for promises to pay at a later date, those claim debt promises may never come, or they can come large & lumpy, at a drip pace, or over a very long time depending on life of the risk, known as short tail (think property insurance or physical damage for autos where claims are paid within a 12-24 month period) or long tail business (think work comp or pollution that could take decades).  A typical Insurance company collects $100 of premium, runs costs at about $80 for things like Claims/Losses, Loss Adjustment Expense, and some other misc expenses/taxes.  Typical underwriting profit is about $5 on that $100.  That leaves a remaining $15 on the $100....where...does...that roughly $15 or 15% go?  The rake goes to BROKERS, the distribution system that feeds insurance companies mountains of wanted/needed risk to run their business.  And for the broker, ZERO balance sheet risk when an account is written vs. when an insurance company writes an account, the liability account grows on on balance sheet - called "float".  The difference between a poorly run/well run insurance company is partly judged on how well float is managed but I truly believe the difference maker is more on underwriting profitable business.  Return on float is a business, costless float or negative cost float is great/amazing business but the float can evaporate with bad underwriting.  

 

A poorly run insurance company wakes up every day saying "I need to collect money today to pay for claims made yesterday...and I need that premium so bad I will knowingly take poorly priced risk just to get back to even".  A poorly run insurance company is like a contractor who needs the deposit from a new job to pay off the job(s) they haven't finished.  A well run insurance company...well this crew knows what a well run insurance company looks like...dont need to go down that rabbit hole.

 

In comparison, a poorly run insurance brokerage doesn't have to do anything, the 15% just rolls in - "the renewal".  You wanna know what rocket fuel looks like in business?  Look at a well run insurance brokerage who grows organically year in/year out while being acquisitive.  It's...a...growth...machine.  Insurance company goes out of business, non-renews an account, or raises price/reduced coverage - opportunity for broker to to swoop in, strengthen relationship with buyer holding their hand saying "we will get you through this tough time, we will find you a new carrier, not to worry". Its like the cartoon cat with the feather sticking slightly out of his mouth.

 

Brokers take the $15, run at 35% operating profit and deliver $5.25 of real, take to the bank income while the insurance company, using the same $100 of premium, operate a daily tight rope walk exercise for $5.00 while sweating "the big one".  Someone tell me what the better business is, cause its clear to me insurance distribution is a darn good one relative to risk bearing.  and commissions as percentage of premium?  They have only grown over the past 10 years, boggles the mind actually that they have grown.  

 

Now, rocket fuel in risk bearing is Progressive (PRG) - but they are not a typical insurance company.  Mr. Market will tell you that, trading at 5X+ Book.  Progressive has  been leveraging AI before we even knew what AI was - ie "Telematics" and the "The Bunker" which is a huge data center Progressive has been running for years.  Hence the valuation.  Progressive was also one of the first insurance companies to "transition" from paying the 15% rake to agents and go direct.  Progressive successfully runs a blended agent placed/direct placed business model.  Pretty amazing actually how Progressive pulled that off.  Believe its mostly because Progressive agent force needs Progressive more than Progressive needs its agent force - typical Progressive agent is a small business (no scale, 1 store front, family run) and can not command market moves/bigger commission splits like big brokers do with other carriers - its just a different insurance business.  

 

AI and brokers.  AI will take care of tedious, small, VERY repetitive, clerical tasks for brokers which will free up time for customer service staff to be more client facing and actually give a better work environment.  Will also cut costs for brokers - time will tell how good AI can get - if it gets really good, brokers will be more profitable.  

 

Owning PRG vs Brokers.  Don't have an opinion, just know brokers will be fine over time and Progressive is a machine.  Will be fun to watch Progressive vs. GEICO, what a Formula 1 race to watch with no finish line because both are "forever businesses".  

 

Lastly, because we are all talking about what we are all buying.  I recently bought sized up my RYAN.  I also, finally, after staring at BRO for 11 years I bought a nice chunk.  (Previously owned BRO and sold to use proceeds as seed capital to start my business).  I own them because I understand the businesses extremely well and believe with some sense of certainty, both RYAN and BRO will be bigger businesses in 7-10 years. Will they be 50%, 100%, 200%+ larger? or only 25% larger...who knows...and thats the bet.  They will be larger, they have to be larger...BECAUSE INSURANCE COMPANIES NEED TO BE BIGGER IN 7-10 YEARS.  Forgetting shareholder return and capitalism.  We are talking about the economies/communities/cities/developments/businesses underpinned by insurance will be larger and new ones will start.  Homes, cars, businesses, city footprints, vessel counts, airplanes flying, workers working, healthcare costs tied to insurance premiums tied to broker commissions, ANYTHING AND EVERYTHING needs insurance because a bank requires insurance, a contract mandates insurance, and state/federal law requires insurance.  And the broker 15% rake is so ingrained in the distribution, its wild. 

 

The questions are: How can insurance companies get rid of brokers?  How long will that take for AI to rid brokers of the distribution? What will cause buyers of insurance to trust an incentivized insurance company selling insurance directly vs. an independent broker who specializes in representing the buyers interest in transaction who is compensated by the insurance companies using the buyers money(premium)?  What other business has that kind of value chain? genuinely curious...can not shake from mind either the memory was brokers did not do "as well".  During 2008-2009 when exposure unit drops compounded with soft insurance market pricing, the double whammy is a head wind to overcome for brokers.  Cant time anything like that, could happen anytime - no ones actually knows.  

 

If you think insurance companies are actively trying to figure out how to get brokers out of distribution.  I am sure they are but our friends at RYAN (and other wholesale only shops) have gotten insurance companies to brand themselves as "Wholesale Only" markets meaning they will never take the wholesaler out of the distribution chain cementing RYAN's (and others) place in a world of insurance and when you have wholesale only, there will need a retail facing broker to represent the buyers interest in the transaction. 

 

Beyond 7-10-15 years, picture becomes less certain due to tech and other AI powered solutions, but certain enough for my money today.  and if the brokers drop another 25% near term, I have dry powder ready.  Cheers.

 

 

 

Thank you for sharing your thoughts and insights

[buylowersellhigh]

On 9/15/2025 at 2:02 PM, Spekulatius said:

RYAN looks interesting but I don’t like the LP/ tax receivable structure.

 

Bought a few more $BRO shares instead today.

Spek, Do you know tax implications of this LP/Tax Receivable structure?  Does it make sense in a US tax deferred account?

[lnofeisone]

21 minutes ago, buylowersellhigh said:

Spek, Do you know tax implications of this LP/Tax Receivable structure?  Does it make sense in a US tax deferred account?

What they have is called an Up-C (umbrella partnership) structure. You buying common in tax deferred or standard account will not be impacted. What will matter is what happens to the LP holders and their tax receivable agreements (TRAs). It basically puts RYAN on the hook to pay the LP holders 85% of RYAN's tax savings. Great for LP holders, not so great for common holders until RYAN exchanges all the LP shares for common. 

[Junior R]

3 hours ago, dealraker said:

Clarification in writing, concisely style, is your talent longterminvestor!  

 

I have 62,500 shares of AIG with a basis of $500k from 1994.  My dividends are about $140k a year I think.

I only invested $8,000 originally in BRO and MMC, but the original BRO is worth right at 1 mil - and I have added now several times.

I've owned AON for about 30 years, again a small outlay with a big outcome, but of course nothing like BRO.  

 

In 1996 or so my brother-in-law and cousin (there was an adoption so...) asked me to manage part of his retirement account, he isn't poor, it was $800,000.  I told him, not being very serious, to put it all in Poe and Brown (which he did) and not to mention me charging him fees ever again.  Of course he loves me dearly today.  He is one of the main owners of the builders supply and millwork business that I am a a partial owner of and we invest in commercial land together.

 

I invested HEAVILY in Hub, Prem Watsa's broker (Fairfax's partially owned broker)...within 2 years I was forced out with a 5 bagger.  "Heavily" back then was about $70k but all the stocks and profits I have today stemming from that opportunity is many-many multiples of the sell proceeds less taxes. It was literally a life changing event to buy into an insurance broker at 10x earnings growing at over 15% a year.

 

In one of John Train's early books he quotes Buffett: "We should have gone into the insurance broker business as it is better than underwriting."

 

I vote "HOLD em and buy more."  Look out below!  LOL.  Now own WTW for about 2 years with a 60% profit and I've got some RYAN and it is good to read your view of RYAN.

 

Have a good day.

 

 

Nice ... Please keep us posted on your next big banger lol...but those divs are really good

[buylowersellhigh]

1 hour ago, lnofeisone said:

What they have is called an Up-C (umbrella partnership) structure. You buying common in tax deferred or standard account will not be impacted. What will matter is what happens to the LP holders and their tax receivable agreements (TRAs). It basically puts RYAN on the hook to pay the LP holders 85% of RYAN's tax savings. Great for LP holders, not so great for common holders until RYAN exchanges all the LP shares for common. 

Thanks.  This is helpful.  So could be dilution from this in the future.  I guess what will cause LP holders to redeem?  Or maybe there is a timeframe for this?  Thanks.

[lnofeisone]

23 minutes ago, buylowersellhigh said:

Thanks.  This is helpful.  So could be dilution from this in the future.  I guess what will cause LP holders to redeem?  Or maybe there is a timeframe for this?  Thanks.

Standard language usually includes 15 years for TRAs. RYAN has something like $450M of TRA, which is on the BS but worth keeping an eye on + whatever shares LPs will exchange. 

[longterminvestor]

 

The GOAT, Mr. Warren Buffett himself, is saying to grow GEICO, we can not do it ourselves.  We, GEICO, can afford to pay the broker rake.  So after 85 years of  fiercely advocating the selling/servicing insurance using our own employee force, "direct channel", GEICO is waiving the white flag and turning to the insurance brokerage distribution channel with a mega phone.

 

Watch the video.  It is a plead to insurance brokers.  This is an insurance company we all know - this is not "Shifting Sands Mutual".  This is GEICO saying "Mr. Broker, sir, we respect your specialized support, customers turn to you for expertise, customers depend on you, you can depend on us, we promise to be your true partner, we want your business".  Notice the positioning.  GEICO respects the business is owned by the broker and the broker can move it to who ever and where ever they want. 

 

There is another side to this coin...the dark/hard market...what Mr. Ajit Jain and Mr. Buffett really love, when the insurance companies set the rules/price.  Think toughest risk imaginable, asbestos, hurricanes, wild fire, those are the markets where the biggest ego brokers are rolling around on the ground begging to get someone to write it.  Those markets exist and will happen in future...brokers still win because the premiums are larger and broker comp is tied to premium...inflation protected.  

 

come on......is this evidence insurance companies need brokers?  I don't know what could be more of a smoking gun. 

 

 

Edited September 19, 2025 by longterminvestor

[Spekulatius]

7 hours ago, buylowersellhigh said:

Spek, Do you know tax implications of this LP/Tax Receivable structure?  Does it make sense in a US tax deferred account?

I think it disadvantages the holders of shares relative to the holders of LP units. The LP unit holders have pass through tax treatment and all the advantages that holders of shares have (since they can convert units into shares).

Other folks have better option on the tax implications. It just seems to me just looking at the income statements that holder of shares are getting a raw deal here.

[dwy000]

4 minutes ago, Spekulatius said:

I think it disadvantages the holders of shares relative to the holders of LP units. The LP unit holders have pass through tax treatment and all the advantages that holders of shares have (since they can convert units into shares).

Other folks have better option on the tax implications. It just seems to me just looking at the income statements that holder of shares are getting a raw deal here.

I always took that to be the case or otherwise you wouldnt need the bifurcation. If shares are better or the same as LP units (and theyre convertible), cleaning up the cap structure benefits everybody.  So the LP holders must have tax benefits from being invested in an LP instead of stock.  This is the same structure, I believe, as Baldwin too.

Edited September 20, 2025 by dwy000