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

[rogermunibond]

FT on the very soft insurance market

 

 

https://giftarticle.ft.com/giftarticle/actions/redeem/ec8c2ca1-1026-43cc-b91b-bbffcba72dd8

Edited Tuesday at 06:03 PM by rogermunibond

[longterminvestor]

Maybe this will help folks understand of hard/soft market cycles.  Insurance market "hard vs soft" is identical to stock market "bull vs bear". Bull Market = Soft Market attitudes, Bear Market = Hard Market attitudes. 

 

In a Soft market, underwriters lose their minds, make irrational decisions with regards to fundamentals, no fear - everything is rosy, care free, underwriters say "YES" alot and "everyone is making money" attitude persists. In a soft market, the old school underwriters say "this can not go on forever" and the new guys say "you guys are dinosaurs, we are killing it".....until the roof falls in...or doesn't...thats the bet.  Soft market means terms conditions get sweeter and price goes down = bad equation for insurance companies.  and brokers have a field day because they are getting BETTER market execution for their clients albeit commission revenue does compress HOWEVER good brokers can sell more product into a soft market cycle.  In a soft market, as a broker you just send an underwriter a competitor quote and say "youre gonna let this other idiot make all the money?" BOOM, they match or beat the price and in many cases they will increase the commission to sell their deal.  Brokers really don't do a good job in soft markets for their clients because price alone is what the clients care about but a good broker can enhance the terms and conditions to the paper contract in a soft market with ease.  

 

A Hard market on the other hand, underwriters set the price, terms, conditions cause they know they are winning.  Imagine being an underwriter for financial D&O for banks in 2007.  You could put out quotes with a bankruptcy exclusion for a bank in a D&O policy and win!  That defines what underwriters CAN DO in a hard market.  Hard market you can put a roof exclusion on a property policy and client will still buy it.  NUTZ right?  Buyers/Brokers loose their minds in a hard market because things get tough, every underwriter says no.  Gotta stick with your partners through the cycles.  Its an amazing game.

 

Mr. Buffett wins in a hard market.  because he knows the risk is the same, its just he can charge more in a hard market.  Think of it this way, does the hurricane know its a hard market when its coming to Florida or Texas?  The hurricane doesn't care!  It's coming (or not coming) just the same.  The odds are the same either way, its the capacity being put into the market that drives drive up or down, hard or soft.  

 

Its just like stocks, the market doesn't know what you paid for the stock as much as you stare at it and fondle it, the price of the equity will go where it goes based on fear and greed or fundamentals of a good/great business.  Just like the insurance cycles hard vs. soft.  A good risk is a good risk whether its a hard or soft market, good risks just get better execution.  

 

ALL stock brokers look like kings in a bull market, just like insurance brokers look like kings in a soft market.  The inverse its true as well for bear market/hard market.  Dumb money shows up in a soft market.  Smart money waits for the hard market.  They very much rhyme.   

Edited Wednesday at 06:59 PM by longterminvestor

[Libs]

1 hour ago, longterminvestor said:

Maybe this will help folks understand of hard/soft market cycles.  Insurance market "hard vs soft" is identical to stock market "bull vs bear". Bull Market = Soft Market attitudes, Bear Market = Hard Market attitudes. 

 

In a Soft market, underwriters lose their minds, make irrational decisions with regards to fundamentals, no fear - everything is rosy, care free, underwriters say "YES" alot and "everyone is making money" attitude persists. In a soft market, the old school underwriters say "this can not go on forever" and the new guys say "you guys are dinosaurs, we are killing it".....until the roof falls in...or doesn't...thats the bet.  Soft market means terms conditions get sweeter and price goes down = bad equation for insurance companies.  and brokers have a field day because they are getting BETTER market execution for their clients albeit commission revenue does compress HOWEVER good brokers can sell more product into a soft market cycle.  In a soft market, as a broker you just send an underwriter a competitor quote and say "youre gonna let this other idiot make all the money?" BOOM, they match or beat the price and in many cases they will increase the commission to sell their deal.  Brokers really don't do a good job in soft markets for their clients because price alone is what the clients care about but a good broker can enhance the terms and conditions to the paper contract in a soft market with ease.  

 

A Hard market on the other hand, underwriters set the price, terms, conditions cause they know they are winning.  Imagine being an underwriter for financial D&O for banks in 2007.  You could put out quotes with a bankruptcy exclusion for a bank in a D&O policy and win!  That defines what underwriters CAN DO in a hard market.  Hard market you can put a roof exclusion on a property policy and client will still buy it.  NUTZ right?  Buyers/Brokers loose their minds in a hard market because things get tough, every underwriter says no.  Gotta stick with your partners through the cycles.  Its an amazing game.

 

Mr. Buffett wins in a hard market.  because he knows the risk is the same, its just he can charge more in a hard market.  Think of it this way, does the hurricane know its a hard market when its coming to Florida or Texas?  The hurricane doesn't care!  It's coming (or not coming) just the same.  The odds are the same either way, its the capacity being put into the market that drives drive up or down, hard or soft.  

 

Its just like stocks, the market doesn't know what you paid for the stock as much as you stare at it and fondle it, the price of the equity will go where it goes based on fear and greed or fundamentals of a good/great business.  Just like the insurance cycles hard vs. soft.  A good risk is a good risk whether its a hard or soft market, good risks just get better execution.  

 

ALL stock brokers look like kings in a bull market, just like insurance brokers look like kings in a soft market.  The inverse its true as well for bear market/hard market.  Dumb money shows up in a soft market.  Smart money waits for the hard market.  They very much rhyme.   

 

 

Great post. I've lived in both worlds- work for Chubb from '85-99, then as an FA from '99- now. There are definitely parallels.

[gfp]

Unusual trading in the final half hour today in Baldwin Insurance Group - BWIN

 

Either a short squeeze or someone heard a rumor (I guess it could be both things simultaneously) 

[adventurer]

On 6/17/2026 at 8:58 PM, longterminvestor said:

Maybe this will help folks understand of hard/soft market cycles.  Insurance market "hard vs soft" is identical to stock market "bull vs bear". Bull Market = Soft Market attitudes, Bear Market = Hard Market attitudes. 

 

In a Soft market, underwriters lose their minds, make irrational decisions with regards to fundamentals, no fear - everything is rosy, care free, underwriters say "YES" alot and "everyone is making money" attitude persists. In a soft market, the old school underwriters say "this can not go on forever" and the new guys say "you guys are dinosaurs, we are killing it".....until the roof falls in...or doesn't...thats the bet.  Soft market means terms conditions get sweeter and price goes down = bad equation for insurance companies.  and brokers have a field day because they are getting BETTER market execution for their clients albeit commission revenue does compress HOWEVER good brokers can sell more product into a soft market cycle.  In a soft market, as a broker you just send an underwriter a competitor quote and say "youre gonna let this other idiot make all the money?" BOOM, they match or beat the price and in many cases they will increase the commission to sell their deal.  Brokers really don't do a good job in soft markets for their clients because price alone is what the clients care about but a good broker can enhance the terms and conditions to the paper contract in a soft market with ease.  

 

A Hard market on the other hand, underwriters set the price, terms, conditions cause they know they are winning.  Imagine being an underwriter for financial D&O for banks in 2007.  You could put out quotes with a bankruptcy exclusion for a bank in a D&O policy and win!  That defines what underwriters CAN DO in a hard market.  Hard market you can put a roof exclusion on a property policy and client will still buy it.  NUTZ right?  Buyers/Brokers loose their minds in a hard market because things get tough, every underwriter says no.  Gotta stick with your partners through the cycles.  Its an amazing game.

 

Mr. Buffett wins in a hard market.  because he knows the risk is the same, its just he can charge more in a hard market.  Think of it this way, does the hurricane know its a hard market when its coming to Florida or Texas?  The hurricane doesn't care!  It's coming (or not coming) just the same.  The odds are the same either way, its the capacity being put into the market that drives drive up or down, hard or soft.  

 

Its just like stocks, the market doesn't know what you paid for the stock as much as you stare at it and fondle it, the price of the equity will go where it goes based on fear and greed or fundamentals of a good/great business.  Just like the insurance cycles hard vs. soft.  A good risk is a good risk whether its a hard or soft market, good risks just get better execution.  

 

ALL stock brokers look like kings in a bull market, just like insurance brokers look like kings in a soft market.  The inverse its true as well for bear market/hard market.  Dumb money shows up in a soft market.  Smart money waits for the hard market.  They very much rhyme.   

Thank you.

 

1. In that case insurance brokers may prove to be a decent investment during hard markets (low stock price due to lower earnings) assuming the cycle will reverse at some point in time, correct? As a simplified approach.  

 

2. Are insurance brokers antagonistic towards insurance companies in general? Also a simplified thought: could you consider insurance brokers as a hedge against an exposure in insurance companies? 

Edited 4 hours ago by adventurer

[dealraker]

Rapid rate increases, long length of time rate increases, and expanding broker stock PE multiples - while the "how long" isn't known...these guarantee other side-of-the-mountain outcomes.  Wasn't intrinsic value actually being pressured downwards by sure-to-be-reversed or stagnated rate escalation - unsustainable rate increases?  When the stock price of AJG for instance was getting higher and higher PE multiples...wasn't the future obvious - but timeline unknown?

 

Stock prices

Intrinsic value growth

Rate cycle

 

I think the three above move separately, not in unison.  Isn't the best time to invest in times of violent rate decline times, when stock prices have been clobbered?  It seems to me the progress of the business is much more steady than rates or stock prices.  The business is emotionally stable; rates are "party late" and "sleep in" by nature; and stock prices are clearly manic depressive. 

 

Time of change for the three?  Somewhat unknown, but the past is likely to give guidance.

 

We also have AI affecting likely all three of the above, or at least it eventually will.  I label this 100% unknown as to its affect.

[longterminvestor]

16 hours ago, gfp said:

Unusual trading in the final half hour today in Baldwin Insurance Group - BWIN

 

Either a short squeeze or someone heard a rumor (I guess it could be both things simultaneously) 

article is behind a paywall.  when it went to print, speculators followed hence the volume/price spike.

 

https://www.insuranceinsiderus.com/login-access?returnUrl=%2F&zephr_sso_ott=rhsIeg

Edited 1 hour ago by longterminvestor

[dwy000]

52 minutes ago, longterminvestor said:

article is behind a paywall.  when it went to print, speculators followed hence the volume/price spike.

 

https://www.insuranceinsiderus.com/login-access?returnUrl=%2F&zephr_sso_ott=rhsIeg

Would love to see how thats going to work if they're serious.  They have $1.5bn of debt already and are still paying earn outs.  To take private would probably require $2.2bn of capital and they dont have the cash flow to cover almost any of that using debt.  It would also take them out of the acquisition market for years.

 

They made a massive acquisition at peak multiples and have watched industry valuations halve.  Probably a lot of very.frustrated insiders saying "do something"