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

[dealraker]

I'm not going to state much about the broker business as I'm not in any way up to date and feel that all I can offer is bias which isn't helpful.  I do spend a lot of time with probably my best friend who is still in the business, he has a lake house that he lives in half the year that's a quarter mile from my home, so summer we are together often.  His firm now is 45 people.

 

Anyway we do generally talk the business at least some when we get together.  What's interesting is the two things we most have watched affect the broker prices, that's soft markets and AI, are things he simply doesn't even mention.  I do bring them up of course and he sort of comes back with what I'd call a "normal stuff" position.

 

His most worrisome issue is that he doesn't want to sell the business, but he now doesn't want to be on task but 4 hours or so a day- he and his wife travel, and his two sons are not particularly motivated and honestly not very capable.  He does have a middle age woman who he says can and for the most part - and actually does - run the business.  This woman has a daughter who just graduated and joined the firm who my friend says, "She will be both my son's boss within a couple of years."

 

He is delighted with the overall conditions of the insurance business, says opportunities are endless and competitors aren't a problem.  This is a guy who never went to college, he joined his father's one man operation when he was 18, he's now 67.  He's also an aggregator major owner, that is a 6 part ownership thing and he has personal and via his business ownership of 5/6th's, and there's one other 1/6th owner.  

 

 

[longterminvestor]

On 6/19/2026 at 3:46 AM, adventurer said:

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? 

Missed this one @adventurer.  Did a little writing on Hard/Soft in previous post but we can go further.  Going long brokers in a hard market and short brokers in a soft market is similar to going long Goldman/Schwab in a bull market and shorting in a bear market.  Looks easy but not as easy as it looks.  

 

#1 - Its difficult to generalize overall market as Hard/Soft overall due to the subsections of insurance.  Property market going hard/soft gets the most attention, especially in CAT regions because the swings are huge.  So any broker/carrier who writes CAT business, are subject to large swings up or down in market cycle. Homeowners gets alot of attention but generally is not a good barometer of where market is because its typically written admitted and state governments look for votes and voters are sensitive to homeowners premium.  So soft homeowners doesn't mean soft everywhere.  

 

Each "line of business" has its own cycle AND each line of business is either being placed admitted or non-admitted (E&S) which will have its own cycle as well.  Commercial Auto, Property, Casualty, Umbrella, Workers Comp, Professional Liability, D&O, EPL, Cyber, Homeowners, and personal auto are all different lines of business and are all being placed either admitted or E&S.  Meaning Commercial Auto can be soft while Casualty is hard.  Professional can be hard while Work Comp can be soft.  There are also sub-categories for each.  Property is broken up by CAT/Non-CAT.  Commercial Auto is broken up in Trucking (interstate & intrastate), local service, fleet (250+units), even a personal fav "non-emergency medical transport", Casualty is broken up by class as well, Habitational (Hab for short), Lessors Risk, Heavy Products Liability, ect.  And the complicate things further, the regionality of insurance plays by line of business's hard/soft cycle.  Meaning Commercial Auto in NY can be hard while Commercial Auto in Texas can be soft.  EPL (Employment Practices Liability) is a good one because Cali EPL is much harder than other parts of US.  You could take a firm with 100 employees in Iowa, EPL spend might be $12K with a $10K retention - Move that account to Cali, spend is $25K with $50K retention. 

 

If you listen to the conference calls of brokers and carriers, they will break out their own rate increases/decreases for each line of business (LOB) - some even do it by region.  For example, Property could be down 5-10% while CAT Property could be down 25-35%.  Long winded answer to say when someone says "Its a hard market", make them explain what area of the market is hard because I could tell you 5 other marketplaces that are super soft at any given time while others are just flat. 

 

EXCERPT FROM BRO Q1 CALL DISCUSSING RATES:

From a commercial insurance standpoint, the changes in rates remained relatively consistent with prior quarters except for CAT property, which declined further than in the fourth quarter of last year. Pricing for employee benefits was fairly similar to prior quarters with medical costs up 8% to 10% and pharmacy costs up over 10%. We continue to consult and advise our customers on multiple strategies that can be employed to manage high-cost claimants and pharmacy spend. We leverage our extensive consultative solutions to deliver high-impact strategy for population health, captives, stop loss and carve-outs for certain services.

Shifting to the rate environment, the admitted P&C markets continue to be in the range of flat to up 5% versus prior year but did moderate slightly as compared to last quarter. Workers' comp rates remained flat to down 3%, while we saw a few states increase rates modestly. For non-CAT property overall, rates remained down 5% to up 5%, depending on the loss experience and the location. For casualty lines, rates increased 2% to 5% for primary layers, with excess layers increasing materially more. For professional liability, rates remained similar to the last couple quarters and were down 5% to up 5%.

Shifting to the E&S market, let's split the conversation between property and casualty. For property, both wind and quake rates declined -- rate declines were modestly more than we experienced in Q4 of last year. Most of our placements for the quarter were down 15% to 35%. At the end of the quarter, we saw placements above and below this range. Generally, customers are capturing most of the savings.

However, some are utilizing the savings to decrease deductibles, increase limits or buy other lines of coverage. These tactics are common when rates are moderating or declining. On the casualty front, not much has changed versus prior quarters. The ability to get higher limits is extremely challenging. Pricing continued to increase. Primary layers are becoming more expensive, and carriers are decreasing the limits they'll offer. We do not expect this trend to change materially over the coming quarters.

 

 

#2 - Relationships with brokers and carriers are symbiotic and very tight - not at all antagonistic.  A good broker builds a super strong relationship with a carrier and thats how a broker can win new deals.  A broker is only as good as their carrier relationships allow them to be good.  You could have the best account in the world as a broker, but if your reputation sucks with carriers, no one will help you place the deal.  Wholesale has changed this dynamic because retailer is once removed from carrier relationship.  When a tough deal needs to be placed, a broker will call their best relationship and say "hey, need you on this one" and carrier will think outside the box on that account because of the relationship - Underwriter can make an accommodation based on the risk, the account, or as a broker accommodation.  Brokers are constantly trying to get better terms in the risk transfer market and need good/great relationships to do that for their clients.  

 

Think about it, at the end of the day, its the insurance company who pays the broker (using client funds).  So naturally, brokers have to have good relations with carriers.  

 

Generally, I do not see how brokers zig while carriers zag.  If carriers are taking in less premium, that means they are paying less commissions to brokers.  If a carrier is growing, that means its being fed business by brokers - carriers are bringing in more business and paying commissions to do so.  

 

Brokers are always trying to get carriers to write deals they dont want to write and ask for higher commissions.  A broker can not get one or both if the relationship is "antagonistic".  

 

On a personal note, as a broker, our team may interact with a typical client a dozen times throughout the year for general service/issues/questions ect.  Our team will interact with a typical underwriter 4-5 times a day via email/phone on the 10-12 deals we are trying to place that given week.  

[adventurer]

1 hour ago, longterminvestor said:

Missed this one @adventurer.  Did a little writing on Hard/Soft in previous post but we can go further.  Going long brokers in a hard market and short brokers in a soft market is similar to going long Goldman/Schwab in a bull market and shorting in a bear market.  Looks easy but not as easy as it looks.  

 

#1 - Its difficult to generalize overall market as Hard/Soft overall due to the subsections of insurance.  Property market going hard/soft gets the most attention, especially in CAT regions because the swings are huge.  So any broker/carrier who writes CAT business, are subject to large swings up or down in market cycle. Homeowners gets alot of attention but generally is not a good barometer of where market is because its typically written admitted and state governments look for votes and voters are sensitive to homeowners premium.  So soft homeowners doesn't mean soft everywhere.  

 

Each "line of business" has its own cycle AND each line of business is either being placed admitted or non-admitted (E&S) which will have its own cycle as well.  Commercial Auto, Property, Casualty, Umbrella, Workers Comp, Professional Liability, D&O, EPL, Cyber, Homeowners, and personal auto are all different lines of business and are all being placed either admitted or E&S.  Meaning Commercial Auto can be soft while Casualty is hard.  Professional can be hard while Work Comp can be soft.  There are also sub-categories for each.  Property is broken up by CAT/Non-CAT.  Commercial Auto is broken up in Trucking (interstate & intrastate), local service, fleet (250+units), even a personal fav "non-emergency medical transport", Casualty is broken up by class as well, Habitational (Hab for short), Lessors Risk, Heavy Products Liability, ect.  And the complicate things further, the regionality of insurance plays by line of business's hard/soft cycle.  Meaning Commercial Auto in NY can be hard while Commercial Auto in Texas can be soft.  EPL (Employment Practices Liability) is a good one because Cali EPL is much harder than other parts of US.  You could take a firm with 100 employees in Iowa, EPL spend might be $12K with a $10K retention - Move that account to Cali, spend is $25K with $50K retention. 

 

If you listen to the conference calls of brokers and carriers, they will break out their own rate increases/decreases for each line of business (LOB) - some even do it by region.  For example, Property could be down 5-10% while CAT Property could be down 25-35%.  Long winded answer to say when someone says "Its a hard market", make them explain what area of the market is hard because I could tell you 5 other marketplaces that are super soft at any given time while others are just flat. 

 

EXCERPT FROM BRO Q1 CALL DISCUSSING RATES:

From a commercial insurance standpoint, the changes in rates remained relatively consistent with prior quarters except for CAT property, which declined further than in the fourth quarter of last year. Pricing for employee benefits was fairly similar to prior quarters with medical costs up 8% to 10% and pharmacy costs up over 10%. We continue to consult and advise our customers on multiple strategies that can be employed to manage high-cost claimants and pharmacy spend. We leverage our extensive consultative solutions to deliver high-impact strategy for population health, captives, stop loss and carve-outs for certain services.

Shifting to the rate environment, the admitted P&C markets continue to be in the range of flat to up 5% versus prior year but did moderate slightly as compared to last quarter. Workers' comp rates remained flat to down 3%, while we saw a few states increase rates modestly. For non-CAT property overall, rates remained down 5% to up 5%, depending on the loss experience and the location. For casualty lines, rates increased 2% to 5% for primary layers, with excess layers increasing materially more. For professional liability, rates remained similar to the last couple quarters and were down 5% to up 5%.

Shifting to the E&S market, let's split the conversation between property and casualty. For property, both wind and quake rates declined -- rate declines were modestly more than we experienced in Q4 of last year. Most of our placements for the quarter were down 15% to 35%. At the end of the quarter, we saw placements above and below this range. Generally, customers are capturing most of the savings.

However, some are utilizing the savings to decrease deductibles, increase limits or buy other lines of coverage. These tactics are common when rates are moderating or declining. On the casualty front, not much has changed versus prior quarters. The ability to get higher limits is extremely challenging. Pricing continued to increase. Primary layers are becoming more expensive, and carriers are decreasing the limits they'll offer. We do not expect this trend to change materially over the coming quarters.

 

 

#2 - Relationships with brokers and carriers are symbiotic and very tight - not at all antagonistic.  A good broker builds a super strong relationship with a carrier and thats how a broker can win new deals.  A broker is only as good as their carrier relationships allow them to be good.  You could have the best account in the world as a broker, but if your reputation sucks with carriers, no one will help you place the deal.  Wholesale has changed this dynamic because retailer is once removed from carrier relationship.  When a tough deal needs to be placed, a broker will call their best relationship and say "hey, need you on this one" and carrier will think outside the box on that account because of the relationship - Underwriter can make an accommodation based on the risk, the account, or as a broker accommodation.  Brokers are constantly trying to get better terms in the risk transfer market and need good/great relationships to do that for their clients.  

 

Think about it, at the end of the day, its the insurance company who pays the broker (using client funds).  So naturally, brokers have to have good relations with carriers.  

 

Generally, I do not see how brokers zig while carriers zag.  If carriers are taking in less premium, that means they are paying less commissions to brokers.  If a carrier is growing, that means its being fed business by brokers - carriers are bringing in more business and paying commissions to do so.  

 

Brokers are always trying to get carriers to write deals they dont want to write and ask for higher commissions.  A broker can not get one or both if the relationship is "antagonistic".  

 

On a personal note, as a broker, our team may interact with a typical client a dozen times throughout the year for general service/issues/questions ect.  Our team will interact with a typical underwriter 4-5 times a day via email/phone on the 10-12 deals we are trying to place that given week.  

Thank you. Just getting to know the business. Will dive deeper into your previous posts. This is an informative start.