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

[dealraker]

And as I've mentioned before, for at least ten years now I've been brought to the realization that Well coverage of the insurance brokers has simply been downright superb.  That has been quite the surprise to me.  

 

There's much more but it it posted such that I can't forward it.  

 

Summary:

 

Wells is still most positive on AJG; second is AON; then MMC, WTW, and BRO.  They are positive on BRP and its valuation.

Edited December 16, 2022 by dealraker

[longterminvestor]

Insurance Brokerage has been a sleepy business for a long time.  Thought of as a non-sexy, run-the-ball every play type of business.  You get your start because of family/friend either as a captive agent (State Farm/All State, Farmers, ect) or an independent agent.  No one wakes up and says “I want to be an insurance agent”.  A couple folks figured out the business early – Pat Ryan of AON (Ryan now is chairman of Ryan Specialty), Hyatt Brown of Brown & Brown, and Lockton Family as well – there are some others.  What these guys figured out is the capital light structure, no capx, recurring revenue, and the ability to acquire are all significant tail winds to building a strong franchise with a good moat. 

 

Pat Ryan was acquiring agency’s early, Hyatt caught on in the 1990’s.  HUB, Marsh, Willis, ect all were growing their businesses organically as well as through acquisition.  Goldman Sachs was in it for a bit with USI however sold their stake (way too early).  Recently, from 2010ish, PE money started giving it a go in a big big way.  AssuredPartners (started by x-leadership of Brown & Brown - AP has already been bought/sold like 3 times), Acrisure, Alliant, HighSteet, NFP, BroadStreet, Risk Strategies…the list is endless with PE backed brokers. 

They are buying books of business or the complete agency with people who are willing to stay, service the book, and grow it.  Baby boomers are the sellers, these are 2^nd/3^rd generation family businesses where the liquidity event is significant.  Good news for the acquirer, the sellers are mostly not sophisticated (less so now with consultants) but in the early days they were stolen based on todays multiples.  BRP was a longtime regional agent in Tampa, FL who found some money going public (more on their deals below). 

 

Its purely an arb play.  You are doing $10M in topline revenue, buy a business doing $5M revenue for 7.5X EBITDA and now you’re a $15M shop with a value of 15X EBITDA.  Its incredible.  And its filled with leverage.  

 

Banks have this love/hate relationship with insurance.  They still don’t really know what it is.  Couple of the big banks like it but really don’t do it well.  I’m talking about true Commercial Insurance brokerage – not personal lines - BB&T bought McGriff and that is their operation, Wells sold theirs to USI and Well’s insurance operation was really Wachovia’s acquired in 2010.  Regions Banks sold theirs to BB&T. 

 

These are all independent insurance brokers.  And the model got the best endorsement ever when Liberty Mutual sold their brokerage service division in 2009.  Forever Liberty was vertically integrated – their sales force could only sell Liberty paper and they had a service team for Liberty.  When Liberty sold that to a couple different regions across the county, it was a huge WIN for brokers – it was the proof that independent agency system is the best way to buy insurance.

 

If you are good on the phone, follow up, can keep decent relations with people, you are gonna make a lot of money in the insurance brokerage space.  and no one young is getting into the business.  Everyone wants to be a hedge fund manager, PE deal jockey, or a Financial Advisor.  Funny enough, insurance brokerage touches all those arenas - always a deal to be had in the insurance business for a client - buying a new building, refinancing an old one, or just renewing what they have in place.  

 

PEOPLE DO NOT BUY SLEEP INSURANCE.  People buy insurance because it is mandated by a contract, required by a state/federal statute, or a bank lender requires coverage.  Pat Ryan calls the the difference: discretionary insurance vs. compulsory insurance.  Brokers LOVE to sell compulsory insurance. 

 

Chris Mayer, 100 Baggers, wrote a nice piece of insurance brokerage - https://www.woodlockhousefamilycapital.com/post/the-greatest-industry-in-the-history-of-mankind

 

With regards to acquisitions, things recently have gotten…a little…toppy.  2 deals listed below.

 

BRP Acquires WGBI

BRP has, in my calculation, overpaid for acquisitions here and in the past.  They overpay in 2 ways – 1 – the multiple and 2 – they have not bought 100% of the businesses in some cases.  Only buying a percentage of an elevator asset business is dangerous (my opinion).  Brown/AON/other public brokers have always bought 100% of the pie when acquiring. 

 

$30M revenue shop is a large agency – BRP paid $139M Cash and at time of disclosure $37M worth of stock and earn out of an additional $99.5M of stock.  That’s sky high valuations for sure.     

 

Link to filing - https://ir.baldwinriskpartners.com/static-files/66cc2ee0-83f7-48aa-b38c-09c874fe078b

 

CARLYLE BUYS NSM FROM WHITE MOUNTAIN

 

https://investor.whitemountains.com/static-files/5c7c4d09-f923-47bd-9e27-b94ffcde8d6a

 

I took the summary financials out of the White Mountains 2021 10K.  Quick breakdown on multiples at $1.78B purchase price:

 

5.4X on Topline revenue of $330.4M

25X on $70.9 Adjusted EBITDA

50X on $35.8 EBITDA

Kicker is NSM showed a Pre-Tax GAAP Loss in 2021 of ($28.1M) and a GAAP Net Income Loss of ($22.5M). 

 

Insurance brokerage is a wonderful business and will be for the foreseeable future.  The Insurtech start ups can have the $500-$1000 policies.  There is money in them but the real money is in the middle market/large deals.  And the insurance market is still super fragmented with no liquidity on screens – the risks are tough to put on a spreadsheet – so many different lines of coverage to follow D&O/EPLI, Cyber, Professional Liability, GL, Umbrella, Auto, Property, Workers Comp, and more.  Every account has its own issues – losses, price sensitive, industry issues, exposure expansion.  And the agent has to manage all these for each account.  Its also important to point out each of those lines of business listed above – DO NOT CORRELATE in the cycles of Hard/Soft markets.  So a big account, you are negotiating each line separately with carriers individually.  Sometime a carrier will come in a swoop the whole account but as an agent you are probably leaving money on the table for your client.  An old salt in the biz told me – The uglier the placement – the better the broker did their job getting best deal. 

 

Brown & Brown hit the skids due to a Captive Insurance program during conference call/Q3 10Q and the analysts were a little stunned there.  RYAN followed suit with earnings and had a huge drop in a day.  RYAN is not a retailer, they are pure Wholesale Insurance Brokerage.  

 

The Big 4 - Marsh, AON, Willis, AJG are similar businesses with similar clientele.  Brown & Brown/BRP are pure middle market outfits.  

 

and lastly, Goosehead, the Chuck Akre play.  Still havent figured this one out.  They write personal lines and have created some kind of funnel with banks/mortgage brokers where they have a direct channel and a franchise channel.  Good for them, I have looked and it and still cant figure it out.  

 

People still lump brokers in with insurance companies which I find a little funny.  Best question to ask yourself when looking at something in the insurance space...who is selling it and who is bearing the risk?  This quickly defines the players.  Insurance is just a weird business and there are so many parts to the distribution or the risk bearing side that make it incredibly difficult to make sense of - so people just throw themselves to someone they trust and say "handle this for me".  

[Spekulatius]

@longterminvestor Great summary. I looked at GSHD (discussed upthread) and can’t figure it out either. BRP is a very aggressive rollup and they carry a mountain of debt. BRO also has significant debt , but their income statement and business model seems straightforward. You can add ~20% to their net income (the amortization expense) to get the true cash flow. Maybe I buy just a few shares of that one; it also trades near the 52 week lows. It is probably close to a 6% FCF yield here, based on the numbers I can see, which is not too bad.

Edited December 24, 2022 by Spekulatius

[dealraker]

There's complexity in insurance and the brokers/agents that can run circles around even the most active and knowledagle minds.  Near 50 years ago Buffett's quote that the insurance broker business was better than the underwriting one, that he made an error not going into the broker side---- was quite simplistic.

 

In the end, or at least until today, the broker business holds up well and has probably proved once again how basically brilliant Warren Buffett is.  Today the stocks aren't cheap, generally aren't cheap, and deciding what to invest in isn't an easy one.  With experience my view is, and that mention of experience is really nothing but time along with a lessening of ability to keep up, I'd suggest investing in the industry in liew of attempting to decide which will do what or which - or which one will "outperform" the others and Mr. Market and such.  My guess is that if you attempt that endeavor it has a greater chance of failure than success...and that would be the case even if you are an expert in the industry.

 

Spitzer's lawsuits as to contingent commissions routed the stocks to bargains in the early 2000's, but even if you bought just before that blistering you'd still have done incredibly well.  Here's a typical outcome from what I've watched:

 

My investment club bought Brown (may have still been Poe and Brown) and Brown sometime - can't put a finger exactly on it  We were propositioned to sell Brown and buy Cisco, and the vote "won out" by a tiny fraction in the club.  We've made about 3 times our money in cisco since then including dividends.  That's about the time (I've owned Brown a few years longer) my brother-in-law asked me to make an investment for him (just for the hell of it, he's rich, and was undecided) and I went all Brown as the stock was cheap-cheap-cheap.   

 

Bro-in-law's made about 25 times his $.  That was a surprise of course given my basis was "don't lose money", but not too much off the average of all of the brokers since then.  Cisco was the Tesla-of-today - of that day and time (era).  

 

Where do we go from here?   Will the busines get interrupted or massive competing capital?  Which "one" or which category of these will do best?  Who the heck knows?  

 

Again, as I've mentioned so many times, the most successful investors I know do not overthink valuation, there's more of a sustained committment model in their formula.

 

 

Edited December 24, 2022 by dealraker

[Spekulatius]

The risk of disruption has been contemplated a long time end do far, there is no evidence that it’s going to happen.

 

I now remember this writeup from scruttleburb about BRO, which I think is still largely correct to this day. That alone tells you some thing. The valuation mutiples over time have crept up though.

https://www.scuttleblurb.com/bro-compounder-in-a-fragmented-sector/

Edited December 24, 2022 by Spekulatius

[longterminvestor]

I would like to find that quote.  if you have, pls share.  

 

I have likened insurance brokers to insurance companies are same as car dealerships to car manufacturers.  Car dealers are wonderful businesses.  And there are some similarities.  For example, when a broker has a policy that the carrier will not provide a payment plan for - brokers go to a premium finance company.  Some of the shadier PFC's are like pawnshops - there are some legit ones out there.  But the broker makes pretty solid fees just placing the financing with the PFC.  There is some tail risk on credit for the agent however rare is the day with an issue on ultimately collecting.  and the late fees are "take you to the cleaners" sky high. 

 

I read an agreement once where the broker not only got the fees for placing the financing but in addition received a portion of the late fee as additional compensation. 

 

Contingents are still a big part of the profit for any agency/broker.  There is no commission expense to the agent handling the account for the contingent.  its all to the bottom line.

[LC]

Brokers in general seem to be good businesses. 

 

Financial products, insurance, cars, real Estate/mortgages

 

maybe the latter is prone to cycles re: interest rates 

 

 

[Spekulatius]

Brokers basically have the same growth than insurance cos, but don’t require any capital to run the business, not even working capital. That’s why they are great business.

[LC]

Good way of looking at it. Do you know if brokers are compensated as a % of the overall policy or is it fixed? I.e. are brokers benefitting from hard market pricing (and also hurt as price softens)? 

[Dinar]

2 hours ago, LC said:

Good way of looking at it. Do you know if brokers are compensated as a % of the overall policy or is it fixed? I.e. are brokers benefitting from hard market pricing (and also hurt as price softens)? 

Usually yes, brokers get a % rather than a fixed commission.

[Red Lion]

Dealraker, spek, and others, do you have a recommendation for insurance brokers as a buy around current prices? Or just great businesses to read annual reports or conference call transcripts to learn more about the business? This thread has convinced me to start researching the sector. 

[dealraker]

RedLion I'll reply that this question is very likely better answered by someone other than me.  As you prob are aware I've owned AJG for about 30, but the Lexington Investors Club bought it at $34 or so in 2012 and along the way several members of my club asked, "Is it a buy near $50?" and I was hesitant to reply as the PE was about 20 and price to FCF about 17 or so.

 

The club sold at $90 in 2020 I voted against and one other did also.  But anyway the lone disenter other than me is a CPA who sort of obsesses over out-of-the-mass-focus growth stocks and he said "buy-buy-buy" and I just said, "Well...maybe so but..."

 

In any event I obviously know less than the market so surely I'm not the person to speak up.  That's why I'm not a seller much on anything.

[Spekulatius]

14 hours ago, RedLion said:

Dealraker, spek, and others, do you have a recommendation for insurance brokers as a buy around current prices? Or just great businesses to read annual reports or conference call transcripts to learn more about the business? This thread has convinced me to start researching the sector. 

I would start researching BRO (start with their annual reports and the scuttleburb report I posted a link to). They seem to be straight shooters.

 

As for valuation, BRO stock does not seem to be totally overvalued, but isn’t cheap either. I am learn about stepping into this sector because all the companies have stepped up acquisitions paid for with debt and I think organic growth is a slowing a bit too.

BRO for example has doubled their debt from ~$2B to ~$4B in one year and they aren’t the only ones. I wonder if there is a bit of a feeding frenzy going on here.  

[Red Lion]

1 hour ago, Spekulatius said:

I would start researching BRO (start with their annual reports and the scuttleburb report I posted a link to). They seem to be straight shooters.

 

As for valuation, BRO stock does not seem to be totally overvalued, but isn’t cheap either. I am learn about stepping into this sector because all the companies have stepped up acquisitions paid for with debt and I think organic growth is a slowing a bit too.

BRO for example has doubled their debt from ~$2B to ~$4B in one year and they aren’t the only ones. I wonder if there is a bit of a feeding frenzy going on here.  

Excellent this is just what I was hoping for. Will start reading reports today. 

[longterminvestor]

BRO is one of the best, well run, well managed businesses around - insurance broker or not.  Closely held by employees (Brown family still owns a big chunk).  Run by the grandson of founder Powell Brown.  Hyatt, his father, really built the business.  Hyatt bought it from his dad when they had like $60K of revenue so officially 3rd generation but it was Hyatt's vision and dogged discipline that built BRO.  Powell's brother works there as well.  Pat Ryan, CEO of AON forever and now founder of RYAN, put it best - "We are fine with nepotism as long as they perform" or to that effect.  The debt for BRO is manageable due to the price they pay for the businesses - its a cash flow cow.  Regarding the recent growth of debt, BRO's debt reflects some of the large deals secured over the past 5-7 years.  Forever the typical acquisition was sub $25M consideration and now they are competing on some big ones - paying $800M+ for a single acquisition.  Regarding expenses, a significant portion correlates with revenue - 20% of all renewal revenue for BRO goes to the individual producer who places the account (the split) and the rest of the comp is for admin/service/headquarters - there are some house accounts but most accounts are either written new with a producer or assigned a broker when the producing broker leaves/retires. New business the split is double - 40% of revenue.  So in down times, the producer expense moves with lowering revenue.  

 

Watch overall comp for brokers - sub 50% of revenue is a good marker.  True that revenue correlates with the cycles of the insurance market.  BRO used to be very tied to Florida market cycles however lately with the growing footprint, BRO is less dependent on FL for business.  We are in a hard market for CAT property so brokers/carriers are feasting on big increases on property driven accounts however professional lines (D&O, Cyber, Professional) are seeing signs of softening - Commercial Auto has been hardening for a while with the tougher classes (trucking, dump trucks, mixers, accounts with losses) are hardening faster.  RYAN mentioned all systems go for professional lines on call recently and I somewhat disagree but I'm open to being wrong there.  I am just seeing/hearing big decreases in Public D&O and Cyber specifically.  Some of the bigger brokers work on fixed fee based comp so the client negotiates the fee for the broker to place the insurance for a 1-2-3yr deal and the actual price of the insurance "is what it is".  Bigger accounts manage their insurance portfolio like this - just depends on the buyer. 

 

The aging population of agents is the opportunity for acquirers in brokerage.  Perpetuation of the book/business is not lined up so its a natural area for acquisitions.  

 

If you really want to learn what BRO, BRP, and others are buying...go here:https://reaganconsulting.com/research/best-practices/  Reagan is a consulting firm who does alot of things in the space and one of them is compiling a study every year.  You gotta pay for the current version but the prior ones are on the website for free.  talks about every metric in the business - and talks valuations over the years creeping up.  

 

@Spekulatius  - If you are looking at BRP, I am concerned with their capital allocation - they seem to be overpaying for deals.  My opinion.  

Edited December 28, 2022 by longterminvestor

[gfp]

Great post longterminvestor - thanks for the color

[dealraker]

8 hours ago, longterminvestor said:

BRO is one of the best, well run, well managed businesses around - insurance broker or not.  Closely held by employees (Brown family still owns a big chunk).  Run by the grandson of founder Powell Brown.  Hyatt, his father, really built the business.  Hyatt bought it from his dad when they had like $60K of revenue so officially 3rd generation but it was Hyatt's vision and dogged discipline that built BRO.  Powell's brother works there as well.  Pat Ryan, CEO of AON forever and now founder of RYAN, put it best - "We are fine with nepotism as long as they perform" or to that effect.  The debt for BRO is manageable due to the price they pay for the businesses - its a cash flow cow.  Regarding the recent growth of debt, BRO's debt reflects some of the large deals secured over the past 5-7 years.  Forever the typical acquisition was sub $25M consideration and now they are competing on some big ones - paying $800M+ for a single acquisition.  Regarding expenses, a significant portion correlates with revenue - 20% of all revenue for BRO goes to the individual producer who places the account (the split) and the rest of the comp is for admin/service/headquarters - there are some house accounts but most accounts are either written new with a producer or assigned a broker when the producing broker leaves/retires. So in down times, the producer expense moves with lowering revenue.  

 

Watch overall comp for brokers - sub 50% of revenue is a good marker.  True that revenue correlates with the cycles of the insurance market.  BRO used to be very tied to Florida market cycles however lately with the growing footprint, BRO is less dependent on FL for business.  We are in a hard market for CAT property so brokers/carriers are feasting on big increases on property driven accounts however professional lines (D&O, Cyber, Professional) are seeing signs of softening - Commercial Auto has been hardening for a while with the tougher classes (trucking, dump trucks, mixers, accounts with losses) are hardening faster.  RYAN mentioned all systems go for professional lines on call recently and I somewhat disagree but I'm open to being wrong there.  I am just seeing/hearing big decreases in Public D&O and Cyber specifically.  Some of the bigger brokers work on fixed fee based comp so the client negotiates the fee for the broker to place the insurance for a 1-2-3yr deal and the actual price of the insurance "is what it is".  Bigger accounts manage their insurance portfolio like this - just depends on the buyer. 

 

The aging population of agents is the opportunity for acquirers in brokerage.  Perpetuation of the book/business is not lined up so its a natural area for acquisitions.  

 

If you really want to learn what BRO, BRP, and others are buying...go here:https://reaganconsulting.com/research/best-practices/  Reagan is a consulting firm who does alot of things in the space and one of them is compiling a study every year.  You gotta pay for the current version but the prior ones are on the website for free.  talks about every metric in the business - and talks valuations over the years creeping up.  

 

@Spekulatius  - If you are looking at BRP, I am concerned with their capital allocation - they seem to be overpaying for deals.  My opinion.  

I enjoy these posts.  I've spent nearly 30 years trying to get someone, anyone, to discuss insurance brokers without success.  This thread got started without me!  Life is truly great these days!  

 

By the mid 1990's I had all the brokers in my porfolio and I did buy some BRP when for some reason it tanked below $17 or something like that...I simply logged on and saw that and bought a little...without a clue about what was happening.  But anyway, I've not bought personally a dollar more since the 1990's.  If I had just bought the brokers I'd have about three times as much money!

 

Ha!  I don't need money but I do laugh.  The phrase "While you look all around far and wide--- most often the diamonds are under your feet."  LOL, me...the royal dumbass of all time.  

[longterminvestor]

Ssshhhh, it will be our secret.  Not surprised no one talks about brokers - its a boring business and no one, absolutely no one actually ENJOYS the buying process of insurance.  Its like going to the dentist, you dread going but when you are done - you are happy you did it.  BRO is a 100X bagger from sleepy Daytona Beach Florida.  Its amazing to think about.  Another proof - The fact that AssuredPartners (AP)was started in 2011 from scratch by 2 ex-Brown executives with PE money and today is probably closing in on $2B in revenue is INCREDIBLE.  It took Brown 80ish years to get to $1B, and AssuredPartners got to $2B in 10yrs, I am unaware of a record like that.  It just shows the proof of the business model and what smart acquisitions can do.  AP has been bought and sold I think 3 or 4 times and still growing.  When AP goes public, I will be watching.  Jim Henderson is a class act and very much a gem of a manager.  His son is a big time broker at AmWins - wholesale broker and competes heavily with RYAN.  

 

 

[DooDiligence]

1 hour ago, dealraker said:

I enjoy these posts.  I've spent nearly 30 years trying to get someone, anyone, to discuss insurance brokers without success.  This thread got started without me!  Life is truly great these days!  

 

By the mid 1990's I had all the brokers in my porfolio and I did buy some BRP when for some reason it tanked below $17 or something like that...I simply logged on and saw that and bought a little...without a clue about what was happening.  But anyway, I've not bought personally a dollar more since the 1990's.  If I had just bought the brokers I'd have about three times as much money!

 

Ha!  I don't need money but I do laugh.  The phrase "While you look all around far and wide--- most often the diamonds are under your feet."  LOL, me...the royal dumbass of all time.  

 

Acres of Diamonds

 

I used to listen to Earl Nightingale, Zig Ziglar, Brian Tracy, Stephen Covey and others while driving around selling jewelry. I ultimately failed at this business and went back offshore to tidy up my mistake. My error was in choosing to sell tangible items when I should've been selling intangibles.

 

Over the holidays, I was cleaning out closets and found an old box of jewelry inventory. I took it to Louisiana and sold all of it to an old customer in the Quarter. It was mostly 18K diamond and colored stone fleur de lis jewelry with some mixed Victorian reproduction pieces.

 

I've been doing this for years and selling things mostly on eBay and have unlocked a lot of hidden value. It's amazing how much crap you'll acquire over a lifetime and that you can turn this stuff into cash. I've always loved the story of Buffett and Dempster Mill. I can't remember the manager they installed, but recall something about him painting a line at a certain height around the warehouse and telling employees there would be no more purchasing or manufacturing until he could see that line. IOW, sell a bunch of this crap and let's get a handle on this situation.

 

This is different than what you guys are talking about with insurance brokers but your "acres of diamonds" quote made me think about it.

Edited December 28, 2022 by DooDiligence

[dealraker]

5 hours ago, DooDiligence said:

 

Acres of Diamonds

 

I used to listen to Earl Nightingale, Zig Ziglar, Brian Tracy, Stephen Covey and others while driving around selling jewelry. I ultimately failed at this business and went back offshore to tidy up my mistake. My error was in choosing to sell tangible items when I should've been selling intangibles.

 

Over the holidays, I was cleaning out closets and found an old box of jewelry inventory. I took it to Louisiana and sold all of it to an old customer in the Quarter. It was mostly 18K diamond and colored stone fleur de lis jewelry with some mixed Victorian reproduction pieces.

 

I've been doing this for years and selling things mostly on eBay and have unlocked a lot of hidden value. It's amazing how much crap you'll acquire over a lifetime and that you can turn this stuff into cash. I've always loved the story of Buffett and Dempster Mill. I can't remember the manager they installed, but recall something about him painting a line at a certain height around the warehouse and telling employees there would be no more purchasing or manufacturing until he could see that line. IOW, sell a bunch of this crap and let's get a handle on this situation.

 

This is different than what you guys are talking about with insurance brokers but your "acres of diamonds" quote made me think about it.

Doo as I read this in my reading nook overlooking the lake I turn 90 degrees and my eyes go just past my 1978 Brascan (Brookfield) stock certificate and there it was...Russell H. Conwell's book: Acres of Diamonds!

Edited December 28, 2022 by dealraker

[DooDiligence]

2 hours ago, dealraker said:

Doo as I read this in my reading nook overlooking the lake I turn 90 degrees and my eyes go just past my 1978 Brascan (Brookfield) stock certificate and there it was...Russell H. Conwell's book: Acres of Diamonds!

 

I would like, but am unable to upvote this post.

Edited December 29, 2022 by DooDiligence

[CorpRaider]

I think I kind of get Goosehead; use technology to allow the model to work for smaller $$$ policies/transactions.  I've used policy genius a couple of times.  But not (remotely) at this price.  

 

Interesting model.  CBRE and co kind of have more diffuse cohorts on either side of their market making operation, but I suppose they don't have the recurring and mandatory purchase aspects.

Edited December 29, 2022 by CorpRaider

[dealraker]

So just off the cuff today I thought some about a few of the recent Merrill Lynch and Morningstar reports I've read as to the insurance brokers.  What is interesting is that I tend to always think Wells has price targets and growth rates on the brokers that are simply too high.  They tend to often have ratings of 1 or 2 on the brokers which of course is basically buy.

 

Merrill and Morningstar both basically always, and when I say always I mean ALWAYS, think the insurance brokers are over valued.  And honestly my view is with these over valuations.  But of course I never sell the brokers.  Merrill is particularly low on price targest while Morningstar just basically keeps 1 or 2, sometimes 3, stars on the brokers.

 

So reading between the lines, because Merrill and Morningstar always consider the brokers over valued that means they've missed about 25 years of 15% annual growth and you the investor, if you followed their ratings, would have missed those returns.   So yea, I tend to agree with Merill and Morningstar...while I fortunately own the stocks.

 

Damn!  Life is complex.  You can be right I guess all while being damn wrong, and visa versa?    Hell, I don't know.  I just thought about this, the way it has been for me seemingly forever now, and how silly it all seems.

 

Is it a good business that can grow at 15%?  If so then how much focus do you want to place on whether it's "fair value" is 15 times earnings or 20 times earnings...or maybe even 22-23 time earnings?  What the hell?  

 

 

[Spekulatius]

2 hours ago, dealraker said:

So just off the cuff today I thought some about a few of the recent Merrill Lynch and Morningstar reports I've read as to the insurance brokers.  What is interesting is that I tend to always think Wells has price targets and growth rates on the brokers that are simply too high.  They tend to often have ratings of 1 or 2 on the brokers which of course is basically buy.

 

Merrill and Morningstar both basically always, and when I say always I mean ALWAYS, think the insurance brokers are over valued.  And honestly my view is with these over valuations.  But of course I never sell the brokers.  Merrill is particularly low on price targest while Morningstar just basically keeps 1 or 2, sometimes 3, stars on the brokers.

 

So reading between the lines, because Merrill and Morningstar always consider the brokers over valued that means they've missed about 25 years of 15% annual growth and you the investor, if you followed their ratings, would have missed those returns.   So yea, I tend to agree with Merill and Morningstar...while I fortunately own the stocks.

 

Damn!  Life is complex.  You can be right I guess all while being damn wrong, and visa versa?    Hell, I don't know.  I just thought about this, the way it has been for me seemingly forever now, and how silly it all seems.

 

Is it a good business that can grow at 15%?  If so then how much focus do you want to place on whether it's "fair value" is 15 times earnings or 20 times earnings...or maybe even 22-23 time earnings?  What the hell?  

 

 

I think the insurance brokers were cheap when Spitzer was investigating them for these contingent fees. O don’t think they were 1*or 2* rated. I didn’t buy them because I didn’t understand the business model. There was concern that the absence of these fees would break the business model.

 

I don’t think the brokers were really cheap since that episode about 10+ years ago, with the exception of a short period in 2015/16 (the mini recession) back then probably. Even great business get cheap once in a while, but it could be a once or twice decade event. Lot’s of patience required to acquire a position and then you need to sit on it, which is is even harder.

[dealraker]

1 hour ago, Spekulatius said:

I think the insurance brokers were cheap when Spitzer was investigating them for these contingent fees. O don’t think they were 1*or 2* rated. I didn’t buy them because I didn’t understand the business model. There was concern that the absence of these fees would break the business model.

 

I don’t think the brokers were really cheap since that episode about 10+ years ago, with the exception of a short period in 2015/16 (the mini recession) back then probably. Even great business get cheap once in a while, but it could be a once or twice decade event. Lot’s of patience required to acquire a position and then you need to sit on it, which is is even harder.

Yea Spek I am pretty much out of it as I got one from merger and bought the others just once each and that was long ago.  So yea they were cheap during Spitzer's raid but probably not much since.  I was just rambling, thinking out loud.