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

[gfp]

More buying from insiders at RYAN this week

 

https://www.sec.gov/Archives/edgar/data/1145037/000120919123019008/xslF345X03/doc4.xml

https://www.sec.gov/Archives/edgar/data/1849253/000120919123018647/xslF345X03/doc4.xml

Edited March 15, 2023 by gfp

[Spekulatius]

Pretty solid looking results from $BRO for Q1:

https://investor.bbinsurance.com/news-releases/news-release-details/brown-brown-inc-announces-first-quarter-2023-results-including
 

My only holding in this space and a small one at that. But now I can cheer for them: Go Bro!

Edited April 24, 2023 by Spekulatius

[longterminvestor]

Good report.

 

Thought it was interesting how PB commented on PL/D&O market with lots of capacity due to market pull back on property – risk bearers needed to deploy capacity and they are now competing on PL/D&O.  he goes “I am not saying that, but some would say that”.  Just thought that was funny.  Can confirm we are seeing that, we just doubled the limit on a D&O placement for publicly traded company for the same price last year – 2X limit for same premium. 

 

Regarding Florida/Citizens Insurance question.  I was in a meeting once at Brown – this is 10+ yrs ago and the word was “Where Florida goes, so does the rest of the company”.  PB downplayed Florida yesterday on the call – my gut/my opinion, Florida insurance plays into BRO revenue/earnings – materially.  I think I know why management is attempting to dissuade street from thinking BRO is buoyed to Florida.  Here is some data:

 

As per 10K’s, revenue in Florida as a percentage of revenue:

2022 - 19% of total revenue comes from 55 offices in Florida

2021 – 18% of total revenue comes from 55 offices in Florida

2020 – 19% of total revenue comes from 55 offices in Florida

2019 – no breakout – mentions 52 offices and headquarters in Florida

2018 – no breakout – mentions 46 offices and headquarters in Florida

2017 – no breakout – mentions 41 offices and headquarters in Florida

2016 – no breakout – mentions 41 offices and headquarters in Florida

2015 – no breakout - mentions 41 offices and headquarters in Florida

2014 – no breakout - mentions 41 offices and headquarters in Florida

 

% numbers above from 2020-2022 are deceiving because Atlanta wholesale office’s produce huge amounts of Florida borne business and yet the “office”, as you know, is in Georgia – not Florida.  There could be other wholesale offices outside Florida that have relationships with Florida agents and place deals in Florida – would be tough to get a “to the penny” number on % of revenue deriving from Florida based on the way reporting goes so Brown reporting by office geographic location is logical.

 

CITIZENS REVENUE BREAKOUT FROM K’s YEARS AGO:

2014 - $3.8M

2013 - $5.7M

2012 - $6.4M

2011 - $7.8M

2010 - $8.3M

 

PB’s comment on Citizens commission was 100% accurate.  Premiums are higher today than they were when Citizens played into the market in 2006-07 – 2015ish.  Risk is legislature reduces commission at some point if premiums continue to rise however for the work we are putting in as agents, gonna be tough to justify.  But that politics, not insurance (I guess they go hand in hand). 

 

Also – did a quick search in AON, Willis, Marsh 10K’s – no mention of Florida at all and revenue aggregation in Florida. 

WTW disclosed 21% of revenue generated from UK

Aon disclosed 55% of consolidated revenue is non-US

Marsh is a little different – 51% of company revenue is insurance, 10% reinsurance, and 39% consulting.  Marsh does disclose 51% of total revenue was from outside US

[Spekulatius]

@longterminvestor thx for the color on the insurance market. You are probably correct that BRO has outsized exposure to FLA because that's where they got started.

The current consensus estimate for BRO's 2024 topline growth is 6.4% according to tikr, so I think the market expects a significant slowdown in growth

 

I don't think the current hard insurance market can't really continue - I think it's a belated COVID-19 effect and we know how this played out in a lot of other sectors.

[dealraker]

Every 10 years or so the financial press will stumble around and write something about insurance brokers.  

 

https://www.bloomberg.com/news/articles/2023-06-09/inflation-s-big-stock-winner-insurance-broker-arthur-j-gallagher-outperforms#xj4y7vzkg

 

Or here:

 

https://www.chicagobusiness.com/finance-banking/insurance-broker-arthur-j-gallagher-inflations-big-stock-winner

Edited June 9, 2023 by dealraker

[dwy000]

On 5/21/2023 at 1:47 PM, longterminvestor said:

Good report.

 

Thought it was interesting how PB commented on PL/D&O market with lots of capacity due to market pull back on property – risk bearers needed to deploy capacity and they are now competing on PL/D&O.  he goes “I am not saying that, but some would say that”.  Just thought that was funny.  Can confirm we are seeing that, we just doubled the limit on a D&O placement for publicly traded company for the same price last year – 2X limit for same premium. 

 

Regarding Florida/Citizens Insurance question.  I was in a meeting once at Brown – this is 10+ yrs ago and the word was “Where Florida goes, so does the rest of the company”.  PB downplayed Florida yesterday on the call – my gut/my opinion, Florida insurance plays into BRO revenue/earnings – materially.  I think I know why management is attempting to dissuade street from thinking BRO is buoyed to Florida.  Here is some data:

 

As per 10K’s, revenue in Florida as a percentage of revenue:

2022 - 19% of total revenue comes from 55 offices in Florida

2021 – 18% of total revenue comes from 55 offices in Florida

2020 – 19% of total revenue comes from 55 offices in Florida

2019 – no breakout – mentions 52 offices and headquarters in Florida

2018 – no breakout – mentions 46 offices and headquarters in Florida

2017 – no breakout – mentions 41 offices and headquarters in Florida

2016 – no breakout – mentions 41 offices and headquarters in Florida

2015 – no breakout - mentions 41 offices and headquarters in Florida

2014 – no breakout - mentions 41 offices and headquarters in Florida

 

% numbers above from 2020-2022 are deceiving because Atlanta wholesale office’s produce huge amounts of Florida borne business and yet the “office”, as you know, is in Georgia – not Florida.  There could be other wholesale offices outside Florida that have relationships with Florida agents and place deals in Florida – would be tough to get a “to the penny” number on % of revenue deriving from Florida based on the way reporting goes so Brown reporting by office geographic location is logical.

 

CITIZENS REVENUE BREAKOUT FROM K’s YEARS AGO:

2014 - $3.8M

2013 - $5.7M

2012 - $6.4M

2011 - $7.8M

2010 - $8.3M

 

PB’s comment on Citizens commission was 100% accurate.  Premiums are higher today than they were when Citizens played into the market in 2006-07 – 2015ish.  Risk is legislature reduces commission at some point if premiums continue to rise however for the work we are putting in as agents, gonna be tough to justify.  But that politics, not insurance (I guess they go hand in hand). 

 

Also – did a quick search in AON, Willis, Marsh 10K’s – no mention of Florida at all and revenue aggregation in Florida. 

WTW disclosed 21% of revenue generated from UK

Aon disclosed 55% of consolidated revenue is non-US

Marsh is a little different – 51% of company revenue is insurance, 10% reinsurance, and 39% consulting.  Marsh does disclose 51% of total revenue was from outside US

This is great color @longterminvestor!  I'm trying to do a bit of a deeper dive on BRO and must admit all the Florida  insurance stories are concerning - although I'm continuing to see it as more of a risk for property owners through premium increases than for the broker side (which actually benefits).  Let's assume BRO has about 25% of revenue risk in Florida (higher than above due to the out of state initiated coverage, and probably reducing as they seem to be expanding in the UK market faster than US).  What exactly is the risk here for BRO?  Is it Citizen's reducing commission rates?  Reduced coverage as prices grow fast?  A new state funded insurer getting stood up to take on additional risk that will bypass or cut commissions from brokers like BRO?

 

Secondly, do you have any color on the acquisition side?  If BRO alone has acquired over 600 companies in the past 30 years and they are one of many acquisitive public brokers, and now private equity is scooping them up for inflated prices, what is the outlook?  How many small brokers can possibly be left that are of size to warrant acquisition that moves the needle?  Where are all these small firms coming from - is it brokers leaving BRO, AJG etc to go out on their own knowing they'll get bought at a premium?

 

Would love to get more of your input.  Despite my wife looking at me like I'm nuts when I say this is a really interesting industry, from an investment perspective I love these FCF, acquisitive machines that fly under the radar screen because it causes people's eyes to glaze over.   Thanks!!

[longterminvestor]

saw this and will give you some thoughts later.  

[longterminvestor]

MarshBerry puts out a study on agencies.  Last one I saw showed count for agencies is roughly 36,000.  The majority of these businesses are just what you see in your town/city - a retail walk up office in a stripe center where the owner has a couple employees and runs all expense through the business.  60% (21,000) are under $500K in revenue so they are small and not acquirable.  Next cohort is $500K-$2.5M which is about 11,000. So 88% of the market is sub $2.5M revenue.  Owner is the largest producer, owner writes the checks, its kinda funny to see some of these antique businesses - a testament to the staying power of insurance brokerage for sure.  These are still not "businesses", they are just little sleepy offices where people buy insurance with maybe a handful of "large accounts". 
 

Its the next tiers where things start to get organized - proper Controller/CFO where you might have a small management team running the business.  There are roughly 2500 $2.5M - $10M revenue shops.  And then the air thins at the top, $10M - $100M like 680, and $100M+ is like 45.  With the bigger shops, you have multiple owners - producers who are producing buying into the agency.  

 

Teams of producers or large single producer will leave big shops and starting up their own deal (thats what we did).  Couple of smaller shops band together to get above the $2.5M - $3.5M mark and then sell due to the big lift in multiples.  

 

Specifically with BRO, they are smart, intelligent managers who understand price paid and will not chase a deal.  They really were the pioneer in the buying of smaller agencies in the early 2000's and built a machine.  Multiples have probably peaked and with interest rates inching up, values have already started to come down.  Risk for BRO is producers leaving, they have to keep them happy with no reason to leave.  This is an elevator asset business.  Even if they leave, some young good looking producer will be sent out and save the day on a majority of the deals.  People inherently don't like change, its pretty incredible actually how people complain about insurance but do little to shop around overall - an account that is a shopper will always shop but most just want decent service and phone/emails answered.  It's really hard to poke holes in business model.  And BRO is better than most on how the business is managed.  

 

Florida will always loom tough for insurance in 4 distinct areas - Least Diverse (Risk bearers like diversification), Least Predictable (wind blows or it doesn't no one knows when and how much), Capital of Litigation, and Capital of Fraud.  This is a tough place to do business as an insurance company.  HOWEVER, state needs insurance and people will use agents.  Unknown how marketplace shakes out but the brokers are not disintermediated with state funds selling direct (my opinion).  Florida is still one of the fastest growing states and obviously needs insurance to support debt on homes/businesses and employees/cars.  

 

BRO is definitely aware of the need for growth.  Prediction is more growth comes internationally rather than domestically.  

 

 

[dealraker]

We have two 2500 category by my calculations- and subsequent recalculations in my town.  Both owners, one a part owner, are in my investment club.  In my 40 years of being in the club and 30 with them, no interest in the industry majors - although we do discuss their endless calls to purchase.

 

I recently added to WTW in the $220 vacinity and BRP at $20.   

Edited June 21, 2023 by dealraker

[dealraker]

Brown and Brown beginning of a write up - subscription is required for the bulk of it.  

 

https://www.mbi-deepdives.com/bro/

[dwy000]

19 hours ago, dealraker said:

Brown and Brown beginning of a write up - subscription is required for the bulk of it.  

 

https://www.mbi-deepdives.com/bro/

This was the writeup that got me interested to start with!

 

Longterminvestor - as always, thanks for the thorough and detailed info.  Great to hear from an inside expert.

 

The part i keep struggling with is what exactly you are buying with all these mid sized businesses. As you mention, this is an elevator asset business and the best producers will go out on their own pretty easily - and probably take their best accounts with them.  When they get big enough they sell out for a premium and the cycle starts over again.  If you stop making acquisitions it seems the business will gradually dissipate as producers move on.  Yes there is organic growth but I assume most of that is during the non-compete period and while selling owners are still engaged. 

 

Is there any benefit to the client from dealing with a BRO or an AJG instead of the smaller family firm?  I would imagine definitely at the large end where you need specialization of product expertise and diversity of insurers.  But it feels like there is a point where market share of the big guys caps out and the dissipation of business to the new entrants splitting out is equal to the amount of business being acquired.  Is this accurate?  Are we close to that point?  Where does the market share of the top 10 cap out in the industry?  Is this why they're all looking overseas?

 

Thanks again for all the color!!

[Spekulatius]

Has anyone looked at $ERIE? ERIE is not an insurance broker, they basically act as a GP of an mutual insurance exchange, if I understand this correctly.

https://seekingalpha.com/article/1883371-erie-indemnity-this-complicated-company-is-worth-understanding

 

Complicated structure and I think it is similar to insurance brokers by way of getting a cut on premiums (from the exchange). the stock looks very pricy to me, but it has shown consistent organic growth over decades, so it seems very durable.

 

I wonder if somebody understand this business correctly and has a view on valuation. Shares have come down somewhat, so it might get interesting at some point. I think I would be interested at 20x earnings which is ~$160/share.

Edited June 28, 2023 by Spekulatius

[gfp]

I think Chompin' Chuck has been all over ERIE for some years now.  (dealraker)

[dealraker]

I have owned a  good bit of Erie for about 20 years.  The owner of Breeden insurance agency in the NC Piedmont uses them and he was a partner of mine.  I also have my personal insurance with Breeden/Erie.

 

I am not an expert in any way as related to Erie Indemnity except to state that the business is far more steady than the stock price and that the stock seems always over priced...but actually may not be.

[Spekulatius]

ERIE has since 2011 increased the dividends by exactly 7.2% every year. The current dividend yield is 2.4% , so if they keep this up and the valuation stays exactly the same,  you get an 9.6% total return.

[longterminvestor]

The bigger you as an individual producer get, the less you want to leave because you are making enough money to stay and don't really want to "start over".  You would leave to a competitor if they promised to foot the legal bill.  And it may get ugly with clients who are on the margin - long time clients don't care about lawsuits but newish clients will be confused when the producer they work with is getting sued.  Reason to leave is if a broker is entrepreneurial and wants their own freedom.  But at a point, the money doesn't motivate people.  I know a guy who has an $10M revenue book and makes 20% commission on that book.  One hurdle leaving would be a couple of the markets he works with will not honor an "agent of record letter" so the business is stuck at the shop hes with.  That Producer could make double anywhere else but he is just gonna stay.  He is showered with stock so I guess it evens out.  Still tough to argue why a smart intelligent broker with actual clients would work for a big shop.  But if the producer doesnt want to run payroll, manage employees, deal with office BS and just sell - then a big shop is where they would be best suited.  

 

Difference between the big publicly traded brokers is how the teams are set up.  Some producers hunt alone and some need teams to support their books.  Some shops are very financially analytical about the set up running individual book P&L's and others just run with pooled support teams/resources.  Insurance Office of America (IOA) has a model where the producer gets the lionshare of the revenue with a centralized service team offsite.  

 

You are buying a book of business with a 95% renewal retention.  The acquisitions are the "extra growth".  Hard to mess up an insurance agency.  An idiot could run an insurance agency with 20% to the bottom line.  With some financial reporting and diligence, that idiot could get it to 35% but would have to cut Producer comp and that usually causes issues with producers.  Other item is account minimums.  Some of the bigger shops wont touch an account unless it can hit $25,000 revenue ($200,000 - $250,000 premium rough number).  That culling of the book usually gets distributed to the better local/independent shops who can write smaller accounts profitably.  

 

Great example of why I work at my own shop, phone rang Wednesday with a new deal, spent 3 hours Wednesday teeing up some applications, making the submission look tight, spent Thursday working the phones, and Friday quotes came in, bound coverage 6pm for $100,000 premium.  Will make $12,000 for 2 days worth of work.  and it will renew next year because the contract requires the coverage.  Almost impossible to shop what we did based on the class of business.  So yeah, growth can come from anywhere - you never know what is gonna happen when the phone rings.  

 

As a client, all the brokers go to the same markets and there is some favoritism (usually with a certain underwriter/producer, not on a company level) with certain brokers but overall everyone gets "the same price".  Clients who bank with a local bank with typically have an insurance broker who is "local" rather than a big name insurance broker.  Lockton (privately held) gets a good look because of their private nature from some key accounts.  Best way I have thought about it is if you sell insurance and your fraternity brother became the CEO of a huge company, you could write the account but might get a little out of sorts quickly if you dont have the claims support/service team ready to keep up with clients needs.  But again, there is no limit to what a small shop could do if the relationship with the client is there verses the big shops.  The client is the boss.  The key for any producer is equity in the book, if they have that, and the shop sells, they will get a payout.  

 

Most people/clients, generally, are conditioned to think bigger is better.  But we write some nice accounts the big shops would love to have however clients will never go to the big shop because they know pricing will be the same and the client is happy with what they already have.  Clients get that there are only a few markets in their space that can write their account.  If the producer is serving up their account annually, and gives a market summary, that is all the protection you need as a producer.  However, if you just send the account but never really work it and a competing shop sends the account and gets better execution, thats the risk.  I dont feel it has anything to do with size or being public, I believe its how the account is sold to the market, how the risk is sold to insurance underwriters.  So in that case, one could be made to look pretty stupid if a market quotes an account for another agent, and never quoted it for the incumbent agent.  

 

Overseas is where new growth is - economies are maturing and insurance is being purchased with more frequency and size.  US is one of the biggest markets, not because businesses want to de-risk by purchasing insurance, its because it is mandated.  Bank lends you money to buy an asset, bank will require insurance, have a fleet of trucks with a loan, need to insure the trucks, and the state regulatory body will want a copy of insurance as well.  Leasing a new office space?  Landlord requires insurance.  This is not the case globally but is starting to become more prevalent.   

 

 

[Spekulatius]

BRO Q2 earnings look phenomenal. Almost ~25% topline growth and even higher earnings growth. <1% share dilution rate. Of course they benefit from large acquisitions last year and the organic growth due to the hard insurance market, which creates a lollapalooza of sorts for the brokers.
https://investor.bbinsurance.com/news-releases/news-release-details/brown-brown-inc-announces-second-quarter-2023-results-including

 

Still nothing but astonishing for a more than 80 year old company.

[Castanza]

On 7/4/2023 at 11:42 PM, longterminvestor said:

The bigger you as an individual producer get, the less you want to leave because you are making enough money to stay and don't really want to "start over".  You would leave to a competitor if they promised to foot the legal bill.  And it may get ugly with clients who are on the margin - long time clients don't care about lawsuits but newish clients will be confused when the producer they work with is getting sued.  Reason to leave is if a broker is entrepreneurial and wants their own freedom.  But at a point, the money doesn't motivate people.  I know a guy who has an $10M revenue book and makes 20% commission on that book.  One hurdle leaving would be a couple of the markets he works with will not honor an "agent of record letter" so the business is stuck at the shop hes with.  That Producer could make double anywhere else but he is just gonna stay.  He is showered with stock so I guess it evens out.  Still tough to argue why a smart intelligent broker with actual clients would work for a big shop.  But if the producer doesnt want to run payroll, manage employees, deal with office BS and just sell - then a big shop is where they would be best suited.  

 

Difference between the big publicly traded brokers is how the teams are set up.  Some producers hunt alone and some need teams to support their books.  Some shops are very financially analytical about the set up running individual book P&L's and others just run with pooled support teams/resources.  Insurance Office of America (IOA) has a model where the producer gets the lionshare of the revenue with a centralized service team offsite.  

 

You are buying a book of business with a 95% renewal retention.  The acquisitions are the "extra growth".  Hard to mess up an insurance agency.  An idiot could run an insurance agency with 20% to the bottom line.  With some financial reporting and diligence, that idiot could get it to 35% but would have to cut Producer comp and that usually causes issues with producers.  Other item is account minimums.  Some of the bigger shops wont touch an account unless it can hit $25,000 revenue ($200,000 - $250,000 premium rough number).  That culling of the book usually gets distributed to the better local/independent shops who can write smaller accounts profitably.  

 

Great example of why I work at my own shop, phone rang Wednesday with a new deal, spent 3 hours Wednesday teeing up some applications, making the submission look tight, spent Thursday working the phones, and Friday quotes came in, bound coverage 6pm for $100,000 premium.  Will make $12,000 for 2 days worth of work.  and it will renew next year because the contract requires the coverage.  Almost impossible to shop what we did based on the class of business.  So yeah, growth can come from anywhere - you never know what is gonna happen when the phone rings.  

 

As a client, all the brokers go to the same markets and there is some favoritism (usually with a certain underwriter/producer, not on a company level) with certain brokers but overall everyone gets "the same price".  Clients who bank with a local bank with typically have an insurance broker who is "local" rather than a big name insurance broker.  Lockton (privately held) gets a good look because of their private nature from some key accounts.  Best way I have thought about it is if you sell insurance and your fraternity brother became the CEO of a huge company, you could write the account but might get a little out of sorts quickly if you dont have the claims support/service team ready to keep up with clients needs.  But again, there is no limit to what a small shop could do if the relationship with the client is there verses the big shops.  The client is the boss.  The key for any producer is equity in the book, if they have that, and the shop sells, they will get a payout.  

 

Most people/clients, generally, are conditioned to think bigger is better.  But we write some nice accounts the big shops would love to have however clients will never go to the big shop because they know pricing will be the same and the client is happy with what they already have.  Clients get that there are only a few markets in their space that can write their account.  If the producer is serving up their account annually, and gives a market summary, that is all the protection you need as a producer.  However, if you just send the account but never really work it and a competing shop sends the account and gets better execution, thats the risk.  I dont feel it has anything to do with size or being public, I believe its how the account is sold to the market, how the risk is sold to insurance underwriters.  So in that case, one could be made to look pretty stupid if a market quotes an account for another agent, and never quoted it for the incumbent agent.  

 

Overseas is where new growth is - economies are maturing and insurance is being purchased with more frequency and size.  US is one of the biggest markets, not because businesses want to de-risk by purchasing insurance, its because it is mandated.  Bank lends you money to buy an asset, bank will require insurance, have a fleet of trucks with a loan, need to insure the trucks, and the state regulatory body will want a copy of insurance as well.  Leasing a new office space?  Landlord requires insurance.  This is not the case globally but is starting to become more prevalent.   

 

 

 

Thanks for the insider insights on this. Been reading about the industry off and on the past few months. What foreign markets do you see as potentially most lucrative? 

[dealraker]

2 hours ago, Spekulatius said:

BRO Q2 earnings look phenomenal. Almost ~25% topline growth and even higher earnings growth. <1% share dilution rate. Of course they benefit from large acquisitions last year and the organic growth due to the hard insurance market, which creates a lollapalooza of sorts for the brokers.
https://investor.bbinsurance.com/news-releases/news-release-details/brown-brown-inc-announces-second-quarter-2023-results-including

 

Still nothing but astonishing for a more than 80 year old company.

Yep.

[longterminvestor]

According the Lloyd's Chief of Markets, Patrick Tiernan - 50% of the business written at Lloyds is US Based, 10% Canada, and 40% is the rest of the world.  Decent stat but tough to really use because of the regional nature of insurance and the risk bearing companies being localized.    

 

Tough to say what foreign markets are growth markets. If trying to handicap where growth markets will come, my hunch is where ever there is a growing debt market for real estate/business in general - insurance will follow.  Where ever there is a contractual obligation, insurance will follow.  No debt, no contracts - no insurance.  That's true in the US at least.  Client might purchase super cheap insurance but not like what a bank or a contract will require.  Its gonna come from where you think it comes from, maturing economies, growing GPD's.  

 

Other item is the non-competes - just don't know how well they stick internationally (never did the work on it).  They have to be decent or guys like Brown wouldn't be playing.  The non-compete is one of the most important parts of the brokerage business in the US.  (Forgive me if I already said this), When a retail facing agency, the one who gets the paper work signed and collects the money from the insured/the buyer, signs an agreement with a carrier/wholesaler/MGA/MGU (we will make up some more acronyms soon enough), the agreement says the AGENCY owns the expirations of the book of business with the carrier/wholesaler/MGA/MGU.  The AGENCY is the one who owns the relationship, individual producers will not have agreements with carriers, the agencies do.  Now, the actual broker/producer may have ownership in their book, the actual accounts - could be a split where if the producer leaves, they can buy it at a price from the agency - usually pre-determined in the producer agreement with the agency, or like in the case of the big publicly traded brokers - the producers don't own a darn thing, zero, zilch.  That's the asset.  The book is the asset.  Important to note contractually, the carriers do not own anything, theoretically the carriers/wholesalers/MGA/MGU's serve the retail facing brokers, if the broker wants to move it (tells the insured hey lets move from this carrier to that carrier) they move it.  I'm sure the set up is similar internationally but just never seen one. Theoretical because it is supposed to be a symbiotic relationship.  But sometimes it is not so sympatico, brokers threaten carriers all the time "if you dont do this for me, im gonna move my book" bla bla.  I've never done business that way but people totally do.  Or the inverse, there is only 1 carrier who will quote, so that carrier owns that particular market/line of business in that class of exposure.  

 

Had a call just today where we were trying to negotiate some language on an endorsement and the wholesale counterpart said "We are one of MunichRe's largest money makers, they will do what we say".  I was like, ok, thats fine with me.  

 

I have placed accounts internationally and its usually a paper work/clerical nightmare as a US based Broker.  For example, the Bahamas really makes it tough to write business there if you are a US Broker (Bahamas Insurance Commissioner wants the money to stay in the Bahamas).  Probably similar in other countries as well.  Again, the regionality of insurance is important - each region of the world has their own set of unique things and when a broker shows up in that market, they are probably gonna get smoked because they dont know the players.  

 

I tried to place a deal in Hong Kong once, made 1 phone call to a friend, referred me to the Asia team, and immediately got told they had seen this account 3 times in the past 3 years.  They did quote for me but was impressed how easy it was to get someone who could help me.  Placed a deal in Mexico and just found a broker in Mexico who specializes is placing Mexican risks for US Brokers, we just split the commission.  

 

Other item I have heard a ton about, specifically in South America, is the stamping of policies - specifically in Reinsurance.  Important because when there is a stamp, the premium is noted and the taxes/fees are collected by the regulating insurance body.  In South America, and other international countries, where the stamping is not really regulated, the carrier might quote $100,000 for a risk, and the broker tells the client its $120,000.  So in addition to the commission, broker pockets an extra $20K when they collect the money from client.  Again, much easier in re-insurance but I am sure it happens a decent amount.  Would have to assume (famous last words) with big public brokers this doesn't happen but....

 

Hope this is helpful, glad I can share something where I have some background.  Everyone on site is always nice and helpful.  Been selling insurance for 16 years and family been doing it since early 1930's.  

 

I'll end with a quote a I heard, just thought it was 1000% accurate.  "Insurance Brokerage business is A+ money for C+ players".  The public brokers are not C+ but there are some folks who work there that are definitely C+ at best and pull down some serious cash.  2nd Best business in the world, Software I guess has to be better.  Said that to someone once, and they said Churches are the best business in the world.  No taxes. 

 

Cheers!   

[dwy000]

12 hours ago, longterminvestor said:

According the Lloyd's Chief of Markets, Patrick Tiernan - 50% of the business written at Lloyds is US Based, 10% Canada, and 40% is the rest of the world.  Decent stat but tough to really use because of the regional nature of insurance and the risk bearing companies being localized.    

 

Tough to say what foreign markets are growth markets. If trying to handicap where growth markets will come, my hunch is where ever there is a growing debt market for real estate/business in general - insurance will follow.  Where ever there is a contractual obligation, insurance will follow.  No debt, no contracts - no insurance.  That's true in the US at least.  Client might purchase super cheap insurance but not like what a bank or a contract will require.  Its gonna come from where you think it comes from, maturing economies, growing GPD's.  

 

Other item is the non-competes - just don't know how well they stick internationally (never did the work on it).  They have to be decent or guys like Brown wouldn't be playing.  The non-compete is one of the most important parts of the brokerage business in the US.  (Forgive me if I already said this), When a retail facing agency, the one who gets the paper work signed and collects the money from the insured/the buyer, signs an agreement with a carrier/wholesaler/MGA/MGU (we will make up some more acronyms soon enough), the agreement says the AGENCY owns the expirations of the book of business with the carrier/wholesaler/MGA/MGU.  The AGENCY is the one who owns the relationship, individual producers will not have agreements with carriers, the agencies do.  Now, the actual broker/producer may have ownership in their book, the actual accounts - could be a split where if the producer leaves, they can buy it at a price from the agency - usually pre-determined in the producer agreement with the agency, or like in the case of the big publicly traded brokers - the producers don't own a darn thing, zero, zilch.  That's the asset.  The book is the asset.  Important to note contractually, the carriers do not own anything, theoretically the carriers/wholesalers/MGA/MGU's serve the retail facing brokers, if the broker wants to move it (tells the insured hey lets move from this carrier to that carrier) they move it.  I'm sure the set up is similar internationally but just never seen one. Theoretical because it is supposed to be a symbiotic relationship.  But sometimes it is not so sympatico, brokers threaten carriers all the time "if you dont do this for me, im gonna move my book" bla bla.  I've never done business that way but people totally do.  Or the inverse, there is only 1 carrier who will quote, so that carrier owns that particular market/line of business in that class of exposure.  

 

Had a call just today where we were trying to negotiate some language on an endorsement and the wholesale counterpart said "We are one of MunichRe's largest money makers, they will do what we say".  I was like, ok, thats fine with me.  

 

I have placed accounts internationally and its usually a paper work/clerical nightmare as a US based Broker.  For example, the Bahamas really makes it tough to write business there if you are a US Broker (Bahamas Insurance Commissioner wants the money to stay in the Bahamas).  Probably similar in other countries as well.  Again, the regionality of insurance is important - each region of the world has their own set of unique things and when a broker shows up in that market, they are probably gonna get smoked because they dont know the players.  

 

I tried to place a deal in Hong Kong once, made 1 phone call to a friend, referred me to the Asia team, and immediately got told they had seen this account 3 times in the past 3 years.  They did quote for me but was impressed how easy it was to get someone who could help me.  Placed a deal in Mexico and just found a broker in Mexico who specializes is placing Mexican risks for US Brokers, we just split the commission.  

 

Other item I have heard a ton about, specifically in South America, is the stamping of policies - specifically in Reinsurance.  Important because when there is a stamp, the premium is noted and the taxes/fees are collected by the regulating insurance body.  In South America, and other international countries, where the stamping is not really regulated, the carrier might quote $100,000 for a risk, and the broker tells the client its $120,000.  So in addition to the commission, broker pockets an extra $20K when they collect the money from client.  Again, much easier in re-insurance but I am sure it happens a decent amount.  Would have to assume (famous last words) with big public brokers this doesn't happen but....

 

Hope this is helpful, glad I can share something where I have some background.  Everyone on site is always nice and helpful.  Been selling insurance for 16 years and family been doing it since early 1930's.  

 

I'll end with a quote a I heard, just thought it was 1000% accurate.  "Insurance Brokerage business is A+ money for C+ players".  The public brokers are not C+ but there are some folks who work there that are definitely C+ at best and pull down some serious cash.  2nd Best business in the world, Software I guess has to be better.  Said that to someone once, and they said Churches are the best business in the world.  No taxes. 

 

Cheers!   

LTI - absolutely love your insider insights into this industry.  Worth it's weight in gold.  Please keep it up!!

[Spekulatius]

Even the best sector sector has a turd:

https://finance.yahoo.com/news/wtw-reports-second-quarter-2023-100000126.html

 

The disconnect between the best in class operators like AJG / BRO and WTW is mind blowing. I think WTW became a hedge fund hotel after the W merged with TW and then there was this AON drama.

 

WTW EBITDA margins of <15% are less than half what BRO makes.

[dealraker]

2 hours ago, Spekulatius said:

Even the best sector sector has a turd:

https://finance.yahoo.com/news/wtw-reports-second-quarter-2023-100000126.html

 

The disconnect between the best in class operators like AJG / BRO and WTW is mind blowing. I think WTW became a hedge fund hotel after the W merged with TW and then there was this AON drama.

 

WTW EBITDA margins of <15% are less than half what BRO makes.

Willis had bought broker Hilb, Rogal, Hamilton (Hobbs) in 2008 or so, paid dearly, which itself was mostly a intermittent dog always selling semmingly cheap but not.   The TW part is out of my understanding.  The merger cancellation with AON was probably a good thing for AON.  

[dealraker]

An interesting article:

 

https://www.npr.org/2023/07/22/1186540332/how-climate-change-could-cause-a-home-insurance-meltdown

[Dinar]

@longterminvestorand @dealraker, gentlemen, in your opinion, how hard would it be to turnaround WTW?  Thank you.