Slower economic growth and smaller property/casualty rate increases are likely to lead to lower organic revenue growth among insurance brokers this year, and higher borrowing costs will push up acquisitions, Moody’s Investors Service said in a report released Thursday.
Gross domestic product growth among leading rich and developing countries is likely to slow from 2.7% in 2022 to 2% in 2023 and 2.4% in 2024, and the US economy is likely to stall, the New York-based ratings agency said.
And industry surveys show that aggregate rates for U.S. commercial lines are declining year over year, Moody’s said.
Even with the slowing economy and lower interest rate hikes, many insurance coverages are critical or mandatory, the report said.
“We expect most brokerages to report healthy organic growth in the mid-single digits in 2023, with some specialty and wholesale businesses reporting faster growth,”
; the report said. Average organic revenue growth for listed brokers reached 10.7% in the second quarter of 2021 and remained at 7.2% in the fourth quarter of 2022, Moody’s said.Meanwhile, facing higher interest rates and weaker economic conditions, “insurance brokers are increasingly selective in their acquisitions,” the report said.
But the sector remains fragmented so consolidation will continue and earnings multiples paid for companies will remain high, Moody’s said.
The rating agency changed its outlook for the insurance brokerage sector to stable from positive.
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