By STEVE YAHN, who has written for and edited national publications for more than 30 years
If leading midsized insurance brokers have their antennae set correctly, 2011 should be an upbeat year in comparison to 2010.
"What we're seeing from the economy, which is the biggest driver in the middle market, is that things are still down, but the good news is that things aren't down as much," said Cory Walker, senior vice president, treasurer and chief financial officer at Brown & Brown Inc., the seventh-largest insurance broker in the country.
Walker said he expects more mergers and acquisition activity involving midsized brokers this year as agencies see smaller declines in revenues and profits.
"I think the amount of acquisition activity should be getting back to historical levels, because all agencies are able to see their revenues and operating profits decline less and so over a potential three-year earn-out basically they can see their value build back up over that period of time," Walker said.
The recovery is slow, said Ken Crerar, president of Washington, D.C.-based The Council of Insurance Agents & Brokers, but it is real and that is a sign of more mergers and acquisitions ahead.
"The amount of scale you need in this business is going to continue to expand," he said. "Scale is really important. It's about having the sophistication and resources to provide what clients need." Fewer banks will be doing the buying as more brokers buying other brokers fill the void.
There is much planned activity among midsized brokerages to capitalize on potential business generated by healthcare reform, and already the brokerage industry has seen a flurry of activity over the past six months following Aon's announcement that it was buying Hewitt Associates, the benefits consulting giant.
"Healthcare rates generally are still going up and exposure units would be similar," Walker said. "But I think the opportunities related to the healthcare act are still undecided. Even the carriers are trying to figure things out."
A brief survey of leading midsized brokerages found a positive mood for they year, fueled by new opportunities in employee benefits, more emphasis on cross-selling platforms, the stepped-up introduction of new products and a warming trend with regard to acquisitions.
Here are four midsized brokers, all of them historical Horatio Alger stories, that have been in the vanguard of success in the past year.
MEADOWBROOK INSURANCE GROUP
Last year was a banner year for Southfield, Mich.-based Meadowbrook Insurance Group Inc., which posted consistent, profitable growth in a difficult market, said President and CEO Robert S. Cubbin.
In 2009, Meadowbrook produced gross written premium of $688.6 million and net operating income of $53.5 million.
For 2010, management expected net operating income to be in a range of $50 million to $55 million. Gross written premium is forecast to be in a range of $790 million to $815 million, up from $688.6 million in 2009," Cubbin said.
Over the company's 55-year history, Meadowbrook has grown from its modest beginnings, out of Chairman Merton J. Segal's house, to become a publicly held company comprised of insurance companies, retail and wholesale agencies, a third-party administrator and other risk management subsidiaries. Meadowbrook has 22 offices throughout the United States, and is licensed to write coverage in all 50 states.
Since 2002, the company's compound annual growth of more than 18 percent has come from a mix of acquisitions and organic expansion. In 2010, Meadowbrook completed its integration of Westerville, Ohio-based excess and surplus specialist Century Insurance Group.
This year, the broker will continue to diversify into aviation lines, and professional and product liability lines. Further expansions may include equine, animal mortality and space risks, Cubbin said.
"Meadowbrook strives to establish multiple business relationships with key partners?meaning rather than doing just one program or type of appointment with a specific agent, we work to establish multiple lines of business with that specific agent," Cubbin said. "So, in essence, an agent is working with multiple divisions of Meadowbrook with access to many different product lines or programs."
LEAVITT GROUP ENTERPRISES
When Dixie Leavitt and his brother, Bert, incorporated Leavitt Insurance Agency of Las Vegas in 1959, Dixie owned 60 percent and Bert owned 40 percent. Using this arrangement, Dixie and other owners invested in and created agencies in Utah, Arizona and Nevada.
Over the past 15 years, the company has achieved two-thirds of its growth through acquisition and one-third through organic growth. Today the group consists of affiliated insurance agencies in more than 115 locations in 14 states.
The company last year embarked on an initiative to segment the company's affiliated agencies into one of three types, with different governance, infrastructure and services provided by each of the different agency types. Leavitt also pressed forward with a centralized facility to service small commercial lines of business for affiliated agencies.
"With the successful development of alternative sources of capital, we anticipate revenues to grow in 2011 through both acquisitions and organic growth activities, including investment in new products," Chairman and CEO Dane Leavitt told Risk & Insurance®.
Areas of focus for the Leavitt Group Enterprise of Cedar City, Utah, include benefits, personal lines, workers' compensation and logistics.
Initiatives in 2011 include the formation of practice groups across affiliated agencies, and the development of products and programs, which will boost the business of those within the practice group.
Leavitt said the company will also develop alternate sources of revenue outside of insurance, such as offering prescription discount cards to health insurance clients.
J. SMITH LANIER & CO.
J. Smith Lanier, based in West Point, Ga., was founded by two brothers, W.C. and Lafayette, shortly after the Civil War. Under five generations of Laniers, the company has grown mostly organically with some acquisitions to more than 540 employees in 19 offices. The firm is ranked as the largest privately held broker in the Southeast.
J. Smith Lanier maintained its strength and profitability in 2010 compared with 2009, allowing the company to increase its community support and corporate giving, said Gary Ivey, president and chief operating officer. "And we've been cited as a best place to work among medium-sized brokers."
Ivey noted that benefits revenues have been growing by double digits for the past five years, and he expected that growth to continue in 2011 as a result of an in-house consulting unit to review healthcare reform legislation.
JSL has developed decision-making software to help customers predict what their healthcare costs may be under healthcare reform, and to allow them to comply more easily with the federal healthcare mandates.
In addition, JSL plans a large initiative in the captive consulting area. "The larger and more diverse that JSL becomes the more we deal with clients that want to be involved with partnering in the risk bearing and working level losses for single parent losses," Ivey said. "As a result, we have helped with deductible reimbursement captives and quota share reinsurance arrangements in these working areas."
The availability of reinsurance, considering current soft market conditions, also makes it possible to structure arrangements that help lower the total cost of risk for clients by participating.
JSL expects $115 million in revenue in 2010, up 3 percent from the previous year, due mainly to its benefits consulting business.
REGIONS INSURANCE GROUP
Better cooperation with Regions commercial bankers has yielded new cross-selling opportunities for the broker, and new business revenue from Regions Bank clients is up nearly 50 percent on a year-over-year basis, said Curren Coco, president and CEO of Memphis-based Regions Insurance Group. The group has seen continued strength in niche markets, such as trucking and transportation, and Liam Murphy, who heads the company's transportation group, last year was named broker and insurance consultant for the American Trucking Association. Regions has begun work on several potential programs for the ATA's members.
In addition, the group has seen more activity by Andre Comeaux of its New Iberia, La., office. Comeaux combines engineering and insurance to provide guidance to the broker's oil and gas industry clients in Louisiana and Texas.
Coco expects "double-digit growth" in the employee benefits area in 2011. "We have added additional production staff and are finding that the Regions Commercial banking clients are responsive to a team approach in this area," Coco said. "These clients are realizing the value of working with a banker who understands their credit risk. In fact, the majority of our employee benefit growth has been from bank cross-selling opportunities."
In spite of a soft market, "We still feel that we can grow our business by continued focus on cross-selling, leveraging our various expertise and strategic expansion of our overall footprint," Coco said.
Regions Insurance Group was launched in 2001 as a subsidiary of Regions Financial Corp., and growth came through acquisitions with organizations that had long-standing reputations in the geographic areas they served. "These brokers know they can't make major headway through pure organic growth," the CIAB's Crerar said, in an interview with Risk & Insurance®. "They've got to have other strategies in order to continue to expand their businesses. These are firms that are about opportunity. I think there's a lot of opportunity across the board for them."
Crerar said that these brokers are bigger and they have deeper pockets because they have more capital put away. "So I think these guys are really out there evaluating what types of opportunity there are that they can take advantage of. When they go to sell to the middle market they've got more to sell because they've got many levels of expertise and sophistication," he said.
"Buyers are not expecting the seller to be their son-in-law or their uncle-in-law down the street, so the demands are changing and being able to meet those demands is where I think the organic growth is coming from."
February 17, 2011
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