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Fitch: Insurance Brokers' Performance Stability to Continue in 2018
December 1, 2017 / 2:00 PM / in 14 days

Fitch: Insurance Brokers' Performance Stability to Continue in 2018

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Fitch 2018 Outlook: U.S. Insurance Broker Industry (Continuing Performance Stability) here LONDON, December 01 (Fitch) Publicly traded insurance brokers' aggregate run-rate profitability and balance sheet credit profile are anticipated to remain consistent with investment-grade rating guidelines in 2018, according to Fitch Ratings' 2018 U.S. Insurance Broker Outlook report. "In 2018, Fitch expects brokers will continue to supplement organic revenue growth through acquisitions, including diversification efforts in employee benefits, data analytics, and emerging markets such as political and cyber risk," said Gretchen Roetzer, Director, Fitch Ratings. Operating performance and balance sheet strength will remain supportive of current ratings with a stable rating outlook for the brokers in Fitch's ratings universe. Fitch sees limited potential for rating changes over the next 12 to 18 months. Marsh & McLennan Companies, Inc. (MMC) has a Positive Outlook and is a potential exception for a rating change. Insurance brokers' earnings and revenue are likely to modestly improve in 2018 relative to levels reported in the first nine months of 2017. The fundamental sector outlook is stable as profitability levels remain favorable in the sector. Modest near-term insurance premium rate improvement is expected in some reinsurance and commercial insurance segments following a year of large natural catastrophe losses. Brokers' organic revenue growth is expected to remain positive over the next 12 to 18 months. Diverse product and geographic platforms will help offset any core earnings headwinds and will likely become an increased focus. Strong customer retention and insured exposure growth from an improving domestic economy will also aid revenue sustainability. An increasingly complex business environment and regulatory change also increase the need for insurance products, and drive higher demand for broker data and services. Brokers' abilities to demonstrate value-added services and products, such as benefits consulting, data and analytics capabilities, and emerging risks will remain critical for success with customers that have growing risk management sophistication. Fitch expects broker industry credit fundamentals to remain solid in 2018. Fitch's analysis of a group of publicly traded brokers reveals that on average profit margins have improved in 2017 despite pricing pressure and an increase in lower margin business, with just one of the five peers reporting reduced margins in part from one-time items. Financial leverage rose for several of the large brokers in part due to increased acquisition/divestiture opportunities and low interest rates that promoted early debt refinancing, while debt maturities remain well laddered. Interest coverage levels indicate strong debt servicing capabilities and are supportive of current rating levels. The full report '2018 Outlook: U.S. Insurance Broker Industry' is available at 'www.fitchratings.com' or by clicking on the link. Contact: Gretchen K. Roetzer Director +1-312-606-2327 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Martha M. Butler, CFA Senior Director +1-312-368-3191 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016) here Related Research U.S. Insurance Broker Industry Sector Credit Factors here U.S. Insurance Brokers Dashboard here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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