The Zacks Insurance - Brokerage industry comprises companies that primarily offer insurance and reinsurance products and services. Insurance brokers act on behalf of their clients and offer advice keeping in mind clients' interests against brokerage fees. Some of these companies are also involved in providing risk management, third-party administration and managed health care services.
Per London-based Technavio, global insurance brokerage market size is estimated to grow by about $14.5 billion during 2018-2022.
Here are the industry's three major themes:
- Strong customer retention and increase in the number of insured have been driving insurance brokers' revenues. Moreover, income is generated through commissions earned on policies sold. While growth in aging population is driving demand for retirement benefit products, rising population of baby boomers and millennials is boosting demand for medical insurance, life insurance, accidental insurance and other forms of insurance. This, in turn, leads to higher revenues as policy prices rise and volumes increase. Further, in case of some players, this trend is being supported by a steady diversification of operations through mergers and acquisitions. Also, with the market getting stronger on buoyant economic conditions, insurance brokers are capitalizing on their investments and generating better commissions and profits.
- With the business environment becoming more dynamic and complex, the need for insurance brokerage services has grown considerably. Additionally, utilization of data and analytics has strengthened insurance brokers' capabilities to cater to the increasing need for sophisticated risk management services.
- While investments in technology and analytics help insurance brokers generate solid revenues, expenses associated with such investments increase operating costs. Inorganic growth initiatives have increased debt levels of many players. As a result, interest expenses are expected to remain on the higher side.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Insurance - Brokerage industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #83, which places it in the top 33% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, signifies solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 33% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are upbeat in this group’s earnings growth potential.
Before we present a few insurance broker stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 and Sector
The Insurance Brokerage Industry has outperformed the Zacks S&P 500 Composite and the broader Zacks Finance Sector over the past year.
The industry has rallied 29.1% compared with the S&P 500's increase of 5.6%. Meanwhile, the broader sector has declined 1.1%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 6X compared with the S&P 500's 4.03X and the sector's 2.74X.
Over the last five years, the industry has traded as high as 6X, as low as 2.95X and at the median of 4.2X.
Trailing 12-Month Price-to-Book (P/B) Ratio
Trailing 12-Month Price-to-Book (P/B) Ratio
Strong customer retention and increase in the number of insured will help the industry generate higher revenues. Per Technavio, global insurance brokerage market is estimated to witness CAGR of 4.9% during 2018-2022.
However, increasing expenses pose a near-term challenge.
The Zacks Insurance Brokerage space has two stocks carrying a Zacks Rank #2 (Buy).
eHealth, Inc. (EHTH): This Santa Clara, CA based company provides private health insurance exchange services to individuals, families, and small businesses in the United States and China. It came up with average positive earnings surprise of 127.73% in the trailing four quarters. The Zacks Consensus Estimate for earnings indicates year-over-year growth of 49.6% for 2019 and 28.9% for 2020.
Price and Consensus: EHTH
Willis Towers Watson Public Limited Company (WLTW): For this London, United Kingdom-based advisory, broking, and solutions company worldwide, the Zacks Consensus Estimate for 2019 EPS indicates 10.6% year-over-year improvement while the same for 2020 implies 9.8% growth. The company has an estimated long-term earnings growth rate of 10.6%. It pulled off average beat of 4.73% in the preceding four quarters.
Price and Consensus: WLTW
We are also presenting three stocks with a Zacks Rank #3 (Hold) that investors may want to hold on to at the moment.
You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.
Aon plc (AON): The Zacks Consensus Estimate for 2019 EPS indicates year-over-year rise of 12.8%. This London, United Kingdom-based provider of advisory and solutions based on risk, retirement, and health has an estimated long-term earnings growth rate of 12.2%. It delivered average positive earnings surprise of 3.21% in the last four quarters. The Zacks Consensus Estimate for EPS indicates 12% year-over-year improvement for 2019 and 12.7% growth for 2020.
Price and Consensus: AON
Marsh & McLennan Companies, Inc. (MMC): This New York based provider of advice and solutions to clients in the areas of risk, strategy, and people worldwide delivered average positive surprise of 3.44% in the last four quarters. The company has an estimated long-term earnings growth rate of 12.1%. The Zacks Consensus Estimate indicates 5.8% year-over-year increase for 2019 and 10.6% rise for 2020.
Price and Consensus: MMC
Brown & Brown, Inc. (BRO): This Daytona Beach, FL-based company markets and sells insurance products and services in the United States, England, Canada, Bermuda, and the Cayman Islands. The Zacks Consensus Estimate for 2019 EPS suggests 9.8% year-over-year increase and 9.3% rise for 2020. The company has an estimated long-term earnings growth rate of 10%. It pulled off average beat of 4.56% in the preceding four quarters.
Price and Consensus: BRO
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