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3rd December 2017

Fitch publishes '2018 Outlook: U.S. Insurance Broker Industry'
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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 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 favourable 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 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.
is available at www.fitchratings.com

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