General Investing
Organic Growth, Margin Expansion to Lift Insurance Brokers
July 09, 2012The insurance brokers offer attractive exposure to the property and casualty insurance sector due to the segment’s potential for organic growth and margin expansion, as well as the group’s ability to control its expense base, versus underwriters, says Ray Iardella, a Vice President and Senior Analyst at Macquarie Group Limited.
“Like I said, for the brokers, it’s not just about growing for the sake of growing, but to grow to expand margins, increase EBIDTA, and ultimately, increase their EPS. I think these are all important things that you need to see in these companies to drive multiple expansion,” he said.
Iardella favors Marsh & McLennan Companies, Inc., (MMC) because the company has been the best-growing, from an organic revenue perspective, insurance broker of the group over the past 12 to 18 months, and that growth is expected to continue.
“So I think MMC has that going for them on the topline side, but also they have been able to deliver meaningful margin expansion over that same time period,” he said. “I think that trend is going to persist as well, because management’s focus is on controlling expenses, and basically growing expenses at a slower pace than organic revenue growth to drive margin expansion.”
