Mr. Dwelle: We are currently covering four insurance brokers - Arthur J. Gallagher (AJG), Brown & Brown (BRO), Hilb Rogal & Hobbs (HRH) and Hub International (HBG). Hub is being acquired, but for the time being, we are still following them.
TWST: What's going on in the space from a business perspective?
Mr. Dwelle: From an operating standpoint, underlying insurance prices on balance
are falling. So for insurance brokers, in order to maintain their revenues,
their challenge is to generate new business activity or do acquisitions. If
prices are falling by 5%, then you're going to lose some amount of customers
anyway through ordinary attrition - you're 5% to 10% in the hole on new business
just to get back to even. That's certainly a challenge that everybody is facing.
TWST: What is happening in the marketplace that's driving prices down?
Mr. Dwelle: We've come off of a period that probably ran at least through the
early part of 2004, where the post 9/11 pricing environment pushed rates higher
on both property and liability lines. The strength in the liability lines
persisted a little bit longer, and property has been stronger in certain parts
of the country. Insurers are making a lot of money right now, and they've begun
to compete on price as a means of keeping their business volumes going and
increasing their market shares.
Tickers included in this excerpt: AJG, BRO, HBG, HRH
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