Moody's report drops global broking outlook to stable

A new report from Moody’s Investors Service has changed its outlook on the global broking sector from positive to stable, with a mid-single-digit growth rate expected.

The report says broker revenue growth will report lower-than-expected but still strong results for the year, with some speciality brokers likely to increase beyond the expected rate.

Moody’s says the lowered growth underlies the outlook shift as a slowing economy and smaller commercial property and casualty (P&C) lines contribute to decreased earnings.

GDP growth amongst G-20 economies is expected to slow to 2.0% in 2023 and 2.4% in 2024, down from 2.7% in 2022.

It says the expected steady earnings before interest, tax, depreciation and amortisation and the lower-than-expected growth will be offset by higher financing costs and weaker interest coverage.

“Even in a slowing economy, insurance brokers will benefit from the mandatory or critical nature of many P&C and employee benefits offerings and from further rate increases in most commercial P&C lines,” Moody’s said.

The rating agency says leading brokers in the US and Europe to continue to sweep up a “fragmented” sector but notes that economic conditions will push brokers to become “increasingly selective in their acquisitions.”

Moody’s says rated broker debt markets have exceeded $US100 billion ($149.11 billion), with most companies found to be “effectively managing their debt maturities,” to 2025 or beyond.

The outlook highlights investments in technology, analytics and cyber “remain key priorities,” for the industry to enhance product quality and efficiency.

“The technology push is an important driver of consolidation in the brokerage sector,” Moody’s said.

“Brokers are investing in digitisation, machine learning and robotics, and they are shifting these efforts to the cloud to enable faster updates and broader usage.”