We recently compiled a list of the 7 Best Insurance Brokerage Stocks to Invest in Now. In this article, we are going to take a look at where Aon plc (NYSE:AON) stands against the other insurance brokerage stocks.
The Insurance Brokerage Market: An Overview
The insurance brokerage market serves as an important link between insurance companies and clients, helping individuals and businesses find the right insurance coverage. Brokers act as intermediaries, offering a wide range of services that include risk assessment, policy selection, and claims assistance. As regulations evolve and new risks emerge, the role of brokers becomes even more crucial in ensuring that clients are adequately protected.
This market has been expanding rapidly. According to Grand View Research, the global insurance brokerage market was valued at $287.40 billion in 2023. Looking forward, the market is expected to grow at a compound annual growth rate (CAGR) of 9.2% during 2024-2030 to reach $524.80 billion by the end of the forecast period.
The North American insurance brokerage market was the largest in the world in 2023, accounting for 30.5% of the total revenue. This growth is largely driven by regulatory changes and increasing compliance requirements in the region. As businesses strive to avoid the risks associated with non-compliance, the demand for brokerage services continues to rise.
A key trend driving market growth is the integration of technologies like artificial intelligence (AI) and data analytics, which are transforming the industry. These tools help brokers streamline processes, improve risk assessments, and enhance customer service.
First Rate Drop in Seven Years?
On October 24, Reuters reported that global commercial insurance rates fell by 1% in the third quarter of 2024. This marks the first quarterly decline in seven years, as noted by the Global Insurance Market Index from Marsh. The index tracks renewal rate changes across four main categories of commercial insurance: property, casualty, cyber, and financial & professional lines. Marsh indicated that the decrease in composite rates was mainly due to increased competition among insurers in the global property market.
Regionally, the average composite rates experienced a significant reduction, with a 6% drop in the Pacific region, 5% in the UK, 4% in Asia, 3% in Canada, and 2% in India, the Middle East, and Africa. In contrast, rates remained flat in Europe and increased by 3% in both the US and the Latin America and the Caribbean (LAC) region.
Property insurance rates globally decreased by 2%. Financial and professional lines experienced a notable drop of 7%, marking the ninth consecutive quarter of declines in this category. Cyber insurance rates also fell by 6%, consistent with the previous 2 quarters. However, casualty insurance was the only major product line to see an increase, rising by 6% globally after several quarters of growth. Pat Donnelly, President of Marsh Specialty and Global Placement, described these rate reductions as a positive development for clients.
For insurance brokers, this presents both challenges and opportunities. A decrease in rates can indicate a shift in market conditions, which could lead to increased competition among brokers as they adjust their strategies to attract clients. Lower rates may also make insurance more affordable for more customers, encouraging them to purchase coverage or expand their existing policies.
Methodology
To compile our list of the 7 best insurance brokerage stocks to invest in now, we used the Finviz and Yahoo stock screeners to find insurance brokerage companies. We also reviewed our own rankings and consulted various online resources. From an initial pool of more than 20 insurance brokerage stocks, we focused on the top 7 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s database of 912 elite hedge funds. The 7 best insurance brokerage stocks to invest in now are ranked in ascending order based on the number of hedge funds holding stakes in them as of Q2 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An insurance broker talking to a client, demonstrating the trust of their services.
Aon plc (NYSE:AON)
Number of Hedge Fund Holders: 54
Aon plc (NYSE:AON) is an insurance broker and risk management firm that operates in over 120 countries. The company provides a wide range of services, including Commercial Risk Solutions, Reinsurance Solutions, Retirement Solutions, Health Solutions, and Data & Analytic Services. Aon plc’s (NYSE:AON) expertise in risk capital and human capital allows it to deliver valuable insights that help clients make informed decisions to protect and grow their businesses.
In April 2024, the company completed the acquisition of NFP for an enterprise value of $13 billion. This strategic move enhances Aon plc’s (NYSE:AON) presence in the growing middle-market segment, adding over 7,700 colleagues and expanding its capabilities in property and casualty brokerage, benefits consulting, wealth management, and retirement planning. Additionally, Aon plc (NYSE:AON) made six middle-market acquisitions in Q3 2024, demonstrating its commitment to capitalizing on opportunities in this fast-growing sector.
Aon plc (NYSE:AON) reported total revenues of $3.7 billion for Q3 2024, including a 7% organic revenue growth.
The company is implementing its 3×3 Plan, which focuses on delivering integrated risk capital and human capital solutions through the Aon Client Leadership Model supported by its Aon Business Services platform. The company is also actively investing in advanced analytics and AI-driven services to position itself well for future growth.
Over the past 5 years, Aon plc (NYSE:AON) has grown its revenue at a compound annual growth rate (CAGR) of 6.49%, while its net income has increased at a CAGR of 10.14% during the same period.
With its robust growth strategy and recent acquisitions, Aon plc (NYSE:AON) stands out as a compelling investment opportunity in the insurance brokerage sector.
According to Insider Monkey’s Q2 database of over 900 hedge funds, 54 hedge funds held stakes in AON. Weitz Investment Management stated the following regarding Aon plc (NYSE:AON) in its “Partners III Opportunity Fund” second-quarter 2024 investor letter:
“The second quarter saw an elevated level of portfolio activity, including three new holdings. We re-initiated a position in global insurance broker and benefits provider Aon plc (NYSE:AON), as dissatisfaction over a recent, highly valued acquisition and the announced retirement of its well-regarded CFO pressured shares. Despite these near-term headwinds, we remain confident in Aon’s ongoing leadership team and demonstrated track record of execution.”
Overall AON ranks 1st on our list of the best insurance brokerage stocks to invest in now. While we acknowledge the potential of AON as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AON but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.