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 Arthur J. Gallagher & Co. (NYSE:AJG) 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 customer signing papers with an agent in a professional setting.
Arthur J. Gallagher & Co. (NYSE:AJG)
Number of Hedge Fund Holders: 42
Arthur J. Gallagher & Co. (NYSE:AJG) is an American insurance brokerage, risk management, and HR & benefits consulting company. It offers a comprehensive range of services, including customized property and casualty insurance, risk management programs, and consulting services in over 130 countries.
In the Q3 2024 earnings call, the company’s management highlighted a robust pipeline of over 100 potential mergers, representing approximately $1.5 billion in annualized revenue. Currently, around 60 of these opportunities are in advanced stages, which could contribute about $700 million in annualized revenue. With $1.2 billion in available cash by the end of the third quarter and strong expected free cash flow, Arthur J. Gallagher & Co. (NYSE:AJG) is well-positioned to fund its aggressive mergers and acquisitions strategy with an estimated capacity of around $3 billion for 2024.
Arthur J. Gallagher & Co. (NYSE:AJG) has reported impressive financial performance, with revenues increasing by 16% and organic growth at 8% for the first nine months of 2024. In Q3 alone, total revenues grew by 13% for the company’s combined brokerage and risk management segments. Net earnings increased by 12% in Q3.
The company is also actively investing to add niche experts, roll out new sales and support tools, and expand its data and analytics offerings.
Recently, on October 28, 2024, Arthur J. Gallagher & Co. (NYSE:AJG) announced the acquisition of Filos Agency, a retail property/casualty insurance agency based in Long Beach, New York. Additionally, on October 25, it acquired Via Financial Group in Australia and Redington Ltd. in the UK. These strategic acquisitions reflect Arthur J. Gallagher’s (NYSE:AJG) commitment to expanding its service capabilities and market presence.
Over the past 10 years, Arthur J. Gallagher & Co. (NYSE:AJG) has achieved a 9.72% compound annual growth rate (CAGR) in revenue and a 14.16% CAGR in net income.
As of the second quarter of 2024, AJG was held by 42 hedge funds, according to Insider Monkey’s database. Andvari Associates stated the following regarding Arthur J. Gallagher & Co. (NYSE:AJG) in its Q2 2024 investor letter:
“Founded in 1927 by Arthur J. Gallagher & Co. (NYSE:AJG), the eponymous firm is now the third largest retail property and casualty insurance broker in the United States and also the third largest reinsurance brokerage firm in the world. In addition to their brokerage businesses, Gallagher is a significant player in third-party claims administration and HR & benefits consulting.
As hinted in the above table, Gallagher is an acquisitive company. It has been a major consolidator of the highly fragmented market of insurance brokers for decades. In just the past five full years, Gallagher has acquired 195 businesses. And the market still remains fragmented. The company estimates there are tens of thousands of independent firms across the English-speaking countries of the world.
Given Gallagher’s ability to grow organically, grow through acquisition, and the essential services it provides, there have only been three times in the past twenty-five years when revenues declined: down 0.56% in 2005, down 0.31% in 2008, and down 1.63% in 2020. Which is to say, revenues barely budged despite those tumultuous years. This is a resilient company.”
Overall AJG ranks 4th on our list of the best insurance brokerage stocks to invest in now. While we acknowledge the potential of AJG 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 AJG 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.
