According to MarketLine, the global insurance sector is expected to grow at a CAGR of 7.8% from 2010-2015, which will drive the market value to $59.4 billion by 2015 compared to $40.8 billion in 2010. With the recovering U.S. economy, the growth of insurance brokers is expected to remain stable, reporting mid-single digit revenue growth, and improved margins, this year. Let’s see how these insurance advisory companies strategize to sustain in the changing economic conditions to generate higher revenue.
Expanding through acquisitions
Corven provides advisory and consulting services to the world’s largest natural resources and energy companies like Shell, National Grid, Centrica, BP, etc. With Corven’s expertise, Oliver will be able to help its clients emerge as leaders in their market chosen. It expects to generate revenue of $358 million in the second quarter, up from $321 million in the previous quarter.
Through acquisitions, Marsh & McLennan Companies, Inc. (NYSE:MMC) has expanded its business in more than 100 countries. Such acquisitions help the company generate positive financial results. To continue enhancing its earnings, the company’s subsidiary, Marsh, recently acquired a leading Peru-based insurance advisor Rehder y Asociados Group, which generates annual revenue of over $30 million and has a strong client base covering 17% of Peru’s market for more than eight years. The acquisition will place Marsh in a leading position in the best performing economies of South America. Through such acquisitions, Marsh & McLennan Companies, Inc. (NYSE:MMC) expects to generate EPS of $2.42 this year, and $2.65 in 2014.
North America rebound continues
Willis Group Holdings PLC (NYSE:WSH)’s North America segment expects to see better revenue in the coming years due to three main factors. First, housing demand and home prices are increasing as the economic condition stabilizes in the U.S. Second, the company’s human capital practices provide health, welfare, and human resources consulting and brokerage services. Last, the company’s construction division specializes in insurance brokerage, provides risk management, and surety bonding services to the construction industry.
With the expertise in human capital practices and construction services, it will attract more clients and drive revenue. Therefore, Willis Group Holdings PLC (NYSE:WSH)’ North America segment is expected to generate revenue of $1.37 billion in this year, up from $1.31 billion in 2012, and $1.43 billion in 2014.
Willis Group Holdings PLC (NYSE:WSH) announced a cost reduction plan in the last quarter. It plans to reduce salaries and benefits by eliminating head count by 207 this year. Additionally, the company’s subsidiary acquired two major IT staffing service providers in the first quarter to enhance its client base and IT services. The IT improvements will also lead to lesser operational expenses. With this, the company projects total savings of approximately $20 million in the remaining six months.
Additionally, it is expected to save around $25 million to $30 million annually starting next year. The company estimates EPS generation of $2.73 by the end of this year, up from $2.59 in 2012. The cost saving initiative and slightly higher revenue from North America are driving the company’s EPS.
Benefits from healthcare reform
The Affordable Care Act will take effect by 2014. Consequently, it is expected that more than 100,000 U.S. employees of small and mid-sized businesses will sign up for the new health insurance through a new corporate health exchange. The corporate health exchange is an insurance marketplace where several insurance companies compete to offer employees a wide range of plans that suits them, and their families.
Therefore, Aon PLC (NYSE:AON)’s HR consulting business is likely to observe growth and margin acceleration in its consulting business for insurance exchanges by next year. Additionally, Sears and Darden have chosen the company for private health insurance exchanges for both active employees and retirees. This is expected to contribute more than $100 million of incremental revenue by 2014 and around $500 million by 2016.
Aon PLC (NYSE:AON)’s risk solutions business is expected to show a steady performance for the next few years. Its Global Risk Insight Platform, or GRIP, is a Web-accessible solution that provides insurance companies with analytical insights regarding their underwriting capabilities. It also helps clients understand the risk associated with insurance and solutions to compete effectively. It is expected that GRIP will contribute 3% to 4% of Aon PLC (NYSE:AON)’s total revenue and will aid margin expansion of 50 to 75 basis points over the next few years. Aon PLC (NYSE:AON)’s risk solution business expects to generate $7.9 billion in this year from $7.59 billion in 2012 and $8.29 billion in 2014.
Conclusion
All three companies are taking measures to sustain in the changing economic conditions.
Acquisition of Corven and Rehder will help Marsh & McLennan Companies, Inc. (NYSE:MMC) improve its consulting and advisory services to the energy sector and penetrate in Peru’s insurance markets to expand its product offerings. Willis Group Holdings PLC (NYSE:WSH)’ North America segment will benefit from the recovering housing market and its service expertise, and the cost saving initiative will continue to save it around $25 million to $30 million annually. Healthcare reforms will bring potential growth to Aon PLC (NYSE:AON)’s HR consulting business in the coming years. Its risk solutions business is expected to show steady performance for the next few years by contributing healthy revenue.
Therefore, I recommend a buy for all three stocks.
Madhukar Dubey has no position in any stocks mentioned. The Motley Fool recommends Aon. The Motley Fool owns shares of Aon.
The article Investing in Insurance Advisory Can Help Your Portfolio Improve originally appeared on Fool.com and is written by Madhukar Dubey.
Madhukar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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