At 9.3%, the first quarter’s “median organic growth is 50 basis points higher than the previous record of 8.8% set just last quarter,” Deitz says, and “25% of Q1 participants grew organically at 15.9% or higher.”
Profits are at record levels as well, Deitz notes. Contingent income for the quarter grew at 18% year over year, “an incredible increase that generally drops straight to the bottom line,” allowing agents and brokers to leverage cost structures and expand margins, he says.
But the most impressive statistic of the quarter was a 26.2 median “Rule of 20” score, the highest in the survey’s history by nearly 4.5 points. A proprietary Reagan metric, the Rule of 20 benchmarks an agency’s shareholder returns, measuring the combined impacts of organic growth and profitability on value creation. A score of 20 or better means a firm likely is generating shareholder returns of 15% to 17% under normal market conditions.
Performance of individual lines
As expected, commercial lines continued to outperform personal lines and group benefits in Q1 2022. With an 11.5% organic growth rate, commercial lines broke its previous record of 11.4%, set just the prior quarter. The organic growth rate of neither personal lines nor group benefits (4.2%) broke records, but at 4.3%, personal lines achieved its second-highest level.
Deitz characterizes the performance of group benefits as “middle-of-the road,” commenting that the benefits business isn’t “benefiting from a p-c-like rate environment."
Will the industry’s record run end in 2022?
Signs of an impending slowdown are mounting ― instability in the bond market toward the end of Q1, a spike in inflation, a reduction in the gross domestic product, and ripples from the war in Ukraine. But “agents and brokers do not seem overly concerned,” Deitz notes. Q1 GPS participants are projecting 8.0% organic growth for the year and foresee 2022 as their most profitable year yet.
For further observations and commentary on the Q1 results, contact Deitz at Reagan Consulting, 404.865.2593 or brian@ReaganConsulting.com.
The Reagan GPS was formerly known as the Organic Growth & Profitability (OGP) Survey. Each participating agency in the GPS receives a customized, confidential report of its performance compared with the overall survey results, along with Reagan’s quarterly commentary of industry trends affecting agents and brokers. For information on participating in the survey, contact Michelle Appelbaum at 404.869.2541 or michelle@ReaganConsulting.com.
About Reagan Consulting
Reagan Consulting is a management consulting firm providing strategic consulting, valuation, capital raising, and merger-and-acquisition (M&A) services to the independent insurance distribution system. The firm’s services for insurance agents and brokers, bank-owned agencies and other participants in the insurance distribution marketplace include: appraisals of fair market value, capital raise advisory, mergers and acquisitions advisory, ownership perpetuation planning, strategic planning facilitation, key employee compensation and equity plan design, and agency performance benchmarking. Reagan Consulting co-developed the well-known Best Practices Study and produces the quarterly Growth & Profitability Survey.