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Over 90% of this year’s participants submitted data for the fiscal year ending 12/31/2002. The
balance of the agencies reported on fiscal years ending within the first half of 2003.
As expected the hard market contributed to hefty, double-digit
revenue growth rates
in all but the
two smaller revenue category groups – “
Under $500,000
” and “
Between $500,000 and $1.25
Million
”. Both of these groups had single-digit growth rates below their previous year’s rates.
While these lower growth rates reflect the fact that the agencies in these groups are less likely to
write the larger commercial accounts most impacted by the hard market, the lower growth
percentages point to the increasing competition with which these agencies are faced. For the
smaller agencies, revenue growth remains difficult, even in the hard market.
The
average growth rate
for the four study groups with revenues over $1.25 Million ranged from
percentages in the mid-teens to a whooping 20.1%. Since growth rates for the prior year hovered
in the low teens, it appears that these agencies benefited from the significant rate increases
brought on by the hard market.
Did the increased revenues mean bigger profits? Yes, but….The strong
revenue growth rates
did
translated into stronger profitability ratios than in the prior year, although not proportionately
higher. The
pre-tax profits
averaged 12.1% of net revenues for the three study groups with
revenues over $2.5 Million. This was just slightly better than last year’s average profits for this
combined group. The “
Under $500,000
” group’s
pre-tax profits
also improved, but by only half of
a percentage point. The two groups with revenues between $500,000 and $2.5 Million had a
combined average
pre-tax profit
of 13.4%, a strong figure, but a full 2.3 percentage points below
the prior year results.
A major factor influencing this year’s profitability ratios was compensation expense. Since the
2001 Study results were published,
compensation per employee
increased an average of $9,990
in each of the six study groups. Employees, who had worked in soft market conditions for years
with minimal or no salary increases, were finally rewarded. Agencies used their increased
revenues to provide incentives and to retain and recognize employees who labored under
heavier, market-induced workloads. At the same time many agencies made investments to
support future growth, particularly the larger agencies that used the additional revenues to add
new producers and support staff.
Acquisition activity was another factor in the
revenue growth rate
for the two larger revenue
categories, although such activity was not limited to those groups as shown in the chart below.