The masters of the P&C broking world got off to a strong start in 2018 as the big three - Willis Towers Watson, Aon and Marsh & McClennan Companies (MMC) - all outstripped consensus earnings estimates with figures heavily influenced by changes to revenue reporting standards.


While the changes to reporting standards had analysts (and reporters) scratching their heads over how to compare the figures to last year’s results, overall the sector still managed to post an impressive set of figures for the first quarter, with reinsurance broking proving a particular bright spot.

WIllis, which reported its results yesterday (8 May), just beat consensus estimates on its earnings with a result of $2.71 ahead of the $2.68 per share figure estimated by 21 analysts surveyed by financial news site Marketwatch.

That figure included 6 percent organic growth in the corporate risk and broking segment, as revenues rose to $758mn, a 13 percent year-on-year increase which included 5.5 percent of FX tailwinds.

The broker said the growth was broadly global, but particularly in central eastern Europe the Middle East, Africa and Asia. This was partially offset by “softness” in LatAm and Australia.

Despite that, the overall segment managed to grow its operating margin - the critical metric for broker profitability - by 2 points in the first quarter to 19 percent.

MMC also managed to outstrip consensus targets as its (re)insurance broking business kept a steady course with a 3 percent rise on an underlying basis to over $2.3bn.

The performance was capped by a sterling effort from the group’s reinsurance broking subsidiary Guy Carpenter, which managed to increase revenues by 7 percent year-on-year to $637mn, offsetting a more modest bump of 2 percent at Marsh, which grew its top line to $1.7bn.

It’s Chicago-based rival Aon similarly beat Wall Street estimates, with its operating earnings per share of $2.97 from continuing operations above the $2.81 predicted on the back of solid organic growth in both its primary and reinsurance units.

Its reinsurance arm Aon Benfield was the standout performer, similar to Guy Carpenter for MMC, as its organic revenues grew 6 percent in the quarter to $742mn as the reporting changes caused the headline figure to almost double.

Meanwhile Brown & Brown, typically the first (re)insurance broker to report its quarterly earnings, managed to boost its organic revenues by nearly 5.7 percent in the period to report net income of $90.8mn.

The broker’s Ebitdac margin, a measure of underlying profitability, on the other hand was trimmed by about 1.6 points to 31. 2 percent under the new accounting standards which came into effect during the first quarter.

The firm’s CEO Powell Brown, speaking on the Q1 earnings call, said that on the ratings side, there remained potential for further cuts to prices as capital in the industry remains plentiful.

“At the end of the day, there is still a tremendous amount of capital in the market chasing a finite number of risks. We would not be surprised to see rates moderate downward a bit further during the second quarter and in the storm season this summer,” he said.