Despite economic ups and downs, individuals, businesses, and entities tend to uphold their insurance coverage, as insurance is considered an indispensable need. Given the steady demand for insurance policies, the global rise in HNWIs, and the growing integration of digital technology, the insurance brokerage sector’s prospects look appealing.
Amid this backdrop, buying fundamentally sound insurance broker stocks Marsh & McLennan Companies, Inc. (MMC) and AXA SA (AXAHY) could be wise. However, investors could watch Aon plc (AON) and wait for a better entry point in this stock.
Despite a challenging macroeconomic environment, the insurance brokerage industry is expected to remain resilient and witness considerable growth in the foreseeable future, driven by growing demand for insurance policies. Moreover, the increased demand is primarily due to the rising awareness among consumers about the importance and benefits of insurance policies.
Purchasing an insurance policy is a vital financial decision for customers. To adopt efficient pricing policies, insurance brokerage companies are increasingly working on effective sales strategies and creating actuarial models. Furthermore, the global surge in High-Net-Worth individuals (HNWIs) should drive the industry’s prospects.
According to a report by Allied Market Research, the global insurance brokerage market is projected to reach $628.30 billion, growing at a CAGR of 9.3% from 2023 to 2032.
The rising integration of digital technologies is a key trend shaping the insurance brokerage industry. Insurance brokers are increasingly integrating IT and analytics solutions to boost their sales and maintain a competitive edge.
Advanced data analytics help insurance brokerage firms in creating effective marketing strategies and underwriting services, product optimization, customer targeting via simulation and stochastic techniques, personalized user experience, and preventing losses and fraudulent practices.
Moreover, insurance firms’ rapid adoption of emerging technologies creates growth opportunities for insurance brokers. For instance, to manage leads, segment customers, automate routine tasks, and analyze data, insurance companies are incorporating CRM into their daily operations. Also, fraud or thefts can be prevented using predictive modeling and artificial intelligence (AI).
Further, with access to several third-party data sources from IoT devices and machine learning, insurance firms can offer personalized products and pricing to their clients.
The global AI in insurance market is expected to be worth around $79.86 billion by 2032, exhibiting a CAGR of 22.1% during the forecast period (2023-2032).
With these favorable trends in mind, let's delve into the fundamentals of the three Insurance - Brokers stock picks, beginning with the third choice.
Stock #3: Aon plc (AON)
Based in Dublin, Ireland, AON is a professional services firm that offers advice and solutions to clients focused on risk, retirement, and health worldwide. The company provides commercial risk solutions like retail brokerage, specialty solutions, global risk consulting and captives management, and health solutions like health and benefits brokerages.
On August 15, AON paid a quarterly cash dividend of $0.615 per share to shareholders of record on August 1, 2023. The company’s annual dividend of $2.46 translates to a yield of 0.75% on the current prices. Its dividend payouts have grown at a CAGR of 9.1% over the past five years.
AON’s trailing-12-month EBITDA margin of 28.62% is 44.5% higher than the 19.81% industry average. However, the stock’s trailing-12-month gross profit margin and net income margin of 46.79% and 20.78% are 21.4% and 19.4% lower than the respective industry averages of 59.55% and 25.78%.
For the second quarter that ended June 30, 2023, AON’s revenue increased 6.5% year-over-year to $3.18 billion. Its adjusted operating income grew 10.7% from the year-ago value to $867 million. Also, adjusted net income attributable to Aon shareholders came in at $570 million and $2.76 per share, compared to $567 million and $2.63 per share a year ago, respectively.
However, the company's free cash flows for the six months were $986 million, down 7.2% year-over-year. Its current liabilities stood at $22.95 billion as of June 30, 2023, compared to $20.31 billion as of December 31, 2022.
Analysts expect AON’s EPS for the fiscal year (ending December 2023) to increase 6.4% year-over-year to $14.25. The company’s revenue for the current year is expected to grow 6.3% year-over-year to $13.27 billion. Also, the company has surpassed the consensus revenue in three of the trailing four quarters.
Shares of AON have gained 6.6% over the past six months and 19.7% over the past year to close the last trading session at $329.38.
AON’s POWR Ratings reflect its mixed prospects. The stock has an overall C rating, equating to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
AON has a B grade for Momentum. It has a C grade for Sentiment and Quality. On the contrary, the stock has a D grade for Value. It is ranked #4 out of 13 stocks in the Insurance - Brokers industry.
Click here for the additional POWR Ratings for AON (Growth and Stability)
Stock #2: Marsh & McLennan Companies, Inc. (MMC)
MMC is a professional services company that provides advice and solutions to clients in the areas of risk, strategy, and people globally. The company operates in two segments: Risk and Insurance Services; and Consulting. It serves businesses, insurance companies, public entities, professional services organizations, associations, and private clients.
On September 20, MMC’s Board of Directors declared a quarterly dividend of $0.71 per share on outstanding common stock, payable on November 15, 2023, to stockholders of record on October 6, 2023.
MMC’s annual dividend of $2.84 translates to a 1.47% yield on the prevailing prices, while its four-year average dividend yield is 1.45%. The company’s dividend payouts have grown at CAGRs of 10.7% and 10% over the past three and five years, respectively.
On August 21, MMC announced that it had reached an agreement to acquire 100% of the outstanding share capital of Honan Insurance Group Pty Ltd, a Melbourne, Australia-headquartered leading specialist insurance broker in the areas of corporate risk, employee benefit, and strata and real estate insurance.
Commenting on the acquisition, Nick Harris, CEO of MMC, said, “The addition of Honan’s highly complementary capabilities, particularly in corporate risk and strata insurance, will enable Marsh to deepen the specialist expertise we provide to clients across Australia and New Zealand, and support them in managing the risks they now face.”
Also, on July 12, MMC’s subsidiary, Marsh McLennan Agency, announced the acquisition of Trideo Systems, a risk management information system (RMIS) provider for healthcare organizations. With this acquisition, March McLennan Agency would leverage Trideo’s unique combination of technology and analytics capabilities in a new way for its clients in the healthcare industry.
MMC’s trailing-12-month EBITDA margin of 23.18% is 17% higher than the 19.81% industry average. Likewise, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 28.98%, 12.13%, and 7.05% compare favorably to the industry averages of 11.37%, 5.76%, and 1.15%, respectively.
For the second quarter that ended June 30, 2023, MMC’s revenue increased 9.2% year-over-year to $5.88 billion. Its operating income rose 6.8% from the year-ago value to $1.46 billion. In addition, net income attributable to the company came in at $1.04 billion or $2.07 per share, representing increases of 7% and 8.4% from the prior year’s quarter, respectively.
Analysts expect MMC’s EPS for the fiscal year (ending December 2023) to increase 13% year-over-year to $7.74. The consensus revenue estimate of $22.44 billion for the ongoing year indicates an 8.30% improvement year-over-year. Moreover, the company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past six months, MMC’s stock has gained 19.2% and 28.1% over the past year to close the last trading session at $193.40.
MMC’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has a B grade for Stability, Sentiment, and Quality. Within the Insurance - Brokers industry, MMC is ranked #2 out of 13 stocks.
Beyond what we stated above, we also have MMC’s ratings for Growth, Value, and Momentum. Get all MMC ratings here.
Stock #1: AXA SA (AXAHY)
Headquartered in Paris, France, AXAHY offers insurance, asset management, and banking services internationally. The company operates through six segments: France; Europe; Asia; AXA XL; International; and Transversal & Central Holdings. It provides life and savings insurance products, property and casualty insurance products, and marine and aviation insurance services.
On August 3, AXAHY entered into an agreement to acquire Laya Healthcare Limited from Corbridge Financial Inc., a subsidiary of AIG. Laya has a leading position in the Irish health market, with approximately 28% of the market share and serving nearly 700,000 policyholders, generating an estimated annual premium of around €800 million ($867.70 million).
With this acquisition, AXAHY affirms its ambition to grow its European franchise by expanding its operations in a rapidly growing health insurance market.
On July 27, AXAHY launched AXA Secure GPT, an internal service built upon Microsoft’s Azure OpenAI Service. Developed within three months by AXAHY’s in-house experts leveraging its partnership with Microsoft, AXA Secure GPT provides AXA employees access to a digital platform within a secure and data-privacy-compliant cloud environment.
Further, this new service enables enterprise-wide use of transformative technologies like Generative AI and Large Language Models. With AXA Secure GPT, employees can generate, summarize, translate, and correct texts, images, and codes.
For the six months that ended on June 30, 2023, AXAHY’s gross written premiums and other revenues increased 1.5% year-over-year to €55.70 billion ($58.68 billion). Its underlying earnings came in at €4.11 billion ($4.33 billion), up 18.6% from the previous year’s quarter. Also, the company’s underlying earnings per share grew 8.5% year-over-year to €1.79.
Street expects AXAHY’s EPS for the fiscal period (ending December 2023) to increase 4.6% year-over-year to $3.41. For the next fiscal year 2024, the company’s EPS and revenue are expected to grow 9.7% and 12.6% from the prior year to $3.75 and $95.24 billion, respectively.
The stock has gained 6.5% year-to-date and 33% over the past year to close the last trading session at $29.89.
AXAHY’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
AXAHY has a B grade for Growth, Momentum, and Stability. It is ranked first within the same industry.
To access the other ratings of AXAHY for Value, Sentiment, and Quality, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
MMC shares were unchanged in premarket trading Friday. Year-to-date, MMC has gained 18.12%, versus a 13.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
2 Must-Need Insurance Broker Stocks, and 1 to Watch StockNews.com
