Hard market and acquisitions set intermediaries up for success

By Bernice Han

Australia’s brokers are thriving in a hard market where risk placement assistance and advice are increasingly being seen as a job for specialists. Commission income rises (and falls) with premiums, and the hard market is boosting the bottom lines of listed brokers Steadfast, AUB and PSC.

Morningstar Analyst Nathan Zaia sums up the scene for brokers up in one sentence. “Good results across the board, with the common theme of rising fee and income commission, with organic growth complemented by acquisitions,” he tells Insurance News.

Steadfast, the largest locally listed broker by revenue, scored a 22.5% rise in underlying net profit to $207 million last financial year. Pricing and volume increases in the broking and underwriting agencies, along with contributions from acquisitions in the past two financial years, helped lift its profit.

Underlying revenue crossed the $1 billion mark – up 24.1% to $1.41 billion – and underlying earnings before interest, tax and amortisation soared 26.5% to $430.7 million.

Steadfast Chief Executive Robert Kelly says the group achieved its 10th consecutive record underlying earnings since it first listed a decade ago, and the company expects premium rates to continue to rise at around the 7.5-10% level.

At AUB Group the business received an extra boost from its acquisition of UK-based Lloyd’s wholesale broker Tysers, which performed ahead of expectations. Full-year underlying net profit surged 74.4% to $129.1 million and revenue increased 61.2% to $1.11 billion.

Tysers delivered an underlying pre-tax contribution of $76.9 million, with revenues 5.4% above initial expectations in the nine-month period from October, the month it started contributing to AUB earnings.

AUB Chief Executive Mike Emmett says early indicators suggest estimates of potential synergies and efficiencies from the Tysers investment were conservative, while teams across AUB “delivered exceptionally” in the past financial year.

“All of our teams, new and old and across multiple businesses and geographies, have delivered exceptionally,” he said. “Particularly pleasing is the continued growth of agencies and the significant turnaround in New Zealand.”

Melbourne-based PSC Insurance Group’s earnings grew strongly too. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) advanced 19% to $111 million, in line with its revised guidance. Net profit after tax, also on an underlying basis, gained 23% to $78.4 million.

PSC was among the parties bidding to acquire Honan Insurance Group but was edged out by US-owned global broker Marsh.

A proposed retail joint venture with AUB involving the Tysers UK operation was abandoned in May, with PSC saying it “has a solid pipeline of acquisitions” to deal with.

Managing Director Tony Robinson says the financial year was “an interesting year for us”.

“We had a go at a couple of big steps. One was Tysers and the second was Honan. Unfortunately, neither of those came off.”

But he’s not deterred. “As a group we continue to focus on organic growth, and that’s made a great contribution to the result this year and will certainly do so going forward.”

Paul Dwyer, who is presently non-executive Deputy Chairman, will “find other acquisitions and seeding opportunities” for PSC when he takes over from Brian Austin as chairman in November.