Insurance Brokers 1Q'26 Update
Insurance brokers are currently in a world of pain as the halcyon days of hard market is clearly behind us. At first glance, the organic growth still seems to be holding up reasonably well (ex BRO), but nonetheless investors are somewhat spooked.
Every broker reported sharper property declines. The quantification varies with mix (admitted, large account, E&S cat-exposed), but no broker characterized property as anything other than firmly negative.
Q1 FY26 was the quarter that confirmed the property-led soft market is accelerating. Property is clearly past peak: -9% (Marsh global, same as last quarter), -7% RPC (AJG), -15% (AON), -15% to -35% (BRO E&S), -25% to -35% (RYAN cat-exposed). Capacity is returning across primary and reinsurance which is exerting pressure on rates.
On the other hand, the unanimous read is that the casualty rate environment is bifurcated. Excess and high-hazard classes are still seeing meaningful rate increases driven by social inflation and reserve actions, while small-to-medium hazard primary casualty is starting to see fresh capacity compete. US excess casualty was +18% per MRSH; high-hazard E&S classes >+10% per RYAN.
As you can see above in the organic growth table, BRO was the clearest under-performer in 1Q’26. BRO CEO Powell Brown explicitly named four idiosyncratic headwinds (Accession integration, Howden start-up litigation, faster-than-expected property declines, pharmacy revenue model change) and conceded BRO is “slightly lower than the peers”.
While the hard market in property is behind us, brokers identified data centers and AI-related infrastructure as a meaningful contributor or pipeline opportunity. AON took it furthest, raising its data center life-cycle insurance program capacity by $1 Billion to $3.5 Billion; AJG and Guy Carpenter (MRSH) flagged similar exposure; RYAN noted strong data center activity within its construction pipeline.
Of course, AI is also considered a potential disintermediation risk for brokers by some investors. So, each call featured extensive AI commentary during prepared remarks, analyst questions, or both. No surprise that all the brokers uniformly framed AI as a catalyst rather than a threat, leaning on relationship complexity, proprietary data, and scale as moats. Ultimately, brokers’ earnings call would be the last place where you will find any sympathy to such risk. Even though they all have vested interest in framing AI as an opportunity rather than a threat, I also do not see much of an evidence yet that such AI is shaping to be a risk yet. While much of the AI related commentary was qualitative in nature, RYAN gave the most quantified disclosure related of AI’s impact. From RYAN’s call:
“Within Ryan Re, we have built an AI-powered underwriting platform for our facultative reinsurance business.
We have reduced average processing time per submission from approximately 2 hours to minutes while increasing the number of submissions each underwriter can evaluate by roughly 10x. Within Velocity, our property catastrophe MGU, we deployed an AI-driven platform that scores every submission on appetite fit and propensity to bind. The result being an 11x uplift in submit to bind ratios for our highest appetite category compared to our lowest.
Simultaneously, the speed to quote has improved by 36% on a median basis. These capabilities are changing how our underwriters work every day, and we are preparing to deploy them more broadly across the firm.”
Every single brokers explicitly cited the sector-wide stock pullback as a reason to lean into share repurchases. Capital allocation framing was nearly identical: continue M&A where deals meet criteria, but lean buyback-heavier when the pipeline is muted. The drawdown chart is horrific for brokers. RYAN is down ~60% from its peak and believe it or not, BRO is currently in its worst drawdown in its entire history! The big three are still holding up reasonably well compared to the smaller/mid-sized brokers.
Given the drawdown, it is good to see all the brokers have materially increased their buyback cadence in 1Q’26. AJG management was quite explicit about their stock being undervalued. From AJG’s call (emphasis mine):
“we repurchased approximately $310 million of our shares. We continue to believe our equity is woefully undervalued by the market, so this repurchase was opportunistic.”
The outlook for the year wasn’t too bad either except perhaps RYAN. RYAN cut full-year organic from HSD to MSD and Q2 organic growth to zero. Every other broker reaffirmed: AON at MSD+; AJG at 5.5% Brokerage; MRSH at “similar to 2025”; BRO at sequential improvement to ~2.5% upper bound. RYAN and BRO are most exposed to the Q2 hit because Q2 is seasonally the heaviest CAT property placement quarter. AJG noted property “is going to take its biggest hole in the second quarter” but said they have less property stress in 2H. AON flagged April 1 reinsurance renewals down 15-20% on rate. MRSH and WTW are the most insulated from the property cycle given their advisory/HWC mix. RYAN is pure-play wholesale and specialty; when the marginal flow into E&S decelerates, RYAN's revenue line decelerates with it because RYAN doesn't have a large-account retail book to offset. E&S has been a big beneficiary of the hard property market during 2019-2024 cycle, but they are now in front of the eye of the storm. The other brokers may start to feel this later if the soft pricing cycle lingers for a while.
While RYAN is clearly in a spot of bother in the current environment, I was heartened to see how Pat Ryan decided to use his own capital ($52 million) to fund SBC for RYAN management. From Pat Ryan (emphasis mine):
We have announced a onetime option grant program in the second quarter, funded entirely by a portion of my own holdings to make sure the broader team is properly aligned over the long term.
It is structured to be neutral to the company’s outstanding share count and will function as a direct reinvestment for me into the team that has built this platform. I believe in this team, I believe in this platform, and I believe in the direction Ryan Specialty is heading. As we look forward to the work of the next several years, I want every leader at this company to be aligned to our mission, and I’m offering a meaningful piece of my own capital to support that conviction.
That’s certainly reassuring for minority shareholders to see the largest shareholder of RYAN putting his money to work especially when things are heading towards a difficult period. Admittedly, I have been surprised by how investors valued insurance brokers over the last three years. When they were enjoying the hard market driven pricing tailwind, perplexingly investors were very happy to put an elevated multiple on such earnings power. I expressed my concern about valuation when the cycle turns back in October 2024 as I decided to start selling BRO:
While BRO doesn’t take underwriting risk, it is not immune from P&C cycle. When the P&C cycle turns and let’s be clear I have no idea when, the subsequent years would probably be dramatically different from what we experienced last couple of years. Looking at their multiple and trailing 3-year EBITDA growth CAGR, I wonder whether investors are currently valuing the peak earnings on peak multiple. As I have noted before, I love the insurance broker industry, but I think it is perhaps a good time to lighten my exposure a bit.
Now it has surprised me in the opposite direction. While the cycle has indeed finally started to turn the other way now, investors, again somewhat perplexingly, want to put anemic multiple on their earnings power today. While I do believe these stocks will likely do well from current depressed valuation level, considering the frequency of my bewilderment in how investors valued these companies over the last 3 years (not the most reassuring sign that I know what I’m doing in an industry), I have decided to keep observing them instead of adding more capital for now.
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Current Portfolio
Please note that these are NOT my recommendation to buy/sell these securities, but just disclosure from my end so that you can assess potential biases that I may have because of my own personal portfolio holdings. Always consider my write-up my personal investing journal and never forget my objectives, risk tolerance, and constraints may have no resemblance to yours.
I have made a slight change to my portfolio yesterday.