In our broker outlook, we discussed the prospect of strategic M&A and expense rationalization coming into focus in 2025 and beyond as P&C pricing and other economic factors created uncertainty around the sector’s growth prospects.
This past week, a number of brokers reported their Q4 and year-end earnings, giving us an updated insight into how the companies are performing in the current market.
Alongside discussions on the interplay between P&C pricing and growth trends, M&A updates, and margin expansion, the brokers provided updated guidance for full-year 2025. The table below shows both the latest organic growth guidance as well as 2024’s guidance versus actual results. Note that Brown & Brown does not guide organic growth.
AJ Gallagher, Marsh McLennan and Aon all performed in line with or exceeded their full-year 2024 guidance.
However, of particular note is the revised guidance and modest change in tonality from both AJ Gallagher and Marsh McLennan. Marsh McLennan has honed in on mid-single digit organic growth for 2025 as opposed to mid-to-high single digit growth in 2024.
AJ Gallagher has significantly reduced its expected organic growth range for both brokerage and risk management. Specifically, both segments are now expected to achieve 6-8% organic growth in 2025, whereas in 2024, brokerage was expected to achieve 7-9% and risk management was expected to achieve 9-11% organic growth.
These adjustments are a clear sign of the times — growth is becoming more difficult as pricing growth decelerates. Brokers are lowering their expectations accordingly. However, as we discussed in our outlook, the casualty pricing microcycle, new Trump administration, recent tariffs, and overall direction of the US economy have made the growth trajectory of the brokerage sector more uncertain than normal.
We believe that company-specific strategies such as business mix are coming into play as pricing tailwinds slow and continued organic growth and margin expansion become increasingly difficult to achieve.
In the following analysis, we dove deep into the latest quarterly and year-end results of the public brokers to explore how they are performing in the current rate environment.
Organic growth remained ahead of Street expectations, but differentiated performance was driven by mix.
The chart below shows group-level organic growth for select brokers since Q3 2020. Brown & Brown outperformed Aon, AJ Gallagher and Marsh McLennan with an overall number in the low teens.
However, this growth was driven by hurricane-related flood claims revenue as well as a reinsurance charge originally taken in 2023, both of which benefitted Brown & Brown’s fast-growing MGA segment, national programs in this quarter. Brown & Brown’s other two segments, wholesale and retail, were up more modestly year-over-year in Q4 at 7.1% and 4.4%, respectively.
AJ Gallagher and Marsh McLennan both posted 7% organic growth for the quarter. AJ Gallagher’s growth was modest in comparison to the quarterly trend, with both brokerage and risk management falling behind Street estimates. Aon’s organic growth of 6% was driven by growth across reinsurance, commercial risk, and wealth solutions that surpassed Street expectations.
Marsh McLennan’s growth was driven by an outperformance in risk & insurance, which posted 8% versus Street estimates of around 5%. Consulting also contributed, as the segment rebounded from the low-single digits in Q2 and Q3 of 2024 to 6% in Q4, versus Street estimates of about 4%.
When asked about Marsh’s performance despite current pricing trends, management cited its middle market exposure as a key contributor. More broadly, we would note that Marsh has generally executed well in the markets in which they’re involved and has consistently posted strong organic growth versus its peers over the last couple of years.
This performance and commentary from Marsh McLennan, especially when compared to other brokers, highlights the role company-specific factors are playing in sustaining growth, especially in a market in which decelerating pricing is weighing on organic growth.
Specifically, client segmentation is important. The middle market – where Marsh and AJ Gallagher operate – consists of stickier clientele who are less inclined to shop around. Additionally, business is more-so based on commission rather than fees, and brokers generally prefer the former over the latter. We’ve discussed the appeal of this segment in a prior note, and maintain that it is a generally a good market to operate in as a broker.
We would also highlight other elements of business mix as a key factor here. As we discussed in our broker outlook, lower organic growth in non-P&C segments has weighed on overall results in recent quarters. However, Brown & Brown’s fast-growing national programs segment has highlighted the strong potential of MGAs as a means of bolstering the franchise.
Margins expanded modestly, and achieving additional margin growth from here will not be easy.
The chart below shows the past four quarters' average brokerage margins for our select cohort since 2019, factoring in the latest Q4 margins from the brokers that have reported. Note that margins data for Willis is not available prior to Q1 2022 due to segment reorganization.
Brown & Brown remains ahead of AJ Gallagher by a slim margin, but again, this outperformance can be attributed to the national programs segment, which benefitted from the previously mentioned flood claims revenue and reinsurance charge. AJ Gallagher reported a 140bps margin improvement within its brokerage segment.
Marsh McLennan failed to deliver on its guidance from the first half of 2024 in which it said it expected margin expansion to be greater in the second half of 2024 than the first. Management ultimately dismissed this as a non-issue, citing continued confidence in the business, but we remain cautious on the broking cohort’s trajectory from here.
With these results in mind, we find that while margins are meeting or moderately exceeding expectations, we believe the market is reaching a point at which additional margin expansion will be difficult to achieve at best.
Consequently, market-derived income, whereby brokers can leverage their position with insurers to supplement their growth, will likely become a greater focus in the coming year or so. For example, yesterday, sister title Insurance Insider reported that Willis is working on a follow-form facility in London that would provide capacity on US risks.
We would also not be surprised to see brokers launch restructuring programs, or engage in other forms of expense management, as the revenue side of the margin equation becomes more challenging.
Pricing constraints could be met with more consolidation in 2025.
One other way in which brokers will be able to mitigate the effects of pricing deceleration is through consolidation. The chart below shows CIAB’s commercial lines pricing survey from Q1 2000 up to Q3 2024, the latest available. One can see that pricing has been decelerating unevenly over the past several quarters after a hyper-extended pricing cycle.
The table below is a collection of quotes from senior executives at select brokers on M&A.
Broadly, each broker discussed its ongoing M&A activity or expressed its openness to making acquisitions that make sense for the company, including larger deals.
We believe this capacity for M&A, be it through tuck-in deals or larger acquisitions, will become increasingly important as yet another way in which brokers can continue to deliver on their growth expectations in otherwise challenging market conditions.
It should be noted, though, that Marsh McLennan, AJ Gallagher, and Aon will likely be busy this year digesting the large acquisitions they made in 2024. However, given its bid on McGriff late last year, we believe Willis is more likely to make a large acquisition, likely in the US middle market space.