As illustrated in the table below, the composite organic growth rate for selected public brokers continued to rebound in the third quarter of 2006 after breaking into the positive during the first quarter of 2006.  However, going forward it is highly likely we will see the organic growth rate composite for public brokers head back into the negative as the market continues to soften and competition intensifies for certain highly sought after classes of risk.
 

Many of the publicly traded insurance brokers' revenue growth are heavily reliant on acquisitions.  The table below highlights the breakdown of each broker's revenue growth separated into organic and acquired/other growth for the nine months ended September 30, 2006.  Companies like Brown & Brown and Hub International would not have been able to achieve double-digit total revenue growth without the help of acquisitions.  Under pressure from shareholders and Wall Street analysts to deliver revenue and earnings growth, public brokers have no choice but to use acquisitions as a tool to try to meet expectations.

The results among the industry leaders are largely indicative of the results sustained among many private brokers as well.  The struggle to grow organically represents a macro issue and is not isolated to one segment, broker, or product line.  Large brokers must aggressively acquire in order to meet and exceed revenue and earnings growth targets as shareholder expectations will not be met simply by focusing on organic growth.  An increasing number of smaller agencies struggling with the same market pressures may seek to be acquired as the market forces continue to erode earnings as rate softening continues.

Continued compression in rates among brokers requires a more intensive approach to generating new business.  Brokers that were once enjoying the “lift” from product renewal rates have been forced to compete more intensely for new business.  Because of elevated competition and flattening or declining average revenues per account, many brokers are being forced to increase marketing activities, spend more on client relations and offer value added, innovative risk management solutions, all of which tend to increase expenses and compress profit margins.