Brown & Brown Inc. (BRO) led a slump among insurance brokers, falling the most since October, after William Blair & Co. said slowing growth in rates for commercial coverage will curb profit for the industry’s middlemen.
Brown & Brown, the family-run insurance intermediary based in Daytona Beach, Florida, fell 2.5 percent to $32.31 at 12:47 p.m. in New York. Itasca, Illinois-based Arthur J. Gallagher & Co. (AJG) slipped 2.4 percent.
Blair’s Adam Klauber cut both stocks to market perform from outperform. Brown & Brown rallied 30 percent this year through yesterday, and Gallagher gained 31 percent as brokers benefited when carriers including Travelers Co. (TRV) and American International Group Inc. (AIG) raised insurance prices to compensate for lower bond yields and claims costs from natural disasters. Brokers earn commissions tied to the value of insurance that they sell.
“A reversal in pricing will likely flatten, or possibly result in a deceleration of, organic growth rates over the next 12 months, which in turn will reduce earnings growth in 2014 and 2015,” Klauber said in a note today.
Commercial insurance rates in the second half of this year will probably climb no more than 3 percent, he said. That compares with an estimate of increases as much as 7 percent in the first six months.
Marsh & McLennan Cos., the largest insurance broker by market value, fell 1.5 percent and No. 2 Aon Plc (AON) dropped 1.1 percent. Klauber maintained his ratings of outperform for London-based Aon and market perform for New York-based Marsh & McLennan.
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