Moody’s: Investment-grade brokers see growth ease, push deeper into U.S. middle market

By Keira Wingate

Aug 19 - (The Insurer) - Investment-grade insurance brokers such as Aon, Marsh McLennan, Gallagher, Willis Towers Watson and Brown & Brown, are facing slower revenue growth but expanding margins as they ramp up expansion in the U.S. middle market, according to a report from Moody's.

Organic revenue growth across the group averaged 5% in the first half of 2025, down from 7% in the same period last year and 9% in 2023. Moody's said the deceleration reflects weaker economic growth, softer pricing in some commercial P&C lines and lower fiduciary investment returns.

Even so, the rating agency expects growth to remain in the mid-single digits for the rest of the year, supported by steady demand for P&C and employee benefits products.

According to Willis Towers Watson's Commercial Lines Insurance Pricing Survey, insurers reported overall P&C rate increases in the mid-single digits through the first quarter, with stronger pricing in casualty lines such as general liability and commercial auto.

However, rates have been falling in cyber, D&O liability and workers' compensation, while easing in large-account property lines. Moody's noted that small and mid-sized accounts have fared better, with brokers seeing stronger pricing momentum.

MARGINS EXPAND

Despite slower top-line growth, the brokers' profit margins have held steady or widened, thanks to disciplined expense controls, restructuring benefits along with investments in analytics and artificial intelligence.

Gallagher's adjusted margins surged in the first half, helped by extra interest earned on cash reserved for its pending $13.45 billion AssuredPartners deal. Moody's said all five brokers have reaffirmed margin expansion guidance for 2025, highlighting their ability to generate operating leverage even as growth cools.

M&A RESHAPES THE MIDDLE MARKET

The report highlighted a wave of large transactions that have recently reshaped the U.S. middle-market brokerage sector.

Aon acquired NFP in April 2024 in a $13 billion cash-and-stock merger, while Marsh McLennan followed with a $7.75 billion purchase of McGriff in November.

Brown & Brown closed its $9.4 billion acquisition of Accession Risk Management at the start of August, and Gallagher is expected to complete the AssuredPartners deal later this quarter.

"The newly combined groups will benefit from their enhanced market presence, product offerings and operating efficiencies in this attractive market segment," Moody's analysts said in the report .

"Credit challenges include the purchasers' increased financial leverage to help fund the acquisitions and the related integration risk."

FUNDING ADVANTAGE

The brokers' ability to have good access to debt and equity markets enables them to fund these acquisitions effectively.

Brown & Brown raised $4.3 billion in common stock and $4.2 billion in senior unsecured notes in June, across six tranches, to help fund the cash portion of its acquisition consideration of Accession.

Aon, Gallagher and Marsh McLennan also tapped debt and equity markets last year for their respective purchases.

Moody's stated that the group has approximately $11 billion of debt maturing over the next three years. Still, it should be able to refinance due to stable cash flow and recurring revenues.

Private equity-owned brokers continue to dominate the majority of buying in the small and mid-sized market. Although their borrowing costs can fluctuate more widely, they have been able to raise money at a relatively low price this year, Moody's said.

These firms refinanced approximately $22.5 billion of debt in the first half of 2025, often at lower interest rates, which has enabled them to continue acquiring more businesses.

SHAREHOLDERS AND GROWTH

The five investment-grade brokers are also juggling acquisitions with shareholder returns.

Willis Tower Watson repurchased $700 million of shares in the first half, funded in part by a $750 million earnout tied to its 2021 Willis Re divestiture.

Gallagher and Brown & Brown have primarily limited shareholder returns through dividend payments in recent years, while Aon and Marsh McLennan have remained active with share buybacks.

"They allocate internally generated cash plus cash raised in the capital markets to internal investments, acquisitions, and payments to shareholders through dividends and share repurchases," the report stated.