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Receding Tides How Will Market Softening Impact Valuations and M and A After a prolonged hard market run – P and C rate growth is softening. And the public brokers, who are on the front lines, appear to be taking the first hits. Is this the “canary in the coal mine” moment for valuations and dealmaking Or will insurance distribution once again be resilient against this latest stress test. The saying goes All good things must come to an end. After one of the longest insurance hard market cycles in history, one which saw insurance brokers reap the benefits of rate driven organic growth – the good times may be coming to end. This may include the historic run up in values for the public insurance brokers. Since collectively peaking at the end of March 2025, public brokers have seen their values go from historic highs to a sudden free fall, dropping collectively by 21 percent since March and down 10.2 percent year to date as of November 21st, 2025 as calculated by the MarshBerry Broker Composite Index. This recent decline in the value of public brokers’ equities in 2025 is glaring in light of the positive performance of the broader equity benchmarks, where the S and P 500 and the Dow Jones Industrial Average are up 12.3 percent and 8.7 percent respectively year to date as of November 21st, 2025. Individually, some of the public brokers’ values have performed even worse than their collective index shows. Each broker has reached peak stock prices at different times over the past year, but through November 21st, 2025, they have all declined significantly. This run up in value for the public brokers over the past few years has been driven in part by some mega deal announcements, but also in part by extraordinary organic growth during this historically long hard market. Consistent double digit organic growth has been buoyed by rising insurance premiums partially supported by years of global inflation. Growth focused investors have seen this, and have invested heavily in this sector, riding the wave of growth. However, now that inflation has moderated, interest rates are declining and economic conditions are stabilizing, the insurance market is transitioning from a prolonged hard rate cycle to a cycle where rate growth has entered a softening phase. The result is intensified competition, broader coverage offerings, and slowing rate increases or decreases across key lines such as commercial property, general liability, and umbrella excess liability. Increased confidence in rate adequacy coupled with strong surplus has created an almost universal, underwriting risk on mindset. We have reached the age old inflection point where carriers are trying to take rate on renewals to buy new business. As of Q3 2025, the average commercial property and casualty P and C premium rate change was 1.6 percent. This is down from the most recent average high of 11.7 percent in Q3 2020. The result of this deceleration of premium increases is a decline in organic growth rates – which has tempered investor enthusiasm for the sector, especially after several years of strong growth. How did the public brokers really do in Q3 2025 While the drop in publicly traded broker stock prices is more reflective of general investor caution or rotation out of a softening sector, based on Q3 2025 earnings reports of public brokers, the sector continues to display solid earnings and positive albeit, slower organic growth. As the rate environment changes, all firms are seeing organic growth slow over the past year. But the public brokers have suffered more than the broader market, given greater concentration in larger accounts and Excess and Surplus E and S property, areas under more competitive pressure compared to smaller accounts. For the past 3 to 5 years, “All Firm Average” and “Best 25 percent” of firms have maintained their organic growth levels. However, the public brokers have dropped significantly, going from double digit growth averaging 10.4 percent in 2023 to 5.7 percent in 2025 through Q3 2025. This drop in organic growth certainly creates challenges, but as the Q3 2025 earnings reports suggest –large public brokers are able to maintain their revenue goals through other nonorganic means – namely mergers and acquisitions M and A. There is also no precedence to suggest that any drop in public broker values is a sign of things to come for the broader insurance brokerage market. What’s next for valuations and M and A activity As organic growth slows, firms still have revenue growth goals to achieve. Without the benefit of a hard market tailwind to drive rates – and in turn, organic growth – larger firms will be relying more on acquisition strategies. Compounded by two Fed interest rate cuts, totaling 50 basis points, the ability to generate more affordable cash flow should support those firms looking to ramp up their M and A activity as a means to drive growth. There is a convenient rationalization by some buyers, suggesting that this drop in share value by public brokers will or should create downward pressure on the value of privately held brokerages. But the fact is, historically, this trend rarely holds true. Public broker valuation multiples spiked again in 2024, reaching 20 times E B I T D A earnings before interest, taxes, depreciation and amortization. Yet the private platforms valuation multiples held at elevated levels without spiking in suit. MarshBerry expects them to continue holding. Over the past three years platform firms have held flat at an average of around 14 times E B I T D A for base purchase price at closing, and 19 times with an earn out. Even as public values have come back down in 2025, private broker valuations have remained flat including the most recent measurement in LTM Q3 2025 and are expected to maintain course, with top performing platform continuing to fetch record high multiples. It is MarshBerry’s belief that valuations will continue to be influenced by limited supply versus high demand. Now, as interest rates drop, the expectation is that with more affordable capital, compounded by the pressure to generate revenue to replace slowing organic growth – demand will increase even further. Trends to look for after the “near miss” Most don’t recognize it, but the increase in organic growth from 2021 through 2023 neutralized the impact that higher borrowing costs might have had on M and A valuations. It was a near miss. If rising interest rates had exceeded organic growth rates, there could have been covenant defaults by highly leveraged brokers. Had this happened, valuations for private brokers could have corrected dramatically and the insurance brokerage M and A market would look much different than it does today. However, this “near miss” did not go unnoticed. It put a spotlight on the need for the industry to evolve which amplified some emerging trends that have become universal truths during this next phase of the market cycle. Integration. There has been a shift by the investment community to expect, or even mandate, integration as a way to achieve enhanced internal financial controls and drive efficiencies across the platforms. Buy and build strategies based on decentralization have been prevalent and successful, as it gave sellers the autonomy to operate independently, while giving them liquidity and equity in the bigger entity. But now as market conditions begin to shift and rate growth begins to soften, private equity investors are now requiring firms to integrate even those that were previously acquired under the decentralized model, as a safety measure against any potential value loss stemming from hidden risks associated with the changing market. The Great Migration. Because of this shift toward integration, there is a growing migration of high quality talent that were promised a decentralized model flowing back to the independently owned regional brokers or leaving their firms to start their own insurance agencies. While the big insurance brokers certainly continue to get bigger, this migration of talent is regenerating the M and A supply pool – sustaining a rinse and repeat process for years to come. Lift outs. Once viewed as criminal by some and unethical by most others, lift outs are now part of the growth strategy for most larger brokers. Many of those playing the lift out game for the first time are using a different playbook honor agreements and let the restrictive covenant clock run out. While this is more palatable than the smash and grab model of some, it is wreaking havoc on the retention of experienced talent. The need for real organic growth. If you discount the nearly seven percentage points that the hard rate environment and increased exposure base contributed to the average firms’ organic growth the last several years – the resulting “real organic growth” rate for the average insurance agency broker was closer to 2.7 percent. Essentially, external market factors may have provided a lifeline to many firms that were over leveraged. Many independently owned firms may be naïvely sitting complacent, unprepared for what’s to come. In the immortal words of Warren Buffett, “You don’t find out who’s been swimming naked until the tide goes out.” Today, as signs point towards a tide that is receding, we will soon see which firms are truly prepared to compete and grow significantly enough to warrant the interest of deep pocket investors in this industry. As capital borrowing becomes more affordable, and as the current demand for quality sellers outpaces supply – it is expected that M and A volume and independent firm valuations will remain elevated. Keep in mind, not all valuations are created equal. Quality firms are being highly rewarded today, even more than in the past. How firms are growing, the quality of that growth and their leadership capabilities not just top tier, but the next generation of leaders is going to become even more important, now that the insurance rate cycle is shifting.