Ryan Specialty Rocks 22.4% Organic Revenue Growth in Debut IPO Year
Recent acquisitions fueled double-digit growth in revenue last year for Ryan Specialty Group, a Chicago-based specialty insurance firm that made its debut last summer as a publicly traded company.
But after what executives described as a “banner year,” Ryan Specialty is forecasting slower sales growth this year.
The company’s guidance for 2022 calls for organic revenue growth of between 13% and 15%, compared to organic growth of 22.4% in 2021.
The forecast represents a reasonable expectation, given the company’s strong performance in 2021, according to Meyer Shields, a managing director at Keefe Bruyette & Woods, which has done investment banking work for Ryan Specialty.
“It’s really hard to top or maintain a mid-to-upper 20% organic growth rate,” Shields said, adding: “While there are a number of really, really strong trends favoring Ryan from an organic growth standpoint, not everything is going to be as great as it was in the middle of 2021.”
Insurance premiums are likely to continue rising, albeit potentially more slowly, Shields said. The downside risks include a potential slowdown in the U.S. economy and economic impacts from the war in Ukraine, Shields said.
Revenue Growth by the Numbers
For 2021, Ryan Specialty posted revenue of more than $1.4 billion, up from just over $1 billion in 2020.
In addition to an increase in organic growth last year, the company’s revenue was bolstered by its acquisitions of Keystone Risk Partners and Crouse and Associates. The two firms combined had revenue of roughly $34 million in the 12 months ending Nov. 30, according to Ryan Specialty.
The $59.8 million purchase of Media, Pennsylvania-based Keystone Risk gave Ryan Specialty a foothold in alternative risk capital. Crouse and Associates was a wholesale brokerage specializing in transportation. Ryan Specialty paid $110.6 million for the San Francisco-based firm, according to its annual report.
One-time costs associated with the firm’s IPO in July, however, weighed on net income. Profits for the year came in at $56.6 million, down from $70.5 million in 2020. IPO costs were pegged at $79.5 million.
The company also is spending more on benefits and compensation for the producers who helped generate the firm’s sales growth. Compensation and benefits expenses for the full year were $991.6 million, up from $686.2 million in 2020.
Ryan Specialty operates three main business lines: wholesale brokerage, binding authority and underwriting management.
Its wholesale brokerage business, operating as RT Specialty, is the largest, contributing $932 million in net fees and commissions in 2021. That was compared to $209.6 million for binding authority and $290.6 million from underwriting management.
Excess and Surplus a Focus
Nearly three quarters of the premiums placed by the brokerage business last year (73%) were in the excess and surplus lines market, according to the company’s annual report.
The underwriting management division was the fastest growing last year, with an increase in net fees and commissions of 46.2%, compared to 44.7% for binding authority and 38.5% for the wholesale brokerage.
Company executives plan to invest in all three lines in 2022.
In particular, the company hopes to build up its managed underwriting business with the launch of three de novo managed general underwriters, or MGUs. Ryan described the MGU market as presenting an opportunity for growth.
“These investments are among the highest-return investments that we can make,” Ryan Specialty chairman and CEO Patrick Ryan said on a conference call with analysts. Ryan, the founder and former chairman and CEO of Aon Corp. founded Ryan Specialty in 2010.
The wholesale brokerage business has benefited, meanwhile, from consolidation among retail insurance brokers, which have been looking to consolidate their wholesaler relationships, according to Ryan Specialty’s annual report.
Ryan Specialty could also benefit from trends in the insurance market, Shields said.
Insurance companies are constraining their appetite for some risks, such as cyber, opening the door for specialty brokers like Ryan Specialty to help retail brokers find a market.
On the other hand, Ryan Specialty noted that it is starting to see more competition in excess and surplus lines. The competition is “on the fringes,” but it could pick up in 2022, according to a research note by Elyse Greenspan, a senior equity analyst for Wells Fargo Securities, which has done investment banking work for Ryan Specialty.
Ryan Specialty is no stranger to the M&A market, either.
In addition to its two acquisitions last year, the company bought three firms in 2020. Company executives said they are on the lookout for deals in 2022 and that the company could fund them with portions of the $400 million in bond debt it raised in January.
“Our deep M&A expertise should enable us to act quickly and prudently when we see an opportunity to add to our robust platform, which will help enhance our future organic growth capabilities,” Ryan said on the analysts’ call.
“We’re looking for A+ players who can leverage our platform to enhance their own growth profile.”
The company does not expect future deals to match the size of its purchase of All Risks, a company that had more than 850 employees at the time the $1.2 billion deal was announced. On the conference call, Ryan declined to identify specific targets but said the company is talking to “a number of potential partners.”
Targets could include firms in the world of specialty employee benefits, Shields said. The company could also be interested in MGUs, a historically fragmented sector of the insurance industry. Ryan Specialty is looking to build what Shields described as a national portfolio of MGUs.
Ryan Specialty also may see opportunities to add wholesale brokerages, Shields added.
In the meantime, Ryan Specialty is expecting to hire its largest broker class ever, executives said. Alice Phillips Topping, a company spokesperson, declined to provide additional details on the numbers.
While hiring has been a challenge for many companies over the past year, executives at Ryan Specialty expressed optimism about their company’s appeal.
“Fortunately, in this environment, we offer not just competitive pay, but also a unique culture and unique long-term professional development opportunities,” Ryan Specialty CFO Jeremiah Bickham said on the call with analysts.
“So, we feel really good about our ability to remain a destination of choice in this environment.” &