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Stock Strategist Industry Reports

Blue Skies Breaking for Insurance Brokers

Better days lie ahead for insurance brokerage firms.

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The publicly traded insurance brokers continued to swim upstream in the first half of 2009. The weak economy, softening insurance rates, and uncertainty over regulatory treatment of commission revenue continued to weigh on their results. However, we've been thinking that the brokers were a good place to look for value. We don't expect these three factors to be with us for long, even though waning market sentiment damped valuations through 2008 and into early 2009. 

The brokers' stock prices have participated with the market rally since March, and the gap between our fair value estimates and their market prices has narrowed significantly. But we still have one of these firms ( Arthur J. Gallagher (AJG)) rated at 5 stars or our Consider Buying price, with another ( Marsh & McLennan (MMC)) close to that recommendation (see the table below).

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Bill Bergman does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.