US Insurance Brokers Overweight
Analyst(s): Daniel Farrell / Caroline Steers Dan.Farrell@fpk.com 212-857-6144
2009 Looking Better – Maintain Overweight
• We continue to maintain an Overweight rating on the insurance brokers heading into 2009. The insurance
broker results should benefit from several factors in 2009 including: 1) continued expense management, 2) a better
P&C pricing outlook relative to the past several years, 3) strong balance sheets with generally low debt levels and
meaningful cash on hand, and 4) continued capital management and acquisition activity. We believe these earnings
drivers should more than offset potential headwinds of increased pension costs, possible negative foreign exchange
impact, and a weak economic outlook.
• We are estimating 13% average EPS growth for the group in 2009. For 2009 we are forecasting average GAAP
and cash EPS growth of 13% and 15% respectively. This compares to a 1% decline in GAAP EPS and a 2% increase
in cash EPS in 2008. Our estimates are 2% below 2009 consensus forecasts on average.
• Valuations remain attractive given earnings power and the possibility of pricing improvement. The group is
currently trading at 7.9x 2009 EV to EBITDA versus the average multiple of 9.6x and valuations that reached a peak
of 11-13x in the last hard market. Cash PE is 12.0x 2009 versus the historical average at 16x.
• Our organic growth assumptions remain conservative at 1.5% on average for 2009. We have kept our organic
growth assumptions in the low single digit level given some concern about economic impact on overall insurance
buying. However, we believe there is potential for the group to exceed these estimates if an improved pricing
environment is realized. Importantly, even a flattening or slowing of price decline would benefit the brokers on the
margin as they have been managing through double digit declines over the last several years.
• Commission & fees should show double digit growth on average given acquisition activity. We are forecasting
commission & fee growth of 11% on average given acquisition activity in 2008. We expect an active acquisition
environment in 2009, particularly in smaller deals given the highly fragmented nature of the market. In addition to BRO
and AJG, we believe the larger brokers (AOC and MMC) will be increasingly active in smaller middle market
transactions as they have meaningful cash and are targeting growth in this area.
• We are forecasting margin expansion in 2009 driven largely by expense initiatives. We are forecasting average
margins up 100 bps in 2009 (23.9% vs 22.9%) as all of the companies continue to remain focused on expense
management and increasing efficiency.
• Balance sheets generally remain strong for the insurance brokers with low debt levels and meaningful cash
positions. With the exception of WSH, the insurance brokers have meaningful balance sheet flexibility currently.
Average debt to capital is roughly 33% while debt to EBITDA is at about 1.6x. Brokers can generally go to 2.5x debt to
EBITDA and 40%+ debt to capital levels.
• Aon and Willis remain our top picks for 2009. Aon’s results should get meaningful benefit from the Benfield
acquisition (given the positive outlook for reinsurance pricing) and ongoing expense savings. WSH has near term
challenges with debt refinancing and a challenging HRH integration ahead. However, we believe valuation reflects this
and resolution of balance sheet concerns and successful execution of the HRH deal could ultimately be positive
catalysts. Additionally, WSH also has meaningful reinsurance brokerage which should provide additional benefit.

TABLE OF CONTENTS
Earnings Forecasts ......................................................................................................4
Revenue Trends & Outlook..........................................................................................6
Margin Trends & Outlook ...........................................................................................11
Balance Sheets..........................................................................................................12
Performance & Valuation ...........................................................................................14
AON Corporation (AOC).......................................................................................20
AJ Gallagher .........................................................................................................25
Brown & Brown.....................................................................................................29
Marsh Mclennan ...................................................................................................32
Willis Group ..........................................................................................................35