By Bill Alpert

Investors looking for a place to ride out a possible recession might want to consider the stocks of insurance brokers.

These firms, which help people and businesses find insurance coverage, include big names like Aon, Arthur J. Gallagher, Brown & Brown, Marsh & McLennan, and Willis Towers Watson. Smaller specialty firms include Erie Indemnity and Ryan Specialty Holdings.

As a group, the brokers have outperformed the S&P 500 index in five of the last seven recessions since 1980, notes Morgan Stanley's Bob Jian Huang. The brokers outperformed the S&P 500 by more than 8 percentage points, on average.

There seem to be investors out there who have been positioning themselves for recession, since insurance broker shares are way ahead of the market this year. Through this week, the stocks were more than 15 percentage points ahead of the market, according to BMO Capital Markets analyst Michael Zaremski.

That leaves the stocks a bit pricey. The bunch now trades above 23 times estimates for the next 12 months' earnings, says Morgan Stanley, which is at the high end of the range of price-to-earnings ratios over the past 10 years. By comparison, commercial property and casualty insurers are going for about 15 times forward earnings, and reinsurers trade at less than 8 times.

But business is good for the insurance brokers. Most beat Wall Street's estimates with their December quarter earnings. Acquisitions are a growth driver for many of these firms.

"The sector is benefiting from further [insurance] rate increases, a healthy economy, and good exposure to persistently higher inflation," wrote William Blair's Adam Klauber in a February assessment.

Both Blair and BMO have Buy ratings on Arthur J. Gallagher, which has a good record of making tuck-in acquisitions. It has a couple under way this year, and told investors on its last conference call that there are 45 deals under consideration. At 30 times this year's earnings forecast, the stock trades at a premium. But Klauber says earnings growth will allow the stock to continue its outperformance.

Brown & Brown is rated a Buy at BMO and Morgan Stanley. The broker has enjoyed strong growth in recent quarters in "programs insurance" -- which covers the unique needs of particular groups, like car dealers or tribal nations. That growth might slow a bit this year, but Morgan Stanley's Huang projects that earnings per share will rise 10% in each of the next few years.

Another insurance broker with lots of fans is Ryan Specialty. Since 2010, the company has grown rapidly into the largest wholesale broker of property and casualty insurance -- bringing packaged coverage to retail brokers around the country. Ryan has also grown with excess and surplus insurance carriers, who insure risks like those of homeowners who can't readily get coverage for expensive houses in fire prone areas.

Despite trading at 34 times the consensus forecast for 2025 earnings, Ryan is rated a Buy at BMO, Blair, and Morgan Stanley -- and by most of the analysts surveyed by FactSet.

Write to Bill Alpert at william.alpert@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 17, 2025 16:30 ET (20:30 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.