Whether you love them or hate them, insurance brokers are a permanent part of the financial services landscape. The business is by no means glamorous but does present an opportunity for the long-term investor. 

I believe insurance broking (and consultant (risk, HR etc.)) giant Marsh & McLennan Companies (ticker symbol MMC) would make an attractive addition to a long-term investor’s portfolio. Let’s take a look  several KPIs for the Company over the past five years shall we:

As shown in the above table, the past five years were very kind to MMC. In addition to attractive financial measures, the Company is likely to benefit from the following long-term trends:

1. The trend of consolidation in the insurance industry is likely to continue. Brokers like Marsh are well placed to navigate this changing environment to the benefit of their clients.
2. The need for effective risk management and risk consulting will continue to grow as companies expand, new regulations for doing business are put in place, new threats abound (cyber especially) etc.
3. The promise of emerging market economies remain.

The Company’s business model is capital light, scale-able, highly cash generative, and benefits from long-lasting customer relationships.

In addition to rising dividends (covered by CFO), MMC frequently acquires its own shares and were it not for EPS growing at a sharply higher rate than the decline in shares outstanding, I would be skeptical.

Insurance brokerage is still a fragmented industry ripe for consolidation. The Company has been an active participant in this trend but has also been able to grow its top line organically.

MMC stock is down about 8% for the year, is currently trading at a forward PE of 15.45 times, and boasts a dividend yield of 2.2%.

What do you think of Marsh & McLennan Companies as a long-term hold?