AUB Group Limited (AUB, the Group, ASX: AUB) is an ASX200 Company comprising retail & wholesale insurance brokers and underwriting agencies operating in 595 locations in 16 countries. The Group has 5,500 employees who service the needs of 1 million clients to place more than A$10.0 billion in insurance premiums with local and foreign insurers.
Successful Business Model
AUB Group has consistently earned shareholder returns superior to the insurance industry average. This superior performance is not an accident.
AUB’s success is attributable to its equity-based partnership model which allows insurance brokerage owners to retain control over daily operations, while leveraging the broader Group’s collective resources. Allowing key partners to maintain substantial equity stakes in their insurance brokerage businesses preserves their “ownership” mindset, which drives superior operational and financial performance outcomes within the AUB Group.
AUB provides support services that assist its brokerage partners to operate more profitably and achieve better client outcomes compared with operating on a stand-alone basis. Support services include technical support, data centre capability, and back-office functions that include human resources.
Beyond support services, AUB Group owns several Underwriting Agencies that provide specialist, customised, and bespoke insurance solutions for Brokers within the AUB network. This provides the AUB broker network with specific underwriting terms that align with the specific requirements of clients that may not be available through other brokers.
The AUB’s business model is highly cashflow generative and carries no insurance risk to AUB shareholders. This is a key point of difference compared to general insurers, and means that on a risk-adjusted basis, AUB earns superior returns relative to general insurers.
Apart from leveraging scale by benefiting from the supporting operational infrastructure and specialist underwriting products of the AUB Group, another less obvious advantage of the AUB business model is the Group’s corporate culture.
The equity-based partnership model drives a performance culture that means broker professionals get paid for what they deliver. Charlie Munger, the late former Vice Chairman of the conglomerate controlled by Warren Buffett (Berkshire Hathaway) concisely summarised this point in a 1995 speech to Harvard students when he said, “Show me the incentive and I’ll show you the outcome”. These well-chosen words capture the essence of the AUB business model and explain much of the Group’s long-term and ongoing business success.
What’s ahead?
Australian Broking will remain the core growth engine of the Group by making bolt-on acquisitions and increasing equity step-ups where appropriate.
The New Zealand business is primed for further growth, underpinned by the FY24 acquisitions which boosted revenue by 25 percent and profit by 10.5 percent, which is in addition to the organic profit growth rate of 26 percent. This growth bolstered NZ margins by 7.4 percent during the 2024 financial year.
AUB’s future growth potential has been boosted by the successful integration of London-based, specialist international insurance broker, Tysers. The Tysers acquisition provides AUB with access to the Lloyd’s Insurance market which provides a significant competitive advantage in placing international risks. This strategic acquisition establishes a strong foundation for expansion in the UK market by replicating the successful Australian model with an enhanced broker proposition.
The Group’s strong FY24 momentum has continued into the first quarter of FY25 and FY25 earnings guidance has been reaffirmed with Underlying Net Profit after Tax to be in the range of $190 million to $200 million. This represents earnings growth of between 11.1 and 16.9 percent compared to FY24.
AUB is currently ranked as the 18th largest Insurance Broking Group in the world.
This operating scale and proven track record in executing on strategically aligned acquisitions should continue to generate long-term shareholder value accretion.
