PSC Insurance Group has posted stronger first-half earnings despite challenges in parts of its business, including a revenue drop for Paragon International, the Lloyd’s broker it acquired in 2019.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rose 12% to $54.2 million and underlying net profit after tax before amortisation (NPATA) grew 6% to $37.1 million.

The Melbourne-based broker says it performed beyond expectations and has raised its earnings guidance for the 2023-24 fiscal period.

Underlying EBITDA is now projected at $125-$130 million, up from $122-$127 million previously, and underlying NPATA is in the range of $83-$87 million, up from $82-$86 million.

“It’s a result we’re really proud of given that it’s been achieved notwithstanding some headwinds – some that are market driven and some where we’ve decided we’re going to invest in businesses to grow or invest in start-ups or new capabilities that initially have a bit of a drag on the underlying earnings,” MD Tony Robinson said this morning in an earnings call.

Underlying revenue increased 15.3% to $159 million, including contributions of $9.2 million from acquisitions and $12 million from organic sources.

By division, the Australia Distribution business reported EBITDA of $26.7 million, up from $21.2 million; Australia Agency grew to $5.4 million from $4.8 million; and UK moved to $22.9 million from $22.7 million.

PSC says organic growth in the distribution businesses has been good and broad-based.

“Market conditions have moderated, with the hard market continuing in the domestic classes and moderating in the commercial classes.”

In the agency business, organic growth was good and the group has started or will start three new businesses in three new product areas, in addition to the launch of Chase Professional Risks with the acquisition of underwriting agency Ensurance.

In Britain, performances of Carrolls and Breeze and parts of the insurance broker business were strong, but Paragon’s revenue fell 3% on a UK currency basis due to weak market conditions in cyber, directors’ and officers’ (D&O), mergers and acquisitions (M&A), and an unfavourable US dollar.

“Cyber rates in the US and early adoption of a ‘war’ clause in London impacted, as did weak M&A activity and continued weakness in D&O rates. These three areas were down ... £2.4 million ($4.6 million) in revenue on the prior period.”

But PSC says it sees improved conditions in the second half.

“Paragon’s been through a period where they’ve had some tailwinds from rates and now they’re facing the headwinds of rates,” Mr Robinson said. “The positive of difficult times or headwinds is you’re forced to get back to the discipline ... they are definitely ending up a better-disciplined business as a consequence of that.

“They are out prospecting harder; they are being more disciplined about how they are prospecting. We’re seeing that translate into good client growth. Client numbers are up about 3% for that period.”

He says PSC is still looking at acquisitions, especially start-ups or early-stage complementary businesses. In the first-half, PSC completed nine acquisitions, including Ensurance in Australia and Giles Gower, a UK broker specialising in high-net-worth clients.

“We continue to see a very full acquisition pipeline ... we’ve got a number that are well progressed and we’re hopeful will come through in this second half,” Mr Robinson said. “We’re focused on being a great three-legged stool ... with organic growth and acquisitions and start-ups and early-stage investments.”