Steadfast (ASX:SDF): A company that has caught our attention

The company’s CEO Robert Kelly established the company in 1996, and he has over 45 years experience in the industry as a broker, risk manager and underwriting agent. The Steadfast network began by providing technical advice and claims triage, along with tools for servicing clients, professional development and compliance. The insurance broking network quickly grew from 43 brokers in 1996 to become the largest in Australasia. Currently, Steadfast is a broker network and provider of services to 306 broker businesses and 22 underwriting agencies located in ~750 offices across Australia, New Zealand and Singapore with combined billings of over $5bn in premium. The IPO in 2013 represented a structural change in the business, with Steadfast agreeing to take equity stakes in over 50 of its own network brokers and list on the ASX. 

Steadfast has a strong franchise in SME insurance broking and underwriting. The strength of the business lies in the scale of the franchise and the strength of the relationships with the broking network and with insurers. SME insurance broking is a fragmented industry; independent brokers tend to operate out of suburban locations and align with groups like Steadfast, meaning that direct competition is limited. Steadfast insurance brokers provide an essential, non-discretionary service under a relationship of trust. They sell a complex product, help clients tailor insurance coverage and assist in lodging claims. For this reason, customers tend not to churn. Steadfast has strong bargaining power with insurers in that they provide a distribution network which cannot be replicated, help insurers communicate policy terms and handle claims. Underwriting agencies represent a complementary part of the business, sitting between brokers and insurers and underwriting specialised or niche lines of business on behalf of insurers. 

Steadfast brokers tend to generate recurring earnings as insurance volumes are reasonably insulated from the economic cycle because insurance coverage is a necessity for most SMEs. SME insurance prices also tend to be stable, meaning that commissions to brokers are reasonably resilient through the cycle. Moreover, insurance brokers earn higher fees when