Applied Systems Inc.

Including contributions from the acquisitions it completed in 2019, we expect Applied's reported revenue to increase by 9% in 2020. Historically, the expansion of the P&C industry has been tied to an increase in the number of premiums underwritten, which generally leads to a growing industry headcount. Despite the long-established growth trends in both areas, we believe their continued expansion could face pressure over the next 12 months. Independent third-party research indicates that, while the insurance brokerage industry's median growth slowed in the second quarter of 2020 relative to the previous quarter, it is still expected to expand by about 5% for 2020 on P&C rate increases and new production. The stable outlook on Applied Systems Inc. reflects our expectation

...Applied Systems' performance in 2020 appears to have been relatively unaffected by the ongoing coronavirus pandemic. The company's ability to pass along rate increases of about 6% per year (typically in January) has enabled it to report a good revenue performance during the pandemic. We view the property and casualty (P&C) insurance end market as better insulated from the coronavirus, which is reflected in the minimal revenue disruption Applied has experienced through September 2020. Although we expect 2020 revenue to be about $12 million lower than its pre-COVID expectations, about $2 million of this is attributed to the cancellation of its user conference and the bulk of the remaining shortfall stems from lower demand for its professional services as new customer acquisitions have been limited due to COVID-19. We believe many agencies have likely foregone investing in a new broker management system in 2020 and those with existing systems will opt to renew with their incumbent providers....

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