2009 Best Practices Study

2009 Best Practices Study | Agencies with Revenues Between $2,500,000 and $5,000,000 | Revenues/Expenses

Appendix

Insurance

Carriers

Technology

Service

Staff Info

Producer

Info

Employee

Overview

Financial

Stability

Revenues/

Expenses

Profile

Agencies with Revenues Between $2,500,000 and $5,000,000

Profitability

“Rule of 20” Score

The “Rule of 20” provides a quick means of calculating

whether or not an agency is creating significant returns

for its shareholders. It is the sum of an agency’s EBITDA

margin times 50% plus its organic revenue growth rate.

The secret to the Rule of 20 is the weighting of the

relative importance of organic growth versus EBITDA

when it comes to creating shareholder returns. Generally

speaking, an outcome of 20 or higher means an agency

is generating a shareholder return that is equal to or

greater than that typically expected of an insurance

agency/brokerage. A score of less than 20 indicates

room for improvement. However, this year’s outcomes

reflect the severity of the soft market over the past year.

Positive organic growth was difficult to achieve and

shareholder returns were adversely impacted.

Average

+25% Profit Average +25% Growth Average

“Rule of 20” Score

12.3

22.3

25.9

Rank Public Brokers

Organic

Growth

EBITDA

Margin

Rule of 20

Outcome

1 Willis Group

4.0% 24.3% 16.2

2 Aon

2.0% 20.1% 12.1

3 Brown & Brown

-5.5% 35.1% 12.1

4 Arthur J. Gallagher

1.4% 16.2% 9.5

5 Marsh & McLennan 0.0% 13.9% 7.0

Rule of 20 Outcome

In 2008 none of the public brokers achieved a Rule of 20

outcome of 20 or more, as shown in the table above.