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2008 Best Practices Study | Agencies with Revenues Between $10,000,000 and $25,000,000 | Revenues/Expenses
Appendix
Insurance
Carriers
Technology
Service
Staff Info
Producer
Info
Employee
Overview
Financial
Stability
Revenues/
Expenses
Profile
Agencies with Revenues Between $10,000,000 and $25,000,000
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
17.9
21.4
29.0
Rank Public Brokers
Organic
Growth
EBITDA
Margin
Rule of 20
Outcome
1 Willis Group
3.0% 26.0% 16.0
2 Brown & Brown
–3.4% 37.3% 15.3
3 Arthur J. Gallagher
5.0% 16.9% 13.5
4 Hilb Rogal & Hobbs –0.3% 24.0% 11.7
5 Aon
2.0% 19.3% 11.7
6 Marsh & McLennan 4.0% 13.7% 10.9
Rule of 20 Outcome
In 2007 none of the public brokers achieved a Rule of 20
outcome of 20 or more, as shown in the table above.