2014 Best Practices Study

Analysis of Agencies with Revenues Over $25,000,000

Key Benchmarks

Profile

Revenues

The Rule of 20 is a simple growth and profitability balancing equation that provides a quick way to determine whether or not an agency is creating value for its shareholders. It states that an agency will drive industry-standard shareholder returns if the sum of (a) its organic growth rate and (b) 1/2 of its EBITDA margin equals or exceeds 20. Generally speaking, an outcome of 20 or more, regardless of the different combinations of growth and profitability, indicates that the agency’s shareholders can expect to earn 15% -17% per year through stock price appreciation and/or shareholder distributions.

Expenses Profitability

Employee Overview

Producer Info

Rule of 20 Outcome

Service Staff Info

What is the Rule of 20?

Organic Growth

EBITDA Margin

Rule of 20 Outcome

Public Brokers

Technology

Insurance Carriers

Willis Group

4.9% 24.0% 16.9

1/2 of EBITDA Margin

Organic Revenue Growth + =

Rule of 20 Score

Aon

3.0% 20.9% 13.5

Appendix

Brown & Brown

6.8% 33.5% 23.6

• Provides a tool to benchmark agency performance • Helps frame the trade-off between growth and profitability

Arthur J. Gallagher 6.5% 19.9% 16.5 Marsh & McLennan 3.0% 20.7% 13.4

Average

+25% Profit Average +25% Growth Average

Rule of 20

19.0

21.3

26.6

Financial Stability

Average

Top 25%

Balance Sheet Current Ratio

1.36:1

1.88:1

Tangible Net Worth (% of Net Revenue)

9.3%

27.2% 18.8%

Receivables/Payable Ratio

52.6%

Aged Receivables

% Receivables Aged Past 60 Days % Receivables Aged Past 90 Days

4.4% 3.2%

0.6% -5.2%

2014 Best Practices Study

Accounts Receivable

Agencies with Revenues Over $25,000,000

Average

+25% Profit

+25% Growth

Agency Billed vs. Direct Billed by Carrier % of P&C Revenues that are Agency Billed % of P&C Revenues that are Direct Billed

57.8% 38.7%

49.6% 36.1%

59.7% 40.3%

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