2005 Best Practices Study

2005 BEST PRACTICES STUDY

SPECIAL ACKNOWLEDGEMENT

We wish to thank the following companies for their sponsorship which has funded the development of the 2005 Best Practices Study and the Best Practices Gateway website.

2005 BEST PRACTICES STUDY

Copyright©2005 by the Independent Insurance Agents & Brokers of America and Reagan Consulting, Inc. All rights reserved.

2005 BEST PRACTICES STUDY

TABLE OF CONTENTS

Introduction

Analysis of Agencies with Revenues Less than $500,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Analysis of Agencies with Revenues Between $500,000 and $1,250,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..25 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Analysis of Agencies with Revenues Between $1,250,000 and $2,500,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 Analysis of Agencies with Revenues Between $2,500,000 and $5,000,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64

2005 BEST PRACTICES STUDY

Analysis of Agencies with Revenues Between $5,000,000 and $10,000,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80 Analysis of Agencies with Revenues Between $10,000,000 and $25,000,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96 Analysis of Agencies with Revenues Over $25,000,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112 Appendix Population Density Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115 Regional Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119

2005 BEST PRACTICES STUDY

INTRODUCTION

For more than a dozen years, the annual Best Practices Study has served as a tool to help agency owners and managers understand how their business operations perform and measure up to the top performing firms across the country. It is a “must have” for those agencies that want to become the best they can be. The 2005 Best Practices Study Executive Update provides critical performance benchmarks in seven agency revenue categories ranging from Under $500,000 to Over $25,000,000 . Agencies can measure, evaluate, and compare results for agency opera- tions including:

• • • • • •

Income & Expense Distribution Revenue & Profitability Growth

Production & Service Staff Compensation/Productivity

Technology Expenses

P&C and GL&H Carrier Representation

Much more

This year’s Executive Update continues to follow the performance of the 195 agencies selected as Best Practices Agencies in 2004. (NOTE: New agencies are selected every third year.) Although it updates all of the important financial and operational benchmarks and can be used on a standalone basis, readers of this update may also want to refer- ence the comprehensive 2004 Best Practices Study for additional information on the 2004 Best Practices Agencies including:

• • • • •

Factors most critical to success

Top challenges

Keys for maximizing productivity

Keys for gaining a competitive advantage

Additional operational results and business practices

The comprehensive 2004 study is available in hard copy only and can be purchased from the Independent Insurance Agents & Brokers of America (IIABA) Education Department. Order forms can be downloaded at http://bp.reaganconsulting.com/.

About the Study

The History The annual Best Practices Study originated in 1993 as an initiative by the Independent Insurance Agents & Brokers of America (IIABA) to help its members build and maintain the value of their most important assets, their agencies. By studying the leading agen- cies and brokers in the country, the association hoped to provide member agents with meaningful performance benchmarks and business strategies that could be adopted or

2005 BEST PRACTICES STUDY

adapted for use in improving agency performance, thus enhancing agency value.

The IIABA retained the principals of Reagan Consulting to create and perform the first Best Practices Study. Annual updates conducted by Reagan Consulting continue to pro- vide important financial and operational benchmarks, and the study is recognized as one of the most thoughtful, effective and valuable resources ever made available to the indus- try.

The Process

Once every three years, the insurance companies participating in the IIABA’s Council for Best Practices and the Executive Directors of IIABA’s state association affiliates nomi- nate for each of the studies’ revenue categories those agencies they believe to be among the better, more professional agencies in the industry. The nominated agencies are then invited to participate. They must be willing to share key business practices/philosophies and to complete an in-depth survey detailing their financial and operational year-end results. In 2004, the beginning of a new three-year study cycle, approximately 900 agencies from around the country were nominated in seven revenue categories ranging from Under $500,000 to Over $25,000,000 . Over 300 agencies accepted the invitation and submit- ted data. The agencies submitting data were scored and ranked objectively for inclusion on the basis of Account Retention Rates, Revenue Growth, Productivity, Profitability, and Financial Stability. Only 195 agencies, the top 30 firms in the first six categories and 15 in the largest revenue category, were included in the study and earned the status of a “Best Practices Agency.” Their compiled year-end results and business practices were published in the compre- hensive 2004 Best Practices Study . Their continued performance for the past year was reviewed and compiled in order to update the subset of financial and operational bench- marks that comprise the 2005 Executive Update . Next year’s update will complete the study of the 2004 Best Practices Agencies. The 2007 study, which starts a new three-year cycle, will be open for new agency nomina- tions and selection. Taking part in the Best Practices Study has become a prestigious recognition of the superior accomplishments of the top insurance agencies in the country. Those agencies that believe they have the qualities of a Best Practices Agency and wish to be nominat- ed for the study should contact their state association.

2005 BEST PRACTICES STUDY

About the Best Practices Gateway Website

The electronic version of this study can be accessed via the websites of IIABA (www.iiaba.com) and Reagan Consulting (www.reaganconsulting.com) or directly at (http://bp.reaganconsulting.com/).

From the Best Practices Gateway home page users can to do the following:

• View an HTML version of the current and past Executive Updates • Download a Best Practices comparison spreadsheet to compare their year-end results with the study’s results • Access other Best Practices studies, tools, and products • Download order forms

Other Best Practices Studies and Tools

In addition to the annual Best Practices Study and Executive Updates , many other useful studies, resources, and tools are available to help agencies improve their perform- ance and enhance the value of their businesses. Two of the most frequently used tools are The Agency Self-Diagnostic Tool and the Joint Agency Company Planner . These Best Practices tools are part of a complete line of Best Practices products and services. Order forms can be downloaded from http://bp.reaganconsulting.com/.

If You Have Questions

If you have questions about the information published in the 2005 Best Practices Study Executive Update, please contact the IIABA Education Department at 800-221-7917 or Reagan Consulting at 404-233-5545.

2005 BEST PRACTICES STUDY

AGENCIES WITH REVENUES UNDER $500,000

PROFILE (of Agencies in this Study Group)

2005

A.

Average Total Revenues: $356,070

B.

Corporate Structure

PROFILE

+25% Profit

+25% Growth

Average

C

60.0%

52.0%

53.3%

S

30.0%

36.0%

36.7%

REVENUES/ EXPENSES

Partnership

0.0%

0.0%

0.0%

LLC

0.0%

0.0%

0.0%

Sole Proprietorship

10.0%

12.0%

10.0%

FINANCIAL STABILITY

C.

Shareholders

+25% Profit

+25% Growth

Average

EMPLOYEE OVERVIEW

Number of Shareholders

1.7

1.6

1.0

High

4.0

Low

1.0

PRODUCER INFO

D.

Ownership Percentage

+25% Profit

+25% Growth

Average

SERVICE STAFF INFO

% Owned by Largest Shareholder

79.7%

83.0% 100.0%

High

100.0%

Low

35.0%

TECHNOLOGY

E.

Shareholder Age

+25% Profit

+25% Growth

Average

INSURANCE CARRIERS

Current Age of

Largest Shareholder

52.2

47.0

45.4

1

AGENCIES WITH REVENUES UNDER $500,000

F.

Parent Corporation

2005

Average

% of Participating Agencies

Owned by Another Corporation

0.0%

PROFILE

Description of Parent Corporation

Financial Institution

0.0%

National Broker

0.0%

REVENUES/ EXPENSES

Other

0.0%

FINANCIAL STABILITY

G. Population Density of Metropolitan Area Where Home Office Is Located

EMPLOYEE OVERVIEW

+25% Profit

+25% Growth

Average

Less than 50,000

63.2%

62.5%

62.1%

50,000 - 250,000

15.8%

12.5%

13.8%

PRODUCER INFO

250,000 - 1,000,000

21.1%

25.0%

24.1%

More than 1,000,000

0.0%

0.0%

0.0%

SERVICE STAFF INFO

TECHNOLOGY

INSURANCE CARRIERS

2

AGENCIES WITH REVENUES UNDER $500,000

REVENUE ANALYSIS

2005

A.

% of Revenue by Source

+25% Profit

+25% Growth

Average

Commercial P&C

38.5%

39.9%

28.7%

PROFILE

Personal P&C

51.4%

48.9%

61.1%

P&C Service Fees

0.2%

0.0%

0.0%

Contingent

4.6%

2.6%

3.1%

REVENUES/ EXPENSES

Group L&H

2.0%

4.6%

3.8%

Individual L&H

2.0%

2.6%

1.3%

Investments

0.3%

0.2%

0.0%

FINANCIAL STABILITY

Miscellaneous

0.9%

1.2%

1.9%

Total Revenues

100.0% 100.0% 100.0%

Brokerage Commission Exp

1.8%

0.0%

0.6%

EMPLOYEE OVERVIEW

Net Revenues

98.2.% 100.0%

99.4%

PRODUCER INFO

70%

Average

60%

+25% Profit

50%

SERVICE STAFF INFO

+25% Growth

40%

30%

20%

% Total Revenue

10%

TECHNOLOGY

Commercial P&C

Personal P&C

P&C Service Fees

Contingent

Group L&H

Individual L&H

Investments

INSURANCE CARRIERS

3

AGENCIES WITH REVENUES UNDER $500,000

B.

% of Revenues Derived from Largest Accounts

+25% Profit

+25% Growth

2005

Average

Largest Commission Account

4.4% 5.0% 3.4%

High

13.0%

PROFILE

Low

1.4%

10 Largest Commission Accounts

15.1% 13.4% 16.1%

High

37.6%

REVENUES/ EXPENSES

Low

2.7%

C. Revenues Derived from Acquisitions Made in the Last 12 Months

FINANCIAL STABILITY

% of Agencies Acquiring Avg. Total Commissions Acquired

% of Net Revenues

0%

$0

0%

EMPLOYEE OVERVIEW

D.

Net Revenue Growth

+25% Profit

+25% Growth

Average

PRODUCER INFO

Net Revenue Growth (Organic)

5.0% 2.4% 16.2%

Net Revenue Growth (Total)

5.0% 2.4% 16.2%

SERVICE STAFF INFO

Revenue Growth by Source (as % of Prior Year’s Total Revenues)

Average

+25% Profit

30%

+25% Growth

TECHNOLOGY

20%

10%

0%

INSURANCE CARRIERS

% Total Revenue -10%

-20%

-30%

Commercial P&C

Personal P&C

Group L&H

P&C Service Fees

Individual L&H

Total Commissions & Fees

4

AGENCIES WITH REVENUES UNDER $500,000

E. Revenue Growth by Source (stated as % of Prior Year’s Total Revenues)

+25% Profit

+25% Growth

2005

Average

Commercial P&C

92.5%

94.6%

97.6%

Renewals 1

16.2%

15.9%

17.7%

New Business 2

Acquired Revenues 3

0.0%

0.0%

0.0%

Organic Growth 4

8.8%

10.5%

15.3%

Total Growth 5

8.8%

10.5%

15.3%

PROFILE

Personal P&C

92.6%

94.0%

99.3%

Renewals 1

New Business 2

14.3%

16.0%

14.0%

Acquired Revenues 3

0.0%

0.0%

0.0%

REVENUES/ EXPENSES

Organic Growth 4

6.8%

10.0%

13.3%

Total Growth 5

6.8%

10.0%

13.3%

Renewals 1

*

*

*

P&C Service Fees

New Business 2

*

*

*

Acquired Revenues 3

*

*

*

FINANCIAL STABILITY

*

Organic Growth 4

*

*

*

Total Growth 5

*

*

Group L&H

Renewals 1

84.1%

84.3%

89.2%

New Business 2

3.9%

6.0%

8.9%

EMPLOYEE OVERVIEW

Acquired Revenues 3

0.0%

0.0%

0.0%

Organic Growth 4

-12.0%

-9.7%

-1.9%

Total Growth 5

-12.0%

-9.7%

-1.9%

Renewals 1

78.5%

*

*

Individual L&H

PRODUCER INFO

New Business 2

17.2%

*

*

Acquired Revenues 3

0.0%

*

*

*

Organic Growth 4

-4.3%

*

*

Total Growth 5

-4.3%

*

SERVICE STAFF INFO

Renewals 1

91.4%

93.9%

98.1%

Total Commissions & Fees

New Business 2

15.6%

15.4%

14.6%

Acquired Revenues 3

0.0%

0.0%

0.0%

Organic Growth 4

6.9%

9.3%

12.7%

Total Growth 5

6.9%

9.3%

12.7%

TECHNOLOGY

Contingent Income Growth

1.6%

*

*

Investment Income Growth

1.8%

*

*

Total Revenue Growth

6.2%

2.2%

16.0%

Brokerage Commission Expense Growth

*

*

*

Net Revenue Growth (Organic)

5.0%

2.4%

16.2%

INSURANCE CARRIERS

Net Revenue Growth (Total)

5.0%

2.4%

16.2%

1 Renewal Revenues as a % of prior year’s total revenues for this line of business. This figure is impacted by attrition (loss or retention of accounts) and by changes in premium and commission levels. The higher the %, the more favorable the results. 2 New Revenues as a % of prior year’s total revenues for this line of business. The higher the %, the more favorable the results. 3 Acquired Revenues as a % of prior year’s total revenues for this line of business. The % indicates the significance of acquired business.

4 Growth in Revenues from prior year excluding acquired revenues. 5 Growth in Revenues from prior year including acquired revenues.

*Insufficient Data

5

AGENCIES WITH REVENUES UNDER $500,000

EXPENSE ANALYSIS

A.

Expenses Analysis (as a % of Net Revenues)

2005

+25% Profit

+25% Growth

Average

Compensation Expense Total Payroll

40.2%

27.4%

34.9%

Benefits

9.3%

5.6%

8.1%

PROFILE

Total Compensation

49.5%

33.0%

43.0%

Selling Expenses

T&E/Conventions

1.5% 2.7% 2.6% 6.9% 4.4% 1.8% 0.7% 1.6% 1.4% 2.0% 2.5% 1.0% 0.6% 0.3% 0.4% 2.3% 0.5% 0.6% 0.1% 1.9% 0.3% 0.5% 0.2% 3.1%

0.6% 2.6% 2.5% 5.8% 3.3% 1.4% 0.6% 1.3% 1.1% 0.6% 1.7% 0.6% 0.3% 0.0% 0.0% 3.0% 0.4% 0.1% 0.4% 0.8% 0.3% 0.2% 0.9% 2.6%

1.0% 2.9% 1.9% 5.8% 3.2% 1.8% 0.6% 0.8% 1.4% 2.2% 1.2% 0.6% 0.6% 0.1% 0.2% 1.3% 0.3% 1.3% 0.0% 1.2% 0.3% 0.1% 0.0% 1.6%

Automobile

Advertising/Promotions

Total Selling

REVENUES/ EXPENSES

Operating Expenses Occupancy

Telephone

Postage

Supplies/Printing

FINANCIAL STABILITY

Dues/Subscriptions/Contributions

Taxes/Licenses

Insurance

Professional Fees

Equipment Rental/Maintenance

Bad Debts

EMPLOYEE OVERVIEW

Outside Services

Information Technology

Education/Training

Miscellaneous

Total Operating

20.3%

14.3%

15.6%

PRODUCER INFO

Administrative Expenses Amortization

Depreciation Officer-Life

Interest

SERVICE STAFF INFO

Other

Total Administrative

Total Expenses Pre-Tax Profit

79.8% 20.2%

55.7% 44.3%

4 66.0%

34.0%

TECHNOLOGY

60%

Average

50%

+25% Profit

40%

+25% Growth

INSURANCE CARRIERS

30%

20%

% Net Revenue

10%

0%

Compensation Expense

Operating Expense

Administrative Expense

Selling Expense

6

AGENCIES WITH REVENUES UNDER $500,000

Revenue/Expense/Profit Summary

2005

+25% Profit

+25% Growth

Average

Revenues (% by Source) Commercial Lines

38.5% 51.4%

39.9% 48.9%

28.7% 61.1%

Personal Line

P&C Service Fees Contingent/Bonus Group Life & Health Individual Life & Health

0.2% 4.6% 2.0% 2.0% 0.3% 0.9%

0.0% 2.6% 4.6% 2.6% 0.2% 1.2%

0.0% 3.1% 3.8% 1.3% 0.0% 1.9%

PROFILE

Investments Miscellaneous

REVENUES/ EXPENSES

Total Revenues

100.0% 100.0% 100.0%

Brokerage Commission Expense

1.8%

0.0%

0.6%

Net Revenues

98.2% 100.0%

99.4%

Expenses (as % of Net Revenues) Compensation

49.5%

33.0%

43.0%

FINANCIAL STABILITY

Selling

6.9%

5.8%

5.8%

Operating

20.3%

14.3%

15.6%

Administrative

3.1%

2.6%

1.6%

Total Expenses

79.8%

55.7%

66.0%

EMPLOYEE OVERVIEW

Pre-Tax Profit

20.2% 26.2% 15.2%

44.3% 51.0% 41.5%

34.0% 39.0% 30.9%

Pro Forma Profit 1

Operating Pre-Tax Profit 2

Pro Forma EBITDA 3

29.3%

53.6%

40.6%

PRODUCER INFO

1 Pre-tax profit when discretionary expenses (bonuses, compensation, and perks) made for the benefit of the owners, based solely on ownership, are removed (i.e., removing expenses that would not be incurred if a third party owned the agency). 2 Pre-tax profit minus contingents, bonus and investment income. 3 EBITDA = Earnings before Interest, Taxes, Depreciation and Amortization

SERVICE STAFF INFO

60%

Average

50%

+25% Profit

TECHNOLOGY

40%

+25% Growth

30%

20%

INSURANCE CARRIERS

% Net Revenue

10%

Pre-Tax Profit

Operating Pre-Tax Profit

Pro Forma Pre-Tax Profit

7

AGENCIES WITH REVENUES UNDER $500,000

FINANCIAL STABILITY

2005

A.

Current Ratio A current ratio greater than 1:1 indicates that cash and assets with short-term maturities are sufficient to meet a firm’s short-term obligations.

Average

Top 25%

Liquidity/Current Ratio

1.09:1

1.48:1

PROFILE

B.

Tangible Net Worth The tangible net worth is an important measure as it represents the net value of the corporation if it were liquidated. A low or negative tangible net worth impacts a firm’s ability to invest in new opportunities, develop new products, hire new employees, make other capital expenditures and handle stockholder redemption obligations .

REVENUES/ EXPENSES

Average

Top 25%

Tangible Net Worth (as % of Net Rev)

13.7% 27.1%

FINANCIAL STABILITY

C1.

Receivables The following ratio measures the collection practices of an agency, with a lower ratio representing more timely collections.

Average

Top 25%

Receivables/Payables Ratio

77.3% 34.6%

EMPLOYEE OVERVIEW

C2.

Aged Receivables

Average

Top 25%

Over 60 Over 90

56.2% 11.2% 36.7% 13.4%

PRODUCER INFO

SERVICE STAFF INFO

TECHNOLOGY

INSURANCE CARRIERS

8

AGENCIES WITH REVENUES UNDER $500,000

EMPLOYEE OVERVIEW

2005

A.

Employee Statistics

+25% Profit

+25% Growth

Average

Total Number of Employees*

4.2

3.6

4.8

PROFILE

Revenue per Employee

$91,610 $118,078 $87,521

Compensation per Employee

$45,111

$39,284 $34,738

Spread per Employee

$46,499

$78,794 $52,783

*Full-time Equivalents

REVENUES/ EXPENSES

$200,000

Average

FINANCIAL STABILITY

+25% Profit

$150,000

+25% Growth

$100,000

EMPLOYEE OVERVIEW

$50,000

Compensation per Employee

Spread per Employee

Revenue per Employee

PRODUCER INFO

SERVICE STAFF INFO

TECHNOLOGY

INSURANCE CARRIERS

9

AGENCIES WITH REVENUES UNDER $500,000

PRODUCER INFORMATION

2005

A.

New Producer Hiring

+25% Profit

+25% Growth

Average

% of Agencies that Hired a New Producer During Last Fiscal Year

PROFILE

15.0%

*

*

Number of New Producers Hired

0.8

*

*

REVENUES/ EXPENSES

Average Annual Compensation Per New Producer

$19,833

*

*

FINANCIAL STABILITY

*Insufficient Data

Where New Producers Were Found

EMPLOYEE OVERVIEW

Insufficient Data - Chart Not Applicable

PRODUCER INFO

SERVICE STAFF INFO

TECHNOLOGY

INSURANCE CARRIERS

10

AGENCIES WITH REVENUES UNDER $500,000

B.

Validated Producer Results

2005

1.

Typical Producer Productivity

Commercial P&C

Group L&H

Personal P&C

Multi- Lines

1.1

1.1

0.8

1.5

Average

PROFILE

Number of Validated Producers

2.0

1.8

1.0

3.0

High

0.5

0.3

0.5

0.8

Low

$15,401 $20,533 $12,178 $31,285

Average

New Commissions Produced Annually

REVENUES/ EXPENSES

$24,808 $37,333 $17,944 $50,281

Top 25%

$169,955 $89,959 $99,606 $208,482

Average

Total Commissions in Producer’s Book

$229,909 $153,000 $179,797 $350,726

Top 25%

FINANCIAL STABILITY

Annual Pay per Producer

$49,633 $48,234 $30,240 $41,013

Annual Pay as % of Producer’s Book

29.2% 53.6% 30.4% 19.7%

EMPLOYEE OVERVIEW

PRODUCER INFO

Producer Summary

Average Commissions in Book

Average New Commissions Produced

$1,200,000

$300,000

SERVICE STAFF INFO

$1,000,000

$250,000

$800,000

.$200,000

$600,000

$150,000

$400,000

$100,000

$200,000

$50,000

Commercial P&C

Group L&H

Personal P&C

Multi- Line

Commercial P&C

Group L&H

Personal P&C

Multi- Line

TECHNOLOGY

Average

Average

Top 25%

Top 25%

INSURANCE CARRIERS

11

AGENCIES WITH REVENUES UNDER $500,000

2.

Most Successful Producer Productivity

2005

Commercial P&C

Group L&H

$31,843 $12,033

Average

New Commissions Produced Annually

$48,343 $18,833

Top 25%

PROFILE

$208,039 $44,655

Average

Total Commissions in Producer’s Book

$290,844 $61,500

Top 25%

$1,103

$681

REVENUES/ EXPENSES

Average

Average Commissions per Account

$1,833

$1,354

Top 25%

FINANCIAL STABILITY

How Most Successful Producers Spent Time

EMPLOYEE OVERVIEW

Commercial P&C Producer

Group L&H Producer

Soliciting New Business 20.5%

Soliciting New Business 31.7%

Management/ Personnel/Agency Administrative 23.5%

Management/ Personnel/Agency Administrative 20.8%

PRODUCER INFO

Personal Training/ Education/

Personal Training/ Education/

Servicing Existing Accounts 50.9%

Servicing Existing Accounts 42.3%

Professional Development 5.2% %

Professional Development 5.2% %

SERVICE STAFF INFO

TECHNOLOGY

INSURANCE CARRIERS

12

AGENCIES WITH REVENUES UNDER $500,000

SERVICE STAFF INFO

2005

A.

Service Related Personnel

+25% Profit

+25% Growth

Average

Total # of Service Related Personnel*

2.6

2.0

3.3

*Non-commissioned employees who have responsibility -- either directly (e.g., Account Executives (AE), Account Managers (AM), Customer Service Representatives (CSRs), Assistant CSRs, etc.) or indirectly (e.g., Claims Specialist, Placer/Marketer, etc.) -- to provide or support the delivery of service to the agency’s clients.

PROFILE

Service Structure

REVENUES/ EXPENSES

+25% Profit

+25% Growth

% of Agencies Having:

Average

Separate/Dedicated Marketing Department

10.5% 20.0% 20.0%

Separate/Dedicated Claims Department

0.0% 0.0% 0.0%

Assistants for CSRs/Account Managers

0.0% 0.0% 0.0%

FINANCIAL STABILITY

EMPLOYEE OVERVIEW

B.

CSR Productivity by Line of Business CSRs includes Account Executives (non-producer position) , Senior CSRs, CSRs, Account Managers, Assistant CSRs, etc. (i.e., positions with main responsibility for client service or main responsibility to support the AE, CSR/AM in providing client services) as well as the department managers who spend a portion of their time servicing clients. Respondents were instructed to use decimals to accurately represent the actual number of full-time equivalent CSR positions.

PRODUCER INFO

How Time Was Spent

Commercial P&C CSRs

SERVICE STAFF INFO

Average Top 25%

Selling New Business (New or Acct Rounding) 15.0%

Number

1.1 3.0 0.5

Administration 8.6%

High Low

Marketing (Placement) 11.7%

Average Commissions Serviced

$135,740 $241,910

TECHNOLOGY

Customer Service 54.6%

Average Pay ($)

$33,262

Claims Processing 10.1%

Average Pay (as % of Book Serviced)

24.5%

INSURANCE CARRIERS

13

AGENCIES WITH REVENUES UNDER $500,000

How Time Was Spent

Group L&H CSRs

2005

Average Top 25%

Number

* * *

High Low

Insufficient Data - Chart Not Applicable

Average Commissions Serviced

PROFILE

*

*

Average Pay ($)

*

Average Pay (as % of Book Serviced)

*

REVENUES/ EXPENSES

*Insufficient Data

FINANCIAL STABILITY

How Time Was Spent

Personal P&C CSRs

Average Top 25%

Selling New Business (New or Acct Rounding) 20.9%

Number

1.8 5.0 0.5

Administration 7.9%

High Low

EMPLOYEE OVERVIEW

Marketing (Placement) 12.7%

Average Commissions Serviced

$99,502 $203,618

Average Pay ($)

$27,577

Customer Service 50.0%

Claims Processing 8.5%

Average Pay (as % of Book Serviced)

PRODUCER INFO

27.7%

SERVICE STAFF INFO

Multi-Line CSRs

How Time Was Spent

Average Top 25%

Number

1.2 2.0 1.0

Selling New Business (New or Acct Rounding) 11.7%

Administration 22.7%

High Low

TECHNOLOGY

Marketing (Placement) 16.1%

Average Commissions Serviced

$156,416 $340,726

Average Pay ($)

$29,841

Claims Processing 5.8%

INSURANCE CARRIERS

Average Pay (as % of Book Serviced)

Customer Service 43.8%

19.1%

14

AGENCIES WITH REVENUES UNDER $500,000

TECHNOLOGY

2005

A.

Information Technology Expense (as % of Net Revenues)

+25% Profit

+25% Growth

Average

Total IT Expense for Fiscal Year 1 4.1% 4.2% 3.4% 1 Includes hardware/software leasing, supplies, maintenance & maintenance contracts, training, data communications, website development/maintenance, computer depreciation and software amortization.

PROFILE

B.

Information Technology (IT) Personnel

REVENUES/ EXPENSES

Because technology plays such an important role in supporting the agency’s Customer Service activities and efforts, they might be considered part of the service team. However, for the study they were NOT included in the overall service head count.

FINANCIAL STABILITY

IT Full-Time Employee Equivalents

Average

Top 25%

Average Number of IT Employees

0.6 1.0 0.1

High Low

EMPLOYEE OVERVIEW

Total IT Payroll Expenses

$11,557

$25,000

IT Payroll as % of Net Revenues

3.0%

PRODUCER INFO

SERVICE STAFF INFO

TECHNOLOGY

INSURANCE CARRIERS

15

AGENCIES WITH REVENUES UNDER $500,000

INSURANCE CARRIERS

2005

A.

Number of P&C Carriers Represented

+25% Profit

+25% Growth

Average

Personal Lines National

3.3

2.6

3.2

PROFILE

Regional

3.5

3.4

2.8

Commercial Lines National

3.0

1.6

1.6

REVENUES/ EXPENSES

Regional

2.8

2.2

1.6

B.

Number of Group Employee Benefits Carriers Represented

+25% Profit

+25% Growth

Average

FINANCIAL STABILITY

Average Total GEB Carriers

4.5

6.4

7.7

Average Number by Product GL&H

2.1

3.0

3.0

LTD

1.5

1.3

2.0

EMPLOYEE OVERVIEW

Dental

1.1

1.0

1.0

Retirement

3.2

4.0

1.7

C.

Commission Income Derived from Top Carriers

+25% Profit

+25% Growth

PRODUCER INFO

Average

% of Net Revenue from Top P&C Carrier

38.7% 31.9% 24.8%

% of Net Revenue from Top 3 P&C Carriers

63.7% 60.9% 58.9%

SERVICE STAFF INFO

% of Net Revenue from Top GL&H Carrier

3.8% 3.2% 7.2%

% of Net Revenue from Top 3 GL&H Carriers

5.4% 5.8% 7.5%

TECHNOLOGY

D.

Carrier Service Center Use

+25% Profit

+25% Growth

Average

% of Agency’s Personal Lines Commissions Placed in Service Centers % of Agency’s Commercial Lines Commissions Placed in Service Centers

INSURANCE CARRIERS

*

*

*

*

*

*

*Insufficient Data

16

AGENCIES WITH REVENUES BETWEEN $500,000 AND $1,250,000

PROFILE (of Agencies in this Study Group)

2005

A.

Average Total Revenues: $901,255

B.

Corporate Structure

PROFILE

+25% Profit

+25% Growth

Average

C

43.5%

41.4%

40.0%

S

47.8%

51.7%

54.3%

REVENUES/ EXPENSES

Partnership

0.0%

0.0%

0.0%

LLC

8.7%

6.9%

5.7%

Sole Proprietorship

0.0%

0.0%

0.0%

FINANCIAL STABILITY

C.

Shareholders

+25% Profit

+25% Growth

Average

EMPLOYEE OVERVIEW

Number of Shareholders

2.3

2.8

2.2

High

6.0

Low

1.0

PRODUCER INFO

D.

Ownership Percentage

+25% Profit

+25% Growth

Average

SERVICE STAFF INFO

% Owned by Largest Shareholder

62.6%

58.8% 62.3%

High

100.0%

Low

30.0%

TECHNOLOGY

E.

Shareholder Age

+25% Profit

+25% Growth

Average

INSURANCE CARRIERS

Current Age of

Largest Shareholder

52.2

48.8

48.8

17

AGENCIES WITH REVENUES BETWEEN $500,000 AND $1,250,000

F.

Parent Corporation

2005

Average

% of Participating Agencies

Owned by Another Corporation

0.0%

PROFILE

Description of Parent Corporation

Financial Institution

0.0%

National Broker

0.0%

REVENUES/ EXPENSES

Other

0.0%

FINANCIAL STABILITY

G. Population Density of Metropolitan Area Where Home Office Is Located

EMPLOYEE OVERVIEW

+25% Profit

+25% Growth

Average

Less than 50,000

65.2%

65.5%

62.9%

50,000 - 250,000

17.4%

20.7%

22.9%

PRODUCER INFO

250,000 - 1,000,000

7.3%

3.4%

2.9%

More than 1,000,000

13.0%

10.3%

11.4%

SERVICE STAFF INFO

TECHNOLOGY

INSURANCE CARRIERS

18

AGENCIES WITH REVENUES BETWEEN $500,000 AND $1,250,000

REVENUE ANALYSIS

2005

A.

% of Revenue by Source

+25% Profit

+25% Growth

Average

Commercial P&C

45.1%

44.5%

50.0%

PROFILE

Personal P&C

35.9%

40.1%

32.9%

P&C Service Fees

0.3%

1.0%

0.1%

Contingent

9.5%

6.6%

12.9%

REVENUES/ EXPENSES

Group L&H

6.7%

5.7%

1.9%

Individual L&H

1.5%

1.8%

0.9%

Investments

0.5%

0.1%

0.9%

FINANCIAL STABILITY

Miscellaneous

0.6%

0.2%

0.3%

Total Revenues

100.0% 100.0% 100.0%

Brokerage Commission Exp

1.8%

1.7%

0.0%

EMPLOYEE OVERVIEW

Net Revenues

98.2.%

98.3% 100.0%

PRODUCER INFO

70%

Average

60%

+25% Profit

50%

SERVICE STAFF INFO

+25% Growth

40%

30%

20%

% Total Revenue

10%

TECHNOLOGY

Commercial P&C

Personal P&C

P&C Service Fees

Contingent

Group L&H

Individual L&H

Investments

INSURANCE CARRIERS

19

AGENCIES WITH REVENUES BETWEEN $500,000 AND $1,250,000

B.

% of Revenues Derived from Largest Accounts

+25% Profit

+25% Growth

2005

Average

Largest Commission Account

3.4% 3.1% 2.3%

High

7.1%

PROFILE

Low

1.2%

10 Largest Commission Accounts

15.2% 13.8% 10.9%

High

39.8%

REVENUES/ EXPENSES

Low

3.5%

C. Revenues Derived from Acquisitions Made in the Last 12 Months

FINANCIAL STABILITY

% of Agencies Acquiring Avg. Total Commissions Acquired

% of Net Revenues

0%

$0

0%

EMPLOYEE OVERVIEW

D.

Net Revenue Growth

+25% Profit

+25% Growth

Average

PRODUCER INFO

Net Revenue Growth (Organic)

8.0% 7.9% 18.5%

Net Revenue Growth (Total)

8.0% 7.9% 18.5%

SERVICE STAFF INFO

Revenue Growth by Source (as % of Prior Year’s Total Revenues)

Average

+25% Profit

30%

+25% Growth

TECHNOLOGY

20%

10%

0%

INSURANCE CARRIERS

% Total Revenue -10%

-20%

-30%

Commercial P&C

Personal P&C

Group L&H

P&C Service Fees

Individual L&H

Total Commissions & Fees

20

AGENCIES WITH REVENUES BETWEEN $500,000 AND $1,250,000

E. Revenue Growth by Source (stated as % of Prior Year’s Total Revenues)

+25% Profit

+25% Growth

2005

Average

Commercial P&C

92.4%

81.9%

96.5%

Renewals 1

12.0%

18.2%

13.6%

New Business 2

Acquired Revenues 3

0.0%

0.0%

0.0%

Organic Growth 4

4.4%

0.1%

10.1%

Total Growth 5

4.4%

0.1%

10.1%

PROFILE

Personal P&C

93.6%

87.7%

95.9%

Renewals 1

New Business 2

12.1%

18.6%

15.1%

Acquired Revenues 3

0.0%

0.0%

0.0%

REVENUES/ EXPENSES

Organic Growth 4

5.7%

6.3%

11.0%

Total Growth 5

5.7%

6.3%

11.0%

Renewals 1

*

*

*

P&C Service Fees

New Business 2

*

*

*

Acquired Revenues 3

*

*

*

FINANCIAL STABILITY

*

Organic Growth 4

*

*

*

Total Growth 5

*

*

Group L&H

Renewals 1

90.9%

102.6%

93.1%

New Business 2

12.9%

19.7%

6.6%

EMPLOYEE OVERVIEW

Acquired Revenues 3

0.0%

0.0%

0.0%

Organic Growth 4

3.8%

22.3%

-0.4%

Total Growth 5

3.8%

22.3%

-0.4%

Renewals 1

65.9%

52.5%

94.2%

Individual L&H

PRODUCER INFO

New Business 2

37.6%

47.5%

9.5%

Acquired Revenues 3

0.0%

0.0%

0.0%

Organic Growth 4

3.5%

0.0%

3.7%

Total Growth 5

3.5%

0.0%

3.7%

SERVICE STAFF INFO

Renewals 1

91.7%

84.0%

94.4%

Total Commissions & Fees

New Business 2

14.1%

21.6%

14.7%

Acquired Revenues 3

0.0%

0.0%

0.0%

Organic Growth 4

5.9%

5.7%

9.1%

Total Growth 5

5.9%

5.7%

9.1%

TECHNOLOGY

Contingent Income Growth

-4.4%

*

*

Investment Income Growth

-11.9%

-1.9%

*

Total Revenue Growth

7.8%

7.9%

18.5%

Brokerage Commission Expense Growth

-2.8%

*

*

Net Revenue Growth (Organic)

8.0%

7.9%

18.5%

INSURANCE CARRIERS

Net Revenue Growth (Total)

8.0%

7.9%

18.5%

1 Renewal Revenues as a % of prior year’s total revenues for this line of business. This figure is impacted by attrition (loss or retention of accounts) and by changes in premium and commission levels. The higher the %, the more favorable the results. 2 New Revenues as a % of prior year’s total revenues for this line of business. The higher the %, the more favorable the results. 3 Acquired Revenues as a % of prior year’s total revenues for this line of business. The % indicates the significance of acquired business.

4 Growth in Revenues from prior year excluding acquired revenues. 5 Growth in Revenues from prior year including acquired revenues.

*Insufficient Data

21

AGENCIES WITH REVENUES BETWEEN $500,000 AND $1,250,000

EXPENSE ANALYSIS

A.

Expenses Analysis (as a % of Net Revenues)

2005

+25% Profit

+25% Growth

Average

Compensation Expense Total Payroll

47.9%

35.9%

49.9%

Benefits

9.5%

7.2%

7.5%

PROFILE

Total Compensation

57.4%

43.0%

57.4%

Selling Expenses

T&E/Conventions

0.8% 1.5% 1.5% 3.9% 3.0% 1.2% 0.7% 1.2% 0.6% 0.3% 1.9% 0.6% 0.4% 0.2% 0.8% 1.3% 0.4% 1.6% 0.7% 1.0% 0.3% 0.9% 0.3% 3.1%

0.7% 1.1% 1.1% 3.0% 2.5% 1.3% 0.7% 1.1% 0.5% 0.5% 1.4% 0.5% 0.2% 0.1% 0.2% 1.1% 0.5% 0.3% 0.1% 0.9% 0.1% 0.1% 0.0% 1.2%

0.8% 1.7% 1.4% 3.9% 2.8% 1.1% 0.8% 1.7% 0.7% 0.3% 2.2% 0.9% 0.4% 0.0% 2.1% 1.5% 0.5% 0.6% 0.4% 1.6% 0.2% 0.2% 1.0% 3.4%

Automobile

Advertising/Promotions

Total Selling

REVENUES/ EXPENSES

Operating Expenses Occupancy

Telephone

Postage

Supplies/Printing

FINANCIAL STABILITY

Dues/Subscriptions/Contributions

Taxes/Licenses

Insurance

Professional Fees

Equipment Rental/Maintenance

Bad Debts

EMPLOYEE OVERVIEW

Outside Services

Information Technology

Education/Training

Miscellaneous

Total Operating

14.2%

10.9%

15.7%

PRODUCER INFO

Administrative Expenses Amortization

Depreciation Officer-Life

Interest

SERVICE STAFF INFO

Other

Total Administrative

Total Expenses Pre-Tax Profit

78.6% 21.4%

58.1% 41.9%

80.4% 19.6%

TECHNOLOGY

60%

Average

50%

+25% Profit

40%

+25% Growth

INSURANCE CARRIERS

30%

20%

% Net Revenue

10%

0%

Compensation Expense

Operating Expense

Administrative Expense

Selling Expense

22

AGENCIES WITH REVENUES BETWEEN $500,000 AND $1,250,000

Revenue/Expense/Profit Summary

2005

+25% Profit

+25% Growth

Average

Revenues (% by Source) Commercial Lines

45.1% 35.9%

44.5% 40.1%

50.0% 32.9%

Personal Line

P&C Service Fees Contingent/Bonus Group Life & Health Individual Life & Health

0.3% 9.5% 6.7% 1.5% 0.5% 0.6%

1.0% 6.6% 5.7% 1.8% 0.1% 0.2%

0.1%

PROFILE

12.9%

1.9% 0.9% 0.9% 0.3%

Investments Miscellaneous

REVENUES/ EXPENSES

Total Revenues

100.0% 100.0% 100.0%

Brokerage Commission Expense

1.8%

1.7%

0.0%

Net Revenues

98.2%

98.3% 100.0%

Expenses (as % of Net Revenues) Compensation

57.4%

43.0%

57.4%

FINANCIAL STABILITY

Selling

3.9%

3.0%

3.9%

Operating

14.2%

10.9%

15.7%

Administrative

3.1%

1.2%

3.4%

Total Expenses

78.6%

58.1%

80.4%

EMPLOYEE OVERVIEW

Pre-Tax Profit

21.4% 31.5% 11.3%

41.9% 53.0% 34.9%

19.6% 29.0%

Pro Forma Profit 1

Operating Pre-Tax Profit 2

5.8%

Pro Forma EBITDA 3

34.6%

54.2%

32.4%

PRODUCER INFO

1 Pre-tax profit when discretionary expenses (bonuses, compensation, and perks) made for the benefit of the owners, based solely on ownership, are removed (i.e., removing expenses that would not be incurred if a third party owned the agency). 2 Pre-tax profit minus contingents, bonus and investment income. 3 EBITDA = Earnings before Interest, Taxes, Depreciation and Amortization

SERVICE STAFF INFO

60%

Average

50%

+25% Profit

TECHNOLOGY

40%

+25% Growth

30%

20%

INSURANCE CARRIERS

% Total Net Revenue

10%

Pre-Tax Profit

Operating Pre-Tax Profit

Pro Forma Pre-Tax Profit

23