2000 Best Practices Study

BEST PRACTICES STUDY EXECUTIVE UPDATE

Conducted by Independent Insurance Agents of America and Reagan Consulting, Inc.

October 2000

A SPECIAL ACKNOWLEDGEMENT We wish to thank the following companies for their sponsorship which has funded the update of the annual Best Practices Study and the development of the web-based Best Practices Gateway and Best Practices Performance Quick Check:

Central Insurance Companies

Chubb Group of Insurance Companies

CNA Insurance Companies

Crum & Forster

Fireman’s Fund

Kemper Insurance

Royal & SunAlliance

St. Paul Insurance Companies

Travelers Property Casualty

Table of Contents Introduction

6 8 8 8 9 9

Personal Lines Analysis of Agencies with Revenues Less than $1,250,000

Agency Characteristics Revenue Analysis

Productivity

Carrier Representation

Personal Lines Analysis of Agencies with Revenues Greater than $1,250,000

10 10 10 11 11 12 14 16 17 18 18 19 22 23 24 31 31 32 32 33 36 37 39 47 47 48 48 49 52 53 55 63 63 64 64 65 68 69 71 79 79

Agency Characteristics Revenue Analysis

Productivity

Carrier Representation

Regional Analysis of Agencies with Revenues Less than $1,250,000 Regional Analysis of Agencies with Revenues Greater than $1,250,000 Population Density Analysis of Agencies with Revenues Less than $1,250,000 Population Density Analysis of Agencies with Revenues Greater than $1,250,000

Analysis of Agencies with Revenues Less than $500,000

Agency Characteristics

Revenues Expenses Profitability Productivity

Financial Stability Carrier Representation

Analysis of Agencies with Revenues Between $500,000 and $1,250,000

Agency Characteristics

Revenues Expenses Profitability Productivity

Financial Stability Carrier Representation

Analysis of Agencies with Revenues Between$1,250,000 and $2,500,000

Agency Characteristics

Revenues Expenses Profitability Productivity

Financial Stability Carrier Representation

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

Agency Characteristics

Revenues Expenses Profitability Productivity

Financial Stability Carrier Representation

Analysis of Agencies with Revenues Between $5,000,000 and $10,000,000

80 80 81 84 85 87 95 95 96 96 97

Agency Characteristics

Revenues Expenses Profitability Productivity

Financial Stability Carrier Representation

Analysis of Agencies with Revenues Greater than $10,000,000

Agency Characteristics

Revenues Expenses Profitability Productivity

100 101 103 111 111 112

Financial Stability Carrier Representation

Glossary

The 2000 Best Practices Study Executive Update

Background In 1993, the Independent Insurance Agents of America (IIAA) and Reagan Consulting published the first Best Practices Study , an analysis of the leading insurance agencies in the United States. The Study was conducted to provide the agency community with a set of operational benchmarks and business practices by which agencies of any size could contrast, evaluate, and enhance their performance. Each year, critical financial and operational benchmarks are updated and released to the industry. Every third year, a more comprehensive analysis is performed to update all benchmarks and to identify current business practices. The next comprehensive study will be conducted and released in 2001. It will provide an analysis of agency results for the year 2000. About this study This year’s Best Practices Study results are being published and distributed primarily via the IIAA ( www.independentagent.com ) and Reagan Consulting ( www.reaganconsulting.com ) websites. Users can view an html version of the study, download a pdf file to print locally, or download an Excel spreadsheet to compare their year-end results with the study results. Through IIAA’s Best Practices gateway, the user can also access the complete family of Best Practices resources. The content and format of the study have been designed to provide an “Executive Summary” feel. Tables and charts are used to present the data, making it easier to compare results and to find related information. Some of the interesting, but non-critical data (e.g. type of agency management system used, types of services provided, etc.) found in earlier studies have been eliminated from the Executive Update. This information will be collected and presented again in the comprehensive Best Practices Study released in 2001. As in previous years, the update provides an analysis of agencies by revenue size, by region and by population density of the city in which they primarily operate. In addition, the study contains an analysis of agencies that indicated that Personal Lines is an important source of revenue. How the study was conducted The 2000 Best Practices Executive Update continues to follow the year-end results of those agencies selected for inclusion in the 1998 Best Practices Study Update . These agencies were among approximately 700 agencies originally nominated to participate in the 1998 study either by one of the insurance companies participating on the IIAA Commission to Enhance Agency Values or by a state association. Of those submitting data for that study, only the results of the 30 most outstanding agencies in each revenue category were included. They were scored and ranked objectively for inclusion on the basis of: • Account Retention Rates • Revenue Growth • Productivity • Profitability • Financial Stability This year 81% of the 1998 Best Practices Agencies submitted the operating results of their most recently completed fiscal year. The most frequent reason given by those not participating in this year’s update was that they had been acquired by or merged with another agency.

Introduction

6 of 113

Other Best Practices Studies In addition to providing benchmarks and documenting the business practices of leading agencies, the IIAA and Reagan Consulting periodically address specific business practices or focus on issues of critical importance to independent agencies. These topical Best Practices studies include: The Best Practices of Leading Sales Organizations in the United States, a report that summarized the practices of leading sales organizations both inside and outside the insurance industry The Best Practices in Business Perpetuation and Management Succession, a report and workbook that provided motivation and useful information to help independent agencies address the issue of business perpetuation The Insurance Distribution Study: Trends, Implications, and Effects of Change, a report that examines changes taking place within other distribution systems, compares changes within the Independent Agency System, and offers recommendations for the future success of our insurance distribution system. These studies can be ordered through the IIAA distribution Center by calling 1-800-261-4422.

Introduction

7 of 113

Personal Lines Analysis: Agencies with Revenues Less Than $1.25M This analysis represents the results for agencies with revenues under $1,250,000 that feel that personal lines is an important part of their growth and profitability. These operating results provide the Best Practice standards against which to measure your Personal Lines results.

I. Agency Characteristics a. Total Agency Size (Net Revenues)

% of group who said Personal Lines is important Less than $500,000

81.0% 65.2%

$500,000 - $1,250,000

b. City Population Less than 50,000

75.0% 15.6% 3.1% 6.3%

50,000 - 250,000 250,000 - 1,000,000 More than 1,000,000

II. Personal Lines Revenue Analysis a. Average PL Commission Income

$243,611 Average +25% Profit +25% Growth 48.3% 41.6% 45.3% 88.3% 97.3% 97.5% 13.9% 14.4% 11.9%

b. % of Net Total Revenues

c. % Renewals (1)

d. % New Business (2)

e. % Acquired (3)

0.3% 0.0% 2.2% 11.8%

0.7% 9.4%

f. Growth Rate: Internal (4)

Total (5)

2.6% 11.8% 10.1% (1) Renewal Revenues as a percent of prior year’s Personal Lines Total Revenues. This figure is impacted by attrition (loss or retention of accounts) and by changes in premium and commission levels. The higher the percentage, the more favorable the results. (2) New Revenues as a percent of prior year’s Personal Lines Total Revenues. The higher the percentage, the more favorable the results. (3) Acquired Revenues as a percent of prior year’s Personal Lines Total Revenues. The percentage 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.

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Personal Lines Analysis – Agencies with Revenues Less Than $1.25M

III. Productivity CSR Information Average # of CSRs

1.9 6.0

High Low

1.0 Average Top 25% $113,843 $171,563

Average Commissions Serviced

Average Pay

$25,210

How Time Was Spent

Selling New Business Marketing (Placement) Claims Processing

15.1% 14.8% 9.0% 58.0% 5.1%

Customer Service Administration

Producer Information Average No. of Validated Producers Average PL Commissions in Book

1.0

$111,782 $37,955

Average Pay/PL Producer

IV. Carriers Represented

Average +25% Profit+25% Growth

No. of PL National No. of PL Regional

3.3 4.2

3.0 3.5

2.4 3.0

9 of 113

Personal Lines Analysis – Agencies with Revenues Less Than $1.25M

Personal Lines Analysis: Agencies with Revenues Greater Than $1.25M This analysis represents the results for agencies with revenues of over $1,250,000 that feel that personal lines is an important part of their growth and profitability. These operating results provide the Best Practice standards against which to measure your Personal Lines results.

I. Agency Characteristics a. Total Agency Size (Net Revenues)

% of group who said Personal Lines is important $1,250,000 - $2,500,000

65.4% 65.4% 42.9% 31.3%

$2,500,000 - $5,000,000 $5,000,000 - $10,000,000

Over $10,000,000

b. City Population Less than 50,000

29.2% 25.0% 22.9% 22.9%

50,000 - 250,000 250,000 - 1,000,000 More than 1,000,000

II. Personal Lines Revenue Analysis a. Average PL Commission Income

$1,108,956

Average +25% Profit +25% Growth 26.6% 24.5% 21.7% 91.1% 83.2% 87.7% 12.2% 12.2% 13.3%

b. % of Net Total Revenues

c. % Renewals (1)

d. % New Business (2)

e. % Acquired (3)

4.1% 6.9% 3.2% -4.5% 7.3% 2.4%

2.5% 1.0%

f. Growth Rate: Internal (4)

Total (5)

3.5% (1) Renewal Revenues as a percent of prior year’s Personal Lines Total Revenues. This figure is impacted by attrition (loss or retention of accounts) and by changes in premium and commission levels. The higher the percentage, the more favorable the results. (2) New Revenues as a percent of prior year’s Personal Lines Total Revenues. The higher the percentage, the more favorable the results. (3) Acquired Revenues as a percent of prior year’s Personal Lines Total Revenues. The percentage 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.

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Personal Lines Analysis – Agencies with Revenues Greater Than $1.25M

III. Productivity CSR Information Average # of CSRs

7.4

High Low

41.0

1.0 Average Top 25%

Average Commissions Serviced

$151,875 $231,731

Average Pay

$29,515

How Time Was Spent

Selling New Business Marketing (Placement)

13.1% 15.2%

Claims Processing Customer Service

4.9%

62.1%

Administration

4.4%

Producer Information Average No. of Validated Producers Average PL Commissions in Book

2.8

$191,451 $50,407

Average Pay/PL Producer

IV. Carriers Represented

Average +25% Profit +25% Growth

No. of PL National No. of PL Regional

5.8 3.5

5.6 3.5

5.3 2.3

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Personal Lines Analysis – Agencies with Revenues Greater Than $1.25M

Regional Analysis - Agencies with Revenues Less Than $1.25M The regional analysis provides another perspective for understanding the Best Practices data in their proper context. However, characteristics regarded as unique to agencies in a certain part of the country or any regional factors influencing agency operations are best considered in conjunction with results by revenue group to gain the most complete understanding of the operating characteristics of the Best Practices Agencies.

NE

SE

MW SW W

Growth Net Revenue Growth

-4.2%

3.2%

2.9%

6.6%

4.1%

Profitability as % of Net Revenues Pre-tax

9.4%

14.8% 21.2%

4.9%

15.1% 30.0%

13.0% 17.1%

15.6%

10.2% -2.2%

Pro Forma Pre-tax Operating Pre-tax

3.6%

6.0%

4.6%

2.4%

Productivity Revenue per Employee

$87,052 $49,856 $37,196

$91,168 $52,878 $38,290

$88,521 $51,640 $36,882

$100,948 $55,512 $45,436

$86,473 $45,675 $40,798

Compensation per Employee

Spread per Employee (1)

Pay Levels for Producers Commercial P&C Producers Personal P&C Producers

$51,618

$57,004 $44,553

$61,767

* * * *

$52,500 $22,874

* * *

* *

*

*

Life & Health Producers

$68,043

$44,814

$55,692

Multiline Producers

Pay Levels for CSRs Commercial P&C CSRs

$30,507 $26,403

$37,930 $28,411

$30,000 $25,616

$29,433 $20,843

$30,973 $21,800

Personal P&C CSRs Life & Health CSRs

*

*

*

* *

* *

$38,730

$27,610

$28,167

Multiline CSRs

Number of Carriers PL - National

2.8 4.3 2.7 4.3

3.3 3.5 3.4 2.5

1.7 4.2 1.8 3.0

4.0 2.6 3.0 3.2

4.8 4.0 8.8 3.3

PL - Regional CL - National CL - Regional

* Insufficient Data (1) Total revenue per employee minus compensation per employee. While revenue per employee has been a standard productivity measure, the “spread” measures the dollars per employee available to pay all other agency expenses and generate a profit for the agency.

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Regional Analysis – Agencies with Revenues Less Than $1.25M

STATE REGION GROUPINGS

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Regional Analysis – Agencies with Revenues Less Than $1.25M

Regional Analysis – Agencies with Revenues Greater Than $1.25M The regional analysis provides another perspective for understanding the Best Practices data in their proper context. However, characteristics regarded as unique to agencies in a certain part of the country or any regional factors influencing agency operations are best considered in conjunction with results by revenue group to gain the most complete understanding of the operating characteristics of the Best Practices Agencies.

NE

SE

MW SW W

Growth Net Revenue Growth

5.0%

14.5%

9.5%

8.9%

6.3%

Profitability as % of Net Revenues Pre-tax

8.8%

12.1% 17.7%

14.0% 17.9%

7.7%

7.6%

15.9% -2.4%

13.8% -2.6%

12.8% -1.3%

Pro Forma Pre-tax Operating Pre-tax

2.2%

5.0%

Productivity Revenue per Employee

$107,474 $67,350 $40,124 $90,587 $47,239 $99,583 $49,141 $37,362 $30,589 $32,292

$116,827 $74,833 $41,995 $144,622 $53,640 $134,556 $145,649 $34,131 $27,984 $31,488

$112,330 $72,401 $39,928 $134,695 $59,646 $112,299 $104,284 $33,975 $28,925 $32,499

$110,854 $77,545 $33,309 $109,215 $63,198 $134,363 $119,122 $36,759 $29,395 $30,140

$101,531 $66,261 $35,270 $128,220 $93,384 $148,518 $95,351 $34,992 $30,675 $36,035

Compensation per Employee

Spread per Employee (1)

Pay Levels for Producers Commercial P&C Producers Personal P&C Producers

Life & Health Producers

Multiline Producers

Pay Levels for CSRs Commercial P&C CSRs

Personal P&C CSRs Life & Health CSRs

*

*

*

*

*

Multiline CSRs

Number of Carriers PL - National

6.5 5.5

4.5 2.3

4.7 4.8

5.8 2.3

6.7 1.1

PL - Regional CL - National CL - Regional

10.1 14.0

12.2

14.1 10.6

13.9

29.3

9.3

3.4

4.1

* Insufficient data (1) Total revenue per employee minus compensation per employee. While revenue per employee has been a standard productivity measure, the “spread” measures the dollars per employee available to pay all other agency expenses and generate a profit for the agency.

14 of 113

Regional Analysis – Agencies with Revenues Greater Than $1.25M

STATE REGION GROUPINGS

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Regional Analysis – Agencies with Revenues Greater Than $1.25M

Population Density Analysis – Agencies with Revenues Less Than $1.25M The population density analysis provides another valuable picture of the operating characteristics of the agencies included in the Best Practices Study Executive Update. In general, a comparison among agencies of a similar size is the best comparison basis, but an evaluation based on community size can prove helpful when an agency is atypical in nature, such as a larger revenue agency in a smaller community. As always, consider these data in light of the results achieved by agencies of a similar revenue size to gain the best understanding of Best Practices agencies. Less than 50,000- 250,000- Over 50,000 250,000 1,000,000 1,000,000 % of Agencies Located in Each Population Size 70.5% 18.2% 6.8% 4.5% Net Revenue Growth 4.0% -5.6% -0.2% * Profitability as % of Net Revenues Pre-tax 13.1% 1.3% 19.3% * Pro Forma Pre-tax 18.1% 17.2% 20.2% * Operating Pre-tax 2.0% 3.2% 14.4% * Productivity Revenue per Employee 89,481 $ 80,906 $ 116,856 $ * Compensation per Employee 49,668 $ 51,470 $ 52,400 $ * Spread per Employee 39,814 $ 29,436 $ 64,456 $ * Pay Levels for Producers Commercial P&C Producers 54,088 $ 48,100 $ * * Personal P&C Producers 34,803 $ * * * Life & Health Producers 39,861 $ * * * Multiline Producers 54,039 $ 65,894 $ * * Pay Levels for CSRs Commercial P&C CSRs 29,738 $ 39,181 $ * * Personal P&C CSRs 24,039 $ * * * Life & Health CSRs 14,107 $ * * * Multiline Producers 29,635 $ 65,894 $ * * Number of Carriers PL - National 2.7 5.5 3.3 * PL - Regional 3.8 3.0 5.3 * CL - National 3.0 8.5 2.7 * CL - Regional 3.0 3.8 3.3 * * - Insufficient Data

16 of 113

Population Density Analysis – Agencies with Revenues Less Than $1.25M

Population Density Analysis – Agencies with Revenues Greater Than $1.25M The population density analysis provides another valuable picture of the operating characteristics of the agencies included in the Best Practices Study Executive Update. In general, a comparison among agencies of a similar size is the best comparison basis, but an evaluation based on community size can prove helpful when an agency is atypical in nature, such as a larger revenue agency in a smaller community. As always, consider these data in light of the results achieved by agencies of a similar revenue size to gain the best understanding of Best Practices agencies.

Less than 50,000-

250,000-

Over

50,000

250,000 1,000,000 1,000,000

% of Agencies Located in Each Population Size Profitability as % of Net Revenues Pre-tax Net Revenue Growth

24.7% 22.5% 24.7% 28.1% 8.4% 11.7% 11.0% 6.6% 9.7% 11.2% 12.1% 8.5% 15.8% 19.3% 18.0% 11.6% -1.3% 0.2% 1.8% 0.4%

Pro Forma Pre-tax Operating Pre-tax

Productivity

107,507 $

99,839 $ 65,382 $ 34,457 $ 113,895 $ 47,164 $ 106,240 $ 92,668 $ 31,533 $ 25,514 $ 27,773 $

116,278 $ 74,421 $ 41,857 $ 115,720 $ 63,927 $ 135,427 $ 97,344 $ 36,563 $ 29,481 $ 30,605 $

117,396 $ 76,422 $ 40,974 $ 137,549 $ 115,818 $ 130,537 $ 150,975 $ 39,373 $ 32,799 $ 37,166 $

Revenue per Employee Compensation per Employee Pay Levels for Producers Commercial P&C Producers Personal P&C Producers Spread per Employee

$ $

69,123 38,384

113,459 $

$

30,009

121,091 $

Life & Health Producers Multiline Producers Commercial P&C CSRs Personal P&C CSRs Life & Health CSRs

$

70,030

Pay Levels for CSRs

$ $ $

33,829 28,973 31,243

27,759 $

*

*

*

Multiline CSR's

Number of Carriers PL - National

6.5 4.0

5.0 4.7

5.0 3.5

6.0 1.8

PL - Regional CL - National CL - Regional

10.2

10.4

12.0

24.8 14.3

5.3

8.6

8.6

* - Insufficient Data

17 of 113

Population Density Analysis – Agencies with Revenues greater than $1.25M

Analysis of Agencies with Revenues Less than $500,000 In previous studies this study group of agencies represented two separate revenue groups— Under $250,000 and Between $250,000 & $500,000 . Since the 1999 Best Practices Study Executive Update has tracked the results only of agencies included in the 1998 Best Practices Update , many of the agencies in the Under $250,000 now have revenues that exceed the category size. The two groups are now combined into this new category. Agencies in this group have average total revenues of $308,607 .

I. Agency Characteristics A. Corporate Structure C

Average

+25% Profit

+25% Growth

52.4% 33.3% 4.8% 0.0%

40.7% 40.7% 3.7% 0.0% 14.8%

42.4% 39.4% 3.0% 0.0% 15.2%

S

Partnership

LLC

Sole Proprietorship

9.5%

B. Shareholders

Average

+25% Profit

+25% Growth

Number of Shareholders

1.8 6.0 1.0

2.3

2.7

High Low

C. Ownership %

70.8% 100.0% 44.0% Average

+25% Profit

+25% Growth

% Owned by Largest Shareholder

64.6%

55.2%

High Low

D. Shareholder Age

Average

+25% Profit

+25% Growth

Current Age of Largest Shareholder

52.0

50.3

53.0

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

Average

+25% Profit

+25% Growth

Less than 50,000 50,000 - 250,000 250,000 - 1,000,000 More than 1,000,000

71.4% 19.0% 9.5% 0.0%

74.1% 14.8% 11.1% 0.0%

78.8% 12.1% 9.1% 0.0%

Analysis of Agencies with Revenues Less than $500,000

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II. Revenues (Agencies with Revenues Less than $500,000) A. % of Revenue by Source

Average +25% Profit +25% Growth 35.4% 35.8% 39.3% 50.8% 51.3% 41.3%

Commercial P&C

Personal P&C

P&C Service Fees

1.9% 4.3% 2.7% 2.0% 1.4% 1.5%

0.0% 4.2% 3.6% 2.8% 2.3% 0.0%

0.0% 7.6% 3.5% 3.6% 1.7% 3.0%

Contingent Group L&H

Individual L&H Investments Miscellaneous

Total Revenues

100.0% 100.0% 100.0%

Brokerage Commission Expense

4.7%

3.6%

5.4%

Net Revenues

95.3% 96.4% 94.6%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

% Total Revenue

0.0%

Commercial P&C

Personal P&C

P&C Service Fees

Contingent Group L&H Individual L&H

Investments

Average +25% Profit

+25% Growth

Analysis of Agencies with Revenues Less than $500,000

19 of 113

B. % of Revenues Derived from Largest Accounts

Average

+25% Profit

+25% Growth

Largest Commission Account

3.9% 6.2% 1.2%

4.0%

4.1%

High Low High Low

10 Largest Commission Accounts

13.0% 40.4%

13.7%

13.5%

3.3% C. Revenues Derived from Acquisitions Made in Last 12 Months % of Agencies Acquiring

Avg. Commissions Acquired

% of Net Revenues

4.8%

$12,375

4.7%

D. Renewal Revenue as % of Prior Year's Total Revenues for Each 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 percentage, the more favorable the results.

Average

+25% Profit

+25% Growth

Commercial P&C Personal P&C P&C Service Fees

94.7% 88.4% 50.9% 88.4% 40.0% 88.2%

94.8% 96.4%

97.1% 91.8% 83.5% 71.5% 93.6% *

* *

Group L&H

Individual L&H

64.5% 93.9%

Total Commissions & Fees

E. New Business Revenue as % of Prior Year's Total Revenues for Each Line of Business The higher the percentage, the more favorable the results

Average

+25% Profit

+25% Growth

Commercial P&C Personal P&C P&C Service Fees

14.6% 13.3% 25.0% 18.6% 60.3% 15.8%

17.0% 11.0%

12.5% 9.9% 26.2% 38.4% 15.1% *

* *

Group L&H

Individual L&H

22.9% 14.1%

Total Commissions & Fees

* - Insufficient Data

Analysis of Agencies with Revenues Less than $500,000

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F. Acquired Revenue as % of Prior Year's Total Revenues for Each Line of Business The percentage indicates the significance of the acquired business.

Average +25% Profit

+25% Growth

Commercial P&C Personal P&C P&C Service Fees

0.0% 0.3% 0.0% 0.0% 0.0% 0.2%

0.0% 0.9%

0.0% 0.0% 0.0% 0.0% 0.0% *

* *

Group L&H

Individual L&H

0.0% 0.9%

Total Commissions & Fees

G. Growth in Revenues from Prior Year by Source

9.3% 11.8% Average +25% Profit

+25% Growth

Commercial P&C Personal P&C P&C Service Fees

9.7% 1.8% 9.8% 9.9% 8.7% *

2.0%

8.3%

-24.0%

* *

Group L&H

7.0%

Individual L&H

0.2% -12.6%

Total Commission & Fees

4.4% -7.5% 0.6% 2.9% 0.1% 0.3%

9.1%

Contingent Income Investment Income Total Revenues

*

*

-11.2% -7.4%

-15.6% 9.9% 17.9% 10.0% 10.0%

7.2%

Brokerage Commission Expense

*

Net Revenues (Internal)

5.8% 6.6%

Net Revenues (Total including Acquistion)

* - Insufficient Data

Analysis of Agencies with Revenues Less than $500,000

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III. Expenses (Agencies with Revenues Less than $500,000)

Average +25% Profit +25% Growth

Compensation Expense Total Payroll

43.9% 31.8% 40.6%

Benefits

7.3% 4.5%

6.2%

Total Compensation

51.3% 36.3% 46.8%

Selling Expenses

T & E/Conventions

3.0% 3.1% 2.6% 3.7% 3.1% 3.8% 8.7% 10.7% 5.6% 5.8% 2.3% 2.6% 1.2% 1.1% 2.4% 3.7% 1.4% 0.7% 1.2% 1.2% 2.5% 3.2% 0.8% 0.2% 1.2% 1.0% 0.2% 0.4% 0.5% 0.5% 1.8% 0.6% 0.6% 0.9% 0.5% 0.3% 0.6% 0.8% 4.2% 0.9% 0.4% 0.3% 2.2% 1.0% 1.3% 0.0% 8.7% 3.0%

2.9% 2.5% 3.7% 9.1% 3.8% 2.5% 1.2% 3.9% 1.3% 0.9% 2.9% 0.8% 1.1% 0.4% 0.1% 2.2% 0.8% 0.6% 0.3% 1.9% 0.0% 1.7% 0.0% 3.9%

Automobile

Advertising/Promotions

Total Selling

Operating Expenses Occupancy

Telephone

Postage

Supplies/Printing

Dues/Subscriptions/Contributions

Taxes/Licenses

Insurance

Professional Fees Equip Rental/Maint Outside Services Data Processing Education/Training Bad Debts

Miscellaneous

Total Operating

22.2% 22.1% 22.5%

Administrative Expenses Amortization

Depreciation Officer Life

Interest

Other

Total Administrative

Total Expenses Pre-Tax Profit

90.8% 72.1% 82.3% 9.2% 27.9% 17.7%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% % Net Revenue

Compensation

Selling

Operating

Adminstrative

Average +25% Profit

+25% Growth

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IV. Profitability - % of Net Revenues (Agencies with Revenues Less than $500,000) A. Profitability Ratios Average +25% Profit +25% Growth Pre-Tax Profit 9.2% 27.9% 17.7% Pro Forma Pre-Tax Profit (1) 15.2% 29.9% 17.1% Operating Pre-Tax Profit (2) 4.4% 17.2% 1.3% (1) The agency’s 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.

Profitability

30.0%

25.0%

20.0%

15.0%

10.0%

5.0% % Net Revenue

0.0%

Pre-Tax Profit

Pro Forma Pre-Tax Profit (1)

Operating Pre-Tax Profit (2)

Average +25% Profit

+25% Growth

B. Growth in Profitability (% change from prior year)

Average +25% Profit +25% Growth

Net Revenues (Total) Compensation Expense Selling Expense Operating Expense Administrative Expense

0.3% 9.1% 8.8% 2.9%

6.6% 11.6% 5.3% 3.6%

10.0% 3.3% 5.4% 7.5%

-11.1%

-9.0% -24.5%

Pre-Tax Profit

-10.1% -11.8% -21.3% -16.9% -26.3% -25.1%

Operating Pre-tax Profit

Growth in Pre-Tax Profit

Growth in Net Revenues

12.0%

0.0%

10.0%

-5.0%

8.0%

-10.0%

6.0%

-15.0%

4.0%

-20.0%

2.0%

0.0%

-25.0%

Average

+25% Profit

+25% Growth

Average

+25% Profit

+25% Growth

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V. Productivity (Agencies with Revenues Less than $500,000) A. Overall Employee Productivity

Average +25% Profit +25% Growth

Number of Total Employees Revenue Per Employee Compensation Per Employee

3.9

3.0

3.6

$78,051 $40,048 $38,003

$76,240 $26,754 $49,486

$75,241 $34,081 $41,160

Spread Per Employee

Productivity

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000

Revenue Per Employee

Compensation Per Employee

Spread Per Employee

Average +25% Profit

+25% Growth

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Agencies with Revenues Less than $500,000 B. Producer Productivity

1. Commercial P&C Producer

Average

Top 25%

# Validated Producers

1.2 2.0 0.5

High Low

Average New Comm Produced/Year Average Book Managed (Commissions)

$22,621 $110,496 $39,260

* *

Average Pay ($)

Average Pay (% of Book Serviced)

35.5%

Most Successful Commercial P&C Producer Average New Commissions Produced/Year Average Book Managed (Commissions)

$23,113 $105,840

$49,535 $190,525

$2,495

$5,783

Average Commission Per Account

How Most Successful Commercial Producer Spends Time Soliciting New Business

23.1% 55.2% 7.1% 14.6%

Servicing Existing Accounts

Personal Training/Education/Professional Development Management/Personnel/Agency Administration

* - Insufficient Data

How Time Was Spent

14.6%

23.1%

7.1%

55.2%

Soliciting New Business Servicing Existing Accounts Personal Training/Education/Professional Development Management/Personnel/Agency Administration

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Producer Productivity (Agencies with Revenues Less than $500,000) continued… 2. Group Life & Health Producer Average

Top 25%

# Validated Producers

* * * * * * * * * *

High Low

Average New Comm Produced/Year Average Book Managed (Commissions)

* *

Average Pay ($)

Average Pay (% of Book Serviced)

Most Successful Group L&H Producer Average New Commissions Produced/Year Average Book Managed (Commissions) How Most Successful L&H Producer Spends Time Soliciting New Business Average Commission Per Account Personal Training/Education/Professional Development Management/Personnel/Agency Administration Servicing Existing Accounts

* * *

38.0% 36.7% 8.9% 16.4%

* - Insufficient Data

How Time Was Spent

16.4%

38.0%

8.9%

36.7%

Soliciting New Business Servicing Existing Accounts Personal Training/Education/Professional Development Management/Personnel/Agency Administration

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Producer Productivity (Agencies with Revenues Less than $500,000) continued… 3. Personal P&C Producers Average

Top 25%

# Validated Producers

1.8 2.3 0.5

High Low

Average New Comm Produced/Year Average Book Managed (Commissions)

$10,510 $46,600 $25,312 54.3%

* *

Average Pay ($)

Average Pay (% of Book Serviced)

4. Multi-line Producers # Validated Producers

2.2 4.0 1.0

High Low

Average New Comm Produced/Year Average Book Managed (Commissions)

$18,143 $130,646 $46,938

$29,361 $268,299

Average Pay ($)

Average Pay (% of Book Serviced)

35.9%

* - Insufficient Data Summary

Average New Commissions Produced

Average Book Serviced (Commissions)

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000

$300,000

$250,000

$200,000

$150,000

$100,000

$50,000

$0

Commercial P&C

Group L&H Personal P&C Multi-Line

Commercial P&C

Group L&H Personal P&C Multi-Line

Average Top 25%

Average Top 25%

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Agencies with Revenues Less than $500,000 C. CSR Productivity

1. Commercial P&C CSRs

Average

Top 25%

Number

1.1 1.5 0.1

High Low

Average Commissions Serviced

$147,037 $25,585

$213,895

Average Pay ($)

Average Pay (% of Book Serviced)

17.4%

How Time Was Spent: Selling New Business (New or Acct Rounding)

11.7% 10.8% 7.5% 69.2% 0.8%

Marketing (Placement) Claims Processing

Customer Service Administration

How Time Was Spent 11.7% 0.8%

10.8%

7.5%

69.2%

Selling New Business (New or Acct Rounding) Marketing (Placement)

Claims Processing Customer Service Administration

2. Group Life & Health CSRs

Average

Top 25%

Number

* * * * * * * * * * *

High Low

Average Commissions Serviced

*

Average Pay ($)

Average Pay (% of Book Serviced)

How Time Was Spent: Selling New Business (New or Acct Rounding)

Marketing (Placement) Claims Processing

Customer Service Administration

* - Insufficient Data

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CSR Productivity (Agencies with Revenues Less than $500,000) continued… 3. Personal P&C CSRs Average Top 25% Number 1.3 High 2.0 Low 1.0 Average Commissions Serviced $107,723 $158,527 Average Pay ($) $23,099 Average Pay (% of Book Serviced) 21.4% How Time Was Spent: Selling New Business (New or Acct Rounding) 14.2% Marketing (Placement) 15.9% Claims Processing 10.8% Customer Service 56.2% Administration 6.7%

How Time Was Spent 13.7% 6.4%

15.3%

54.1%

10.4%

Selling New Business (New or Acct Rounding) Marketing (Placement)

Claims Processing Customer Service Administration

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CSR Productivity (Agencies with Revenues Less than $500,000) continued… 4. Multi-line CSRs Average Top 25% Number 2.0 High 4.0 Low 0.8 Average Commissions Serviced $119,721 $207,477 Average Pay ($) $29,146 Average Pay (% of Book Serviced) 24.3% How Time Was Spent: Selling New Business (New or Acct Rounding) 14.5% Marketing (Placement) 8.5% Claims Processing 11.0% Customer Service 54.5% Administration 11.5%

How Time Was Spent

11.5%

14.5%

8.5%

11.0%

54.5%

Selling New Business (New or Acct Rounding) Marketing (Placement)

Claims Processing Customer Service Administration

Summary

Average Book Serviced/CSR (Commissions)

$250,000

$200,000

$150,000

$100,000

$50,000

$0

Commercial P&C

Group L&H

Personal P&C

Multi-Line

Average Top 25%

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VI.

Financial Stability (Agencies with Revenues Less than $500,000)

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.

Top 25%

Average

Liquidity/Current Ratio

1.36:1

2.00:1

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.

Average

Top 25%

Tangible Net Worth (as % of Net Rev)

9.7%

21.8%

C. Receivables 1. Receivables/Payable Ratio

This factor measures the collection practices of an agency, with a lower ratio representing more timely collections. (Calculated by dividing total receivables by total payable at a given point in time.)

Average

Top 25%

Receivables/Payables Ratio

88.9%

31.5%

2. Aged Receivables

Average

Top 25%

Over 60 Over 90

24.2% 12.9%

4.9% 6.1%

VII. Carrier Representation (Agencies with Revenues Less than $500,000 )

Average +25% Profit +25% Growth

Personal Lines National

3.3 4.1 4.0 3.3

2.7 4.8 2.0 2.8

2.2 3.8 2.0 2.8

Regional

Commercial Lines National

Regional

Total Carriers

14.7

12.3

10.8

% of Net Rev from Top Carrier % of Net Rev from Top 3 Carriers

34.8% 55.2%

33.0% 54.3%

29.3% 55.2%

Analysis of Agencies with Revenues Less than $500,000

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Analysis of Agencies with Revenues Between $500,000 and $1,250,000 Agencies in this group have average total revenues of $784,841 .

I. Agency Characteristics A. Corporate Structure C

Average

+25% Profit

+25% Growth

60.9% 39.1% 0.0% 0.0%

65.5% 34.5% 0.0% 0.0%

62.9% 37.1% 0.0% 0.0%

S

Partnership

LLC

Sole Proprietorship

0.0%

0.0%

0.0%

B. Shareholders

Average

+25% Profit

+25% Growth

Number of Shareholders

2.8 9.0 1.0

2.0

5.2

High Low

C. Ownership %

58.0% 100.0% 20.0% Average

+25% Profit

+25% Growth

% Owned by Largest Shareholder

64.0%

37.4%

High Low

D. Shareholder Age

Average

+25% Profit

+25% Growth

Current Age of Largest Shareholder

49.0

46.4

48.7

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

Average

+25% Profit

+25% Growth

Less than 50,000 50,000 - 250,000 250,000 - 1,000,000 More than 1,000,000

69.6% 17.4% 4.3% 8.7%

65.5% 20.7% 3.4% 10.3%

68.6% 17.1% 2.9% 11.4%

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II. Revenues (Agencies with Revenues Between $500,000 and $1,250,000) A. % of Revenue by Source

Average +25% Profit +25% Growth 43.1% 38.7% 42.6% 34.6% 35.2% 36.9%

Commercial P&C

Personal P&C

P&C Service Fees

0.9% 8.2% 6.0% 3.9% 2.5% 0.7%

0.5% 8.7% 5.4% 5.5% 6.1% 0.0%

2.1% 3.9% 5.2% 6.7% 0.9% 1.8%

Contingent Group L&H

Individual L&H Investments Miscellaneous

Total Revenues

100.0% 100.0% 100.0%

Brokerage Commission Expense

1.9%

0.0%

0.6%

Net Revenues

98.1% 100.0% 99.4%

10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% % Total Revenue

0.0% 5.0%

Commercial P&C

Personal P&C

P&C Service Fees

Contingent Group L&H Individual L&H

Investments

Average +25% Profit

+25% Growth

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B. % of Revenues Derived from Largest Accounts

Average

+25% Profit

+25%Growth

Largest Commission Account

4.9% 19.0% 1.0% 14.3% 45.6%

5.0%

6.7%

High Low High Low

10 Largest Commission Accounts

11.2%

18.4%

6.1% C. Revenues Derived fromAcquisitions Made in Last 12 Months % of Agencies Acquiring

Avg. Commissions Acquired

% of Net Revenues

4.3%

$30,254

3.7%

D. Renewal Revenue as % of Prior Year's Total Revenues for Each 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 percentage, the more favorable the results.

Average

+25% Profit

+25%Growth

Commercial P&C Personal P&C P&C Service Fees

89.6% 87.4% 69.1% 80.8% 41.0% 84.3%

84.3% 91.9% 51.6% 44.9% 78.8% *

98.0% 86.8%

*

Group L&H

105.0% 59.9% 89.6%

Individual L&H

Total Commissions & Fees

E. New Business Revenue as % of Prior Year's Total Revenues for Each Line of Business The higher the percentage, the more favorable the results

Average

+25% Profit

+25%Growth

Commercial P&C Personal P&C P&C Service Fees

15.6% 13.2% 28.6% 23.3% 45.7% 20.6%

17.5% 13.7% 20.2% 34.3% 19.9% *

21.1% 14.1% 11.9% 48.6% 33.2% *

Group L&H

Individual L&H

Total Commissions & Fees

* - Insufficient Data

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F. Acquired Revenue as % of Prior Year's Total Revenues for Each Line of Business The percentage indicates the significance of the acquired business.

Average +25% Profit

+25% Growth

Commercial P&C Personal P&C P&C Service Fees

0.5% 0.2% 0.0% 0.0% 0.0% 0.4%

1.4% 0.0% 0.0% 0.0% 0.0% 0.9%

0.4% 1.0% 0.0% 0.0% 0.0% 0.7%

Group L&H

Individual L&H

Total Commissions & Fees

G. Growth in Revenues from Prior Year by Source

Average +25% Profit

+25% Growth

Commercial P&C Personal P&C P&C Service Fees

5.7% 0.9% -2.3%

3.2% 5.7%

19.6% 1.9% 16.9% 8.4% 10.7% 47.3% -5.1% 13.6% 13.9% 14.6% * *

*

Group L&H

4.1% -28.3% -13.3% -20.8% 1.5% -0.4% 4.4% 41.0% 4.2% 18.1%

Individual L&H

Total Commission & Fees

Contingent Income Investment Income Total Revenues

2.7% 5.7% 3.2% 3.6%

3.4%

Brokerage Commission Expense

*

Net Revenues (Internal)

3.6% 4.4%

Net Revenues (Total including Acquistion)

* - Insufficient Data

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III. Expenses (Agencies with Revenues Between $500,000 and $1,250,000)

Average +25% Profit +25% Growth

Compensation Expense Total Payroll

52.2% 53.5% 53.5%

Benefits

8.5%

8.2%

5.2%

Total Compensation

60.7% 61.7% 58.7%

Selling Expenses

T & E/Conventions

1.5% 1.4% 2.0% 4.9% 4.7% 1.7% 1.0% 1.5% 0.9% 0.6% 1.8% 1.3% 0.8% 0.5% 1.5% 0.5% 0.4% 1.2% 2.2% 0.4% 0.9% 0.2% 4.9%

1.1% 1.0% 1.5% 3.6% 3.6% 1.3% 0.9% 1.5% 0.7% 0.3% 2.2% 0.7% 0.3% 0.2% 1.1% 0.2% 0.5% 0.2% 1.9% 0.2% 0.4% 0.0% 2.8%

1.4% 1.7% 1.7% 4.9% 4.7% 1.5% 0.9% 1.6% 0.7% 0.8% 1.6% 2.6% 0.6% 0.0% 0.3% 1.2% 0.4% 0.3% 0.8% 0.9% 0.7% 1.0% 0.0% 3.4%

Automobile

Advertising/Promotions

Total Selling

Operating Expenses Occupancy

Telephone

Postage

Supplies/Printing

Dues/Subscriptions/Contributions

Taxes/Licenses

Insurance

Professional Fees Equip Rental/Maint Outside Services Data Processing Education/Training Bad Debts

0.0% -0.1%

Miscellaneous

Total Operating

17.2% 13.4% 17.4%

Administrative Expenses Amortization

Depreciation Officer Life

Interest

Other

Total Administrative

Total Expenses Pre-Tax Profit

87.7% 81.5% 84.4% 12.3% 18.5% 15.6%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% % Net Revenue

Compensation

Selling

Operating

Adminstrative

Average +25% Profit

+25% Growth

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IV. Profitability - % of Net Revenues (Agencies with Revenues Between $500,000 and $1,250,000) A. Profitability Ratios Average +25% Profit +25% Growth Pre-Tax Profit 12.3% 18.5% 15.6% Pro Forma Pre-Tax Profit (1) 20.1% 35.2% 19.4% Operating Pre-Tax Profit (2) 1.3% 3.7% 10.7% (1) The agency’s 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.

Profitability

10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% % Net Revenue

0.0% 5.0%

Pre-Tax Profit

Pro Forma Pre-Tax Profit (1)

Operating Pre-Tax Profit (2)

Average +25% Profit

+25% Growth

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B. Growth in Profitability (% change from prior year)

Average +25% Profit +25% Growth

Net Revenues (Total) Compensation Expense Selling Expense Operating Expense Administrative Expense

3.6% 6.8% -0.5% 3.2% -0.3% -4.6% -9.5%

4.4% 11.4% 0.0% 0.2% 3.5% 16.3% 30.9%

14.6% 4.7% 6.3% 20.6% 4.1% 12.2% 12.2%

Pre-Tax Profit

Operating Pre-tax Profit

Growth in Pre-Tax Profit

Growth in Net Revenues

20.0%

10.0% 12.0% 14.0% 16.0%

15.0%

10.0%

0.0% 2.0% 4.0% 6.0% 8.0%

5.0%

0.0%

-5.0%

Average

+25% Profit

+25% Growth

Average

+25% Profit

+25% Growth

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V. Productivity (Agencies with Revenues Between $500,000 and $1,250,000) A. Overall Employee Productivity Average +25% Profit +25% Growth Number of Total Employees 8.4 7.3 7.4 Revenue Per Employee $100,609 $120,873 $106,313 Compensation Per Employee $60,548 $75,344 $60,784 Spread Per Employee $40,061 $45,529 $45,529

Productivity

$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000

Revenue Per Employee

Compensation Per Employee

Spread Per Employee

Average +25% Profit

+25% Growth

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Agencies with Revenues Between $500,000 and $1,250,000 B. Producer Productivity

1. Commercial P&C Producer

Average

Top 25%

# Validated Producers

1.3 2.0 0.4

High Low

Average New Comm Produced/Year Average Book Managed (Commissions)

$41,500 $198,724 $62,083

$72,188 $338,016

Average Pay ($)

Average Pay (% of Book Serviced)

31.2%

Most Successful Commercial P&C Producer Average New Commissions Produced/Year Average Book Managed (Commissions)

$37,320 $257,129

$57,686 $399,194

$1,933

$4,150

Average Commission Per Account

How Most Successful Commercial Producer Spends Time Soliciting New Business

21.9% 52.9% 8.6% 16.6%

Servicing Existing Accounts

Personal Training/Education/Professional Development Management/Personnel/Agency Administration

How Time Was Spent

16.6%

21.9%

8.6%

52.9%

Soliciting New Business Servicing Existing Accounts Personal Training/Education/Professional Development Management/Personnel/Agency Administration

Analysis of Agencies with Revenues Between $500,000 and $1,250,000

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