2003 Best Practices Study

A SPECIAL ACKNOWLEDGEMENT

We wish to thank the following companies for their sponsorship which has funded the development of the 2003 Best Practices Study and the update of the web-based Best Practices Gateway and Best Practices Performance Quick Check:

T ABLE OF C ONTENTS

Introduction

Special Analysis of Agencies with Revenues Less than $2,500,000 Personal Lines Analysis

1 3 5

Regional Analysis

Population Density Analysis

Special Analysis of Agencies with Revenues Greater than $2,500,000 Personal Lines Analysis

6 8

Regional Analysis

10

Population Density Analysis

Analysis of Agencies with Revenues Less than $500,000 Agency Characteristics

11

Revenue Analysis Expense Analysis Profitability Productivity Financial Stability Carrier Representation Revenue Analysis Acquisition Activity Expense Analysis Profitability Productivity Financial Stability Carrier Representation Revenue Analysis Acquisition Activity Expense Analysis Profitability Productivity Financial Stability Carrier Representation

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

25

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

39

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

54

Revenue Analysis Acquisition Activity Expense Analysis Profitability Productivity Financial Stability Carrier Representation Revenue Analysis Acquisition Activity Expense Analysis Profitability Productivity Financial Stability Carrier Representation Revenue Analysis Acquisition Activity Expense Analysis Profitability Productivity Financial Stability Carrier Representation

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

68

Analysis of Agencies with Revenues Greater Than $10,000,000 Agency Characteristics

81

96

Glossary

T HE 2003 B EST P RACTICES S TUDY E XECUTIVE U PDATE

For First Time Readers of the Study The annual Best Practices Study originated in 1993 as an initiative to help independent agents build the value of their most important asset, their agencies. By studying the leading agencies and brokers in the country, the Independent Insurance Agents & Brokers of America (IIABA) hoped to provide member agents with meaningful performance benchmarks and business strategies that could be adopted or 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 study of The Best Practices of the Leading Independent Insurance Agencies in the United States . Today, the annual updates continue to provide 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 industry. The leading agencies included in the annual study must be nominated for participation. 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 nominate the agencies they believe to be among the best. The 700-800 nominated agencies are then invited to participate and asked to complete an in-depth survey detailing their most recently completed fiscal year end results. From the 300+ agencies submitting data, the top 30 in each revenue category are included in the study for the next three years and earn the status of a “ Best Practices agency.” They are scored and ranked objectively for inclusion on the basis of Account Retention Rates, Revenue Growth, Productivity, Profitability, and Financial Stability. Participation in The Best Practices Study has become a prestigious recognition of the superior accomplishments of the top insurance agencies in each of the six size categories studied. About This Year’s Results The 2003 Best Practices Study Executive Update continues to follow the performance of the 180 agencies selected as Best Practices agencies in the 2001 study. Since 2001, banks or national and regional brokers have acquired 5% of those agencies.

Over 90% of this year’s participants submitted data for the fiscal year ending 12/31/2002. The balance of the agencies reported on fiscal years ending within the first half of 2003.

As expected the hard market contributed to hefty, double-digit revenue growth rates in all but the two smaller revenue category groups – “ Under $500,000 ” and “ Between $500,000 and $1.25 Million ”. Both of these groups had single-digit growth rates below their previous year’s rates. While these lower growth rates reflect the fact that the agencies in these groups are less likely to write the larger commercial accounts most impacted by the hard market, the lower growth percentages point to the increasing competition with which these agencies are faced. For the smaller agencies, revenue growth remains difficult, even in the hard market. The average growth rate for the four study groups with revenues over $1.25 Million ranged from percentages in the mid-teens to a whooping 20.1%. Since growth rates for the prior year hovered in the low teens, it appears that these agencies benefited from the significant rate increases brought on by the hard market. Did the increased revenues mean bigger profits? Yes, but….The strong revenue growth rates did translated into stronger profitability ratios than in the prior year, although not proportionately higher. The pre-tax profits averaged 12.1% of net revenues for the three study groups with revenues over $2.5 Million. This was just slightly better than last year’s average profits for this combined group. The “ Under $500,000 ” group’s pre-tax profits also improved, but by only half of a percentage point. The two groups with revenues between $500,000 and $2.5 Million had a combined average pre-tax profit of 13.4%, a strong figure, but a full 2.3 percentage points below the prior year results. A major factor influencing this year’s profitability ratios was compensation expense. Since the 2001 Study results were published, compensation per employee increased an average of $9,990 in each of the six study groups. Employees, who had worked in soft market conditions for years with minimal or no salary increases, were finally rewarded. Agencies used their increased revenues to provide incentives and to retain and recognize employees who labored under heavier, market-induced workloads. At the same time many agencies made investments to support future growth, particularly the larger agencies that used the additional revenues to add new producers and support staff.

Acquisition activity was another factor in the revenue growth rate for the two larger revenue categories, although such activity was not limited to those groups as shown in the chart below.

The average multiple paid was 1.32x the acquired revenues. This was up slightly from 1.29x in the previous year.

2003 Best Practices Study – Acquisition Results Revenue Category % of Agencies Acquiring Avg. Commissions Acquired

% of Net Revenues

Avg. Multiple of Revenues Paid

Less Than $500K $500K-$1.25 M $1.25M - $2.5M

5.9%

$35,076

9.8%

1.0x

0

0

0

7.1% 13.3% 25.0% 37.0%

$273,129 $219,978 $859,279 $3,610,218

17.8% 4.8% 8.8% 10.1%

1.95x 1.18x 1.1x 1.4x

$2.5M - $5M $5M - $10M

Greater Than $10M

Although the immediate effect of the hard market was evident on this year’s results, the outcome is yet to be seen. It will be interesting to see how the Best Practices agencies perform as the market turns and margins shrink. Will they be able to maintain steady revenue growth and good profitability? We think so. These agencies have shown that they consistently are able to achieve good results by wisely controlling expenses, investing for future growth, and expecting the best from their employees and carrier partners. Need More Best Practices Information? The 2003 Best Practices Study is available in two formats – hard copy and electronically. The hard copy can be purchased from the IIABA Education Department (800-221-7917). The electronic version can be accessed via the websites of IIABA (www.iiaba.com) and Reagan Consulting (www.reaganconsulting.com). From these sites, users can enter the Best Practices Gateway home page to view an HTML version of the study, download a Best Practices comparison spreadsheet to compare their year-end results with the study’s results, and access the complete family of Best Practices resources. 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. Also included is an analysis of agencies that indicated that Personal Lines is an important source of revenue. Other Best Practices Studies and Tools In addition to providing benchmarks and documenting the business practices of leading agencies, the IIABA and Reagan Consulting periodically address specific business practices or focus on issues of critical importance to independent agencies. Such studies include The Best Practices of Leading Sales Organizations and The Best Practices for Perpetuation and Management Succession . Some of the tools designed to help agencies measure and improve their

performance include the Agency Self-Diagnostic Tool and the Joint Agency Company Planner . These Best Practices studies and tools, which are part of a complete line of Best Practices products and services, can be ordered through the IIABA Education Department (800-221-7917).

Copyright © 2003 by the Independent Insurance Agents & Brokers of America and Reagan Consulting, Inc. All rights reserved.

SPECIAL PERSONAL LINES ANALYSIS Agencies with Revenues Less Than $2,500,000

AGENCY CHARACTERISTICS

This analysis represents the results for agencies with revenues of under $2,500,000 that feel that personal lines is an important part of their growth and profitability. These operating results provide the Best Practices standards against which to measure your Personal Lines

results.

A. Percentage of Group Who Said Personal Lines is Important Agencies with Net Revenues of: Less Than $500,000

70.6% 69.6% 46.4%

$500,000 - $1,250,000 $1,250,000 - $2,500,000

B. Metro Population Where Agency is Located Less than 50,000

51.9% 24.1% 13.0% 11.1%

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

REVENUE ANALYSIS

Average PL Commission Income: $398,772

Average

+25% Profit

+25% Growth

% of Net Total Revenues

40.7% 92.9% 13.8%

41.9% 84.5% 17.6%

31.2% 98.3% 14.3%

% Renewals (1)

% New Business (2)

% Acquired (3)

0.3% 6.6% 6.9%

0.9% 2.1% 3.0%

0.0%

Growth Rate: Internal (4)

12.6% 12.6%

Total (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.

EMPLOYEE PRODUCTIVITY

CSR Information

Average # of CSRs

2.8 8.0 0.3

High Low

Page 1 2003 Best Practices Study

SPECIAL PERSONAL LINES ANALYSIS Agencies with Revenues Less Than $2,500,000

Average $146,077 $29,396

+25% Profit

Average Commissions Serviced

$222,414

Average Pay

How Time Was Spent:

Selling New Business Marketing (Placement)

16.3% 17.3%

Claims Processing Customer Service

7.9%

54.9%

Administration

3.6%

How Time Was Spent 3.6%

16.3%

54.9%

17.3%

7.9%

Selling New Business Marketing (Placement) Claims Processing Customer Service Administration

Producer Information

Average

+25% Profit

Average No. of Validated Producers Average PL Commissions in Book

1.7

$130,498 $53,174

$246,280

Average Pay/PL Producer

CARRIER REPRESENTATION

Number of Carriers Represented

Average

+25% Profit

+25% Growth

No. of PL National No. of PL Regional

2.6 4.0

2.1 4.3

3.6 3.6

Service Center Use

Total Pers'l Lines Commissions placed in Carrier Service Center

18.2%

*

*

*-Insufficient Data

Page 2 2003 Best Practices Study

SPECIAL REGIONAL ANALYSIS Agencies with Revenues Less Than $2,500,000

AGENCY CHARACTERISTICS

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 Practice agencies.

NE

SE

MW SW

W

Growth Net Revenue Growth

7.5% 10.8% 11.6% 8.3% 16.3%

Profitability as % of Net Revenues Pre-tax

15.5% 14.0% 15.0% 11.4% 24.7% 22.1% 24.6% 20.9% 20.8% 34.5% 5.0% 4.8% 10.9% 5.1% 4.3%

Pro Forma Pre-tax Operating Pre-tax

Productivity Revenue per Employee

$112,412 $110,618 $109,762 $136,168 $104,591 $67,442 $69,438 $62,428 $83,458 $49,618 $44,970 $41,181 $47,334 $52,710 $54,973

Compensation per Employee Spread per Employee (1)

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

$83,974 $98,640 $104,163 $92,100 $66,375

*

$52,071 $67,384 $37,216

* * *

$94,045 $108,129 $73,213

*

Life & Health Producers

$103,164 $113,081 $69,828 $77,595

Multiline Producers

Pay Levels for CSRs Commercial P&C CSRs

$37,907 $36,896 $29,670 $31,169 $44,563 $32,971 $29,241 $24,923 $23,920 $34,600

Personal P&C CSRs Life & Health CSRs

$33,703 $26,667 $18,340 $22,499

* *

$35,230 $30,547 $22,355

*

Multiline CSRs

Number of Carriers PL - National

2.8 4.6 2.8 4.4

3.4 3.5 4.4 5.0

1.3 4.4 1.9 5.4

2.9 3.0 9.1 8.3

3.0 2.3 4.3 3.0

PL - Regional CL - National CL - Regional

Service Center Use Total Pers'l Lines Commission placed in Carrier Service Center Total Comm'l Lines Commission placed in Carrier Service Center

*

7.7%

*

*

*

*

6.9%

*

1.9%

*

% of Agencies Making Acquisition in Last 12 Months

0.0% 6.7% 5.3% 9.1% 16.7%

* - 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.

Page 3 2003 Best Practices Study

SPECIAL REGIONAL ANALYSIS Agencies with Revenues Less Than $2,500,000

State Groupings:

Page 4 2003 Best Practices Study

SPECIAL POPULATION DENSITY ANALYSIS Agencies with Revenues Less Than $2,500,000

AGENCY CHARACTERISTICS

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. 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

Less than

50,000- 250,000

250,000- 1,000,000

Over

1,000,000

50,000

% of Agencies Located in Each Population Size

47.8%

24.6%

14.9%

14.5%

Net Revenue Growth

10.2%

15.8%

8.8%

2.0%

Profitability as % of Net Revenues Pre-tax

14.1% 21.2%

15.9% 27.0%

23.3% 27.7% 17.5%

10.4% 20.0%

Pro Forma Pre-tax Operating Pre-tax

5.4%

6.2%

1.1%

Productivity

Revenue per Employee

$100,528 $57,143 $43,386

$130,732 $82,353 $48,379

$113,022 $58,443 $54,579

$133,648 $84,570 $49,078

Compensation per Employee

Spread per Employee

Pay Levels for Producers Commercial P&C Producers

$78,422 $39,568 $72,833 $58,619

$92,895 $67,566 $169,235 $140,551

$113,461 $87,425 $76,445 $59,194

$111,401

Personal P&C Producers Life & Health Producers

* *

Multiline Producers

$120,886

Pay Levels for CSRs

Commercial P&C CSRs Personal P&C CSRs

$30,525 $25,197 $20,797 $26,060

$37,299 $30,611 $32,365

$40,212 $32,273 $27,230 $33,000

$41,551 $37,197 $33,250

Life & Health CSRs Multiline Producers

*

*

Number of Carriers PL - National

2.3 3.8 3.2 4.6

2.3 4.3 5.5 8.1

2.9 4.1 2.4 3.4

3.4 3.0 5.9 4.5

PL - Regional CL - National CL - Regional

Service Center Use Total Pers'l Lines Commission placed in Carrier Service Center Total Comm'l Lines Commission placed in Carrier Service Center

*

*

*

*

2.5%

1.4%

*

15.1%

* - Insufficient Data

Page 5 2003 Best Practices Study

SPECIAL PERSONAL LINES ANALYSIS Agencies with Revenues Greater Than $1,250,000

AGENCY CHARACTERISTICS

This analysis represents the results for agencies with revenues of over $2,500,000 that feel that personal lines is an important part of their growth and profitability. These operating results provide the Best Practices standards against which to measure your Personal Lines results.

A. Percentage of Group Who Said Personal Lines is Important Agencies with Net Revenues of: $2,500,000 - $5,000,000

30.0% 53.6% 11.1%

$5,000,000 - $10,000,000

Over $10,000,000

B. Metro Population Where Agency is Located Less than 50,000

14.3% 23.8% 31.0% 31.0%

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

REVENUE ANALYSIS

Average PL Commission Income: $1,622,112

Average

+25% Profit

+25% Growth

% of Net Total Revenues

21.6% 98.1% 12.2%

33.2% 100.1%

21.3% 100.8% 12.9%

% Renewals (1)

% New Business (2)

9.7% 5.1% 9.7%

% Acquired (3)

4.6%

0.2%

Growth Rate: Internal (4)

10.3% 14.9%

13.7% 13.9%

Total (5)

14.8%

(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.

EMPLOYEE PRODUCTIVITY

CSR Information

Average # of CSRs

7.7

High Low

23.0

2.0

Page 6 2003 Best Practices Study

SPECIAL PERSONAL LINES ANALYSIS Agencies with Revenues Greater Than $1,250,000

Average $177,521 $33,715

+25% Profit

Average Commissions Serviced

$255,465

Average Pay

How Time Was Spent:

Selling New Business Marketing (Placement)

13.3% 16.8%

Claims Processing Customer Service

4.4%

61.3%

Administration

4.1%

How Time Was Spent

4.1%

13.3%

16.8%

61.3%

4.4%

Selling New Business Marketing (Placement) Claims Processing Customer Service Administration

Producer Information

Average

+25% Profit

Average No. of Validated Producers Average PL Commissions in Book

3.3

$248,237 $64,865

$384,765

Average Pay/PL Producer

CARRIER REPRESENTATION

Number of Carriers Represented

Average

+25% Profit

+25% Growth

No. of PL National No. of PL Regional

8.4 4.3

5.8 3.9

11.7

4.7

Service Center Use

Total Pers'l Lines Commissions placed in Carrier Service Center

13.3%

24.9%

9.3%

Page 7 2003 Best Practices Study

SPECIAL REGIONAL ANALYSIS Agencies with Revenues Greater Than $2,500,000

AGENCY CHARACTERISTICS

in conjunction with results by revenue group to gain the most complete understanding of the 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

operating characteristics of the Best Practice agencies.

SE

MW SW

W

NE

Growth Net Revenue Growth

15.3% 19.1% 16.5% 21.7% 18.5%

Profitability as % of Net Revenues Pre-tax

12.3% 9.9% 14.5% 16.8% 10.3% 19.4% 17.9% 19.8% 20.3% 18.3% 5.2% 3.1% 6.7% 10.0% 1.5%

Pro Forma Pre-tax Operating Pre-tax

Productivity Revenue per Employee

$134,644 $140,889 $137,173 $130,340 $142,276 $81,178 $96,096 $90,461 $83,109 $96,151 $53,465 $44,793 $46,713 $47,231 $46,125

Compensation per Employee Spread per Employee (1)

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

$133,602 $181,445 $165,452 $159,657 $174,489 $67,524 $64,731 $52,665 $80,292 $57,261 $181,909 $192,869 $128,666 $130,222 $152,628

Life & Health Producers

$109,681 $117,951 $174,302

*

$118,655

Multiline Producers

Pay Levels for CSRs Commercial P&C CSRs

$42,458 $41,974 $36,808 $41,411 $47,576 $34,504 $33,739 $32,174 $32,315 $39,905 $42,964 $40,789 $37,919 $38,755 $46,270

Personal P&C CSRs Life & Health CSRs

*

*

*

*

$31,830

Multiline CSRs

Number of Carriers PL - National

8.7 6.0

6.2 3.1

5.1 3.9

8.3 2.5

7.3 2.9

PL - Regional CL - National CL - Regional

20.4 16.3

17.6 15.7

25.4 13.2

15.8

23.5 29.5

4.5

Service Center Use Total Pers'l Lines Commission placed in Carrier Service Center Total Comm'l Lines Commission placed in Carrier Service Center

27.5% 2.4% 0.6% 17.4% 10.8%

6.5% 1.2% 0.7% 1.5% 2.3%

% of Agencies Making Acquisition in Last 12 Months

27.8% 23.1% 17.6% 25.0% 33.3%

* - 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.

Page 8 2003 Best Practices Study

SPECIAL REGIONAL ANALYSIS Agencies with Revenues Greater Than $2,500,000

State Groupings:

Page 9 2003 Best Practices Study

SPECIAL POPULATION DENSITY ANALYSIS Agencies with Revenues Greater Than $2,500,000

AGENCY CHARACTERISTICS

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. 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

Less than

50,000- 250,000

250,000- 1,000,000

Over

1,000,000

50,000

% of Agencies Located in Each Population Size

10.7%

20.2%

33.3%

35.7%

Net Revenue Growth

16.8%

13.1%

23.2%

16.1%

Profitability as % of Net Revenues Pre-tax

18.6% 23.6%

9.5%

11.0% 20.0%

12.6% 18.1%

Pro Forma Pre-tax Operating Pre-tax

15.9%

7.6%

4.5%

2.5%

5.7%

Productivity

Revenue per Employee

$134,518 $77,856 $56,662

$131,690 $84,024 $47,666

$143,779 $98,707 $45,073

$137,343 $90,393 $46,950

Compensation per Employee

Spread per Employee

Pay Levels for Producers Commercial P&C Producers

$148,552 $35,998 $145,913

$168,206 $46,758 $113,144 $114,396

$162,354 $60,709 $212,769 $142,177

$173,721 $99,013 $150,662 $135,713

Personal P&C Producers Life & Health Producers

Multiline Producers

*

Pay Levels for CSRs

Commercial P&C CSRs Personal P&C CSRs

$40,480 $32,624 $34,786

$38,090 $31,318 $40,468

$41,427 $34,277 $39,372

$45,753 $37,303 $44,919

Life & Health CSRs Multiline Producers

*

*

*

*

Number of Carriers PL - National

9.7 6.4

7.3 4.6

5.9 2.8

6.7 3.5

PL - Regional CL - National CL - Regional

24.6

17.6 20.2

19.3

22.6 24.1

8.6

9.4

Service Center Use Total Pers'l Lines Commission placed in Carrier Service Center Total Comm'l Lines Commission placed in Carrier Service Center

*

1.1%

2.5%

17.6%

*

0.8%

1.5%

3.0%

* - Insufficient Data

Page 10 2003 Best Practices Study

Analysis of Agencies with Revenues Less Than $500,000

AGENCY CHARACTERISTICS

A. Average Total Revenues

$391,740

B. Corporate Structure

+25% Profit

Average

+25% Growth

C S

47.1% 41.2%

40.9% 45.5%

40.7% 48.1%

Partnership

5.9% 0.0% 5.9%

4.5% 0.0% 9.1%

3.7% 0.0% 7.4%

LLC

Sole Proprietorship

C. Shareholders

Average

+25% Profit

+25% Growth

Number of Shareholders

2.3 9.0 1.0

2.3

2.4

High Low

72.2% 100.0% 30.0% Average

+25% Profit

+25% Growth

D. Ownership %

% Owned by Largest Shareholder

80.0%

75.0%

High Low

E. Shareholder Age

Average

+25% Profit

+25% Growth

Current Age of Largest Shareholder

51.1

47.0

54.0

F. 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

76.5%

68.2%

70.4%

0.0%

0.0%

0.0%

23.5%

31.8%

29.6%

0.0%

0.0%

0.0%

Page 11 2003 Best Practices Study

Analysis of Agencies with Revenues Less Than $500,000

REVENUE ANALYSIS

A. % of Revenue by Source

Average

+25% Profit

+25% Growth

Commercial P&C

35.8% 48.7%

35.3% 55.3%

47.7% 41.6%

Personal P&C

P&C Service Fees

3.2% 3.7% 4.7% 2.6% 0.7% 0.6%

0.0% 2.1% 4.5% 2.6% 0.1% 0.1%

0.1% 3.1% 3.5% 0.8% 1.5% 1.7%

Contingent Group L&H

Individual L&H Investments Miscellaneous

Total Revenues

100.0%

100.0%

100.0%

Brokerage Commission Expense

1.0%

0.0%

0.7%

Net Revenues

99.0%

100.0%

99.3%

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

B. % of Revenues Derived from Largest Accounts

Average

+25% Profit

+25% Growth

Largest Commission Account

4.2%

3.7%

4.1%

High Low

13.5%

1.2%

10 Largest Commission Accounts

12.8% 28.9%

8.9%

12.7%

High Low

1.9%

C. Revenues Derived from Acquisitions Made in Last 12 Months

% of Agencies Acquiring

Avg. Commissions Acquired

% of Net Revenues

5.9%

$35,076

9.8%

What the Typical Transaction Looked Like:

INSUFFICIENT DATA - CHARTS NOT APPLICABLE

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

93.3% 89.8%

97.1% 100.2%

98.7% 101.1%

Personal P&C

P&C Service Fees

*

*

*

Group L&H

83.9% 66.2% 90.7%

66.3% 60.0% 94.5%

87.9% 66.6% 97.1%

Individual L&H

Total Commissions & Fees

*-Insufficient Data

Page 12 2003 Best Practices Study

Analysis of Agencies with Revenues Less Than $500,000

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

11.6% 16.6%

12.9% 11.1%

16.2% 20.8%

Personal P&C

P&C Service Fees

*

*

*

Group L&H

25.2% 28.1% 15.3%

45.5% 27.5% 14.5%

6.8%

Individual L&H

16.1% 18.2%

Total Commissions & Fees

*-Insufficient Data

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

0.0% 0.7%

0.0% 2.4% 0.0% 0.0% 0.0% 2.4%

0.0% 0.0%

Personal P&C

P&C Service Fees

*

*

Group L&H

0.0% 0.0% 0.7%

0.0% 0.0% 0.0%

Individual L&H

Total Commissions & Fees

*-Insufficient Data

G. Growth in Revenues from Prior Year by Source

Average

+25% Profit

+25% Growth

Commercial P&C

4.9% 7.1%

10.0% 13.8%

14.9% 21.9%

Personal P&C

P&C Service Fees

*

*

*

Group L&H

9.2% -5.8% 6.7% -4.9%

11.8% -12.5% 11.4% -41.8%

-5.2%

Individual L&H

-17.2% 15.3%

Total Commission & Fees

Contingent Income Investment Income

-1.6%

-18.6%

*

-31.5% 12.7%

Total Revenues

5.2%

11.1%

Brokerage Commission Expense

-22.1%

*

*

Net Revenues (Internal)

6.0% 6.7%

8.7%

17.7% 17.7%

Net Revenues (Total including Acquistion)

11.1%

*-Insufficient Data

Page 13 2003 Best Practices Study

Analysis of Agencies with Revenues Less Than $500,000

EXPENSE ANALYSIS (as % of Net Revenues)

Average

+25% Profit

+25% Growth

Compensation Expense Total Payroll

41.5%

28.3%

36.0%

Benefits

6.9%

5.0%

4.6%

Total Compensation

48.4%

33.3%

40.6%

Selling Expenses

T & E/Conventions

1.7% 2.0% 2.5% 6.2% 4.7% 2.1% 1.1% 2.0% 1.3% 1.3% 1.9% 0.9% 0.8% 0.1% 0.5% 2.7% 0.5% 0.6% 0.7% 2.3% 0.2% 1.2% 0.2% 4.4% 20.5% 79.5% 20.5%

1.0% 2.5% 1.6% 5.0% 3.6% 1.9% 0.9% 1.9% 1.0% 0.8% 1.1% 0.5% 0.2% 0.0% 0.1% 1.5% 0.1% 0.4% 2.0% 1.8% 0.2% 0.4% 0.5% 4.9% 14.0% 57.2% 42.8%

1.1% 2.4% 2.1% 5.6% 3.9% 1.9% 0.8% 2.3% 1.3% 2.3% 2.3% 1.1% 1.0% 0.1% 0.9% 1.8% 0.7% 0.4% 1.4% 2.2% 0.1% 0.2% 0.5% 4.5% 20.9% 71.5% 28.5%

Automobile

Advertising/Promotions

Total Selling

Operating Expenses Occupancy

Telephone

Postage

Supplies/Printing

Dues/Subscriptions/Contributions

Taxes/Licenses

Insurance

Professional Fees Equip Rental/Maint

Bad Debts

Outside Services Data Processing Education/Training

Miscellaneous

Total Operating

Administrative Expenses Amortization

Depreciation Officer Life

Interest

Other

Total Administrative

Total Expenses Pre-Tax Profit

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

Compensation

Selling

Operating

Adminstrative

Average +25% Profit

+25% Growth

Information Technology Expense (as % of Net Revenues)

Average

+25% Profit

+25% Growth

Total IT Expense for Fiscal Yr (1)

3.1%

2.0%

2.6%

(1) Includes hardware/software leasing, supplies, maintenance & maintenance contracts, training, data communications, website development/maintenance, computer depreciation, and software amortization

Page 14 2003 Best Practices Study

Analysis of Agencies with Revenues Less Than $500,000

PROFITABILITY (as % of Net Revenues)

A. Profitability Ratios

Average

+25% Profit

+25% Growth

Pre-Tax Profit

20.5% 25.1% 13.7%

42.8% 48.5% 37.7%

28.5% 35.5% 16.7%

Pro Forma Pre-Tax Profit (1) Operating Pre-Tax Profit (2)

(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% 45.0% 50.0% % 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

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

Average

+25% Profit

+25% Growth

Net Revenues (Total) Compensation Expense

6.7% 3.2% -6.9% 11.5% -5.4%

11.1%

17.7%

1.2%

5.6% 9.4%

Selling Expense Operating Expense

-13.5% 12.9%

23.5%

Administrative Expense

*

*

Pre-Tax Profit

5.7%

29.8% 37.3%

17.4% 36.8%

Operating Pre-tax Profit

16.7%

*-Insufficient Data

Growth in Net Revenues

Growth in Pre-Tax Profit

10.0% 12.0% 14.0% 16.0% 18.0%

30.0%

25.0%

20.0%

15.0%

0.0% 2.0% 4.0% 6.0% 8.0%

10.0%

5.0%

0.0%

Average

+25% Profit

+25% Growth

Average

+25% Profit

+25% Growth

Page 15 2003 Best Practices Study

Analysis of Agencies with Revenues Less Than $500,000

EMPLOYEE PRODUCTIVITY

A. Employee Statistics

Average

+25% Profit

+25% Growth

Total Number of Employees (full time equivalents) Revenue Per Employee Compensation Per Employee

4.0

3.4

3.6

$103,418 $49,789 $53,629

$120,297 $41,152 $79,146

$105,528 $41,178 $64,350

Spread Per Employee

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

Page 16 2003 Best Practices Study

Analysis of Agencies with Revenues Less Than $500,000

B. Producer Productivity

1. Commercial P&C Producer

Average

Top 25%

# Validated Producers

1.1 1.8 0.5

High Low

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

$21,483 $137,341 $83,517

$32,450 $182,172

Average Pay ($)

Average Pay (% of Book Serviced)

60.8%

Most Successful Commercial P&C Producer

Average $30,875 $198,934

Top 25% $60,000 $320,000

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

Average Commission Per Account

$1,343

$2,855

How Most Successful Commercial Producer Spends Time Soliciting New Business

20.4% 50.3%

Servicing Existing Accounts

Personal Training/Education/Professional Dev. Management/Personnel/Agency Administration

7.0%

22.3%

How Time Was Spent 20.4%

22.3%

7.0%

50.3%

Soliciting New Business Servicing Existing Accounts

Personal Training/Education/Professional Dev. Management/Personnel/Agency Administration

Page 17 2003 Best Practices Study

Analysis of Agencies with Revenues Less Than $500,000

2. Group Life & Health Producer

Average

Top 25%

# Validated Producers

1.0 1.0 0.2

High Low

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

*

* *

$63,000 $44,233

Average Pay ($)

Average Pay (% of Book Serviced)

70.2%

* - Insufficient Data

Most Successful Group L&H Producer

Average $17,000 $53,333

Top 25%

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

* * *

Average Commission Per Account

$742

How Most Successful L&H Producer Spends Time Soliciting New Business

20.7% 62.3%

Servicing Existing Accounts

Personal Training/Education/Professional Dev. Management/Personnel/Agency Administration

7.0%

10.0%

* - Insufficient Data

How Time Was Spent 20.7% 10.0%

7.0%

62.3% Soliciting New Business Servicing Existing Accounts

Personal Training/Education/Professional Dev. Management/Personnel/Agency Administration

3. Personal P&C Producers

Average

Top 25%

ness

Aver

Busi

New

age

# Validated Producers

1.3 2.5 1.0

High Low

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

$15,991 $120,852 $72,913

$27,000 $181,547

oo

ge

ve

ra

B

A

Average Pay ($)

Average Pay (% of Book Serviced)

60.3%

Page 18 2003 Best Practices Study

Analysis of Agencies with Revenues Less Than $500,000

4. Multi-line Producers

Average

Top 25%

# Validated Producers

1.5 3.0 1.0

High Low

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

$38,865 $228,750 $49,500

$50,164 $392,021

Average Pay ($)

Average Pay (% of Book Serviced)

21.6%

Producer Summary

Average Commissions in Book

Average New Commissions Produced

$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000

$60,000

$50,000

$40,000

$30,000

$20,000

$10,000

$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%

C. CSR Productivity

1. Commercial P&C CSRs

Average

Top 25%

Number

1.0 2.0 0.3

High Low

Average Commissions Serviced

$165,932 $30,565

$227,781

Average Pay ($)

Average Pay (% of Book Serviced)

18.4%

Page 19 2003 Best Practices Study

Analysis of Agencies with Revenues Less Than $500,000

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

9.4%

Marketing (Placement)

23.8%

Claims Processing Customer Service

7.4%

53.8%

Administration

5.6%

How Time Was Spent

5.6%

9.4%

23.8%

53.8%

7.4%

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

Claims Processing Customer Service Administration

2. Group Life & Health CSRs

Average

Top 25%

Number

0.5 1.0 0.1

High Low

Average Commissions Serviced

$40,624 $14,175

*

Average Pay ($)

Average Pay (% of Book Serviced)

34.9%

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

16.3% 15.0%

Marketing (Placement)

Claims Processing Customer Service

8.7%

55.0%

Administration

5.0%

* - Insufficient Data

How Time Was Spent

5.0%

16.3%

15.0%

55.0%

8.7%

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

Claims Processing Customer Service Administration

Page 20 2003 Best Practices Study

Analysis of Agencies with Revenues Less Than $500,000

3. Personal P&C CSRs

Average

Top 25%

Number

1.4 3.0 0.3

High Low

Average Commissions Serviced

$120,033 $24,671

$192,456

Average Pay ($)

Average Pay (% of Book Serviced)

20.6%

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

14.4% 22.8%

Marketing (Placement)

Claims Processing Customer Service

7.9%

49.4%

Administration

5.4%

How Time Was Spent

5.4%

14.4%

22.8%

49.4%

7.9%

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

Claims Processing Customer Service Administration

4. Multi-line CSRs

Average

Top 25%

Number

1.8 3.0 0.5

High Low

Average Commissions Serviced

$128,249 $30,076

$207,933

Average Pay ($)

Average Pay (% of Book Serviced)

23.5%

Page 21 2003 Best Practices Study

Analysis of Agencies with Revenues Less Than $500,000

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

21.4% 20.0%

Marketing (Placement)

Claims Processing Customer Service

8.3%

40.5%

Administration

9.8%

How Time Was Spent

9.8%

21.4%

40.5%

20.0%

8.3%

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

Claims Processing Customer Service Administration

CSR Summary

Average Book Serviced/CSR (Commissions)

Average Pay as % of Book Serviced

$250,000

40%

$200,000

30%

$150,000

20%

$100,000

10%

$50,000

0%

$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

TECHNOLOGY PRODUCTIVITY

Information Technology FTE

Average

Top 25%

Number

0.5 1.0 0.1

High Low

Total IT Payroll Expense ($)

$9,491

$19,000

As % of Total Compensation Expense

6.3% 2.9%

As % of Net Revenues

Page 22 2003 Best Practices Study

Analysis of Agencies with Revenues Less Than $500,000

FINANCIAL STABILITY

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

1.36:1

2.19:1

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)

16.9%

32.5%

C. Receivables

1. Receivables/Payables 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 payables at a given point in time.)

Average

Top 25%

Receivables/Payables Ratio

65.8%

6.6%

2. Aged Receivables

Average

Top 25%

Over 60 Over 90

58.3% 57.5%

8.7% 3.3%

Page 23 2003 Best Practices Study

Analysis of Agencies with Revenues Less Than $500,000

CARRIER REPRESENTATION

A. Number of Carriers Represented

Average

+25% Profit

+25% Growth

Personal Lines National

2.0 3.5

2.6 3.4

2.4 3.0

Regional

Commercial Lines National

2.1 3.2

1.6 2.2 9.8

3.4 3.4

Regional

Total Carriers

10.8

12.2

B. Commission Income as % of Net Revenue

Average

+25% Profit

+25% Growth

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

36.3% 61.3%

44.7% 71.2%

38.2% 64.7%

C. Service Center Use

Total Pers'l Lines Commissions placed in Carrier Service Center Total Comm'l Lines Commissions placed in Carrier Service Center

*

*

*

3.5%

*

*

* - Insufficient Data

Page 24 2003 Best Practices Study

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

AGENCY CHARACTERISTICS

A. Average Total Revenues

$876,322

B. Corporate Structure

Average

+25% Profit

+25% Growth

C S

43.5% 52.2%

48.3% 48.3%

42.9% 54.3%

Partnership

0.0% 4.3% 0.0%

0.0% 3.4% 0.0%

0.0% 2.9% 0.0%

LLC

Sole Proprietorship

C. Shareholders

Average

+25% Profit

+25% Growth

Number of Shareholders

2.1 5.0 1.0

2.5

2.5

High Low

D. Ownership %

72.7% 100.0% 33.3% Average

+25% Profit

+25% Growth

% Owned by Largest Shareholder

61.9%

72.8%

High Low

E. Shareholder Age

Average

+25% Profit

+25% Growth

Current Age of Largest Shareholder

49.5

50.0

55.7

F. 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

60.9% 13.0%

62.1% 13.8%

68.6% 11.4%

8.7%

6.9%

5.7%

17.4%

17.2%

14.3%

Page 25 2003 Best Practices Study

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

REVENUE ANALYSIS

A. % of Revenue by Source

+25% Profit

Average

+25% Growth

Commercial P&C

44.5% 37.6%

38.6% 35.9%

51.6% 34.6%

Personal P&C

P&C Service Fees

0.6% 8.2% 4.0% 3.6% 1.0% 0.6%

0.5%

1.4% 6.9% 3.2% 2.0% 0.2% 0.1%

Contingent Group L&H

11.5%

3.8% 6.4% 2.7% 0.5%

Individual L&H Investments Miscellaneous

Total Revenues

100.0%

100.0%

100.0%

Brokerage Commission Expense

1.4%

0.0%

0.0%

Net Revenues

98.6%

100.0%

100.0%

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

+25% Profit

B. % of Revenues Derived from Largest Accounts

Average +25% Profit

+25% Growth

Largest Commission Account

4.0%

2.8%

4.5%

High Low

15.6%

1.3%

10 Largest Commission Accounts

13.5% 36.7%

11.4%

15.6%

High Low

2.2%

C. Revenues Derived from Acquisitions Made in Last 12 Months

% of Agencies Acquiring

Avg. Commissions Acquired

% of Net Revenues

0.0%

$0

0.0%

What the Typical Transaction Looked Like:

NO DATA AVAILABLE

Page 26 2003 Best Practices Study