2008 Best Practices Study

Agencies with Revenues Under $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Profitability

“Rule of 20” Score

The “Rule of 20” provides a quick means of calculating whether or not an agency is creating significant returns for its shareholders. It is the sum of an agency’s EBITDA margin times 50% plus its organic revenue growth rate. The secret to the Rule of 20 is the weighting of the relative importance of organic growth versus EBITDA when it comes to creating shareholder returns. Generally speaking, an outcome of 20 or higher means an agency is generating a shareholder return that is equal to or greater than that typically expected of an insurance agency/brokerage. A score of less than 20 indicates room for improvement. However, this year’s outcomes reflect the severity of the soft market over the past year. Positive organic growth was difficult to achieve and shareholder returns were adversely impacted.

Rule of 20 Outcome

Organic Growth

EBITDA Margin

Rule of 20 Outcome

Rank Public Brokers

1 Willis Group

3.0% 26.0% 16.0

2 Brown & Brown

–3.4% 37.3% 15.3

3 Arthur J. Gallagher

5.0% 16.9% 13.5

4 Hilb Rogal & Hobbs –0.3% 24.0% 11.7

5 Aon

2.0% 19.3% 11.7

6 Marsh & McLennan 4.0% 13.7% 10.9

In 2007 none of the public brokers achieved a Rule of 20 outcome of 20 or more, as shown in the table above.

Average

+25% Profit Average +25% Growth Average

“Rule of 20” Score

19.9

30.7

37.6

10

2008 Best Practices Study | Agencies with Revenues Under $1,250,000 | Revenues/Expenses