2013 Best Practices Study

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

Key Benchmarks Mgmt. Perspectives Profile Revenues Expenses Profitability Employee Overview Producer Info Service Staff Info Technology Insurance Carriers Appendix

“Rule of 20” Score

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

Rule of 20 Outcome

What is the Rule of 20?

Organic Growth

EBITDA Margin

Rule of 20 Outcome

Public Brokers

Willis Group

3.1% 25.6% 15.9

1/2 of EBITDA Margin

Organic Revenue Growth + =

Rule of 20 Score

Aon 4.0% 20.6% 14.3 Brown & Brown 2.6% 32.9% 19.1 Arthur J. Gallagher 4.7% 19.1% 14.3 Marsh & McLennan 5.0% 18.7% 14.4

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

Average

+25% Profit Average +25% Growth Average

Rule of 20

24.7

33.8

36.4

Financial Stability

Average

Top 25%

Balance Sheet Current Ratio

2.25:1

3.87:1

Tangible Net Worth (% of Net Revenue)

12.3% 54.4%

26.6% -6.5%

Receivables/Payable Ratio

Aged Receivables

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

18.1%

2.9% -1.8%

7.9%

2013 Best Practices Study

Accounts Receivable

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

Average

+25% Profit

+25% Growth

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

21.3% 78.7%

18.9% 81.1%

21.1% 79.0%

51