2002 Best Practices Study

A SPECIAL ACKNOWLEDGEMENT

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

Central Insurance Companies

Chubb Group of Insurance Companies

OneBeacon Insurance

CNA

Fireman’s Fund

Royal & SunAlliance

Travelers

Zurich North America

T ABLE OF C ONTENTS

1

Introduction

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

3 5 7

Regional Analysis

Population Density Analysis

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

8

10 12

Regional Analysis

Population Density Analysis

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

13 14 16 17 18 25 26 27 28 29 31 32 33 40 41 43 44 45 47 48 49 56 57

Revenue Analysis Expense Analysis

Profitability Productivity

Financial Stability Carrier Representation

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

Revenue Analysis Acquisition Activity Expense Analysis

Profitability Productivity

Financial Stability Carrier Representation

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

Revenue Analysis Acquisition Activity Expense Analysis

Profitability Productivity

Financial Stability Carrier Representation

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

59 60 61 63 64 65 72 73 75 76 77 79 80 81 88 89 91 92 93 95 96 97

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

Revenue Analysis Acquisition Activity Expense Analysis

Profitability Productivity

Financial Stability Carrier Representation

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

Revenue Analysis Acquisition Activity Expense Analysis

Profitability Productivity

Financial Stability Carrier Representation

104 105

107

Glossary

T HE 2002 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 and 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. What’s New This Year? The 2002 Best Practices Study Executive Update continues to follow the performance of the 180 agencies selected as Best Practices agencies in the 2001 Study. Although the study updates only a subset of the financial and operational benchmarks found in last year’s study, we have added a much requested piece of new information -- the number of full-time employee

1

equivalents dedicated to the management and ongoing support of an agency’s information technology solutions and the compensation associated with those employees. We have also included expanded information on typical acquisition transitions. Details include the multiple of revenues paid, the currency used, and how the deal was structured. Need More Best Practices Information? The 2002 Best Practices Study is available in two formats – hard copy and electronically. The hard copy can be purchased via the IIABA distribution center (800-261-4422). The electronic version can be accessed via the websites of IIABA and Reagan Consulting (www.independentagent.com & 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 Distribution Center at 800-261-4422 or call the IIABA Education Department at 1-800-221-7917 for more information.

Copyright © 2002 by the Independent Insurance Agents & Brokers of America and Reagan Consulting, Inc. All rights reserved.

2

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

AGENCY CHARACTERISTICS

This analysis represents the results for agencies with revenues of under $1,250,000 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

73.7% 71.4%

$500,000 - $1,250,000

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

63.4% 12.2% 14.6%

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

9.8%

REVENUE ANALYSIS

Average PL Commission Income: $267,396

Average

+25% Profit

+25% Growth

% of Net Total Revenues

43.1% 94.4% 12.2%

44.7% 92.9% 12.3%

45.1% 97.6% 12.9%

% Renewals (1) % New Business (2)

% Acquired (3)

0.4% 6.7% 7.1%

0.0% 5.1% 5.1%

0.3%

Growth Rate: Internal (4)

10.5% 10.8%

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.

3

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

EMPLOYEE PRODUCTIVITY

CSR Information

Average # of CSRs

2.1 6.0 0.8

High Low

Average $123,924 $26,627

+25% Profit

Average Commissions Serviced

$200,893

Average Pay

How Time Was Spent:

Selling New Business Marketing (Placement)

15.7% 14.8%

Claims Processing Customer Service

8.7%

55.4%

Administration

5.5%

How Time Was Spent

5.5%

14.8%

15.7%

55.4%

8.7%

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

Producer Information

Average

+25% Profit

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

1.1

*

$103,927 $41,250

Average Pay/PL Producer

*-Insufficient Data

CARRIER REPRESENTATION

Number of Carriers Represented

Average

+25% Profit

+25% Growth

No. of PL National No. of PL Regional

2.6 3.6

2.7 4.4

2.3 3.5

Service Center Use

Total Pers'l Lines Commissions placed in Carrier Service Center

4.5%

*

*

*-Insufficient Data

4

SPECIAL REGIONAL ANALYSIS Agencies with Revenues Less Than $1,250,000

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.

NE

SE

MW SW

W

Growth Net Revenue Growth

7.4% 11.6% 8.2% 11.3% 4.4%

Profitability as % of Net Revenues Pre-tax

16.6% 12.2% 18.0% 12.8% 22.2% 14.7% 20.4% 19.0% 26.8% 24.1% 3.4% 3.7% 6.2% 4.0% 4.8%

Pro Forma Pre-tax Operating Pre-tax

Productivity Revenue per Employee

$98,081 $101,553 $95,804 $105,118 $108,122 $53,416 $61,878 $53,002 $62,796 $52,896 $44,665 $39,674 $42,802 $42,322 $55,226

Compensation per Employee Spread per Employee (1)

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

$58,475 $60,445 $73,317

* * * *

* * *

* *

*

$47,250

$33,559 $40,800

Life & Health Producers

$65,712

*

$65,206

$46,633

Multiline Producers

Pay Levels for CSRs Commercial P&C CSRs

$36,590 $34,949 $26,353 $31,080 $30,500 $31,631 $26,880 $25,623 $21,140 $23,240

Personal P&C CSRs Life & Health CSRs

$13,750

*

*

*

* *

$34,171 $31,556 $27,657 $19,447

Multiline CSRs

Number of Carriers PL - National

2.3 4.3 2.3 4.1

3.6 3.4 3.7 3.2

1.7 4.0 2.3 4.0

4.0 2.2 3.2 2.8

2.7 1.5 3.5 2.5

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

*

*

*

*

*

*

12.3%

*

*

*

% of Agencies Making Acquisition in Last 12 Months

0.0% 10.0% 7.1% 20.0% 0.0%

* - 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.

5

SPECIAL REGIONAL ANALYSIS Agencies with Revenues Less Than $1,250,000

State Groupings:

6

SPECIAL POPULATION DENSITY ANALYSIS Agencies with Revenues Less Than $1,250,000

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

63.8%

10.6%

14.9%

10.6%

Net Revenue Growth

8.9%

18.3%

6.2%

0.1%

Profitability as % of Net Revenues Pre-tax

15.8% 19.6%

17.3% 20.7%

23.4% 23.0%

9.0%

Pro Forma Pre-tax Operating Pre-tax

21.3% -0.2%

4.6%

1.5%

9.9%

Productivity

Revenue per Employee

$92,613 $51,082 $41,531

$87,625 $52,567 $35,058

$109,020 $51,126 $57,894

$145,685 $95,995 $49,690

Compensation per Employee

Spread per Employee

Pay Levels for Producers Commercial P&C Producers

$65,488 $37,200 $35,750 $70,421

$58,817

$90,214

* * *

Personal P&C Producers Life & Health Producers

* * *

*

$39,893

Multiline Producers

*

$133,879

Pay Levels for CSRs

Commercial P&C CSRs Personal P&C CSRs

$29,867 $23,892 $10,480 $26,159

$36,184 $31,279

$33,503 $25,895

$37,119 $34,682

Life & Health CSRs

*

* *

* *

Multiline CSRs

$29,667

Number of Carriers PL - National

2.7 3.2 3.1 3.4

2.2 4.6 2.0 5.2

2.4 4.0 1.7 3.3

3.0 2.8 3.4 2.8

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

*

*

*

*

8.7%

*

*

* - Insufficient Data

7

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

43.3% 43.3% 46.7% 16.7%

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

Over $10,000,000

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

14.7% 26.5% 27.9% 30.9%

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

REVENUE ANALYSIS

Average PL Commission Income: $1,276,498

Average

+25% Profit

+25% Growth

% of Net Total Revenues

24.5% 94.9% 11.8%

32.8% 93.3% 13.9%

25.2% 99.4% 14.0%

% Renewals (1) % New Business (2)

% Acquired (3)

1.5% 6.7% 8.2%

2.5% 7.2% 9.7%

0.7%

Growth Rate: Internal (4)

13.4% 14.1%

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.

8

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

EMPLOYEE PRODUCTIVITY

CSR Information

Average # of CSRs

6.9

High Low

55.6

2.0

Average $160,401 $32,770

+25% Profit

Average Commissions Serviced

$227,793

Average Pay

How Time Was Spent:

Selling New Business Marketing (Placement)

12.6% 18.4%

Claims Processing Customer Service

6.4%

59.0%

Administration

3.6%

How Time Was Spent

3.6%

12.6%

18.4%

59.0%

6.4%

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

Producer Information

Average

+25% Profit

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

2.6

*

$225,273 $61,901

Average Pay/PL Producer

*-Insufficient Data

CARRIER REPRESENTATION

Number of Carriers Represented

Average

+25% Profit

+25% Growth

No. of PL National No. of PL Regional

6.4 4.4

4.6 4.7

4.7 4.4

Service Center Use

Total Pers'l Lines Commissions placed in Carrier Service Center

11.4%

22.6%

20.4%

9

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

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.

NE

SE

MW SW

W

Growth Net Revenue Growth

13.7% 12.0% 14.8% 17.8% 13.5%

Profitability as % of Net Revenues Pre-tax

15.2% 9.7% 14.2% 16.9% 10.8% 21.3% 17.5% 17.0% 14.0% 14.9% 4.4% 2.1% 4.4% 4.9% 2.0%

Pro Forma Pre-tax Operating Pre-tax

Productivity Revenue per Employee

$127,925 $126,939 $120,955 $127,539 $133,214 $75,997 $84,391 $78,647 $75,032 $88,405 $51,928 $42,548 $42,308 $52,507 $44,809

Compensation per Employee Spread per Employee (1)

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

$117,957 $177,765 $150,694 $113,097 $164,241 $60,382 $63,692 $53,424 $74,381 $94,157 $134,107 $148,635 $137,462 $159,552 $146,063 $84,289 $127,944 $141,435 $133,133 $91,362

Life & Health Producers

Multiline Producers

Pay Levels for CSRs Commercial P&C CSRs

$39,900 $38,343 $36,004 $37,183 $48,331 $32,325 $32,901 $30,267 $30,081 $40,522 $36,900 $37,104 $34,778 $36,285 $44,997

Personal P&C CSRs Life & Health CSRs

*

*

*

*

*

Multiline CSRs

Number of Carriers PL - National

7.1 5.7

6.2 3.1

4.5 3.8

4.3 2.8

6.7 3.2

PL - Regional CL - National CL - Regional

16.6 13.1

18.2 12.3

16.7 13.0

19.1

30.4 21.2

7.2

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

14.2% 3.7% 2.0% 16.3% 12.2%

1.5% 2.2% 0.8% 3.4% 2.9%

% of Agencies Making Acquisition in Last 12 Months

24.0% 5.6% 19.2% 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.

10

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

State Groupings:

11

SPECIAL POPULATION DENSITY ANALYSIS Agencies with Revenues Greater Than $1,250,000

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

50,000

1,000,000

% of Agencies Located in Each Population Size

13.2%

24.8%

28.1%

33.9%

Net Revenue Growth

21.8%

9.4%

14.8%

13.4%

Profitability as % of Net Revenues Pre-tax

18.5% 22.1%

14.8% 17.2%

11.1% 18.0%

10.9% 15.3%

Pro Forma Pre-tax Operating Pre-tax

6.3%

5.6%

1.9%

1.9%

Productivity

Revenue per Employee

$120,116 $69,186 $50,930

$123,393 $75,462 $47,931

$127,623 $85,216 $42,406

$131,425 $85,523 $45,902

Compensation per Employee

Spread per Employee

Pay Levels for Producers Commercial P&C Producers

$154,125 $35,371 $121,055 $80,766

$153,996 $52,625 $126,373 $103,112

$136,869 $58,541 $172,347 $124,725

$158,334 $101,244 $141,127 $136,886

Personal P&C Producers Life & Health Producers

Multiline Producers

Pay Levels for CSRs

Commercial P&C CSRs Personal P&C CSRs

$34,655 $28,266 $32,844

$35,317 $29,736 $33,818

$39,353 $32,867 $37,593

$45,133 $37,800 $41,270

Life & Health CSRs

Multiline CSRs

*

*

*

*

Number of Carriers PL - National

6.7 5.5

5.2 4.7

5.0 3.0

6.7 3.0

PL - Regional CL - National CL - Regional

18.4 10.6

16.2 16.5

15.5

25.7 16.7

7.6

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

*

4.0%

5.9%

11.4%

1.8%

3.2%

1.9%

2.6%

* - Insufficient Data

12

Analysis of Agencies with Revenues Less Than $500,000

AGENCY CHARACTERISTICS

A. Average Total Revenues

$367,231

Average

+25% Growth

B. Corporate Structure

+25% Profit

C S

47.4% 42.1%

37.5% 50.0%

31.0% 55.2%

Partnership

5.3% 0.0% 5.3%

8.3% 0.0% 4.2%

6.9% 0.0% 6.9%

LLC

Sole Proprietorship

Average

+25% Profit

+25% Growth

C. Shareholders

Number of Shareholders

2.2 9.0 1.0

2.8

2.8

High Low

74.6% 100.0% 20.0% Average

+25% Profit

+25% Growth

D. Ownership %

% Owned by Largest Shareholder

60.0%

74.0%

High Low

Average

+25% Profit

+25% Growth

E. Shareholder Age

Current Age of Largest Shareholder

49.2

51.2

48.2

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

73.7%

75.0%

75.9%

0.0%

0.0%

0.0%

26.3%

25.0%

24.1%

0.0%

0.0%

0.0%

13

Analysis of Agencies with Revenues Less Than $500,000

REVENUE ANALYSIS

A. % of Revenue by Source

Average

+25% Profit

+25% Growth

Commercial P&C

35.1% 48.0%

42.8% 43.7%

30.6% 51.2%

Personal P&C

P&C Service Fees

3.1% 4.6% 4.5% 2.6% 0.6% 1.5%

5.9% 2.9% 1.3% 2.5% 0.5% 0.5%

4.7% 4.1% 4.3% 3.2% 1.2% 0.6%

Contingent Group L&H

Individual L&H Investments Miscellaneous

Total Revenues

100.0%

100.0%

100.0%

Brokerage Commission Expense

2.1%

2.1%

4.5%

Net Revenues

97.9%

97.9%

95.5%

Revenue by Source

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

% Total Revenue 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

5.1%

5.6%

7.8%

High Low

23.3%

1.1%

10 Largest Commission Accounts

12.0% 23.1%

12.5%

10.6%

High Low

1.8%

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

% of Net Revenues

Avg. Commissions Acquired

0.0%

$0

0.0%

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

98.0% 96.1% 90.5% 78.2% 50.8% 93.3%

95.6% 95.5%

102.9% 100.2%

Personal P&C

P&C Service Fees

* *

* *

Group L&H

Individual L&H

68.8% 92.3%

62.1% 94.6%

Total Commissions & Fees

*Insufficient Data

14

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

11.0% 12.5% 25.9% 23.8% 57.8% 14.9%

13.2% 14.0%

9.6%

Personal P&C

13.3%

P&C Service Fees

* *

* *

Group L&H

Individual L&H

49.2% 15.1%

28.4% 15.7%

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% 0.0% 0.0% 0.0% 0.0% 0.0%

0.0% 0.0%

0.0% 0.0%

Personal P&C

P&C Service Fees

* *

* *

Group L&H

Individual L&H

0.0% 0.0%

0.0% 0.0%

Total Commissions & Fees

*Insufficient Data

G. Growth in Revenues from Prior Year by Source

Average

+25% Profit

+25% Growth

Commercial P&C

9.0% 8.6%

8.8% 9.5%

12.5% 13.5%

Personal P&C

P&C Service Fees

16.5% 2.0% 8.5% 8.2% -5.7% -25.6%

* *

* *

Group L&H

Individual L&H

18.0%

-9.6% 10.3%

Total Commission & Fees

7.4%

Contingent Income Investment Income

-24.0% -25.1%

1.5%

-12.5% 11.8% -3.2% 14.7% 14.7%

Total Revenues

6.4%

3.9%

Brokerage Commission Expense

-11.5%

*

Net Revenues (Internal)

7.4% 7.4%

7.2% 7.2%

Net Revenues (Total including Acquistion)

*Insufficient Data

15

Analysis of Agencies with Revenues Less Than $500,000

EXPENSE ANALYSIS (as % of Net Revenues)

Average

+25% Profit

+25% Growth

Compensation Expense Total Payroll

42.1%

24.8%

37.5%

Benefits

6.7%

5.4%

5.4%

Total Compensation

48.8%

30.2%

42.9%

Selling Expenses

T & E/Conventions

1.5% 2.5% 2.6% 6.6% 5.0% 2.0% 1.1% 1.8% 1.1% 1.5% 1.9% 0.8% 0.9% 0.3% 0.4% 2.0% 0.4% 0.5% 1.2% 1.4% 0.2% 1.6% 0.4% 4.9% 19.7% 80.0% 20.0%

1.2% 2.1% 2.4% 5.7% 2.9% 1.9% 1.0% 2.0% 0.7% 0.6% 1.9% 0.5% 0.6% 0.4% 0.0% 2.8% 0.6% 0.3% 1.6% 0.4% 0.2% 0.6% 0.5% 3.2% 16.0% 55.1% 44.9%

1.6% 3.9% 2.8% 8.3% 5.1% 1.8% 1.1% 1.3% 1.0% 0.6% 2.0% 1.3% 2.2% 0.1% 0.5% 0.8% 0.5% 0.1% 2.2% 0.7% 0.5% 1.4% 0.1% 4.9% 18.3% 74.4% 25.6%

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

10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% % Net Revenue

0.0% 5.0%

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)

3.0%

4.1%

1.5%

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

16

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

20.0% 17.8%

44.9%

25.6% 21.3% 15.0%

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

*

8.4%

30.5%

* Insufficient Data (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% % 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

7.4% 9.7% 1.0% 1.8% 0.2%

7.2%

14.7% 13.4% -3.0% -0.2% -1.7% 56.8% 72.1%

16.0% -5.8% -6.3%

Selling Expense Operating Expense

Administrative Expense

*

Pre-Tax Profit

17.0% 32.1%

26.2% 25.3%

Operating Pre-tax Profit

* Insufficient Data

Growth in Profitability

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

Net Revenues (Total)

Pre-Tax Profit

Average +25% Profit +25% Growth

17

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

3.9

4.7

$94,659 $46,528 $48,130

$95,255 $29,489 $65,766

$83,661 $36,160 $47,501

Spread Per Employee

Revenue Per Employee

$100,000

$80,000

$60,000

$40,000

$20,000

$0

Average

+25% Profit

+25% Growth

Compensation Per Employee

$100,000

$80,000

$60,000

$40,000

$20,000

$0

Average

+25% Profit

+25% Growth

Spread Per Employee

$100,000

$80,000

$60,000

$40,000

$20,000

$0

Average

+25% Profit

+25% Growth

18

Analysis of Agencies with Revenues Less Than $500,000

B. Producer Productivity

1. Commercial P&C Producer

Average

Top 25%

# Validated Producers

1.2 2.0 0.3

High Low

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

$20,561 $138,664 $77,980

$42,689 $339,160

Average Pay ($)

Average Pay (% of Book Serviced)

56.2%

Most Successful Commercial P&C Producer

Average $34,772 $181,856

Top 25% $65,317 $363,333

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

Average Commission Per Account

$1,041

$1,750

How Most Successful Commercial Producer Spends Time

Soliciting New Business Servicing Existing Accounts

21.2% 44.7%

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

6.1%

28.0%

How Time Was Spent 21.2%

28.0%

44.7%

6.1%

Soliciting New Business Servicing Existing Accounts

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

19

Analysis of Agencies with Revenues Less Than $500,000

2. Group Life & Health Producer

Average

Top 25%

# Validated Producers

0.8 1.0 0.1

High Low

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

*

*

$53,500 $33,000

$71,000

Average Pay ($)

Average Pay (% of Book Serviced)

61.7%

*Insufficient Data

Most Successful Group L&H Producer

Average $18,750 $80,973

Top 25% $36,000 $150,000

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

Average Commission Per Account

$730

$1,744

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

24.6% 54.4%

Servicing Existing Accounts

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

4.6%

16.4%

How Time Was Spent

16.4%

24.6%

4.6%

54.4%

Soliciting New Business Servicing Existing Accounts

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

3. Personal P&C Producers

Average

Top 25%

# Validated Producers

1.0 1.0 0.2

High Low

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

$11,369 $132,471 $58,667

$20,608 $460,000

Average Pay ($)

Average Pay (% of Book Serviced)

44.3%

20

Analysis of Agencies with Revenues Less Than $500,000

4. Multi-line Producers

Average

Top 25%

# Validated Producers

1.3 2.0 0.8

High Low

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

$21,762 $141,523 $28,271

* *

Average Pay ($)

Average Pay (% of Book Serviced)

20.0%

* Insufficient Data

Producer Summary

Average New Commissions Produced

Average Commissions in Book

$45,000

$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000

$40,000

$35,000

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

$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

0.9 1.8 0.5

High Low

Average Commissions Serviced

$149,215 $27,239

$220,573

Average Pay ($)

Average Pay (% of Book Serviced)

18.3%

21

Analysis of Agencies with Revenues Less Than $500,000

How Time Was Spent:

9.2%

Selling New Business (New or Acct Rounding)

Marketing (Placement)

16.9%

Claims Processing Customer Service

6.7%

62.4%

Administration

4.8%

How Time Was Spent

4.8% 9.2%

16.9%

6.7%

62.4%

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

0.5 0.1

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

INSUFFICIENT DATA - CHARTS NOT APPLICABLE

3. Personal P&C CSRs

Average

Top 25%

Number

1.0 3.3 0.4

High Low

Average Commissions Serviced

$107,969 $22,656

$165,175

Average Pay ($)

Average Pay (% of Book Serviced)

21.0%

22

Analysis of Agencies with Revenues Less Than $500,000

How Time Was Spent:

15.3% 13.3%

Selling New Business (New or Acct Rounding)

Marketing (Placement)

Claims Processing Customer Service

7.6%

58.1%

Administration

5.8%

How Time Was Spent 15.3% 5.8%

13.3%

7.6%

58.1%

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

Claims Processing Customer Service Administration

4. Multi-line CSRs

Average

Top 25%

Number

1.7 3.0 0.5

High Low

Average Commissions Serviced

$108,926 $28,914

$144,013

Average Pay ($)

Average Pay (% of Book Serviced)

26.5%

How Time Was Spent:

22.5% 21.9%

Selling New Business (New or Acct Rounding)

Marketing (Placement)

Claims Processing Customer Service

9.4%

39.4%

Administration

6.9%

How Time Was Spent

6.9%

22.5%

39.4%

21.9%

9.4%

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

Claims Processing Customer Service Administration

23

Analysis of Agencies with Revenues Less Than $500,000

CSR Summary

Average Book Serviced/CSR (Commissions)

Average Pay as % of Book Serviced

30%

$250,000

$200,000

20%

$150,000

$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

Average Top 25%

TECHNOLOGY PRODUCTIVITY

Information Technology FTE

Average

Top 25%

Number

0.4 1.0 0.1

High Low

Total IT Payroll Expense ($)

$9,386

$15,000

As % of Total Compensation Expense

5.8% 2.6%

As % of Net Revenues

24

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

1.28:1

1.94:1

B. Tangible Net Worth

ability to invest in new opportunities, develop new products, hire new employees, make other capital expenditures and handle stockholder redemption obligations. 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

Top 25%

Average

Tangible Net Worth (as % of Net Rev)

10.1%

31.1%

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

65.6%

12.7%

2. Aged Receivables

Average

Top 25%

Over 60 Over 90

17.0% 12.1%

8.6% 2.3%

25

Analysis of Agencies with Revenues Less Than $500,000

CARRIER REPRESENTATION

A. Number of Carriers Represented

Average

+25% Profit

+25% Growth

Personal Lines National

2.2 3.4

2.2 3.2

2.8 4.4

Regional

Commercial Lines National

2.2 2.8

2.6 2.8

1.6 1.8

Regional

Total Carriers

10.6

10.8

10.6

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

34.1% 60.2%

33.6% 58.2%

33.1% 55.3%

C. Service Center Use

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

11.6%

17.4%

*

10.6%

*

*

*Insufficient Data

26

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

AGENCY CHARACTERISTICS

A. Average Total Revenues

$875,909

Average

+25% Growth

B. Corporate Structure

+25% Profit

C S

39.3% 57.1%

45.7% 51.4%

50.0% 47.6%

Partnership

0.0% 3.6% 0.0%

0.0% 2.9% 0.0%

0.0% 2.4% 0.0%

LLC

Sole Proprietorship

Average

+25% Profit

+25% Growth

C. Shareholders

Number of Shareholders

2.3 5.0 1.0

2.1

2.2

High Low

71.7% 100.0% 30.0% Average

+25% Profit

+25% Growth

D. Ownership %

% Owned by Largest Shareholder

62.8%

68.9%

High Low

Average

+25% Profit

+25% Growth

E. Shareholder Age

Current Age of Largest Shareholder

51.1

52.0

53.3

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

57.1% 17.9%

57.1% 17.1%

59.5% 19.0%

7.1%

8.6%

7.1%

17.9%

17.1%

14.3%

27

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

REVENUE ANALYSIS

A. % of Revenue by Source

Average

+25% Profit

+25% Growth

Commercial P&C

44.5% 35.4%

38.3% 35.5%

41.8% 36.6%

Personal P&C

P&C Service Fees

0.5% 8.2% 5.4% 3.6% 1.7% 0.7%

0.3% 7.6% 6.6% 5.7% 5.2% 0.8%

0.3%

Contingent Group L&H

10.5%

3.4% 3.0% 3.6% 0.9%

Individual L&H Investments Miscellaneous

Total Revenues

100.0%

100.0%

100.0%

Brokerage Commission Expense

1.3%

0.8%

0.5%

Net Revenues

98.7%

99.2%

99.5%

Revenue by Source

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

Average

+25% Profit

+25% Growth

B. % of Revenues Derived from Largest Accounts

Largest Commission Account

3.3%

2.0%

2.9%

High Low

12.2%

1.2%

10 Largest Commission Accounts

11.4% 31.5%

10.3%

9.0%

High Low

1.6%

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

15.0% % of Net Revenues

Avg. Commissions Acquired

10.7%

$126,582

28

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

What the Typical Transaction Looked Like:

Revenues Acquired Per Transaction

Multiple Of Revenues Paid

$0 $100,000 $200,000 $300,000 $400,000

0.0x 0.5x 1.0x 1.5x 2.0x

average

high

low

average

high

low

Pricing Structure Used

0% 20% 40% 60% 80%

variable

fixed

What Was Acquired

Primary Currency Used

Stock Cash Both

Book of Business

Agency

29

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

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

92.1% 93.0% 55.8% 81.5% 40.3% 90.5%

93.1% 95.1%

98.7% 95.4%

Personal P&C

P&C Service Fees

*

*

Group L&H

90.4% 49.5% 90.1%

107.7% 49.1% 95.3%

Individual L&H

Total Commissions & Fees

*Insufficient Data

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

15.9% 12.1% 15.7% 19.6% 47.8% 16.5%

18.8%

20.8% 12.5%

Personal P&C

9.6%

P&C Service Fees

*

*

Group L&H

27.2% 54.9% 20.9%

9.2%

Individual L&H

57.4% 19.2%

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

0.9% 0.7% 0.0% 0.0% 0.0% 2.5%

0.3% 0.5%

0.3% 0.5%

Personal P&C

P&C Service Fees

*

*

Group L&H

0.0% 0.0% 0.4%

0.0% 0.0% 0.4%

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

8.9% 5.8%

12.3%

19.8%

Personal P&C

5.2%

8.5%

P&C Service Fees

-28.5%

*

*

Group L&H

1.1%

17.6%

16.9%

Individual L&H

-11.8%

4.4%

6.5%

Total Commission & Fees

9.5%

11.3% 30.1% -9.6% 15.8%

14.9% 11.7% -24.1% 20.2%

Contingent Income Investment Income

13.7% -20.2%

Total Revenues

9.5%

Brokerage Commission Expense

20.5%

*

*

Net Revenues (Internal)

7.1% 9.4%

15.3% 15.7%

19.7% 20.0%

Net Revenues (Total including Acquistion)

*Insufficient Data

30

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

EXPENSE ANALYSIS (as % of Net Revenues)

Average

+25% Profit

+25% Growth

Compensation Expense Total Payroll

51.4%

50.7%

51.1%

Benefits

8.0%

6.7%

7.2%

Total Compensation

59.5%

57.4%

58.2%

Selling Expenses

T & E/Conventions

1.2% 1.4% 1.6% 4.3% 4.6% 1.7% 1.0% 1.4% 1.0% 0.7% 1.7% 0.8% 0.7% 0.1% 0.5% 1.8% 0.4% 1.7% 0.9% 1.5% 0.2% 1.7% 0.1% 4.3% 18.1% 86.1% 13.9%

0.9% 1.4% 1.0% 3.4% 2.5% 1.6% 0.8% 1.3% 0.6% 1.2% 1.6% 0.5% 0.5% 0.1% 0.4% 1.3% 0.4% 0.1%

0.5% 1.6% 2.0% 4.0% 4.7% 1.5% 0.9% 1.2% 0.8% 1.2% 1.7% 0.5% 0.3% 0.0% 0.1% 1.7% 0.6% 5.3%

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

12.9%

20.5%

Administrative Expenses Amortization

-4.0% 1.9% 0.4% 1.2% 0.2% -0.4% 73.3% 26.7%

-2.9% 1.6% 0.1% 0.3% 0.2% -0.7% 82.0% 18.0%

Depreciation Officer Life

Interest

Other

Total Administrative

Total Expenses Pre-Tax Profit

-10.0% 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

Information Technology Expense (as % of Net Revenues)

Average

+25% Profit

+25% Growth

Total IT Expense for Fiscal Yr (1)

2.3%

1.5%

2.0%

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

31