2009 Best Practices Study

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Special Acknowledgement

We wish to thank the following companies for their sponsorship which has funded the development of the 2009 Best Practices Study and the Best Practices Gateway website.

2009 Best Practices Study

TABLE OF CONTENTS

Introduction Analysis of Agencies with Revenues Under $1,250,000

Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Analysis of Agencies with Revenues Between $1,250,000 and $2,500,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Analysis of Agencies with Revenues Between $2,500,000 and $5,000,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Analysis of Agencies with Revenues Between $5,000,000 and $10,000,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

2009 Best Practices Study

Analysis of Agencies with Revenues Between $10,000,000 and $25,000,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98 Analysis of Agencies with Revenues Over $25,000,000 Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101 Revenues/Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102 Financial Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111 Employee Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112 Producer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113 Service Staff Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117 Insurance Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .118 Appendix Population Density Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121 Regional Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125

2009 Best Practices Study

INTRODUCTION

About the Study

Since 1993 the annual Best Practices Study has served as a tool to help agency owners and managers understand how their business operations perform and measure up to the top performing firms across the country. It is a “must have” for those agencies that want to become the best they can be. The 2009 Best Practices Study provides critical performance benchmarks in six agency revenue categories ranging from Under $1,250,000 to Over $25,000,000 . Agencies can measure, evaluate, and compare results for agency operations including: > Income & Expense Distribution > Revenue & Profitability Growth > Sales & Service Staff Compensation/Productivity > Technology Expenses > Property & Casualty and Life & Health Carrier Representation > And much more The agencies that participate in the annual study are selected for inclusion once every 3 years. This year’s study continues to look at the performance of those agencies selected in 2007 and completes the 3-year cycle. Because it updates only key financial and operational benchmarks, users of the 2009 update may wish also to purchase a copy of the 2007 Best Practices Study which provides additional information on the agencies’ business practices and philosophies. The comprehensive 2007 study can be purchased from the Independent Insurance Agents & Brokers of America (Big “I”) Education Department. Order forms can be downloaded at http://bp.reaganconsulting.com or at www.independentagent.com. For more information please call 1-800-221-7917.

The History

The annual Best Practices Study originated in 1993 as an initiative by the Independent Insurance Agents & Brokers of America (the Big “I”) to help its members build and maintain the value of their most important assets, their agencies. By studying the leading agencies and brokers in the country, the association hoped to provide members 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 Big “I” retained the principals of Reagan Consulting to create and perform the first Best Practices Study . Annual updates conducted by Reagan Consulting 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. Once every three years the Big “I” asks insurance companies, state association affiliates, and other industry organizations to nominate for each of the study’s revenue categories those agencies they consider to be among the better, more professional agencies in the industry. The nominated agencies are then invited to participate. They must be willing to share key business practices/philosophies and to complete an in- depth survey detailing their financial and operational year-end results. Those results are then scored and The Process

2009 Best Practices Study

ranked objectively for inclusion on the basis of operational excellence.

> Access other Best Practices studies, tools & products > Download order forms

In 2007, the beginning of a new three-year study cycle, more than 800 independent agencies throughout the U.S. were nominated to take part in the annual study. More than 300 submitted the extensive data, but only 195 qualified for the honor. To be chosen, the agency had to be among the 25-35 top-performing agencies in one of six revenue categories. Their year-end results and business practices were compiled to create the Best Practices benchmarks. Those benchmarks are updated annually. Taking part in the Best Practices Study has become a prestigious recognition of the superior accomplishments of the top insurance agencies in the country. Those agencies that believe they have the qualities of a Best Practices Agency and wish to be nominated in 2010 for the next study cycle should contact their state association.

Other Best Practices Studies and Tools

In addition to the annual Best Practices Study, many other useful studies, resources, and tools are available to help agencies improve their performance and enhance the value of their businesses. Two of the most frequently used tools are The Agency Self- Diagnostic Tool and the Joint Agency Company Planner . These Best Practices tools are part of a complete line of Best Practices products and services. Order forms can be downloaded from http://bp.reaganconsulting.com or can be purchased online at www.independentagent.com.

If You Have Questions

About the Best Practices Gateway Website

If you have questions about the information published in the 2009 Best Practices Study please contact the Big “I” Education Department at 800-221-7917 or Reagan Consulting at 404-233-5545.

The electronic version of this study can be accessed via the websites of the Big “I” (www.independentagent.com) and Reagan Consulting (www.reaganconsulting.com).

From the Best Practices Gateway home page users can do the following:

> View an HTML version of the current and past Best Practice Study Executive Updates > Download a Best Practices comparison spreadsheet to compare their year-end results with the study’s results

2009 Best Practices Study

Agencies with Revenues Under $1,250,000

$1,250,000

$2,500,000

$5,000,000

$10,000,000

$25,000,000

2009 Best Practices Study

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

PROFILE (of Agencies in this Study Group)

A. Average Total Revenues: $719,335

B. Population Density of Metropolitan Areas 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 C. Corporate Structure C

61.3% 12.9%

59.0% 12.8% 12.8% 15.4%

61.7% 10.6% 12.8% 14.9%

9.7%

16.1%

32.3% 51.6%

25.6% 53.8%

27.7% 51.1%

Partnership

3.2% 6.5% 6.5%

2.6% 7.7%

4.3% 6.4%

LLC

Sole Proprietorship

10.3%

10.6%

1.1

1.0

1.1

Total # Agency locations

0.0% 0.0%

Agency has an ESOP

% of Stock Owned by ESOP

D. Shareholders Number of Shareholders (excluding ESOP)

1.7 3.0 1.0

1.9

2.0

High

Low

E. Ownership Percentage % Owned by Largest Shareholder (excluding ESOP)

81.1% 100.0% 46.0%

78.4%

61.6%

High

Low

F. Shareholder Age Current Age of Largest Shareholder

52.9

50.5

53.4

G. Parent Corporation

0.0%

Agency is Owned by Another Corporation

Description of Parent Corporation Financial Institution

0.0% 0.0% 0.0%

National Broker

Other

1 2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Profile

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Revenues

(% by Source)

Average

+25% Profit

+25% Growth

Property & Casualty Commercial Commissions & Fees

45.1%

39.4%

44.8%

Bonds

0.7%

0.8%

Personal P&C

38.5%

47.8%

34.0%

Value Added Services

0.2%

0.0%

0.1%

Contingent/Bonus

7.8%

4.3%

8.6%

Total P&C

92.2%

92.3%

88.2%

Life & Health/Financial Group Commissions & Fees

4.6%

6.0%

5.3%

Individual Commissions & Fees

1.8%

1.5%

3.5%

Value Added Services

0.7%

0.0%

2.7%

Bonus/Overrides

0.0%

Total L&H/Financial

7.2%

7.5%

11.5%

Investments

0.6%

0.2%

0.3%

Miscellaneous

0.1%

0.0%

Gross Revenues

100.0%

Less Brokerage Commission Expense

0.0%

Net Revenues

100.0%

Future Revenue Sources % of Agencies Considering Line of Business as Very Important:

Personal Lines

83.9% 90.3% 16.1% 22.6% 12.9%

Small Commercial Lines Individual Life & Health Group Life & Health

Surety/Bonding

2 2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Revenues/Expenses

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Revenues

% of Revenues Derived from:

Average

+25% Profit

+25% Growth

Largest Account

4.0%

3.4%

4.0%

High

17.6%

Low

1.2%

10 Largest Accounts

15.3% 44.6%

10.5%

17.1%

High

Low

3.4%

Acquired Revenues

Average Commissions Acquired

% of Agencies Acquiring

Percentage of Net Revenues

Acquisitions Made in Last 12 Months

0.0%

What the Typical Transactions Looked Like Revenues Acquired per Transaction

Multiples of Revenue Paid

Average

$0 $0 $0 $0

Average

0.00x 0.00x 0.00x 0.00x

Median

High

Low

3 2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Revenues/Expenses

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Revenue Growth by Source

Average

+25% Profit

+25% Growth

Commercial P&C Renewals 1

1 Renewal Revenues as a % of prior year’s total revenues for this 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 %, the more favorable the results. 2 New Revenues as a % of prior year’s total revenues for this line of business. The higher the %, the more favorable the results. 3 Acquired Revenues as a % of prior year’s total revenues for this line of business. The % 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.

83.9% 15.0% 0.0% -1.1% -1.1% 71.1% 28.2% 0.0% -0.6% -0.6% 89.3% 10.2% 0.0% -0.5% -0.5%

88.7% 13.9%

81.8% 25.3%

New Business 2

Acquired Revenues 3

0.0% 2.6% 2.6%

0.0% 7.1% 7.1%

Organic Growth 4

Total Growth 5

Bonds

Renewals 1

84.5% 33.9%

65.9% 26.4% 0.0% -7.7% -7.7%

New Business 2

Acquired Revenues 3

0.0%

Organic Growth 4

18.4% 18.4%

Total Growth 5

Personal P&C

Renewals 1

88.9% 11.2%

91.3%

New Business 2

9.2% 0.0% 0.5% 0.5%

Acquired Revenues 3

0.0% 0.1% 0.1%

Organic Growth 4

Total Growth 5

Value Added Services - P&C Renewals 1

* * * * *

New Business 2

Acquired Revenues 3

Organic Growth 4

Total Growth 5

Group L&H

Renewals 1

67.7% 29.0% 0.0% -3.3% -3.3%

44.5% 53.6% 0.0% -1.9% -1.9%

77.5% 20.9% 0.0% -1.6% -1.6%

New Business 2

Acquired Revenues 3

Organic Growth 4

Total Growth 5

Individual L&H

Renewals 1

54.9% 48.6%

24.9% 78.0%

108.1% 15.7%

New Business 2

Acquired Revenues 3

0.0% 3.5% 3.5%

0.0% 2.8% 2.8%

0.0%

Organic Growth 4

23.7% 23.7%

Total Growth 5

*Insufficient Data

4 2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Revenues/Expenses

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Revenue Growth by Source (continued)

Average +25% Profit +25% Growth

Value Added Services - L&H Renewals 1

* * * * *

New Business 2

Acquired Revenues 3

Organic Growth 4

Total Growth 5

Total Commissions & Fees Renewals 1

84.7% 86.7% 85.0% 15.4% 17.0% 24.2%

New Business 2

Acquired Revenues 3

0.0% 0.1% 0.1%

0.0% 3.7% 3.7%

0.0% 9.1% 9.1%

Organic Growth 4

Total Growth 5

P&C Contingent Income Growth L&H Bonus Income Growth Investment Income Growth

-12.3%

-5.9%

5.7%

* *

-32.9%

-39.2%

Total Revenue Growth

-0.6%

2.2% 12.0%

Brokerage Commission Expense Growth Net Revenue Growth (Organic)

-0.5% -0.5%

2.2% 12.3% 2.2% 12.3%

Net Revenue Growth (Total)

*Insufficient Data

5 2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Revenues/Expenses

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Organic Growth by Line of Business

20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0%

10.0%

5.0%

0.0%

-5.0%

2.0% 1.0% -1.0% 0.0% -2.0%

Insufficient Data

1.0% 0.0% -1.0% -2.0% -3.0% -4.0%

5.0% 10.0% 15.0% 20.0% 25.0%

0.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

Insufficient Data

Revenue Growth by All Sources (including Total Comm & Fees, Contingent/Bonus and Investment Income)

6 2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Revenues/Expenses

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Breakdown of Expenses — What This Means to You

In the past the study has consolidated revenues and expenses into fairly broad categories making some comparisons difficult. Factors such as corporate structure (e.g., C corporation versus S corporation) further complicated expense comparisons because of what was or was not reflected on the income statement. The study now provides greater detail for both revenues and expenses which has resulted in more meaningful benchmarks for better “apples-to-apples” comparisons. The new expense breakdowns include: Compensation Expense – Both Payroll and Benefits have been broken down to provide a better understanding of the participating agencies’ costs – what costs are somewhat fixed (payroll taxes) versus discretionary costs (retirement benefits, insurance, etc.). Selling & Operating Expense –These expense categories now include greater detail, including any depreciation and amortization expense associated with the category. This allows for a more accurate picture of the total expenses incurred as both cash (e.g. monthly lease payment) and non-cash expenses (e.g. computer depreciation expense) are captured.

Expenses (as % of Net Revenues)

Average

+25% Profit

+25% Growth

Compensation Expenses Payroll Employee

44.9%

34.2%

44.1%

“Non-Employee” Producers

4.0% 0.1%

6.0% 0.2%

3.9% 0.0%

Temporary Help Total Payroll

49.0%

40.4%

48.3%

Benefits

Payroll Taxes Retirement

4.0% 2.4% 3.3% 0.1% 9.9% 1.5% 1.7% 0.4% 2.1% 2.4% 6.0% 58.9%

3.8% 1.3% 1.6% 0.0% 6.8% 1.5% 1.2% -0.5% 0.7% 2.3% 4.5% 47.2%

3.2% 2.4% 3.2% 0.0% 8.7% 1.0% 1.9% 0.0% 1.8% 2.2% 5.0% 57.0%

Insurance

Other

Total Benefits

Total Compensation

Selling Expenses T&E/Conventions Auto Expenditures Auto Depreciation

Total Auto

Advertising/Promotions

Total Selling

7 2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Revenues/Expenses

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Expenses (continued)

Average

+25% Profit

+25% Growth

Operating Expenses Occupancy Expenditures

5.2% 0.1% 5.4% 0.5% 0.0% 0.5% 2.0% 0.1% 2.1% 1.4% 0.7% 1.3% 1.0% 0.4% 2.2% 0.7% 0.0% 0.3% 0.4% 0.5% 0.6% 0.3% 0.6% 0.0% 1.5%

5.1% -0.2% 4.9% 0.8% -0.1% 0.7% 1.4% 0.0% 1.4% 2.0% 0.6% 1.7% 1.2% 0.5% 2.5% 0.8% 0.1% 0.4% 0.4% 0.7% 17.9%

5.2% -0.3% 4.9% 0.9% -0.3% 0.6% 2.6% 0.1% 2.6% 1.4% 0.6% 1.5% 1.1% 0.4% 2.4% 0.4% 0.0% 0.1% 0.8% 0.3% 17.2%

Occupancy Depreciation/Amortization

Total Occupancy

Office Equipment Expenditures Office Equipment Depreciation

Total Office Equipment

IT (Information Technology) IT Depreciation/Amortization

Total IT

Telephone

Postage

Supplies/Printing

Dues/Subscriptions/Contributions

Taxes/Licenses

Insurance

Professional Fees

Bad Debts

Outside Services Education/Training

Miscellaneous

Total Operating

17.0%

Administrative Expenses Amortization of Intangibles

0.6% 0.4% 0.2% 0.0% 1.2%

0.1% 0.1% 1.1% 0.0% 1.4%

Officer Life

Interest

Other

Total Administrative

Total Expenses

83.4% 16.6% 18.5%

70.8% 29.2% 29.2%

80.6% 19.4% 20.1%

Pre-Tax Profit (Loss)

EBITDA

Average

+25% Profit

+25% Growth

Growth Over Prior Year Compensation Expense

2.7% 2.0% 1.8%

-1.2% -9.1%

8.5% 8.7% 2.3% -8.5%

Selling Expense

Operating Expense

5.6%

Administrative Expense

-15.3%

-17.0%

8 2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Revenues/Expenses

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Expenses (as % of Net Revenue)

Revenue/Expense/Profit Summary

Average

+25% Profit

+25% Growth

Revenues (% by Source) Commercial Lines

45.1%

39.4%

44.8%

1 Pre-tax Profits if discretionary expenses are eliminated (e.g. certain owner’s perks/benefits), and one- time or extraordinary revenues are excluded 2 Pre-tax Profits excluding income from contingents, bonus and investment income 3 EBITDA—Earnings Before Interest Taxes Depreciation and Amortization 4 EBITDA if discretionary expenses are eliminated (e.g. certain owner’s perks/benefits), and one- time or extraordinary revenues are excluded

Bonds

0.7%

0.8%

Personal Lines

38.5%

47.8%

34.0%

VAS - P&C

0.2% 7.8% 4.6% 1.8% 0.7% 0.0% 0.6% 0.1%

0.0% 4.3% 6.0% 1.5% 0.0% 0.0% 0.2% 0.0%

0.1% 8.6% 5.3% 3.5% 2.7% 0.0% 0.3% 0.0%

Contingent/Bonus Group Life & Health Individual Life & Health

VAS - L&H

Bonus/Overrides Investments Miscellaneous

100.0%

Total Revenues

Less Brokerage Commission Expense

0.0%

100.0%

Net Revenues

Expenses (as % of Net Revenues) Compensation

58.9%

47.2%

57.0%

Selling

6.0%

4.5%

5.0%

Operating

17.0%

17.9%

17.2%

Administrative

1.5%

1.2%

1.4%

Total Expenses

83.4%

70.8%

80.6%

Pre-Tax Profit

16.6% 23.0%

29.2% 39.5% 15.9% 29.2% 39.4%

19.4% 25.0%

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

5.0%

6.9%

EBITDA 3

18.5% 24.8%

20.1% 25.7%

Pro Forma EBITDA 4

9 2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Revenues/Expenses

Agencies with Revenues Less than $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

4.0% 24.3% 16.2

2 Aon

2.0% 20.1% 12.1

3 Brown & Brown

-5.5% 35.1% 12.1

4 Arthur J. Gallagher

1.4% 16.2% 9.5

5 Marsh & McLennan 0.0% 13.9% 7.0

In 2008 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

11.9

21.9

25.1

2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Revenues/Expenses

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Financial Stability

Top 25%

Average

Balance Sheet Current Ratio

1.16:1 12.0% 68.5%

1.63:1 33.9% -19.2%

Tangible Net Worth (% of Net Revenue)

Receivables/Payable Ratio

Aged Receivables

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

15.6% 25.1%

1.1% 2.2%

Accounts Receivable

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

12.1% 81.5%

3.0%

12.1% 75.4%

72.0%

11 2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Financial Stability

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Productivity

Average

+25% Profit

+25% Growth

Total Number of Employees (FTE)

6.2

5.8

6.2

Revenue Per Employee

$121,893

$117,416

$131,667

Compensation Per Employee

$73,395

$55,494

$79,835

Spread Per Employee

$48,498

$61,923

$51,832

12 2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Employee Overview

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Productivity—Producers

Average

Top 25%

Commercial P&C Producers Average Validated Producers # Validated

1.4 3.0 0.5

High

Low

Average New Commissions Produced Annually

$34,741 $160,840 $70,092

$58,285 $268,277

Average Book Serviced (Commissions)

Average Pay ($)

Average Pay (% of Book Serviced)

43.6%

Group Life & Health Producers Average Validated Producers # Validated

0.9 1.0 0.5

High

Low

Average New Commissions Produced Annually

$14,070 $75,520 $54,770

$30,461 $143,050

Average Book Serviced (Commissions)

Average Pay ($)

Average Pay (% of Book Serviced)

72.5%

Personal P&C Producers Average Validated Producers # Validated

1.0 2.5

High

Low

0.3

Average New Commissions Produced Annually

$23,693 $115,338 $31,472

$40,915 $191,411

Average Book Serviced (Commissions)

Average Pay ($)

Average Pay (% of Book Serviced)

27.3%

Multi-Line Producers Average Validated Producers # Validated

2.2 3.0

High

Low

1.0

Average New Commissions Produced Annually

$35,910 $251,685 $79,674

$56,281 $381,390

Average Book Serviced (Commissions)

Average Pay ($)

Average Pay (% of Book Serviced)

31.7%

*Insufficient Data

13 2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Producer Info

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Productivity—Producers (continued)

Most Successful Producer Productivity

Commercial P&C

Group L&H

$45,815

$24,471

Average

New Commissions Produced Annually

Top 25%

$57,083

$42,961

$299,829

$99,202

Average

Total Commissions in Producer’s Book

Top 25%

$412,223

$195,000

$2,295

$4,480

Average

Average Commissions per Account

Top 25%

$13,582

$4,857

How Most Successful Producers Spent Time

Commercial P&C

Group L&H

Producer Information

New Producer Hiring

Average

+25% Profit

+25% Growth

% of Agencies that Hired New Producers Last Year

0.0%

# of New Producers Hired Last Year

* *

Average Annualized Wages per Producer Hired

*Insufficient Data

2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Producer Info

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Service Staff

Service Staff is defined in the study as typically non-commissioned employees who have responsibility—either directly (e.g., Account Executives (AE), Account Managers (AM), Customer Service Representatives (CSRs), Assistant CSRs, etc.) or indirectly (e.g., Claims Specialist, Placer/Marketer, etc.)—to provide or support the delivery of service to the agency’s clients.

Customer Service Staff

Average

+25% Profit

+25% Growth

Total # of Service Staff: (as defined above) % of Peer Agencies Having:

3.8

3.1

4.0

Separate/Dedicated Marketing Department Separate/Dedicated Claims Department Assistants for CSRs/Account Managers

12.9%

12.5% 12.5% 12.5%

0.0% 0.0%

6.5%

22.6%

37.5%

TPA Service Staff

Average

+25% Profit

+25% Growth

% of Peer Agencies Having: Workers Comp TPA

0.0%

# of Service Staff

* *

Total TPA Revenues Serviced

Group Benefits TPA

0.0%

# of Service Staff

* *

Total TPA Revenues Serviced

*Insufficient Data

Customer Service Representatives (FTE)

In the following charts the number of CSRs includes Account Executives (non-producer position), Senior CSRs, CSRs, Account Managers, Assistant CSRs, etc. (i.e., positions with main responsibility for client service) . It also includes the department managers who spend a portion of their time servicing clients. Respondents were instructed to use decimals to accurately represent the actual number of full-time CSR positions. Staff dedicated to marketing, claims, and TPA departments are excluded from the following head counts.

15 2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Service Staff Info

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Productivity—CSRs

Average Top 25%

How Time Was Spent

Commercial P&C CSRs/Account Managers

Number

1.9

High

5.0

Low

0.5

Average Book Serviced (Commissions) $218,757 $351,688

Average Pay ($)

$44,453

Average Pay (% of Book Serviced)

20.3%

Group L&H CSRs/Account Managers

Number

0.8

High

1.0

Low

0.5

Average Book Serviced (Commissions)

$69,430

Average Pay ($)

$31,701

Average Pay (% of Book Serviced)

45.7%

Personal P&C CSRs/Account Managers

Number

1.8

High

4.0

Low

0.5

Average Book Serviced (Commissions) $153,279 $253,660

Average Pay ($)

$35,778

Average Pay (% of Book Serviced)

23.3%

Multi-Line CSRs/Account Managers

Number

2.1

High

7.0

Low

0.5

Average Book Serviced (Commissions) $162,213 $257,705

Average Pay ($)

$34,075

Average Pay (% of Book Serviced)

21.0%

*Insufficient Data

2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Service Staff Info

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Technology

Average

Top 25%

Information Technology Number of Employees (FTE)

0.4 2.0 0.0

High

Low

Total IT Payroll Expense ($)

$13,155

$31,621

As % of Total Compensation Expense

3.0%

Average

+25% Profit

+25% Growth

Total IT Expenses for Fiscal Year (as % of Net Rev) 1

3.0%

2.4%

3.5%

1 Includes hardware/software leasing including offsite applications, supplies, maintenance & maintenance contracts, training, data lines, internet providers, website development/maintenance, outside consulting fees, computer depreciation, software amortization, and any non-depreciated hardware/software.

Agency Management System Utilized

Other includes Quickfile, Onstar management system and custom developed programs.

17 2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Technology

Agencies with Revenues Less than $1,250,000

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Carriers

Average

+25% Profit

+25% Growth

Carrier Representation Personal Lines P&C National

3.4 4.0 7.4 3.5 3.6 7.1 3.3 4.0 1.3 1.3 0.9

2.8 3.6 6.4 2.4 3.3 5.6 3.5 4.7 1.8 1.9 1.3

3.3 3.9 7.1 3.0 4.4 7.4 3.8 5.0 1.8 2.1 1.4

Regional

Total

Commercial Lines P&C National

Regional

Total

Employee Benefits Life

Health

LTD

Dental

Retirement Products

10.8

13.1

14.1

Total

Average

+25% Profit

+25% Growth

Commission Income Derived from Top Carriers % of Net Revenue from Top P&C Carrier % of Net Revenue from Top 3 P&C Carriers % of Net Revenue from Top L&H/F Carrier % of Net Revenue from Top 3 L&H/F Carriers

27.7% 52.0%

25.5% 51.4%

31.4% 50.4%

5.8% 7.3%

6.0% 7.9%

9.3% 9.8%

Revenues from Top P&C Carrier - Breakdown by Line of Business

Use of Carrier Service Centers

Average

+25% Profit

+25% Growth

Service Center Use Total Personal Lines Comm. placed in Carrier Service Center Total Commercial Lines Comm. placed in Carrier Service Center

67.2%

11.1%

*Insufficient Data

2009 Best Practices Study | Agencies with Revenues Less than $1,250,000 | Insurance Carriers

2009 Best Practices Study

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

$1,250,000

$2,500,000

$5,000,000

$10,000,000

$25,000,000

2009 Best Practices Study

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

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

PROFILE (of Agencies in this Study Group)

A. Average Total Revenues: $1,939,760

B. Population Density of Metropolitan Areas 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 C. Corporate Structure C

63.0% 14.8% 11.1% 11.1%

67.6% 14.7%

68.3% 17.1%

8.8% 8.8%

7.3% 7.3%

40.7% 48.1%

41.2% 47.1%

41.5% 46.3%

Partnership

0.0%

LLC

11.1%

11.8%

12.2%

Sole Proprietorship

0.0%

1.6

1.7

1.3

Total # Agency locations

0.0% 0.0%

Agency has an ESOP

% of Stock Owned by ESOP

D. Shareholders Number of Shareholders (excluding ESOP)

2.8

4.7

High

10.0

Low

1.0

E. Ownership Percentage % Owned by Largest Shareholder (excluding ESOP)

67.1% 100.0% 28.3%

60.8%

52.9%

High

Low

F. Shareholder Age Current Age of Largest Shareholder

52.7

52.4

53.6

G. Parent Corporation

3.8%

Agency is Owned by Another Corporation

Description of Parent Corporation Financial Institution

100.0%

0.0% 0.0%

National Broker

Other

21 2009 Best Practices Study | Agencies with Revenues Between $1,250,000 and $2,500,000 | Profile

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

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Revenues

(% by Source)

Average

+25% Profit

+25% Growth

Property & Casualty Commercial Commissions & Fees

51.9%

54.5%

59.5%

Bonds

2.2%

5.1%

2.3%

Personal P&C

24.8%

21.3%

17.6%

Value Added Services

0.1%

0.0%

Contingent/Bonus

11.3%

10.5%

10.0%

Total P&C

90.3%

91.5%

89.5%

Life & Health/Financial Group Commissions & Fees

5.6%

4.2%

6.3%

Individual Commissions & Fees

2.5%

1.5%

1.7%

Value Added Services

0.4%

1.2%

0.5%

Bonus/Overrides

0.1%

0.0%

0.3%

Total L&H/Financial

8.7%

6.8%

8.7%

Investments

0.9%

1.7%

1.9%

Miscellaneous

0.1%

0.0%

-0.2%

Gross Revenues

100.0%

Less Brokerage Commission Expense

0.4%

0.0%

Net Revenues

99.6%

100.0%

Future Revenue Sources % of Agencies Considering Line of Business as Very Important:

Personal Lines

81.5% 77.8% 25.9% 40.7% 18.5%

Small Commercial Lines Individual Life & Health Group Life & Health

Surety/Bonding

22 2009 Best Practices Study | Agencies with Revenues Between $1,250,000 and $2,500,000 | Revenues/Expenses

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

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Revenues

% of Revenues Derived from:

Average

+25% Profit

+25% Growth

Largest Account

4.4% 9.7% 1.2%

4.5%

5.6%

High

Low

10 Largest Accounts

15.1% 29.9%

15.3%

20.6%

High

Low

3.1%

Acquired Revenues

Average Commissions Acquired

% of Agencies Acquiring

Percentage of Net Revenues

Acquisitions Made in Last 12 Months

11.1%

$403,775

16.2%

What the Typical Transactions Looked Like Revenues Acquired per Transaction

Multiples of Revenue Paid

Average

$345,583 $435,000 $595,000

Average

0.93x 0.80x 1.50x 0.50x

Median

High

Low

$6,750

Low

23 2009 Best Practices Study | Agencies with Revenues Between $1,250,000 and $2,500,000 | Revenues/Expenses

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

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

Revenue Growth by Source

Average

+25% Profit

+25% Growth

Commercial P&C Renewals 1

85.2% 15.2%

92.4% 13.8%

90.6% 18.6%

New Business 2

Acquired Revenues 3

2.6% 0.4% 3.0%

7.6% 6.2%

0.0% 9.2% 9.2%

Organic Growth 4

Total Growth 5

13.8%

Bonds

Renewals 1

34.2% 63.4% 0.0% -2.4% -2.4%

28.7% 55.1%

23.6% 66.9% 0.0% -9.5% -9.5%

New Business 2

Acquired Revenues 3

0.0%

Organic Growth 4

-16.2% -16.2%

Total Growth 5

Personal P&C

Renewals 1

91.7% 11.6%

94.9% 12.6%

95.8% 13.9%

New Business 2

Acquired Revenues 3

1.8% 3.3% 5.0%

6.1% 7.5%

0.0% 9.7% 9.7%

Organic Growth 4

Total Growth 5

13.7%

Value Added Services - P&C Renewals 1

49.9% 28.1%

* * * * *

New Business 2

Acquired Revenues 3

0.0%

Organic Growth 4

-22.0% -22.0%

Total Growth 5

Group L&H

Renewals 1

83.5% 20.9%

87.0% 8.3% 0.0% -4.7% -4.7%

57.5% 45.6%

New Business 2

Acquired Revenues 3

0.0% 4.5% 4.5%

0.0% 3.1% 3.1%

Organic Growth 4

Total Growth 5

Individual L&H

Renewals 1

58.7% 50.7%

97.4% 17.7%

97.0% 22.6%

New Business 2

Acquired Revenues 3

0.0% 9.4% 9.4%

0.0%

Organic Growth 4

15.1% 15.1%

19.6% 19.6%

Total Growth 5

*Insufficient Data

24 2009 Best Practices Study | Agencies with Revenues Between $1,250,000 and $2,500,000 | Revenues/Expenses

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