Business Valuations for Insurance Agencies

business valuation for insuranceQuantive frequently performs business valuations for insurance agencies and valuations for insurance brokers.  Our experience working across the spectrum – from captive to independent, and from wholesale to retail – helps assure you well get an accurate valuation for your company.   We have experience with many of the unique aspects of the insurance industry – which helps us get to the heart of the valuation quicker and more accurately.


Critical Elements in Valuing an Insurance Agency

When we look at valuing an insurance agency, typically the most important thing that we look at is the agency earnings (often referred to as EBITDA).  Consider value from a buyer’s perspective: the most important factor to the buyer is the ability to continue to collect a profit stream.

Quantive will also consider an agency’s revenue level when valuing an insurance agency.  In certain scenarios insurance agencies are priced exclusively based on revenues – typically when another larger agency is going to “tuck in” the smaller agency.  In these scenarios the sellers cost structure is relevant as the buyer is only purchasing accounts.

Beyond the economics above, factors considered in an insurance agency valuation include:

  • Loss Ratios
  • Carrier / underwriter access
  • Nature of book (commercial / personal / health / life)
  • Strength of employees
  • Addressable market size
  • Operational systems

Each situation is going to be different, of course.  Our valuation assignments are always crafted to address the particular agency we are working with.


 

We Routinely Work With Insurance Agencies

Quantive works with all variety of insurance and financial services companies, to include:

  • Independent Agencies
  • Wholesale Brokers and MGA’s
  • Excess Lines
  • Commercial and Retail P&C
  • Benefits Agencies
  • Personal Auto
  • Surety / Bonding Agencies
  • Other

 


Areas We Focus

The insurance industry is definitely unique.  As such there are a number of items that our professional analysts will likely be looking at when we work on performing a business valuation for your agency.

  • What sort of loss ratio has the company historically had in the book of business?
  • If captive, what restrictions on transferability?
  • What’s is the retention rate in the book?  How does it vary by product line and class?
  • What is your commission schedule?  How much of revenue is incentive income?
  • Do you have any sub-agents?  Are their non-competes with your producers?  How much revenue is tied to each producer?
  • Describe your carrier relationships.  Any chance of changes or getting dropped by any?

 


About the Insurance Industry

The insurance industry is characterized by a distribution model, where risk-bearing underwriters (carriers or companies) generally write policies using a series of agents or brokers as intermediaries.   In 2011 the industry recorded $1.1 TRILLION in net premiums – 58% life and health, and 42% P&C.  There were over 6,000 insurance companies during the year, and carrier revenues account for over 2% of U.S. GDP.

While the industry is clearly large, there are a number of issues that continue to impact insurance business valuations.  One clear area is the as-yet unknown impact of the “Obamacare” policies on the industry.  Negative factors here certainly have the potential to weight down industry valuations.

On the other hand – hard vs. soft market issues can likewise influence valuations for insurance businesses.

 

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