Insurance Agency Valuation Basics | My Station

Insurance Agency Valuation Basics


Insurance Agency Valuation Basics

This video is a 20 minute introduction to insurance agency valuations, including a discussion of why agency principals have them performed and considerations prior to initiating one. If you are thinking of selling your insurance agency or just want to know the value of your insurance agency, then this is a great starting point for information.

For further information, please see The moderator for the presentation is Michael Mensch, an experienced insurance agency mergers & acquisitions advisor. Copyright 2013.

Partial Transcript for "Insurance Agency Valuation Basics"

Michael Mensch, Certified Business Intermediary, Merger & Acquisition Master Intermediary

Agency Brokerage Consultants is a merger & acquisition advisory firm to the insurance brokerage industry.

Valuation & Planning Services: Insurance agency market valuation; Financial and operational review of an insurance agency; Performance benchmarking against other insurance agencies; Strategic planning for the selling of an insurance agency

Sell Side Engagement Services: Insurance agency market valuation; Preparation for selling an insurance agency; Insurance agency buyer discovery and disclosure; Offer negotiation; Due diligence management; Purchase contract review; Contract execution; Post-closing resolutions

Buy Side Engagement Services: Prospecting for owners that may want to sell their insurance agency; Owner introduction; Data collection and preliminary valuation of insurance agencies; Offer negotiation; Due diligence management; Purchase contract review/preparation; Contract execution and post-closing resolutions

Team credentials include: Merger & Acquisition Master Intermediary; Certified Business Intermediary; Certified Valuation Analyst; Certified Appraiser; Securities & Real Estate brokers

Some uses for a insurance agency appraisals: Buy/sell agreements; insurance agency merger and acquisition transactions; ESOPs or going public; Gift, estate and income taxes; Life insurance; Divorce, damage cases, shareholder dispute and corporate dissolution

Definition & purpose of valuation
•What is being valued?
•What is the effective date?
•What are the ownership characteristics?
•What is the intended use?
•The purpose and conditions do impact the appraised value.

Standards of value
•Fair market, Investment, or Intrinsic value
•Premise of value - Going concern or liquidation
•Identification of assets - Particularly any rights or restrictions by 3rd parties

Differences between "small" and "big" insurance agencies:
Legal entity; Management structure; Owner's involvement in sales; Identity and perception of business; Financial stability; Quality of accounting; Ownership transition

The Analysis Process:
•Financial - 3-5 years of financial statements to determine "earnings"
•Book of Business - 3-5 years of revenue reports to determine the inherent risk of the book of business.
•Operational - Series of questions about the overall management, marketing, staffing, etc of the agency.

Insurance Agency Appraisal Methodologies:
1. Asset - Value based on the assets
2. Income - Value based on the earnings
3. Market - Value based on sale prices of "similar assets"

•Multiple insurance agency valuation methods should create a bracketed value or value range.
•Value could be discounted due to: Risk factors; Working Capital requirements; Controlling interest concerns; Marketability of the asset;
•The Fair Market Value of an independent insurance agency is not the "real market value" because FMV: Assumes a generic buyer; Uses average or textbook multipliers and discounts; Assumes "cash value".
•If you are thinking of selling your insurance agency or buying an insurance agency, then you need a valuation from an experienced merger and acquisition firm.

Final Thoughts on getting an Insurance Agency Valuation
•There are many legitimate reasons to get an insurance agency valuation.
•Various factors can influence the appraised value of an insurance agency.
•The valuation process should be thorough.
•No two insurance agencies are the same or "average".
•Seek an industry professional engaged in insurance agency mergers and acquisitions.

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