Taking Your Agency & Our Distribution System to the Next Level

2013 Best Practices Study Insights

ACT Special Event

Historical Organic Growth (in net Revenue)

2007 2008 2009 2010 2011 2012 2013-10%

0%

10%

20%

30%

40%

15.7%

0.6%

-1.6%

0.2% 1.1%3.0%

9.5%

14.1%

4.1%0.7%

-1.3%

3.6%7.6%

11.7%

31.3%

12.1%10.0%

6.7%

12.5% 12.2%

20.0%

Average +25% Profit +25% Growth

Source 2013 Best Practices Study for agencies with revenues between $2.5M - $5M

2

ACT Special Event

Key Performance Benchmarks

Net Revenue Growth Rates

<1.25M 1.25-2.5 2.5-5M 5-10M 10-25M >25M

NR Growth (Organic)

6.9% 9.1% 9.5% 8.9% 10.4% 9.2%

NR Growth (Total)

7.0% 9.5% 9.9% 10.3% 11.3% 11.2%

% of Agencies Making

Acquisitions

6.1% 17.6 6.7% 20.9% 27.3% 53.8

3

ACT Special Event

Key Performance Benchmarks

% of Agencies with Specialty / Niche

<1.25M 1.25-2.5 2.5-5M 5-10M 10-25M >25M

2010 25.0% 44.2% 51.4% 55.6% 64.1% 68.4%

2013 39.4% 55.9% 64.4% 72.1% 72.7% 80.0%

% of NR from Industry Specialty

10.7% 18.2% 23.9% 20.8% 26.0% 31.4%

% of NR from Product Specialty

5.9% 13.1% 9.1% 14.8% 14.3% 18.4%

4

ACT Special Event

Drive Towards Specialization

General Business Specialty Business

1.15 1.15

0.36

0.29 Value Increase Due to Greater Growth

Value Increase Due to Greater Profitability

Base Value of General Business

5

Multiple of Revenue: 1.15 x

Multiple of Revenue: 1.80 x

General Business

Specialty Business

Sustained Revenue Growth 5.0% 10.0%

Sustained EBITDA Margin 20.0% 25.0%

Valuation (EBITDA Multiple) 5.80 x 7.20 x

Valuation (Revenue Multiple) 1.15 x 1.80 x

ACT Special Event

Key Performance Benchmarks

% of Agencies Hiring New Producers

<1.25M 1.25-2.5 2.5-5M 5-10M 10-25M >25M

2010 17.5% 32.6% 43.2% 66.7% 87.2% 100%

2013 27.3% 32.4% 57.8% 58.1% 84.8% 92.3%

# of Producers Hired

1.2 1.1 1.5 1.7 2.6% 5.4

% Hired in Last 5 Years Considered

Successful

76% 65% 58% 55% 60% 59%

6

ACT Special Event

NUPP: Net Unvalidated Producer PayrollStep 1: Find the total comp of all unvalidated producers

Number of unvalidated producers 3

Actual payroll of unvalidated producers $150,000

Step 2: What would the unvalidated producers earn under the agency’s normal producer commission schedule?

Unvalidated producers’ total book of business $175,000

Agency blended commission rate 35%

Implied (“earned”) compensation $61,250

Step 3: Calculate the NUPP as a percentage of revenues

Actual payroll of unvalidated producers $150,000

Implied (“earned”) compensation $61,250

NUPP $88,750

Agency Net Revenues $5,000,000

NUPP as a percentage of revenues 1.8%

7

ACT Special Event

Industry NUPP8

NUPP Over Time

2008 2009 2010 2011 2012 Guideline-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2.3%2.0%

2.3%1.8% 1.7%

Healthy

Source: Reagan Value Index

BorderlineLow

PotentiallyUnhealthy

ACT Special Event

2007 2008 2009 2010 2011 2012 2013

-5%

0%

5%

10%

15%

20%

25%

30%

8.9%5.8%

2.2%

6.2% 6.0%9.0%

10.4%

23.2%21.1%

18.3% 18.9% 18.6%20.3%

22.4%

Operating Margin EBITDA Margin

Historical EBITDA Margin & Operating Margin

Source 2013 Best Practices Study for agencies with revenues between $2.5M - $5M

9

ACT Special Event

Shareholder Return on Investment10

Rule of 20 Score

½ EBITDA Margin=

Organic Revenue Growth

+

What is the Rule of 20?

• Provides a tool to benchmark agency performance

• Helps frame the trade-off between growth and profitability

Average+25% Profit

+25% Growth

Rule of 20 23.7 30.5 31.5

Benchmarks shown are from the 2013 Best Practices Study for Agencies with Revenue between $2,500,000 and $5,000,000

Public BrokersOrganic Growth

EBITDA Margin

Rule of 20 Result

Willis Group 3.1% 25.6% 15.9

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

Your Results * * *

Rule of 20 vs. Public BrokersDecember 31, 2012

ACT Special Event

Key Performance Benchmarks

% of Agencies Belonging to Franchise, Cluster, Aggregator Group, Alliance or Network

<1.25M 1.25-2.5 2.5-5M 5-10M 10-25M >25M

2010 17.5% 32.6% 13.5% 17.8% 33.3% 42.1%

2013 39.4% 47.1% 40.0% 27.9% 27.3% 59.8%

11

ACT Special Event

Profit Sharing

Market Access

Back Office Support

Other

36.8%

4.4%

19.0%

39.7%

Other(in order of frequency) Collaboration with

other agents

Sharing ideas & info

Networking

Association w/quality agents

Maximize Revenue

Perpetuation Planning

12

Why they joined a Franchise, Alliance, Network

ACT Special Event

Key Challenges (in order of frequency mentioned)

Recruiting, Developing & Retaining New Talent– Production – Service – Leadership

Maintaining Sustained Growth Controlling Expenses/Maintaining Good Profitability Leveraging Technology Perpetuating the Agency

13

ACT Special Event

Reagan Consulting1 Piedmont Center, Suite 500

Atlanta, GA 30305(404) 869-2539

www.reaganconsulting.com

Shirley Lukens

14