The Secrets of the Highest-Performing Firms Revealed

Transcription

1 THE LATEST BEST PRACTICES STUDY: The Secrets of the Highest-Performing Firms Revealed BOBBY REAGAN REAGAN CONSULTING

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3 August 8, 1995 But even if the insurance agents prevail in Washington [in keeping banks out of insurance], they appear to face a bleak future. Their ranks are shrinking, squeezed by a tidal wave of change in technology and distribution. The familiar insurance agents, the classic salesman and small business person may be headed the way of the milkman. Nancy Carini, an analyst Conning and Company (a market research firm in Hartford, CT) Joe Vincent Management Seminar 3

4 Carriers will go direct they don t need independent agents. What happened? Personal Lines through Agents 32%* 35%** Commercial Lines through Agents 72%* 80%** *A.M. Best **IIABA Liberty Mutual abandoned being a direct writer in 2009 and committed to the independent agency system. Joe Vincent Management Seminar 4

5 Consolidation will eliminate the majority of independent agents. What happened? Total Number of Agencies 41,000 37,500* 100 th Largest Agency $8.5M $26.6M *Estimate based on 2013 data There has been a reduction of less than 10% in the number of agents, but the ones that remain are materially larger. Joe Vincent Management Seminar 5

6 Agents will be squeezed out of business. What happened? Revenue per Employee $81,316 $164,362 Pro Forma Pre tax Profits 12.0% 29.8% Value as Multiple of Revenue 1.4x 2.0x *Best Practices Study, Average Agencies with Revenues between $2.5M and $5.0M Joe Vincent Management Seminar 6

7 Quarterly Organic Growth Total Agency Median (Q Present) 6.9% 6.8% 6.2%6.2% 3.8% 3.7% 3.3%3.3% 6.1%6.1% 5.5% 5.4% 5.0% 5.8% 6.0%6.2% 5.8% 5.9% 4.4% 4.6% 5.1% 4.0% 3.6% 0.9% 1.7% 0.2% 1.0% 1.9% 0.6% 0.7% 1.4% 1.4% 1.8% III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III Source: Reagan Organic Growth & Profitability Survey Joe Vincent Management Seminar 7

8 Factors Impacting Organic Growth After trading above $100 dollars per barrel in 2013, oil closed out 2015 at roughly $37 per barrel. During the Oil Boom, propelled by a powerful lift in their local economies, OGP firms in the major oil producing states in the central U.S. grew by 9.4% a full 3.3 percentage points faster than the other OGP firms. Two years later, during the 2015 Oil Bust, the oil state firms grew at only 2.5% which was 2.3 percentage points slower than the other OGP firms. Agency Organic Growth in Oil vs. Non Oil States Oil Boom Oil Bust 9.4% 6.1% 4.8% 2.5% Non Oil States Oil States Source: Reagan Consulting Organic Growth & Profitability Study Joe Vincent Management Seminar 8

9 Comparative Median Profitability (3 rd Quarter Numbers) 19.2% 11.0% 20.4% 19.5% 11.8% 11.9% 21.5% 22.1% 22.4% 14.4% 14.4% 14.7% 21.9% 21.4% 13.0% 12.5% EBITDA Margin Operating Margin Source: Reagan Organic Growth & Profitability Survey Joe Vincent Management Seminar 9

10 Comparative Median Rule of 20 (3 rd Quarter Numbers) Source: Reagan Organic Growth & Profitability Survey Joe Vincent Management Seminar 10

11 OGP Scatter Plot Q Joe Vincent Management Seminar 11

12 Insight Into the 5 Tool Agency Sales culture Leadership Operational capabilities Specialization Geography Joe Vincent Management Seminar 12

13 Recent Deal Activity by the Numbers Average annual deal total: Q Q Source: SNL Financial as of December 2016 Joe Vincent Management Seminar 13

14 Who is Buying? 29% 26% 26% 26% 20% 24% 15% 13% 14% 10% 9% 5% 8% 7% 14% 18% 8% 10% 17% 18% 16% 21% 13% 10% 11% 7% 14% 13% 10% 22% 23% 27% 25% 26% 20% 20% 4% 20% 16% 22% 20% 28% 12% 14% 15% 33% 22% 29% 27% 28% 31% 44% 43% 46% Q Private Equity Private Brokers Other Public Brokers Banks 51% Source: SNL Financial as of December 2016 Joe Vincent Management Seminar 14

15 The Major Acquirers Buyer 2015 Q Total Deals Acrisure Hub AssuredPartners Broad Street Arthur J. Gallagher Confie Seguros Hilb Group NFP Brown & Brown USI Risk Strategies Alliant Marsh & McLennan Source: SNL Financial Joe Vincent Management Seminar 15

16 Valuations at Record Highs Deal Valuations as Multiple of EBITDA 9.00 x x 8.50 x 8.25 x 8.50 x 8.75 x 9.75 x x x x x 6.50 x 6.00 x 5.75 x 6.00 x 6.25 x 6.50 x 6.75 x 7.00 x 8.00 x 8.00 x Typical Guaranteed Price Earn Out Opportunity Good quality agents and brokers, $3 $10 million in revenue Joe Vincent Management Seminar 16

17 Why remain independent? 17 Joe Vincent Management Seminar 17

18 Why remain independent? 18 Because this is an incredibly resilient industry The best talent in the industry follows the equity opportunities available at most independents Unparalleled quality of life Autonomy may be the most valuable asset of all Because the economic rewards are sizeable Joe Vincent Management Seminar 18

19 Broker stocks both public and private have far outpaced the overall market Hard Market The Leverage Bubble The Great Recession Recovery and Expansion 9.3% CAGR 6.0% CAGR 4.2% CAGR Reagan Value Index Public Brokers S&P 500 Source: Reagan Value Index Joe Vincent Management Seminar 19

20 The Four Pillars of Perpetuation 20 Healthy Operation Reasonable Sellers Able Buyers Effective Transfer Mechanism Joe Vincent Management Seminar 20

21 Our Industry is Aging WASA and WAPA in the Last Eight Years WASA WAPA Source: Reagan Value Index Joe Vincent Management Seminar 21

22 Generational Capacity Age Distribution of Production Force (Based on RVI Data) 28% 12% Up to Age 35 22% 18% Age % 22% Age % 28% Over Age 55 The Effects of Producer Age Distribution (Based on RVI Data) Metric Bottom 25% Top 25% WAPA WASA Organic Growth 1% 2% 8% 9% Sales Velocity 7% 15% Bottom 25% Top 25% Leaders under Age Joe Vincent Management Seminar 22

23 Number of Producers by Age Band Healthier firms spread their producer count more evenly among different age bands. Number of Producers by Age Band Healthy 27.8% 22.2% 22.2% 27.8% ABC 8.0% 23.3% 33.0% 35.8% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% Up to age Over 55 Source: Producer Recruiting & Development Study. Includes only validated producers. Joe Vincent Management Seminar 23

24 Technology Revolutions Joe Vincent Management Seminar 24

25 What about insurance? Joe Vincent Management Seminar 25

26 So what? Where are agents and brokers vulnerable? What can agents and brokers do to play defense? How can agents and brokers take advantage of technology? Joe Vincent Management Seminar 26

27 Understanding what is out there Technology Marketers People selling stuff over the internet Tools Everyone can Use Tech advancements that improve the process Carriers and Big Data Leveraging data to change underwriting Joe Vincent Management Seminar 27

28 Technology: Summary of Broker Action Items Improve the User Experience Find strong technology partners Specialize Focus on the core value proposition for agents and brokers Joe Vincent Management Seminar 28

29 What will happen in the future? (per Reagan Consulting) 1) Prices paid for agencies are at record levels... These prices will likely come down in 2017 because o interest rates will rise o public broker valuations will moderate o we are having a softening P&C market 2) There will be pressure on all agencies to lift their performance (more new business, higher organic growth, improved profitability, higher profit). Those who sold to whom much is given, much is expected. Those who stay private have to narrow the gap between internal/external. Joe Vincent Management Seminar 29

30 What will happen in the future? (per Reagan Consulting) 3) There needs to be elevated attention given to the generational health of all insurance agencies and brokers (private or thirdparty owned). 4) There will be new competitors coming the opportunity is great. 5) The ability to effectively find, recruit, train and develop new talent will be the most valuable and sustainable competitive advantage available. 6) The agency / brokerage business will continue to be a wonderful place to earn a living and own a business. Joe Vincent Management Seminar 30