Q OGP ID: 9999 Current Value Driver Comparison

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1 OGP ID: 9999 Current Value Driver Comparison Organic Growth & Survey Organic Growth Total Agency Organic Growth Organic Growth by Product Line Reagan Consulting Observations 12.0% 8.0% 6.0% 2.0% Your organic growth rank: 4.2% 3.9% Sample Firm OGP Survey Median 9.8% OGP 75th Percentile 3.0% Public Brokers 80th - 90th percentile 6.0% 3.0% 2.0% 1.0% 5.2% Commercial Lines Sample Firm 3.2% 2.2% 4.4% Personal Lines Group Benefits OGP Median Organic growth was 3.9% in, down over a point from 5.1% growth in Q Group Benefits played a significant role in the overall growth slowdown, growing at in versus 6.9% in Q The top quartile of agents and brokers recorded organic growth of almost 10% in OGP Projected 2016 Growth: After previously estimating a 6.0% annual growth projection, brokers have revised their forecast down to after Q1 results Total Agency EBITDA Margin EBITDA Margin by Product Line Reagan Consulting Observations 25.1% 27.6% Your Firm OGP Survey Median The median EBITDA margin of 27.6% is down almost a point from 2016 and represents the 3rd straight year of declining Q1 margins Operating margins - which exclude contingent income - increased for the second straight year, up to 10.4% from 9.9% in Q YTD profitability numbers are inflated by cashbasis contingent income recorded in Q1 and margins will come down throughout the year OGP Projected 2016 Margin: 2 Overall, brokers are expecting EBITDA margin Your profitability to stay flat from 2016 to th - 50th percentile Your Firm OGP Median rank: The Rule of 20 (see note below) 38.5% OGP 75th Percentile 23.6% Public Brokers % 28.2% 24.5% Commercial Lines 22.6% 19.9% Personal Lines Group Benefits Total Agency Rule of 20 Rule of 20 by Product Line Reagan Consulting Observations Your Rule of 20 rank: Your Firm OGP Survey Median 25.4 OGP 75th Percentile 14.8 Public Brokers 70th - 80th percentile Commercial Lines Your Firm Personal Lines Group Benefits OGP Median Rule of 20 scores, like EBITDA margins, are inflated by cash-basis contingent income and will decline throughout the year The median Rule of 20 score was 18.0 in Q1. Commercial lines led the pack after being the lowest rule of 20 performer in Q OGP Projected 2016 Score: 15.5 This projection represents a material decrease from brokers' initial forecast of The reduction is likely based on disappointing organic growth figures in Q1. About the Rule of 20 Reagan Consulting has developed a metric called the Rule of 20 to provide a quick means of benchmarking an agency's shareholder returns. The Rule of 20 is calculated by adding half of an agency's EBITDA margin to its organic revenue growth rate. An outcome of 20 or higher means an agency is likely generating, through profit distributions and / or share price appreciation, a shareholder return of approximately 15% - 17%, which is a typical agency / brokerage return under normal market conditions. Note: If data for your firm reads "" or "0.0" it may mean that no data was submitted for that metric. 1

2 (EBITDA Margin) OGP ID: 9999 Agency Organic Growth & Scatter Plot Organic Growth & Survey Bottom 25% Growth Top 25% Growth 5 4 Top 25% BRO 3 2 MMC AJG AON WLTW Bottom 25 Profitabili Organic Growth Surveyed firms with annual revenues less than $10 million Your Firm Surveyed firms with annual revenues between $10 and $25 million Top and Bottom 25% of all firms Surveyed firms with annual revenues greater than $25 million Rule of 20 line (All points on this line indicate a Rule of 20 score of 20) About the Scatter Plot In the chart above, we've plotted every firm in the survey that completed both the total agency organic growth section and th e total agency profitability section. Each firm's organic growth is plotted along the x-axis, and each firm's profitability is plotted along the y-axis. We've included a couple of guidelines on the graph to help in interpreting the data. The grey dotted lines show the top and bottom 25% of firms in organic growth and profitability. The solid purple line r epresents all combinations of organic growth and EBITDA margin that result in a Rule of 20 score of 20. Finally, we've broken the firms into groups based on revenue size, as distinguished by the different colored dots. The goal of this scatter plot is to show the wide range of organic growth and profitability results in the industry and to benchmark wher e your firm falls. 2

3 OGP ID: 9999 Historical Trending Organic Growth & Survey Quarterly Organic Growth - Total Agency Median (Q Present) 3.8% 3.7% 3.3% 3.3% 5.5% 5.4% 6.2% 6.1% 6.9% 6.8% 6.2% 6.2% 5.8% 6.0% 6.2% 5.8% 5.9% 4.4% 4.6% 5.1% 3.6% 4.2% 3.9% 0.2% 1.0% 1.9% -0.6%-0.7% -1.4% -1.8% -1.4% 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 IV I Comparative Median Organic Growth by Product Line (First Quarter Numbers, ) Commercial Lines 8.4% 6.6% 6.8% 6.6% 2.9% 3.3% Personal Lines 3.0% 2.7% 2.8% 2.1% 2.2% 1.3% 1.1% 7.3% Group Benefits 7.6% 6.9% 4.3% 4.5% 3.7% 2.3% -1.5% -2.9% -0.2% -0.8% Comparative Median and Rule of 20 Analysis (First Quarter Numbers, ) EBITDA Margin and Operating Margin Rule of % 21.9% 26.0% 24.1% 27.9% 29.9% 29.0% 28.5% 27.6% % 6.6% 9.1% 9.2% 12.0% 11.1% 9.5% 9.9% 10.4% EBITDA Margin Operating Margin About EBITDA Margin and Operating Margin EBITDA Margin is calculated by dividing a firm's pro-forma EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) by the firm's pro-forma net revenues. Operating Margin is calculated as EBITDA less contingent income, divided by pro-forma net revenues less contingent income. 3

4 14% 12% 10% 8% 6% 4% 2% 0% Organic Growth & (OGP) Survey Market Commentary () With Broker Growth Slowing, the Gap Between Performance and Valuation is Widening by Kevin Stipe Organic growth slid to 3.9% for OGP Survey participants during the first quarter, which was the weakest Q1 growth rate since Although soft P&C pricing contributed to the disappointing performance, the primary culprit seems to be a surprisingly weak U.S. economy, which grew at only 0.7% in Q1, its worst quarterly performance in three years. For all of 2016, the U.S. economy grew at only 1.6%, which was the lowest full-year total since OGP Survey brokers are now forecasting 5% organic growth for This is down a full percentage point from the 6% they forecasted just three months ago. If there is a silver lining in these results, it is that nearly two-thirds of OGP participants still expect to grow faster in 2017 than they did in % 6% 4% 2% 0% -2% -4% -6% -8% -10% CL Pricing and U.S. GDP vs. Organic Growth -1.8% 1.9% 3.7% 6.2% 6.2% 6.2% 4.6% 5.1% 3.9% Q US GDP Growth P&C Pricing Broker Org Growth (Median) Sources: CIAB and Bureau of Economic Analysis The publicly traded brokers fared no better. While Aon has not yet released its Q1 results, the other four have (Marsh, Willis Towers, Arthur J. Gallagher and Brown & Brown) and the average organic growth rate was an equally disappointing 3.8%. Investors didn t seem to care, as stock prices for the publicly traded brokers each reached all-time highs during the first quarter. As a group, the public brokers traded at 12.7X EBITDA on March 31, 2017, which is extremely high by the historical standard of 9-11 times. The recently increasing valuation multiples, juxtaposed against the lumbering organic growth of the public brokers, is creating a widening gap which should be cause for investor concern. Public Broker Valuations & Organic Growth Rates 13.0x 12.0x 11.0x 10.0x 9.0x 8.0x 7.0x Widening Gap 9.7x 2.3% 9.9x 3.9% 11.8x 4.8% 12.1x 11.1x 3.3% 3.4% 12.4x 2.7% 12.7x 3.4% EBITDA Multiple Organic Growth Source: Public Broker SEC Filings In fact, the only time in the past 20 years that the public broker valuations have reached EBITDA multiples of 12.7 or higher was during the sharp hard market driven by the terrorist acts of 9/11, when organic growth rates spiked upward. Public broker valuations have simply not reached today s levels during any stretch of normal market conditions

5 Organic Growth & (OGP) Survey Market Commentary () Why do the valuations of five public brokers even matter? Public broker valuations trickle down to the rest of the industry. They affect agencies of all types and sizes. Of course, their influence is the strongest on the private equity backed brokers (PE Brokers). This is because PE Brokers typically determine their own value based on applying a slight discount (10%-15%) to the public broker multiples. Thus there are several PE Brokers today that value their own stock at north of 11X EBITDA. These firms then turn and attempt to acquire others at a slightly lesser multiple than their own. Generally, they want to arbitrage a multiple spread of at least 2X EBITDA. When their own value is pegged at 11X EBITDA, they can be extremely aggressive. How long will these extraordinary multiples last? Will the stock market continue to drive public broker values to unprecedented levels? Or will those values begin to decline, perhaps as a part of a broader stock market correction? This is the most pressing question on the minds of today s industry investors. OGP Survey Trends Agency profitability also declined slightly during the first quarter. After reaching a Q1 peak of 29.9% in 2014, margins have slowly but steadily receded. This quarter s EBITDA margin for OGP brokers was 27.6%, the lowest since (Note: EBITDA margins are always highest during Q1, since contingent income is reported on a cash basis. Margins then tend to slide throughout the year, as the early-year effect of the contingent income wanes.) Brokers are forecasting that full-year EBITDA margins will once again hit the 20% level achieved in 2016 but with first quarter margins off by nearly a full percentage point vs. 2016, matching last year s performance may be difficult. Only 20% of survey participants believe their EBITDA margins will improve in M&A Activity Q1 EBITDA Margins, 2009 to present 27.9% 29.9% 29.0% 28.5% 27.6% 24.9% 26.0% 24.1% 21.9% Q During 2016, over half of the industry s record M&A activity was driven by PE Brokers, who bought a record 256 agencies. PE has stormed the gates of the insurance brokerage industry in recent years, attracted by recurring revenue, strong cash flow, low capital requirements and a fragmented industry ripe for consolidation. In 2016, PE Brokers as a group acquired more than three times as many agencies as banks did in 2006, at the zenith of banks power as an industry acquirer has started off strong, with deal activity keeping pace with last year, which saw a total of over 400 deals. For the third year in a row, PE Brokers are again driving approximately half of the activity. But the good news for private brokers is that they continue to get their share of deals. In fact, private brokers acquired 32 agencies during the first quarter and are once again on pace to do over 100 deals. That would mark the fourth time in the past six years they ve reached that level

6 Organic Growth & (OGP) Survey Market Commentary () Private Broker Transactions ( ) Average annual deal total: Q1 '16 Q1 '17 Source: SNL Financial as of April 2017 (based on Announcement Date). Includes whole company, franchise and asset sales. As we move forward, all eyes should be on the PE segment. A significant pull-back by the PE Brokers would have a dramatic impact on overall activity and agency values. PE activity would likely be impacted most powerfully by a sharp decrease in public broker values or if interest rates rise substantially. But if the stock and bond markets continue to cooperate, the records being set for deal activity and broker valuations will likely continue. All securities transactions are conducted through Reagan Securities, Inc., an affiliate of Reagan Consulting, Inc. Reagan Securities, Inc. is a member of FINRA/SIPC. Copyright Reagan Consulting. All rights reserved. No portion of this site may be reproduced without the prior written consent of Reagan Consulting