Price of P&C Book

[padthaiforlunch]

How many times annual premium are P&C books valued at?

Is 1x annual earnings fair, to low, or to high?

If you were to buy a book, what would you bid?

If you were selling your book, what would you ask?

 

[djs]

Lots of variables....
How is the market in the area in general? Growing? Shrinking? Stable? Face it, P&C books in Michigan are probably worth less than a book in Texas due to the general economy. A Michigan book is likely to shrink over the next few years.

How stable is the book? If they have a retention ratio over 90% and policies have been on the books for over 3-5 years, they have more value than a bunch of policies written in the last six months.

Books shrink when transferred. It breaks a bit of the loyalty. How the current agent presents it to the clients is huge here. Can you have a contingency for lost policies say in the first 6 months after transfer? Some to be expected, an excessive amount isn't.

Now the huge thing.... what is the current agent going off to do? Is he retiring? If he is going to be in business be careful about him marketing back to his current book.

Keep all of the office numbers, including cell phones (primarily of the agent). Keep the office if you can (may not be practical).

2 times earnings for a stable, but growing business is probably a decent starting point. Try to find a way to finance it over 5 years so it pays for itself. Cross sell it to help bring in some $$$$ (probably already pretty heavily cross sold though).

Dan

 

[padthaiforlunch]

Ok. Let's modify question.

Say there is a parntership. Each partner is paid commission based upon their own book, less % for expenses.

Eventually, the partnership will end. Don't know when or how.

Each partner has right of first refusal for other partner's book. Remaining partner will keep business name.

Trying to set fair price in advance.

Someone (off-board) suggest 1x annual commission. Seemed low since no additional action is needed by remaining partner to possess the other book.

Is 2x still reasonable? Too low? What would be fair?

Edit: Remaining partner would pick up service of other book.

 

[The Man]

This is not a question for the masses. As previously said book values can vary greatly based on many factors. I have never heard of a book going for less then 1.5x annual commisions, but I bet someone else on the board has. I have also seen them sell for 3.5x annual commisions.

If you really want a fair price take both sides of the partnership situation. If you end up selling, how much money do you want. If you end up being the buyer, what is the max you want to pay.

 

[djs]

I assume this is a 2 way agreement, i.e., I buy your book or you buy mine, same price determiniation.

Since there is already a joint interest, joint expenses, shared blood, sweat & tears building the business, I'm not sure. Might I suggest 1.5? It depends how it is structered though. If it's just for first right of refusal, I'd go a bit higher, at least 2.

Joe wants out, Bob has the OPTION to buy Joe's business at 2 times annual earning. Joe thinks he can get 2.25. Tough, Bob can buy it at 2. Now, if Bob doesn't want to pay 2, he wants to pay 1.5. That's fine, now Joe can sell on the open market hoping to get higher with no guarantee.

Where it gets sticky in a partner deal such as this is if the partners have to agree to a new person coming in or if it is a true partnership breakup.

Truly, I have no experience in setting this up. You'll have to ask someone who has done this before. Ask a business broker how to value it correctly.

Dan

 

[russelltw]

I know some require the retiring agent to work for another year or so, then the new agent pays a multiple of the book at time the old agent retires.

A local agent sold his to Nationwide agent, who retained him for 2 years and made the purchase price based on the amount of business that stayed after 2 years. If they grew it, more money to pay, if lots of people left the new agent, less to payout.

 

[xrac]

Ok. Let's modify question.

Say there is a parntership. Each partner is paid commission based upon their own book, less % for expenses.

Eventually, the partnership will end. Don't know when or how.

Each partner has right of first refusal for other partner's book. Remaining partner will keep business name.

Trying to set fair price in advance.

Someone (off-board) suggest 1x annual commission. Seemed low since no additional action is needed by remaining partner to possess the other book.

Is 2x still reasonable? Too low? What would be fair?

Edit: Remaining partner would pick up service of other book.

My guess is somewhere between 1.5 to 2.5 depending on variables. To me paying more than 2.5 is pricey but people do and some fail. Usually if it is more than 2.5 there is some financing involved. If it comes down to dollars you will have to figure out whether you want to spend that amount or recieve that amount. Above a certain point it would be tempting to take the money and run and start over at something else or somewhere else.

 

[padthaiforlunch]

No blood, sweat or tears yet. Trying to define the exit before starting.

Thank you all for your responses. Sounds like 1.5% - 2% right of refusal is fair.