1. Valuing Your MGA Presented by Cameron Jacox and James Hilton June 1, 2011 Share the tools

2. Valuing your MGA James E. C. HiltonCameron D. Jacox Managing Partner

3.  Age, brand, vintage, region  Complementary consumption  Consistency drives value higher  More confident purchase Wine: Wine Comparison | Consistency assumed

4.  Completely cash-flow based  Ignores advisor-level growth opportunities  Client-centric business 3-5x Service fees 3x Segregated fund trailers Traditional Multiples | Only one piece of the puzzle

5. Key Questions | How do I…  …prepare it for an optimal valuation?  …develop operations for long-term growth?  …go shopping for MGAs and drive consolidation?

6. The Original MGA | Boost valuation multiples 1900  Western expansion  Localized broker support  Provided more resources  Drove growth

7. The Canadian MGA | An entrepreneurial endeavor 1980s  Few market penetration or capital issues  Global outsourcing trend  Focused on core competencies  MGAs will be more closer with advisors

8. Transforming Industry | Boost valuation multiples  No “pledge of allegiance” “The marketplace has reached the end of the commoditization cycle” –Jim Burton  Regulatory uncertainty Industries that fail to fight against irrational regulation become grey It’s the wild west again!

9. Valuation Calculation | What is it worth? Start: Multiple of Service Fees (3-5x) Less: (Lapse Rates) (Compliance Issues) (Buyer’s Supplier Power) Add: Broker Loyalty and Age Positives of the above ____________________________ = $ _ _ _,_ _ _,_ _ _._ _

10. MGA Valuation | Advisor based valuation model Advisors Advisors are everything  MGA consists of advisors  Detailed advisor-level analysis is needed for serious MGA valuation  Growth comes from within

11. Book Valuation | Succession  High policyholder attrition  (5-10%)  80:20 rule for advisors  Client and policy structure  Age of clients  internal growth opportunity Advisor = Brand 2.5-3.5X Renewals 0-2X New Business

12.  Normalize revenues  Excessive expenses  One-off large cases  Revenue capacity of book  Was broker hunter or sitting on book? Book Valuation | Succession

13. MGAValuation | Components  Advisors age & succession  Lapse rates  Advisor loyalty  Compliance issues  Future regulation

14. Advisor Age | Succession & Retention  Rare advisor-MGA allegiance  Advisor age as important as production  Books switch hands after a transfer  Plan for advisor succession  Transfer books to close colleagues

15. Lapse Rates | Above or below average  Enormously reveals a book’s true quality  Improper sales by unscrupulous advisor?  Is the business stable?

16. CCIR Issues Paper | Lack of clarity…  …“Compliance…screening representatives for suitability and monitoring their behavior”  …“Lack of clarity… [in] roles, responsibilities, accountabilities and… oversight of the agent, the MGA, and the insurer”

17. CCIR Issues Paper | Effect on valuation  Conservative operations +  Ability to integrate hypothetical mandates +/-  Client-product suitability  Advisor oversight systems  Advisor screening

18. Dress it Up, Develop it, or Go Shopping? How to maximize your valuation and shop your MGA Taking Action

19. Broker Value-adds | Brokers improve the MGA  Pushing valuation improvement to broker level  Revenue improvement will always trump cost efforts  Broker success = MGA success Dress it Up, Develop it, or Go Shopping?

20.  Hunters vs. gatherers  Sitting on opportunities within their book that could maximize value to policyholders, carriers, and themselves  Active policyholder marketing Broker Development | Building from within Dress it Up, Develop it, or Go Shopping?

21.  Reduce lapse rates 72% over age 50  Increase premium Total actual premium  Service clients Policy Loans | Book consulting example Dress it Up, Develop it, or Go Shopping?

22. It’s Time… | …Time to Go Shopping

23. Book Acquisition | Vertical Integration  Acquisitions  Multiples are low  Mitigates risks associated with the revenue model  Attrition highest among high- touch advisors Dress it Up, Develop it, or Go Shopping?

24. Capital Structure | Risk  Growth  Incentivize advisor book acquisition  Vertically integrate while gaining market share  Take an ownership %  Play offensively not defensively

25. 5-7x is possible if:  High technology adoption  Strong differentiation  Succession strategy is being implemented  Advisor sales assistance  Regulatory certainty Boosting Profitability | For the long run Multiples are relatively low - room for improvement

26. Thank-you Share the tools cam@jacoxhilton.com | james@jacoxhilton.com More information: (slides, articles, etc) http://summit.jacoxhilton.com