|
In recent years, Reagan Consulting
has developed a metric called the "Rule of 20" to
provide a quick means of calculating whether or not an
agency is creating significant value for its shareholders.
It is the sum of an agency's EBITDA margin times
50% plus the organic revenue growth rate.
The secret to the rule of 20 is the
weighting of the relative importance of organic growth
versus EBITDA when it comes to creating shareholder value.
Generally speaking, an outcome of 20 means an agency is
generating a shareholder return of approximately 15%–16%,
which is commonly viewed as the "expected" rate
of return for a well-run insurance agency. A score of less
than 20 indicates room for improvement, while a score above
20 is outstanding.
|
| Rank |
Public
Brokers |
Organic
Growth |
EBITDA |
Rule
of 20 Outcome |
| 1 |
Brown
& Brown |
4.5% |
38.8% |
23.9 |
| 2 |
Willis
Group |
8.0% |
21.3% |
18.7 |
| 3 |
Hub
Group |
5.0% |
26.7% |
18.4 |
| 4 |
Hilb,
Rogal & Hobbs |
4.4% |
27.0% |
17.9 |
| 5 |
Arthur
J. Gallagher |
6.0% |
21.2% |
16.6 |
| 6 |
USI |
1.8% |
20.7% |
12.2 |
| 7 |
Marsh & McLennan |
2.0% |
14.2% |
9.1 |
| 8 |
Aon |
2.0% |
13.9% |
9.0 |
|
| In
2006, only one public broker, Brown & Brown, achieved
a Rule of 20 outcome of 20 or more, as is shown in
the table above. |
|
