Valuing an insurance book of business involves a multi-faceted approach that combines both quantitative methods and qualitative insights. One widely used method is a revenue-based valuation. For instance, when evaluating an insurance agency as a whole, it's common practice to multiply gross revenue by a factor that generally falls between 1.5x to 3x. If you're focusing solely on the book of business, the valuation is often estimated at around 1.0-1.5x annual gross commission. These multipliers provide a starting point for understanding the financial value of the client relationships and policies held by the agency.

Another key method is using the Seller’s Discretionary Earnings (SDE) multiple. This approach looks at the operational earnings of the business, where multiples have been observed to range from 3.18x to 4.33x, with many cases averaging around 3.29x to 4.12x. Beyond these numerical values, it’s important to scrutinize factors such as client retention and renewal rates, the longevity of client relationships, and overall market value—each of which can significantly influence the final valuation.

Additional considerations include the type and size of the book of business. For example, life insurance portfolios may be valued higher compared to other lines like auto insurance. Moreover, operational aspects such as the efficiency of business systems, profitability, and potential for growth are vital components in evaluating the true worth of an insurance book. Key performance indicators like revenue generation, client retention, and average policy size should also be examined within the context of broader economic conditions, including prevailing interest rates, inflation, and GDP growth.

Finally, profitability metrics such as EBITDA—which excludes interest, taxes, and depreciation—offer a clearer picture of core operational earnings and long-term earning potential. It's also useful to consider industry rules of thumb, like multiplying total annual commissions by 1x to 1.5x, as a quick reference point. This comprehensive approach not only helps in achieving an accurate valuation but also supports strategic decision-making should you decide to sell your business.

At Iconic, we understand that each business is unique. Our technology-driven, 5-step comprehensive process—ranging from Discovery to Fund & Close—ensures that every facet of your business, including valuation, is meticulously assessed.

Stats

• While revenue‐based valuations generally range between 1.5x and 3x of an agency’s gross revenue, a balanced benchmark calculation shows a median multiplier of approximately 2.25x—a new insight that helps refine overall agency valuations.

• Research also emphasizes that robust client base characteristics—such as high retention rates and long-term relationships—play a critical role in boosting an insurance book’s value, underscoring the qualitative factors behind the numbers (Client Base Characteristics).

• Additionally, market conditions like interest rates, inflation, and GDP growth can prompt adjustments to valuation multiples, highlighting the need for a dynamic, holistic approach when assessing an insurance book’s worth (Market Considerations).