US Economy Outlook – Unstable
As stocks continue to slide, disappointing data tempers investors outlook that a full economic recovery is near. Job data is currently below expectations for the Second Quarter of 2010, and the unemployment rate remains high at 9.5%.
Pessimism has been growing, as evidenced by the Dow Jones Industrial Average dropping 10% during the Second Quarter of 2010.
Allstate Agency Values – Stabilize
Given the relatively inelastic nature of the underlying product Allstate Agents are selling, it is no wonder a stabilization of Allstate Agency Values is occurring in advance of a full U. S. Economic Recovery.
Property and Casualty Insurance is a base needs product making it virtually recession proof in nature, as coverage on an individual’s home or auto is not deemed by many as a discretionary expense. Hence, Allstate Agency Owners continue to realize small swings in the value of their agencies relative to the large and more painful swings homeowners and equity investors have felt.
|Allstate Agency Price to 12MM Earned Premium Ratio (National Average)
|Use the arrows to see agency values over time.
Agency Analysis by Size Group
$0 to $100,000 in Renewal Commissions
Economies of Scale, or the cost benefit a business realizes through expansion has certainly helped agencies in this Size Group increase in value.
Presently, there is a growing number of Agencies with $100,000 or less in renewal commissions being packaged along with 1 or 2 other small Agencies as part of a merger transaction for outside buyers.
These outside buyers have certainly demonstrated a willingness to pay a higher multiple for a smaller individual Agency when it is part of a package deal taking them to $200,000+ in renewal commission income for a single location operation. As a result, agency values in this Size Group have realized an increase in the Second Quarter of 2010 (See chart above).
$100,000 to $200,000 in Renewal Commissions
Agencies in this Size Group continue to maintain a value in excess of 2.25 times their renewal commission income. It will be interesting to watch the value of agencies in this Size Group as agency owners strive to achieve the “Ideal Agency Model” status.
$200,000 to $300,000 in Renewal Commissions
As seen in previous releases of the Value Index, Agencies with $200,000 to $300,000 in renewal commission income tend to gravitate towards an average Value of 2.50 times renewal commission income. The Second Quarter of 2010 continues to support this trend.
Allstate Agencies in this class size tend to have enough free cash flow to invest in new growth opportunities without having to utilize leverage, thus, taking some of the stress out of a new marketing initiative.
$300,000+ in Renewal Commissions
For the third straight QTR, agencies with renewal commission of $300,000 or greater have maintained an average sales price in excess of 2.75 times renewal commissions.
These agencies are near, or have already met the desired size requirements for “Ideal Agency Model” status. The cash flow these Agencies provide gives owners flexibility with regards to investing in growth. Adding $40,000+ in additional staff expenditures in advance of growth is certainly a gamble these Owners can afford to take.
The paranoia surrounded by the media reporting “3,000 Allstate Agents being terminated” seems to have died down. Allstate is in growth mode and start-up opportunities are being granted in areas where the best/most prime growth opportunities exist.
Allstate Agencies seem to be positioned for a long-term period of stable values which are currently in-line with the underlying Economic Values their historical cash flow supports. However, change is in the air. With a desire to move up the ranks of Property and Casualty Insurers in the United States, change is inevitable. Allstate Insurance Company is poised to utilize Customer Information Centers and the Internet to attract a more price sensitive consumer to go along with those purchasers who choose to establish a relationship with a Local Agent.
The consumers who prefer an agent to assist them with their risk management needs are not going away any time soon. Likewise, you can bet that the Agent is not going anywhere either, as even the powerhouse internet-based carriers are adding storefronts to their arsenal.
Most interesting to watch will be the effects on Allstate Agency Values, if any, the “Internet Generation” will have. The younger generation, who currently purchase more goods and services on the Internet than any generation before them, will soon be deciding their desired means for purchasing Property and Casualty Insurance.