Underwriting agency valuations that price the binder, the capacity behind it and the portfolio you control.

An underwriting agency valuation is an independent opinion of what a managing general agent is worth on a set date. Unlike a broker, an agency acts for the insurer under a binder, so its value turns on the capacity agreements behind it: their remaining term, termination and change of control clauses, who controls renewal rights, the portfolio's loss experience and profit share, and the underwriting team. The fee is set by the agency's own annual revenue, not the premium it writes: $1,495 + GST under $2 million, $2,495 + GST from $2 million to $3 million, and $3,495 + GST from $3 million to $10 million.

How is an underwriting agency different from an insurance broker?

A broker acts for the client. An underwriting agency acts for the insurer. Under a binder, an insurer that holds a financial services licence authorises the agency to enter into risk insurance contracts on its behalf, to handle and settle claims for it, or both (Corporations Act s 761A). A licensee acting under a binder can be the insurer's authorised representative and, for contracts and claims under the binder, is taken to act for the insurer and not the insured (s 916E).

That changes what is being valued. The agency does not carry the insurance risk on its own balance sheet. It owns its underwriting expertise, its products and pricing, its distribution through brokers, its systems and data, and its contractual position under the capacity agreements that let it write business. Its revenue is what the insurer pays it out of premium for that work, plus policy fees, claims handling fees and any profit share.

What drives the value of an underwriting agency?

The valuation reads the agency's contracts as closely as its accounts, because the contracts decide how long the income lasts.

• ·Capacity term: how long each capacity agreement runs, when it renews, and how past renewals have gone
• ·Termination and change of control clauses: whether a sale, a new shareholder or the loss of a key underwriter lets the insurer end or reprice the binder
• ·Renewal rights: whether the agency or the insurer controls the portfolio if a capacity agreement ends, and whether the agency can move it to replacement capacity
• ·Capacity concentration: how much premium depends on one insurer or one binder
• ·Underwriting results: loss ratios by underwriting year against the targets in the agreement, because poor results put capacity at risk
• ·Distribution: how many brokers place business with you, and how concentrated that is
• ·Product and class mix: niche classes with specialist pricing are harder to replicate than commodity products
• ·People: whether underwriting authority and broker relationships rest with one or two founders
• ·Systems and data: rating, policy administration and claims data a capacity provider can audit

Why does the capacity agreement sit at the centre of the value?

Capacity is lent, not owned, and APRA expects insurers to manage it that way. Its operational risk standard, CPS 230, requires an APRA-regulated insurer to classify providers of underwriting and claims management services as material service providers unless it can justify otherwise. For material arrangements the insurer must keep a formal, legally binding agreement that includes the right to terminate, and must be able to conduct an orderly exit if needed.

For a buyer, the agency's future income depends on agreements the insurer must be able to walk away from. The valuation records the remaining term, termination rights, change of control and assignment clauses, run-off arrangements and what happens to renewal rights on exit. Where capacity is close to renewal or sits with one insurer, it tests replacement capacity on different terms rather than assuming the current binder runs forever.

If your agency holds its own licence and the deal is a share sale, ASIC must also be told of the change in control no later than 30 business days after it happens.

How is profit share income treated?

Many capacity agreements pay the agency a share of underwriting profit when a portfolio performs. It is real income, but it is volatile. It depends on loss experience, it may be calculated and paid well after the policies are written, and for longer-tail classes it can be adjusted as claims develop. A buyer will not pay the same price for a dollar of profit share as for a dollar of base remuneration.

The valuation separates base income from profit share, looks at profit share across several underwriting years rather than one good year, and checks whether past payments can be clawed back or offset by later losses. Where they can, that exposure is reflected in maintainable earnings.

How is an underwriting agency valued, and what sets the fee?

An established agency is usually valued on maintainable earnings: normalised profit after paying founders a market salary for the underwriting work they do, capitalised at a rate that reflects capacity risk, concentration and growth. Where the agency is young, or a capacity agreement has a fixed remaining term, a cash flow forecast that follows the contract terms can be more reliable. Either way, the implied multiple is a cross-check, not the method.

The fee band is set by the agency's own annual revenue: the remuneration, fees and profit share it earns. It is not set by the gross written premium it binds, which is the insurer's premium.

When does an underwriting agency need a valuation?

• ·A sale to an insurer, a broking group or a private investor
• ·A capacity provider or investor taking equity in the agency
• ·A founder exiting or reducing their holding
• ·Equity for key underwriters, priced off an independent value
• ·A restructure or transfer between related parties, where tax law needs a market value
• ·A shareholder dispute, where an expert report is $4,495 + GST

What does an underwriting agency valuation cost?

Fees are fixed in writing before work starts and never depend on the value concluded. Delivery time starts once payment and all required information have been received. Every report is signed by a suitably qualified business valuer and follows the guidelines of APES 225 Valuation Services.

• ·Small Business Valuation: $1,495 + GST where the agency's annual revenue is under $2 million, delivered in 2 business days
• ·Medium Business Valuation: $2,495 + GST for $2 million to $3 million, delivered in 3 business days
• ·Large Business Valuation: $3,495 + GST for $3 million to $10 million, delivered in 3 business days
• ·Above $10 million: quoted in writing before work starts, with the delivery date agreed before commencement
• ·Expert report for a dispute or court: $4,495 + GST, with the delivery date agreed before commencement
• ·Add-ons: +$495 per retrospective (past) valuation date and +$795 per additional entity