Valuation and Value Creation of Insurance Intermediaries

by Claudia Max (Author)
©2016 Thesis 294 Pages


The book offers a comprehensive analysis of insurance intermediaries from a capital markets perspective. It presents an up-to-date market perspective, drawing the attention to the important trends and developments in the industry and recommends strategies to secure future growth. Further, it offers a detailed description of a valuation approach specifically tailored to small and mid-sized brokers. Research on insurance intermediary M&A reveals that positive abnormal returns are achieved for acquirers. The author points out which factors lead to value creation and investigates performance drivers in the tied agent channel.

Table Of Contents

  • Cover
  • Title
  • Copyright
  • About the author(s)/editor(s)
  • About the book
  • This eBook can be cited
  • Acknowledgements
  • Overview of Contents
  • Table of Contents
  • List of Figures
  • List of Tables
  • List of Abbreviations
  • 1 Introduction
  • 1.1 Motivation and Objectives
  • 1.2 Approach and Course of Analysis
  • 2 Agents and Brokers in the Insurance Industry: an Intriguing Area for further Research
  • 2.1 Definition and Business Description
  • 2.1.1 Insurance Intermediaries as Channel for Insurance Distribution
  • 2.1.2 Activities and Functions of Insurance Intermediaries
  • 2.1.3 Key Differences between Agents and Brokers
  • 2.2 Market Overview
  • 2.2.1 Reach and Relevance in Europe and North America
  • 2.2.2 Relevant Segments and Players in the Insurance Intermediary Market
  • 2.2.3 Status Quo of Consolidation and Competition
  • 2.3 Challenges and Strategies for Counteraction
  • 3 Valuation of Small and Medium-Sized Insurance Brokers: Establishing a Valuation Approach for Business Succession
  • 3.1 Introduction
  • 3.2 Theoretical Background and Literature Review
  • 3.2.1 Value Concepts and Reasons for Valuation
  • 3.2.2 Relevant Valuation Approaches
  • The Asset Approach
  • The Income Approach
  • The Market Approach
  • Mixed Approach to Company Valuation
  • 3.2.3 Literature Review
  • 3.3 Assessment of Specificities of Broker Valuation
  • 3.3.1 Specifics of Brokers for Valuation Purposes
  • 3.3.2 Assessment of Valuation Methods for the Application in Insurance Broker Valuation
  • 3.4 Concretion of Selected Valuation Methods for Insurance Broker Valuation
  • 3.4.1 Dividend Discount Method
  • 3.4.2 “Umsatzwertverfahren”
  • 3.4.3 Recent Acquisition Method
  • 3.5 Summary and Conclusions
  • 4 Value Creation in Insurance Intermediary Mergers and Acquisitions: an Opportunity for Realizing Positive Abnormal Returns
  • 4.1 Introduction
  • 4.2 M&A Activity and Status of Consolidation
  • 4.3 Literature Review and Status Quo of Empirical Research
  • 4.3.1 Motives for Mergers and Acquisitions
  • 4.3.2 Wealth Creation in Insurance Intermediary M&A
  • 4.3.3 Value Determinants in Insurance Intermediary M&A
  • 4.4 Research Hypotheses
  • 4.5 Methodology and Data Sample
  • 4.5.1 Data Sources and Data Sample
  • 4.5.2 Analysis of Value Implications
  • 4.5.3 Analysis of Determinants of Value Creation
  • 4.6 Empirical Results
  • 4.6.1 Results on Value Implications
  • 4.6.2 Results on Value Determinants
  • 4.7 Summary and Conclusions
  • 5 Performance Transformation in the Tied Agent Channel: Achieving a step-change in Tied Agent Productivity
  • 5.1 Introduction
  • 5.2 Performance Transformation in the Tied Agent Channel
  • 5.3 Creating Transparency: Analysis of Agency Performance
  • 5.3.1 Diagnostic of Tied Agent Channel Performance
  • 5.3.2 Empirical Research on Tied Agent Channel Performance
  • 5.3.3 Analysis of Drivers of Tied Agent Performance
  • Data Sources and Data Base
  • Methodology Specification
  • Performance Measures and Determinants
  • 5.3.4 Empirical Results on Performance Determinants in the Tied Agent Channel
  • 5.4 Designing the Program: Development of concrete Measures for Performance Improvements
  • 5.4.1 Operational Levers
  • 5.4.2 Structural Levers
  • 5.5 Prototyping and Piloting: Preparation of Transformation
  • 5.6 Rollout: Implementation of Transformation
  • 5.7 Summary and Conclusions
  • 6 Summary and Concluding Remarks
  • Appendix
  • Publication Bibliography

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List of Figures

Figure 1: Course of analysis, applied methodology, and data sets of this doctoral thesis

Figure 2: Relevant distribution channels in the insurance industry

Figure 3: Business activities of intermediaries from the view of different stakeholders along the insurance cycle

Figure 4: Characteristics and differences of tied agents, multi-tied agents, and brokers

Figure 5: Average commission rates by intermediary type and product category

Figure 6: Insurance intermediaries in Germany

Figure 7: Channel distribution in the European non-life insurance market

Figure 8: Channel distribution in the European life insurance market

Figure 9: Insurance channel distribution in North America

Figure 10: Characteristics of relevant broker segments

Figure 11: Size of intermediaries by number of employees, revenue, and income

Figure 12: Challenges in the intermediary industry

Figure 13: Intermediary market development

Figure 14: Age structure of German insurance intermediaries

Figure 15: Systematisation of reasons for valuation

Figure 16: Implications of objectified in contrast to subjective valuation theory

Figure 17: Relationship between value and price

Figure 18: Systematization of valuation approaches and methodologies

Figure 19: Valuation process of the dividend discount and the DCF method

Figure 20: Analysis and planning horizons underlying the dividend discount method

Figure 21: Relationship between the different cash flow variants

Figure 22: Calculation of the equity value of the company under the APV approach

Figure 23: Valuation procedure under the SPCM method

Figure 24: Valuation procedure under the excess earnings method

Figure 25: Share of intangible assets of German brokers of different size

Figure 26: Public broker EBITDA multiples of enterprise value

Figure 27: Public broker revenue multiples of enterprise value

Figure 28: Proposed adaptations of the DDM for broker valuation

Figure 29: DDM valuation process for small and medium-sized brokers

Figure 30: EBITDA and commission multiples for broker acquisitions in the US ← XIII | XIV →

Figure 31: EBITDA multiples for broker acquisitions in the US for 2012 by payment type

Figure 32: Development of M&A transactions in and between North America and Europe involving an insurance intermediary as target and/or acquirer

Figure 33: Overview on deal values paid in the insurance intermediary industry in North America from 2004 to 2013

Figure 34: Demographic projection of US and German intermediary owners

Figure 35: Deal activity by types of bidders and overview of most active bidders in the insurance intermediary industry

Figure 36: Classification of M&A motives

Figure 37: Capital market research for insurance M&A

Figure 38: Development of transaction number and volume of entire sample

Figure 39: Data sample by industry classification

Figure 40: Data sample classified by geography

Figure 41: Data sample distribution by size of transactions

Figure 42: Distribution of transactions by acquirer and target efficiency

Figure 43: Estimation period and event window

Figure 44: Summary on employed methodology and test statistics

Figure 45: Development of CAARs over the event window

Figure 46: Productivity gap between top and bottom agencies

Figure 47: Transformation approach for tied agent channels

Figure 48: Key elements of the “Agency Insights” diagnostic tool

Figure 49: Overview on available data parameters in the data base

Figure 50: Illustration of the regression model applied in this study

Figure 51: Definition of agency clusters

Figure 52: Applied provision rates for the calculation of standard provisions

Figure 53: Sales funnel results and effectiveness per agency cluster

Figure 54: Overview on operational and structural levers

Figure 55: Adaptation of operational and structural levers to agency groups

Figure 56: Overview on the steps included in the prototyping and piloting phase

Figure 57: Commission multiples in broker transaction

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List of Tables

Table 1: Calculation of cash flows in the dividend discount method

Table 2: Overview on valuation approaches under the DCF method

Table 3: Specific attributes of brokers and their impact on valuation

Table 4: Assessment of valuation methods for broker valuation

Table 5: Data collection of the brokerage business in the initial stage of the valuation process

Table 6: Scoring assessment matrix for broker businesses

Table 7: Assessment grid of owner-manager in relation to a typified manager

Table 8: Small cap premiums in the literature

Table 9: Risk ratios of selected brokers

Table 10: Discount rates for broker valuation proposed by the AAIMCo

Table 11: Empirical results on M&A value determinants in the academic literature

Table 12: Examined value determinants and underlying M&A motives

Table 13: Ranking of most active acquirers in the data sample

Table 14: Definition of independent variables for the multivariate regression

Table 15: Results on acquirer CAARs and test statistics for 467 transactions

Table 16: Results of the multivariate regression for all six determinants

Table 17: Results of the multivariate regression disregarding variables for hypothesis 5

Table 18: Results on value determinants that are value enhancing

Table 19: Existing research on determinants of tied agent performance

Table 20: Definition of performance determinants

Table 21: Summary statistics of independent variables for the total sample

Table 22: Regression results for standard provision as performance measure

Table 23: Regression results for effectiveness as performance measure

Table 24: Comparison of results of this study with prior literature

Table 25: Results on acquirer CAARs and test statistics for 206 transactions analysed in the multivariate regression

Table 26: Summary statistics of independent variables for tied agent clusters

Table 27: Regression results for standard provision as performance measure with standard provision rates increased by 10 per cent

Table 28: Regression results for standard provision as performance measure with standard provision rates decreased by 10 per cent

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ISBN (Hardcover)
Publication date
2016 (April)
Insurer M&A Broker Agent
Frankfurt am Main, Berlin, Bern, Bruxelles, New York, Oxford, Wien, 2016. XX, 294 pp., 28 tables, 57 graphs

Biographical notes

Claudia Max (Author)

Claudia Max studied business administration at the University of Mannheim and Law and Accounting at the London School of Economics. She earned her PhD at the University of Darmstadt.


Title: Valuation and Value Creation of Insurance Intermediaries