Insurance Agency (P&C Broker) Model

The model is built for an independent P&C retail agency, not a carrier, so it places client premium and earns commission rather than underwriting risk. The book rolls forward from a seed premium using two percentages: a retention rate applied to the prior year's book and a separate new-business rate, also applied to the prior year's book.

• Because those two rates sum to a constant total, net book growth stays steady across the horizon even though the mix quietly shifts toward renewals as retention improves and new-business production fades. The first forecast year has no prior year to split, so the model carries a documented assumption about its new versus renewal composition for producer compensation only.
• This roll-forward is the engine beneath every downstream revenue and cost line.

The defining mechanic is that base commission and contingent commission are modelled separately. Base commission is a flat percentage applied to the whole placed book every year.

• Contingent or profit-share bonus is priced from a published, loss-ratio-banded schedule with several tiers, each with its own loss-ratio ceiling and corresponding rate. A loss-ratio path walks upward over the horizon, so the resolved contingent rate steps down through the tiers year by year.
• That separation is what makes the model useful: total commission revenue can decline even while placed premium grows, because a rising loss ratio erodes the contingency bonus faster than the base book expands. A single blended commission percentage would hide this entirely.

Revenue flows through two cost-of-revenue and operating layers. Producer compensation is a derived payout on base commission only, split between new-business and renewal rates; contingent commission carries no producer payout, consistent with the profit-share bonuses accruing to agency ownership.

• Because producer payout applies only to base commission, the blended payout rate drifts slightly as the book mix shifts toward renewals. CSR staffing scales continuously with premium in force rather than in rounded headcount, while management and corporate headcount are fixed.
• Wages carry a benefits load and annual escalation; errors and omissions insurance, agency management system subscriptions, and gross-profit-geared occupancy, marketing and G&A complete the stack. This produces reverse operating leverage: margin compresses as high-margin contingent revenue declines while book-linked servicing costs keep rising.

Below EBITDA the model charges depreciation, applies tax at the unlevered level, and builds an unlevered free-cash-flow bridge from net operating profit after tax plus depreciation, less capex and the change in working capital. Working capital is the agency's own earned-commission receivable, not client premium held in trust, which is a fiduciary liability excluded from the model.

• Because total commission revenue can decline, that receivable can shrink and release cash, partially offsetting margin compression. Capex combines a maintenance base with a seat-buildout growth component tied to incremental staffing.
• The discounted cash flow discounts explicit-period free cash flow plus a Gordon-growth terminal value at WACC, then deducts net debt to reach equity value and value per share. The dashboard summarises the seven-year operating trend, revenue mix and the path from revenue to net income.