Our firm specializes in providing diverse accounting services to the insurance agents industry, and in the context of valuations and the sale/purchase of insurance agencies in particular.

We have the tools to assist you and to accompany you fully from the valuation stage, considering the feasibility of the transaction and the optimal tax planning at the time of the sale transaction.

Methods of evaluation

At present, four main methods are used in the world to carry out a valuation, although most of them are not relevant to the insurance agents industry. The first method is the market value method. In this method, the number of shares sold is multiplied by the value of each share. As stated, this method is irrelevant when selling an insurance agency (as opposed to an insurance company), since this method is relevant only in cases where the subject of the valuation is a traded company. A second method is the asset value method. In this method, the value of all assets identified in an entity is summed up, and the identified liabilities are reduced, with reference to the tax aspects of the sale. This method is not suitable for calculating the value of an insurance agency, since an insurance agency is not a business with a large amount of tangible assets, and this is not even the main component that the seller and buyer consider. In most cases, the value of an insurance agency is not measured in its assets, which usually consist of furniture, computers, and a few other electronic accessories, but the customer portfolio (and goodwill). They constitute an intangible asset that is not reflected in this valuation method. A third method is the income method, also known as the DCF method. According to this method, the value of the entity is calculated by constructing a forecasted future cash flow (net operating income), net of changes in working capital, depreciation and amortization and capital investments. In addition, this method requires consideration of the entity’s capital structure and interest rates relevant to the entity. Although this method is currently accepted in the world for the valuation of companies, it is considered the least acceptable in the insurance agents industry in particular and in the free professions in general (such as accountants and lawyers), which usually prefer an approach that relies mainly on revenue turnover and ignores the operating structure of the entity. This is mainly due to the concept of a merger that will make it possible to streamline processes in the acquired agency and even to avoid a significant part of operating expenses. Another reason for not using this method is the need to rely on many significant estimates and assumptions, and the preference for a more “sure” method of assessment. A fourth method, which is most commonly used when assessing an insurance agency, is the multiplier method. In this method, a parameter is used from the financial statements of the entity being sold, multiplied by a certain coefficient accepted in the industry or in the area in which the entity operates, with reference to and adaptation to specific aspects of the entity. As stated, this is the accepted and most important method of valuation when assessing the value of an insurance agency.

Important issues in examining the consideration of the transaction

In the purchase or sale transaction, acknowledgement should be given to the scope of the consideration, adjustment and compensation mechanisms, the method of payment of the consideration and allocation of the consideration. Each of these questions should be given much thought, while examining the needs of the parties. It should be noted that these questions in general and the question of attribution of consideration in particular may have significant tax implications.

Tax planning in the sale or purchase of an insurance agency

Our firm has extensive experience in examining the buyer and seller’s tax considerations, and in planning a transaction that will not be tax intensive, all in accordance with the law.

Practical and specific recommendations according to customer needs

After understanding the complex customer needs, we advise the customer how to structure the transaction, how to adapt it, and how to make the most of this transaction. The advice we provide is not limited solely to valuation and examination of tax issues, but includes a comprehensive examination of the fulfillment of the customer’s needs in the transaction.

Our firm specializes in performing valuations and accompanying the purchase or sale of an insurance agency while providing comprehensive guidance and consultation throughout the process.
Starting from individual consultation according to the client’s needs, carrying out an assessment of the value of the activity and proper planning of the transaction in terms of tax considerations.
Contact us and we will be happy to assist you until you make a successful transaction.

For more information, contact us or go to the accounting for insurance agents where you will find more information about the unique services offered to insurance agents in our office.

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