An insurance book of business for sale is a valuable asset. This book collects all of the insurance policies that the seller had underwritten. In other words, the volume presents crucial information about the insurance agency, particularly its sales and revenue performance.
As a buyer, you should learn how to read the data in an insurance book of business since it will help you understand if the seller promises good investment returns.
The Three Methods of Valuing Books of Business
There are three primary approaches to determining the salability of a book of business for insurance agencies.
This computation strategy weighs the insurer’s future value using their current income. Three figures are considered: cash flow, yearly return rate, and the company’s forecasted worth. All these are combined into the net present value (NPV), which the valuator divides against an appropriate capitalization rate.
Investors can attempt to understand how risky or how profitable a candidate insurance agency can be using this method. However, they also have to pore through comprehensive data to know how the business and its market interact to fully benefit from this technique.
The price/earnings ratio (P/E) calculates the company’s value against its sales performance. You can use this ratio to see if the insurance agency’s proposed price is fair when considering how much it earns. To calculate the P/E percentage, you must multiply the book’s pre-tax profits by a pre-determined factor.
Present Value of Future Earnings Method
Lastly, the Present Value (PV) of Future Earnings valuation tries to predict how much an insurance underwriter would be worth if it sustains its current growth and profitability. This methodology derives its reasoning from the concept that today’s money will be worth more, instead of less, in the future.
We Can Help You Discern an Insurance Book of Business for Sale
Evaluating the actual value of a book of business from an insurer is a Herculean task for would-be investors. You can save time by letting us help you with the calculations. Contact us now.