the bridge: fall 2015

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I N S U R A N C E I N D U S T R Y K N O W L E D G E F R O M O A K S T R E E T F U N D I N G

F A L L 2 0 1 5

Plan for Business

SuccessPage 6

Overcome Growth Challenges

Prepare to Acquire the

Right Way0

2 | www.oakstreetfunding.com/subscr ibe • 866-625-3863

PublisherOak Street Funding

Editorial DirectorMichelle Wilson

Contributing EditorsMichelle WilsonStefanie Neer

Graphic DesignerAidreen S. Hart

Fall 2015

www.oakstreetfunding.com

The Bridge is a newsletter produced by:

Oak Street Funding11350 N. Meridian Street

Suite 600Carmel, Indiana 46032

866-625-3863

Potential borrowers are responsible for their own

due diligence on acquisitions. Loans and lines of

credit subject to approval. California residents:

Loans made pursuant to a Department of Corporations

California Finance Lenders License. The materials in

this paper are for informational purposes only. They are

not offered as and do not constitute an offer for a loan,

professional or legal advice or legal opinion and should

not be used as a substitute for obtaining professional or

legal advice. The use of this paper, including sending an

email, voice mail or any other communication to

Oak Street, does not create a relationship of any

kind between you and Oak Street.

© 2015 by Oak Street Funding LLC. All rights reserved. Any duplication

without prior written permission is strictly prohibited.

Prepare to enter the acquisition game

FEAT

URES

4

10

The advantages and disadvantages to both

Rent or Own

16Increase profits and retention with an agency captive

Navigate the Captive Highway

6Set your business up to succeed

Reach Your Goals with a Strategic Plan

Share Your ThoughtsIf you have any questions, comments or ideas for The Bridge®, let us know. Email us at [email protected].

http://www.oakstreetfunding.com?ref=1177


Five years ago our leadership team cast a vision for Oak Street Funding to

substantially grow its portfolio of loans through a proven process of delivering

unique product offerings, industry expertise, cutting edge technology and exceptional

customer service. We celebrated reaching our long-term goals in 2014, and now

we’re celebrating again. In August of this year, First Financial Bank acquired Oak Street

Funding from our private equity sponsor, owner Angelo Gordon.

Growing our loan volume more than five-fold while high maintaining credit

quality and underwriting criteria was challenging. How did we do it? Thankfully,

we had supportive ownership, dedicated and hard-working staff and strong

customers. Equally important, however, was our focused and disciplined approach.

Our vision was transformed into a strategic business plan that was diligently

followed and scrupulously tracked. That plan guided our decisions and fueled our

efforts, and I can’t imagine where we’d be without it. Now it’s time for us to take

Oak Street to the next level. With new ownership and new opportunities, we’re

ready to cast a new vision. By sticking to our approach, we hope to achieve even

more success in the coming years.

How about your business? Do you have a strategic plan? Are you on track to see

your vision come to fruition? A plan is critical to reaching your goals and fulfilling

whatever vision you’ve cast for your business. But a plan has to be developed and

executed in the right way so it actually serves as a roadmap to guide you to your

desired destination. As we fully understand the importance of planning, we’ve

provided some helpful tips on how to develop and maintain a plan in this edition of

the Bridge. And as we do in each publication, we’ve included ideas and insight for

growing and managing your business. We hope you find great value in the content.

LETTER FROM THE FOUNDER/CEO

Realize Your Vision PLAN TO SUCCEED

Oak Street Funding Vision StatementOak Street Funding utilizes industry knowledge, well-developed technology and passion to deliver best-in-class service and capital products to insurance and finance professionals nationwide. Our customer-focused mind-set and access to capital will allow us to continue to fulfill customer needs, identify growth opportunities and provide an empowering work environment for employees.

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Acquisitions14.7%

Was it the Clash who sang, “Should I rent or should I own?” Ok, maybe not. But, after years of speaking to many agencies from Indianapolis to the Casbah, renting versus buying seems to be a common dilemma agents face across the country. Is it worth it to pay $15 per square foot for a building with poor signage and an HVAC system that’s iffy at best? If you’re sick of taking the stairs because the elevator is down — again — and are considering buying your own building, consider these factors.

Should I buy?Purchasing a property in which to locate your agency does

offer quite a few advantages. Whether you’re buying a condo, a mansion or an office

space, real estate remains a tangible investment. Economically speaking, you’re building equity over time as opposed to merely

relinquishing the property at the end of your lease with nothing to show for your time and money. From a financial standpoint, potential tax savings through depreciation and paid interest deductions (if you’ve financed) are another bonus.

Landlords want to make money on their investments, of course. By purchasing a property for yourself, you avoid having to pay someone else an additional mark-up to cover their insurance premiums and expenses. And, if you buy, you’ll never find yourself in a pinch because your landlord has suddenly decided to sell the property and move to Florida, or wants to make changes to the space that you don’t agree with. Owning also allows you the freedom and authority to purchase extra space for potential expansion, as your business grows or to sublease the existing space for your own additional income.

For agency owners, being able to put up and monitor your own signage on site is a huge plus when it comes to

RENT OWN?-or-

By Brian Henson

promoting your business, a factor some landlords may take offense at or have issues with.

Perhaps the biggest pro for many property owners? You get to call all the shots. There’s no need to consult Mr. Furley to ask permission if you want to renovate,

upgrade an appliance, add another bathroom or simply paint the walls a different color. You’re in charge and you make the decisions.

Now for the cons… you’ll need to have enough money in the bank to afford the property you want. Take a good, hard

look at your books to determine whether you can comfortably manage the down payment or cash

expenditure you’ll need to procure the property, in addition to the monthly loan payment. Does the investment make sense within the scope of your overall business plan? Make sure you’re in a position to qualify for credit financing as well. Banks have tightened up their commercial real estate underwriting since 2008, requiring larger down payments and more stringent applicant qualifications.

You’re more locked in if you buy. Depending on how your business develops, it may be harder to sell the property or to add on more space if needed in the future than it is to renegotiate or break a lease and go somewhere else.

When disaster strikes or something goes drastically wrong, you’re on the hook to deal with it. If the parking lot needs snow shoveled, someone breaks a window, or pipes burst in the middle of the night, there’s no one to call for help. You’re the boss, and you’ve got to shell out for the maintenance and upkeep.

Ultimately, you’re at the mercy of the market. While smart real estate investments can bring a profit over time, they may just as easily result in a loss, depending on the whims of the economy.

Should I rent?The biggest advantage renting offers is flexibility. If you’re a

new business owner just starting out, you may not be 100 percent sure of where you’ll want to be five years from now. You might need a bigger space by then or you might prefer something smaller and more manageable. Renting allows you freedom without long-term commitment. You have a place you can count on for now, but can still keep looking for the perfect property to purchase later, all while getting your agency up and running.

Besides keeping your options open, you’re also keeping more money in your pocket for the immediate future since you’re not laying out a big chunk of cash for a

down payment or lump sum purchase. You may prefer to spend your money elsewhere, using it to build your business rather than sinking it into a long-term property. Additionally, if you’re a brand-new business owner, you may need some time to build up your credit in order to position yourself as a preferred loan candidate down the road.

If your geographic market is keeping pace with the rest of the country, chances are there are plenty of rental properties to choose from. Office occupancy is on the upswing in some areas, but for the most part, the inventory of commercial rental properties remains strong and diverse. Who knows, you may even find yourself in a position to take advantage of concessions like reduced rent payments or bonus amenities.

Maintenance issues? Just call Schneider. This is one time when it’s ok to pass the buck. Just dial up the landlord or property manager and let them handle it.

As for the downsides…Your rent may be higher than a loan payment would be if you’d purchased, as landlords have to pass along their own costs for utilities, insurance, taxes and maintenance, in addition to turning a profit for themselves. Keep in mind that leases typically escalate over time in keeping with the costs of inflation. And, your landlord may choose not to renew your lease when it expires, especially if the property is in high demand and can attract new tenants who are willing to pay higher prices, leaving you in the lurch to find a new home.

Ultimately, an analysis of all the major factors and the life cycle of your agency will help you determine whether you should stay or go.

About the AuthorAs Director of Strategic Markets Underwriting, Brian Henson specializes in underwriting, arranging, and structuring large loan transactions, mergers and acquisitions. He has 12 years of commercial lending experience, primarily with Midwestern banks. Brian graduated from Purdue University with a bachelor’s degree in management and a minor in finance. He can be reached at [email protected].


Reach your goals with a STRATEGIC PLAN

Agents and brokers should develop a

strategic plan that addresses short-term and long-term goals.

Two recent milestones in my life made me realize just how fast time passes. I sent my oldest child off to his second year of college and I celebrated Oak Street Funding’s twelfth year in business. It seems like my son should still be in middle school and Oak Street just opened its doors with only a few employees. But he now walks the campus of my alma mater and Oak Street is very different from even three years ago in terms of size, sales and capabilities.

If we’re not careful, we’ll look up and an entire year will come and go in what seems like weeks, in retrospect. Two or three years can be gone in a flash and we’ll wonder where in the world time went. Sometimes it’s only when we reach milestones that we stop and reflect on progress and how closely we’ve achieved our goals. We ponder how well we’ve raised our children or closely we’ve aligned our business with our vision cast years before.

Hopefully, we don’t make a habit of waiting for major events to occur before we are prompted to reflect on and measure progress in our personal or professional lives. If we do, we may find we’ve severely missed the mark and it’s too late to make up for lost time. There are no “do-overs” in many areas of life, especially in business. We have opportunities to change directions when we know we’re off-course, but they typically pale in comparison to the opportunities we have when we’re just starting out and everything is fresh. One of the best ways to avoid finding ourselves in regretful circumstances when we didn’t properly respect time is to develop and follow a strategic plan.

While some of you are just starting out, most of you are likely veterans of the insurance business looking

to your next phase. Some of you are even preparing to retire. Regardless of your stage, you’re still a business owner or an agent who needs to either continue operating at your current level to

maintain what you’ve built, or you need to grow to expand, increase profitability or position your agency for

sale or succession. It may seem like a rhetorical question, but does your agency

have a strategic plan that is regularly evaluated and revised to meet the results you desire? If yes, are they written with goals, steps and action items or do they exist in someone’s head? It’s difficult to achieve goals that aren’t in writing — hard to plan and execute activities, monitor progress, assess effectiveness and more. It’s also more challenging to budget for activities and market your business on a continual and consistent basis.

Agents and brokers should develop a strategic plan that addresses short-term and long-term goals. Whether you’re a small business or fairly large, planning is critical. Too often, business owners make the mistake of thinking business planning is more suited for larger, complex organizations, but it’s just not

true. The potential consequences of not planning can negatively impact every area of your company regardless of its size, from finances to human resources to sales. Some effects are obvious — you can miss out on short-lived opportunities, fall behind the competition, de-motivate your employees because they don’t sense direction or purpose, and fall short of revenue targets.

Other consequences are more subtle and can catch you off-guard. One of the biggest dangers, for example, is that you can be ill-prepared for change. If there’s one thing I’m certain of as a business person, it is constant change. Owners must

go through planning and evaluation processes to identify changing factors that may impact their organization and how they do business. They need to know how and when they will react and what resources will be necessary to respond appropriately. Online insurance aggregators are growing; larger companies are acquiring more and more smaller agencies, giving those agencies more capabilities; carriers are introducing new, tougher revenue and retention requirements, certain products are softening while others continue to harden, and commission schedules are changing, to name just a few shifts that can quickly set new changes in motion.

What’s more, you can set your business up to fail financially when you don’t plan. Creating an operating budget and sticking to it is an important business practice. Most agents

start an agency because they have an aptitude for sales, but they don’t necessarily have a strong accounting background and may struggle with business finance. Consequently, they may neglect to plan, monitor and control revenue and expenses. Cash flow almost always suffers when owners lack a detailed under-

standing of the agency’s financial condition. Agencies should invest time and resources to ensure their business is in good financial shape and that cash flow is adequate to cover unexpected expenses. This will also help the business thrive and position it favorably should there be a need to access capital or make other adjustments due to market changes.

A strategic plan is critical to reaching your goals and fulfilling whatever vision you’ve cast for your business. But a plan has to be developed and executed in the right way so it actually serves as a roadmap to guide you to your desired destination. Plans should extend beyond visions and big pictures. They need to include goals and action steps with dates, expected results and estimated dollar amounts. They need to be reviewed and tweaked on a regular basis and include systems of accountability. Even if funds are scarce and new growth initiatives aren’t possible for a time period, a strategic plan will still help to keep an agency focused in the right direction and keep finances on track.

Developing strategic plans doesn’t have to be complicated or costly. Online resources offer a host of tools and information to help you get started. A host of templates can be used to guide planning and dashboards are available to help you track and share key performance indicators. At the very least, start with something simple and build upon it over time until it’s more comprehensive. The world of insurance changes at a fast clip and time passes quickly, so make sure business planning is a key part of your operations.

About the authorRick Dennen is president and CEO of Oak Street Funding, which provides commission-based lending for insurance agents that need capital to buy, build or sell their agency. Dennen is a licensed agent in the state of Indiana for Life, Accident & Health products and a licensed Certified Public Accountant in the State of Indiana. In addition, he is an adjunct professor of Venture Capital and Entrepreneurial Finance at the Indiana University Kelly School of Business. He can be reached at [email protected].

This article originally appear in the November 2014 edition of Rough Notes Magazine.


:industry news

Cyber attacks in insurers’ futuresA report by PwC suggests cyber attacks are foreseeable future events for

insurers that are storing growing volumes of consumer data in the cloud.

The report claims the issue of an attack isn’t a question of if an attack may

occur for some carriers but a question of how bad the impact will be when one

does occur. As attacks seem inevitable, it may be no surprise that cyber security was

the top concern for surveyed insurance companies from around the world. What’s more, cyber still involves

many unknowns and insurers may not fully grasp the risk of claims on cyber security risk policies.

Research by ConsumerReports® of more than two billion car insurance quotes from

700 carriers is stirring up consumer questions about how strong the correlation

is between how well people drive and how much they pay for insurance. The

consumer advocates company discovered rate quotes are increasingly based on

socioeconomic factors like credit history and state it’s difficult for consumers to

compare quotes because pricing is so complex and confusing. As the company calls

for people to join efforts to demand price-setting practices from insurers and regulators,

hundreds of consumers have spoken out on this issue via social media.

Growing demand for transparency in policy rates

Consumers think nothing of purchasing policies for automobiles, homes,

and other valuables. But they probably have never considered insuring

another expensive and valuable asset – college tuition. Allianz Global

Assistance has introduced insurance plans for college tuition. In the event

a student cannot finish out a semester due to illness or some other

unforeseeable incidents, families can recover all or part of the tuition.

Allianz has launched the program in nine states with plans to expand

to other states in 2016.

Insurance protection for college tuition


http://www.computing.co.uk/ctg/news/2421888/inevitable-that-insurance-companies-will-lose-personal-data-to-cyber-attacks-claims-report

http://www.consumerreports.org/cro/car-insurance/auto-insurance-special-report/index.htm

http://www.richmond.com/business/article_8cdbf5f8-a0b4-54f2-bef7-3049744d87ca.html

http://www.prweb.com/releases/2015/08/prweb12894980.htm

http://www.pianet.com/news/press-releases/2015/piaresearchescommerciallinescustomers081015

http://www.ibj.com/articles/54463-butler-plans-student-run-insurance-agency-as-lure-to-boring-field

Auto lines decrease in profitability, homeowners increase

As most insurance agency owners are drawing closer to retirement age, it's

critical to attract younger professionals and prepare them to take over agency

businesses. Butler University is launching a new initiative to do just that.

The college is planning to create a student-run

captive insurance company.

The goal is to give undergraduate

students a real-life experience

within the industry. The captive

company will be part of Butler's

risk management program

with mentoring provided by

insurance professionals from the

insurance industry.

Students manage insurance agency

Premiums from personal and

commercial auto lines are

projected to grow in 2015 but

result in lower profits. A new

industry projections report

(P&C Insurance Outlook for

2015 through 2019) released

by SNL Financial predicts

rate increases to auto lines

by several large carriers won’t

positively impact profitability

until 2016. It also states

increasing losses in

homeowners lines, which have

been growing in profitability,

could result in auto insurance

rate increase for businesses

and consumers.

Commercial customers prefer independent agents

According to research conducted by the National Association of Professional

Insurance Agents (PIA), small businesses prefer working with independent

insurance agents. While small business owners like utilizing online resources

to shop and research options, they want the personal service and professional

advice of an agent. Because the Internet provides convenience and efficiencies,

independent agents will have to work hard to provide the online presence,

convenient technology and professional service to meet client expectations.


Over the years, I have spoken with hundreds of insurance agents interested in purchasing an agency. The size and backgrounds of these hopeful acquirers have run the gamut; insurance veterans ready to break into the world of ownership,

well-established agencies looking to expand their footprint, and large firms who have completed several purchases. No matter the size or experience level, you can set yourself up for the best possibility of success by answering the following questions before stepping up to the plate to take a swing at buying an agency.

Have you considered all available options?Naturally everyone wants to acquire a multimillion dollar firm

at a rock-bottom price, with a great staff and extensive carrier list that immediately vaults them into the upper echelon of agents. If you are set on purchasing this type of operation, be prepared. In today’s M&A market, you will need to fend off several other suitors and pay a premium for the company. You also could end up empty-handed after spending countless hours and resources searching for these companies, reviewing documentation, and submitting offers only to be told another buyer swooped in and outbid you. It is a story I have heard repeated many times the past few years from large, experienced buyers. Many are puzzled why they are now struggling to compete for the types of deals they have bought in the past. Fortunately there are other acquisition strategies that have the potential to be just as fruitful. Considering a few other options can help increase your success rate in buying another business.

Reevaluate your size requirementsInstead of only looking at businesses at a certain commission

size, try dropping a level or two and completing multiple deals to get you to the same acquired revenue figure. I have had many clients who are serial acquirers find great success with this route. A nice side bonus is that you may find you are paying lower multiples than what you would have had to on the larger deal.

Buy only a book of businessBuying a book of business may not move the needle as

much as you desire, but this type of acquisition can often end up being the most profitable for an acquirer. In this scenario you should be able to fold the seller’s book right into your current operation without absorbing additional overhead costs of a physical location. While there is nothing wrong with pursuing a larger agency, don’t narrow your search so much that you waste time and become disenchanted if you come up empty handed.

Is your house in order?If you immediately found yourself answering, “well of course

it is” take a few minutes and dig a little deeper. I often think our house looks fine but my wife’s keen eye can always spot the dust on the desk from across the room. Do a quick self-assessment to verify you are in a good position to acquire another business.

Capabilities of your current staffBefore acquiring another operation, are you confident your

current business can continue to operate at a high level if you are not there to oversee the day to day activities? Chances are good

that you will spend the majority of your time in your new agency for at least three to six months after the deal is closed. What will happen to your current company without you behind the wheel? There are only 24 hours in a day, so while working longer hours may be an option, it is a limited one and your performance could suffer by trying to take on too much. If you don’t have someone who could take on several of your current responsibilities, start cultivating that person now. You could get lucky and find a seller who has a superstar office manager who allows you to simply oversee the new business, but why not have that situation already in place within your own agency?

TechnologyIs your current management system and accounting software

easily capable of integrating the seller’s book of business and financials? Some of the ease of integration will depend on what the seller currently has in place, but be sure your agency isn’t the weak link. Think about the kind of information you will want to see from the seller during due diligence as well as the reports you will need to track progress and retention after closing. Are you able to produce that type of documentation within your own agency right now?

What are your financial capabilities and resources?If you have your staff and agency running like a well-oiled

machine and have found the perfect agency to acquire, it’s time to work on the deal. Well, not quite yet. How are going to pay for your new business? Best case scenario is the seller would agree to finance the entire deal and you could pay him or her from the future commission stream. While that can happen, it is very rare and if you were in the seller’s shoes, would you want to play the role of a bank? To put yourself in the best position to get a deal done, plan on having 20 percent of the purchase price in cash available to put down. You may be able to negotiate a lower down payment, but the less you put down, the more strain you will put on the agency’s cash flow and thus lower the odds of receiving approval from the lender financing the deal.

Putting your strategy togetherIf you really want to acquire an agency, you

need to put yourself in the best position possible to succeed. Take some time to evaluate what your profile as a buyer looks like to a seller, the seller’s advisor or a lender. If you see some areas that need improvement, start to work on them immediately. Set aside more of your profits for a down payment, reinvest in technology or training your staff to become more efficient are all excellent ways to become a very attractive buyer.

If you are ready, keeping an open mind will ensure you don’t miss opportunities you may have previously passed on in pursuit of a larger agency. Some of the most successful buyers I have worked with over the last few years have embraced this approach and are reaping the rewards of their new found flexibility.

About the AuthorChris McAtee is an insurance industry M&A advisor and consultant. Over the past 10 years he has been a part of over 100 insurance transactions representing over $250M. He can be reached at [email protected] or 765-894-5282.

Prepare your business to acquire

Get in the game

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Many insurance businesses are turning to mergers and acquisitions to reach growth goals. Compared to organic growth, purchasing a book or agency typically results in faster growth and higher growth percentages. As M&A activity continues to increase and more businesses consider it as a key strategy, here are four observations about the M&A market you should consider.

Multiples don’t tell the whole story.While news of record multiples are being broadcast, savvy

industry watchers understand the back-end features of many of those deals and exuberant forecasted gains from economies of scale. At the other end of the spectrum, for an under-performing agency, it’s not hard to have an impressive multiple with lackluster EBITDA. Fair-priced deals are frequently getting done with both parties truly having a win-win outcome.

Re-invest in your agency: People & Technology.The demand for human capital, at times, seems nearly at a

crisis level. Agency talent is a tangible element in M&A deals as buyers include human capital in the due diligence and valuation processes. Growth organizations are careful to not get behind the people curve. We are also seeing an increase in working capi-tal loans with proceeds used to develop producer talent and upgrade technology.

Advisory services: Money Well Spent.Industry M&A advisors are much appreciated! For a major, if

not the largest financial transaction of your career, expert advisory services can be well worth the money. Many times the fees are quite reasonable in light of the overall transaction value.

Perpetuation Agreements: Get Partner Buyout Agreements In Place Early – Very Early.

Many succession deals are stalled with a controlling owner who, perhaps, semi-retired years ago. We see owners all the time in their late 70’s and 80’s who want to “stay with it another couple years.”

The anticipated deal crescendo of the third and fourth quarter is upon us. We stand ready to help you with your financing needs. With a significant amount of deals in the $1 to $5 million range, we are now supporting loans up to $20 million. We also fund many loans under $1 million and this continues to be a core market focus. Client results and credit quality remain exceptional.

Wisdom for Insurance Industry Mergers and Acquisitions

As we get closer to the end of 2015, insurance merger and acquisition activity is significantly stronger than in recent years.

:resources

The Realities of Selling Your Agency to a Large OrganizationIf you’re an agency owner who is looking to buy or sell an agency, you

need to be aware of how larger organizations — including aggregators — impact M&A deals. As a seller, determining which buyer will closely align with your financial goals and future vision for your agency, employees and clients may largely depend on the size of the buyer and its M&A philosophy. Understand what can happen if you sell to a large company. oakstreetfunding.com/realitiesofselling

Unveiling the Secrets Behind Your Credit ScoreEver wonder why the credit score a lender receives isn’t the same as

what you received from one of the free credit report sites? Why do the three main credit reporting agencies never have the same score – sometimes even up to a 100 point difference? How can you ensure you’re focusing on the key factors that drive the credit reporting agency’s scoring models?

If you’ve ever been shocked by a lender telling you your score isn’t quite what you thought it was, then you are not alone.

Millions of Americans, even those within the finance/lending world that routinely deal with credit, are often left wondering how and why their score is what it is. Understanding how to maximize your credit score will have a long lasting impact on just about every facet of your life now and in the future. Those that choose to ignore it and hope that all is well are almost always certain to pay significantly more, sometimes totaling hundreds of thou-sands of dollars over their lifetime.

Listen and learn as our resident expert Bill Nicholson shares what you need to know about maximizing your personal credit score. oakstreetfunding.com/creditscore

Capital Options for Insurance BusinessesNavigating the road to financing can be challenging. See some of Oak

Street's most frequently asked questions and answers about borrowing capital to understand more about your options. Learn about the three primary credit capacity parameters (cash flow, valuations and commissions) and how to determine what amount you could borrow for growth, acquisitions, succession transitions and more. oakstreetfunding.com/capitaloptions

Meet with us at events Would you like to meet at an event near you?

It may be worth a few minutes of your time to see how agencies, wholesalers, MGAs, program administrators and insurers across the country are using funds to grow and acquire other agencies. We have worked with many associations and members and will be available at several fall events. To schedule a short and confidential meeting or to talk right away, please complete a contact form at oakstreetfunding.com/events.

Topics we can discuss:• Customized financing• Senior debt• Loans up to $20 million and beyond • Commission based loans• Terms up to 12 years• Interest-only options

Loan Uses• Acquisitions/Succession• Shareholder/Partner buy-outs• Private equity exits• Working capital to support growth activities• Carrier, RRG, or Captive capital

Oct 26-28 Target Markets Annual Summit Scottsdale, AZ

Nov 2-4 Big I Indiana Convention Indianapolis, IN

Nov 4-5 SNL Insurance Brokerage Summit New York, NY

Nov 11-13 PLUS Conference Dallas, TX

Feb 21-23 MarshBerry Peak Performance Park City, UT

Taking You Where Banks Won’t.®

Where do you want to take your business? Whether you’re looking to grow, acquire, restructure or exit, Oak Street Funding has lending options to help you get there.

Since 2003, thousands of insurance professionals have benefited from hundreds of millions of dollars in funds along with our deep knowledge of their business, the market and acquisitions.

Now, we’ve raised the bar again to further meet the need for capital by increasing our loan limit to $20 million. Find out how our financing can work for you.

1-866-OAK FUND | oakstreetfunding.com* Loans and lines of credit subject to approval. CA residents: Loans made pursuant to a Department of Corporations California

Finance Lenders License. Potential borrowers are responsible for their own due diligence on acquisitions.

Financing for the insurance industry

Loans up to$20 million

Customized Loans*

• $25,000-$20,000,000

• Terms up to 12 years

• Interest-only options

• Commission-based loans

Uses of Capital• Acquire an agency or book

• Buyout ownership/Succession

• Consolidate business debt

• Get working capital

• Invest in business growth


While temporarily enjoying the rise in revenue as a direct result of correspond-ing premiums, owners who have gone through a hard market (or two) know business can be lost forever to alternative risk transfer providers while the insurance carriers replace lost capital and increase policyholder surplus. An agency captive, however, can be an ideal platform from which owners can provide additional capacity and coverage to their clients, which can lead to higher retention ratios and increased client loyalty.

Is it a good fit?Determining whether an agency cap-

tive is a good fit for your firm can start with a discussion with a qualified captive manager or consultant who has experience in agency or brokerage operations. Most often, a good starting place is to exam-ine the volatility of the book of business and the risk class. Many firms will work with an agency owner in an early stage by conducting a “pre-feasibility” study. This early stage assessment provides the owner a conceptual risk/benefit analysis before the owner spends money and resources on a feasibility study, which includes an independent actuary to forecast losses.

What’s required?What does it take to consider an agency

captive? Usually, a premium commitment

of at least $3 million to $5 million in the first few years, though in this prolonged soft market, some captives are starting with less than $1 million to $2 million. A good business plan is a must. As for losses, an ultimate loss ratio of less than 50 per-cent is often desired by the front. Ideally, the loss history will show frequency but not severity.

Minimum statutory capital required among U.S. domiciles typically range between $250,000 - $500,000, although agency captives have been established with less, especially when organized under an existing protected cell captive. In cases where a protected cell captive is used, the states’ captive regulator may base open-ing capital and surplus on the business plan, which may be a lower figure than the statutory requirement. Of course, some domiciles do not allow agency captives to be formed under their jurisdiction.

If the book under consideration is a pro-gram or some type of underwriting niche/specialty offered by managing agencies or wholesalers, a marketplace representing $30 billion in commercial premium, you will find perhaps more opportunities for alignment and appetite with carriers offer-ing similar coverage and underwriting dif-ferentiation. Lines of business are varied, but many include workers’ compensation, auto liability, general liability, warranty and increasingly, property.

Navigating the Captive HighwayAgency captives can help expand capacity, increase retention, boost profits and provide the top line growth agencies and their potential buyers seek. by Chris Kramer


While fronting carriers seem to be abundant right now, that could quickly change when the market turns. If you have a program that does not require a front, formation may be easier and less costly. As mentioned before, the captive will require capital and collateral, especially if the program is fronted. Like all other captives and carriers, owners can experience adverse development, poor cash flow and erosion of capital. Under extreme situations, the owners may lose their entire investment. A properly conducted feasibility study and business plan execution should, however, greatly minimize the chance of these events from occurring.

StructureWhile agency captives are extremely useful in helping to increase revenues

for their owners, a well thought out captive ownership structure can include key employees who are vitally important to the ongoing operations of the agency. Employees can be rewarded with a share in underwriting profits of the agency captive. Profits can also be used to invest in new technology, acquiring a competing agency business or funding for perpetuation plans. Policyholders may also be invited to participate in captives as investors to reward loyalty and to induce good risk management controls to their business, increasing the likelihood of continuously producing a solid operating EBITDA. Collectively, all of these indirect benefits can increase the valuation of your agency as own-ers consider a perpetuation or exit strategy.

The outlook for developing an agency captive has never been more favor-able to owners of agencies, brokerages, managing general agents and program administrators. Carriers with excess capital are searching for acquisition targets and an important part of their strategy is rooted in continuous top line growth coming from experienced insurance intermediaries which share similar under-writing philosophies, professional services and corporate values. One effective method to entice that top line growth and profitability is to offer significant profit sharing incentives through an agency captive. This bodes well for owners as they are already in a seller’s market and leverage is in their corner.

About the AuthorChris Kramer is Senior Vice President – Business Development of Caitlin Morgan Insurance. Chris is a veteran consultant with rich experience in captive solutions for small and mid-sized businesses, including insurance agencies, brokers, MGAs and other insurance intermediaries. He can be reached by [email protected] or 216-470-3800.

Navigating the Captive Highway

See a comparison of profitability for an agency with traditional caps and incentives versus one with an insurance captive at oakstreetfunding.com/captiveopportunity.


For as long as I can remember, I’ve wanted to pursue a career in insurance. Some children dream of becoming an astronaut, lawyer, or doctor, but insurance was it for me. Why? Insurance is in my blood. It’s what my father and grandfather did - what generations before built and now my opportunity. And while the industry has changed substantially since our company was founded in 1870 (and the days of riding horseback to see clients), the fundamentals are still present and the need to evolve has never been so evident. Perpetuation is a familiar word to those of us in the industry. Everyone’s journey to building the “busi-ness of tomorrow” is different. This is mine.

A Decision to Lead, My WayIn 2012, I had a childhood dream to realize. Our company,

then Beauchamp McSpadden (and in some cases Morrison Galliher or other trade names), was ready for a new leader and perpetuation plan. My father (then president), the company’s board of directors and shareholders sought to preserve the company’s 142-year legacy.

Assuming the role of CEO enabled me to continue my family legacy—but in my own way. From a professional standpoint, this was the opportunity of a lifetime—a chance to redefine our company and tailor our business offerings to be client-centric and driven by innovation.

I had my work cut out for me. With 13 shareholders and eight board members, and the company being their primary income and/or largest personal asset, I had many people and opinions to appease. However, I also saw this collection of insight as a unique benefit, offering me varying perspectives, experiences and wisdom in the business.

Assuming ownership of the company included management of the financial goals and negotiations of sellers, as well as the various professionals involved in the process—consultants, attorneys, coaches, analysts, accountants, etc.

Innovating to INGUARDOur company’s legacy brand —Beauchamp McSpadden Mor-

rison Galliher — was representative of past owners, difficult to pronounce and didn’t resonate with clients outside of Indiana. We needed a name and brand our clients could connect with—one

that embodied our mission and value. We serve clients in all 50 states and hope to help the industry evolve with our tech-savvy, client-centric business model. Once appointed CEO, I renamed and rebranded the company entirely, and launched an integrated marketing program that aligned with our future vision. We selected the name “INGUARD,” because it stands for insurance and security. The colors are representative of strength (steel gray) and prosperity (green)—the ideal protection clients want standing behind them.

With the help of an operations manager, I also implemented an operational overhaul coupled with performance-based pay for employees. While these changes have helped us build a company I am proud of, our work has just begun.

The Future of Insurance and INGUARD Insurance has a unique set of problems to address and is in

need of agile, talented and enthusiastic leaders who will push the envelope and the industry forward. We hope to be a part of this evolution. In the next three to five years, INGUARD intends to eliminate every legacy inefficiency that could prevent us from achieving our maximum potential. We intend to triple (at minimum) the size of our current operation.

I consider INGUARD to be a 145-year-old startup that views insurance as a rudimentary and worn-out tool, leaving clients in the dark-ages of effectively managing and reducing their risks. We focus on keeping people safe and unaffected by risk. We actively seek talent, technology and new ideas that will innovate our business and increase the value we bring to clients. I am committed to this task and to serving my clients, colleagues, community and family.

My question to you is, “Does your company culture and perpetuation plan enable your organization to innovate?” If not, I urge you to take a pulse on current conversations and realize technology, talent and consumers are moving forward. Will you?

About Parker Beauchamp A 15-year veteran, Parker is the CEO of INGUARD, an insurance and risk management firm. He focuses on clients with complex insurance and risk management strategies, such as high net worth and high-profile billionaires, celebrities and athletes.

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the bridge: fall 2015

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