Although profitability remains strong among the U.S.'stop-performing independent agencies, challenges lie ahead in theform of slower revenue growth, shifts in workplace demographics,and a decrease in the "Rule of 20" rate, which measures an agency'svalue creation for its shareholders.

The findings come from the IIABA and Reagan Consulting's 2014Best Practices Study. This year's version marks the 22^ndanniversary of the study, which was first conducted 1993.

The study provides the compiled year-end results of thecountry’s top-performing independent insurance agencies in sixrevenue categories, ranging from less than $1.25 million to morethan $25 million. Numbers are based on 12/31/13 FYE results,although 10% of the participating firms submitted data based onfiscal year-ends within the first two quarters of 2014.

Organic growth rates, pro-forma profitability margins, and theRule of 20 scores were flat or fell slightly across all revenuecategories--a reflection of the ongoing softening of theproperty-casualty market during 2013. These performances suggestthat maintaining robust performance levels in the near future maybecome more difficult if current market conditionscontinue.

Here are some of the main findings from the study:

Organic growth is slowing for most agencycategories.

Last year’s study revealed the highest organic growth ratessince 2008. This year’s study shows a different picture, withonly one group ($1.25 million to $5 million) achieving an increasedgrowth rate of at least one percentage point.

Growth rates are still high.

In conjunction with the organic growth numbers, growthrates remained in the high single digits, with two studygroups ($1.25 million to $5 million, and $10 million to $25million) achieving double-digit growth rates.

Profitability is strong -- but stagnant.

Pro-forma profit margins--the actual profitability ofan agency if non-reoccurring/extraordinary expenses and revenue,and excessive owner compensation and perks are normalized--werestrong but again stagnant. As revenue growth rates slowed, profitmargins were and will be under increased pressure, and may resultin either no growth or negative growth in the coming year.

Operating profit margins grew slightly. The operatingprofit is the pre-tax profit of an agency excluding supplementalincome (contingent, bonus, and investment income). P-ccontingent and life-health bonus income has historicallycontributed significantly to an agency’s profit margin. Over thelast decade, however, that source of revenue has shrunk. BestPractices Agencies focused on becoming less dependent on it byreducing expenses, becoming more efficient and finding othersources of revenue. As a result, the operating profits continued toimprove.

Rule of 20 scores, which reflect valuecreation, declined.

The Rule of 20 scores, a formula that provides a quick wayto determine if an agency is creating value for shareholders, were down this year, reflecting the flat growthand profitability results. A score of 20 or moreindicates an agency is maintaining a healthy balancebetween growing revenues and sustaining orenhancing profitability. A score of 20 or more typicallyindicates that an agency will achieve, through profitdistributions and/or stock appreciation, an industry standardrate of return on its investments in people, systems andactivities needed to grow and operate the agency.

Agency staffing strategies are adapting to changes inthe workforce.

The study includes the number of workers, total payroll, andpayroll as a percentage of net revenues. This year’s study includedseveral new staffing statistics, including the number of remoteworkers and administrative staff (accounting and HR).

Last year the service staff data was changed to offer salaryranges for the key service and sales support positions and toprovide the total number of staffing needed to support each line ofbusiness. These updates reflect the changing workplace and shouldprovide interesting data in the future.

For more information on Best Practices products andresources, go to the Best Practices Gateway(http://bp.reaganconsulting.com) or www.independentagent.com/bestpractices.