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Standards & Guidelines For Appraising Insurance Agencies / Brokerages 2015

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Rates, Ranges, Discounts and Premiums

CAPITALIZATION RATES

Various appraisal methods require the use of capitalization rates. These rates relate to alternative uses of an owner’s or buyer’s capital. They also relate to the risk of owning the agency.

It is the consensus of the contributors to this document that the following rate ranges and data are applicable to the appraisal of insurance agencies.

RISK FREE RATE SOURCES

It is the consensus of respondents that the risk free rate should be based on low risk securities. Some acceptable securities may include:

  • High quality corporate securities

  • Treasury notes

  • Treasury constant maturities

 

The above numbers reflect calculated averages of ranges supplied by respondents. Ranges supplied by respondents, as well as informed judgment, allow for deviation outside these average ranges.

The experienced appraiser will determine the Inherent Risk Rate of an agency based on a multitude of specific risk conditions, both positive (adding value) and negative (lowering value) that will be specific to the agency in question. The averages above are not meant to confine an agency into only one of three risk groups.

Inherent Risk Rate and Risk Free Rates are to be added together to achieve the common Risk Discount Rate for and agency.

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