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Standards & Guidelines For Appraising Insurance Agencies / Brokerages 2015

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Methods for Appraising Books of Business

There are several methods an appraiser may choose in appraising a business. However, not every method applies to every kind of business.

The following methods are deemed by the experienced contributors to these Standards to be the most appropriate when appraising an agency or a books of business.

No two agencies are identical. Therefore, no particular appraisal method is “most appropriate” for every situation. Consequently, the Appraisal Methods below are listed in alphabetical order. Some of the methods may be known by other names.

The appraiser should select and apply appropriate Appraisal Methods and procedures based on the purpose and scope of the assignment.

THE FIVE MOST COMMONLY USED APPRAISAL METHODS (alphabetical order)

  • Buy/Sell Agreement -- defined formula

  • Capitalization of Earnings

  • Discounted Future Earnings

  • Multiple of Pre-Tax Earnings – see notes – suggestion for elimination of this method

  • Prior Stock Sales (or comparables when available)

ADDITIONAL APPRAISAL METHODS THAT ARE SOMETIMES USED (alphabetical order)

  • Potentials (for future earnings)

  • Price/Earnings

  • Retention Basis

  • Wasting Asset

 

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