Independent Insurance Agents of Dallas January 15, 2015

1. An Investment Bank Serving the Insurance Industry Presented by: Lorna Gunnersen, Director www.mysticcapital.com New York London Denver Charlotte Presented to: Independent Insurance Agents of Dallas January 15, 2015

2. Mystic Capital Advisors Group Services: - Mergers & Acquisitions Advisory Services - Due Diligence - Valuation Support Services - Expert Witness - Strategic Consulting - Perpetuation Planning Locations: - New York, NY - London, UK - Charlotte, NC - Denver, CO

3. Experienced Professionals • Founded in October 2001 by three former employees of The Hartford Financial Services Group, Inc. • Firm professionals have prior experience at Big 4 accounting firms, large investment banks, and insurance brokers (KPMG, Deloitte, Ernst & Young, PricewaterhouseCoopers, Merrill Lynch, and Benfield Group), and • Professional designations of employees include Certified Public Accountant (CPA), Chartered Property Casualty Underwriter (CPCU), Certified Insurance Counselor (CIC), Certified Valuation Analyst (CVA), and Chartered Financial Analyst (CFA).

4. Experts in the Insurance Marketplace Clients include: • Insurance Agents & Brokers, • Insurance Companies, • Program Administrators, • Managing General Agents (MGA’s), • Managing General Underwriters (MGU’s), • Third Party Claims Administrators (TPA’s), • Insurance Wholesale Agents, • Financial Institutions, and • Private Equity Groups

5. Mystic Capital Experience TOP FINANCIAL ADVISORS IN US INSURANCE 2008-2013 Source: SNL Financial *It should be noted that not all transactions are publicly reported. In addition, many reported transaction do not disclose transaction value Experienced Professionals: • Advised on over 180 insurance-related transactions since firm inception (source: SNL Financial) with an aggregate transaction value in excess of $2 billion • Consistently ranked among top 3 financial advisors in the U.S. insurance industry in terms of completed transactions • Know the current acquisition environment through current advisory engagements and constant discussion with active industry participants • Advising on numerous transactions in advanced deal stages throughout the U.S. and internationally

6. Factors Driving M&A The M&A market is currently robust as there are more positive factors driving M&A, than negative factors hindering it

7. Recent History U.S. Insurance Brokerage M&A Source: SNL Financial • A Large number of transactions were completed in 4th Quarter 2012, driven by change in capital gains • 1st Quarter 2013 was slow due to front loading of transactions in 4th Quarter 2012 • Number of deals steadily increased throughout 2013 and has remained steady through 2014

8. M&A History U.S. Insurance Brokerage M&A Source: SNL Financial

9. Insurance Brokerage Demographics Drive M&A 100 Largest Brokers of U.S. Business Source: Business Insurance … … … … … • Industry is extremely fragmented • The number of independent agencies in the U.S. is approximately 38,500 per the Independent Insurance Agents & Brokers of America • 100th ranked broker had $23.6 million in annual revenue in 2013, therefore 99.7% of the firms in brokerage are outside of top 100 • Lots of targets • Acquisition will continue to be a key factor for growth for larger agencies • For every firm purchased, the insurance brokerage industry is great at regenerating businesses as individuals and teams “peel off” to start new agencies

10. Soft Market Pricing is driving M&A After an extremely soft P&C marketplace that ran from 2005 through 2011, market rates in the P&C insurance industry hardened in 2012 and 2013, but rate growth has slowed to be nearly flat or no increases in recent months of 2014 Soft market places pressure on organic growth for brokers M&A becomes critical to achieve growth The Health Insurance marketplace is the exception as rates have continued to rise, but conversely, insurance companies are tightening belts and cutting commissions

11. Who is Acquiring? HOT • Private Equity Backed Brokers (e.g. Acrisure, HUB, USI, AssuredPartners) • Most active group • Strong capital markets • Light debt covenants • Strong history of success over past several years. Few have failed to make money • Publicly Traded Brokers (e.g. Aon, MMC, AJ Gallagher, Brown & Brown) • Low organic growth • Soft market • Wall Street pressure to grow • Insurance Carriers (e.g. Markel, Argo, HIIG) • View acquiring distribution as a cheap way to grow premium if they can write business • Especially competitive with mono-line MGA and program business where they can bring on underwriting talent and eliminate a layer of expense • Could also be a defensive measure to keep book • International Firms (e.g. JLT, Hyperion, BMS/Minova) • For example, London brokers looking to access U.S. market and U.S. Brokers looking to enter London market

12. Who is Acquiring? COOL • Regional and Local Brokers • Still very active, but they need to work harder to distinguish themselves • Small deals that they usually get are being gobbled up by the big guys • Often have to resort to friendlier terms (higher commission to producers, bonus plans, etc…) • Banks • Steady decline in bank owned insurance agencies since mid-2000’s • Realization that banking and insurance brokerage cultures are different • “Cross-sell” hard to realize • In capital preservation mode, handcuffed by stress testing • Likely to see continued divestiture • There are a group of banks (e.g. Wells Fargo, BB&T) that are committed to the insurance brokerage space, but their insurance brokers tend to run almost independently of the bank

13. Factors Affecting Valuation and Deal Structure • Size of deal • Earnings Before Interest Taxes Amortization & Depreciation (EBITDA) • Asset vs. Stock • C-Corp • S-Corp, LLC, Personal Goodwill Transaction • Over 80% of deals are asset deals, however, stock vs. asset is less of an issue with larger transactions • Risk Profile of Deal • Account concentration, carrier concentration, other • Employment Agreements • Sales Culture • Age and Ability of Owners and/or Management Team • Management/Reputation • % of Deal at Risk • The more at risk to the seller, the higher the multiple needed to entice seller • More guaranteed, the lower the multiple

14. Transaction Structure Components • Base Purchase Price • What the seller would conservatively anticipate to receive after the earn out period • We typically assume 0% growth • Guaranteed Purchase Price • This is as it says, GUARANTEED, not dependent on performance • Typically is the amount paid at closing, but some deals have future payments that are guaranteed • No ability to “claw back” • Potential Purchase Price • “Upside” • Amount the seller could potentially realize based on future performance • May require significant growth • The “Everything fell into place perfectly” price

15. Trends in Deal Structuring • The percentage of consideration at close and the % guaranteed has gone up over the past year • Deals that were 50%-70% down at close have moved to 60%-80% • This is a function of competitive market • Makes it harder for the “little guys” (Regional and Local brokers) who need to work harder to attract deals • Network and build relationships so that when a seller is ready to pull trigger, they think of you • Sweeten terms (possible examples include maintaining a higher commission rate for seller’s producers, ensure a softer transition for employees) • Some groups are making a push to minimize or even eliminate earnouts altogether • Mindset is “when we buy it, we own it” • Don’t want seller focused on earnout, but rather goals of the acquirer

16. Trends in Deal Structuring- Cont’d • There is still uncertainty in Employee Benefits marketplace, especially for small accounts with ACA exposure • Currently, the market is putting a significant discount on clients with less than 50 lives and there is even some discount in the 50 to 100 hundred live segment of the marketplace • Large group is viewed as the “best bet” and continues to attract similar multiples as P&C • Some acquirers have even gone as far as to segment the book of business when making an offer • For example, recently an offer was made where the small group was priced at 1.5x revenue and paid over three years based on retention of accounts, while the large group offer was 2.5x revenue paid over one year

17. Types of Deals- So what are the Multiples? • Disclaimer: There is no “typical” deal and there are numerous risk factors that vary greatly for all deals (asset vs. stock values may be materially different).

18. Future Outlook • M&A environment will remain a sellers market until fundamentals change in the economy • Availability of capital will likely create a more competitive market • If the market changes, it could turn very quickly (think 2008 financial crisis) • PE backed brokers are aggressively rushing to execute their strategy before the market turns (get to size, pay down debt, and get out) • The impact of health care reform has yet to be truly understood and will continue to have a significant effect on M&A, especially in small group • Larger Brokers brokerages continue move down stream, putting pressure on regionals and locals • Carriers and International brokers will have an increased presence in M&A, as the U.S. market is attractive • Banks, credit unions will “stick to their knitting”