The AAVI reflects the ratio of the sales price for Allstate Agencies relative to:
1. Allstate Earned Premiums (the blue trend line) – (designated as EP – aka Renewals) – this is the price of the agency as a multiple of Allstate Earned Premiums, and
2. Total Revenues (the red trend line) – this is the price of the agency as a multiple of the total revenues of the agency (including bonus, outside brokerage, financial services, etc.)
When Allstate agents were first required to convert to R3001 agents in 2000, there was, as might be expected, some apprehension as to what the true value of an agency was or would be. The exclusive agent program had not been tested; however, the base price of agencies had virtually been set by Allstate by way of the 1.5 times buy-back provision.
From 2000 through 2003, the average price of an Allstate Agency remained around 2 times Allstate Earned Premium. 2004 marked the first significant change in book prices, with the average book price increasing to almost 2.4 times Earned Premium. This spike in value occurred at a time when Allstate product was competitively positioned and the number of sources of financing for Allstate acquisitions increased significantly. In particular, the sudden availability of financing with repayment terms of as long as 15 years greatly increased the number of qualified buyers able to pay cash for an Allstate book of business.
Allstate Agency prices peaked in 2007, with the average price reaching nearly 3 times Allstate’s Earned Premium and 2.4 times Revenues. Factors involved in achieving this peak in value include the Allstate Agency Bonus Program, and the availability of long-term agency acquisition financing.
The gap between the ratio of Agency sales price and Earned Premium, and the ratio of Agency sales price and Revenues also peaked in 2007, as from 2003 to 2007 buyers were increasingly willing to pay a higher price for revenues of Allstate Agencies other than that of commissions earned on Allstate Earned Premiums (e.g., incentive bonus, commissions from third-party insurance companies, etc.). This trend ended in 2008 as the economic downturn in the U.S. and its effect on buyers reduced the price paid for revenues other than that earned on Allstate Earned Premiums. In fact, the margin between the price to Earned Premium and price to Revenue ratio shrunk in 2008 to a level not seen since 2004.
As noted, 2008 data regarding Allstate Agency sales reflects a marked break from the steady upward trend of the last four years as Agency values have declined relative to Allstate Agency Earned Premiums and Revenues. Factors clearly influencing this trend include a general decrease in the number of agents willing to sell and buy agencies, declining Agency Revenues and Earned Premiums resulting from Allstate product pricing relative to competition, RFG struggles and various corporate decisions by Allstate that affect the agency pool (PML designation, rate modification, product loss/modification, etc.).
First quarter 2008 Agency sales prices mirrored agency sales prices sustained in 2007 at just under 3 times Allstate Earned Premiums, as the first quarter Agency transitions were heavily influenced by 2007 Agency conditions as most agreements to the sale were reached between buyers and seller in late 2007 and no 2008 CSRP or such 2008 agency data were yet available. Once bonus numbers/RFG were available for agencies selling in the second quarter, along with CSRP reports which showed some initial slowing of growth or even negative trends, the prices of books began to drop. It was then during the late third and fourth quarters of 2008 that the effects of the national credit crunch and the heightened economic concerns of all Americans seemed to have some bearing on the eventual sales price of Allstate Agencies.