Is 2021 the Year to Sell Your Independent Insurance Agency?

Are you wondering if you should sell your independent insurance agency in 2021? Under the new administration and ongoing economic strain from the COVID-19 pandemic, you likely have many factors to balance as you make your decision. Here are the key points Springtree Group would ask you to consider.

  • Interest rates have reached historic lows. In October of 2020, Freddie Mac reported that rates on a 30-year FRM had plummeted to 2.8%, while 15-year mortgages sank to 2.33%. The accompanying costs of fees and mortgage points added a mere 0.6% of the mortgage amount. In just one year from 2019 to 2020, mortgage rates dropped by 1.5%.
  • As a result of the low cost of mortgages, asset prices have risen. As an independent agency owner, this could represent a prime opportunity to list your agency at an advantageous price.
  • However, by taking advantage of historically low interest rates through refinancing, agency owners may be able to significantly improve the overall amount owed on their mortgage, even on properties initially purchased within the last four years. If you are seeking to exit the market in part due to less-than-ideal initial financing rates, but would prefer to remain in situ, this consideration may outweigh all others.
  • The shift to remote work has enabled owners to expand their workforce beyond what their brick-and-mortar offices can support. In brief, smaller physical locations have the potential to support expansive enterprises, making the potential insurance market in the surrounding areas more consequential than the attributes of the office itself. If your office is diminutive, Springtree Group can assist you with marketing it accurately to draw in buyers who seek to run the majority of their business remotely.
  • As expected, reduced inventory has contributed to the rise of property values. Springtree Group has an abundance of qualified buyers, ensuring that a healthy agency will attract attention from funded, prepared investors.
  • Real estate valuation has been on the rise in spite of the effect the pandemic has had on other economic sectors. While this is generally an excellent thing for our sector, keep in mind that the new administration intends to double capital gains tax rates (likely effective in 2022), potentially spiking this wealth tax to an unprecedented high. The resulting implication is that the window to sell an agency for top dollar without paying this increased tax is closing rapidly. Thus, if you do plan to sell your agency within the next 24 months, it may be advisable to move quickly.
  • With policy revenue having declined and value multiples doing likewise, this tax increase (which will affect any agency selling for at least $1,000,000) has the potential to be enough of a drawback to keep some agency owners from listing their agencies for sale, further driving down inventory. It is unknown how this will impact the market over time, but initially, it may induce a slight rise in agency valuation.
  • On the other hand, private equity investors may be discouraged from investing on these high-value agencies. After all, their returns will be reduced because of increased capital gains tax rates, ultimately driving down valuations. Rest assured that Springtree Group Financing will remain a reliable source of funding, regardless of the rise in this wealth tax.

To discuss the details of listing your agency for sale this year, please contact us directly.