Morris Manning & Martin, LLP

Agency Acquisition Due Diligence Checklist


Insurance agency mergers and acquisitions are expected to increase as the economy continues to improve and the continuation of the soft insurance market limits internal and organic insurance agency growth. In addition, the threat of an increase in the capital gains rate will provide further incentive to owners of agencies to sell and lock in profits at a more favorable tax rate.

With the expected increase in agency merger and acquisition activity in mind, we have prepared a condensed diligence check list for the acquisition of an agency. The checklist is intended only to spur thought and discussion of some the considerations necessary when acquiring an agency. It is by no means an exhaustive listing of all things that must be considered and reviewed before acquiring an agency. If a purchaser is interested only in purchasing certain assets from an agency, then the diligence process can be streamlined since the purchaser will not also be acquiring the agency’s liabilities. Hence, the diligence questions focused on liabilities in the checklist may have limited applicability in an asset purchase.

The checklist also may be helpful for owners considering selling an agency as an example of the types of information potential purchasers likely will want to review. Having this information well organized once a seller decides to entertain offers will make the sales process progress much more smoothly.

Tony Roehl is an Associate and member of Morris, Manning & Martin’s Insurance and Reinsurance and Corporate Practices. Mr. Roehl’s principal areas of concentration are insurance regulation and corporate matters involving entities within the insurance industry. Mr. Roehl received his bachelor’s degree from the University of Florida and his law degree from the University of Michigan.

Agency Acquisition Due Diligence Checklist

Category Action Item
General Business
  • Identify clients including annual fee and commission volume, lines of business and number of years as a client
  • Identify all strategic alliances and partnerships with other companies including agreements, contracts and associated client service and pricing detail
  • Provide minute books relating to meetings of the shareholders, board of directors and other board committees during the preceding ten years
  • Provide the stock certificate book and stock register
  • Prepare a chart and list of all entities the company owns, a list of all company locations including entire address and indicate whether leased, owned or sublet
  • Provide annual financial statements for the last three years and all auditor reports to management during such period
  • Prepare capital expenditure plans including current budget and revisions to date along with any cash flow and liquidity analysis, sources of funding, if any, and their allocation to expenditures
  • Calculate working capital requirements to support business plan
  • Prepare interim financial statements since most recent year end
  • Provide access to general ledger trial balance
  • Provide access to ledger for premium and fiduciary accounts including reconciliation demonstrating that fiduciary account assets equal or exceed the fiduciary account liabilities
  • Provide the most recent aging schedule for accounts receivable with comments regarding the collectability of any balance over 90 days old
  • Provide a summary of all insurance contracts in place including workers’ compensation and E&O coverages
  • Provide copies of all auditor reports to management and any management responses during the preceding five years
  • Compile current copies of articles of incorporation and bylaws
  • Compile current copies of any shareholder and/or voting agreements
  • List all officers and directors, agency’s subsidiaries and affiliates including the number of shares of stock held by each
  • List all stockholders
  • Gather copies of good standing certificates for all jurisdictions in which the company operates and is qualified to do business
  • Provide copies of any contracts or agreements which would or might contain a change of control clause which would be triggered by the proposed acquisition
  • Provide a list of intellectual property owned or licensed
  • Include a complete list of all litigation pending or threatened at any time over the past ten years including, but not limited to, arbitration proceedings and include as to each matter a full statement regarding the background of the dispute and its resolution
  • Gather all files related to correspondence with regulators during the preceding five years involving complaints to the regulators or any allegation of impropriety
Permits and Licenses
  • List states in which the agency or any of its directors, officers or employees holds an insurance license pursuant to which the company does business and include in the list whether the license is held on a resident or non-resident status and the license number
Information Technology
  • Provide overview of the following systems:
    • Agency management system
    • Rating system
    • Document management system
    • Primary email system
    • Primary network operating system
    • Website hosting company and platform
    • All other purchased or developed applications
  • Include copies of vendor agreements and licensing agreements
  • Include copies of federal, state and local tax returns for the last five years
  • Provide copies of all payroll tax returns for the last three years
  • Provide back-up of computation of current deferred income tax amounts
  • Provide a complete schedule of insurance covering the agency including type of insurance, limit of insurance, deductibles and retentions, policy term and premium
  • List all losses and claims under insurance policies for the past five years
Human Resources
  • Prepare a detailed organizational chart listing all supervisory or professional employees
  • List all employees showing full name, date hired, present salary and job title or category, employment status (full time, part-time, temporary, on leave) and details of any restrictive covenants and next salary review date
  • Provide example of employment contracts
  • Provide example of independent contractor agreements
Employee Benefits / Compensation
  • Provide summary of plan descriptions of all ERISA benefit plans
  • Provide audited financial statement of plan assets for previous two years
  • Provide most recent IRS Form 5500 filing
  • Provide copies of documents related to health insurance, flexible spending accounts, short and long-term disability insurance and life and accidental death and dismemberment insurance
Executive Compensation
  • Provide detailed information on executive compensation including base salary, most recent bonus, history of all stock options, copies of any in force employment agreements or previously terminated employment agreements that still have active covenants
  • Provide employee handbook
  • Provide the annual incentive plan and long-term incentive plan documents (if any)