CG69140 - Insurance agents: valuations
If `books’ need to be valued for any reason, for example rebasing or on a part disposal, the basis of valuation should follow the basis adopted by the agent’s employer. The basis of valuation may vary as between different employers and different areas of the same employer. It also reflects the rates of agent’s commission payable on various types of policy.
A common method of valuation was to take between 25 and 30 times the weekly amounts collectible by the agent at the various rates of commission appropriate to different types of business (including the weekly equivalents of monthly, quarterly or annual premiums), after adjusting those amounts to a standard rate of commission of 25 per cent. As an example, a `book’ comprising weekly amounts collectible totalling £1,000 might be divided, converted to a standard rate of commission of, say, 25 per cent, and valued as follows:
| Percentage rate of commission | Weekly amounts collectible | - | Equivalent at 25 per cent |
|---|---|---|---|
| 25 | £500 | £500 | |
| 10 | 400 x | £10 | £160 |
| - | - | £25 | |
| 15 | 100 x | £15 | £60 |
| - | - | £25 | |
| - | - | £1000 | £720 |
Valuation at 25 times: £720 x 25 = 18,000
Valuation at 30 times: £720 x 30 = 21,600
An alternative method used for the `books’ of Co-operative Insurance Society agents was to multiply the weekly amount collectible by the rate of commission. Thus, in the example above, the valuation would be £18,000, computed as follows:
| £ | £ | £ |
|---|---|---|
| 500 x | 25 = | 12,500 |
| 400 x | 10 = | 4,000 |
| 100 x | 15 = | 1,500 |
| - | - | 18,000 |
The examples should be taken as illustrating the general basis of valuation. However, a valuation produced by either method is subject to adjustment to reflect the age distribution of policy holders and so valuations put forward by agents may be accepted if they appear to be computed on the above lines.