Risk Strategies 2017 Annual Report

20 Years…..

• At the beginning • 20 Year anniversary

– Started 1997
– Consultant
– Healthcare and
private equity
– Alternative risk
financing
– Analytics
– Coverage
– “A” team
– Opportunistic

2
The Roots of Risk Strategies…..

• The Opposite
– Client focused, not
internally focused
– Consultative, not
transactional
– Lean, flat structure
– Keen expertise
– Problem solvers
– Provide solutions to
risk challenges, not
just sell insurance
– Not too corporate

3
RSC Today

• National specialty insurance brokerage and risk management advisor

• 40+ offices across the US – Northeast, Southeast, Midwest, Mid Atlantic, West
• 18th largest broker – BI Top 100 (Based on 2017 run-rate revenue of $235M)
Overview • 11th largest privately-held P&C broker - Insurance Journal (Based on 2016 P&C revenue)
• 8th fastest growing EB broker (36%) – BI
• 6th fastest growing firm in 2016 (39.2%) - BI
• 28th most productive broker in 2016 ($228k revenue/employee) – BI

• Property & Casualty, Employee Benefits insurance & Financial Services

• Mid-market to global commercial, high-net worth individuals
Focus • Industry verticals include Entertainment, Fine Arts, Real Estate, Healthcare,
Transportation, Private Equity, Higher Education, Construction, Manufacturing,
Professional Liability, Public Entity, Financial Services

• High level advisor to middle/upper middle market clients

• Experienced professionals with deep expertise
Differentiation • Analytical, consultative approach
• Local relationships with national centers of excellence
• Collaborative, ‘client-first’ culture
• Reputation for quality

4
Vision, Values, Strategy
Values
Committed to our clients
Focused on the success
of our people
Collaborative & engaged
culture
Build for the future

People Goals
Leadership $400M to $500M revenue
Help our people grow and 25% to 27% EBITDA
realize their potential

Purpose
Attract, develop retain top
Attract top talent talent
Development programs for Recognized leader in
all employees specialty practices
Clear career paths Respected & Top 10 broker for strategic

Differentiated
carriers
Succession

National
Broker/Risk
Advisor
Practices Revenue Growth
Employee benefits, New clients
private client, Focus on retention
entertainment, fine arts,
professional services, Collaboration & cross sell
private equity, financial M&A
services, healthcare, real Proprietary programs
estate, higher education,
Deeper, strategic carrier
transportation, non-
relationships
profits

5
Marketplace Dynamics
Net Investment Income
5.0%

P&C Industry Returns on Surplus 4.0%

 2014 to 2016 – 8.1% 3.0%

 2016 – 6.3% 2.0%

1.0%

0.0%
08 09 10 11 12 13 14 15 16 17

Industry P&C Lines

• Property – storms/fires/EQ’s - $100B to $150B
in projected claims – 15% to 20% of surplus
• Workers Compensation continues softening trend
• Liability lines are stable
• Auto profitability is challenged

6 Source: CIAB/Barclays/AM Best

A Changing Dynamic

• Precipitating events
– Harvey, Irma, Maria, Nate
– Mexico earthquakes
– California wildfires
– Coupled with:
• 12+ years of a declining market
• Challenging investment income environment
• Years of reserve releases to prop up profitability
• Direct Impact
• AIG - $3.1B net loss forecast
• Lloyd’s - $4.5B to $6B net incurred loss forecast
• Everest Re and XL – both at over $1.3B in net claims
• World market to experience aggregate claims of $100B to $150B
• Capital event for many insurers The worldwide (re)insurer market is
underpinned by a single interconnected (and now significantly
diminished) capital base – much of it non traditional capital

7
What Does This all Mean to Us?

• Soft market
– Declining rates, premiums, revenue
– Leading with price
– Lack of differentiation
– Resources and technical expertise take a backseat
– “No pain” = Fewer looks….

• Changing market
– Expertise matters Carriers will take a back-to-basics approach to
underwriting which inspires back-to-basics selling and broking
– Regardless of what happens with rates, clients and prospects will
want creativity and resources to address their total cost of risk
– This requires a shift in perspective from selling price to focusing on
solutions and problem solving
– It’s our time to really shine…..
8
Cross Sell – The Opportunity

10 or more # of Policies - P&C Clients

1,269

9 479

8 677

7 989

6 1,485

5 2,196

4 3,094

3 4,380

2 7,359

1 15,209

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

9
CIAB: Cyber is the New Cat Risk and Insuretech

• Recent major cyber losses

– Global ransomware attacks
– Merck
– Equifax
• Cyber exposure and coverage
– Business interruption, damages, systems failure
– Hidden risk across many lines of coverage: cyber, property, GL, D&O
– New exclusions will be prevalent
– Next generation of cyber coverage
– Opportunity for RSC to take a more holistic risk management view of the
exposure with broad-based risk solutions
• Insuretech is a game changer
– Over 1,000 start-ups, most focused on small commercial
– Most profitable segment for carriers
– Traditional brokers will be less relevant in the small sector soon…
– Opportunity to emphasize our expertise and problem solving capabilities – go
upstream…

10
2018 Objectives

• 92% retention
• Growth >2%
• Round out our clients – one more policy each
• Reduce number of wholesalers by 50%

11
Longer term objectives

• Streamline our commercial business

– 90% reduction in time spent on accounts <$10K
– Partner with markets to accelerate account rounding
• Reduce wholesaler usage to <100 partners
• 94% retention of clients
• Build out practices to support retention and growth
– Executive liability
– Risk Management: pre and post-loss cost containment, analytics
– Cyber

12
Revenue

YTD August TTM August

2017 Actual 2017 PF

Revenue $137,809,000 $221,699,000

% to Plan (2.0%) (3.4%)

% to 2016 36.6% 3.3%

13
EBITDA

TTM August
2017 PF $ %

EBITDA $61,686,000

To Plan (Core Only) ($3,443,000) (8.4%)

To 2016 $109,000 0.2%

14
RSC’s Business Mix

Employee Benefits
24%

Commercial P&C
Personal Lines 63%
13%

15 Confidential & Private

Snapshot of 2018

~5% Growth
235,000,000 $233,227,000

230,000,000

225,000,000
$221,699,000
220,000,000 $218,603,000

215,000,000
$211,511,000
210,000,000

205,000,000

200,000,000
Revenue
2015 PF 2016 PF 2017 PF TTM 2018 Plan*

*Only includes closed acquisitions to date

16
Agencies Joining Risk Strategies in 2017
Terrell Insurance Services
• Charles Terrell
• Joined RSC March 2017
• Collinsville, TX
• Personal, Commercial, & Benefits

Mosse & Mosse Associates

• Jonathan & Michael Mosse
• Joined RSC April 2017
• Lynnfield, MA
• Employee Benefits & Retirement Plan Consulting

Friedman & Friedman Agency

• Steve Sharp & Bob Friedman
• Joined RSC April 2017
• Westbury, NY
• Private Client Personal Lines

Brightstone Insurance Services

• Peter Schlactus & Jeff Ice
• Joined RSC May 2017
• New Rochelle, NY & Cleveland, OH
• Same-day transportation & logistics

Personal & Confidential 17

Agencies Joining Risk Strategies in 2017
Anderson Corporate Solutions
• Fred & Barbara Nash
• Joined RSC July 2017
• Lawrenceville, GA
• Employee Benefits

Cornerstone Professional Liability Consultants

• Chris Zuccarini
• Joined RSC September 2017
• Philadelphia & New York City
• Medical Malpractice

Anderson & Jacoby Insurance Consultants

• Joe Jacoby
• Joined RSC September 2017
• Miami, FL
• Property & Casualty

Personal & Confidential 18

Risk Strategies M&A Overview
37+ offices nationally serving the NE,
Revenues: $225 million, as of 12/31/16 # of Employees: 915 Offices/Markets:
SE, MW & Western regions

Acquisition Activity (past 2 years): Strategic Direction:

▪ 20 acquisitions in the past 24 months. ▪ The primary goal for Risk Strategies is to be a respected and
differentiated national broker/risk advisor, committed to clients,
▪ Over $100 million in acquired revenues during that period. employees, and trading partners. We envision our strategy
to remain substantially as it has been: a focus on client niches and
▪ All recent acquisitions have either enhanced or added to RSC’s
specialty practices; a commitment to attracting, developing and
specialty practice focus: Higher Education, Entertainment,
retaining top talent; growth oriented with a renewed emphasis on
Healthcare, Employee Benefits, Private Client, Professional
organic growth; broad employee equity participation; active
Liability, Transportation, and Financial Services.
community involvement; and a heightened emphasis on
technology solutions, both externally and internally. We envision
P&C Acquisition Appetite for 2017 & 2018: that M&A will remain a major component of our ongoing growth
strategy.
▪ RSC’s appetite remains keen for property & casualty brokerage
organizations that fit into or add to the company’s array of
specialty practices. Our partner, Kelso & Company, is supportive Target Focus:
and capital is readily available.
▪ Talented Management Teams
▪ Cultural Alignment
EB Acquisition Appetite for 2017 & 2018: ▪ Growth Oriented
▪ Specialized Area of Expertise & Focus
▪ Appetite for EB firms is the same as P&C (see above). Target ▪ Add depth, expertise & resources to existing practice groups
firms will be focused on over 100 life groups. ▪ To be top 5 in the country in each vertical within RSC
▪ Geographic wish list:
▪ Expansion to mountain states
▪ Pacific Northwest
▪ Virginia Metro

Personal & Confidential 19

 National M&A Overview

▪ Data includes 15 public and private equity backed insurance brokers from all U.S. geographies
➢ 3 public brokers
➢ 12 private equity backed brokers
▪ These firms represent the most active acquirers in the insurance brokerage industry
➢ In total, these 15 firms completed over 650 acquisitions in 2015, 2016 and Q1 2017
➢ Median Revenue for the over 650 acquired firms was approximately $4.5 million
▪ The median revenue for the 15 acquirers is $870 million
➢ Max: $4.2 billion
➢ Min: $90 million

Personal & Confidential 20

 Recent Deal Activity by the Numbers

Source: SNL Financial as of April 2017 (based on Announcement Date). Includes whole company,
franchise and asset sales.

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 The Major Acquirers
Buyer 2015 2016 Q1 2017 TotalDeals

Acrisure (PE) 42 41 12 95
Hub (PE) 35 38 8 81
Broad Street (PE) 26 28 11 65
AssuredPartners (PE) 30 26 4 60
Arthur J. Gallagher 19 23 9 51
Confie Seguros (PE) 19 16 1 36
NFP (PE) 16 9 3 28
Hilb Group (PE) 8 15 4 27
Alera Group (PE) 0 22 0 22
USI (PE) 6 10 4 20
Risk Strategies (PE) 5 10 2 17
Marsh McLennan 7 5 3 15
Brown & Brown 12 5 0 15
Alliant (PE) 8 6 1 15

Source: SNL Financial as of April 2017 (based on Announcement Date). Includes whole company,
franchise and asset sales.

Personal & Confidential 22

 M&A Deal Valuations Holding at All-time Highs (Multiples of EBITDA)

Good quality agents and brokers, $3-$10 million in revenue

Personal & Confidential 23

Thank you