Letter of Intent Template for Acquiring a P&C Insurance Agency

Parties and Transaction Overview

Identifies the buyer entity, the selling agency entity, and the individual principal seller. Specifies whether the transaction is structured as an asset purchase or a stock purchase, which has significant implications for carrier appointment continuity and liability assumption. Most P&C agency acquisitions are structured as asset purchases to isolate pre-closing E&O exposure and facilitate cleaner carrier appointment transfers.

💡 Sellers often prefer a stock sale to achieve capital gains tax treatment and avoid triggering carrier approval processes for appointment transfers. Buyers strongly prefer asset purchases to isolate pre-closing E&O and regulatory liability. Address this tension early — a hybrid structure with indemnification carve-outs is sometimes workable, but asset purchase is the market-standard structure for sub-$5M P&C agency deals, particularly when SBA financing is involved. SBA lenders will almost universally require an asset purchase structure.

Purchase Price and Valuation Basis

States the proposed total purchase price, the valuation methodology applied, and how the price is allocated between tangible assets and goodwill attributable to the book of business. P&C agencies in the lower middle market typically transact at 4x–7x EBITDA or, alternatively, at 1.2x–2.0x annualized commission revenue, depending on book quality, line mix, and carrier diversification. The LOI should clearly state which metric is being used as the valuation anchor.

💡 Sellers anchored to revenue multiples typically cite 1.5x–2.0x commissions based on aggregator acquisition activity in the market. Buyers anchored to EBITDA multiples will push back on owner compensation add-backs and one-time contingency income. Agree upfront on whether contingency and profit-sharing income is included in the revenue base — this single item can shift valuation by 15–25% on a well-performing commercial lines agency. Request three years of contingency income history during LOI diligence to support your position.

Deal Structure and Payment Terms

Outlines how the Purchase Price will be paid, including cash at closing, seller note, earnout tied to post-closing retention and premium volume, and any equity rollover if the buyer is a PE-backed aggregator. This section is one of the most heavily negotiated in P&C agency M&A because the risk of client attrition post-closing directly impacts what the buyer is actually acquiring.

💡 Sellers will push to maximize the cash-at-close component and minimize earnout exposure. Buyers need earnout protection because they are acquiring a relationship-based asset where attrition risk is highest in months 1–18 post-closing. A reasonable market structure for a $2M–$4M revenue agency is 70–80% cash at close with 20–30% in a combination of seller note and earnout. If using SBA 7(a) financing, confirm with your lender that the seller note structure and subordination terms comply with SBA standby provisions — typically the seller note must be on full standby for the duration of the SBA loan in many structures.

Earnout Mechanics and Retention Measurement

Defines specifically how the post-closing earnout will be calculated, what constitutes a 'retained' account, how premium volume changes (due to market conditions, rate increases, or coverage changes unrelated to attrition) will be treated, and what obligations the seller has during the measurement period to actively support retention. This is the most consequential and frequently disputed section in P&C agency LOIs.

💡 Sellers will fight hard for carve-outs that protect them from earnout reductions caused by factors outside their control — particularly carrier market exits (e.g., a carrier pulling out of coastal homeowners or wildfire-exposed commercial lines) and economic conditions affecting client businesses. These carve-outs are reasonable and should be granted. However, buyers should resist overly broad carve-outs that could allow a non-cooperative seller to claim force majeure for ordinary attrition. The definition of what counts as 'retained' should be agreed in the LOI, not left to APA negotiation, because this is where deals blow up after exclusivity is granted.

Carrier Appointment Continuity

Addresses the transferability of the agency's carrier appointments and appointment agreements, which are the operational backbone of an independent agency's ability to place business. Carrier approvals are required for appointment transfers in an asset purchase and can take 30–120 days, creating closing risk. The LOI should establish expectations for how appointment continuity will be managed and what happens if key carrier appointments cannot be transferred.

💡 This is a non-negotiable condition for any sophisticated buyer. Get a complete list of all carrier appointments and their premium contribution percentage during LOI due diligence. If the top three carriers represent more than 60% of premium volume, you have concentration risk that should be reflected in your earnout structure or closing conditions. Some carriers — particularly standard market carriers like Travelers, Chubb, or Hartford — have established appointment transfer processes for acquisitions and are generally accommodating. Non-standard or specialty market carriers may be more restrictive. Start carrier outreach early and do not grant exclusivity without at least informal confirmation from key carriers.

Due Diligence Period and Access

Defines the length of the due diligence period, what information the seller must provide, how access to the agency management system and client data will be structured, and any confidentiality restrictions around employee and carrier communications during diligence. P&C agency due diligence requires access to the AMS/policy management system, which contains the most granular book of business data.

💡 Sellers are understandably nervous about buyers seeing their full client list before a deal closes — a bad actor buyer could use this information to compete. Ensure the NDA executed prior to LOI contains robust non-solicitation provisions covering both clients and employees. During due diligence, prioritize the book of business export and retention rate analysis above everything else — this data will validate or invalidate your purchase price assumption. If the seller's AMS data is incomplete, disorganized, or inconsistent with the revenue figures represented, treat this as a serious red flag requiring resolution before you proceed.

Exclusivity

Grants the buyer an exclusive negotiating period during which the seller agrees not to solicit, entertain, or advance discussions with other potential buyers. Exclusivity is the buyer's most valuable LOI protection and should be tied to the due diligence timeline.

💡 Sellers represented by experienced M&A brokers will try to limit exclusivity to 30 days or condition it on demonstrated financing progress. Buyers should push for 60 days minimum given the complexity of carrier approval processes and AMS data review. If the seller insists on 30 days, agree — but use that deadline to prioritize the highest-risk diligence items first: book of business quality, carrier concentration, and E&O history. Exclusivity without a corresponding buyer good-faith obligation to advance financing and documentation is one-sided and sellers should resist it.

Transition and Non-Solicitation

Outlines the seller principal's post-closing obligations, including the duration and scope of a transition services period, client introduction requirements, and the geographic and temporal scope of non-solicitation and non-compete covenants. This section directly protects the buyer's most important asset — the client relationships they are paying for.

💡 The transition period is arguably more valuable than the non-compete in an insurance agency acquisition. A seller who is genuinely committed to a 18–24 month transition will protect far more revenue than any legal covenant. Structure earnout payments to run concurrent with the transition period to align seller incentives with client retention. Non-compete enforceability varies significantly by state — confirm with local counsel before finalizing geographic scope and duration. In states with weak non-compete enforcement (California, Minnesota, Oklahoma, North Dakota), focus more heavily on non-solicitation covenants, which are more consistently enforceable.

Financing Conditions

States the buyer's financing plan and any conditions to closing tied to financing approval. For SBA-financed acquisitions, this section must address the SBA loan approval process and timeline, which directly affects the closing schedule.

💡 SBA 7(a) loans are the most common financing vehicle for sub-$5M independent agency acquisitions, offering up to $5M in loan proceeds, 10-year terms for goodwill-heavy acquisitions, and relatively competitive rates. SBA lenders who specialize in insurance agency acquisitions — including Live Oak Bank and a handful of community banks with insurance M&A experience — will underwrite the book of business quality directly, not just the historical financials. Expect the SBA approval process to take 60–90 days from complete application submission. Build this into your exclusivity and closing timeline from day one.

Representations and Pre-Closing Covenants

Establishes the seller's obligation to operate the agency in the ordinary course during the period between LOI signing and closing, and previews the material representations that will be made in the APA. This section protects the buyer from adverse changes to the book of business or carrier relationships before closing.

💡 Pre-closing covenants in an LOI are typically non-binding, but they set the tone and create a contractual framework that will be replicated in the APA. The most important pre-closing protection in an insurance agency deal is preventing the seller from allowing key producers or account managers to depart — staff departures in the months before closing are a leading indicator of client attrition after closing. Consider requesting a list of all licensed employees and their tenure as part of initial diligence, and monitor any departures closely during the exclusivity period.