Q3 2019 Earnings Call
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As it finalizes its financial results for the third quarter.
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That said I will now turn the call over to Powell Brown, President and Chief Executive Officer, you may begin.
Thank you got a good morning, everyone and thanks for joining us for third quarter 2019 earnings call I'm on slide three for the quarter, we delivered 618.7 million of revenue growing 16.5% in total.
Net revenues increased by 3.4% for the third quarter.
Thanks awaiting the 8 million dollar onetime adjustment recorded in the third quarter last year associated with their implementation of the new revenue recognition standards organic growth would be five per cent for this quarter.
Get into more detail in a few minutes about the organic growth for each segment or EBITDAC margin was 31.5, which is down 200 basis points versus 2018.
Our net income per share for the third quarter grew 7.9% 41 cents as compared to the third quarter of 18 during the quarter. We acquired six businesses with annualized revenues of approximately 36 million that takes it to a total of 18 deals with 86 million of estimated annual revenue through the first nine months.
And we're pleased with our M&A activity for the year.
Later in the presentation and he will discuss our financial results in more detail.
Slide number four for the third quarter, we continue to see businesses invest additional capital hire more employees and grow their companies ultimately expanding exposure units overall, we would say that our customers continue to remain optimistic about the economy and the outlook, but are mindful of any international economic changes.
And how they could impact our economy.
Premium rates for the quarter continue to increase slightly or we'd say firming a bit more we do not believe it's hard market and rates have not increased significantly as compared to last quarter.
In general there's a continued upward trend and for certain lines. The amount of increase is driven by the loss experience of the account or certain classes of business. These include but are not limited to transportation habitational excess liability and New York City contractors just to name a few.
As we've mentioned before accounts of losses will generate generally see rate increases well a blood above those accounts with minimal or no loss experience. One line of coverage. It continues to see five to 10 plus percent rate increases its commercial auto and we're seeing these increases across almost all carriers as it relates to the.
You know placements for cat prone properties, including wind and quake, we realized increases in the range of 5% to 15%, but there can be outliers. Most professional liability line for private companies are flat to down public company Dnos up five to 15 work comp rates as you know and most.
Hey to remain down 2% to 5%.
Most other lines are increasing rates somewhere between 2% to 5%.
There continues to be a lot of interest from risk barriers to increase rates and as you've seen in the adverse loss development in casualty line for several carriers in the United States. This is prompting carriers to review the adequacy of casualty pricing. This pressure. If this pressure continues we believe there'll be more upward.
Pressure flight on casualty pricing over the coming quarters.
The enough space is an area, we continue to see some carriers be more selective in either lines or geography, which is having a more pronounced impact on N.S. rates versus the admitted market. One area. That's under heavy pressure is property coverage in California.
A number of carriers have either pulled out or pulling back from writing traditional property coverage for personal lines in some areas a commercial lines.
The areas, creating the most challenges are brushes owns these actions have for some homeowners to obtain coverage from the state fair plan or a admitted commercial placements going into the E.N.S. market. We're also seeing rate increases for earthquake coverage and general while risk bears have been able to get some rate.
Increases and there has been upward movement from where we were a year ago from most lines, there's still a lot of capital in the marketing competition for low loss accounts remains in the current environment. We do not think these conditions will abate.
During the quarter, we named one of our senior leaders, Steve Boyd as our new head of technology innovation and data strategy. Steve has a broad technology background has been an operator with on our national programs segment for many years and over the past couple of years has been leading our innovation initiatives. This combination pluses knowledge of our company.
He will help a further our technology initiative talk more about technology later.
Now on slide five let's talk about the performance of our four segments. Our retail segment delivered organic revenue growth of 2.9% in Q3 with the new revenue recognition standards and the amount of recognize revenue recognized for our employee benefits business, we expected our organic growth in the first half of the year, which is about four and a half.
Were sent to be higher than in the second half of the year during the quarter. Our organic revenue growth was negatively impacted by the implementation of the new revenue standard on a year to date basis. We're pleased with the 4% organic revenue growth delivered through the first nine months of 19 as this represents good and.
Incremental improvement over the 2.8% organic growth we realized in the first nine months of last year.
Finally, we continue to be really pleased with the results of Hayes and our other recent acquisitions as they performed well.
Our national programs segment grew 1.6% organically when we isolate the $8 million onetime adjustment recorded in the third quarter of last year within our lender placed business.
Organic growth rate was over 7%. This is one of the best quarters. We've had for this segment, excluding any storm claim activity.
Our growth was driven by continued strong performance from our earthquake programs all risk program, our commercial and residential property programs and our education program just to name a few.
In general most of our programs performed well and we had no major headwinds this quarter with carrier changes or changes in risk appetite overall is a great quarter.
Our wholesale brokerage segment delivered another great quarter with organic revenues growing 11% organic growth was higher this quarter due to increased rates in more new business. Please note. We would expect the growth rate for the fourth quarter to be more in line with the organic growth for the first half of the year.
The organic revenue for our services segment decreased.
70 basis points for the quarter consistent with last quarter organic growth was impacted by lower claims in our social security advocacy business that resulted from a completion of advocacy work on a book of business in the prior year. This decline offset good organic growth realized in most other businesses within the services segment.
Overall as good quarter, and we're pleased with our financial results now, let me turn over to Andy to discuss our financial performance in more detail. Thank you Paul good morning, everyone.
Consistent with previous quarters, we're going to discuss our GAAP results certain non-GAAP financial highlights and then our adjusted results excluding the impacts of acquisition earn outs.
We'll move on slide number six for the third quarter, we delivered total revenue growth of $87.8 million or 16.5% and organic revenue growth of 3.4%.
Leading the onetime $8 million adjustment, we recorded last year with our national programs Division, our organic growth would have been 5% for the quarter.
Our income before income taxes, EBITDAX increased by 6.6, and 9.6% respectively. Later will walk through the detailed moving our EBITDAC margin in the impact to Hayes.
Our net income increased by $9.5 million or 9% and our diluted net income per share increased by three cents or 7.9% of 41 cents.
Our effective tax rate for the third quarter, 2019 was 23.9% compared to 25.5% in the third quarter of 2018.
The lower effective tax rate was driven by our state tax footprint and corresponding apportionment, along with a tax rate change in Florida.
Based upon the results for the first nine months, we're now projecting our full year effective tax rate to be in the 24% to 25% range.
Our weighted average number of shares were basically flat compared to the prior year as we've mentioned before our goal is to purchase shares related to our equity incentive plans in order to keep our share count on a full year basis relatively flat.
Lastly, our dividends per share increased to eight cents were 6.7% compared to the third quarter 2018.
Also last week, our board of directors approved a 6.25% increase to our upcoming dividend. We're pleased that weve increased our dividend for the 26th year in a row.
Moving over to slide number seven this slide presents a results after removing the change in estimated acquisition earn out payables for both years. We believe this presentation provides a more comparable year on year basis. This quarter, we recorded a reduction in our earn out liabilities of approximately $6 million.
Our income before income tax on an adjusted basis grew 3.2% or slower than EBITDAC due to incremental interest and amortization expense associated with acquisitions, we completed last year on adjusted basis, our net income increased by 5.5%.
Moving over to slide number eight this represents the key components, where revenue performance for the quarter, our total commissions and fees increased by 16.5%.
Our contingent commissions were basically flat as compared to 2018, and we expect contingents to be down $3 million to $4 million for the fourth quarter.
For the quarter are guaranteed supplemental commissions increased by $1.5 million due to qualifying for certain incentives our core commissions and fees increased by $86.2 million were 16.8%.
When we isolate the net impact to M&A activity, our organic revenues increased by 3.4%.
This growth was negatively impacted by the onetime adjustment we recorded last year.
Leading this item our organic growth would have been 5% representing an outstanding quarter.
Over to slide number nine.
To provide some additional visibility into the major drivers are EBITDAC margin. We've included a walk through from 2018 to 2019.
During the quarter, we had a couple of disposals that resulted in a gain that benefited margin by 80 basis points in line with our expectations Hayes negatively impacted our margins by approximately 160 basis points for the quarter due to phasing of revenues and profits in accordance with the new revenue standard I'll talk more.
About the financial performance for Hayes and a few minutes other reflects the underlying margin change we experienced across the remainder of our business. The main drivers where the prior year 8 million dollar onetime items recorded in national programs.
Higher noncash stock compensation costs and higher claims experience as part of our self insured health plan and incremental hiring in high performing businesses.
These items more than offset margin expansion associated with levering higher organic growth.
And the net increase in G.S. sees on a year to date basis, we've expanded underlying margins driven by higher organic growth managing our expenses and realizing benefits from our previous investments.
On the following slides we presented the results of our four business segments were over on the slide number 10, which is retail.
Our retail segment delivered total revenue growth of over 29% driven primarily by acquisition activity over the past 12 months organic growth of 2.9% across all lines of business and increase contingent commissions and gsvs.
Our EBITDAC margin for the quarter decreased 330 basis points due primarily to the phasing of profit from pace, which was about a 280 basis point impact the margin impact associated with when when we recognize revenues for a new acquisition and higher noncash stock based compensation cost.
These items more than offset some gains we realized.
Current quarter disposals, and slightly higher contingent commissions ngs sees.
Our income before income tax margin declined by 830 basis points due to higher intercompany interest expense and amortization associated with our acquisition activity and the drivers EBITDAC changes noted previously.
Consistent with our previous comments in the fact that we can have some noise between the quarters related to the new revenue standard. We think for this year. It's important to also focus on year to date performance year to date, our organic revenue growth rate is 4% as compared to 2.8% last year for the nine month.
Yes.
And our EBITDAC margin is 29.5% versus 30.2%.
For the nine months ended in the prior year, excluding the net impact of Hayes and our gain on disposal. Our margins have increased on a year to date basis, which is in line with our expectations.
Also during the quarter, we acquired a business that will recognize substantially all of its revenue in the first quarter of each year. As a result, this will drive margin compression in the fourth quarter of 2019 of approximately 60 to 80 basis points.
Moving over slide number 11, the National program segment had lower total revenues by 40 basis points. This was driven by the onetime adjustment we recorded last year within our lender placed business of $8 million and a decrease in contingent commissions, which more than offset and 1.6% organic growth.
Isolating the onetime adjustment or organic growth would have been over 7% for the third quarter driven by strong growth from many programs.
Income before income taxes remain flat, primarily due to the decrease in total revenues from the prior year adjustment and lower contingent commissions. Both of these were offset by lower intercompany interest expense.
Good day decreased by 5.2% due to lower contingent commissions and the onetime prior year revenue recognition adjustment, which offset strong organic growth and continued management of our cost isolating the prior year adjustment EBITDAC margins would have increased almost 100 basis points, even with lower contingent commissions overall, though.
As a really strong quarter for the national programs segment, both on the top from the bottom line.
Wholesale brokerage segment.
Deliver total revenue growth of 11.7% inorganic revenue growth of 11% and are contingent commissions were relatively consistent with the prior year.
EBITDAC margin increased 210 basis points as a result of leveraging organic revenues and managing our cost base. Our income before income tax margin increased 290 basis points do the same factors driving the EBITDAC margin with the additional benefit from lower intercompany interest and amortization expense.
Over slide number 13, our services segment delivered total revenue growth of 4.2% due to acquisitions completed in the last 12 months and organic revenue decreased 70 basis points for the quarter.
Consistent with the last quarter organic growth was impacted by lower claims are so security efficacy business.
Also during the quarter, we recognized incremental revenues associated with the termination of a customer contract.
From a margin perspective, EBITDAC grew faster than total revenues driven by the mix of business growth and management of expenses. Our income before income taxes grew faster than EBITDA due to lower intercompany interest expense for the fourth quarter, we expect revenues and margins to decline, 5% to 10% driven by our social security.
Advocacy businesses and the termination of the previously mentioned customer contract.
Moving over slide number 14, we want to provide an update on the third quarter and year to date performance for Hayes.
Our total revenues for the quarter were $50.3 million and we're at the top end of our expected range expenses were higher than originally anticipated due to phasing related to the new revenue standard.
This phasing is what partially drove higher margins and EPS in the first two quarters of this year and a one cents loss in the third quarter of this year on a year to date basis, we've delivered $168.5 million of revenue versus our original estimate of 164 to 172 million.
Three cents of earnings per share as compared to our original estimate of approximately two cents. We continue to believe Hayes will deliver within the previously communicated full year range of revenue profit and earnings per share contributions.
Finally, a comment regarding cash flow conversion, which we define as GAAP cash flow from operations divided by total revenues at the end of the second quarter. Our cash conversion ratio was slightly below last year. During the current third quarter, our cash conversion accelerated and now our year to date cash conversion is over 24%, which.
Is about one percentage point higher than last year on a year to date basis, our cash flow from operating activities has grown over 25% as compared to total revenue growth of 20% with that let me turn it back over to power for closing comments. Thanks, Andy Great report in closing we continue to be remain optimistic about the economy as business.
Has continued to invest in higher more employees like many of our customers. We're watching the resolution trade relations and other matters internationally to determine if they might impact our customers and the overall economy. We expect most rates to continue to increased slightly during the fourth quarter and into early next.
Last year and for competition to remained strong for accounts with low loss ratios are low loss experience. Our acquisition pipeline continues to remain good as we're talking on lots of companies. We have good momentum after closing 18 deals through the third quarter with annualized revenues of 86 million we've announced.
Three additional transactions already this quarter. Our goal as you know is defined companies that fit culturally makes sense financially and want to be part of our team. We will continue to maintain our disciplined capital and M&A approaches as they've proven to be very successful over the long term.
As you know technology remains one of our key priorities and we have a new head of technology. Our focus has been and we'll continue to be on investing in our digital strategy and partnering with other companies to improve the experience for our customers and our teammates and how we engage with our carrier partners.
We believe technology will be an important part of the delivery of insurance over the coming years and want to be position to capitalize on the opportunities when they arise over.
Overall, we feel is a great quarter, we have really good momentum heading into the fourth quarter with that let me turn it back over to Augusta for QNX.
Thank you have you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again press Star one if you would like to ask a question well pause for just a moment to allow everyone an opera Tim opportunity the signal for questions.
Our first question will come from at least Greenspan with Wells Fargo.
Hi, good morning.
My first question on you guys on a couple times throughout the president prepared remarks pointed to being optimistic about the economy and wait to improving so I was hoping.
We could spend a little bit more time on retail I know on Rev. RAC highs Don.
Timing issues between some of the quarters, but we did see a little bit of a slow down sequentially in the third quarter from where you had been trending on can you just give us kind of.
Higher level deal and what you're seeing and how you think the Q4 and potentially even 2020 could shake out on organic basis.
Sure good morning, a lease.
Couple of things one.
As you know we talked about the revenue recognition standard and how we talked about on earlier calls about the organic growth would be slightly higher in the first half and maybe slightly lower in the second half. So that's the first thing the second thing that I would say.
Is we've tried to look at it.
We laid out for you on a year to date basis, and we think of the 4% organic growth year to date through the first nine months this year versus 2.8% last year. So we are pleased with that as it relates to organic growth on a forward going basis as you know we don't.
Don't give forward looking guidance, we've always said that we believe that the organic growth rate of.
Our business and specifically retail is a low to mid single digit organic growth business and we continue to try to invest in that business when opportunities arise whether that be through acquisitions as you've seen.
Some of the larger ones the specifically Hayes that we do this last year or hiring additional people as offices.
Outperform and you know we continue to go to the next level. So we I would tell you that.
From our perspective from an economic standpoint.
We are guardedly optimistic.
You know we.
Interest rates continue to go down our.
I don't know what's going to happen.
I will they go to zero I don't know if there was something unusual event I E a hard Brexit.
You know divorce or something with China, or something like that could that affect our economy. We believe the answer is possibly and if so we're obviously cautious about that as well.
Okay. That's helpful on and then.
Andy you mentioned on that there was a deal that you guys just completed within retail that skewed to the first quarter. A couple of questions. There could you potentially size that deal and then when you said and we tell that margins would be compressed by 60 80 basis points in the fourth quarter is that an all any comment or is that chest.
In relation to the steel or does that also include the impact of Hayes.
Yes to that so memorial lease.
Couple of things on on that front. So the comment about the margin compression was specifically associated with what it will do in the fourth quarter to retails margins. So what we're trying to help everybody with his whatever you've modeled out than you'd want to adjusted.
By kind of the 60 to 80 basis points down for the transaction.
The on this deal here again, it's.
It's around about $20 million in revenue and what happens is it will recognize all of its revenue in the first quarter. So.
I'll have there's minimal was no profit in in the back into the year that we get all in the first quarter. So hopefully gives you an idea of kind of how to model that what we want to do is finished out the year and then we'll give a better estimation as to what kind of Q1 Q2 looks like once we close the year, but at least give you some guidance with fourth quarter.
Okay. Thanks, and then lastly on Contingence I know you gave some commentary in terms of the fourth quarter, but do you have a view in terms of contingents or any kind of color for 2020 or is it too early.
Yeah, it's too early at this stage. So again, we probably like to get through year end and then see if we get any guidance from any of the carriers. Most of those settle again in the first quarter and as a reminder, with the new revenue standards. What we're doing as we are accruing for the contingent.
Throughout the year based upon what we believe will happen so as a reminder.
Q1 of this year, we had a number of adjustments positive because they came in a little bit better than what we'd anticipated.
And so again, we are accruing for those who have to wait till we get to Q1 and then we will record any true ups are true downs based upon actual cash received as compared to what we anticipated. We would have got during the year. So the new approach definitely creates a bit more volatility in.
In the numbers than in the past.
Okay. That's helpful. I appreciate the color. Thank you yes, yes. This is just one closing on there.
Just as a thought on contingents.
Our view is we don't see anything in the marketplace today, that's going to start driving contingent commissions up at least in the Ns and our national programs Division.
Okay. That's helpful. Thank you very much.
Thank you our next question, what kind of Greg Peters with Raymond James.
Good morning, everyone I wanted to follow up on your organic comments.
Looking at your slide deck and listening to your comments all Andy.
You talked about you know a price increases rate increases across many lines of business.
And you know you.
Posted some pretty impressive results on the year to date basis, both in retail and wholesale can you talk about.
What the balances between.
The revenue organic revenue being driven by rate versus what's being driven by actually new business wins.
Right.
Remember what we've historically.
Said I'm going to reiterate what we've historically said and we haven't broken out specific the new business wins versus growth in existing business.
But what we've historically said is two thirds to three quarters of the impact is exposure units. So those could be increases in existing customers.
And or new business wins.
The one third to one quarter would be rate and depending on the quarter, depending on the classes of business.
And if those are classes that are.
Impacted more severely in some case than it might be slightly different than that.
But that's kind of how we look at a Greg and and I think that your point is a good one which is.
We are keenly aware of the importance of growing our business and growing it profitably and so we're very pleased with the 4% organic growth year to date and the versus the 2.8 last.
Here and the margin profile that Andy talked about where we're effectively up X Hayes and for nine months up slightly X Hayes and any gains that we've had in the same period. So.
A lot of people have used that term hard market I'm going to be the first to point out and Andy would do that we don't believe that and depending on where you are in the country. It's interesting what you see so let me give you. An example, if you go into new England.
Package.
Good middle market package riders.
Accounts are flat to down in that part of the country and many of you want to compare that to you know Los Angeles is burning this morning, and there's rolling Brownouts I mean, so theres effects on both then both ends of that spectrum. So it really typically geography based or low.
Line of business based or both.
Thank you. Thank you for the example.
And on the services side, you know we've been hearing about the social security embassy headwinds for I guess, a couple of quarters now and I I look at your organic results over the last four quarters, it's definitely reflects challenges.
Can you can you remind us exactly what's going on there and in because this seems to be Anniversarying. You do you think that that might turn around in the coming quarters.
Yeah, Hi, good morning, Greg Andy here.
This was that a that book of business. It's been running now for an adjudicating those claims about 18 months on than we've been kind of winding down off of it will still have additional impacts in the fourth quarter of this year. So that was the guidance that we had given us as well as the the cut.
Summer account and then we'll have some residual impact in the first quarter and then we will have made our lab on that one.
Okay Yeah.
Thank you.
I'm just two other questions.
First you know Andy.
Yeah, you called out the free cash flow conversion rate I think than in previous calls you've mentioned that you know you would have expected.
Or might expect for 2019 to come go back to historical range of 20 to 23 and given the outperformance in the third quarter. Do you think you guys you're going to come in above that range or where do you think how how's that looking for the full year.
We feel pretty good at this stage for the for the full year.
On the range that we're kind of that.
Okay and then.
Finally, just on the M&A environment can Paul can you give us an update on how pricing is is it more expensive to do a deal today than it was.
Year ago, you did it certainly seems like there's a steady stream of news of private equity and strategic spine companies every day I saw it get just an update of perspective there.
Yeah, I think that what I would say is I believe there's 30 PE backed firms in the space now.
And the traditional strategics that you are aware of.
I would say the if there's change in pricing that change in pricing might be more pronounced in smaller deals becoming slightly more expensive because the larger deals were already expensive and and I don't see them going up incrementally add.
Much.
Doesn't mean, they couldn't go up but I'm talking about deals that are you now under a you know something from Threed at $10 million of revenue.
And the corresponding earnings there's pressure on those multiples now more so than in the path because.
People.
That our short term buyers are trying to gain scale and so there's so many.
Agencies that are considering selling or would consider cell and so that's what's going on.
I will tell you that we're very pleased with the opportunities that and the teams that have joint organizations that have joined us so far this year.
And we continue to be very optimistic about those in the future.
But yes. It is continues to get more competitive.
Okay, great. Thanks for your answers.
Uh huh.
If you find your question has been answered you may remember yourself from the Q by pressing the star key followed by the <unk> to our next question will come from Mike.
RMC with credit Suisse.
Hey, guys. Good morning, this is actually a Charlie on for Mike.
I know you talked a little bit about your new technology leader can you elaborate on where you're focused on improving and provide any color on what specific initiatives. He will be working on.
Sure. Thanks, Charlie for Mike. So we appreciate that so Steve Boyd.
Has a technology background coming into our organization 18 years ago as the CIO of Arrowhead and then he migrated over to operations.
And over the last couple of years, two and a half maybe years or so he's been involved in innovation initiatives across the organization. So broadly speaking.
In technology I think of it several buckets you have the data.
And how we use that data and manage that data to the benefit of our customers our teammates and trading with our carrier partners security.
As of is a very obviously important segment.
Innovation defined as emerging technology, and how that emerging technology can help us.
Better interface with those three groups I.E. customers.
Teammates and carrier partners.
And in that innovation is the vetting of.
Technology and as you know, there's an enormous amount of money that pouring into.
Ensure tech some of which was intended initially to be disruptive and get between the buyer and the broker.
And what they found in many instances is disrupting that relationship is a little more complicated in some of those.
Organizations have pivoted and that pivot is to try to enable the brokers to enhance the relationship with their customers or simplify highly repetitive tasks that can be policy checking that could be.
You know gathering data that not having to re input data multiple times in the system single input things like that so I also think of.
Broadly speaking digital digital defined is.
You know here now how do you use that to our benefit I would tell you that the most technology technologically advanced area of our company.
Is the end programs and so some of those capabilities that are being used and programs may have a direct.
Impact right now in the near to intermediate future on something we're doing in wholesale or programs or.
Wholesale or retail or services and so he will obviously be overseeing that as well. So I kind of look at it high level data security innovation digital and all the underlying pieces with that I will tell you that.
The thing that we're most excited about it I personally am.
Steve is a very talented leader and he's an operator, so he blends the ability to drive what we call business driven I T.
So we're all please.
Got it. Thank you that's helpful.
And then just as a follow up did you guys get any lift from a the impact from Texas flooding during the third quarter and do you expect any impact in the fourth quarter or first quarter 20. Thanks.
Hi, Good morning, Charlie It's Andy here no a minimal in the third quarter just as a reminder of good way for you guys to think about what happens post an event.
As it normally takes at least 30 to 60 days before claims start really kind of coming in the door. We started adjudicating those and we start recognizing revenue. So based upon when a mill to happened again that would be very unlikely for the third quarters, just keep in mind for for future storms and then the storm.
Itself, while I've got a lot of press coverage or was not a lot of flood activity. There that was covered underneath the policies.
So not driving a lot of claim activity, we will get a little bit, but it won't be anything that's going to drive incremental organic growth over the prior year, if anything it probably keeps us flat year on year in the fourth quarter, and we'll probably process. Most of those claims in the fourth quarter, Woody and nothing material.
Thank you.
Our next question will come from Mark Hughes with Suntrust.
Yes. Thank you good morning.
So in the wholesale business.
Were there any onetime or is there anything any items that wouldn't recur. You. You said you expect to be a fourth quarter to be more like the first half is that just the.
Conservatism or was there something that was a particularly beneficial in Q3.
There was no one a big deal Mark that's not what I would say, it's just there was a lot of new business and.
There were on existing customers.
There was some rate pressure in certain areas if they were.
You know cat prone or have you know depending on the structure of the accounts, but but we we would we would actually just say that it.
Unless something changes and I don't know it's possible, but we think that that growth rate is more.
Indicative of the first half of the year than this quarter, we don't think one quarter makes a trend.
Okay.
And then the how would you look at coastal property pricing you know given that were.
It seems like this year and end up being a reasonably decent the little bit of damage from Dorian how do you see that trending even when you think a into next year I know you don't do a forecast but in your experience how would the would you anticipate renewal rate might look okay. So let's I think there's it's.
Important too.
Bifurcate or try for Kate that question. So number one. The first question is is it habitational or not okay, and habitational, let's define that as good construction.
Fire resistive, ER, and what I call sticks and bricks apartments Garden style. Three story two story frame apartments near the water. So there are still carriers for example in Florida that will be very aggressive on.
And superior construction.
Condominiums.
In the state of Florida that doesn't mean, everyone, but I'm, saying so there is some rate pressure, but its mitigated because you have some of these outlying carriers that will do things that you might scratch your head on say I would've expected that as it relates to garden style apartments, there is more pressure not.
Only on the property, but on the liability as well because as you heard US say earlier there continues to be some adverse loss development and prior accident years and so there's a there's a focus on do we have the right casualty pricing and particularly.
In something like.
That meeting garden style apartments as it relates to other than Habitational. It truly depends on how it was written before what do I mean by that.
There are some carriers that have written large.
Single limits on facilities, particularly H. PR and very good protection.
Or facilities, where they are now saying in some instances, we don't want to write the whole limit. So if you've got somebody that rights I'll make us up a 200 million dollar loss limit and they determined that they don't want to 200 million dollar loss limit exposed and a cat prone area.
Even if it's good construction.
And they all have a sudden only want to write 50 million I. Just made that up then you got to go out and stack up.
Sneezed skewed.
Oh.
Sorry.
You're gonna have to go out and get some other carriers to do the 450 extra 50 or whatever the delevering is so.
I say, all that and they're still let's not forget there's still an inordinate amount of capital sitting out there and so I believe that at any time optimistic or new capital. However, you want to you know classify.
It can come so we're being in a and do some things and so I think that kind of.
Moderate the overall rate pressure going put that does not mean that theres not going be upward right prayed pressure on stuff.
But depending on where it is and then you go inland and it's all over the place you go to Atlanta, or Houston I'm in Houston, Dallas, You've got to Denver, and then maybe flat or it might be up because of the class of business or the losses.
Thank you for the detailed appreciate it.
Our next question will come from Sean right, but with KBW.
Good morning.
Good morning.
As a follow up on the M&A environment is they're growing recognition among smaller brokers have their inability to invest in capabilities spend is leading to increased interest in being a acquired by traditional brokers compared to be or is that something that is maybe just becoming a factor and could lead to accelerating M&A.
I think.
Sean I would I would actually I think your tapping on something but I would express it slightly differently. There is a recognition, particularly among.
People, who are this is their single largest asset they the average agency owner in United States. As you know 54 to 57 years old.
That saying, sometimes they're either going to have to invest more heavily in those capabilities to compete or they might benefit from partnering with somebody whether it be a strategic.
To enhance those capabilities or potentially sell to a PE to monetize the of the asset but fundamentally.
Agency owners are very independent I'm, a true reflection of the American Dream I mean, you got to very independent group of people, who are really work hard to do the right thing for their customers. So do I think that there is a shift in the thought process no.
No I don't think there's a shift in the process. What I think is occurring is as you know you have more and more business brokers involved and selling businesses and so people are out there pre empting or trying to preempt things where agency owners are getting phone.
Calls all the time from potential acquirers or business brokers and in some cases.
A business broker might say you know we can get you X amount for your agency just kind of having an idea which that may or may not be true you know I don't know the specifics on the way that but the amounts of money are meaningful so in some instances those people are saying look it so much money.
I Kinda Gotta look at it that doesn't mean I was thinking about doing it right now, but I need to explore that for my family and you know whatever so.
Yes, with an aspects of that.
Thank you that's very helpful. And then secondly in terms of earthquake rates did you guys see a direct response to the July earthquakes or is that just something where there wasn't momentum in that kind of helped increase anthem.
Yeah, there was a momentum Sean before the July earthquake, what I would tell you it's interesting and interesting thing number one.
I I Marvel this of all the people in California that live in earthquake zones, only about 10 or 11% by earthquake coverage.
That seems very low to me number one number two when there is an event.
We usually see slight increase and purchasing and that event.
In this case was a significant a significant earthquake, but it was in a rural area. So the losses were next to zero, but the potential magnitude of that had been a 100 miles a west was enormous so.
Let me give you. An example, the that measurement on the Richter scale of seven for the Northridge Air earthquake was I think at six nine is either six seven or six nine.
The amount of energy in the July earthquake. This is this is amazing to me four times higher than North Ridge earthquake for acts the amount of energy released.
So what you've got is a recognition on the part of the market place that saying Wow, what would've happened had that occurred in Los Angeles or San Francisco and so there is some pressure on rates. The issue also is not only rate, but it limits.
Ability to put limits together.
And Fortunately, we have a very solid program, which has performed really well for our carrier partners and so we're able to put up significant limits and quakes zones are all over the west coast.
Thank you very much.
You're welcome.
As a reminder, that star wonder if he would like to ask a question.
[noise].
Okay no other questions at this time.
Yes, Thank you Augusta and we appreciate Everybodys time, and look forward to talking to you next quarter have a great day and a great dressier fall by.
That does conclude our conference for today. Thank you all for your participation you may now disconnect.