Q2 2023 Brown & Brown Inc Earnings Call

Speaker 1: Those risks and uncertainties identified from time to time in the company's report filed with the Securities and Exchange Commission, a gistual discussion of these and other factors affecting the company's business and prospects, as well as additional information regarding.

Speaker 1: regarding forward-looking statements is contained in the slide presentation posted in connection with this call and in the company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update.

Speaker 1: or in the investor presentation for this call on the company's website at www.vbn insurance.com by clicking on investor relations and then calendar of events. With that said, I will now turn the call over to Powell Brown.

Speaker 1: President and Chief Executive Officer, you may begin.

Speaker 2: Thank you, good day everyone, and welcome to our Q2 2023 earnings call. We had an outstanding second quarter and the first half of the year. We're very pleased with our strong top and bottom line results with the robust total revenue, organic revenue, and earnings per shared growth.

Speaker 2: Today, Andy and I are in the London headquarters of GRP, where we've wrapped up our quarterly board meeting, and have had the opportunity to engage with our European businesses and review strategic plans for the coming years. After our discussions, we feel even better about our leaders and the growth opportunities for our businesses here.

Speaker 2: Now let's get into the results for the quarter. I'm on slide number four. We delivered over a billion dollars of revenue growing 24.7% in total and 11.2% organically as compared to the second quarter of 2022. As a reminder, our calculation of organic revenue does not include contingent commissions.

Speaker 2: Investment income, other income, or gains and losses on business sales.

Speaker 2: Our adjusted EBITDAX margin expanded 150 basis points to 34.2%, and our adjusted earnings for share grew 55% to 68 cents.

Speaker 2: On the M&A front, we completed six acquisitions with estimated annual revenues of $24 million. This outstanding performance is a direct result of the relentless daily commitment by our 15,000 plus teammates to create innovative solutions for our customers. Now on slide five.

Speaker 2: The insurance marketplace continue to be very challenging for customers. They remain focused on the overall spend for insurance and how to best manage their costs.

Speaker 2: Across most lines of coverage, rate increases were similar to recent quarters, with admitted markets up 4-10 percent and excess and surplus markets up 10-20 percent. However, there are exceptions.

Speaker 2: Workers' compensation rates continue to decrease at a consistent rate. EMS professional liability rates, including public company BNO and cyber, continue to moderate downward with flat rates being flat to down 10% or more. The area that remains the most challenging is cat exposed property. The carriers continue toQ, Q, and A National regarded owner and fore tr listen. A question on animal makeup is not covered today as of July 30, 2021. The answer is to the largest tourism industry thanks to innovative and policymaking That's why. In 2013,

Speaker 2: and into the E&F space that might have otherwise been written by an admitted carrier. At the same time, we continue to see under-rider seeking to increase ensured value for square foot due to inflation and higher replacement costs.

Speaker 2: Thus, customers are seeing premiums rise significantly due to inflation and higher values.

Speaker 2: These factors are causing buyers to purchase loss limit, increased adaptables, decreased overall limits, or even self-insured certain layers within a placement.

Speaker 2: Regarding the Florida insurance market, it has not materially improved. We have more admitted carriers either reducing their appetite or stepping away from the market entirely. This is pushing more policies to citizens and the ENS market.

Speaker 2: From a customer perspective, any businesses grew an hired employee during the quarter at levels similar to the first quarter. While the overall rate of inflation continued to slow business leaders remain cautious regarding the level of investment in their business in the second quarter, but incrementally are feeling better than they did in Q1 and Q.

Speaker 2: But that doesn't mean that a good business won't trade at high multiples. From our perspective, we remain active during the quarter, requiring six great companies. We completed the acquisition of high court brequels, a retail agency base in Canada, two acquisitions in the United States and three here in the United Kingdom. We announced in May, depending acquisition of 10-row capital letters. Such is still happening. Renato lockout and carnato lockout.

Speaker 2: UK, US and continental Europe . Canifrog MGA, Nexus, under rights, crosses diversified portfolio of 20 risk classes, including trade credit, financial lines, and aviation.

Speaker 2: In Zña, its retail agency is one of the largest trade credit brokers in the United Kingdom. We're excited to have Colin Thompson and his team join Brown Brown.

Speaker 2: Overall, we're very pleased with the success of our M&A efforts and our in a strong position to leverage our disciplined approach that remains centered on identifying high quality companies that fit culturally and make sense financially.

Speaker 2: I'm on slide number six. Our retail segment had a good quarter, delivering organic growth of 6.3%. This growth was driven by solid new business, continued rate increases, and modest exposure unit expansion. Most lines of business performed well while our dealer services business continued to face headwinds.

Speaker 2: due to vehicle inventory levels and higher interest rates. To give some context around that, the impact to our organic growth was approximately 200 basis points for the quarter. The impact to our organic growth was approximately 200 basis points for the quarter.

Speaker 2: Our program segment delivered in a spectacular quarter with organic growth over 23% driven by strong new business, good retention and continued rate increases, especially around cat property. The majority of our programs grew nicely during the quarter. The end of the quarter, the end of the quarter, the end of the quarter.

Speaker 2: wholesale brokerage delivered in excellent quarter with organic growth 13% ruined by new business and retention as well as rate increases for most lines of business. Our open brokerage and delegated authority, business has had a great quarter. Well, organic revenue for service is segmented declined about 2% for the quarter.

Speaker 2: to external factors that continue to impact our advocacy businesses. This decline was partially offset by higher claims processing revenue for certain businesses.

Speaker 2: In summary, we're very pleased with our first half results, delivering organic growth of nearly 12%, adjusted EBITAC margin expansion of 70 base points, and adjusted earnings for share growth of nearly 19%. I'll turn it over to Andy to discuss our financial results in more detail.

Speaker 2: Great, thanks, pal. Good day, everybody. Our review RRP's solidated financial results on an adjusted basis in more detail. As a reminder, our adjusted measures for the second quarter exclude the change and estimated urinal tables. One time acquisition of the integration costs associated with GRP, ORCAT and VDB.

Speaker 2: and gains and losses on business investors. We believe isolating the above items provides a better reflection of the performance of the business and enhanced comparability. The recommendations of our non-GAAP financial measures, including these adjusted amounts to the most closely comparable GAAP amounts.

Speaker 2: can be found either in the appendix to the presentation or in the press release issued yesterday. On an adjusted basis.

Speaker 2: Total revenues were over $1 billion for the second quarter, growing 24.7% as compared to the second quarter of the prior year. Income before income taxes increased by 32.1%, and even that grew by 30.5%.

Speaker 2: Our EBITDA margin was 34.2% increasing 150 basis points as compared to the second quarter of 2022. The effective tax rate for the quarter was 25%, which is in line with our expectations.

Speaker 2: and compares 27% in second quarter of last year.

Speaker 2: The lower tap rate was impacted by the change in the market value of assets associated with our deferred compensation plan in the current year as compared to the prior year.

Speaker 3: Our adjusted diluted net income per share increased by 33.3% from last year to 68 cents.

Speaker 3: Due to the changes in market value, our deferred compensation plan negatively impacted the ratio of salaries and related expenses to revenue by approximately 250 basis points year over year. Keep in mind, there's an offsetting benefit within other operating expenses. Lastly, our weighted average share count remained relatively flat.

Speaker 3: significantly, delivering adjusted total revenue growth of 25.5%, driven by acquisitions completed in the last year, higher profit sharing contingent commissions, and organic growth of 6.3%. Adjusted EBITDAQ grew slightly faster than revenues and our adjusted EBITDAQ margin expanded to 28.4%.

Speaker 3: This expansion was primarily driven by increased profit sharing contingent commissions, which were substantially offset by higher non-cash stock base compensation, and to a lesser extent, the hiring of incremental teammates to support our current and future growth.

Speaker 3: Remove the slide number nine. National programs have another outstanding quarter with adjusted total revenue growing of 25.7% in organic growth of 23.3%.

Speaker 3: Through the combination of revenue growth and leveraging our expense base, our adjusted EVA DAC margin expanded 510 basins points.

Speaker 3: revenue growth and leveraging our expense base, our adjusted EBITDAX margin expanded 510 basis points. We're over on slide number 10.

Speaker 3: Our wholesale segment delivered an excellent quarter with adjusted total revenue growth of 23.8% and organic growth 13.1%. Our adjusted EBITDAX margin contracted slightly due to some non-recurring costs in the second quarter that impacted

Speaker 3: by approximately 200 basis points. We're on slide number 11. The service to segments organic revenue contracted by 1.8% for the quarter, and the adjusted even that margin decreased by 220 basis points.

Speaker 3: The primary drive with the marching decline was lower organic revenues and the impacts of inflation.

Speaker 3: We've got a few comments regarding cash generation and capital allocation.

Speaker 3: We generated approximately $390 million of cash flow from operations for the first six months of this year, growing over $40 million or 12%. Our ratio of cash flow from operations as a percentage of total revenues was approximately 18% for the first six months of this year.

Speaker 3: as compared to 20% in the first six months of last year.

Speaker 3: As we discussed last quarter, the lower year-to-date ratio has been impacted by higher interest expense and paying taxes in the first quarter of this year related to the fourth quarter of last year that were deferred as a result of her case and release.

Speaker 3: With that being said, the second quarter was very strong for cash generation, and we ended the quarter with approximately $630 million of operating cash.

Speaker 3: As we mentioned previously, post the acquisitions of GRP, BDD, and ORCID last year, we are committed to delivery to our more traditional levels.

Speaker 3: In the second quarter, we reduced our outstanding debt by making incremental payments of approximately $130 million.

Speaker 3: We are in a strong capital position to continue to invest in our company, acquire great businesses, and delever. With that, let me turn it back over to Powell for closing comments. Thanks, Andy. Great report. We continue to monitor the impact of inflation and increases in interest rates on our customers and the economies in which we operate.

Speaker 2: We expect business leaders will remain cautious regarding the pace of their hiring and how much they will invest over the coming quarters. With that said, consumers are still spending money and most of our customers are prospering. We believe this trend will continue for at least the next few quarters.

Speaker 2: From an insurance standpoint, buyers remain fatigued due to continued increases in insurance rates, especially for capped properties, which we expect similar increases through the end of the year. With these market conditions, buyers will continue to either decrease limits, increase with Symantec and complaints in certain cases.

Speaker 2: opt for loss limits.

Speaker 2: In regard to our carrier partners, they remain focused on capacity as well as the flight quality and diversification.

Speaker 2: Historically, we've delivered good underwriting results and are uniquely positioned with the breadth of our MGA and MGUs to provide an opportunity for carriers to allocate capacity across multiple programs.

Speaker 2: The combination of our diversification and strong underwriting results positions us well to retain and possibly increase our capacity, which will support incremental organic growth from our programs.

Speaker 2: A few comments regarding our recent international acquisitions of GRP and VDB.

Speaker 2: We're extremely pleased with the performance of these businesses as they're ahead of our expectations for the first year. The leadership teams are focused on driving continued growth over the coming quarters and years both organically and through M&A. GRP has been active over the past year acquiring over 20 high quality businesses.

Speaker 2: Additionally, we'd like to welcome all teammates that have joined us over the past few months.

Speaker 2: Overall, we feel great about our business and how our team continues to execute and deliver. Our focus is on hiring and retaining the best teammates and leveraging the total capabilities of Brown & Brown to retain our existing customers and win more new business.

Speaker 2: In summary, we had a great first half of the year and had a great momentum heading into the second half of the year. With that, we'll turn it back over to Michelle and open it up for Q&A.

Speaker 1: To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker 1: Please stand by while we compile the Q&A roster.

Speaker 1: Our first question comes from Weston Bloomer with UBS. Your line is open. Your line is open.

Speaker 4: Hi, thanks. Good morning. My first question is on the retail segment organic growth. You would highlight it at 200 basis point headwind.

Speaker 4: from dealer services in the corridor. I'm curious if you can disclose what that impact was in one queue or how you're thinking about that headwind for the remainder of the year.

Speaker 4: Given those headwinds there, is it fair to say retail organic may be lower in the second half just given the property uplift that you typically see in the second quarter?

Speaker 3: Yeah, good morning Weston. So assuming that a little bit of color and context around this is, we mentioned this back during the Q1 as well as Q4 of last year that we did anticipate some headwinds for dealer services in the first quarter. And we did see that. It was probably in the range of about 50 to 100 basis points in that range.

Speaker 3: If you recall, when we released earnings for third quarter of last year, we had talked about the fact that we were starting to see the headwinds on the dealer services business in late 2Q of last year.

Speaker 3: And we saw those through the third quarter and fourth quarter and kind of now continually through the impact in the kind of the back end of last year was about 1% by the quarters. So, it kind of gives you an idea when you look at the organic and what the impact is. As we now head into the second half of the year and similar or consistent with the commentary that we had in Q1.

Speaker 3: As we get onto a more comparable basis now in the second half of the year, we don't see the same level of headwinds for the dealer services business. We're very, very proud of those businesses. They perform really well. Just going through a little bit of a cycle right now, but they're great businesses and we made. We're very, very proud of them.

Speaker 4: significant investments in there over time for our capabilities. Got it. Thank you. And I guess sticking on retail,

Speaker 4: Can you maybe quantify the uplift you saw from property in the second quarter and just remind us?

Speaker 3: How much of that business is 2Q weighted maybe relative to the third quarter or fourth quarter? Yeah, we don't disclose that level of granularity Weston, but I think what we've talked about in the past is we do place significantly more capped property in the second quarter than we do in the third quarter.

Speaker 3: And the third quarter is probably potentially almost a third less than what we see in the second quarter. That's pretty consistent with what we talked about last year. So, it's why when we said that normally our organic is generally a little bit lower in the second half of the year versus the first half of the year because of the amount of capped property as well as employee benefits that we see in the first quarter.

Speaker 4: And then just the last one, unprofessional lines. Are we close to the point where we're starting to lap the headwinds just given the lower pricing within that market?

Speaker 3: Maybe you could just expand on that and what you're seeing in professional lines more broadly as we move into the second half. Yeah. Weston, what I would say is we continue to see downward pressure on public DNO. That's really where it's pronounced. In other places, it's not nearly as pronounced. Bill might forever be again score a newara followed by

Speaker 2: So do we still see pressure? Yes. But will that continue for an extended period of time? Don't know. But that's the one place where we really see real softening in the market. So I said that,

Speaker 2: My instinct would tell me in the near to intermediate term we're going to continue to see that kind of pressure in that part of the space.

Speaker 3: Yeah, Weston, you see it probably in the commentary in our deck. It's the one that we did call out that actually softened a little bit more, the second quarter versus the first quarter. So could it go a little bit more potentially?

Speaker 4: Great. Thank you. Appreciate the color. Thank you.

Speaker 1: Please stand by for the next question.

Speaker 1: The next question comes from Michael Zareski with BMO. Your line is now open. Hey, great. Good morning. Wanted to touch on a topic that you guys have brought up and was in the deck as well about …

Speaker 3: You know, challenging placements in certain parts of the marketplace. I know, you know, net net is, you know, now that we're. In July , is there is there any. Should we be thinking that there's the potential for some lack of capacity that could impact your revenue growth rate or.

Speaker 5: or net net between just much higher pricing and maybe there isn't a lack of capacity. Brown is a big beneficiary. Just kind of curious if there's any nuances we should be thinking about in the back half of the year on the challenging marketplace.

Speaker 2: All right. So, Michael, the way I would look at it is this. Let's set the stage for what the market is right now. And what's happening is insurers, in many instances, are getting backed us on…

Speaker 2: a renewal business and even new business with very limited time or very close to the expiration date.

Speaker 2: So there's a lot of activity around analyzing limits and quotations and things like that before we give it to a customer.

Speaker 2: We've also said that you have this fatigue inside of the marketplace with buyers, which have had in particularly cat-flung property, increases for five and six years in a row.

Speaker 2: So, what I would tell you is, do we think that capacity is going to be dramatically constrained in Q3? There is a...this is the hypothetical scenario. That depends if there's a storm.

Speaker 2: So, if we don't have a hurricane hit Florida, that's a different answer than if we do have a hurricane hit Florida. So we can't answer that question right now.

Speaker 2: Number two, there is also the uncertainty that any broker, not just Brown & Brown faces, which is at what point does a buyer of insurance basically say, I can't take any more increase.

Speaker 2: So what might happen is they may be buying a lower limit.

Speaker 2: or self-insuring certain layers in their property placement, but they've gotten to a point where they can't take any more increased costs. So our growth would be driven more by new business at that point than just increased growth on the renewal bill.

Speaker 6: So, what I would tell you is this.

Speaker 2: is performing. And I would say that the question really hinges upon things that are a little bit outside of our control, specifically weather.

Speaker 2: And so we don't think that something's gonna happen relative to the state of Florida or hopefully not any other coastal areas between now and the end of hurricane season. But if we did have that scenario, you're gonna have a much different discussion around...

Speaker 2: business flowing into state pools, i.e. Florida, i.e. citizens and other places.

Speaker 2: because the margin will have to sort itself out.

Speaker 5: That's a helpful commentary. I know it's not an easy question to parse out. My follow-up is on, I guess, contingents and ultimately margins. In the national program segment, we can see there was a higher share of...

Speaker 5: of contingents, which I'm assuming helped drive the margin higher for any commentary on the sustainability and maybe just stepping back on the contingent commissions. For the overall company, are the contingents more weighted towards

Speaker 5: property or any specific business lines and I guess I was just thinking you know Looking at kind of outer your forecasts for the insurance carriers. We're all saying hey, this is your five or six of You know a lot of meaningful rate increases, which you mentioned and you know our weas are expected to be much higher on a go-for basis on the property side of the business

Speaker 3: Let's start first with contingent because there's maybe two pieces to this. Let's first take the retail and you'll see that it's up about $5 million year over year. That is primarily driven by acquisition activity.

Speaker 3: and most of that out of GRP. As we've now made the one-year anniversary, we would expect to see that level of growth year-over-year and contingents should drop off quite a bit in the back end of the year. So that hopefully gives you a little cover of color on the second quarter on retail. Good luck with your YO' and ensure your total growth Olson administration is a K-12. And as always, great, Assistant factory

Speaker 3: as it relates to national programs. So there's a couple things going on. If you recall in the third quarter of last year, I am going to' account for a recent Limore-Yatye shutdown.

Speaker 3: stage we had said we didn't think we would record any contingents for the fourth quarter for that program.

Speaker 3: When we released four quarter earnings, we actually did earn some contingents there, which is a good thing. And now as we're getting through the year and we're seeing development on those claims, it is not as high as what was estimated at the time.

Speaker 3: So when you take the 5 million or so that we picked up in the second quarter in national programs, that's split about in half related to adjustment to last year's amount, and then we are accruing about the other half for higher estimated commissions this year. So I would not anticipate that you would see a reduction in the number of people who are in the program.

Speaker 3: you know, five million dollar increases and contingents in the third and fourth quarter for national programs. Okay, that was really primarily isolated to the second quarter. Now again, keep in mind when we get to the third quarter, you are going to have comparability for the adjustment that we made last year, okay?

Speaker 2: I'd like to also make a comment there around property in general. And this is kind of our view on this.

Speaker 2: The rates in property today are at what I would call all-time spy levels.

Speaker 2: And if you spoke to a risk bearer and they would talk to you honestly about their view on property rates, I think that you might hear that if we don't have an event this season, Then we'll get ready for work this past weekend

Speaker 2: that there would be a leveling or even possibly a slight moderation in pricing next year.

Speaker 2: So, I just want you to kind of keep that in the back of your mind and not every program or not every placement qualifies for contingents, but the contingents are driven on loss experience. So, you've got a higher rate obviously you can...

Speaker 2: sustain higher losses before you, you know, X out the qualification. So just keep that in mind on the property thing, because it is a thing that we talk to our clients about all the time. If there is one thing that comes up time after time after time.

Speaker 3: is what's going to happen in property rates? When are we going to see some relief? How, how, you know, that type of thought process? Paying my other question to you asked is around kind of which lines that you earn on it. As a general rule, this is not hard and fast, but just kind of give you a direction on it. Normally you'll see that in the employee benefits of business.

Speaker 7: Thank you, good color.

Speaker 1: Yeah, thank you. Please stand by for the next question.

Speaker 1: The next question comes from Gregory Peters with Raymond James. Your line is open.

Speaker 5: Great. Good afternoon, Paul and Andy. I guess you've been spending a fair amount of time so far talking about, you know, what's going on in the property market. Paul, on slide 5, you called out the personal lines business in Florida, Texas, and California. I'm not sure what you're talking about. I'm just trying to figure out what's going on in the property market. I'm just trying to figure out what's going on in the property market.

Speaker 2: Yes, sure. Just to give you a context on that, personal lines inside of our organization about $130 million of revenue in retail. Sorry. Yeah, yeah. And so when we're talking about that, we do also have a program, I mean, personal lines.

Speaker 5: programs, what's the mix? Or I guess coming at it a different way, because you talk about your speculating about what may happen if there's an event or not an event at Florida or Texas. So.

Speaker 5: or I guess coming at it a different way because you talk about your speculating about what may happen if there's an event or not an event in Florida or Texas.

Speaker 5: I'm just trying to understand the magnitude is what's the impact, you know, is I think about Brian and Brian ? Maybe you could use that as an entry to talk about the captives, I think, those were an issue for you. And a second half of last year related to Ian, maybe you could give us an update on that. And great, let's see if we maybe add a little context to the personal...

Speaker 3: And that bled over from California, then into Florida, Louisiana, North part of Texas. And so that's been in some of our numbers for a while. So don't read anything into this that we're actually saying. We think that there are incrementally larger headwinds now in our business.

Speaker 3: We've been working our way through those. The one where you probably see it, or we would see it percentage wise, the biggest impact is actually in our wholesale business.

Speaker 3: And that's back to Powell's comment about properties in the past moving over in the state sponsored clients. And back to our earlier discussion about the embedded carriers pulling out of certain markets, that is forcing some policies back into the EMS space. And so we are actually seeing some uptick in our submissions and our buy and rate in our wholesale business.

Speaker 3: that's there. So don't know how long that continues on. Carriers change appetites and they decide to readjust their portfolios, but it definitely was for once, at least not a headwind in the wholesale business, which is a really good thing.

Speaker 2: Can I make a comment on that, Andy, before you talk about the captive? I also want you to understand that we have personalized business all over the country.

Speaker 2: So that could be in the Northeast, it could be in Long Island, it could be in Illinois, it could be in Colorado, it could be in California, it could be in Florida. What we're trying to say there, Greg, is to give you kind of some color around the dynamics in the marketplace.

Speaker 2: Not so much to say that all of our personal lines baked in those two or three states, that's not what we're saying. What we're basically trying to say is the impact of the state-bondered markets or the potential impact when you see big admitted carriers like state-farm.

Speaker 2: and farmers and all say pulling out of a state like California, that creates a lot of challenges for people that are writing, you know, homeowner's there, getting homeowner. So you want to talk about the captive in the captive impact? Yes, and Greg just add one other piece. And we've talked about this on our calls before. We think diversification is extremely powerful.

Speaker 3: And so just as you know, we, you know, the discussion here about, you know, potential headwinds, California, Florida, et cetera. Keep in mind, we bought a outstanding business in the end of the first quarter last year called working.

Speaker 3: And they primarily focus on high net worth personal lines in the Southeast all the way up the Eastern seaboard. That business is growing really well. So just while there's headwinds, we also have things that are going well. That's what diversification is about inside of our business. And that's how we want to make sure that hopefully we continue to grow the organization.

Speaker 3: Everything doesn't work perfect every day, but if we have a lot of businesses that can move back and forth, it balances everything else. So just a little bit of perspective for you. On the CAPTAs, another good quarter for us. So this was really kind of our last quarter of meaningful organic growth.

Speaker 3: Recall we started writing policies in the first quarter of last year. We got up to basically full written premium at the end of the fourth quarter. As we said before, that'll be, we'll have minimal organic impact in the fourth quarter. We had about six and a half million of organic benefit this quarter. We still think we're going to be in the upper range of the previous guidance that we...

Speaker 3: which is a good thing. Just keep in mind when we get to the third quarter in national programs is we did accelerate the recognition of premiums.

Speaker 3: Last year with the claim cost that we had, so that will actually be about a 5 to 7M dollars headwind on organic in the 3rd quarter of this year as we get on to comparative. Okay. Thank you. I just close the loop on your captive commentary.

Speaker 5: Is there any change with the way the reinsurance structure, the way that's structured, and what the loss profile of that business looks for the remainder of the year? No, not substantially. I think a couple of pieces on that. One is

We were pleased to see that the reinsurance market was a little bit more orderly this year than it was last year. So we actually got all of our reinsurance treaties put in place, you know, back before, back in kind of the Maytime Frame, which is, which is good. And then with that, we were able to slight reduce our maximum exposure. So we feel really good about.

how the captors are performing, the organic growth that they've delivered, as well as the profitability.

Got it. Thanks for the answers. Thank you. Please stand by for the next question.

The next question comes from Rob Cox with Goldman Sachs. Your line is open.

Hey, thanks. So some of the comments in the presentation were for the economy to continue moderating in the back half. Curious what you're seeing in your data that informs that view aside from the headwind and dealer services, and if you're seeing the economy moderate from 2Q level so far in July . Bye.

Yeah, Rob, I would tell you this, it's interesting because when you go out in Florida or you're here in London or whatever, restaurants are packed and people are spending money.

And so what we're saying in, you know, lots of economists are dropping the probability of a recession in the second half of the year. I would just tell you that a lot of the customers that I've talked to and I hear about are just, they just,

are approaching it kind of cautiously. That doesn't mean that everything there dead set we're going to recession or anything, there's a little bit of a weight in C. So do I have any data, real time data in July that would tell me no, I don't, but I don't think that's really...

I think it's more of an instinct rather than something that they're seeing every day in their businesses. That's how we interpret that.

Okay, got it, thanks. And maybe just a follow up on wholesale, you know, there's really a step change in the organic growth there accelerating. And I think you commented on it a little bit, but I'm just curious if you give us a little more color on what drove that substantial growth.

in our retail business but also in our wholesale business and that doesn't necessarily mean it's with Brown & Brown retailers. It could be with independent retailers. So there's just a lot of property. That's number one. Number two, I think that from a standpoint of submission count is very good. So we're getting a lot of opportunities.

And in some of those opportunities, we're having some higher-hit ratios, I think. And it's not something so pronounced, but it's just a little uptick, I think, in certain areas. And by doing that, we put all that together with increase in rates. And you get a 13% organic growth, which is a great core for wholesale. And it's a great core for wholesale.

Yeah, Rob, we also, you know, our comment earlier about Persons, it was a headwind in the second quarter of last year, where we actually had tailwind in second quarter of this year, which is, so that also helped contribute to the strong 13 plus percent organck of.

We would also, you know, our comment earlier about personal lines, it was a headwind in the second quarter of last year, where we actually had a tailwind in second quarter of this year, which is, which is good. So that also helped contribute to the strong 13 plus percent organck growth. Great. Thank you.

Thank you. Please stand by for the next question.

The next question comes from Mark Hughes with Truist Securities. Your line is open.

Yeah, thanks. Good morning. How the higher submission count higher hit rate is that?

Broad within wholesale or is that influence most of that property?

I think it's sort of crossed the entire platform. But I don't want you to read too much into that. I mean, the point is that you can have an incremental uptick in your quoted bound ratio and that has a positive impact. But you got rate in there, you have a lot to do.

You may be going one to the state plan, two, you may the state plan depending on what they are in, may not even provide enough coverage for your coverage A on your homeowners, and therefore you may be going into the E&S market.

So a lot of those things, there's just unique dynamics because of the market being in turmoil or disrupted, they create more opportunity in EMS. Just plain and simple.

Understood. And then Andy, you mentioned the $6.5 million benefit from this quarter, from the captive.

And that is still going to have a positive impact in the third quarter. Can you quantify that perhaps?

No, so this board market. So the six and a half million was the benefit year over year to organic from the captives in the second quarter. Okay. When we get to the third, when we get to the third quarter, we'll actually have a five to seven million dollar headwind.

And that's because we accelerated the recognition of the revenue on the premiums in connection with the projected claims cost in the third quarter of last year. You get, have no idea what will happen if we have any sort of storm in the third quarter. We're just telling you kind of what we know right now.

And then it will be, there'll be minimal organic benefit in the fourth quarter.

because we're writing a specific amount of premium, which is what we're going to write the fourth quarter of this year, the same amount that we wrote in the fourth quarter of last year.

Okay, and then any updated thoughts on margin for this year, Andy, for the cool year with the good that two key results.

Now we're not at this stage changing our overall outlook. You know, we adjusted that at the end of the first quarter and said we would be, you know, up slightly for the whole year very pleased with the second quarter results and things can always move around. But we feel really good about the business and the outlook for the year and everything. But no, we're not going to have any major changes on that.

The next question comes from a least green span with Wells Fargo. Your line is open.

Hi, thanks. Good morning. My first question is on the captive. Appreciate the disclosure on the expected revenue and the bike quarter. I just want to understand the lost dynamics and I think you guys had provided some color with the Q4 deck in terms of the underwriting risk.

So am I thinking about it correctly if that if there's no losses this year, that's a hundred percent margin business or you guys assuming some losses, you know, I know you gave us 13 million per occurrence or 25 million per year as your exposure.

So a couple things on that front, Elise. One is no it would not be 100% margin. We do have a running cost of the actual captive inside of there. Obviously, it will be higher margin if there's no storms that are there. But what we said is we retain 13 million on a per occurrence.

and up to a maximum of 25. We're capped at 25 million on this year, either through combination of a wind event or a quake event that's out there. So it gives you an idea of if we're on the higher end of our revenue range.

You get an idea of things really go completely sideways, the potential profit that we can still participate in on these captives. That's why we created them. That's why we're participating because we're on, we have put these over top of two very, very well performing programs.

for a long period of time. And as we mentioned before, the captives, while they go into the ether, that name, the actual outcome is identical to a contingent. We're participating in the underwriting profit. So you'll see some volatility back and forth, but no, they're working right as we designed.

Thanks. And then you went through right in the segments what drove the stronger contingents year over year. If my question related to the contingents was if contingents had been flat, would you guys have still seen margin expansion in the quarter? I believe the answer is yes. I just wanted to confirm that. That would be an absolutely yes, we would have seen margin expansion in the quarter.

same margin expansion in the quarter. And if you were to back out the incremental net investment income, because that might be your other question, is the answer would be yes, we still extended margins in the quarter. So we feel really good about the performance.

Great. And then last one, within the retail segment, you guys did call out the dealer services, right, the headwind there in the Q2, related to the rest of the segment, so just core retail and benefits. Can you give us a sense of the growth between the two pieces in the second quarter? Can you repeat that, please, Alina?

and the employee benefits. Member employee benefits has a unique dynamic relative to revenue recognition in Q1, and sometimes that also impacts, it can impact into Q2. So I don't look at it on a quarter by quarter basis, although I have.

Not only underwriting, but understanding about exposures not just in the United States, but overseas and things like that and I think that I would want you to consider them just like any other board member that joined Brown <unk> Brown.

We think very highly of them. We are very pleased to have their industry expertise, but.

But I don't want you to take something out of context. These are people that we have known and worked with and think very highly of and they've already added too.

Our board in the first board meeting, which was last week. So we're really really pleased.

With both of them.

Joining the board and look forward to many years of.

Really great contributions from both of them.

Okay. That's helpful. If I can throw in one quick last question I don't Florida pricing is typically file and use but I think people treated with prior approval.

If they don't have to go back and change things.

Is there any receptivity on the part of either the insurance.

Apartment or the legislature.

Absolutely.

More disciplined by competition and actually be sort of a truer filing date to attract bigger interest I will get back to the market.

Meyer I'm not we're not aware of that right now I will tell you that.

The insurance Commissioner in that in the state of Florida is underneath the CFO I know that the CFO of the state of Florida, and the insurance Commissioner and then ultimately into the Governor's office. They are all thinking about ways to retain existing carriers and <unk>.

Track new carriers, because they are very conscious of the exploding growth in citizens.

And so the.

The answer to the question is no we're not aware of it. However, I can assure you that they are thinking about it in terms of ways not not that question, specifically, but ways to actually get.

Carriers to stay and bring more carriers to the state of Florida to create a more competitive environment.

Okay. That's very helpful. Thank you so much.

Absolutely. Thank you.

Now I would like to turn the call pack to Powell Brown for closing remarks.

Thats great Alright. Thank you all very much we are very pleased as we said with the quarter and look forward to an exciting.

Third and fourth quarter of the year, we've got a lot of cool things going at Brown <unk> Brown and we appreciate your time.

And we look forward to talking to you next quarter.

Ed.

This concludes today's conference call. Thank you for participating you may now disconnect.

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