Q4 2023 Brown & Brown Inc Earnings Call

Unknown Executive: of New Information, Future Events, or Otherwise. In addition, there are certain non-gap financial measures used in this conference call. A reconciliation of any non-gap financial measures to the most comparable gap financial measures can be found in the company's earnings press release, or in the investor presentation for this call on the company's website at www.bbb.net.org. [inaudible] Leeds.

Unknown Executive: Over the past four years we've grown total revenues by over 75% and have increased our industry leading margins in excess of 400-400 basis points. On an adjusted basis, our net income per share grew over 23% to $2.81. Lastly, we had a good year of M&A completing acquisitions with approximately 162 million of annual revenue. We were very pleased with the quality of the organizations, the new capabilities and the teammates that were added during the year with the largest being Kentrel. I'm on slide seven.

Unknown Executive: Transitioning the insurance marketplace overall is relatively similar to last quarter. Rates in the admitted market were up 5% to 10% for most lines and we continue to see rate decreases in workers' compensation in most states. Placement for cat property and excess liability continue to be difficult with rates per property up 10 to 30% and liability flat to up 10.

Unknown Executive: In addition to rate increases, it's also challenging to find desired limits. Buyers are exhausted with the level of premium increases. Customers continue to either reduce limits or participate in certain layers in order to manage their premium increases. In December, we did see some moderation in the rate of increase per cat property, primarily in the London markets. We believe this was driven by low hurricane activity in 2023 and carries holding capacity for the end of the year.

Unknown Executive: Do not take this comment that we believe rates are going to start decreasing in the first half of 2024. Professional liability and cyber coverage continue to soften as compared to last year. Rate changes for professional liability will up slightly maybe 5 to down 20. The insurance market places in California, Florida, Louisiana, and Texas for personal lines remain challenging with policies continuing to move in a state sponsored plans or the E&S market.

Unknown Executive: Even with these challenges, we're well positioned to help our customers navigate these difficult markets. Our customers continue to invest in the business, their businesses, and higher employees, although the level investment is not as high as a year ago. We would summarize the overall economic sentiment for our customers as cautiously optimistic. We're very pleased with our M&A activity in the fourth quarter and the year, although volumes across the industry were down materially. As compared to 2022, we had a number of great businesses joined the Brown and Brown team. From our standpoint, we continue to be active and disciplined during the quarter.

Unknown Executive: We're extremely pleased with our full year results, delivering 10.2% organic revenue growth over 4 billion revenues and nearly one and a half billion of adjusted EBITAC. Our team did an incredible job of delivering for our customers and winning a bunch of new business along the way in a very difficult market. I'm on slide 8.

Unknown Executive: Let's transition to discuss about the performance of our four segments. Our retail segment had another great quarter, delivering organic growth of 8.2%. This performance was delivered by continued strong net new business and rate increases. It was also a very good year for retail, delivering nearly 8% organic growth. Chief.

Unknown Executive: The program segment grew 5.4% organically in Q4, even with materially higher flood claims revenue and incentives in the prior year. During the quarter, we recorded a one-time $19 million charge related to the changing of the reinsurance for one of our captives. This decreased our organic growth by approximately 9 percentage points in programs.

Unknown Executive: For the full year, the team delivered outstanding results with organic growth over 17%. This strong performance was driven by good new business, solid retention, and rate increases across most of our programs. wholesale brokerage had an outstanding quarter and year growing organically 14.5% in the quarter and 12% for the year. We're seeing good growth and delegated authority, personal lines, and open brokerage. Organic revenue in our services segment declined 5.9% to the quarter, primarily due to continued external factors impacting our advocacy businesses, and our organic growth for the full year was substantially flat.

Unknown Executive: During the quarter, we announced the completion, the completed sale of certain assets in the services business. Now, I'll turn it over to Andy to get into more details regarding our financial results. Thank you, Powell. Good morning, everyone.

Unknown Executive: I'm going to review our consolidated financial results on an adjusted basis, which exclude the change in estimated earnout payables. One-time acquisition, integration costs associated with GRP, BDB, and Orchid, gains and losses on business to bestitures, the non-recurring cost record in the first quarter of this year, and the impact of foreign currency translation. The recommendations are non-gap financial measures, including these adjusted amounts to the most closely comparable gathamounts can be found either in the appendix of this presentation or in the press release we issued yesterday.

Andy: In conjunction with the sale of the services businesses mentioned earlier, we recorded a gain on disposal of approximately 135 million dollars in the fourth quarter, which equates to approximately 35 cents of as reported earnings for share. On an adjusted basis, total revenues were over 1 billion for the quarter, growing 13.1 percent as compared to the fourth quarter in the prior year. Income before income taxes increased by 15 percent, and EBITDAQ grew by 11.7 percent.

Andy: EBITDAQ margin was 31 percent, a slight decrease as compared to the fourth quarter of 2022, due to the previously mentioned one-time change in a reinsurance policy. The adjusted effective tax rate for the quarter was 23.9 percent, a decrease from the fourth quarter of last year, primarily driven by the change in market value for our company-owned life insurance.

Andy: Our adjusted deluded net income for share increased by 16 percent from last year at 58 cents. Lastly, our dividends paid increased by 13 percent as compared to the fourth quarter of 2022. Overall, it was an excellent quarter. We're on slide number 10.

Andy: The retail segment grew adjusted total revenues by almost 12 percent with organic growth of 8.2 percent. The difference between total revenues and organic revenue was driven by acquisition activity over the past year. The national programs had another outstanding quarter with adjusted total revenues growing 18.7 percent in organic growth of 5.4 percent.

Andy: The incremental growth in total revenues in excess of organic was driven by acquisition activity completed over the last 12 months, increased profit sharing contingent commissions and higher interest income. The growth in contingent commissions was primarily driven by lower storm claim activity in 2023 as compared to the prior year and favorable loss development related to 2022. We'll talk about the change in reinsurance for one of our captives. This change allows us to reduce our P&O exposure from a maximum of 25 million down to approximately 15 to 20 million.

Andy: In addition, we anticipate this change to drive incremental organic growth of 15 to 20 million dollars in 2024 as compared to 2023. Overall, the captives have been a huge success for our company as they've driven incremental organic growth aligned us even better with our carrier partners and delivered great returns on our invested capital. Adjusted EBITAC grew slightly slower than revenues and our EBITAC margin was 43.4 percent. The decrease in the EBITAC margin was due to the one-time reinsurance change along with lower flood claims, revenues, and incentives.

Unknown Executive: These items more than offset higher contingent commissions and leveraging our expense base. For the full year, we had strong margin expansion in programs. We're over on slide number 12.

Unknown Executive: Our wholesale segment delivered another strong quarter with adjusted total revenue growth of 14.7 percent and organic growth at 14.5 percent. Our EBITAC margin decreased by 60 basis points to 27.3 percent due to lower contingent commissions as well as the impact of higher non-cash stock base compensation. We're over on slide number 13. For the quarter of the decline and adjusted total revenues in the services segment was primarily associated with the sale of certain businesses that we mentioned earlier. Organic revenue declined by approximately 6 percent to have been mainly by continued external factors impacting our advocacy businesses.

Unknown Executive: Adjusted EBITAC margin for the quarter was primarily driven by the decline and organic revenue as well as certain one-time items. We'll talk more about future reporting for the service segment in a few moments. We're over on slide number 14.

Unknown Executive: This slide presents our results for both years on an adjusted basis. Our income before income taxes grew 24.3 percent and net income per share was $2.81 growing by 23.2 percent as compared to total revenue growth, of 18.7%. Evident Margin remained strong at 33.9%, an increase of 120 basis points over the prior year.

Unknown Executive: Overall, we are very close for results for 2023. Few comments regarding cash generation and capital allocation. From a cash perspective, we hit another major milestone generating over 1 billion of cash flow from operations, growing 14.5% over the prior year. Our 4-year ratio of cash flow from operations as a percentage of total revenues remained strong at approximately 24%.

Unknown Executive: Few other comments regarding outlook for 2024 and some enhancements to our reporting. For contingent commissions, we anticipate them to be relatively flat to down year over year, but this will ultimately be driven by loss experience. For programs, we would expect for them to be down as the higher level contingent commissions were driven by lower cat event losses in 2023. And favorable loss development related to 2022. Keep in mind, this outlook is excluding the impact of future acquisitions. As it pertains to taxes, we expect our effective tax rate to be relatively consistent with 2023 and should be in the range of 24 to 25%.

Unknown Executive: For adjusted EBIT data margins in 2024, we anticipate them to be up slightly. Finally, in conjunction with our earnings release for the first quarter of 2024, we will be making a few changes to our reporting. First, with the expansion of our global MGA and MGU platforms, we will refer to the national program segment as programs.

Unknown Executive: Second, in conjunction with the divestiture of certain businesses within our services segment, late in the fourth quarter of 2023, we will not report the remaining businesses as a standalone segment moving from 4 to 3 segments, those being retail, programs, and wholesale brokerage. Almost all the remaining revenue and profit in the services segment will now be reported in the retail segment. For the prior periods, we will move the sole businesses into programs and the remaining businesses in the retail.

Unknown Executive: Third, we will be modifying the definition of our non-gap adjusted measures to exclude the impact of non-cash and tangible asset amortization. With this adjustment, we will be on a more consistent presentation with the majority of other public brokers. And lastly, for simplicity, we will only be excluding the impact of changes in foreign exchange on the calculation of organic growth.

Unknown Executive: For all other non-gap metrics, we may identify the impact of FX when it's meaningful to do so, but we will not restate the prior year to be on a constant currency basis. With that, let me turn it back over to Paul for closing comments. Thanks, Annie.

Unknown Executive: Very report. As we look at the economy and outlook for 2024, we anticipate that inflation will continue to moderate downwards in the markets in which we operate. As a result, we're expecting the consumer to further drive demand for products and services, and we anticipate most companies will continue to hire and invest, although at a potentially slower rate. Regarding the admitted markets, we believe rate changes will be similar to 2023. We think cap property rates are nearing their peak. Therefore, we would expect cap property rate increases for the first half of 24 to be in the range of flat, up 10%. Obviously subject to loss experience and construction type.

Unknown Executive: On an imminent front, the overall market will remain competitive and we don't expect any material changes in multiples. We have a very good pipeline and are talking with many companies. As we've mentioned, cultural alignment is the key to our long-term success. Lastly and most importantly is our team.

Michelle: Our consistently strong industry leading results are only possible through the dedication and determination of our team to deliver for our customers. As we head into 2024 and on our way to our next intermediate goal of 8 billion in annual revenues, we have great momentum across the entire company and feel really good about our position. With that, I'll turn it back over to Michelle and open the line for Q&A. Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced.

Michael: To withdraw your question, please press star 11 again. Please limit to one question and one follow-up. And if you have additional questions, please return to the queue. Please stand by while we compile the Q&A roster. Our first question comes from Michael, the RIMC with BMO. Your line is now open. Good morning. This is Jack on from Mike.

Jack: My question is about any interest segment. This is mixed shift changes and whether they're having an incremental impact on Brown & Brown's profit margin profile. Have there been any mixed changes within the major segments? We should keep it in mind, such as more employee benefits or something else. We're just asking in the context of Brown's profit margins being above historical average levels. And so we get asked if we should expect a downward mean reversion if and when we're going to grow eventually to celebrate. Okay, Jack, I think you've got a bunch of things inside there.

Jack: Your first part of the question broke up a little bit, but I think you said is with the divestiture of the businesses, would we accept the margins to go up? Was that your question? I'm not sure if there's just any interest segment business mixed shifts to changes. You've got to get close to your phone or something, your crack and quite a bit coming through on the phone.

Jack: I'm sorry, that's correct, just any interest segment business mixed shifts changes. No, just the ones that we mentioned. So if you look, our commentary was that the remaining businesses and services will shift over into retail. And then the historical will also restate for the businesses that move to retail as well as sold moves into programs. So margin profile of not radically different on between all the sold and the retained businesses. Okay, thank you. And then second question is on Brown's exposure to different flavors of personal lines insurance. We appreciate that personal lines comes in different textures across the remained segments.

Jack: The question are Brown's personal lines exposed businesses having a positive impact on organic growth levels as compared to the non-personal exposures, which comprise most of Brown's revenues? So the answer Jack is yes, they're having a positive impact. Remember, we have personal lines in all three of the major segments, and as you may remember in many years past that was a headwind in a wholesale and we've said that that is now a growing segment which we're positive about is growing in retail and it's also growing in programs. So we think it's a positive. Thank you.

Unknown Executive: Please stand by for the next question. The next question comes from Elise Greenspan with Wells Fargo. Your line is open. I think some good morning.

Elyse Greenspan: My first question is you guys Andy I think said that the change in re insurance cost you guys 19 million dollars but then it seems like your expected loss is going from 25 to 15 to 20. I'm just trying to tie together those figures that seems like a large cost that I might have expected for the expected loss to go down by 5 to 10 million. So there's two pieces to it Elise is it does limit our P&L exposure so we said in 2023 it was about 25 million dollars so going in 24 will be somewhere between 15 and 20 but then it will also drive an incremental organic growth of 15 to 20 million dollars. So you got both of those pieces together okay.

Elyse Greenspan: Okay thank you and then my second question you know I was hoping you give us a sense of how those you know international deals that you guys did completed in 22. How did how impactful were those two retail just you know growth and margins for the full year 2023 versus expectations. So Elise good morning and thank you for the question.

Elyse Greenspan: We won are very pleased with the businesses that have joined in England since the middle of 2022 and the businesses are performing at or above our expectations. And we have also said that just you know as we don't give guidance but I would tell you that they perform in a very similar way to our domestic retail business. So we're very pleased and continue to do acquisitions there. So Mike Bruce who's ahead of our European operations and his team have continued to do small and medium acquisitions over there and we're very pleased with the capabilities and the people that have joined. So very pleased.

Unknown Executive: Okay and then on the margin Andy is there any seasonality that we need to think about. I guess maybe a little weaker in the third quarter given the potential for a captive loss but how should we think about the guide for you know improvement in margins in 24 and just quarterly seasonality. I think if you have to go back, good catch on the third quarter, so we've talked about we normally model in kind of one and a half storms, never know when what it's going to actually look like and I guess higher likely to be in the third quarter, but that's probably a reasonable approach.

Unknown Executive: So if you do that, you would expect from the margins to be down a little bit in the in the third quarter and then just keep in mind the making the lap into the fourth quarter on the 19 million, but otherwise those are kind of the bigger items we did call out some adjustments to the contingents in second quarter on part of the the lost development during the during the year. So there's kind of be the I think the big ones to keep in mind. Otherwise, no major changes in the seasonality of the margins.

Gregory Peters: Thank you. Please stand by for the next question. The next question comes from Gregory Peters with Raymond James, your line is open. Good morning, everyone.

Gregory Peters: Hey, just circling back on your last answer and what you said in your opening up comments about contingent commissions, being flat to down for next year. You know, if we look at the segment results, the profit sharing contingent commissions, you had a great year in 23 national programs, 65 million versus 27.6 million in 22. And you said you factor in at least one storm. What does that mean to contingent commissions? If there's one storm, you know, not only inside national programs, but for the full year. So I know this you're not going to a good morning Greg this you're not going to like this answer exactly, but it obviously depends on the magnitude of the storm.

Gregory Peters: And how that impacts admitted markets versus not, you know, the have not admitted markets is different, but admitted markets, the program business versus wholesale business versus retail business. And the answer is it's very hard to estimate. So we can't, you know, run a model or we don't run I shouldn't say that. We don't run a model where you put a big storm into Florida or into Texas or Louisiana. And then it spits out the other side.

Gregory Peters: The answer is we did have a great year in terms of profit sharing this last year. But as Andy said, we, we understand that it may have been a, I'm not going to say an over performance, but a very high performance. Yeah. And great.

Gregory Peters: Keep in mind that in 2022, remember, we we backed out 15 million contingents in the third quarter. And then we, some of those lost development, not as significant as what was our joint dissipated. Some of that got adjusted in the fourth quarter. And then we also had adjustments in in 23.

Gregory Peters: So it really, it's difficult on these to determine where it's going to be the magnitude and everything else. So we would anticipate probably some sort of impact. The question is don't know exactly. What that would look like.

Gregory Peters: Okay, that makes sense. I guess I want to go back to bigger question on organic and I know how part of your answer is going to be that you don't tell us or forecast out what organic is going to be for 24. But inside organic, the organic result for your company for 23. There's clearly been a benefit from the rate increases and rate increases that have happened in the market you called that on your comments.

Gregory Peters: The wholesale market I think in your commentary in the slide deck you called out cap pricing and it seems like that might moderate. So if I add up all the different variables, if rate increases are going to be moderating in 24 versus 23, we want that naturally bleed over to a lower growth rate for organic across your footprint. Any comments on that would be helpful.

Gregory Peters: Sure, so remember Greg, if you go back over an extended period of time, we've always said two thirds of our growth is exposure units and one third would be rate. That's how we've always described it since, you know, I've been in this position. So that's number one.

Gregory Peters: Number two, the impact of rate is going to be different on different segments of and locations in the business. If you're in a coastal community in Florida, the impact of property rate could be substantial in some of your growth. And that said, they could still be writing a ton of new business on top of that. Conversely, if you're in Denver, Colorado, or Nashville, Tennessee, you may not have that big of an impact on rate.

Gregory Peters: So, you know, you're already kind of called it, we don't give organic growth guidance. That's basically the answer. We have said historically that this is the low to mid-single digit organic growth business in a steady state economy. We have over-performed in organic growth the last couple of years and we're really proud of it. And I know each of you are trying to anticipate what all that means. And basically, the way we look at it is we have to first deliver for our customers.

Gregory Peters: So we want to keep the business that we've got. And based upon the capabilities and the good job that we do for existing customer base, we go out and we write a lot of new business. And so, I think it's important to differentiate. I wouldn't want you to get so focused just on rate.

Gregory Peters: I think it's more important that it is the activity which we do by the new business culture at Brown and Brown, whereby we are out always talking to prospects and to our existing customers. So, we think that the organic growth profile for 2024 is good. We don't know what it's going to be and you don't know what it's going to be.

Gregory Peters: And I know that's hard for you to model, but the answer is, remember, we've been doing this for 85 years, and we have a pretty good understanding about how our business operates and the segments in the market that we serve and the capabilities that we have and that that we're building. So I would tell you that we couldn't be more happy with the performance last year. If you notice our performance against our publicly traded peers in that particular environment, we are at or near the top of that list while we've been leading margins and cash flow for many years.

Gregory Peters: And so we're just kind of generally pumped on where the business is. Hey, Greg also add to that I think it's important to think about what happens in marketplace through the lens of the buyer of the insurance right and rate while that's an important factor that's not the only factor that drives the buyer right quite often they're focused on the absolute dollar right because you got to think about through their lend their managing a cost in their PNL.

Gregory Peters: And so there's a lot of factors that they're going to take into consideration we've talked about this over the past few years right so if rates are going up right there probably adjusting their limits or adjusting deductibles. And same thing can happen if rates soften a little bit well that may allow them to maybe increase some of their limits or back and forth but think about it through the lens of premium not just rate online and know a lot of people are writing about this right now. But in some aspects it's much more simple and much more complex than that.

Mark Hughes: Got it. Thanks for the detail and I just glad to hear that you're pumped. Thanks. Please fan by for the next question. The next question comes from Mark Hughes with truest your line is open. Yeah thanks good morning Andy say you're going to adjust the numbers for the non cash intangible amortization to be more in line with peers. If you had done that in 2023 how much would that have impacted adjusted earnings. It would equate to about 45 cents.

Mark Hughes: Okay. And then the benefit business. How did that perform in the quarter any kind of early feel on on Q1 and I know that's a more important driver for organic in the first quarter.

Unknown Executive: We're very pleased with the business performed in Q4 and more importantly for the year. So we're very pleased with the way the benefits businesses working. Okay. Thank you. Please fan by for the next question.

Rob Cox: The next question comes from Rob Cox with Goldman Sachs your line is open. Hey, thanks for taking my question. Maybe firstly on the reinsurance changes. Did that have an equal 19 million impact to adjusted EBDAQ? It's pretty close on it Rob.

Rob Cox: So that's why when we said that while we were down 40 basis points for the quarter, you can kind of run the math through. So isolating that our margins would have been up quite well for the quarter. Which we're very very pleased about. Can I can I also input something here Rob that you haven't asked?

Rob Cox: You heard me say that the margins if in fact that didn't occur would have been up 900 basis points. The organic sorry non margins and organic would be up 900 basis points. The overall business if you looked at it would have grown 9.9%. Yeah, that's great. Thank you. It's just as a follow up.

Rob Cox: I saw ENS casualty pricing accelerated in the quarter and we've heard a lot of commentary around potential reserve issues and casualty. So I wonder if you could provide any color on what's driving that pricing acceleration. If you think that could continue in 2024. Sure. So Rob, I've only been in the insurance business now for 34 years. So I don't have the scope and impact of knowledge that my father does at age 86.

Rob Cox: But I will tell you since I started in the insurance business, the industry has been talking about the. Under the inadequate pricing of casualty. That's since 1990 and the industry has not done a very good job of being able to increase the price on casualty.

Rob Cox: So I think we're going to continue to hear people on the risk bearing side talk about the need for increases reserves and what that means is we need to increase prices and all that other stuff. But the simple fact is this people are trying to balance their portfolios with the cat that they have in it. And as a result, casualty premiums are long tail and nature and they're appealing. So I don't think that they're going to be able to get a pricing that they want or think they need, which is a nice way of saying that I would be surprised if you see up a significant upward pressure on casually pricing. They may talk about it, but I'm just saying that's 34 years in.

Rob Cox: Got it. That's helpful. And if I could follow up one more on the employee benefits space, how are you thinking about the growth environment between pricing and employment growth? And if you could remind us what percentage of the businesses commission base that Brown and Brown. Okay, so let's talk about employee benefits. Remember, from an employee benefit standpoint, you have a couple things going on. You have obviously you would think when you added new employee onto a plan that generally would increase the commission or potential fee or something to that effect.

Unknown Executive: There is a segment, a smaller segment of that book of business where there's sort of it is an amount per employee and it doesn't go up like a commission, so it's like a price per head. So I think of it in a weird way, it's like a capitated plan a little bit. So that's the first thing. The second thing is in our retail business of roughly two and a half billion, we have about 35% of the businesses employee benefits.

Unknown Executive: And that's a business that we have consciously invested in over the last let's say 10 years and when I say consciously invested not only in the middle market space but in the upper middle market and the very large space and are very pleased with the ability to serve customers and all of those segments and we very much enjoy going out and trying to earn business and have been successful and think we can even be more successful going forward. So we think it's a great business for us. Please stand by for our next question. The next question comes from Meyer Shields with KBW. Your line is open. Great. Thanks and good morning.

Meyer Shields: And you mentioned company owned life insurance and I didn't cast what the impact was on the quarterly proposal. Yeah, it's so again on the company owned life insurance, this will have an impact on numbers based upon how the market moves either up or down. So when you see the market going up, right, the impact of the SNR and the offset is down and other operating expense, the impact on margins is basically almost zero. So for the quarter itself, it was a drag on the SNR's percentage of revenue of about 150 basis points and last year it was about 60 basis points.

Meyer Shields: So we kind of look at those both ways internally, kind of puts our SNR substantially flat euro a year ex-coly. And again, those are going to move around. That's not something that we're able to forecast because it all depends upon how the market moves and then it's the comparison to how the market move the year before. Okay, no, that's part of the helpful.

Meyer Shields: The second question, when you talk about the upside to organic growth in programs, that's just because you're not going to see the same, what was a $19 million hit in the fourth quarter of this year. If that is flat next year, then that's 19 million of organ. Nick, I think about that right. Correct, and yes, we expect that in in 24. And we would not expect any sort of reversion, though in 25, just in case you're wondering there. Yeah, no, that's exactly what he needed.

Meyer Shields: And then final question is because we've got a different viewpoint from different people, but when you look at these shifts of some taxi exposed wholesale or sorry, taxi flows property business to the to the wholesale channel. In 2023, is that basically like a one year shift in that we're done and if nothing changes than that impact flows, or should that persist in 2024 at more or less the same pace that we saw this year, or I guess it's last year now. I want to make sure I heard that correctly, Meyer, can you repeat the question because there was a word or two that cracked up in there?

Meyer Shields: Yeah, absolutely. One of the themes of 2023 seems to be a lot of capacity exposed property business moving to the wholesale channel from the retail channel, which is, you know, great news for companies with wholesale brokerage. And wondering basically whether that shift as you see it is mostly done or there are reasons to expect it to continue in 2024. Okay, so let's let's back up and say there's an enormous amount of business that's cat exposed.

Meyer Shields: There was already in the ENS market. They're constantly and consistently in the traditional admitted market carriers by name that you may follow or know are evaluating their cat property exposure and are making decisions whereby should they renew that on an admitted basis or does that in turn get picked up by another admitted market or does it go into the ENS market? So what I would tell you is that there's lots of business that flows in and out.

Meyer Shields: I shouldn't say lots. There is a good amount of business that goes into the ENS market in 23 and I think there will continue to be a flow of business out of the admitted market into the ENS market in 24. Is it an equal amount?

Meyer Shields: I don't know. But I think more importantly inside the wholesale space, there's an enormous amount, an enormous number of opportunities for us to write business that still and has been in the path in the ENS space. So there's more than enough business for us to write in the existing space without one account coming over from the admitted market. I think that's going to continue because in my career and yours as well, you've seen more of a ship in the ENS market and I think admitted carriers will continue to evaluate their position in particular capron areas. Hey mayor on that.

Meyer Shields: It's also probably always helpful is to bifurcate that between the commercial and the personal lines because there's different kind of profile and activity underneath of there. Back to our comments, you know, in the four states that we talked about is we are seeing more personal lines into the ENS space and we would expect to see that in 2004 until those markets calmed down and then may have seen some of any carries that come back in, but that doesn't appear to be anything in your term. Okay. No, thank you so much.

Michael Ward: Thank you. Please stand by for the next question. The next question comes from Michael Ward with city. Your line is open. Thank you guys. Good morning.

Michael Ward: You mentioned the remaining portion of services was moving to retail. I was just curious if you anticipate holding on to those businesses or if there's any alternative plans. We anticipate holding on to those businesses. Great. And then maybe on the slide deck, the macro commentary kind of seemed a little bit cautious to us, just curious if you might agree with that.

Michael Ward: You know, there's a lot in flux kind of with the Fed and rates and inflation, but. Just curious, you know, how your clients are feeling if there's, I guess, a little bit more positivity or uncertainty vice versa. Yeah. So I think that we continue to, as we said in our comments, see, you know, inflationary pressure and things trending down, and we do, it's very interesting, Michael, that there is a more, I believe, optimistic view in our consumer base. In light of some of the challenges that face us globally. So it's a unique dynamic.

Michael Ward: And how, you know, ultimately people continue to think about investing in their business is yet to be determined. You know, we have historically over the past year, you know, talked about, you know, we use the term this quarter cautiously optimistic. I think that's a very, very good way to put it. But we've seen over the past year, you know, people sort of pause on making major capital investments, IE buying the new machine versus doing some maintenance work.

Michael Ward: I'll be interested to see, you know, this year, if our customers buy the new machine. And so that yet to be determined, but there is definitely a feeling of optimism in our client base, not all of them. But I'm saying if you made a broad generalist, it is more optimistic.

Michael Ward: Yes. Interesting. Thank you. Maybe one last one, just on free cash flow. I think cash flow conversion for you guys is a little below 24% 23.

Michael Ward: I'm just curious, you know, if we should expect that similar level into next year, if there's, or this year, there's any puts and takes there. Yeah, Mike, for 24, we're thinking at least on the ratio of cash flow from operations, we'll let you guys drop in kind of what you think on the cap. Topics and everything. But we're thinking 22 to 24% on cash flow from offices and percentage of revenues. Feel like a pretty good range force.

Grace Carter: Great. Thank you guys. Thank you. Please stand by for the next question. The next question comes from Grace Carter with Bank of America. Your line is open.

Grace Carter: Hello. Okay, it does appear that she did drop one moment for our next question. Please.

Unknown Executive: Okay. Our next question comes from Scott Hellenic with RBC Capital Market. Your line is open. Yeah. Good morning.

Scott Helleniak: Just interesting that the comments you made on the economy and how your customer base is feeling. But I'm wondering if you could follow up on the comment you made on the. You mentioned that the buyers were exhausted. I know you mentioned the last quarter, increasing deductibles, lowering limits. Did you see that accelerated all in the past few months and where are you seeing that most by customer type that the hate, the different behavior where they're changing the terms and conditions.

Scott Helleniak: Well, let's let's back up for just a moment. I don't think that there's necessarily one customer type or one region, but I'm going to give you an example, but if this is not only the capacity in this example, if you take a condo association in Florida. And for the last five years in a row, they've seen rate increases. They're exhausted and tired of it.

Scott Helleniak: And in some instances, the condo association will shoot the messenger. Even though we are delivering the best product in the market. And so whether you apply that same philosophy to a manufacturer, a developer, an owner of nursing homes, a nonprofit, whatever the case may be. I believe Scott sometimes people in the analyst community believe it's all about rate increases. And as Andy said earlier, it can be about rate, but really it's more about the absolute dollars that the insured has to pay.

Scott Helleniak: And so there is a lot of chase when their exposure units are flat to down and their premium dollars are going up. That's the way I try to put it. And so there's not one class of business. I will tell you this that our organization, if you make a broad statement, we can thrive in a market where the rates are going up when the rates are sideways and when rates are going down. Generally speaking in retail, it works in all of those, in wholesale, it works up or down, generally flat is kind of a little weird and it works in programs.

Scott Helleniak: So that's kind of a very broad statement around your question on rates. Okay, that's that's definitely helpful. And then I was just wondering, could you refresh us on the the captive revenue, what what you had in 2023 versus 2022 and kind of your long term growth view on that business and where you kind of, you know, how you're viewing that over the next five to 10 years. Let's say, I don't know, well, we probably won't go that far out, but if we look at the the captives as we generated, you know, 25 plus million last year, generated about 30 million in 2023 and then we've kind of given an idea of a guidance of what we think it looks like for 2024.

Scott Helleniak: We're really, really pleased with the captives with the growth delivered on the top line, as we mentioned the alignment with our carriers and the returns that they provided for the capital that we put into those were extremely, extremely pleased with them. So don't take to that means that we're go do more of whatever that's not the comment, but for the ones that we have were very, very pleased with the programs that they sit on top of. And again, they're sitting on programs that we think deliver some of the best underwriting results in the industry. All right, understood. All right, appreciate the answers.

Brian Meredith: Thanks. Thank you. Please stand by for the next question. Our next question comes from Brian Meredith with UBS. Your line is open.

Brian Meredith: Hey, thank you. I think you may have answered this, but I just want to clarify here. Is inflation, you know, how big of an impact is inflation on your organic revenue growth? So if I can look going forward, you know, obviously the economic outlook is still decent right now, but inflation clearly moderating. Is that a headwind to organic growth when we think about it from an exposure perspective? I think if you want to think of it in a textbook answer, the answer is yes, but in practical application, I think it's a neutral.

Brian Meredith: Oh, interesting. Is there certain types of inflation that are better or worse for yours business? No, I don't, I don't want you to think about it that way. This is kind of how a lot of people.

Brian Meredith: Well, I shouldn't say that. I think some people think about the brokerage space. One, it's a GDP plus or minus, but plus growth business, whatever that is. And so then you have to think about what does inflation do to impact GDP? And if you think about that a little bit, it's sort of kind of baked in to how our business operates, but please don't lose sight of the impact of inflation and rate over a long period of time. And when I say a long period of time, I'm not talking about a year. I'm talking 10 years, 20 years, 30 years, in orbit.

Brian Meredith: Business. We would say in a more steady state economy, it's two-thirds exposure unit, one-third rate, and those exposure units, whether they go up or down because of economic impacts, inflation, or all of the above, we just have to continue to execute and sell more new business and keep the business that we've got. That's how we think about it. That's really helpful. Thank you. And then my second question, I'm just curious, what are you seeing with respect to the standard markets just appetite for some of the E and S type risk? I understand there's, as you mentioned, the Texas and certain areas are still pretty challenging, but are you seeing any of the standard markets kind of trying to approach back into the wholesale arena?

Brian Meredith: So the answer to that is no. What I would tell you is in the last, you know, probably half of the year, but even in Q4, and ended this, you know, going into the first part of this year, I think there continues to be an evaluation by admitted markets of segments of their books of business. So let's just look at it in three segments kind of like our business. So in retail, they're basically looking at their cat exposure and their lost profile, you know, even on casualty and executive liability, and they're saying, you know, what do we need to get off?

Brian Meredith: What do we want to write more of? You know, that's good. That's sort of the impact there would be cat capacity. If you go to wholesale, generally speaking, those admitted carriers with their wholesale markets, you would think that they're growing and they could be growing substantially as a percentage, but as a small portion of their overall premium.

Brian Meredith: And then third in programs, regardless of if it's cats or casualty, they continue to look very closely at the profitability of those programs, and I have heard or seen a number of markets backing off programs that are not meeting their criteria for profitability. And so I believe that they're going to be a broad statement. There will be some more changes in the program space because markets will continue to review profitability of lines of business because their results are going up and they're trying to, you know, bulletproof those for long term. Thank you. That's really helpful.

Unknown Executive: Yep. Please stand by for the next question. And Michelle, we'll take one last question. Okay.

Grace Carter: Thank you. Our last question comes from Grace Carter with Bank of America. Your line is out. Ben. Hi everyone, sorry about my technical difficulties earlier. I just had one that I wanted to really touch on.

Grace Carter: I'm sorry if I missed this earlier, but I was curious if y'all have shared an outlook for investment income next year and how that factors into your expectations for slight margin improvement. Good morning, Grace and Sandy here. Now we didn't give an outlook on investment income, so we weren't going to try to hypothesize or predict what will happen to interest rates at least for all the governing banks and the markets that we operate inside of.

Grace Carter: We figured you guys are pretty well positioned to come up with your own determination that's there, because some of it also is based upon just the amount of cash. The capital that flows through the organization and what we hold during the year, so those pieces can move up and down. Thank you. No, thank you.

Powell Brown: I show no further questions at this time. I would now like to turn the call back to Powell Brown for closing remarks. Thanks, Michelle. We appreciate everybody's time this morning. I was surprised we didn't get one question, so I will ask the question and then I will answer it.

Powell Brown: You know at Brown & Brown, we're a very goal-oriented company. We set goals, we achieved those goals, and then we set a new goal. Twelve years ago we were roughly a billion dollars a revenue, we set a goal to get to two billion dollars in revenue, and in seven years we took it from one to two. Then we set a new goal which was to bring two to four, and five years hence we actually went from two to four.

Powell Brown: Now we're setting a new goal of eight billion in revenue. Somebody would have asked when are you going to get there, and the answer is we don't have a time frame. And the reason I say that is if we wanted to be eight billion dollars of revenue, we could go out and do that, but it would not be in the best interest of our shareholders, which in turn 22% of the company is owned by teammates.

Powell Brown: So there is incredible alignment in our organization in terms of our long-term goals and objectives. As you heard in Andy's remarks and my remarks, we are very pleased with the performance of 2023, and we are equally excited about the prospects for 24. We also know that at some point the economy will slow down, so we acknowledge that. But it seems that that probably will not happen in the near term. Is that the next six to 12 months?

Powell Brown: I think one of the things that's booing that is the presidential election, but there's a lot more that goes into that. So you're not going to want to have changes, if you can help it in the economy, it will be interesting to see what the Fed does with interest rates and how all that translates into the business environment.

Powell Brown: With that said, I'd like to say thank you again. We are pumped about our business and the future at Brown & Brown on our way to eight billion and we look forward to talking to you next time. Good day and good luck. This concludes today's conference call. Thank you for participating. Have a wonderful day. You may now disconnect. . [inaudible]

Operator: In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measures can be found in the company's earnings press release or in the investor presentation for this call on the company's website at www.bbinsurance.com by clicking on Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin. Thank you, Michelle. Good morning, everyone.

A dance or otherwise. In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measures can be found in the company's earnings press release or in the investor.

Presentation for this call on the company's website at W. W. W. Dot B B insurance dot com by clicking on Investor Relations and then calendar of events with that said I will now turn the call over to Powell Brown.

Powell Brown: President and Chief Executive Officer, you may begin.

Powell Brown: And welcome to our earnings call. We delivered another outstanding performance in the fourth quarter, capping off an incredible year. We delivered over $4 billion of revenues, double-digit organic growth, strong margin expansion, and generated operating cash in excess of $1 billion. 2023 was a great year for the Brown and Brown team as we continue to focus on how best to leverage the power of we.

Powell Brown: Michele good morning, everyone and welcome to our earnings call. We delivered another outstanding performance in the fourth quarter capping off an incredible year, we delivered over $4 billion in revenues double digit organic growth strong margin expansion and generated operating cash in excess of 1 billion.

Powell Brown: <unk>.

Speaker Change: 2023 was a great year for the Brown <unk> Brown team as we continue to focus on how best to leverage the power of this.

Powell Brown: This topic was discussed at our September Investor Day, and our goal is to leverage our collective capabilities in order to create and deliver the Best Solutions for Our Customers. Our 2023 results were a reflection of these efforts, as we meaningfully increased our new business and had strong retention. We continue to enhance existing capabilities and add new capabilities both domestically and internationally. On the M&A front, we were quite active, acquiring over 30 companies across our largest three divisions, expanding our footprint in North America and Europe. From a capital allocation perspective, we continue our disciplined approach with the goal of optimizing shareholder returns with a balanced mix of M&A and internal investments, while also continuing to pay down our debt and maintain a conservative balance sheet. We have also increased our dividends for the 30th consecutive year. At the end of the day, these results are only possible due to the hard work and dedication of our 16,000 plus teammates throughout the world.

Speaker Change: This topic was discussed at our September Investor Day, our goal is to leverage our collective capabilities in order to create.

Speaker Change: And deliver the best solutions for our customers. Our 2023 results were a reflection of these efforts as we meaningfully increased our new business and had strong retention.

Speaker Change: We continue to enhance existing capabilities and add new capabilities, both domestically and internationally on the M&A front, we were quite active acquiring over 30 companies across our largest three divisions expanding our footprint in North America and Europe from a capital allocation perspective, we continued our disciplined approach with <unk>.

Speaker Change: The goal of optimizing shareholder returns with a balanced mix of M&A and internal investments, while also continuing to pay down our debt and maintain a conservative balance sheet.

Speaker Change: We also increased our dividends for the 30th consecutive year at the end of the day. These results are only possible due to the hard work and dedication of our 16000 plus teammates throughout the world. We think all of them for their incredible efforts in 2023, now let's get into our results for the quarter.

Powell Brown: We thank all of them for their incredible efforts in 2023. Now, let's get into our results for the quarter. I'm on slide five.

Speaker Change: I'm on slide five we delivered another quarter of revenues exceeding $1 billion growing 13, 8% in total and seven 7% organically over the fourth quarter of 'twenty two our adjusted EBITDA margin remained strong at 31% and our adjusted earnings per share grew 16% to.

Powell Brown: We delivered another quarter of revenues exceeding a billion dollars, growing 13.8 percent in total and 7.7 percent organically over the fourth quarter of 2012. Our adjusted EBITDAC margin remained strong at 31 percent, and our adjusted earnings per share grew 16 percent to 58 cents. On the M&A front, we were active and completed 13 acquisitions with estimated annual revenues of $109 million.

Speaker Change: <unk> 58.

Speaker Change: On the M&A front, we were active and completed 13 acquisitions with estimated annual revenues of $109 million on.

Powell Brown: In 23, we achieved our interim goal of exceeding $4 billion of revenue. We delivered nearly $4.3 billion, growing 19% in total and over 10% organically. Our adjusted EBITDAC margin was 33.9%, increasing 120 basis points. Over the past four years, we've grown total revenues by over 75% and have increased our industry-leading margins by in excess of 400 basis points. On an adjusted basis, our net income per share grew by over 23% to $2.81. Lastly, we had a good year of M&A, completing acquisitions with approximately $162 million of annual revenue. We were very pleased with the quality of the organizations, the new capabilities, and the teammates that were added during the year, with the largest being Kentro. I'm on slide seven.

Speaker Change: On slide six and 'twenty three we achieved our interim goal of exceeding $4 billion of revenue, we delivered nearly $4 3 billion growing 19% in total and over 10% organically.

Speaker Change: Our adjusted EBITDA margin was 33, 9%, increasing 120 basis points over the past four years, we have grown total revenues by over 75% and have increased our industry, leading margins in excess of 400% 400 basis points.

Speaker Change: On an adjusted basis, our net income per share grew over 23% to $2 81.

Speaker Change: Lastly, we had a good year of M&A completing acquisitions with approximately $162 million of annual revenue.

Speaker Change: We're very pleased with the quality of the organization the new capabilities and the teammates that were added during the year with the largest being <unk>.

Speaker Change: I'm on slide seven transitioning the insurance marketplace overall is relatively similar to last quarter rates in the admitted market were up 5% to 10% for most lines and we continue to see rate decreases.

Speaker Change: In workers' compensation, and most states placement for cat property and excess liability continue to be difficult with rates per property up 10% to 30% and liability flat to up 10.

Powell Brown: Transitioning to the insurance marketplace, overall, rates in the admitted market were up five to 10% for most lines, and we continue to see rate decreases and Workers' Compensation in most states. Placement for cat property and excess liability continues to be difficult, with rates for property up 10 to 30 percent and liability flat to up 10.

Speaker Change: In addition to rate increases it's also challenging to find desired limits buyers are exhausted with the level of premium increases customers continue to either reduce limits or participate in certain layers in order to manage their premium increases and.

Speaker Change: In December we did see some moderation in the rate of increase for cat property, primarily in the London markets. We believe this was driven by low hurricane activity in 2023 and carriers holding capacity for the end of the year do not take this comment that we believe rates are going to start decreasing.

Powell Brown: In addition to rate increases, it's also challenging to find desired limits. Buyers are exhausted with the level of premium increases. Customers continue to either reduce limits or participate in certain layers in order to manage their premium increases. In December, we did see some moderation in the rate of increase for cat property, primarily in the London markets.

Speaker Change: In the first half of 2024.

Speaker Change: Professional liability and cyber coverage continue to soften as compared to last year rate changes for professional liability was up slightly maybe five down 20.

Speaker Change: The insurance market places in California, Florida, Louisiana, and Texas for personal lines remain challenging with policies continuing to move in a state sponsored plans or the E&S market.

Powell Brown: We believe this was driven by low hurricane activity in 2023 and carriers holding capacity for the end of the year. However, do not take this comment as we believe rates are going to start decreasing in the first half of 2024. Professional liability and cyber coverage continue to soften as compared to last year. Rate changes for professional liability were up slightly, maybe 5, to down 20. The insurance marketplaces in California, Florida, Louisiana, and Texas for personal lines remain challenging, with policies continuing to move into state-sponsored plans or the E&S market.

Speaker Change: Even with these challenges we are well positioned to help our customers navigate these difficult markets.

Speaker Change: Our customers continue to invest in the business their businesses and hire employees, although the level of investment is not as high as a year ago, We would summarize the overall economic sentiment for our customers as cautiously optimistic.

Speaker Change: We're very pleased with our M&A activity in the fourth quarter and the year, although volumes across the industry were down materially as compared to 2022, we had a number of great businesses joined the Brown <unk> Brown team from our standpoint, we continue to be active and disciplined during the quarter.

Speaker Change: We're extremely pleased with our full year results delivering 10, 2% organic revenue growth over $4 billion in revenues and nearly $1 5 billion of adjusted EBITDAX.

Speaker Change: Our team did an incredible job of delivering for our customers and winning a bunch of new business, along the way and a very difficult market.

Powell Brown: Even with these challenges, we're well positioned to help our customers navigate these difficult markets. Our customers continue to invest in their businesses and hire employees. Although the level of investment is not as high as a year ago, we would summarize the overall economic sentiment for our customers as cautiously optimistic. We're very pleased with our M&A activity in the fourth quarter and for the year. Although volumes across the industry were down materially, as compared to 2022, we had a number of great businesses join the Brown and Brown team.

Speaker Change: I'm on slide eight let's transition to discuss about the performance of our four segments. Our retail segment had another great quarter delivering organic growth of eight 2%. This performance was delivered by continued strong net new business and rate increases. It was also a very good year for retail.

Speaker Change: Delivering nearly 8% organic growth.

The program segment grew five 4% organically in Q4, even with materially higher flood claims revenue in incentives in the prior year.

Speaker Change: During the quarter, we recorded a one time $19 million charge related to the changing of the reinsurance for one of our captives.

Speaker Change: This decreased our organic growth by approximately nine percentage points and programs.

Powell Brown: From our standpoint, we continue to be active and disciplined during the quarter. We're extremely pleased with our full-year results, delivering 10.2% organic revenue growth, over $4 billion in revenues, and nearly $1.5 billion of adjusted EBITDA. Our team did an incredible job of delivering for our customers and winning a bunch of new business along the way in a very difficult market.

For the full year the team delivered outstanding results with organic growth over 17%. This strong performance was driven by good new business solid retention and rate increases across most of our programs.

Speaker Change: Wholesale brokerage had an outstanding quarter and year growing organically 14, 5% in the quarter and 12% for the year.

Speaker Change: We're seeing good growth in delegated authority personal lines and open brokerage organic revenue in our.

Speaker Change: Our services segment declined five 9% for the quarter, primarily due to continued external factors impacting our advocacy businesses and our organic growth for the full year was substantially flat during the quarter, we announced the completion the completed sale of certain assets in the services business.

Powell Brown: Let's transition to discuss the performance of our four segments. Our retail segment had another great quarter, delivering organic growth of 8.2%. This performance was delivered by continued strong net new business and rate increases. It was also a very good year for retail, delivering nearly 8% organic growth. The program segment grew 5.4% organically in Q4, even with materially higher flood claims revenue and incentives in the prior year. During the quarter, we recorded a one-time $19 million charge related to the changing of the reinsurance for one of our captives.

Speaker Change: <unk> now I'll turn it over to Andy to get into more details regarding our financial results Alright. Thank you Paul good morning, everyone.

Andy: Im going to review, our consolidated financial results on an adjusted basis, which exclude the change in estimated earn out payables, one time acquisition and integration costs associated with ERP BTB an orchid.

Andy: Gains and losses on business divestitures, the nonrecurring costs recorded in the first quarter of this year and the impact of foreign currency translation.

Andy: The reconciliations of our non-GAAP financial measures, including these adjusted amounts to the most closely comparable GAAP amounts can be found either in the appendix of this presentation or in the press release, we issued yesterday.

Andy: In conjunction with the sale of the services businesses mentioned mentioned earlier, we recorded a gain on disposal of approximately $135 million in the fourth quarter, which equates to approximately 35 as reported earnings per share.

Powell Brown: This decreased our organic growth by approximately 9 percentage points in program. However, for the full year, the team delivered outstanding results with organic growth over 17%. This strong performance was driven by good new business, solid retention, and rate increases across most of our program. Wholesale brokerage had an outstanding quarter and year, growing organically 14.5% in the quarter and 12% for the year. We're seeing good growth in delegated authority, personal lines, and open brokerage. However, organic revenue in our services segment declined 5.9% for the quarter, primarily due to continued external factors impacting our advocacy businesses, and our organic growth for the full year was substantially flat.

Andy: On an adjusted basis total revenues were over $1 billion for the quarter growing 13, 1% as compared to the fourth quarter in the prior year income before income taxes increased by 15% and EBITDA grew by 11, 7%.

Andy: EBITDA margin was 31% a slight decrease as compared to the fourth quarter of 2022 due to the previously mentioned one time change in reinsurance policy.

Andy: The adjusted effective tax rate for the quarter was 23, 9% a decrease from the fourth quarter of last year, primarily driven by the change in market value for our company owned life insurance or adjusted diluted net income per share increased by 16% from last year of 58.

Andy: Lastly, our dividends paid increased by 13% as compared to the fourth quarter of 2022 overall it was an excellent quarter.

Andy: We're on slide number 10.

Andy: The retail segment grew adjusted total revenues by almost 12% with organic growth of eight 2%. The difference between total revenues and organic revenue was driven by acquisition activity over the past year.

Andy: During the quarter, we announced the completion of the sale of certain assets in the services business. Now, I'll turn it over to Andy to get into more details regarding our financial results. All right. Thank you, Powell. Good morning, everyone.

Andy: EBITDA grew slightly faster than revenues and our EBITDA margin expanded to 27%. This expansion was driven by leveraging our expense base, but was partially offset by the impact of higher noncash stock based compensation.

We're over on slide number 11 national programs had another outstanding quarter with adjusted total revenues growing 18, 7% and organic growth of five 4% the incremental growth in total revenues in excess of organic was driven by acquisition activity completed over the last 12 months.

Andy: I'm going to review our consolidated financial results on an adjusted basis, which excludes the change in estimated earn out payables, one-time acquisition and integration costs associated with GRP, BDB, and oil, gains and losses on business divestiture, and the non-recurring cost recorded in the first quarter of this year and the impact of foreign currency transfers. The reconciliations are non-GAAP financial measures, including these adjusted amounts. Closely comparable gap amounts can be found either in the appendix of this presentation or in the press release we issued yesterday.

Andy: Increased profit sharing contingent commissions and higher interest income the growth in contingent commissions was primarily driven by lower storm claim activity in 2023 as compared to the prior year and favorable loss development related to 2022 was talking about the change in reinsurance for one of our capped.

Andy: This change allows us to reduce our P&L exposure from a maximum of $25 million down to approximately $15 million to $20 million. In addition, we anticipate this change to drive incremental organic growth of $15 million to $20 million in 2024 as compared to 2023.

Overall, the captives have been a huge success for our company as they have driven incremental organic growth aligned is even better with our carrier partners and deliver great returns on our invested capital.

Andy: In conjunction with the sale of the services businesses mentioned earlier, we recorded a gain on disposal of approximately $135 million in the fourth quarter, which equates to approximately $0.35 of as-reported earnings per share. On an adjusted basis, total revenues were over $1 billion for the quarter, growing 13.1% as compared to the fourth quarter of the prior year. Income before income taxes increased by 15%, and EBITDAC grew by 11.7%. EBITDAC margin was 31%, a slight decrease as compared to the fourth quarter of 2022 due to the previously mentioned one-time change in a reinsurance policy. The adjusted effective tax rate for the quarter was 23.9%, a decrease from the fourth quarter of last year, primarily driven by the change in market value for a company-owned life insurance business. Adjusted diluted net income per share increased by 16% from last year at 58%.

Andy: Adjusted EBITDA grew slightly slower than revenues and our EBITDA margin was 43, 4%. The decrease in the EBITDA margin was due to the onetime reinsurance change along with lower flood claims revenues and incentives these items more than offset higher contingent commissions and leveraging our expense base.

Andy: For the full year, we had strong margin expansion and programs.

Andy: Over on slide number 12.

Andy: Our wholesale segment delivered another strong quarter with adjusted total revenue growth of 14, 7% and organic growth of 14, 5%. Our EBITDA margin decreased by 60 basis points to 27, 3% due to lower contingent commissions as well as the impact of higher noncash stock based <unk>.

Andy: <unk>.

Andy: We're we're on slide number 13 for the quarter the decline in adjusted total revenues in the services segment was primarily associated with the sale of certain businesses that we mentioned earlier organic revenue declined by approximately 6% driven mainly by continued external factors impacting our advocacy businesses.

Andy: Adjusted EBIT margin for the quarter was primarily driven by the decline in organic revenue as well as certain onetime items will talk more about future reporting for the services segment in a few moments.

Andy: We're on slide number 14. This slide presents our results for both years on an adjusted basis. Our income before income taxes grew 24, 3% and net income per share was $2 81.

Andy: Lastly, our dividends paid increased by 13% as compared to the fourth quarter of 2020. Overall, it was an excellent quarter. We're on slide number 10. The retail segment grew adjusted total revenues by almost 12%, with organic growth of 8.2%.

Andy: Growing by 23, 2% as compared to total revenue growth of 18, 7% EBITDA margin remained strong at 33, 9% an increase of 120 basis points over the prior year. Overall, we are very pleased with our results for 2023.

A few comments regarding cash generation and capital allocation from a cash perspective, we hit another major milestone generating over $1 billion of cash flow from operations growing 14, 5% over the prior year, our full year ratio of cash flow from operations as a percentage of total revenues remained strong at.

Andy: The difference between total revenues and organic revenue was driven by acquisition activity over the past year. EBITDAC grew slightly faster than revenues, and our EBITDAC margin expanded at 27%. Expansion was driven by leveraging our expense space, but was partially offset by the impact of higher non-cash stock-based compensation. We're over on slide number 11. National programs had another outstanding quarter, with adjusted total revenues growing 18.7% and organic growth 5.4%.

Andy: 24%.

Andy: A few other comments regarding outlook for 2024, and some enhancements to our reporting for contingent commissions, we anticipate them to be relatively flat to down year over year, but this will ultimately be driven by loss experience for programs, we would expect for them to be down as the higher level contingent commissions were driven.

Andy: And by lower Cat event losses in 2023, and favorable loss development related to 2022 keep in mind. This outlook is excluding the impact of future acquisitions.

Andy: As it pertains to taxes, we expect our effective tax rate to be relatively consistent with 2023 and should be in the range of 24% to 25%.

Andy: The Incremental Growth in Total Revenues and Excessive Organic... was driven by acquisition activity completed over the increased profit sharing contingent commissions and higher interest. The growth in contingent commissions was primarily driven by lower storm claim activity in 2023 as compared to the prior year and favorable loss development related to 2022. Let's talk about the change in reinsurance for one of our captains. This change allows us to reduce our P&L exposure from a maximum of $25 million down to approximately 15 to 20 million.

Andy: For adjusted EBITDA margins in 2024, we anticipate them to be up slightly.

Finally in conjunction with our earnings release for the first quarter of 2024, we will be making a few changes to our reporting.

Andy: First with the expansion of our global MGA and <unk> platforms, we will refer to the national programs segment as programs.

Andy: Second in conjunction with the divestiture of certain businesses within our services segment late in the fourth quarter of 2023, we will not report the remaining businesses as a standalone segment moving from four to three segments, those being retail programs and wholesale brokerage almost all of the remaining revenue and profit in the <unk>.

Andy: Services segment will now be reported in our retail segment for the prior periods, we'll move the sold businesses and the programs in the remaining businesses in the retail.

Andy: Third we'll be modifying the definition of our non-GAAP adjusted measures to exclude the impact of noncash intangible asset amortization with this adjustment will be on a more consistent presentation with the majority of other public brokers and lastly for simplicity will only be excluding the impact of changes in <unk>.

Andy: In addition, we anticipate this change to drive incremental organic growth of $15 to $20 million in 2024 as compared to 2013. Overall, the captives have been a huge success for our company, as they've driven incremental organic growth, aligned us even better with our carrier partners, and delivered great returns on our invested capital. Adjusted EBITDAC grew slightly slower than revenues, and our EBITDAC margin... 43.4%. The decrease in the EBITDAC margin was due to the one-time reinsurance change, along with lower flood claims, revenue... These items more than offset higher contingent commissions and leveraging our... For the full year, we had strong margin expansion in programs. We're over on slide number 12. Our wholesale segment delivered another strong quarter with adjusted total revenue growth of 14.7% and organic growth of 14.5%. However, our EBITDAC margin decreased by 60 basis points to 27.3% due to lower contingent commissions as well as the impact of higher non-cash stock-based compensation. We're over on slide 13. For the quarter, the decline in adjusted total revenues in the services segment was primarily associated with the sale of certain businesses that we mentioned earlier. Organic revenue declined by approximately 6%, driven mainly by continued external factors impacting our agriculture.

In exchange on the calculation of organic growth for all other non-GAAP metrics, we may identify the impact of FX.

Andy: To do so, but we will not restate the prior year to be on a constant currency basis with that let me turn it back over to Powell for closing comments. Thanks, Andy Great report as we look at the economy and outlook for 2024, we anticipate that inflation will continue to moderate downwards in the markets in which we operate as a result, we're expecting the consumer to <unk>.

Powell Brown: Further drive demand for products and services and we anticipate most companies will continue to hire and invest although at a potentially slower rate rigor.

Regarding the admitted markets. We believe rate changes will be similar to 2023, we think cat property rates are nearing their peak. Therefore, we would expect cat property rate increases for the first half of 'twenty four to be in the range of flat to up 10%, obviously subject to loss experience in construction type.

Powell Brown: On an M&A front, the overall market will remain competitive and we don't expect any material changes in multiples. We have a very good pipeline and are talking with many companies as we've mentioned cultural alignment is the key to our long term success.

Powell Brown: Lastly, and most importantly is our team our consistently strong industry, leading results are only possible through the dedication and determination of our team to deliver for our customers as.

Powell Brown: As we head into 2024 and on our way to our next intermediate goal of 8 billion in annual revenues, we have great momentum across the entire company and feel really good about our position with that I'll turn it back over to Michelle and open the lines for Q&A.

Michelle: Thank you.

To ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Michelle: Please limit to one question and one follow up and if you have additional questions. Please return to the queue. Please standby, while we compile the Q&A roster.

Michelle: Our first question comes from Michael <unk> with BMO. Your line is now and then.

Andy: Mark Hughes, Kai Pan, Ken Billingsley, Sean Reitenbach, Michael Zaremski, Yaron Kinar, We'll talk more about future reporting for this service segment. We're over on slide number 14. This slide presents our results for both years on an adjusted basis. Our income before income taxes grew 24.3%, and net income per share was $2.80, growing by 23.2% as compared to total revenue growth. EBADAC margin remains strong at 33.9%, an increase of 120 basis points over the prior. Overall, we are very pleased with the results for 2020, and we have a few comments regarding cash generation and capital allocation. From a cash perspective, we hit another major milestone, generating over $1 billion of cash flow from operations, growing 14.5% over the prior. Our full year ratio of cash flow from operations as a percentage of total revenues remained strong at approximately 24%

Michelle: Hey, Good morning, this is Jack on for Mike.

Jack: My question is about any intra segment business mix shift changes and whether they are having an incremental impact on Brian <unk> profit margin profile and have there been any mix changes within the major segments, we should keep in mind.

Jack: Employee benefits or something else.

Jack: Asking in the context of brands profit margins being above historical average levels.

Jack: So we get asked when we should expect a downward mean reversion.

Jack: If and when organic growth eventually decelerates.

Speaker Change: Okay, Jack I think you've got a bunch of things inside there.

Speaker Change: Your first part of the question broke up a little bit, but I think you said is with the divestiture of the businesses would we expect the margins to go up was that your question.

Speaker Change: Okay.

Speaker Change: It's just different interest segment business mix shifts to changes.

Speaker Change: Yeah.

Speaker Change: You've got to get closer to your phone or something youre cracking up quite a bit coming through on the phone.

Speaker Change: I'm sorry, that's correct.

Speaker Change: This segment was this mix shift changes.

Speaker Change: No just the ones that we mentioned so if you look our commentary was that the remaining businesses and services will shift over into retail.

Speaker Change: And then the historical will also restate for the businesses that moved to retail as well as sold moves into programs. So margin profile is not radically different.

Speaker Change: On between all the sold in the retained businesses.

Got it okay. Thank you then.

Speaker Change: Second question is on brands exposure to different flavors of personal lines insurance.

Speaker Change: Appreciate the personal lines comes from different textures across the three main segments.

Speaker Change: The question of our brand's personal lines exposed business is having a positive impact on organic growth levels as compared to the non personal exposures, which comprise most of <unk> revenues.

Andy: A few other comments regarding the outlook for 2024 and some enhancements to our reply. For contingent commissions, we anticipate them to be relatively flat to down year over year, but this will ultimately be driven by losses, driven by lower cat event losses in 2023 and favorable loss development related to. Keep in mind, this outlook is excluding the impact of future action. As it pertains to taxes, we expect our effective tax rate to be relatively consistent with 2023 and should be in the range of 24 to 25%.

Speaker Change: So the answer Jack is yes, they are having a positive impact.

Speaker Change: Remember, we have personal lines and all three of the major segments and.

Speaker Change: As you May remember in many years past that was a headwind in our wholesale and we've said that that is now.

Speaker Change: A growing segment, which were positive about is growing in retail and it's also growing in programs.

Speaker Change: So we.

Speaker Change: We think it's a positive.

Speaker Change: Thank you thank.

Thank you please standby for the next question.

Speaker Change: The next question comes from Elyse Greenspan with Wells Fargo. Your line is open.

Elyse Greenspan: Hi, Thanks, good morning.

Andy: For adjusted EBITDAC margins in 2024, we anticipate them to be up slightly. Finally, in conjunction with our earnings release for the first quarter of 2024, we'll be making a few changes to our reporting. First, with the expansion of our global MGA and MGU platform, we will refer to the national program segment as PROGRAMS. Second, in conjunction with the divestiture of certain businesses within our services segment late in the fourth quarter of 2020, we will not report the remaining businesses as a stand-alone segment, moving from four to three segments, those being retail, programs, and wholesale.

Elyse Greenspan: My first question.

Elyse Greenspan: You guys, Andy I think said that the change in reinsurance.

Elyse Greenspan: Cost you guys $19 million, but then it seems like your expected loss is going from 25% to 15% to 20 I'm just trying to tie together those figures that seems like a large cost than I might have expected for that.

Elyse Greenspan: The expected loss to go down by $5 million to $10 million.

Elyse Greenspan: So there's two pieces to Italy as.

Elyse Greenspan: It does limit our P&L exposure. So we said in 2023.

Elyse Greenspan: About $25 million, so going into 'twenty four it will be somewhere between <unk> and 'twenty.

Elyse Greenspan: It will also drive incremental organic growth of 15% to $20 million. She got both of those pieces together okay.

Speaker Change: Okay. Thank you and then my second question.

Andy: Almost all of the remaining revenue and profit in the services segment will now be reported in the retail segment. For the prior periods, we'll move the sold businesses into programs, and the remaining businesses. Third, we'll be modifying the definition of our non-GAAP adjusted measures to exclude the impact of non-cash intangible asset amortization. With this adjustment, we'll be on a more consistent presentation with the majority of other public programs. And lastly, for simplicity, we'll only be excluding the impact of changes in foreign exchange on the calculation of organic growth. For all other non-GATT metrics, please visit the website at www.gatt.gov. may identify the impact of FX do so, but will not restate the prior year to be on a constant current.

Speaker Change: I was hoping you can give us a sense of how those international deals that you guys completed in 'twenty two how did how impactful were those two retail just growth.

Speaker Change: Growth and margins for the full year 2023 versus expectations.

So a lease.

Speaker Change: Morning, and thank you for the question.

Speaker Change: One are very pleased with the businesses that have joined in England.

Since the middle of 2022.

Speaker Change: And the businesses are performing at or above our expectations.

Speaker Change: And we have also said that just as we don't give guidance, but I would tell you that they perform in a very similar way to our domestic retail business.

Speaker Change: No.

Speaker Change: We're very pleased and continue to do.

Powell Brown: With that, I will turn it back over to Powell for closing comments. Thanks, Andy. Great report. As we look at the economy and the outlook for 2024, we anticipate that inflation will continue to moderate downwards in the markets in which we operate. As a result, we're expecting the consumer to further drive demand for products and services. And we anticipate most companies will continue to hire and invest, although at a potentially slower rate. Regarding the admitted markets, we believe rate changes will be similar to 2023. We think cap property rates are nearing their peak.

Speaker Change: Acquisitions, there so Mike Bruce who is ahead of our European operations and his team.

Speaker Change: We have continued to do.

Speaker Change: And medium acquisitions over there and we're very pleased with the capabilities and.

Speaker Change: The people that have joined so very pleased.

Speaker Change: Okay and then.

Speaker Change: On the margin Andy is there any.

Andy: Seasonality that we need to think about.

Andy: Yes, maybe a little weaker in the third quarter given.

Andy: Potential for captive loss, but how should we think about the guide for.

Andy: Improvement in margins in 'twenty four it just quarterly seasonality.

Andy: I think if you go back a good catch on the third quarter. So we've talked about we normally model in kind of one and a half storms never know when it's going to actually look like and I guess higher likelihood of being in the third quarter, but.

Andy: That's probably a reasonable approach. So if you do that you would expect for the margins to be down a little bit in the in the third quarter.

Andy: And then just keep in mind, the making the lap into the fourth quarter on the $19 million, but otherwise.

Powell Brown: Therefore, we would expect cap property rate increases for the first half of 24 to be in the range of flat to 10%, obviously subject to loss experience and construction type. On an M&A front, the overall market will remain competitive, and we don't expect any material changes in multiples. We have a very good pipeline and are talking with many companies. As we've mentioned, cultural alignment is the key to our long-term success.

Andy: Those are kind of the bigger items, we did call out some adjustments to the contingence in second quarter on part of the loss development during the during the year. So it was kind of I think the big ones to keep in mind, otherwise no major changes in the seasonality of the <unk>.

Andy: <unk>.

Speaker Change: Thank you thank.

Speaker Change: Thank you I appreciate it please standby for the next question.

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

Good morning, everyone.

Gregory Peters: Hey, just.

Gregory Peters: Circling back on your last answer.

Gregory Peters: What you said in your opening comments about contingent commissions.

Gregory Peters: Being flat to down for next year.

Gregory Peters: If we look at the segment results.

Powell Brown: Lastly, and most importantly, is our team. Our consistently strong, industry-leading results are only possible through the dedication and determination of our team to deliver for our customers. As we head into 2024 and on our way to our next intermediate goal of $8 billion in annual revenue, we have great momentum across the entire company and feel really good about our position. With that, I'll turn it back over to Michelle and open the lines for Q&A. Thank you. To ask a question, please press Star 1-1 on your telephone and wait for your name to be announced.

Gregory Peters: Profit sharing contingent commissions you had a great year in 2003, and National program $65 million versus $27 $6 million in 'twenty, two and you said you factor in at least one storm what does that mean to contingent commissions if theres one storm.

Gregory Peters: Not only inside national programs, but for the full year on a consolidated basis.

Speaker Change: So I know that youre not going all good morning, Greg that youre not going to like this answer exactly but it obviously depends on the magnitude of the storm.

Speaker Change: And how that impacts admitted markets versus not.

Speaker Change: Non admitted markets different but admitted markets.

Speaker Change: Program business versus wholesale business versus retail business and the answer is it's very hard to.

Michael Zaremski: To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Michael Zaremski with BMO. Your line is now open. Hey, good morning. This is Jack on for Mike.

Speaker Change: Estimated so we can run.

Speaker Change: Our model or we don't run I shouldn't say that we don't run a model, where you put a big storm in to Florida or into Texas, or Louisiana, and then it spits out the other side.

Speaker Change: The answer is we did have a great year in terms of profit sharing this last year.

Jack: My question is about any interest segment business makeshift changes and whether they're having an incremental impact on Brown and Brown's profit margin profile. And have there been any mixed changes within the major segments we should keep in mind, such as more employee benefits or something else? And we're just asking in the context of Brown's profit margins being above historical average levels. And so we get asked if we should expect a downward mean reversion if and when organic growth eventually decelerates. Okay, Jack, I think you've got a bunch of things inside there.

Speaker Change: But as Andy said, we we understand that it may have been I am not going to say an over performance, but a very high performance.

Speaker Change: And Greg keep in mind that in.

Speaker Change: 2022, remember, we we backed out $15 million in contingents in the third quarter.

Speaker Change: And then.

Speaker Change: Some of those with loss development.

Speaker Change: Not as significant as what it was originally anticipated some of that got.

Speaker Change: Adjusted in the fourth quarter and then we also had adjustments in 2003. So it really it's difficult on these to determine where it is going to be the magnitude and everything else. So.

Speaker Change: Would anticipate probably some sort of impact. The question is don't know exactly what that would look like.

Speaker Change: Okay that makes sense.

Speaker Change: I guess I wanted to go back to a bigger.

Powell Brown: Your first part of the question broke up a little bit, but I think you said, with the divestiture of the businesses, would we accept the margins to go up? Was that your question? And that's just any interest segment business mix shift changes. I know you got to get close to your phone or something.

Speaker Change: Question on organic and I know Paul part of your answer is going to be that you don't.

Speaker Change: Tell us our forecast out what organic is going to be for 'twenty four but.

Speaker Change: Inside organic the organic result for your company for 23.

Speaker Change: There's clearly been a benefit from the rate increase and rate increases that have happened in the market you called that out in your comments.

Jack: You're cracking up quite a bit coming through on the phone. I'm sorry, that's correct. Just any interest segment that's just mixed shift changes. Oh, no, just the ones that we mentioned. So if you look, our commentary was that the remaining businesses and services will shift over into retail, and then the historical will also restate for the businesses that move to retail as well as the sales moves into programs. So margin profiles, not radical, on between all the soar and the return. I got it.

Speaker Change: The wholesale market I think in your commentary in the slide deck, you called out a cap pricing and it seems like that might moderate so if I add up all the different variables.

Speaker Change: <unk> increases are going to be moderating in 'twenty four versus 'twenty three once that naturally bleed over to a lower growth rate for organic across your footprint.

Speaker Change: Any comments on that would be helpful.

Speaker Change: Sure. So remember Greg if you go back over an extended period of time, we've always said two thirds of our growth is exposure units and one third would be rate. That's how we've always describe it since I've been in this position. So that's number one number two the impact.

Powell Brown: Okay, thank you. And then the second question is on Brown's exposure to different flavors of personal lines insurance. We appreciate that personal lines insurance comes in different textures across the three main segments.

Speaker Change: The rate is going to be different on different segments of and locations in the business if you're in a coastal community in Florida, the impact of property rate could be substantial in some of your growth.

Powell Brown: The question is whether Brown's personal lines exposed businesses are having a positive impact on organic growth levels as compared to the non-personal exposures which comprise most of Brown's revenues. So the answer, Jack, is yes, they're having a positive impact. Remember, we have personal lines in all three of the major segments.

Speaker Change: That said they could still be writing a ton of new business on top of that Conversely, if youre in Denver, Colorado, Our Nashville, Tennessee, you may not have that big of an impact on rate. So.

Speaker Change: Youre already you already kind of called it we don't give organic growth guidance.

Powell Brown: And as you may remember, in many years past, that was a headwind in wholesale. And we've said that that is now a growing segment, which we're positive about. It's growing in retail, and it's also growing. So we think it's a positive. Thank you. Thank you.

Speaker Change: That's basically the answer we have said historically that this is a low to mid single digit organic growth business in a steady state economy.

Speaker Change: We have over performed inorganic growth the last couple of years and we're really proud of it.

Speaker Change: And I know each of you who are trying to anticipate what all that means and basically the way. We look at it is we have to first deliver for our customers. So we want to keep the business that we've got and based upon the capabilities and the good job that we do for our existing.

Elyse Greenspan: Please stand by for the next question. The next question comes from Elyse Greenspan with Wells Fargo. Your line is open. Hi, thanks. Good morning.

Existing customer base, we go out and we write a lot of new business and so I think it's important to differentiate I wouldn't want you to get so focused just on rate I think it's more important that it is the activity, which we do.

Elyse Greenspan: My first question is, you guys, Andy, I think said that the change in reinsurance cost you guys $19 million. But then it seems like your expected loss is going from 25 to 15 to 20. I'm just trying to tie those figures together. That seems like a large cost that I might have expected for the expected loss to go down by 5 to 10 million. What you have to remember, so there are two pieces to it, Elyse, is that it does limit our P&L exposure. So we said in 2023, it was about $25 million. So going in 24, it'll be somewhere between 15 and 20. But then it will also drive an incremental organic growth of 15 to $20 million. So you have got to put both of those pieces together.

Speaker Change: <unk> I E. The new business culture at Brown, <unk> Brown, whereby we are out always talking to prospects and to our existing customers.

Speaker Change: So we think that.

The organic growth profile for 2024 is good.

We don't know what it's going to be and you don't know what it's going to be and I know that's hard for you to model, but the answer is remember.

Speaker Change: We've been doing this for 85 years.

Speaker Change: And we have a pretty good understanding about how our business operates and the segments in the market that we serve and the capabilities that we have and that we're building. So I would tell you that we couldnt be more happy with their performance last year if.

Speaker Change: If you notice our performance against our publicly traded peers in that particular environment, we are at or near the top of that list, while we've been leading margins and cash flow for many years.

Powell Brown: Okay, thank you. And then my second question, um, you know, I was hoping you could give us a sense of how those, you know, international deals that you guys did, were completed in 22. How did, how impactful were those to retail, um, just, you know, growth and margins for the full year 2023 versus expectation? So, Elyse, good morning, and thank you for the question. We, one, are very pleased with the businesses that have joined in England since the middle of 2022, and the businesses are performing at or above our expectations. And we have also said that, as we don't give guidance, but I would tell you that they perform in a very similar way to our domestic and Chelsea Humphries.

Speaker Change: And so we're just kind of generally pumped.

Speaker Change: On where the businesses.

Speaker Change: Hey, Greg I would also add to that I think.

It's important to think about what happens in the marketplace due to the lens of the buyer of the insurance and.

Speaker Change: And rate, while that's an important factor that's not the only factor that drives.

Speaker Change: The buyer right quite often they are focused on the absolute dollar right because you've got to think about through their lens. They are managing our cost in their P&L and so theres a lot of factors that theyre going to take into consideration that we've talked about this over the past few years right. So if rates are going up theyre, probably adjusting their limits or adjusting deductibles.

Speaker Change: <unk>.

Speaker Change: And same thing can happen if rates softened a little bit well that may allow them to maybe increase some of their limits or back and forth, but thinking about it through the lens of premium not just rate online and know a lot of people are writing about this right now but.

Speaker Change: In some aspects it is much more simple and much more complex than that.

Speaker Change: Got it thanks for the detail.

Speaker Change: Glad to hear that you are pumped Paul thanks.

Speaker Change: Yeah.

Speaker Change: Alright.

Speaker Change: Yes.

Speaker Change: Please standby for the next question Ken.

Speaker Change: The next question comes from Mark Hughes with true with your line is open.

Powell Brown: So we're very pleased and continue to do acquisitions there. So Mike Bruce, who's the head of our European operations, and his team have continued to do small and medium acquisitions over there. And we're very pleased with the capabilities and the people that have joined us, so very. Okay, and then on the margin, Andy, is there any seasonality that we need to think about? I guess maybe a little weaker in the third quarter, given the potential for a captive loss, but how should we think about the guide for improvement in margins in 24 and just quarterly seasonality? I think, yeah, if you go back, a good catch in the third quarter. As we've talked about, we normally model in kind of one and a half storms. You never know what it's going to actually look like, and I guess the higher likelihood is third quarter.

Mark Hughes: Yes, thanks, good morning.

Mark Hughes: And do you say youre going to adjust.

<unk> for the noncash intangible amortization to be more in line with peers. If you had done that in 2023.

Mark Hughes: We've got the.

Mark Hughes: Adjusted earnings.

Would it would equate to about 45.

Speaker Change: What are your thoughts.

Speaker Change: Okay.

Speaker Change: And then the.

Speaker Change: Benefit business.

Speaker Change: How did that perform in the quarter any kind of early on.

Speaker Change: Q1, I know that the more important driver for organic in the first quarter.

Speaker Change: We're very pleased with where the business performed in.

Speaker Change: Q4, and more importantly for the year.

Speaker Change: So we're very pleased with the way the benefits business is working.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you.

Speaker Change: Please standby for the next question.

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

Rob Cox: Hey, Thanks for taking my question.

Maybe firstly on the reinsurance changes.

Rob Cox: Did that have an equal $19 million impact to adjusted EBITDA.

Andy: That's probably a reasonable approach. So if you do that, you would expect the margins to be down a little bit in the third quarter. And just keep in mind the making the lap to the fourth quarter, but otherwise.

Speaker Change: It's pretty close on it Rob So thats why when we said that.

While we were down 40 basis points for the quarter.

You can kind of run the math through so isolating that our margins would have been up.

Speaker Change: Quite well for the quarter, which we're very very pleased about can I and I also and put something here Rob that you haven't asked.

Speaker Change: You heard me say that the margins if in fact that didn't occur.

Andy: Those are kind of the bigger items. We did call out some adjustments to the container, second quarter on part of the loss development. There's going to be, I think, the big one. Otherwise, no major changes. Thank you. Thank you. Thank you.

Speaker Change: Would have been up 900 basis points.

Speaker Change: The.

Speaker Change: Organic sorry, non margins and organic would be up 900 basis points the overall business.

If you looked at it would've grown nine 9%.

Speaker Change: Yes, that's great.

Speaker Change: Thank you.

Speaker Change: Maybe just as a follow up.

Speaker Change: Sorry, E&S casualty pricing accelerated in the quarter and we've heard a lot of commentary around potential reserve issues in casualty. So I'm wondering if you could provide any color on what's driving that pricing acceleration and if you think that could continue in 2024.

Gregory Peters: Please stand by for the next question. The next question comes from Gregory Peters with Raymond James. Your line is open.

Powell Brown: Good morning, everyone, circling back on your last answer and what you said in your opening comments about being flattered down for next year. You know, if we look at the segment results, the profit-sharing contingent commission's had a great year in 23 out of national programs, $65 million. 27.6 million and 22, and you said you factored in at least one storm. What does that mean for contingent commissions if there's one? not only inside national programs but for the full year, was on the consolidated case.

Speaker Change: Sure So Rob I've only been in the insurance business now for 34 years.

Rob Cox: So I don't have the.

Rob Cox: The scope and impact of knowledge that my father does at age 86, but I will tell you since I started in the insurance business. The industry has been talking about the under.

The inadequate pricing of casualty.

Rob Cox: That since 1990.

Rob Cox: And the industry has not done a very good job of being able to increase the price on casualty. So I think we're going to continue to hear.

Rob Cox: People on the risk bearing side talk about the.

Rob Cox: And the need for increased reserves and what that means is we need to increase prices and all that other stuff, but the simple fact is this.

Powell Brown: So I know this, you're not going to, good morning, Greg, you're not going to like this answer exactly, but it obviously depends on the magnitude of the storm, and how that impacts admitted markets versus the non-admitted markets is different, but admitted markets, the program business versus wholesale business versus retail business. And the answer is it's very hard to estimate. So we can't run a model, or we don't run, I shouldn't say that, we don't run a model where you put a big storm into Florida or into Texas or Louisiana, and then it spits out the other side.

Rob Cox: People are trying to balance their portfolios with the cap that they have in it.

Rob Cox: And as a result.

Rob Cox: Casualty premiums are long tail in nature and they are appealing. So I don't think that theyre going to be able to get the pricing that they want or think they need which is a nice way of saying that I would be surprised if you see up.

Rob Cox: A significant upward pressure on casualty pricing they may talk about it.

Rob Cox: But I'm, just saying that's 34 years and.

Speaker Change: Got it that's helpful and if I could follow up with one more just on the employee benefit space. How are you thinking about the growth environment between pricing in employment growth and if you could remind.

Powell Brown: The answer is we did have a great year in terms of profit sharing this last year. But, as Andy said, we understand that it may have been, I'm not gonna say an over-performance, but a very high performance. And Greg, keep in mind that it is 2022.

Speaker Change: And as what percentage of the business is commission based that Bryan Bryan.

Speaker Change: Okay. So let's talk about employee benefits remember from an employee benefit standpoint, you have.

Speaker Change: A couple of things going on you have obviously you would think when you add a new employee onto a plan that generally.

Powell Brown: Remember, we backed out 15 million in the third quarter, and then some of those with lost development, not as much as Ken Billingsley. Thank you. Some of that got adjusted in the fourth quarter, and then we also had to adjust.

Speaker Change: It would increase.

Speaker Change: The commission or potential fee or something to that effect. There is a segment a smaller segment of that book of business, where there are sort of it it is a.

Powell Brown: So it really is difficult on these to determine where it's going to be, the magnitude and everything. So we would probably anticipate some sort of impact. The question is, don't we know exactly what. Okay, that makes sense. I guess I want to go back to a bigger question on organics.

Speaker Change: Amount per employee and it doesn't go up like a commission so its like a price per head.

Speaker Change: So I think of it in a weird way is like a capitation plan a little bit so.

Powell Brown: I know Paul, part of your answer was that you don't tell us or forecast out what Organic's going to be for 24, but inside Organic, the Organic result for your company... 3, there's clearly been a benefit from the rating and rate increases that have happened in the market. You called that out in your comment. The wholesale market, I think in your commentary in the slide deck, you called out cap prices; it seems like that might moderate. So, you know, if I add up all the different variables...

That's the first thing the second thing is in our retail business of roughly $2 $5 billion, we have about 35% yeah about 35% of the business is employee benefits.

Speaker Change: And.

Speaker Change: That's a business that we have consciously invested in over the last let's say 10 years and when I say constantly invested not only in the middle market space, but in the upper middle market and the very large space and are very pleased with.

Speaker Change: The ability to serve customers in all of those segments and we.

Powell Brown: If rate, are going to be moderating in for comments on that. Sure. So, remember, Greg, if you go back over an extended period of time, we've always said two-thirds of our growth is exposure units, and one-third would be rate. That's how we've always described it since, you know, I've been in this position. So that's number one.

Speaker Change: Very much enjoy.

Speaker Change: Going out and trying to earn business and have been successful and think we can even be more successful going forward. So we think it's a great business for us.

Speaker Change: Yes.

Speaker Change: Please standby for next question.

Speaker Change: The next question comes from Meyer Shields with K B W. Your line is open.

Meyer Shields: Great Thanks, and good morning.

Powell Brown: Number two, the impact of the property tax is going to be different on different segments of and locations in the business. If you're in a coastal community in Florida, the impact of the property tax could be substantial on some of your growth. And that said, they could still be writing a ton of new business on top of that. Conversely, if you're in Denver, Colorado, or Nashville, Tennessee, you may not have that big of an impact on rates. So, you know, you're already kind of calling it. We don't give organic growth guidance.

Meyer Shields: Randy You mentioned company owned life insurance and I didn't catch what the impact was.

Meyer Shields: On the quarterly results.

Yes, so again on the company owned life insurance.

Meyer Shields: It will have an impact on our numbers based upon how the market moves either up or down so when when.

Meyer Shields: When you see the market going up right.

Meyer Shields: The impact of the <unk> and the offset is down in other operating expense the impact on margins is basically almost zero. So for the quarter itself. It was a drag on the <unk> as a percentage of revenue of about 150 basis points and last year.

Powell Brown: That's basically the answer. We have said historically that this is a low to mid-single digit organic growth business in a steady state economy. We have overperformed in organic growth the last couple years, and we're really proud of it. And I know each of you are trying to anticipate what all that means.

Meyer Shields: It was about 60 basis points. So we kind of look at those both ways internally kind of puts or SNR substantially flat year over year ex coli. So.

Meyer Shields: And again those are going to move around that is not something that we're able to forecast because it all depends upon how the market moves and then it's the comparison to how the market move a year before.

Okay, No thats perfect Thats helpful.

Speaker Change: The second question.

When you talk about the upside for organic growth and program Thats, just because youre not going to see the same but with a $19 million hit in the fourth quarter of this year.

Powell Brown: And basically, the way we look at it is that we have to first deliver for our customers. So we want to keep the business that we've got. And based upon the capabilities and the good job that we do for our existing customer base, we go out, and we win a lot of new business. And so I think it's important to differentiate. I wouldn't want you to get so focused just on rate. I think it's more important that it is the activity which we do, i.e.

Speaker Change: <unk> is flat next year, then that $90 million of organic.

Revenue I think about that right.

Speaker Change: Correct.

Speaker Change: Yes, we expect that in 'twenty four.

Speaker Change: Okay.

Speaker Change: We would not expect any sort of reversion now in 25, just in case, you're wondering there.

Speaker Change: Yes, no that's it.

Speaker Change: And then final question got a different.

Speaker Change: Different viewpoints from different people, but when you look at the shift.

Speaker Change: Z codes wholesale or sorry, it's actually those property business to the to the wholesale channel in 2023 is that basically like a one year shift in that were done and if nothing changes then that impact slowed there should that persist in 2024 at more or less the same pace that we saw this year or I guess its last year now.

Powell Brown: the new business culture at Brown and Brown, whereby we are always talking to prospects and to our existing customers. So we think that the organic growth profile for 2024 is good. We don't know what it's going to be, and you don't know what it's going to be, and I know that's hard for you to model, but the answer is, remember, we've been doing this for 85 years. And we have a pretty good understanding about how our business operates and the segments in the market that we serve and the capabilities that we have and those that we're building. So I would tell you that we couldn't be more happy with the performance last year.

Speaker Change: I want to make sure I heard that correctly Meir can you repeat the question because there was a word or two that cracked up in there.

Meir: Yes, absolutely one of the themes of 2023 seems to be a lot of <unk>.

Meir: The property business moving to the wholesale channel from the retail channel, which is great news for companies with wholesale brokerage.

And I'm wondering basically whether that shift as you see it mostly done or where there are reasons to expect it to continue in 2024.

Speaker Change: Okay. So, let's let's back up and say there is an enormous amount of business. That's cat exposed there was already in the E&S market there.

Speaker Change: They're constantly and consistently in the traditional admitted market carriers by name that you may follow or no.

Speaker Change: Are evaluating their cat property exposure and are making decisions whereby should they renew that on an admitted basis.

Andy: If you notice our performance against our publicly traded peers in that particular environment, we are at or near the top of that list while leading margins and cash flow for many years. And so we're just kind of generally pumped on where the business is. Hey, hey, Greg, also add to that. I think it's important to think about what happens in the marketplace through the lens of the buyer of the insurance, right? And rate, while that's an important factor, that's not the only factor that drives the buyer, right? Quite often they're focused on the absolute dollar, right? Because you've got to think about, through their lens, how they're managing a cost in their P&L. And so there are a lot of factors that they're going to take into consideration.

Speaker Change: Or does that in turn get picked up by another admitted market or does it go into the E&S market. So what I would tell you is that there's lots of business that flows.

Speaker Change: In an hour I shouldn't say lot. There is a good amount of business that goes into the U S market in 'twenty, three and I think there will continue to be a flow of business out of the admitted market into the E&S market and 24 is it an equal amount I don't know, but I think more important.

Speaker Change: <unk> inside the wholesale space there is an enormous.

Speaker Change: Amount no enormous number of opportunities for us to write business that still and has been in the past in the E&S space, So theres more than enough business for us the right in the existing space without one account coming over and from the admitted market.

Powell Brown: We've talked about this over the past few years, right? So if rates are going up, right, they're probably adjusting their limits, they're adjusting deductibles. And the same thing can happen if rates soften a little bit, well, that may allow them to maybe increase some of their limits or back and forth. But think about it through the lens of premium, not just rate online. I know a lot of people are writing about this right now, but in some aspects, it's much more simple and much more complex. Thanks for the detail, and I'm glad to hear that you're pumped, Powell. Thanks, and Adam Klauber.

Speaker Change: I think thats going to continue.

Speaker Change: Because in my career and yours as well you've seen more of a shift.

Speaker Change: EMS market and I think admitted carriers will continue to evaluate their position.

Speaker Change: In particular cat prone areas.

Speaker Change: Okay.

Speaker Change: Very helpful go ahead.

Speaker Change: Mayor on that it's also probably always helpful.

Speaker Change: Is to bifurcate that between the commercial and the personal lines.

Because there is different.

Speaker Change: Profile and activity underneath of there back to our comments in the four states that we talked about is we are seeing more personal lines.

Speaker Change: The GFS space and we would expect to see that in 2024 until those markets calm down and it may be sort of dedicated will come back in but that doesn't appear to be.

Powell Brown: Thank you. Thank you. All right.

Speaker Change: Anything in the near term.

Speaker Change: Okay. That's helpful. Thank you so much thank you.

Mark Hughes: Thank you. Please stand by for the next question. The next question comes from Mark Hughes with Truist. Your line is open. Yeah, thanks. Good morning.

Speaker Change: Please standby for the next question.

Speaker Change: The next question comes from Michael Ward with Citi. Your line is open.

Speaker Change: Yes.

Michael Zaremski: Thanks, guys good morning.

Michael Zaremski: You mentioned the remaining portion of services was moving to retail.

Andy: Andy, you say you're going to adjust the numbers for the non-cash intangible amortization to be more in line with peers? If you had done that in 2023, how much would that have impacted adjusted earnings? It would equate to about 45. OK, and then the Benefits Business. How did that perform in the quarter?

Michael Zaremski: I was just curious if you anticipate holding onto those businesses.

Michael Zaremski: Or if there's any alternative plans.

Michael Zaremski: We anticipate holding on to those businesses.

Michael Zaremski: Great.

Michael Zaremski: And then maybe.

Michael Zaremski: On the in the slide deck.

Michael Zaremski: Macro commentary kind of seemed a little bit less cautious.

Michael Zaremski: To us just curious if you might agree with that there's a lot in flux kind of with the fed.

Michael Zaremski: Rates and inflation, but.

Just curious.

How your clients are feeling if there is.

Powell Brown: Any kind of early feel on Q1? I know that's a more important driver for organic growth in the first quarter. We're very pleased with the way the business performed in Q4, and more importantly, for the year. So we're very pleased with the way, Okay, thank you. Thank you. Please stand by for the next question. The next question comes from Rob Cox with Goldman Sachs. Your line is open.

Michael Zaremski: I guess, a little bit more positivity.

Michael Zaremski: Or uncertainty vice versa.

Speaker Change: Yes, so I think that.

Speaker Change: We continue to as we said in our comments.

Speaker Change: See inflationary pressure and things trending down.

Speaker Change: And we do it's very interesting Michael that there is a more I believe optimistic view and our consumer base, even in light of some of the challenges that face us globally. So it's a unique.

Rob Cox: Hey, thanks for taking my question. Maybe firstly on the reinsurance changes. Did that have an equal 19 million impact on adjusted EBITDAC? It's pretty close to it, Rob, so that's why when we said that while we were down 40 bases, Porter, kind of ran the math through. So isolating that arm... would have been quite well.

Speaker Change: Dynamic.

Speaker Change: And how ultimately people continue to think about investing in their business is yet to be determined.

Speaker Change: We have historically over the past year talked about.

Speaker Change: We use the term this quarter cautiously optimistic I think thats, a very very good way to put it.

Speaker Change: But we have seen over the past year people sort of pause on making major capital investments I E buying the new machine versus doing some maintenance work I'll be interested to see this year, if our customers buy the new machine.

Andy: Can I also input something here, Rob, that you haven't asked? You heard me say that the margins, if in fact, that didn't occur, would have been up 900, uh, Organic, sorry, not margins, and Organic would have been up 900 basis points. The overall business, Thank you, looked at it, would have grown 9.9. Yeah, that's great.

Speaker Change: And so thats yet to be determined but there is definitely a feeling.

Speaker Change: Optimism in our client base not all of them.

Speaker Change: What I'm, saying, if you made a broad generalized it is more optimistic yes.

Speaker Change: Interesting. Thank you.

Speaker Change: Maybe one last one just on free cash flow.

Speaker Change: I think cash flow conversion for you guys was a little below 24%.

Rob Cox: Thank you. Just as a follow-up, I saw E&S casualty pricing accelerate in the quarter, and we've heard a lot of commentary around potential reserve issues and catastrophe, so wondering if you could provide any color on what's driving that pricing acceleration and if you think that could continue in 2024. Sure, Rob, I've only been in the insurance business now for 34 years, so I don't have the scope and impact of knowledge that my father does at age 86.

Speaker Change: 'twenty three.

Speaker Change: Just curious if we should expect that similar level.

Speaker Change: Into next year or this year theres any puts and takes there.

Speaker Change: Yes, Mike for 24 were thinking at least on the ratio of cash flow from operations, you guys drop and kind of what you think on the Capex and everything, but we're thinking 22% to 24%.

Speaker Change: Cash flow from ops as a percentage of revenues it feels like a pretty good range for us.

Speaker Change: Great. Thank you guys. Thank you.

Speaker Change: Please standby for the next question.

Speaker Change: Sure.

Speaker Change: The next question comes from Greece, Karger with Bank of America. Your line is open.

Powell Brown: But I will tell you, since I started in the insurance business, the industry has been talking about the inadequate pricing of casualties. That's since 1990. And the industry has not done a very good job of being able to increase the price of cash. So I think we're going to continue to hear people on the risk-bearing side talk about the need for increased reserves and what that means is we need to increase prices and all that other stuff. But the simple fact is this:

Speaker Change: Hello.

Karger: It does appear that she did dropped one moment for our next question. Please okay.

Karger: Our next question comes from Scott <unk> with RBC capital markets. Your line is open.

Scott: Yes. Good morning, just interesting comments you made on the economy and how your customer base is feeling but I'm wondering if you could follow up on the comment you made on.

Scott: You mentioned that the buyers were exhausted I know you mentioned in the last quarter, increasing deductibles lowering limits did you see that accelerate at all in the past few months and where are you seeing that most by by customer type.

Powell Brown: People are trying to balance their portfolios with the cap that they have in them. And as a result, casualty premiums are long tail in nature, and they're appealing. So I don't think that they're going to be able to get the pricing that they want or think they need. There's a nice way of saying that I would be surprised if you see a significant upward pressure on casualty pricing. They may talk about it, but I'm just saying, that's 34 years in.

Scott: The different behavior, where they're changing the terms and conditions.

Scott: Well.

Let's back up for just a moment I don't think that there's necessarily one customer type or one region, but I'm going to give you. An example, but this is not.

Scott: Only the capacity.

In this example.

Scott: If you take a condo association in Florida.

Scott: And for the last five years in a row they have seen rate increases.

Scott: They are exhausted and tired of it and in some instances.

Scott: The condo Association will shoot the messenger.

Powell Brown: Got it. That's helpful. And if I could follow up with one more on the employee benefits space, how are you thinking about the growth environment between pricing and employment growth? And could you remind us what percentage of the business is commission-based at Brown and Brown? Okay, so let's talk about employee benefits. Remember, from an employee benefits standpoint, you have a couple things going on. You obviously would think when you add a new employee onto a plan that, generally, would increase the commission or potential fee or something to that effect.

Scott: Even though we are delivering the best product in the market.

Scott: And so whether you apply that same philosophy to a manufacturer a developer and owner of nursing homes, a nonprofit whatever the case may be.

Scott: I believe Scott sometimes people in the.

Scott: Analyst community believe it's all about rate.

Scott: Increases and as Andy said earlier, it's it can be about rate, but really it's more about the absolute dollars that the insured has to pay.

Scott: And so there is a lot of change when their exposure units are flat to down in their premium dollars are going up that's the way I would try to put it.

Powell Brown: There is a segment, a smaller segment of that book of business where there's sort of an amount per employee, and it doesn't go up like a commission. So it's like a price per head. So I think of it in a weird way.

Scott: And so theres not one.

Scott: Theres not one class of business I will tell you this that our organization.

Scott: If you make a broad statement.

Powell Brown: It's like a capitated plan a little bit. So that's the first thing. The second thing is that in our retail business of roughly two and a half billion, we have about, Yeah, about 35% of the business is employee benefits. And that's a business that we have consciously invested in over the last, let's say, 10 years. And when I say consciously invested, not only in the middle market space but in the upper middle market and the very large space, we are very pleased with the ability to serve customers in all of those segments. And we very much enjoy going out and trying to earn business, and we have been successful and think we can even be more successful going forward. So we think it's a great business. Please stand by for our next question. The next question comes from Meyer Shields with KBW. Your line is open. Great, thanks, and good morning.

Scott: We.

Scott: Can thrive in a market where the rates are going up when the rates are sideways and win rates are going down <unk>.

Scott: Generally speaking in retail it works and all of those and.

Sale it works up or down generally flat is kind of a little weird and it works and programs.

Scott: So.

Scott: That's kind of a very broad statement around your question on rates.

Scott: Okay.

Scott: Really helpful.

Scott: And then I was just wondering could you refresh us on the captive revenue.

Scott: In 2023 versus 2022 and kind of your long term growth view on that business and where are you kind of.

Scott: Your view on that over the next five years to 10 years.

Scott: Lets say I don't know, we probably won't go that far out but.

Scott: If we look at the captives.

Scott: We generated.

Scott: 25, plus million last year generated about $30 million.

Scott: In 2023, and then we've kind of given an idea of guidance of what we think it looks like for 2024.

Scott: We're really really pleased with the captives.

Scott: With the growth we've delivered on the topline as we mentioned the alignment with our carriers.

Scott: And the returns that they provided for the capital that we put into those.

Meyer Shields: Andy, you mentioned company-owned life insurance, and I didn't catch what the impact was on the quarterly results. Yeah, so again on company-owned life insurance, this will have an impact on our numbers based upon how the market moves, either up or down. So when you see the market going up, right, it'll impact the S&R, and the offset is down in other operating expenses. The impact on margin. So, for the quarter itself, it was a drag on.

Scott: We're extremely extremely pleased with him so.

Scott: Don't take that that means that we're going to do more of and whatever that is not to comment but for the for the ones that we have we're very very pleased with the programs that they sit on top of and again. They are sitting on programs that we think deliver some of the best underwriting results in the industry.

Speaker Change: Alright understood Alright appreciate the answers. Thanks. Thank you. Thank you please.

Speaker Change: Please standby for the next question.

Speaker Change: Our next question comes from Brian Meredith with UBS. Your line is open.

Brian Meredith: Hey, Thank you Paul I think you may have answered this but I just wanted to clarify here.

Brian Meredith: It is.

Speaker Change: <unk>, how big of an impact as inflation on your organic revenue growth. So if I kind of look going forward.

Speaker Change: Obviously, the economic outlook is still decent right now, but inflation clearly moderating.

Speaker Change: Is that a headwind to organic growth when we think about from an exposure perspective.

Andy: The S&R is a percentage of revenue of about 150 basis points, and last year it was about. We kind of look at those both ways internally, which kind of puts our S&R substantially flat year over year. And again, those are going to move around. That's not something that we're able to forecast, because it all depends upon how the market moves. And then it's the comparison to how the market moves a year ago. Okay, no, that's probably not very helpful.

Speaker Change: I think if you want to think of it in a textbook answer the answer is yes.

Speaker Change: But in practical application I think it's a neutral.

Speaker Change: Interesting is there are certain types of inflation that are better or worse for your own business.

Speaker Change: No I don't I don't want you to think about it that way. This is kind of how a lot of people.

Speaker Change: Well I shouldn't say that I think some people think about.

Speaker Change: The brokerage space, one, it's a GDP plus or minus but plus growth business whatever that is and so then you have to think about what does inflation due to impact GDP.

Meyer Shields: Second question. When you talk about the upside to organic growth in programs, that's just because you're not going to see the same what was a $19 million hit in the fourth quarter of this year. If if that is flat next year, then that's $19 million of organic revenue. Am I thinking about that right? Correct, and yes, we expect that, and we would not expect any sort of reverse. Fox. Yeah, no, that's exactly what he needed.

And if you think about that a little bit it's sort of kind of baked in to how our business operates but please don't lose sight of the impact of inflation and rate over a long period of time and when I say, a long period of time I'm not talking about a year I'm talking 10 years 20 years.

Speaker Change: 30 years in our business.

Speaker Change: We would say in a more steady state economy. Its two thirds exposure unit, one third right and those exposure units, whether they go up or down because of economic.

Andy: And then final question, because we've gotten different viewpoints from different people. But when you look at the shift of some catastrophe exposed wholesale, or sorry, catastrophe exposed property business, to the wholesale channel in 2023, is that basically like a one year shift, and now we're done? And if nothing changes, will that impact continue in 2024 at more or less the same pace that we saw this year? Or do I guess it's last year?

Speaker Change: Impacts inflation or all of the above we just have to continue to execute and sell more new business and keep the business that we've got.

Speaker Change: That's how we think about it.

Speaker Change: That's really helpful. Thank you and then my second question I'm. Just curious what are you seeing with respect to the standard markets just appetite for some of the E&S type risks I understand there is as you mentioned, Texas and certain areas are still pretty challenging but are you seeing any of the standard markets kind of trying to coach back in.

Speaker Change: To the.

Speaker Change: The wholesale.

Meyer Shields: I want to make sure I heard that correctly, Meyer. Can you repeat the question? Because there was a word or two that got stuck in there.

Speaker Change: So the answer to that is no.

Speaker Change: What I would tell you is in the last.

Probably half of the year, but even in Q4 and ended this.

Powell Brown: Yes, absolutely. One of the themes of 2023 seems to be a lot of catastrophe-exposed property business moving to the wholesale channel from the retail channel, which is, you know, great news for companies with wholesale brokerage. And wondering basically whether that shift as you see it is mostly done, or there are reasons to expect it to continue in 2023. Okay, so let's back up and say there's an enormous amount of business that's been cat-exposed that was already in the E&S market. They're constantly and consistently in the traditional admitted market; carriers by name that you may follow or know are evaluating their cat property exposure and are making decisions whereby should they renew that on an admitted basis, or does that, in turn, get picked up by another admitted market, or does it go into the E&S market.

Speaker Change: Into the first part of this year I think there continues to be an evaluation by admitted markets of segments of their books of business. So, let's just look at it in three segments kind of like hour business. So in retail there.

Speaker Change: Basically looking at their cat exposure and their loss profile, even on casualty and executive liability and Theyre, saying, what do we need to get off what do we want to write more of that is good.

Speaker Change: That's sort of the impact there would be cat capacity.

Speaker Change: If you go to wholesale generally speaking those admitted carriers with their wholesale markets.

Speaker Change: You would think that they are growing and they could be growing substantially as a percentage, but it's a small portion of their overall premium.

Speaker Change: And then third in programs, regardless of if its cat for casualty.

Speaker Change: They continue to look very closely at the profitability of those programs and I have heard or seen a number of markets backing off.

Powell Brown: So what I would tell you is that there's lots of business that flows in and out. I shouldn't say lots. There is a good amount of business that goes into the E&S market in 23 and I think there will continue to be a flow of business out of the admitted market into the E&S market in 24. Is it an equal amount?

Programs that are not.

Speaker Change: Meeting their criteria for profitability.

Speaker Change: And so I believe that there is going to be a broad statement there will be some more changes in the program space.

Speaker Change: Because markets will continue to review profitability of lines of business because their results are going up and they are trying to.

Powell Brown: I don't know. But I think more importantly, inside the wholesale space, there's an enormous number of opportunities for us to write business that's still and has been in the past in the E&S space. So there's more than enough business for us to write in the existing space without one account coming over from the admitted market. I think that's gonna continue because, in my career and yours as well, you've seen more of a shift in the ENS market. And I think admitted carriers will continue to evaluate their position in particular cap-prone areas. Okay, fantastic. That's very helpful.

Speaker Change: Bulletproof those for a long term.

Speaker Change: Okay.

Speaker Change: That's really helpful.

Speaker Change: Yep.

Speaker Change: Please standby for the next question.

Speaker Change: And Michelle we'll take one last question Okay. Thank you.

Speaker Change: Our last question comes from Grace Karger with Bank of America. Your line is open.

Grace Karger: Hi, everyone, sorry about my technical difficulties earlier.

Grace Karger: I just had one that I wanted to really touch on Im sorry, if I missed this earlier, but I was curious if you all have sheraton outlook for investment income next year, and how that factors into your expectations for slight margin improvement.

Grace Karger: Good morning, Grace, it's Andy here no we didn't give an outlook on investment income so we weren't going to try to.

Grace Karger: Hypothesize or predict predict what will happen to interest rates at least for the.

Grace Karger: All the governor and banks in the markets that we operate an insider we figure that you guys are pretty well positioned to come up with your own determination thats there because some of it also also is based upon just the amount of capital that flows through the organization and what we hold during the year. So those pieces can move up and down.

Powell Brown: Hey, Mayor, on that, it's also probably always helpful to bifurcate that between the commercial and the personal lines, because there's different kinds of profiles and activity underneath there. Back to our comments, you know, in the four states that we talked about, we are seeing more personal lines in the BS space than we would expect in 2000. Hill, you know, those markets calmed down, for the Notary Public Loan Signing System. That doesn't appear to be it. Okay, no, that's excellent. Thank you so much.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: I show no further questions at this time I would now like to turn the call back to Powell Brown for closing remarks. Thanks, Michelle. We appreciate everybody's time. This morning I was surprised we didn't get one question. So I will.

Powell Brown: I will ask the question and then I'll answer it.

Powell Brown: At Brown <unk> Brown were very goal oriented company, we set goals, we achieved those goals and then we set a new goal 12 years ago, we were roughly $1 billion of revenue when we set a goal to get to $2 billion in revenue and in seven years, we took it from one to two then we.

Powell Brown: <unk> set a new goal, which was to bring two to four and five years. Hence we actually went from two to four now we're setting a new goal of $8 billion in revenue somebody would have asked when are you going to get there and the answer is we don't have a timeframe and the reason I say that is if we wanted to be eight.

Michael Zaremski: Thank you. Please stand by for the next question. The next question comes from Michael Ward with Citi. Your line is open. Thanks, guys. Good morning.

Powell Brown: You mentioned the remaining portion of services was moving to retail. I was just curious if you anticipate holding on to those businesses or if there's any alternative plans. We anticipate holding on to those businesses. Great. And then maybe on the slide deck, the macro commentary kind of seemed a little bit less cautious to us.

Billion of revenue, we could go out and do that but it would not be in the best interest of our shareholders, which in turn up 22% of the company is owned by teammates. So there is incredible alignment in our organization in terms of our long.

Powell Brown: Long term goals and objectives as you heard in Andy's remarks, and my remarks, we are very pleased with the performance of 2023 and we are equally excited.

Powell Brown: Just curious if you might agree with that, you know, there's a lot in flux kind of with the Fed and rates and inflation. But I'm just curious, you know, how your clients are feeling if there's, I guess, a little bit more positivity, or uncertainty, vice versa. Yeah, so I think that we continue to, as we said in our comments, see inflationary pressure and things trending down. And we do, it's very interesting, Michael, that there is a more, I believe, optimistic view in our consumer base, even in light of some of the challenges that face us globally. So it's a unique dynamic.

Powell Brown: About the prospects for 'twenty four.

Powell Brown: We also know that at some point the economy will slow down alright, so we acknowledge that but it seems that that probably will not happen.

Powell Brown: In the near term is that the next six to 12 months I think one of the things that's moving that is the presidential election, but theres a lot more that goes into that so youre not going to want to have changes. If you can help it in the economy it'll be interesting to see what the fed does with interest rates.

Powell Brown: And how ultimately people continue to think about investing in their business is yet to be determined. We have historically over the past year talked about, and we use the term "cautiously optimistic" this quarter. I think that's a very, very good way to put it. But we've seen over the past year, people sort of pause on making major capital investments, i.e., buying a new machine versus doing some maintenance work.

Powell Brown: And how all of that.

Powell Brown: Translates into the business environment.

Powell Brown: Environment.

With that said I'd like to say thank you again, we are pumped about our business in the future at Brown <unk> Brown on our way to $8 billion and we look forward to talking to you next time, good day and good luck.

Speaker Change: This concludes today's conference call. Thank you for participating have a wonderful day you may now disconnect.

Speaker Change: Yes.

Powell Brown: I'll be interested to see, you know, this year if our customers buy the new machine. And so that's yet to be determined. But there is definitely a feeling of optimism in our client base. Not all of them, though.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Yes.

Speaker Change: [music].

Powell Brown: But I'm saying if you make a broad generalization, it is more optimistic. Yes. Interesting.

Speaker Change: Yes.

Speaker Change: [music].

Michael Zaremski: Thank you. Um, maybe one last one just on free cash flow. I think cash flow conversion for you guys was a little below 24%. 23.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: [music].

Andy: I'm just curious, you know, if we should expect that similar level into next year or this year, if there are any puts and takes there. Yeah, Mike, for 24, we're thinking at least on the ratio of cash flow from operations. We'll let you guys drop. Kaplan.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

[music].

Andy: But we're thinking 22% to 24%. Cashflow from MOPSA as a percentage of revenues feels like a pretty good range for us. Great. Thank you, guys.

Speaker Change: Yeah.

Speaker Change: [music].

Grace Carter: Thank you. Please stand by for the next question. The next question comes from Grace Carter with Bank of America. Your line is open. Hello. Okay, it does appear that she did drop.

Speaker Change: Yes.

Speaker Change: [music].

Scott Hellinick: One moment for our next question, please. Our next question comes from Scott Hellinick with RBC Capital Markets. Your line is open.

Powell Brown: Yeah, good morning. It's just interesting the comments you made on the economy and how your customer base is feeling. But I'm wondering if you could follow up on the comment you made where you mentioned that the buyers were exhausted. I know you mentioned in the last quarter increasing deductibles and lowering limits. Did you see that accelerate at all in the past few months? And where are you seeing that most by customer type, the different behavior where they're changing the terms and conditions? Well, let's back up for just a moment. I don't think that there's necessarily one customer type or one region, but I'm going to give you an example.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Powell Brown: But this is not only the capacity; example, if you take a condo association in Florida, and for the last five years in a row, they've seen rate increases. They're exhausted and tired of it, and in some instances, the condo association will shoot the messenger.

Speaker Change: Yes.

Speaker Change: [music].

Powell Brown: Even though we are delivering the best product in the market, and so whether you apply that same philosophy to a manufacturer, a developer, an owner of nursing homes, a non-profit, whatever the case may be, I believe, Scott, sometimes people in the analyst community believe it's all about rate increases and, as Andy said earlier, it can be about rate, but really it's more about the absolute dollars that the insured has to pay. And so there is a lot of chafe when their exposure units are flat to down and their premium dollars are going up. That's the way I try to put it. And so there's not one class of business. I will tell you this, that our organization, If you make a broad state, can thrive in a market where the rates are going up, when the rates are sideways, and when rates are going down. Generally speaking, in retail, it works for all of those. In wholesale, it works up or down. Generally, flat is kind of a little weird, and it works in programming.

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Powell Brown: So that's kind of a very broad statement around your question on race. Okay, that's definitely helpful. And then I was just wondering, could you refresh us on the captive revenue, what you had in 2023 versus 2022? And kind of your long-term growth view on that business and where you kind of, you know, how you're viewing that over the next five to 10 years? Let's see, I don't know, we probably won't go that far out, but if we look at the cap... we generated. 25-plus million last year, generating about $30 billion in 2023.

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Powell Brown: And then we kind of gave an idea of guidance of what we think it looks like for 2024. We're really, really pleased with the growth we've delivered on the top line. As we mentioned, the alignment with our carriers, and the returns that they provided for the capital that we put into them were extremely, extremely. Don't take that that means that we're going to do more of them or whatever. That's not the point. But for the ones that we have, we're very, very pleased with the programs that they sit on top of. Again, they're sitting on programs that have some of the best underwriting. Anderson

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Powell Brown: All right. Appreciate the answers. Thanks. Thank you. Please stand by for the next question. Our next question comes from Brian Meredith with UBS. Your line is open.

Brian Robert Meredith: Hey, Hal, I think you may have answered this already, but I just want to clarify here. Is inflation, you know, how big of an impact does inflation have on your organic revenue growth? So if I kind of look going forward, obviously, the economic outlook is still decent right now, but inflation is clearly moderating. Is that a headwind to organic growth when we think about it from an exposure perspective?

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Powell Brown: I think if you want to think of it in a textbook answer, the answer is yes. But in practical application, I think it's something new. Are there certain types of inflation that are better or worse for y'all's business? No, I don't. I don't want you to think about it that way. This is kind of how a lot of people, Well, I shouldn't say that.

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Powell Brown: I think some people think about the brokerage space. One, it's a GDP plus, or minus, but plus growth business, whatever that is. And so then you have to think about, what does inflation do to impact GDP?

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Powell Brown: And if you think about that a little bit, it's sort of kind of baked in to how our business operates, but please don't lose sight of the impact of inflation and interest rates over a long period of time. And when I say a long period of time, I'm not talking about a year. I'm talking 10 years, 20 years, 30 years in our business. We would say in a more steady state economy, it's 2 3rds exposure unit, 1 3rd rate.

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Powell Brown: And those exposure units, whether they go up or down because of economic impacts, inflation, or all of the above, we just have to continue to sell more new business and keep the business that we've got. That's how we think about it. It's really helpful.

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Powell Brown: And then my second question, I'm just curious, what are you seeing with respect to the standard markets' appetite for some of the ENS, you know, type risks? I understand there's, as you mentioned, Texas and certain areas are still pretty challenging, but are you seeing any of the standard markets kind of trying to encroach back into the wholesale?

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Powell Brown: So the answer to that is no. What I would tell you is, in the last... You know, probably half of the year, but even in Q4 and into this, you know, going into the first part of this year, I think there continues to be an evaluation by admitted markets of segments of their books of business. So let's just look at it in three segments, kind of like our business. So in retail, they're basically looking at their CAD exposure and their loss profile, you know, even on casualty and executive liability, and they're saying, you know, what do we need to get off?

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Powell Brown: What do we want to write more about? You know, that's good. That's sort of the impact there would be on cat capacity. If you go to wholesale, generally speaking, those admitted carriers with their wholesale markets, you would think that they're growing, and they could be growing substantially as a percentage, but it's a small portion of their overall premium.

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Powell Brown: And then third, in programs, regardless of if it's CAHPS or casualty, they continue to look very closely at the profitability of those programs, and I have heard or seen a number of markets backing off from programs that are not meeting their criteria for profitability. And so I believe that there's going to be a broad statement. There will be some more changes in the program space, because markets will continue to review profitability of lines of business because their results are going up, and they're trying to bulletproof those for the long term. Thank you. That was really helpful. Yep.

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Powell Brown: Please stand by for the next question, and Michelle, we'll take one last question, okay? Thank you. Our last question comes from Grace Carter with Bank of America. Your line is open.

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Grace Carter: Hi, everyone. Sorry about my technical difficulties earlier. Um, I just had one that I wanted to really touch on, um, I'm sorry if I missed this earlier, but I was curious if you had shared an outlook for investment income next year and how that factors into your expectations for, um, slight margin improvement. Morning, Grace and Sandy here.

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Andy: Now, we didn't give an outlook on investment income, so we weren't going to try to... hypothesize or predict what will happen to interest rates, at least for all the governing banks in the markets that we operate in. We figured you guys are pretty well positioned to come up with your own determination. That's because some of it also is based upon just the amount of capital that flows through the organization and what we hold during those pieces. Thank you. Yep, no, thank you.

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Powell Brown: I have no further questions at this time. I would now like to turn the call back to Powell Brown for closing remarks. Thanks, Michelle. We appreciate everybody's time this morning. I was surprised we didn't get one question.

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Powell Brown: So I will ask the question, and then I will answer it. You know, at Brown and Brown, we're a very goal-oriented company. We set goals, we achieve those goals, and then we set a new goal. 12 years ago, we were roughly $1 billion in revenue, and we set a goal to get to $2 billion in revenue. And in seven years, we took it from one to two. Then we set a new goal, which was to bring it from two to four. And five years hence, we actually went from two to four. Now we're setting a new goal of $8 billion in revenue. Somebody would have asked, "When are you going to get there?"

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Powell Brown: And the answer is, we don't have a time frame. And the reason I say that is, if we wanted to be $8 billion in revenue, we could go out and do that. But it would not be in the best interest of our shareholders, which, in turn, 22% of the company is owned by teammates.

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Powell Brown: So there is incredible alignment in our organization in terms of our long-term goals and objectives. As you heard in Andy's remarks and in my remarks, we are very pleased with the performance of 2023, and we are equally excited about the prospects for 2024. You know, we also know that at some point, the economy will slow down. All right, so we acknowledge that. But it seems that that probably will not happen in the near term. Is that the next six to 12 months? I think one of the things that's buoying Matt is the presidential election, but there's a lot more that goes into that. So you're not going to want to have changes, you know, if you can help it in the economy. It'll be interesting to see what the Fed does with interest rates and how all that, you know, translates into the business environment.

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Powell Brown: With that said, I'd like to say thank you again. We are pumped about our business and the future at Brown and Brown on our way to $8 billion. And we look forward to talking to you next time. Good day and good luck. This concludes today's conference call. Thank you for participating. Have a wonderful day. You may now disconnect. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??