Q2 2025 Brown & Brown Inc Earnings Call

Operator: Second Quarter Earnings Call. Today's call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call, and including answers given in response to your questions, may relate to future results and events or otherwise be forward-looking in nature. For more information, visit www.fema.gov Such statements reflect our current views with respect to future events, including those relating to the company's anticipated financial results for the second quarter and are intended to fall within the safe harbor provisions of the securities laws. Actual results for events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or desired or referenced in any forward-looking statements made as a result of a number of factors.

Good morning, and welcome to the Brown & Brown, Inc. second quarter earnings call. Today's call is being recorded.

Please note, that certain information discussed during this call including information. Contained in the slide presentation posted in connection with this call and including answers given in response to your questions. May relate to Future results and events or otherwise be forward-looking in nature.

Such statements reflect our current views with respect to future events, including those relating to the company's anticipated Financial results. For the second quarter and our intended to fall within the safe harbor, provisions of the Securities laws.

Operator: Such factors include the company's determination as it finalizes its financial results for the second quarter, that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday, other factors that the company may not have currently identified or quantified, and those risks and uncertainties identified from time to time in the company's reports filed with the Securities and Exchange Commission. Additional discussion of these and other factors affecting the company's business and prospects, as well as additional information regarding forward-looking statements, is contained in the slide presentation posted in connection with this call and in the company's filings with the Securities and Exchange Commission.

Actual results for events in the future are subject to a number of risks and uncertainties and may differ materially from those, currently anticipated or desired or referenced in any forward-looking statements made as a result of a number of factors.

Such factors include the company's determination as it finalizes. Its Financial results for the second quarter that its Financial results differ from the current preliminary un audited, number set forth in the press. Release issued. Yesterday other factors that the company may not have currently identified or Quantified and those risks and uncertainties identified from time to time in the company's reports filed with the Securities and Exchange Commission.

Operator: We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, there are certain non-GAAP financial measures used in this conference call.

Additional discussion of these and other factors affecting the company's business and Prospects. As well as additional information. Regarding forward-looking statements is contained in the slide presentation posted in connection with this call. And in the company's filings with the Securities and Exchange Commission.

We disclaim any intention or obligation to update or revise, any forward-looking statements whether as a result of new information, future events or otherwise.

Operator: A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measure 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.bbrown.com by clicking on Investor Relations and then Calendar of Events.

In addition, there are certain non-gaap Financial measures used in this conference call.

Powell Brown: With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin. Thanks, DeeDee. Good morning, everyone. And welcome to our second quarter earnings call. Before we get into the results for the quarter, we wanted to provide an update on the acquisition of RSC TopCo, or as we refer to it, a session. Post the announcement, John Mina, myself and a number of other a number of other senior leaders met with many of the teammates from a session and the feedback has been positive. We're very excited about our expanded capabilities and how we can leverage them for the benefit of our customers.

A Reconciliation of any non-gaap Financial measures to the most comparable. Gaap Financial measure 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.bbr.com, by clicking on investor relations. And then calendar of events. With that said, I will now turn the call over to Powell Brown press, president and chief executive officer. You may begin.

Thanks Dei uh good morning everyone and Welcome to our second quarter earnings. Call before we get into the results. For the quarter, we wanted to provide an update on the acquisition of RSC topco or as we refer to it a session post the announcement, John Mino, myself and a number of other a number of other senior leaders met with many of the teammates from a session and the feedback has been positive.

Powell Brown: From a regulatory standpoint, we have substantially all approvals and anticipate an 8-1 close. From a financing standpoint, we completed a very successful follow-on equity issuance and a multi-tranch bond issuance that were both significantly oversubscribed. The teams have been working on our integration plans, and efforts are well underway to bring our two great companies together.

We're very excited about our expanded capabilities and how we can leverage them for the benefit of our customers. From a regulatory standpoint, we have substantially all approvals and anticipated in 81 close.

Powell Brown: Now let's transition to the results. I'll provide some high-level comments regarding our performance, along with updates on the insurance market and the M&A landscape.

From a financing standpoint, we completed a very successful follow-on equity issuance and a multi-tranche bond issuance that were both significantly oversubscribed. The teams have been working on our integration plans, and efforts are well underway to bring our two great companies together.

Andy: Then Andy will discuss our financial performance in more detail.

Powell Brown: Lastly, I'll wrap up with some closing thoughts before we open it up for Q&A. I'm on slide number four. For the second quarter, we delivered $1.3 billion of revenue, growing 9.1% in total and 3.6% organically, as compared to the same period in the prior year. Our adjusted EBITDAC margin improved by 100 basis points to 36.7%, and our adjusted earnings per share grew over 10% to $1.03. On the M&A front, we completed 15 acquisitions with estimated annual revenues of $22 million. At a macroeconomic level, things have not changed substantially. Customer outlook and confidence seem to be fairly similar to the first quarter.

M&A landscape. Then, Andy will discuss our financial performance in more detail. Lastly, I'll wrap up with some closing thoughts before we open it up for Q&A.

I'm on slide number 4 for the second quarter. We delivered $1.3 billion in revenue, growing 9.1% in total and 3.6% organically as compared to the same period in the prior year. Our adjusted EBIT margin improved by 100 basis points to 36.7%, and our adjusted earnings per share grew over 10% to $1.30.

On the M&A front, we completed 15.

Powell Brown: Generally, customers are cautiously optimistic that the uncertainties of tariffs and other matters will resolve in a favorable manner. We continue to see many customers investing in their businesses, while some customers are delaying investment decisions until they have a better view on growth trajectory. With continued economic and job expansion, we think some customers will more than likely only be able to delay their investment decisions for so long. Overall, we believe the economy is still in a good place. From an insurance pricing standpoint, rates for most lines moderated even further in the second quarter, and in some cases more than we expected.

At a macroeconomic level things have not changed substantially customer Outlook and confidence seemed to be fairly similar to the first quarter. Generally customers are cautiously optimistic, that the uncertainties of tariffs and other matters will resolve in a favorable manner. We continue to see many customers investing in their businesses. While some customers are delaying investment decisions until they have a better view on growth trajectory.

With continued economic and job expansion. We think some customers will more than likely only be able to delay. Their investment decisions for so long. Overall, we believe the economy is still in a good place.

Powell Brown: The outliers were auto, casualty and cat property. We're now seeing classic market softening signs for certain lines of business where carriers can have a material difference in quoted rates for renewal business versus new business on similar insured assets. Pricing for US employee benefits was similar to prior quarters as medical costs are up six to eight percent and pharmacy costs are generally up over ten percent. We do not expect this trend to slow over the coming quarters which will continue to drive demand for our consulting businesses. Rates in the admitted PNC market continue to moderate down while rates were up one to five percent versus the prior year.

From an insurance pricing, standpoint rates from most lines moderated even further in the second quarter. And in some cases more than we expected, the outliers were Auto casualty and cap property. We're now seeing Classic Market softening signs for certain lines of business. Where carriers can have a material difference in quoted rates for Renewal business versus new business on similar insured assets pricing for US employee benefits with similar to Prior. Quarters is medical costs are up 6 to 8% and Pharmacy. Costs are generally up over 10%. We do not expect this trend to slow or the coming quarters, which will continue to drive demand for our Consulting businesses.

Powell Brown: This is in comparison to rate increases of two to seven percent in the first quarter of 25 and rate increases of five to ten percent in the second quarter of last year. The downward trend on workers' compensation rates remained in most states and were flat to down five percent. For non-CAT property, we're seeing a general softening of rates which were down five to up five. It totally depends on the loss experience. For casualty, we're seeing rate increases of 5 to 10 for primary and excess layers and believe this trend will continue over the coming quarters.

Rates in the admitted PNC market continue to moderate down. While rates were up 1% to 5% versus the prior year, this is in comparison to rate increases of 2% to 7% in the first quarter of 2025 and rate increases of 5% to 10% in the second quarter of last year.

The downward trend on worker's compensation rates remained in most states and were flat to down 5%.

For non-cat property, we're seeing a general softening of REITs which were down 5 to up 5, it totally depends on the loss experience.

Powell Brown: For professional liability, rates were down 5 to up 5 as compared to last year. Shifting to the E&S property market, in the first quarter, rates were generally down 10-20%. The trend continued throughout the second quarter with rates down 15-30%. We saw more pressure on rates at the end of the quarter. Consistent with previous quarters and the softening cycle, there continues to be exceptions to the ranges. With the decline in emitted rates, cuts are more times than not. Pocketing the savings while we saw certain non-admitted customers consider higher limits or deductible buy downs Which partially offset the premium decline related to the changes in the rates?

For casualty, we're seeing rate increases of 5% to 10% for primary and excess layers and believe this trend will continue over the coming quarters. For professional liability, rates were down 5% to up 5% as compared to last year.

Shifting to ens property Market in the first quarter rates were generally down 10 to 20% the trend continued throughout the second quarter with rates down, 15 to 30%. We saw more pressure on rates, at the end of the quarter, consistent with previous quarters and the softening cycle there, continues to be exceptions to the ranges with the decline, it admitted rates. Customers from more times than, um, not

Powell Brown: On an M&A front, we had another good quarter. On a year-to-date basis, we've acquired 29 companies with annual revenues of approximately $60 million.

Pocketing the savings. While we saw certain non-admitted customers, consider higher limits before deductible buy-downs, which partially offset. The premium decline related to the changes in rates.

On an m&a front, we had another good quarter.

Powell Brown: Let's transition to the performance of our three segments for the quarter. Retail delivered organic growth of 3% with the results impacted by slowing admitted and cap property rates and lower new business. Regarding new business, we continue to have a good pipeline and can have fluctuations by quarter. Programs delivered 4.6% organic growth for the quarter. We had several programs that performed well, including our lender-placed business. Our organic growth was impacted by the slowing of our commercial CAT programs. We saw increased downward pressure on rates late in the quarter. Brokerage delivered organic revenue growth of 3.9%. This performance was driven by growth across most lines of business, with the growth partially offset by rate declines and the seasonality of property renewal.

On a year-to-date basis, we've acquired 29 companies with annual revenues of approximately $60 million. I'm on slide 6.

Let's transition to the performance of our three segments. For the quarter, retail delivered organic growth of 3%, with the results impacted by slowing admitted cat property rates and lower new business. We continue to have a good pipeline, and we can expect fluctuations by quarter.

Programs delivered 4.6%, organic growth for the quarter. We had several programs that performed well, including our lender placed business. Our organic growth was impacted by the slowing of our commercial cat programs. We saw increased downward pressure on rates late in the quarter.

Powell Brown: From an open brokerage standpoint, we had a good quarter, even with the decline in property rates. For both binding and personal lines, we're seeing increased competition from other markets. Professional liability rates continue to decline during the quarter for DNO and EPL.

Brokerage delivered, organic Revenue growth of 3.9%. This performance was driven by growth across most lines of business with the growth partially offset by rate decline in the seasonality of property renewals

Andy: Now I'll turn it over to Andy to get into more details regarding our financial results. Thank you, Powell. Good morning, everyone.

Andy: Before we get into financial details, we wanted to share and talk about the impact on our earnings related to the acquisition of a session and our related debt and equity issuances in June. As discussed during our call announcing the acquisition, transaction and integration costs related to our pending acquisition of a session will be excluded from our calculation of adjusted EBITDA and adjusted earnings per share, which for this quarter included approximately $37 million of one-time transaction and integration related costs. In addition, with the debt issuance, we recorded approximately $13 million of incremental interest income for the quarter, and we recorded incremental interest expense of approximately $5 million.

Morning everyone. Before we get into the financial details, we wanted to share and talk about the impact on our earnings related, to the acquisition of a session. And our related debt and equity issuances in June as discussed. During our call, announcing the acquisition transaction and integration costs related to our pending acquisition of a session will be excluded from our calculation of adjusted ebit Dash and adjusted earnings per share which for this quarter included approximately 37 million of 1 transaction integration where they cost.

Andy: The shares issued as a result of our equity offering increased our weighted average share count by approximately $8.5 million for the quarter.

in addition, with the debt issuance we recorded approximately 13 million of incremental interest income for the quarter and we recorded incremental interest expense of approximately 5 million

Andy: Transitioning now to our consolidated results for the quarter. As a reminder, when we refer to EBITDAC, EBITDAC margin, income before income taxes, or diluted net income per share, we are referring to those measures on an adjusted basis. The reconciliations of our GAAP to non-GAAP financial measures can be found either in the appendix of this presentation or the press release we issued yesterday. On a consolidated basis, we deliver total revenues of $1,285,000,000, growing 9.1% as compared to the second quarter of 2024. Income before income taxes increased by 13.6% and EBITDA grew by 12.1%. Our EBITDAC margin was 36.7%, expanding by 100 basis points over the second quarter of the prior year, driven by incremental interest income and underlying margin expansion.

The shares issued as a result of our Equity offering increased. Our weighted average share, count by approximately 8.5 million for the quarter.

Transitioning now to our consolidated results for the quarter. As a reminder, when we refer to EBITDA, EBITDA margin, income before income taxes, or diluted net income per share, we are referring to those measures on an adjusted basis. The reconciliations of our GAAP to non-GAAP financial measures can be found either in the appendix of this presentation or in the press release we issued yesterday.

On a Consolidated basis. We deliver total revenues of 1,285 million growing 9.1% as compared to the second quarter of 2024.

income before income taxes, increased by 13.6%, and even that grew by 12.1%,

Andy: For the quarter, our margin expansion was partially offset by the seasonality of revenue and profit associated with some recent acquisitions. Our effective tax rate for the quarter decreased slightly to 24.7% versus 25.3% in the second quarter of the prior year. diluted net income per share increased 10.8% to $1.03. Our weighted average shares outstanding increased by approximately $10 million, primarily due to the share issuance we mentioned earlier. Lastly, our dividends paid per share increased 15.4% as compared to the second quarter of 2024.

Our Evac margin was 36.7%, expanding by 100 basis points over the second quarter of the prior year, driven by incremental interest income and underlying margin expansion. For the quarter, our margin expansion was partially offset by the seasonality of revenue and profit associated with some recent acquisitions. Our effective tax rate for the quarter decreased slightly to 24.7% versus 25.3% in the second quarter of the prior year.

Diluted net income per share increased 10.8% to 1.3 cents.

Andy: Overall, we are pleased with our performance and how our team delivered for the quarter. We're on slide number eight, the retail segment grew total revenues by 7.9%, with organic growth of 3%. The difference between total revenues and organic revenue was driven substantially by acquisition activity over the past year. Our EVADAC margin decreased by 50 basis points to 27.5% due to the impact of revenue seasonality for QIN tests, which we acquired in the fourth quarter of 2024. As we've discussed previously, approximately 60% of the revenues for QIN tests are recognized in the first quarter. Therefore, we have higher margins in the first quarter and lower margins in the others.

Our weighted average shares outstanding increased by approximately 10 million, primarily due to the share issuance we mentioned earlier. Lastly, our dividends paid per share increased 15.4% compared to the second quarter of 2024 overall. We are pleased with our performance and how our team delivered for the quarter.

We're on slide number 8. The retail segment grew total revenues by 7.9% with organic growth of 3%. The difference between total revenues and organic revenue was driven substantially by acquisition activity over the past year.

our Evac margin decreased by 50 basis points to 27.5% due to the impact of revenue, seasonality for quintess, which we acquired in the fourth quarter of 2024,

Andy: We will see similar impacts in the third and fourth quarters of this year. We're on slide number nine, program delivered organic growth of 4.6%. Total revenues increased 6.1% driven by higher contingent commissions. Our EBITDA margin expanded by 320 basis points to 52.8% primarily driven by organic revenue growth, incremental contingent commissions and managing our expenses.

As we discussed previously, approximately 60% of the revenues for Quintess are recognized in the first quarter. Therefore, we have higher margins in the first quarter and lower margins in the others. We will see similar impacts in the third and fourth quarters of this year. We're on slide number 9. Programs delivered organic growth at 4.6%. Total revenues increased 6.1%, driven by higher contingent commissions.

Our Evac margin expanded by 320 basis points to 52.8% primarily driven by organic Revenue growth

Andy: We're on slide number 10. Our wholesale broker brokerage segment had another good quarter with total revenues increasing 14.5% and organic growth at 3.9%. The incremental expansion in total revenues in excess of organic was driven by acquisitions completed in the last 12 months and higher contingent commission. Our EBITDAC margin increased by 80 basis points to 34.1%, primarily due to higher contingent commissions. Our margin was impacted due to a recent acquisition that has a lower margin than the average for the total business. As we've done in the past, we expect to increase the margin for this business over time.

Incremental contingent commissions and managing our expenses.

We'll run slide number 10.

Our wholesale bro, brokerage segment had another good quarter with total revenues increasing 14.5% and organic growth of 3.9%. The incremental expansion in total revenues in excess of organic was driven by Acquisitions completed in the last 12 months and higher contingent commissions.

Andy: As a reminder, starting in the third quarter, we will be combining our programs and wholesale segments into one division, which will be called specialty distribution.

Our eidc margin increased by 80 basis points to 34.1% primarily due to higher contingent commissions, our margin was impacted due to recent act due, to a recent acquisition, that has a lower margin than the average for the total business. As we've done in the past, we expect to increase the margin for this business over time.

Andy: Few other comments. From a cash perspective, we generated $537 million of cash flow from operations, which was an increase of $164 million over the first half of 2024. In addition, in connection with our pending acquisition of a session, we successfully issued $4.4 billion of equity and $4.2 billion of debt. Both offerings were significantly oversubscribed, demonstrating the support for Brown & Brown. The discount on the equity was just over 3%, and the average coupon on our debt was 5.4%. Lastly, we also paid the outstanding balance of $400 million on our revolving credit facility during the quarter.

As a reminder, starting in the third quarter, we will be combining our programs and wholesale segments into one division, which will be called Specialty Distribution.

Few other comments from a cash perspective. We generated $537 million of cash flow from operations, which was an increase of $164 million over the first half of 2024.

Andy: Our balance sheet is in great shape, and we have strong cash flows to support de-levering post-closing, which is consistent with our historical approach after a larger deployment of capital.

Equity and $4.2 billion of debt. Both offerings were significantly oversubscribed, demonstrating the support for Brown and Brown. The discount on the equity was just over 3%, and the average coupon on our debt was 5.4%. Lastly, we also paid the outstanding balance of $400 million on our revolving credit facility during the quarter.

Powell Brown: With that, let me turn it back over to Powell for closing comments. Thanks, Andy, and a great summary of our results. From an economic standpoint, we believe the main areas of focus will be tariffs and interest rates. As we mentioned earlier, we think there's still a good backdrop for economic expansion. Hiring remains solid, and most companies are growing. This is even while leaders have a cautious bias and some are delaying investment decisions. From a pricing standpoint, we expect admitted rates to continue to moderate in the second half of the year at a rate similar to the second quarter.

Our balance sheet is in great shape and we have strong cash flows to support de-levering post-closing, which is consistent with our historical approach. After a larger deployment of capital with that, let me turn it back over to Pal for closing comments. Thanks Andy. And a great summary of our results. Uh, from an economic standpoint, we believe the main areas of focus will be tariffs and interest rates. As we mentioned earlier, we think there's still a good backdrop for economic expansion, hiring remains solid and most companies are growing. This is even while leaders have a cautious bias and some are delaying investment decisions.

Powell Brown: Cap property rates should continue to decrease in the third and fourth quarter subject to the outcome of hurricane season. We expect rate changes for casualty and professional liability in the second half of the year to be similar to the second quarter.

From a pricing standpoint, we expect admitted rates to continue to moderate in the second half of the year at a rate similar to the second quarter cap. Property rates should continue to decrease in the third and fourth quarters, subject to the outcome of hurricane season.

Powell Brown: On the M&A front, we're diligently working on our integration plans for the acquisition of the session and have teams from both organizations focused on bringing us together. As we mentioned in our announcement call, we plan to remain active in the M&A space and have a good combined pipeline, both domestically and internationally. Our balance sheet remains strong, and we have outstanding cash flow conversion to help fuel our growth. We're focused on deploying our capital in a very disciplined manner to ensure we get a compounding effect over many years.

We expect rate changes for casualty and professional liability in the second half of the year to be similar to the second quarter.

Powell Brown: We're in a great position as a company and are very pleased with our strong results for the first half of 2025. Our team delivered double digit growth in total revenue and adjusted diluted net income per share, expanded our margins and we grew our cash flow from operations approximately 44%. With the planned closing session acquisition in August, our team is going to grow to over 23,000 outstanding teammates, and we will further increase our diversification and specializations, which will enhance our ability to deliver creative solutions for our customers. We're looking forward to a successful second half of the year and continued profitability to grow our company profitably.

On the m&a front or diligently working on our integration plans for the acquisition of the session and have teams from both organizations focused on bringing us together as we mentioned, our announcement call, we plan to remain active in the m&a space and have a good combined Pi pipeline, both domestically and internationally. Our balance sheet remains strong, and we have outstanding cash flow conversion to help fuel our growth. We're focused on deploying our capital in a very disciplined manner to ensure we get a compounding effect over many years.

We're in a great position as a company and are very pleased with our strong results. For the first half of 2025. Our team delivered double-digit growth in total revenue and adjusted diluted net income per share, expanded our margins and we grew our cash flow from operations approximately 44%.

Operator: With that, I'll turn it over to Dede to open it up for questions. Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. In the interest of time, we ask that you limit your questions to one question.

With the plan closing of a a session acquisition in August, our team is going to grow to over 23,000 outstanding teammates and we will further increase our diversification and specializations which will enhance our ability to deliver Creative Solutions for our customers. We're looking forward to to a successful second half of the year and continued profitability to grow our company profitably with that. I'll turn it over to DD to open it up for questions.

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

Thank you for your question. Please press *1, 1 on your telephone and wait for your name to be announced to withdraw your question. Please press *1, 1 again. In the interest of time, we ask that you limit your questions to one question only. Stand by while we compile the Q&A roster.

Mark Hughes: And our first question comes from Mark Hughes of Truist Securities. Your line is open. Yeah, thank you very much. When you think about the retail organic in the quarter, you had talked last quarter about maybe some timing of new business. In this quarter, you talk about a strong pipeline, but likewise, with some fluctuations on a quarterly basis. Could you expand on that?

And our first question comes from Mark Hughes of Truist Securities. Your line is open.

Yeah, thank you very much. Um,

Powell Brown: What fluctuations there might have been, how is that shaping up for 3Q? Sure. So based on, you know, the consensus of what we were going to grow in Q2 in retail versus what we delivered, over half of that discrepancy was because of rate. So downward pressure on race. The other half is we basically just had lower new business in the quarter. And so sometimes that can happen. And as I said, I feel like I feel that we have good new business going into the third quarter. But it it every quarter is a little different. And our visibility into it seems to indicate that we are in good shape for Q3.

When you think about the retail organic in the quarter, you had uh, talked last quarter about maybe some timing of new business and this quarter, you talk about the strong pipeline but likewise with some fluctuations on a quarterly basis, could you expand on that? Um,

What the, what fluctuations might there have been? How is that shaping up for Q3?

Sure. So based on uh you know, the consensus of what we were going to grow in uh, Q2 and Retail versus what we delivered over half that discrepancy was because of rates. So, downward pressure on rates

Mark Hughes: But I just want to make sure that everybody understood that over more than half the discrepancy was because of rate pressure. Thank you very much. Thank you.

Uh, the other half is we basically just had lower new business in the quarter and so sometimes that can happen. And as I said, um, I feel like I feel that we have good new business going into the third quarter but it it um every quarter is a little different and our visibility into, it seems to indicate that we are in good shape for Q3 but I just want to make sure that everybody understood that over more than half. The discrepancy was because of rate pressure.

Thank you very much.

Thank you.

Rob Cox: And our next question comes from Rob Cox of Goldman Sachs. Your line is open. Hey, thanks. Yeah, I just wanted to ask on the contingent, some strong growth in the contingent commissions there. Just curious, is there a theme? Or is that more driven by certain products?

And our next question comes from Rob Cox of Goldman Sachs. Your line is open.

Hey, thanks.

Andy: Good morning, Rob. I think probably a couple themes on that front is, you know, I think what we're seeing, at least in a number of areas in our business is that overall profitability, right, for a number of the carriers is up and also for a number of our programs, they're performing really well. So we're participating in the profits that underpin those. So again, maybe just a piece to keep in mind is when you see the organic growth at times starting to moderate down, the other side of that is also generally an increase in the contingent commission.

Um yeah, I just wanted to ask on the contingents um some strong growth in the contingent commissions there just curious. Is there a theme um or or is that more driven by certain products?

Uh, good morning, uh, Rob. Um, I think probably a couple themes on that front is, you know, I think what we're seeing at least in a a number of areas in our business is that, um, overall profitability, right? For a number of the carriers is up and also for a number of our programs, they're performing really well.

Andy: So that's why we focus so much on growth in the cash, because all that, that's why we also look at it on a total revenue basis, because there is a linkage inside of there. But overall, we feel really good with how we're performing on the contingent commissions in the program space. It's one of the things that we really pride ourselves on is the discipline of our underwriting and making sure that we're delivering really good results back for our carrier partners. Thank you. Thanks. Thank you.

Um, so we're participating in the profits that underpin those. So again, maybe just a piece to keep in mind is, um, when you see the organic growth at times starting to moderate down, the other side of that is also generally an increase in the contingent commissions. That's why we focus so much on growth in the cash, uh, because all of that— that's why we also look at it on a total revenue basis, because there is a linkage inside of there. But overall, we feel really good with, um, how we're performing on the contingent commissions in the program space. It's one of the things that we really pride ourselves on, is the discipline of our underwriting and making sure that we're delivering really good results back for our carrier partners.

Thank you.

Thanks, thank you.

Gregory Peters: And our next question comes from Gregory Peters of Raymond James. Your line is open. Good morning, everyone.

Gregory Peters: So I guess for my question, I'm going to focus on Ascension risk strategies in 180. Unknown Speaker I guess since you've had some time to look at the business in a lot greater detail, I know you said, Paul, that you're excited, but I'm curious about your perspective on the financials. I know you previously had mentioned out some integration expenses, revenue synergies. Expense Synergies, etc. I'm wondering if you have any visibility on how the timing of those costs and synergies might be realized over the next couple of years. And related to that, just the retail, the organic profile of the business.

Um, good morning everyone. Um

So uh, I I guess for my question, I'm going to focus on ascension strategies in 180.

Um, I guess since you've had some time to look at the business in the great, a lot greater detail.

I know you said Powell that you're excited, but I'm curious about your perspective on the financials and I know you previously had mentioned out some integration expenses Revenue synergies.

Expense synergies, Etc.

I'm wondering if you have any visibility on how the timing of those costs and synergies might be realized over the next couple of years and related to that.

Gregory Peters: In particular, 180, I'm curious what your perspectives are on business since you've had some more time to look at it.

Just the the retail that the organic profile of the business.

Um, in particular the 180, I'm curious, what your perspective is on that business, since you've had some more time to look at it.

Powell Brown: So good morning, Greg. So first off, as it relates to the numbers that we talked about in the announcement and the revenue and expense synergies, we talked about capturing those over the next three and a half years. So nothing's changed on that from what we talked about in the previous call. As it relates to the two businesses, risk strategies and 180, I would make this comment. Number one, we have been very impressed with the talent inside both of the organizations. So they do have deep specializations and very talented people, and that's very nice that, you know, I've met a lot of them now, or talked to a lot of them, which I can confirm that that is absolutely true.

So good morning, Greg. So um, first off as it relates to the, the numbers that we talked about in the announcement and the uh, revenue and expense synergies, we talked about capturing those over the next 3 and a half years. So nothing's changed on that. From what we talked about,

About in the previous call, as it relates to the 2 businesses uh risk strategies and 180. I would make this comment.

Number 1. Um, we have been very impressed with the talent inside both of the organizations.

Powell Brown: As it relates to 180, not unlike our program facilities, they have a deep commitment to underwriting, and they have more of a casualty book of business than a property-driven or cat-heavy book of business. And some of those are tougher classes of business, meaning, you know, transportation and some other things, and so I continue to be very, very impressed with the discipline and the people in those businesses, and, you know, we believe that As I think we said the last time that their growth growth profile is substantially, you know, similar to ours over time. And so we feel really good about the business overall individual divisions, the whole deal.

So they do have deep specializations uh and very talented people and that's uh, very nice that you know, I've met a lot of them now or talked to a lot of them which I can confirm that. That is absolutely true. Um as it relates to 180, not unlike our uh program facilities. They have a deep commitment to underwriting and they have a more of a casualty book of business than a, uh, property driven or cat heavy book of business. Um, and some of those are tougher classes of business. Meaning, you know, transportation and some other things. And so, I continued to be very, very impressed with the discipline and the people, uh, in those businesses. And, you know, we believe that,

Gregory Peters: We're excited about Just a clarification. And it's just because I've been getting some inbound questions on it. Can you can you just spend a second and talk about the 750 million set aside? that happened and talk about your perspective and the due diligence you did around that. Sure, as we said before, that they have some discontinued operations that are in runoff, and basically we felt that it would be appropriate to have a set aside for those operations, and when those are all wrapped up, that whole thing will be wrapped up as well. So we felt really good about the process, and we did a lot of work around it, but I want to stress that it's not something that they do anymore, and those operations or accounts are just in runoff.

As I think, we said the last time that their growth profile is substantially, uh, you know, similar to ours over time. Um, and so we feel really good about the business overall, individual divisions, the whole deal. We're excited about it.

Just a a clarification and it's just because I've been getting some inbound questions on it. Can you can you just spend a second and talk about the um 750 million set aside? Um

That that happened and talk about your perspectives and the due diligence you did around that.

Are all wrapped up uh, that whole thing will uh be wrapped up as well.

So we felt really good about the process, and we did a lot of work around it.

Uh, but I want to stress that it's not something that they do anymore.

Um, and those um operations or accounts are just in runoff.

Gregory Peters: Thanks so much. Thank you.

Thanks so much.

Yep, thank you.

Elyse Greenspan: And our next question comes from Elyse Greenspan of Wells Fargo. Your line is open. Hi, thanks. Good morning. I wanted to come back to just the retail segment, right? Prior guidance was for, you know, the full year to be about 1% better than the Q1. It does, from your commentary, sound right, like, you know, new business was slower and pricing got worse. Powell, sorry, I think you said, right, half of, you know, the change in the quarter was due to just, you know, the deceleration in property rates. I'm just trying to get a sense of, you know, how do you guys see, I guess, the full year, you know, relative to that prior guide, you know, based on your expectations for continued deceleration in property rates in the back half of the year?

And our next question comes from Lee Greenspan of Wells, Fargo, your line is open

Powell Brown: So I said that the deceleration or the downward pressure on rates was over half the discrepancy. And I believe that you and everyone else needs to factor that into your organic growth expectations in Q3 and Q4. Okay, and then did you see, I mean, I know, right, Q2 is a heavy property quarter, did the slowdown get worse, like, in June relative to the rest of the quarter? I'm just trying to get a sense of just kind of the pace of, you know, slowdown you saw during the quarter. I would go ahead. Oh, yeah. Good morning, Elyse.

Hi, thanks. Um, good morning. Um, I wanted to come back to just the retail segment, right? Um, prior guidance was for, you know, the full year to be about 1% better than Q1. Um, it does, from your commentary, sound right, like, you know, new business was slower and pricing got worse. Um, Powell, sorry. I think you said, right, half of, you know, the change in the quarter was due to just, um, you know, the deceleration in property rates. I'm just trying to get a sense of, you know, how do you guys see, I guess, the full year, you know, relative to that prior guidance, you know, based on your expectations for continued deceleration in property rates in the back half of the year.

so I said that the deceleration or the downward pressure on rates was over half the discrepancy and I believe that you and everyone else needs to factor that into your organic growth, expectations in Q3 and Q4

Um okay and then did you see I mean I know right Q2 is a heavy property quarter. Um did the did the um slow down get worse. Like in June relative to the rest of the quarter, I'm just trying to get a sense of just um kind of the the pace of, you know, slow down you saw during during the quarter.

Andy: Yeah, we saw during the quarter and then June definitely had a further trail off compared to what we were seeing in April and May. Okay, and then the programs you called off some one-off impact on margins in the slides. Can you just provide a little bit more detail on what that was in the quarter? We've had, we've mentioned inside there we had a true up on contingent calculation for last year as we got all the final numbers completed. So that had some benefit to the margin for the quarter. That's what we were talking about.

We go ahead. Oh yeah, good morning, Elise. Yeah, we saw, um, during the core, and then June definitely had a further trail-off compared to what we were seeing in April and May.

okay, and then um, the program

Called off some one-off impact on margins and the slides. Um, can you just um provide a little bit more detail um on what that was in the quarter?

Uh, we just had, uh, we had mentioned inside there. We had a, a true up on, uh, contingent calculation for last year as we got all the final numbers completed. So that had some benefit to the margin for the quarter, that's what we were talking about.

Elyse Greenspan: Thank you.

Thank you.

Thank you.

Thank you.

Mike Zaremski: And our next question comes from Mike Zaremski of BMO. Your line is open. Hey, good morning. Thanks. Sticking with organic, from the top down level, if we look at the kind of the year over year deceleration trend line, I know you gave some color that, you know, some of it was just lower new business, which could be temporary.

And our next question.

Is from Mike.

Hey, good morning, thanks. Um,

Powell Brown: But, you know, are we, if I mesh the decel trend line with your comments and color on the classic softening marketplace, you know, I guess what, is there any underlying causes that's just causing the decel to be so, so much faster than I think we've seen historically? Is there some kind of underlying trend we should better understand? Because you named a lot of softening lines of business that some of them are somewhat surprising, like casualty, for example. Yeah, I don't want to give you the impression that casualty is negative. I want you to keep in mind that we don't believe casualty pricing will go up as quickly.

sticking with Organic, um, from the top down level. Um, if we look at the kind of the, uh, year-over-year acceleration, uh, trend line, I know you gave some color that, you know, some of it was just, um, lower new business, which could be temporary. But, you know, are we? If I, meshed the, the Del trend line with your comments and color on the classic softening Marketplace, um, you know, I guess what is there any underlying causes? That's, that's just causing the diesel to be. So, um, so much faster than I think we've seen historically is that, you know, out of some is there some kind of underlying Trend? We should better understand because you you may you named a lot of softening lines of business that some of them are somewhat surprising like casualty for example,

Powell Brown: So there's a there's an importance there and I apologize if I gave you the impression otherwise. But Mike, here's here's the thing that I would tell you this is a classic. I've only been doing this for 35 years, and I've seen this rodeo a couple times. And as you know, pricing, particularly in the case of property, typically goes up very rapidly. This is E&S. I'm just using the E&S market as the example. And then it can come down rapidly. And so what you find is there are lots of people out there, carriers, who have made commitments in terms of their portfolios and bought reinsurance to support those portfolios, and they don't want to not use that capacity.

Yeah, I don't want to give you the impression that casualty is negative. I want you to keep in mind that we don't believe casualty pricing will go up as quickly. So there's an importance there, and I apologize if I gave you the impression otherwise. But, Mike, here's the...

the thing that, um, I would tell you, this is a classic

Powell Brown: And so what that does is on your existing book of business, they take a position typically that we would not like to lose our renewals. And then you have new underwriters that basically say, or new markets to that account, who basically say, we believe that the rates are more than adequate to do this. We've also purchased the reinsurance program, and we want to go and write enough business to support that program as well. And so what you have is you have more pressure today than we have seen. And so there's been a long period of upward pressure on property rates, and depending on your perspective.

Powell Brown: But if you look at it from our customer's standpoint, this is very good for the customers. But it does put pressure on organic growth on any business in the industry. But if you have a lot of property, and we have a lot of property in the Q2, you see it more clearly. But but there's not something Mike that is occurring that is out of the ordinary. I don't want to give you the impression there's some, oh, this is a weird thing. We've never seen this or absolutely not. This is exactly what we expect I expected it to happen a year ago, personally.

Portfolios and they don't want to not use that capacity. And so, what that does is on your existing book of business, they take a position typically, that we would not like, to lose our renewals and then you have new Underwriters that basically say or new markets to that account who basically say, we believe that the rates are more than adequate to do this. We've also purchased a reinsurance program and we want to go and write enough business to support that program as well. And so what you have is you have, um, more pressure today than we have seen. And so there's been a long period of upward pressure on property rates, um, and depending on your perspective. But if you look at it from our customer standpoint, this is a very good for the customers but it does put pressure on organic growth on any business in the industry, but it

if you have a lot of property,

we have a lot of problem.

Too.

Um, there you see it more clearly.

But but there's not something Mike that is occurring, that is out of the ordinary. I don't want to give you the impression. There's some oh this is a weird thing. We've never seen this or absolutely not. This is exactly what we expected.

Powell Brown: But again, what you heard me say, and you know, my mistake, it surprised us in the speed of decline in Q2, and particularly in the latter part of the quarter. That's the difference that we're talking about. Not that we were surprised by the decline, it was the speed of it.

Andy: Yeah, hey, Mike, I think maybe one other thing, again, we've been, we've been talking about this for almost two years, where, you know, we've been saying, we, we expect things to be moderating back to more normal, right on the back end of what happened through COVID. But, you know, our earlier comments, we said that admitted rates were up five to 10% in the second quarter of last year. That's not normal to get that level of broad based increases. So, you know, we were two to seven in the first quarter, one to five, it's now starting to get back to kind of more realistic ranges of what you would see historically.

I expected it to happen a year ago personally. But again, what you heard me say? And, you know, my mistake, we it it surprised Us in the speed of decline in Q2 and particularly in the in the latter part of the quarter. That's the difference that we're talking about, not that we were surprised by the decline, it was the speed of it.

yeah, and Mike, I think maybe 1 other thing and again we've been

We've been talking about this uh, for almost 2 years where, you know, we've been saying we we expect things to be moderating back to more normal, right on the back, end of what happened through Co but you know, our our earlier comments, we said that admitted rates were up 5 to 10% in the second quarter of last year. That's not normal.

Mike Zaremski: So part of it's off of where was it coming from? Got it. And that's good color.

Uh, to get that level of broad-based increases. So, you know, we were 2 to 7 in the first quarter 1 to 5. It's now starting to get back to kind of more realistic, um, ranges in what you would see historically. So part of it is off of, where was it coming from?

Mike Zaremski: My only follow up. is on the on profit margins or cash flow margins, whatever, which one you want to speak to. But you know, we, you know, when we if we think if we're painting a picture of a more moderating back to normal, kind of organic growth trajectory, or, you know, I guess, your 10 year organics, I think high fives, but then during soft markets, you know, low singles, but should we be thinking about it kind of also, if we do go into a low singles organic environment about a moderating profit margin, kind of downward trajectory as well, potentially, or is the business mix shift so different that, you know, we're at a kind of a much newer, higher profit margin level, if we think on kind of a high level basis?

Got it and that's that's good color. My my only follow-up.

Andy: Yeah, Mike. One, we're, I guess, we're not giving any long term, you know, changes to the guidance on our margins, those continue to be the same for for the business right now. But I think a couple things to keep in mind is, we've got a highly diversified business. And we have quarters where the growth can be higher or lower. And we have on an organic basis, and this is why our earlier comment, it's not all about organic. It's a portion of the equation that comes through. But even if organic is down and we've got really good contingents, well, that's probably going to help in the margin profile for the organization.

Is on the on a profit margins or cash flow margins. Um whatever which 1 you want to speak to but you know, when we, you know, when we, if we think, if we're painting a picture of a more moderating back to normal kind of organic growth trajectory or you know, I guess your tenure Organics. I think high fives but then during stock markets you know, low singles. But um should we be thinking about a kind of a also a if we do go into a low singles or organic environment, about a moderating process margin, kind of um, downward trajectory as well potentially or or or or is the business mixed shift. So different that, you know, we're at a kind of a, a much newer higher profit, margin level, if we think on, kind of a, a high level basis,

Yeah, Mike, um, we're, um, I guess we're not giving any, um, long-term, you know, changes to the guidance on our margins. Those continue to be, uh, the same for the business right now. But I think, you know, a couple of things to keep in mind is, uh, we've got a highly diversified business. And we have quarters where the growth can be higher or lower on an organic basis. And this is why our earlier comment: it's not all about organic.

Andy: But I think as we've proven over time, we've been really successful. And that's because of the great leaders that we have inside the organization on how do we grow profitably. It doesn't mean that we might not have a quarter here and there over time that'll bump up and down. But we're focused on making sure that we invest in the business for the long term in an appropriate fashion, both in talent and technology, and then try to be able to make sure that we can expand our margins. That, again, might not happen every quarter, but that's our overall goal for the business.

Um, it's a portion of the, uh, the equation that comes through, but even if organic is down and we've got really good contingents. Well, that's probably going to help, um, in the margin profile for the organization. But I think as we've proven over time, uh, we've been really successful and that's because of the great leaders that we have inside the organization on. How do we grow profitably? Doesn't mean that we might not have a quarter here and there over time, that'll bump up and down. Um, but we're focused on making sure that we invest in the business for the long term, uh, and appropriate fashion in both in talent and technology and then try to be able to make sure that we can expand our margins that again, might not happen every quarter, but that's our overall goal for the business.

Operator: Thank you.

Thank you.

Thank you.

Alex Scott: And our next question comes from Alex Scott of Barclays. Your line is open. Hey, good morning. I wanted to circle back on on the comments on the lower new biz I just wanted to see if you could give us a feel for how much... that this quarter was just, you know, timing. as opposed to what's going on in the market.

Hey, good morning. Um I wanted to Circle back on on the comments on the lower new business and just want to see if you could give us a feel for how much

Powell Brown: And, you know, you talked a little bit here there about, you know, some of the new market You know, how much of those dynamics causing that versus about one way to. Well, I don't I don't want to give you Alex, the impression that there's some unusual thing going on in the market that is impacting our ability to write new business or not. And I'm trying to make it, you know, simple, in the sense that we just didn't write as much new business for the quarter. It's that simple. And that means that sometimes you write more new business and sometimes you don't write as much new business as you think.

Of that this quarter was just, you know, timing. And and, you know, we maybe you'd characterize as more random fluctuation as opposed to, you know, what's going on in the market and, you know, you talked a little bit here or there about, you know, some of the new markets that are

competing and so forth.

You know how how much are those Dynamics causing that versus you know things just fell 1 way the other this quarter

Well, I don't, I don't want to give you Alex the impression that there's some unusual thing going on in the market that is impacting our ability to write new business or not. And I, I'm I'm trying to make it, you know, simple in the sense that we just didn't write as much new business for the quarter.

It's that simple.

Powell Brown: But it's not, you know, one quarter doesn't make a trend. And new business is the lifeblood of our company. We understand that and you combine that with the importance of taking care of our existing customers through our teammates and you kind of get that, you know, life cycle or customer cycle at Brown & Brown. And so there's no, there's no, I know you're looking for something and there's no something other than, you just didn't write as much new business. It's that simple. I mean, either we, you know, we didn't win on some accounts or whatever the case may be, but it's just simply we just didn't write as much new business and we anticipate writing more new business next quarter.

And that means that sometimes you write more new business and sometimes you don't write as much new businesses, you think. But it's not, you know, 1 quarter doesn't make a trend and um, new business is the lifeblood of our company. We understand that and you combine that with the importance of taking care of our existing customers,

Uh, through our teammates, you kind of get that, you know, life cycle or customer cycle at Brown & Brown. And so, um, there’s no, there’s no.

I know you're looking for something and there's no something other than we just didn't write as much new business.

Alex Scott: And I'm not going to say that there's a delay or there's a this or whatever. There's always things that get pushed. So it's not, we're not, we're not saying that, that I would just leave it at that.

It's that simple. I mean, either we, uh, you know, we didn't win on some accounts or whatever the case may be, but it's just simply we just didn't write as much new business and we anticipate writing more new business next quarter and I'm not going to say that there's a delay or there's a this or whatever. There's always things that get pushed so it's not we're not we're not saying that that I would just leave it at that.

Alex Scott: Got it. That makes a lot of sense.

Alex Scott: Can I ask if if the ENS pricing Competition you've seen, is any of that affecting volume? Transcripts provided by Transcription Outsourcing, LLC. Transcription Outsourcing, LLC. Yeah, so please do not take this comment out of context. But we have seen some admitted markets take some business back in all size areas. And what I mean by that is that could be binding authority in wholesale, it could be transactional wholesale. And so we are, but it's not enough, Alex, for us to call it out as a mover. That's not what I'm going to say. But we have seen it in places that, you know, kind of, so I'll give you an example.

Got it. Uh, that makes a lot of sense can I ask uh,

if, if the ens, uh,

Pricing, and and competition you're seeing, is, is any of that affecting volume just in terms of admitted versus ens? Like it's some of the competition from admitted taking business back at all.

Yeah. Uh so please do not take this comment out of context.

but we have seen some admitted markets, take some business back in all,

Powell Brown: You'd say like, what? You know, a year ago, the California, the state of California was suffering horrific fires and all kinds of disruption and their marketplace was in disarray. And therefore, lots of business flowed into the E&S market. That does not mean that business isn't flowing into the E&S market now. But what I'm saying is, is the insurance commissioner out there has figured out a way, and I don't know how, because I'm not as close to it in that state, to get some admitted markets to come back in. And we're seeing some admitted markets write some personal lines there.

Sized areas. And that what I mean by that is that could be binding, Authority in wholesale. It could be transactional wholesale. Um, and so we are, but it's not enough Alex for us to call it out as a mover that that's not what I'm going to say but we have seen it in places that um you know, kind of hm. So I'll give you an example. You'd say like what?

Powell Brown: That is anecdotal. That is not something that I want you to print. That is not something, because there's not enough data to support it. But if I hear that XYZ company is writing, you know, 15 homeowners and admitted where last year, they didn't want to touch anything. That is, you know, you're kind of like, huh. So that's what I would say, relative to the admitted involvement and limited involvement with some non-admitted accounts. Thank you.

Uh you know, a year ago, the California, the state of California was suffering, horrific fires and all kinds of disruption and their Marketplace was in disarray. Um and therefore lots of business flowed into the ens Market. That does not mean that business isn't flowing into the you know market now but what I'm saying is is the insurance commissioner out there has figured out a way and I don't know how because I'm not as close to it in that state to get some admitted markets to come back in and we are seeing some admitted markets, right? Some personal lines there. That is anecdotal. That is not something that I want you to print. That is not something because there's not enough data to support it. But if I hear that XYZ company,

Is writing, you know, 15 homeowners and admitted were last year. They didn't want to touch anything.

That is, you know, you're kind of like, huh.

So that's what I would say. Relative to the admitted uh involvement in limited involvement with some non-admitted accounts.

Thank you. Thank you.

Thank you.

Andrew Anderson: And our next question comes from Andrew Anderson of Jeffries. Your line is open. Hey, good morning. I think you mentioned you expect to increase the margin of acquired businesses over time for tuck in M&A. Can you just touch on how long do you define it takes to get those acquired entities to target levels? It truly depends on the business, Andrew. And, and again, you made an assumption there, I think that may or may not be fair, I can I can see why you made the assumption. But the acquisition that we referred to is a standalone business.

And our next question comes from Andrew Anderson of Jeffrey's. Your line is open.

Hey, good morning. Um, I think you mentioned, you expect the to increase the margin of acquired businesses over time. For for tucking m&a can you just touch on how long do you usually find? It takes to get those acquired entities to Target levels.

Powell Brown: So I do want to make a distinction there. So you would think normally that in a business that folds into an existing business, we would get to the margin, the targeted margin more quickly. But the business that Andy referred to is a standalone business. So it takes a little longer, obviously. Andrew, our approach when we do the acquisitions, especially on the standalones, is we're not going in and like ripping everything off the wall on day one. We don't think that's a good approach. So generally, you just kind of see, as we work through it over quarters, in different areas, being able to benchmark different areas, getting benefits of, you know, synergies, then the margins will come along.

Um, and, and again, you made an assumption there. I think that may or may not be fair. I can, I can see why you made the assumption, but the acquisition that we referred to is a standalone business.

So, I do want to make a distinction there. You would think normally that in a business that folds into an existing business, we would get to the margin, the targeted margin, more quickly.

But the business that Andy referred to is a standalone business so it takes a little longer obviously.

Powell Brown: Same thing. And that's all if you're thinking about the expense side, same thing on the revenues, they'll just come along over time.

Powell Brown: So you'll see it over 12, 2436 months.

And you are approached when we do the acquisitions. Um, social on the standalone is we're not going in and, like, ripping everything off the wall on day one. We don't think that's a good approach. So generally, you just kind of see, um, as we work through it over quarters in different areas, being able to benchmark different areas, getting benefits of, you know, synergies, uh, then the margins will come along. Same thing. Um, and that's all if you're thinking about the expense side. Same thing on the revenues; they'll just come along over time. So you'll see it over 12, 24, 36 months.

Powell Brown: Thanks.

Powell Brown: And then maybe on professional liability, or do you know more broadly, can you maybe just talk about what you're seeing in terms of rate? Is there any bottoming going on there? And are you seeing any pipeline of exposure units coming to market? Well, I would say that, as we said, D&O and EPL continue to have rate pressure on them. And I think that that will continue. That's my impression.

Thanks and then maybe on professional liability or do you know more broadly? Could you maybe just talk about what you're seeing in terms of rate? Is there any bottoming going on there and are you seeing any price pipeline of exposure units coming to Market?

Um well I would say that uh as we said dno and EPL continue to have rate pressure on them and uh I think that that will continue. That's my impression.

Meyer Shields: Thank you.

Thank you.

Thank you.

Meyer Shields: And our next question comes from Meyers Shields of KBW. Your line is open. Great, thanks so much. And good morning. Powell, you've talked about, sorry, good morning. You've talked about economic growth, explaining call it two thirds to three quarters of organic growth, with the rest being from pricing. That was a smaller, different Brown & Brown.

And our next question comes from Meyers Shields of KBW. Your line is open.

Powell Brown: I was hoping you could update us on that split between economic growth and pricing in terms of driving organic. Good morning, Meyer.

Um, great, thanks so much, and good morning. Uh, pal, in the past, you've talked about, um, econ—sorry, good morning. You've talked about economic growth, explaining that 2/3 to 3/4 of organic growth comes from that, with the rest being from pricing. Uh, that was a smaller, different Brown and Brown. I was hoping you could update us on that split between economic growth and pricing in terms of driving organic.

Powell Brown: So what I would say is this You know, and I have to be honest, I'm going to have to spend some time on that response once we bring our friends from a session in to Brown & Brown and specifically the 180 and how we're thinking about it. But what I would tell you is you have sort of unique, you have three or four unique parts to our business. So you have the core middle market and upper middle market Brown & Brown business and risk strategies business. That business right there in a steady state economy, I would not say would change those metrics unless you have an inordinate amount of capped property in a quarter or in a business or whatever the case may be.

Good morning Meyer. Um, so what I would say is this,

Powell Brown: So I'd stick to the two-thirds, one-third. And large accounts, so you're going to have large benefits, upper middle market and large accounts. That business is, although rate-driven, some of that's in fees and some of that's in commissions. So I might say it might be slightly different in terms of programs and wholesale. And inside of wholesale, you have a binding authority business and a transactional piece. Um, I would say that it I think because of the the makeup of our book in and remember, I have to go back and preface this statement by saying, before a session joins us, But our programs business was more impacted by rate because of the cat.

You know, um, and I and I have, to be honest, I'm gonna have to spend some time, uh, on that response. Once we bring our friends, from a session in, to Brown and Brown and specifically the 180 and how we're thinking about it. But what I would tell you is you you have sort of uh unique. You have 3 or 4 unique parts to our business. So you have the core Middle Market and upper, middle Market Brown, and Brown business, and risk strategies business, that business right there in a steady state economy. Um, is I would not say, would change, uh, those metrics and unless you have an inordinate amount of cap property in a quarter, or in a business, or whatever the case may be. So I'd stick to the 2/3 1/3

Um, and large accounts. So you're going to have large benefits large. Uh, so that's upper middle market and large accounts. Um, that business is, uh, although rate driven some of that in fees and some of that in commissions. So I might say it might be slightly different in terms of pro.

Programs and wholesale, and you know, inside of wholesale, you have a binding authority business and a transactional piece.

um, I would say that it's

I think because of the makeup of our book, and remember, I have to go back and preface this statement by saying, um, before a session joined us.

but our programs business was more impacted by rate because of the cat,

um,

Powell Brown: concentration. And that's one of the reasons I've highlighted that the casualty is a balance or a ballast to that. In the wholesale, I would say similar, but to a lesser degree.

Um, concentration, and that's 1 of the reasons. I've highlighted that the casualty is, it's a balance or a ballast to that.

Powell Brown: That's how I would answer it.

Powell Brown: So you've asked a good question, and I'd like to give it some thought, but particularly in light of not existing or existing business, but, and I would say overseas, it's probably the same. It's exposure units and rate two-thirds, one-third. Yeah. Mayor, keep in mind, and I think our comment still holds over the long term, the one-third, two-thirds, depending upon, you know, where we are in a cycle, either on the, you know, uptake or downtake inside there, rates just going to represent a larger portion. And so we've, we've talked about that in the past that, you know, rate was making up more like 50%.

Andy: And I think that's similar to the comment that we said this quarter, when you have those bigger swings, it's just going to take a larger percentage of it on a weighting basis. But when you're kind of in that normal market growth, normal pricing and everything else, generally, I think that the trend's still pretty consistent with what we said.

That's how I would answer it. So, uh, you've asked a great question and I'd like to give it some thought, but particularly in light of not not existing or existing business. But um, and I would say overseas. It's it's probably the same, its exposure units, and rate 2/3, 1/3 yeah. Uh, mayor. Keep in mind and I think our our comments still holds over the long term. Yeah. The 1/3 2/3, depending upon, um, you know where we are in a cycle either on the, you know, uptake or down or take inside their rates, just going to represent a larger portion. And so we've, we've talked about that in the past, that, you know, rate was making up more like 50%. And I think that's similar to the comment. That we said this quarter, when you have those bigger swings, it's just going to take a, uh, a larger percentage of on a waiting basis. But when you're kind of in that normal market growth, uh, normal pricing and everything else. Generally, I think the the trend still pretty consistent with

Google. We said,

Meyer Shields: Okay, that was very thorough and very helpful. Second question, and I'm asking this, when you're looking at performance, is there a range or let's say performance is slightly below expectations? Is there a number where you say, okay, we expect normal fluctuation to be 50 basis points of organic growth? And anything worse than that is a problem? I'm asking this numerically, but it's something you could talk about at least qualitatively. Yeah, so, so let me, let me try to answer that. What Andy said earlier is we've always said, and I know you know this, that our business is a low to mid single digit organic growth business in a steady state economy.

Okay, that was very thorough and very helpful um second question and I'm asking this when you're looking at performance, is there a range or let's take performance. Is slightly below. Uh, expectations is there a number where you say? Okay, we expect normal fluctuation to be 50 basis points of organic growth. Um, and anything worse than that is is a problem. I'm asking this numerically but I was hoping you could talk about it at least qualitatively.

Yeah, so so let let me uh, let me try to answer that.

Powell Brown: You can have fluctuations in there because of events, i.e. rates, economics, things like that, that would potentially, in the near or shorter term, impact that range, but over a long period of time, that's how we think about that. So I think it's, I know what you're saying, but I wanna make sure that you understand that we don't believe one quarter makes a trend. And so, did we, in our retail business, which is what you're referring to, perform lower than we anticipated for the quarter? Yes, we did. And I told you why. But I don't want you to get the feeling that we believe, or anybody out there should believe, that something's wrong.

Um, what Andy said earlier is we've always said and and I know, you know, this that our business is low to mid single digit organic growth business in a steady state economy.

Um, you can have fluctuations in there because of events. IE rates economics, things like that, that would would potentially in a near, or short term impact that range. But but over a long period of time, that's how we think about the business.

So um I think it's uh it I I know what you're saying, but I want to make sure that you understand that we don't believe 1 quarter makes a trend.

Powell Brown: Quite the contrary. I would tell you that I feel as good today about our business, and particularly with the addition of a session, that I've ever felt about Brown & Brown and our capabilities to serve our customers. So, it's not like that, Mayor. But, you know, nobody likes surprises. And one of the things that's kind of interesting is, when you have a shifting market, you're going to have changes sometimes that, like this, that is, you know, you might not have expected exactly, but over a long period of time, we're going to continue to grow our business and run it profitably and reinvest that business in a thoughtful manner.

And so did we, uh, in our retail business? Which is what you're referring to, um, uh, perform lower than we anticipated for the quarter. Yes, we did. And I told you why, uh, but I don't want you to get the feeling that, um, that we believe, uh, or anybody out there, should believe that something's wrong quite the contrary. I would tell you that, I feel as good today about our business and particularly with the addition of a session that I've ever felt about Brown and Brown and our capability.

Powell Brown: So, I feel good about it. I don't feel, meaning the future, I feel good about the future, and there's nothing that is a numeric, quantitative or qualitatively, that says, here's the deal. Now, we have a bunch of talented people that put their shoulder to the wheel. You know, I think it's all about culture, and Andy does, and our senior leadership team does. And so, that emanates throughout our organization. And over a long period of time, it's worked really well. So, I feel good about it. But I don't want to give you the impression that there's some range.

Ities to serve our customers. So it's it's not like that, uh, mayor. Um, but uh, you know, nobody likes surprises and 1 of the things that's kind of interesting is um, when you have a shifting Market, you're going to have uh, changes sometimes that uh like this that is, you know, you might not have expected exactly. But over a long period of time, we were going to continue to grow our business and run it profitably and reinvest that business in a thoughtful manner. So I feel good about it. I don't feel meaning that the future, I feel good about the future and there's nothing that is a numeric quantitative or qualitatively that says, here's the deal. Now, we have a bunch of talented people that put their shoulder to the wheel. Um, you know, I think it's all about culture and Andy does and our senior leadership team does. And so that

Andy: Like, if you miss by a hundred bips, there's, you know, it's red, a red light goes off. It's not like that. You know, I look at it as saying.

Emanates throughout our organization and over a long period of time. It's worked really well. So I feel good about it, uh, but I don't want to give you the impression that there's some range like if you if you miss by 100 B, there's you know, it's red a red light goes off, it's not, it's not like that.

Andy: Yeah, I mean, I look at it as saying, hey, that that was last quarter, we're on to this Mayor just on I think this is why you know, we never get too worked up about any one quarter that's out there. We just kind of look how we're progressing and moving the ball down the field on a year to date basis on a annual basis. And we feel awesome about where we are at the half year mark, we've grown the top line over over 10%. We're over, you know, 5% on a organic basis, our margins are over 37%.

you know, I look at it as saying,

Operator: We've got double digit EPS growth, our conversion is over 20%, which is outstanding. We've grown it 44% year over year. We think we're in really good shape at the half year mark and quarters always move around, we don't get too anxious about those things. So No, I appreciate that. It just helps us reconcile. Thank you.

Over 37%, we've got double digit, EPS growth, our conversion is over 20% Which is outstanding, we've grown it 44% year-over-year. Um, we think we're in really good shape at the half year mark. And uh, quarter is always move around. We don't get too anxious about those things. So

No, I think that it just helped us. Yeah, reconcile. Thank you.

Thank you.

Joshua Shanker: And our next question comes from Josh Shanker of Bank of America. Your line is open. Yeah, thank you for giving me some time today. You know, we've just come off a very interesting time economically in the country, obviously, the reopening post COVID and huge growth period. Prices were up for a number of years in a row. Underwriting profitability for the industry is very, very good. You know, I've been looking at the stock for 20 years. And I think back when I first heard the term EBITDAC, the argument was that the C earnouts are going to be both positive and negative and should net to zero over time.

And our next question comes from Josh Chancre of Bank of America. Your line is open.

Yeah, thank you for giving me some time today. Um, you know, we've just come off a very interesting time economically in the country. Obviously, the reopening post-COVID and a huge growth period. Prices were up for a number of years in a row, and underwriting profitability for the industry is very, very good. If you know, I've been looking at the stock for 20 years, and I think back when I first heard the term EBITDA, the argument was that the C...

Andy: But most of the acquisitions that anyone has done in the past half decade have turned out to be wildly successful and maximize their earnouts anyway. is that the right impression? Should we think about that normalizing?

Or not, they’re going to be both positive and negative and should net to zero over time. But most of the acquisitions that anyone has done in the past half-decade have turned out to be wildly successful and maximize their earnouts in any ways.

Andy: And how much organic growth did earn out contribute over the last couple of Hank, good morning, Jeff. Let me see if I can tackle a couple of those pieces is what we try to do. And again, the change in the acquisition is the delta off of what we expect from the business based upon when we purchase it. So we've already got expectations for growth or profitability or any sort of combination for the business. And most of our earnouts are generally over a three-year period. We estimate all of that on the front end. If you look back over that 10-year period, I'm going to probably be off on these numbers a little bit, excluding the positive and negative adjustments we made around COVID because it's just the unknowns.

Is is, is that the right impression? Should we think about that normalizing? And, um, how much organic growth did, uh, earnouts, contribute over the last couple of years?

Andy: If you look back, our change in acquisition earnouts pretty immaterial. So we do a pretty nice job of estimating the performance. Now that performance may already have incorporated expectations of really strong performance, but we already put that in the opening earn out. So wouldn't want you to draw a conclusion. That because of the the backdrop and the change in the acquisition that therefore the businesses were wildly successful by itself, they may have been wildly successful anyway, in in the process. So just there's a couple pieces just to think about inside of there on on how that that works.

Yeah. Hey, good morning, Jack. Let me see if I can tackle a couple of those pieces. Um, what we try to do, and again the change in the acquisition is, um, the delta off of what we expect from the business, um, based upon when we purchase it. So we've already got expectations for growth or profitability or any sort of combination for the business, and most of our earnouts are generally over a 3-year period; we estimate all of that on the front end. If you look back over that 10-year period, I'm going to probably be off on these numbers a little bit. Excluding the, you know, the positive and negative adjustments that we made around co, because it's just the unknowns. If you look back, our change in acquisition earnouts is pretty immaterial. So we do a pretty nice job of, um, estimating the performance. Um, now that performance may already have incorporated expectations of really strong performance, but we already put that in the opening, uh, earnout. So wouldn't want you to.

To draw a conclusion.

That, um, because of the, the backdrop and the change in the acquisition that therefore the businesses will wildly Successful by itself. They may have been wildly successful. Anyway,

Andy: Okay. And do you expect that to normalize I guess they are that wild is an extreme word but let's just use it anyways in terms of being wildly successful should should the earnouts and and performance of acquired businesses be more moderately successful in the forward-looking period? I don't think you can make that you can draw that conclusion. It's highly dependent upon the business, right? And how the economic and operating environment impacts that individual business. So I wouldn't, I wouldn't draw that conclusion. I think that what you're saying, though, at a macro level, is, do you think that growth rates in the brokerage space are moderating back towards more traditional levels?

In in the process. So just there there's a couple pieces just to think about uh uh inside of there on on how that uh that works. Okay.

Do you expect that to normalize? I guess they are was was, was that that wild is an extreme word, but let's just use it. Anyways, in terms of being wildly successful, I should should the um earnouts and um and performance of acquired businesses. Be more moderately successful, in the forward-looking period.

Joshua Shanker: And the answer to that question is, yes. Having said that, I don't think you should try to point out acquisitions as one thing. And remember, acquisitions, depending on how you handle it, counts in organic growth after year two in our business. And so just something to think about. So yeah, yeah, it just you could have a specialty business in there, Josh, that could be growing crazy percentage. And you have another business that's growing modestly. It just really depends upon the profile of them. Yep.

I don't think you can make that you can draw that conclusion. It's highly dependent upon the business, right? And, uh, how the economic and and operating environment impacts that individual business. So I wouldn't I wouldn't draw that conclusion. I think that what you're saying though at a macro level is, do you think that growth rates in The Brokerage space are moderating back towards more traditional levels? And the answer to that question is yes,

Joshua Shanker: Thank you, Josh. I just want a quick thing.

Powell Brown: That specialty comment, a couple of carriers in the specialty market have said some disparaging things about MGAs on the recent conference calls. And you just there was just a very successful IPO in the MGA space.

Powell Brown: Can you talk about what you add your two cents about what you think is going to happen over the next three years with MGAs and how that affects Brown & Brown business? Sure. Well, I believe that MGA's ultimate success is based on trust and performance. And so there are a lot, and that's based on an underwriting culture that delivers results for the carriers that support them. So we've worked really hard over a long period of time to earn that trust with our carrier partners. And actually, I believe that there are more carrier partners that want to do more with our organization in MGA facilities than ever before.

Having said that, I don't think you should try to point out Acquisitions as 1 thing and remember Acquisitions, depending on how you uh, handle it. Uh, counts in organic growth after year 2 in our business and so just something to think about. So yeah. Yeah. It just you can have a specialty business in there. Josh, that could be growing crazy percentage and if you have another business that's growing modestly, it just really depends upon the profile of them. Yep. I just want to a quick thing that that that that's the comment a couple of carriers in the specially Market have said, some disparaging things about MGA on the recent conference calls and you just there was just a very successful IPO, in the MGA space. Can you talk about what you add, your 2 cents about what you think's going to happen over the next 3 years with MGA and how that affects Brown and Brown's business?

Sure, well, I believe that mga's ultimate success is based on trust and performance.

Powell Brown: Having said that, I don't know the specifics of what you're referring to. However, I would say there can be a few bad apples. And over time, there's been a lot of bad apples.

Powell Brown: And so if I take you back only, only 13 short years ago, MGA, when we bought Arrowhead General Agency, was a bad word. And some of you thought, oh, Powell is changing the business. This is a huge acquisition, and this is different. And the answer is, it is different. And yes, we did change the business. And we think it's worked out pretty well. And so we're still doing the same thing. So I, it does not surprise me, Josh. And there will always be people that go off the rails, and do things that undermine or violate the trust and or authority that has been given.

There are, uh, a lot, and that's based on an underwriting culture that delivers results for the carriers that support them. So we've worked really hard over a long period of time to earn that trust with our carrier partners. And actually, I believe that there are more carrier partners that want to do more with our organization in MGA facilities than ever before. Having said that, I don't know the specifics of what you're referring to. However, I would say there can be a few bad apples, and over time, there's been a lot of bad apples.

Powell Brown: But that is not the organization that we have built or are building.

And so if I take you back only 13 short years ago, MGA, when we bought Arrowhead General Agency, was a bad word, and some of you thought, "Ooh, Powell is changing the business. This is a huge acquisition, and this is different." And the answer is, it is different, and yes, we did change the business, and we think it's worked out pretty well. So we're still doing the same thing. So I, it does not surprise me, Josh, and there will always be people that go off the rails and do things that undermine or violate the trust and/or authority that has been given. But

Powell Brown: We are a forever company, as you know, so we've only done it for 86 years. And so people do business with people they like, and they trust. And so when carrier partners come to us and say, we want to write programs with you, and lots of them in big, in big numbers, I would tell you that the support is as good as it's ever been for us. So I think that's wonderful. So that might be an opportunity for us to go and write something else.

Operator: Yeah, we're gonna take one more question, please. Thank you, Josh. Thank you.

That is not the organization that we have built or are building. We are a forever company as you know, so we've only done it for 86 years and so people do business with people, they like and they trust. And so when carrier Partners come to us and say we want to write programs with you and lots of them in big, in big numbers, I would tell you that the support is as good as it's ever been for us. So I think that's wonderful, so that might be an opportunity for us to go and write something else.

Yeah, we're going to take 1 more question, please.

Thank you, Josh. Thank you.

Mark Hughes: And our last question is a follow up from Mark Hughes of Truist Securities. Your line is open. In the Florida excess and surplus data, you see a big jump in policy counts in the E&S market.

And our last question is a follow-up from Mark Hughes of truist? Securities. Your line is open.

Powell Brown: the Unexpected Reality. I don't, I don't think it's a new phenomenon, Mark. What I would tell you is in a shifting market, Typically, you will see upticks in submission counts and policies that go into, let's say, non-admitted markets. And that's just normal because people are attacking or trying to capture the savings. That's the way I look at it. And so we've seen this before. This is not something that's new, meaning in terms of other cycles. I'm not talking about, you know, last quarter versus this quarter. I'm talking about historically. And it's interesting because the E&S market, if you want to think philosophically for just a moment, the E&S market, you can grow your business with lots of opportunities as the market is going up.

Um, how in the uh Florida excess and surplus data. You see a big jump in policy counts in the ens Market at the same time, you've got a meaningful decline in premium per policy, so,

Seems like a lot of more people are doing business in the ens Market, but at a lower price point, do you think that's accurate? And if so is that uh, a new phenomenon

Uh, I don't, I don't think it's a new phenomenon Mark. Um, what I would tell you is in a shifting Market,

Typically, you will see upticks in submission counts and policies that go into, let's say, non-admitted markets.

Powell Brown: And you can grow your business, although it's harder as the rates are going down. But when the markets are flat, which rarely it is, that's the part where there's a little bit of a, I'm not going to say pause, but sort of that's not the optimal time in the E&S space. And so I normally think of it being up or down as opposed to flat. And so you can see flattish and standard markets and you can see growth. And so that that's a long answer for your for your question. Yeah, appreciate that. Thank Thank you.

Um, and that's just normal because people are are, uh, attacking or trying to capture the savings. That's the way I look at it. And so, um, we've seen this before, this is not something that's new, um, meaning in terms of other Cycles. I'm not talking about, you know, last quarter versus this quarter. I'm talking about historically, um, and and it it's interesting because the ens Market, if you want to think philosophically for just a moment, the ens Market, you can grow your business. With lots of opportunities as the market is going up and you can grow your business. Although, it's harder as the rates are going down.

but when the markets are flat which rarely it is, that's the part where there's a little bit of a, I'm not going to say pause

But sort of, uh, that’s not the optimal time in the ENS space. And so, I normally think of it being up or down as opposed to flat.

And so you can see flattish in the standard markets and you can see growth. Uh, and so that that's a long answer for your for your question.

Yeah, appreciate that. Thank you.

Operator: And are we...

Powell Brown: I'd like to turn it back to Powell Brown for any closing remarks. All right, thank you, Dede. Thank you all very much. And we appreciate your your interest today.

Thank you. Are we?

I'd like to turn it back to Pal Brown for any closing remarks.

Operator: As I said, we look to close at the end of the week with our new teammates from a session. And we believe that the opportunities together are very good. And we look forward to talking to you next quarter. Have a nice day and a nice week.

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

With our new teammates from a session, we believe that the opportunities together are very good, and we look forward to talking to you next quarter. Have a nice day and a nice week. Thank you.

this concludes today's conference call, thank you for participating and you may now disconnect