Brown & Brown Q2 2025 Earnings Report

Brown & Brown EPS Results

• Actual EPS: $1.03
• Consensus EPS: $0.99
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $0.93

Brown & Brown Revenue Results

• Actual Revenue: $1.29 billion
• Expected Revenue: $1.28 billion
• Beat/Miss: Beat by +$8.83 million
• YoY Revenue Growth: +9.10%

Brown & Brown Announcement Details

• Quarter: Q2 2025
• Date: 7/28/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, July 29, 2025
• Conference Call Time: 8:00AM ET

Brown & Brown (NYSE:BRO) is an insurance agency, wholesale brokerage, insurance program and service organization. It engages in the provision of insurance brokerage services and casualty insurance underwriting services. It operates through the following segments: Retail, National Programs, Wholesale Brokerage, and Services. The Retail Segment receives fees in lieu of commissions. The National Programs segment acts as a managing general agent and provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches. The Wholesale Brokerage segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, as well as the company’s retail agents. The Services segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers' compensation and all-lines liability arenas, as well as Medicare Set-aside services, social security disability and Medicare benefits advocacy services and claims adjusting services. The company was founded by J. Adrian Brown and Charles Covington Owen in 1939 and is headquartered in Daytona Beach, FL.

Brown & Brown Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Brown & Brown reported Q2 revenue of $1.3 billion, up 9.1% year-over-year, with adjusted EBITDAC margin expanding 100 bps to 36.7% and adjusted EPS rising over 10% to $1.03.
• Positive Sentiment: The company closed 15 acquisitions in the quarter (annualized revenues of $22 million) and secured oversubscribed $4.4 billion equity and $4.2 billion debt issuances to fund the pending Ascession deal.
• Negative Sentiment: Insurance pricing continued to soften, with admitted P&C rate increases slowing to 1–5%, non-cat property rates down 5% to up 5%, and E&S property rates falling 15–30% amid heightened competition.
• Positive Sentiment: Operating cash flow reached $537 million (up $164 million year-over-year), the revolving credit balance was paid down, and the balance sheet remains well-positioned for post-closing deleveraging.
• Neutral Sentiment: Customer confidence stays “cautiously optimistic,” with some businesses delaying investments amid tariff and rate uncertainty, though overall economic and hiring trends remain supportive.

Presentation

[Operator]

Good morning, and welcome to the Brown and 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 are intended to fall within the safe harbor provisions of the securities laws.

[Operator]

Actual results or 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 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. 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]

In addition, there are certain non GAAP financial measures used in this conference call. A reconciliation of any non GAAP financial measures to the most comparable GAAP financial 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. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

Thanks, Didi. 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 acquisition of RSC Topco, or as we refer to it, Ascession. Post the announcement, John Mina, myself and a number of other senior leaders met with many of the teammates from Ascession, 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.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

From a regulatory standpoint, we have substantially all approvals and anticipate an eightone close. 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. 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 and A landscape.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 and A. I'm on slide number four. For the second quarter, we delivered $1,300,000,000 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 and A front, we completed 15 acquisitions with estimated annual revenues of $22,000,000 I'm on slide five.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

At a macroeconomic level, things have not changed substantially. Customer outlook and confidence seem 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.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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. 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 6% to 8% and pharmacy costs are generally up over 10%.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 P and C 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 '5 and rate increases of 5% to 10% in the second quarter of last year. The downward trend on workers' compensation rates remained in most states and were flat to down 5%. For non cat property, we're seeing a general softening of rates, which were down five to up five.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

It totally depends on the loss experience. For casualty, we're seeing rate increases of five to 10 for primary and excess layers and believe this trend will continue over the coming quarters. For professional liability, rates were down five to up five as compared to last year. Shifting to E and S property market. In the first quarter, rates were generally down 10% to 20%.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 in admitted rates, customers were 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 rates.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

On an M and A front, we had another good quarter. On a year to date basis, we've acquired 29 companies with annual revenues of approximately $60,000,000 I'm on Slide six. 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 cat property rates and lower new business. Regarding new business, we continue to have a good pipeline and can have fluctuations by quarter.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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%.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

This performance was driven by growth across most lines of business with the growth partially offset by rate declines and the seasonality of property renewals. 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 D and O and EPL. Now I'll turn it over to Andy to get into more details regarding our financial results.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Thank you, Powell. Good morning, everyone. Before we get into financial details, we wanted to share and talk about the impact on our earnings related to the acquisition of Accesion 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 Acesion will be excluded from our calculation of adjusted EBITDAC and adjusted earnings per share, which for this quarter included approximately $37,000,000 of onetime transaction and integration related costs. In addition, with the debt issuance, we recorded approximately 13,000,000 of incremental interest income for the quarter, and we recorded incremental interest expense of approximately $5,000,000 The shares issued as a result of our equity offering increased our weighted average share count by approximately $8,500,000 for the quarter. 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.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

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 delivered total revenues of $1,285,000,000 growing 9.1% as compared to the 2024. Income before income taxes increased by 13.6% and EBITDAC 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. For the quarter, our margin expansion was partially offset by the seasonality of revenue and profit associated with some recent acquisitions.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

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 $10,000,000 primarily due to the share issuance we mentioned earlier. Lastly, our dividends paid per share increased 15.4% as compared to the 2024. Overall, we are pleased with our performance and how our team delivered for the quarter. We're on Slide number eight.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

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 EBITDAC margin decreased by 50 basis points to 27.5% due to the impact of revenue seasonality for Quintess, which we acquired in the 2024. 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.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

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 EBITDAC margin expanded by three twenty basis points to 52.8%, primarily driven by organic revenue growth, incremental contingent commissions and managing our expenses.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

We're on Slide number 10. Our Wholesale 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 twelve months and higher contingent commissions. Our EBITDAC margin increased by 80 basis points to 34.1%, primarily due to higher contingent commissions. Our margin was impacted due to recent due to a recent acquisition that has a lower margin than the average for the total business.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

As we've done in the past, we expect to increase the margin for this business over time. 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 $537,000,000 of cash flow from operations, which was an increase of $164,000,000 over the 2024. In addition, in connection with our pending acquisition of Accession, we successfully issued $4,400,000,000 of equity and $4,200,000,000 of debt.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

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 $400,000,000 on our revolving credit facility during the quarter. Our balance sheet is in great shape and we have strong cash flows to support delevering post closing, which is consistent with our historical approach after a larger deployment of capital. With that, let me turn it back over to Powell for closing comments.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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. Cat 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. On the M and A front, we're diligently working on our integration plans for the acquisition of Session and have teams from both organizations focused on bringing us together.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

As we mentioned on our announcement call, we plan to remain active in the M and 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're in a great position as a company and are very pleased with our strong results for the 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%.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

With the planned closing of 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. With that, I'll turn it over to Didi to open it up for questions.

[Operator]

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

[Mark Hughes, Analyst at Truist Securities]

Yes, 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 talked about a strong pipeline, but likewise with some fluctuations on a quarterly basis. Could you expand on that? What fluctuations there might have been? How is that shaping up for 3Q?

[J. Powell Brown, President, CEO & Director at Brown & Brown]

Sure. So based on the consensus of what we were gonna grow in Q2 in retail versus what we delivered, over half that discrepancy was because of rates. So downward pressure on rates. The other half is we basically just had lower new business in the quarter. And so sometimes that can happen.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

And as I said, I feel like the 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 q three. But I just wanna make sure that everybody understood that over more than half the discrepancy was because of rate pressure.

[Mark Hughes, Analyst at Truist Securities]

Thank you very much.

[Operator]

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

[Robert Cox, VP - Equity Research at Goldman Sachs]

Hey, thanks. Yes, I just wanted to ask on the contingents, some strong growth in the contingent commissions there. Just curious, is there a theme, or is that more driven by certain products?

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Good morning, Rob. I think probably couple of 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 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 commissions. That's why we focus so much on growth in the cash because all of that that's why we also look at it on a total revenue basis because there is a a linkage inside of there.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

But overall, we feel really good with how we're performing on the 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.

[Robert Cox, VP - Equity Research at Goldman Sachs]

Thank you.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Thanks.

[Operator]

Thank you. And our next question comes from Gregory Peters of Raymond James. Your line is open.

[C. Gregory Peters, MD - Insurance at Raymond James]

Good morning, everyone. So I I guess for my question, I'm gonna focus on Ascension Strategies in January. I guess since you've had some time to look at the business in a great a lot greater detail, I know you said, Powell, that you're excited, but I'm curious about your perspective on the financials. I I know you previously had mentioned out some integration expenses, revenue synergies, expense synergies, etcetera. 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.

[C. Gregory Peters, MD - Insurance at Raymond James]

And related to that, just the retail, the organic profile of the business, in particular, 180, I'm curious what your perspectives are on that business since you've had some more time to look at it.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

So good morning, Greg. So, first off, as it relates to the 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. I've met a lot of them now, or talked to a lot of them, which I can confirm that that is absolutely true. As it relates to 01/1980, not unlike our program facilities, they have a deep commitment to underwriting.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 transportation and some other things. And so I continue to be very, very impressed with the discipline and the people in those businesses. And we believe that, as I think we said the last time, that their growth profile is substantially similar to ours over time. And so we feel really good about the business overall, individual divisions, the whole deal. We're excited about it.

[C. Gregory Peters, MD - Insurance at Raymond James]

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, 750,000,000 set aside that that happened and talk about your perspective and the due diligence you did around that?

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

But I wanna stress that it's not something that they do anymore. And those operations or accounts are just in runoff.

[C. Gregory Peters, MD - Insurance at Raymond James]

Thanks so much.

[Operator]

Yep. Thank you. And our next question comes from Elyse Greenspan of Wells Fargo. Your line is open.

[Elyse Greenspan, Managing Director at Wells Fargo]

Hi, thanks. Good morning. I wanted to come back to just the Retail segment, right? Prior guidance was for the full year to be about 1% better than the Q1. It does, from your commentary, sound right, like new business was slower and pricing got worse.

[Elyse Greenspan, Managing Director at Wells Fargo]

Powell, sorry, think you said right half of the change in the quarter was due to just the deceleration in property rates. I'm just trying to get a sense of how do you guys see, I guess, the full year relative to that prior guide based on your expectations for continued deceleration in property rates in the back half of the year?

[J. Powell Brown, President, CEO & Director at Brown & 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.

[Elyse Greenspan, Managing Director at Wells Fargo]

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 slowdown you saw during the quarter.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

We go ahead, Andy. Yes. Good morning, Elyse. Yes, we saw during the quarter and then June definitely had a further trail off compared to what we were seeing in April and May.

[Elyse Greenspan, Managing Director at Wells Fargo]

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?

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

We had 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.

[Elyse Greenspan, Managing Director at Wells Fargo]

Thank you.

[Operator]

Thank you. You. And our next question comes from Mike Zaremski of BMO. Your line is open.

[Michael Zaremski, MD & Senior Equity Research Analyst at BMO Capital Markets]

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 some of it was just lower new business, which could be temporary. But are we if I mesh the desal trend line with your comments and color on the classic softening marketplace, I guess what is there any underlying causes that's just causing the D cell to be so, so much faster than I think we've seen historically? Is it you know, I don't some is there some kind of underlying trend we should better understand?

[Michael Zaremski, MD & Senior Equity Research Analyst at BMO Capital Markets]

Because you you you named a lot of softening lines of business that some of them were somewhat surprising, like casualty, for example.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

Yeah. I don't wanna 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.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

But Mike, the thing that I would tell you. This is a classic cycle. And I've only been doing this for thirty five 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.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

This is E and S. I'm just using the E and 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.

[J. Powell Brown, President, CEO & Director at Brown & 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.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

And so there's been a long period of upward pressure on property rates. And depending on your perspective, but if you look at it from our customers' 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 q two, there you see it more clearly. But but there's not something, Mike, that is occurring that is out of the ordinary.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

I don't wanna 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. I expected it to happen a year ago, personally.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

But again, what you heard me say and my mistake, it 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.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Yeah. Hey, Mike. I think maybe one other thing. And, 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 in our our earlier comments, we said that admitted rates were up five to ten percent in the second quarter of last year.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

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 kinda more realistic ranges of what you would see historically. So part of it's off of where was it coming from.

[Michael Zaremski, MD & Senior Equity Research Analyst at BMO Capital Markets]

Got it. And that's that's good color. My my only follow-up is on the on a profit margins or cash flow margins, whatever which one you wanna speak to. But, you know, we you know, when when we if we think if we're painting a picture of a more moderating back to normal kind of organic growth trajectory or, guess, you know, your ten year organics, I think, fives, but then during soft markets, you know, low singles. But, should we be thinking about it kind of a also, if we do go into a low singles organic environment about a moderating profit margin kind of, downward trajectory as well potentially, or or or is the business mix 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?

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Yeah, Mike. One, we're, I guess, we're not giving any long term, changes to the guidance on our margins. Those continue to be the same for the business right now. But I think a couple of 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.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

It's a portion of the, the equation that comes through. But even if organic is down and we've got really good contingents, well, that's probably gonna help in the margin profile for the organization. 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. 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 appropriate fashion both in talent and technology, and then try to be able to make sure that we can expand our margins.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

That, again, might not happen every quarter, but that's our overall goal for the business.

[Michael Zaremski, MD & Senior Equity Research Analyst at BMO Capital Markets]

Thank you.

[Operator]

Thank you. And our next question comes from Alex Scott of Barclays. Your line is open.

[Alex Scott, Equity Research Analyst at Barclays]

Hi, good morning. I wanted to circle back on the comments on the lower new business and just wanted to see if you could give us a feel for how much of that this quarter was just timing and maybe you'd characterize as more random fluctuation as opposed to what's going on in the market. And you talked a little bit here or there about some of the new markets that are competing and so forth. How much are those dynamics causing that versus things just felt one way or the other this quarter?

[J. Powell Brown, President, CEO & Director at Brown & Brown]

Well, don't want to give you, Alex, the impression that there some unusual thing going on in the market that is impacting our ability to write new business or not. And I'm I'm trying to make it 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. But it's not one quarter doesn't make a trend.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 and Brown. And so there there's no there's no I I know you're looking for something, and there's no something other than we just didn't write as much new business. It's that simple.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 I'm not gonna 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, Equity Research Analyst at Barclays]

Got it. That makes a lot of sense. Can I ask if if the E and S pricing and and competition you're seeing, is is any of that affecting volume just in terms of admitted versus E and S? Like, is some of the competition from admitted taking business back at all?

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 that what I mean by that is that could be binding authority in wholesale. It could be transactional wholesale.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 gonna say. But we have seen it in places that, kind of so I'll give you an example. You'd say like, what? A year ago, the State of California was suffering horrific fires and all kinds of disruption, and their marketplace was in disarray.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

And therefore, lots of business flowed into the E and S market. That does not mean that business isn't flowing into the E and 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. That is anecdotal.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 15 homeowners and admitted where last year they didn't want to touch anything, that is, you're kind of like, So that's what I would say relative to the admitted involvement and limited involvement with some non admitted accounts. Thank you.

[Alex Scott, Equity Research Analyst at Barclays]

Okay. Thank you.

[Operator]

Thank you. And our next question comes from Andrew Anderson of Jefferies. Your line is open.

[Andrew Andersen, VP - Equity Research at Jefferies Financial Group]

Hey, good morning. I think you mentioned you expect to increase the margin of acquired businesses over time for for tuck in M and A. Can you maybe just touch on how long do you usually find it takes to get those acquired entities to target levels?

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 stand alone business.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

So I do wanna 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.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Yeah. 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 think that's a good approach. So, generally, you just kinda 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. Same thing, and that's all if you're thinking about the expense side.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Same thing on the the revenues, though, just come along over time. So you'll see it over twelve, twenty four, thirty six months.

[Andrew Andersen, VP - Equity Research at Jefferies Financial Group]

Thanks. And then maybe on professional liability or D and O 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 post pipeline of exposure units coming to market?

[J. Powell Brown, President, CEO & Director at Brown & Brown]

Well, I would say that, as we said, D and O and EPL continue to have rate pressure on them. And I think that that will continue. That's my impression.

[Andrew Andersen, VP - Equity Research at Jefferies Financial Group]

Thank you.

[Operator]

Thank you. And our next question comes from Meyer Shields of KBW. Your line is open.

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

Great. Thanks so much, and good morning. Powell, the past, 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.

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

That was a smaller different brown and brown. Was hoping you could update us on that split between economic growth and pricing in terms of driving organic.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

Good morning, Meyer. So what I would say is this. And I have to be honest. I'm going have to spend some time on that response once we bring our friends from a session in to Brown and Brown, and specifically the one hundred eighty and how we're thinking about it. But what I would tell you is you have sort of unique, We have three or four unique parts to our business.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 is I would not say would change those metrics. And unless you have an inordinate amount of cat property in a quarter or in a business or whatever the case may be. So I'd stick to the two thirds, one third. In large accounts, so you're gonna have large benefits, large so it's upper middle market and large accounts.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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. I would say that it's 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.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

But our programs business was more impacted by rate because of the CAT concentration. And that's one of the reasons I've highlighted that the casualty a balance or a ballast to that. In the wholesale, I would say similar, but to a lesser degree. That's how I would answer it. So you've asked a good question, I'd like to give it some thought.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

But particularly in light of not not existing our existing business. But and I would say overseas, it's it's probably the same. It's exposure units and rate, two thirds, one third.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Yeah. Mayor, keep in mind and I think our our comment still holds over the long term. Yeah. The one third, two thirds. Depending upon, you know, where we are in a cycle, either on the, you know, uptake or down take inside there.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Rates just gonna 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 gonna take a, a larger percentage of it on a waiting basis. But when you're kind of in that normal market growth, normal pricing and everything else, generally, I think the the trend's still pretty consistent with what we said.

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. That was right, sir. 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.

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

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 is a problem? I'm asking this numerically, but I was hoping you could talk about it at least qualitatively.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

Yeah. So so let let me, let me try to answer that. What Andy said earlier is we've always said, and and I know you know this, that our business is a low to mid single digit organic growth business in a steady state economy. You can have fluctuations in there because of events, I e rates, economics, things like that, that would potentially, in a near or shorter term, impact that range. But over a long period of time, that's how we think about the business.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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. 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 capabilities to serve our customers. So it's not like that, Mayor.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

But 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 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. So I feel good about it. Don't feel meaning the future.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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. I think it's all about culture. And Andy does, and our senior leadership team does.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 wanna give you the impression that there's some range. Like, if you if you miss by a 100 bips, there's you know, it's red a red light goes off.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

It's not it's not like that. You know? I look at it as saying yeah. I mean, I look at it as saying, hey. That that was last quarter. We're on to this quarter.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Yeah. Mayor, just on I mean, I think this is why, you know, we we never get too worked up about any one quarter that's out there. We just kinda look how we're progressing and moving the ball down the field on a year to date basis on 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%.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

We're over, you know, 5% on a organic basis. Our margins are 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.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

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.

[Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)]

Appreciate that. It just helps us reconcile. Thank you. Sure.

[Operator]

Thank you. And our next question comes from Josh Shanker of Bank of America. Your line is open.

[Josh Shanker, Managing Director at Bank of America]

Yeah. Thank you for giving me some time today. You know, we've just come off a very interesting time economically in the country. The reopening post COVID and the huge growth period, prices were up for a number of years in a row. Underwriting profitability for the industry is very, very good.

[Josh Shanker, Managing Director at Bank of America]

You know, I've been looking at the stock for twenty years, and I think back when I first heard the term EBITDAC, the argument was that the c earn outs are gonna 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 earn outs in any ways. Is is is that the right impression? Should we think about that normalizing? And how much organic growth did earnouts contribute over the last couple of years?

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Yeah. Hey. Good morning, Jack. Let me see if I can tackle a couple of those pieces. Is what we try to do and, again, the the change in the acquisition is the delta off of what we expect from the business based upon when we purchase it.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

So we've already got expectations for growth or profitability or any sort of combination for the business. And most of our earn outs are generally over a three year period. We estimate all of that on the front end. If you look back over that ten year period, I'm gonna probably be off on these numbers a little bit. Excluding the, you know, the positive and negative adjustments we made around COVID because it's just the unknowns. If you look back, our change in acquisition earn out's 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 them 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.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

They may have been wildly successful anyway in in the process. So just there there's a couple pieces just to think about inside of there on on how that that works. Okay.

[Josh Shanker, Managing Director at Bank of America]

And do you expect that to normalize, I guess? Or or was was that that wild is an extreme word, but let's just use it anyways. In terms of being wildly successful, should should the earn outs and and performance of acquired businesses be more moderately successful in the forward looking period?

[J. Powell Brown, President, CEO & Director at Brown & Brown]

I don't think you can make that Yeah. 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 draw that conclusion.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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. 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.

[R. Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

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.

[Josh Shanker, Managing Director at Bank of America]

Yep. Thanks, Josh. I just want a quick thing. That that 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. Can you talk about what you add your 2¢ about what you think is gonna happen over the next three years with MGAs and how that affects Brown and Brown's business?

[J. Powell Brown, President, CEO & Director at Brown & Brown]

Sure. Well, I believe that MGAs ultimate success is based on trust and performance. And so there are 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.

[J. Powell Brown, President, CEO & Director at Brown & 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. And so if I take you back only thirteen 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.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 worked out pretty well. And so we're still doing the same thing.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 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 eighty six years.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

We're gonna take one more question, please. Thank you, Josh.

[Operator]

You.

[Operator]

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

[Mark Hughes, Analyst at Truist Securities]

Powell, in the 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 E and S market, but at a lower price point. Do you think that's accurate? And if so, is that a new phenomenon?

[J. Powell Brown, President, CEO & Director at Brown & Brown]

I don't don't think I 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. 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.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

This is not something that's new, meaning in terms of other cycles. I'm not talking about last quarter versus this quarter. I'm talking about historically. It's interesting, because the ENS market, if you wanna 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.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

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 gonna say pause, but sort of a that's not the optimal time in the E and S 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. And so that's a long answer for your question.

[Mark Hughes, Analyst at Truist Securities]

Yeah. Appreciate that. Thank you.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

Thank you.

[Operator]

And are we

[Operator]

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

[J. Powell Brown, President, CEO & Director at Brown & Brown]

Alright. Thank you, Didi. Thank you all very much, and we appreciate your interest today. 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.

[J. Powell Brown, President, CEO & Director at Brown & Brown]

Have a nice day and a nice week. Thank you.

[Operator]

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

Participants

Executives

• J. Powell Brown, President, CEO & Director
• R. Andrew Watts, EVP, CFO & Treasurer

Analysts

• Mark Hughes, Analyst at Truist Securities
• Robert Cox, VP - Equity Research at Goldman Sachs
• C. Gregory Peters, MD - Insurance at Raymond James
• Elyse Greenspan, Managing Director at Wells Fargo
• Michael Zaremski, MD & Senior Equity Research Analyst at BMO Capital Markets
• Alex Scott, Equity Research Analyst at Barclays
• Andrew Andersen, VP - Equity Research at Jefferies Financial Group
• Meyer Shields, Managing Director at Keefe, Bruyette & Woods (KBW)
• Josh Shanker, Managing Director at Bank of America