Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Brown & Brown Inc (BRO, Financial) reported nearly $1.2 billion in revenue, growing 12.5% in total and 10% organically over the second quarter of 2023.
- The company achieved a 17.7% increase in adjusted earnings per share to $0.93.
- Brown & Brown Inc (BRO) completed 10 acquisitions with estimated annual revenues of $13 million.
- The program segment delivered organic growth of 15.4%, driven by new business and expansion of existing customers.
- Wholesale Brokerage segment saw organic revenue growth of 11%, driven by writing more net new business within binding and personal lines businesses.
Negative Points
- Inflation remained elevated, impacting the economic environment.
- There is ongoing upward pressure on rates and deductibles for properties located in convective storm zones.
- The downward trend for workers' compensation rates continues, with decreases of 5% to 10% in most states.
- The company faces competitive pressure in the M&A marketplace for high-quality businesses.
- Contingent commissions in the retail segment were down by over 50% year over year, primarily due to auto and other lines.
Q & A Highlights
Q: Can you break out the impact of property on organic growth this quarter, considering issues like pricing, capacity, and policyholder retention?
A: Unfortunately, we don't break that out specifically. However, property was under pressure in Q2, particularly towards the 7/1 date, with most accounts seeing rate decreases unless they had significant losses. This trend was expected, and we believe it will continue unless there is significant storm activity.
Q: How do you see casualty pricing evolving? Is there any indication of meaningful distress across the industry?
A: There isn't one specific trigger, but significant limits on an umbrella from one carrier are now rare. Certain classes of business, like habitational and residential construction, are under more pressure. Overall, there is more discipline around pricing pressure on casualty than at any other time in my career.
Q: Given the strong double-digit growth in the programs segment, how do you view its growth prospects going forward?
A: The programs segment has diverse drivers, including CAT businesses and casualty-driven programs. While there may be rate pressure on CAT businesses, the overall growth is driven by writing more new customers. We feel good about our results but remain cautious about pricing of capacity.
Q: Can you provide more color on the impact of contingents on margins, especially considering the potential for storm activity?
A: We plan for storm claim activity, which impacts our flood business and captives. If storms don't occur, it would be upside. Our guidance range for margins considers potential storm impacts and other factors like contingents and business mix.
Q: How do you view the competitive landscape for M&A, and what is your outlook for acquisitions?
A: The M&A marketplace remains competitive for high-quality businesses. While private equity activity has decreased, they are still active. We acquired 10 businesses this quarter and continue to build relationships. Our disciplined approach to M&A focuses on cultural alignment and strong financial returns.
Q: Can you discuss the trends in the wholesale brokerage segment, particularly regarding property business moving back to admitted markets?
A: We are seeing a lot of flow into the wholesale brokerage segment. While some property business is moving back to admitted markets, it is limited and usually involves sublimits on wind coverage. More accounts are moving from standard to E&S markets than the other way around.
Q: How do you view the growth prospects for your international business, particularly in the UK?
A: Our international business, including the UK, has similar growth prospects to our domestic business. We've acquired capabilities in larger accounts and program businesses, which are driving growth. Our consistent approach and ownership culture appeal to firms in the UK, contributing to our success.
Q: Can you elaborate on the impact of social inflation on your programs segment and how underwriting margins are trending?
A: We don't break out specific impacts, but social inflation and loss activity are affecting profit sharing and contingencies across the board. This is a universal phenomenon impacting various lines of business.
Q: How do you view the long-term organic growth prospects for Brown & Brown, considering recent strong performance?
A: We don't provide specific organic growth guidance, but we feel positive about our business execution and growth prospects. While we acknowledge some rate pressure benefits, our long-term outlook remains positive, driven by our capabilities and market opportunities.
Q: Can you discuss the trends in employee benefits and how new business is trending in that segment?
A: We are very pleased with our capabilities in employee benefits, especially in larger accounts. Our expanded capabilities allow us to serve a wide range of customers, and we are writing significant new business in both employee benefits and property and casualty.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
