The operator is welcoming participants to the Brown & Brown Incorporated Second Quarter Earnings Call and reminding them that the call is being recorded. They also note that any forward-looking statements made during the call may be subject to a number of risks and uncertainties, and that the company's final financial results may differ from the preliminary numbers set forth in the press release.

BB Insurance had a strong second quarter and first half of the year, with over $1 billion of revenue and 24.7% total growth and 11.2% organic growth. Their adjusted EBITDAC margin expanded to 34.2% and adjusted earnings per share grew to $0.68. They completed six acquisitions with estimated annual revenues of $24 million.

The insurance market continues to be challenging for customers, with admitted markets increasing 4-10% and E&S markets increasing 10-20%. Workers compensation rates are decreasing, while professional liability rates are moderating downward. Coastal properties are becoming more difficult to place, due to inflation and higher values, leading to buyers purchasing lower limits, increasing deductibles, or self-insuring certain layers. The Florida insurance market has not improved, with more admitted carriers reducing their appetite or stepping away from the market, pushing more policies to citizens and the E&S market.

Brown & Brown acquired six businesses during the quarter, including Highcourt Breckles, two US businesses, and three UK businesses. They also announced the pending acquisition of Kentro Capital Limited, which is an MGA Retail agency with a team of over 350 people and annual revenues of $90 million. The Retail segment saw organic growth of 6.3%, and Brown & Brown is pleased with their M&A efforts and their disciplined approach to identifying high quality companies that fit culturally and make sense financially.

In the second quarter, solid new business, rate increases, and modest exposure and expansion drove growth. The Program segment delivered a strong quarter with organic growth of 23% while the Services segment declined 2%. Overall, the company had organic growth of nearly 12%, adjusted EBIDAC margin expansion of 70 basis points, and 19% adjusted earnings per share growth. Andy Watts will provide more detail on the financial results.

This paragraph provides an overview of the company's financial performance in the second quarter of the current year. Total revenue was over $1 billion, increasing 24.7% from the second quarter of the prior year, and income before income taxes and EBITDAC grew by 32.1% and 30.5%, respectively. The tax rate was 25%, lower than the prior year, and the adjusted diluted net income per share increased by 33.3%. The Retail segment grew 25.5%, driven by acquisitions, higher profit sharing contingent commissions, and organic growth of 6.3%. Adjusted EBITDAC grew slightly faster than revenues and the EBITDAC margin expanded to 28.4%.

The company had a successful quarter with adjusted total revenue growth of 25.7% and organic growth of 23.3% in National Programs, 23.8% and organic growth of 13.1% in Wholesale, and 1.8% organic revenue contraction and a 220 basis point margin increase in Services. Cash flow from operations increased by 12%, with $390 million generated in the first six months of the year and $630 million at the end of the quarter.

In the second quarter, the company reduced its outstanding debt by making incremental payments of approximately $130 million and is in a strong capital position to continue to invest in the company. The market conditions for insurance buyers remain fatigue due to continued increases in insurance rates. The company's diversification and strong underwriting results positions them well to retain and possibly increase their capacity. The company is pleased with the performance of their international acquisitions of GRP and BdB, which are ahead of their expectations for the first year.

The leadership team of Brown & Brown has been focused on driving growth both organically and through M&A. They have acquired over 20 businesses over the past year and have welcomed new teammates. They are continuing to focus on hiring and retaining the best teammates and leveraging their capabilities to retain and win new business. They had a successful first half of the year and are expecting to have continued momentum in the second half. There has been a headwind from dealer services in the first quarter, estimated at 50-100 basis points.

Powell Brown discussed the headwinds in the Dealer Services business due to a cycle the business is going through, but they are proud of the investments they have made in the business over time. He also discussed the uplift from property in the second quarter, noting that the amount of CAT property is much higher in the second quarter than the third quarter. Finally, he discussed professional lines and the lower pricing in the market, noting that they are close to lapping the headwinds in that market.

Powell Brown explains that insurers are responding to renewal and new business requests with limited time and close to the expiration date, which is creating a challenging marketplace. He states that this could potentially affect Brown & Brown's revenue growth rate and pricing, but it could also be a benefit.

Brown & Brown is facing a challenging market, writing a lot of new business but with buyers having had five or six years of increasing costs, they may be unable to take any more increases. The company's growth will depend on new business rather than renewal, and the market will depend on weather, such as if there's a hurricane in Florida or other coastal areas. Michael Zaremski commented that it is not an easy question to parse out.

Powell Brown is discussing contingents and their effect on the margin for the National Program segment. He explains that the increase in contingents for the retail business is due to acquisition activity and should drop off in the back end of the year. He then discusses how a $15 million adjustment in one of their programs associated with Hurricane Ian was estimated in the third quarter of last year, and that they expected to be at quarter eight contingents for the fourth quarter for that program.

In the fourth quarter, the company earned some contingents, but it was not as much as estimated. The $5 million increase in National Programs in the second quarter was split between an adjustment to last year's amount and higher estimated commissions for this year. Property rates are currently at all-time highs, and if there is no event this season, there may be a leveling or slight moderation in pricing for next year. The contingents are driven by loss experiences, with higher rates allowing for higher losses before the qualification is exceeded.

Powell Brown and Andy Watts explain that Brown & Brown's personal lines business is around $130 million in revenue across the country. This includes retail, wholesale, and programs.

Andy Watts explains that the personal lines business has been facing headwinds due to fires on the west coast and other areas, which is the biggest impact in terms of percentage. There has been an uptick in wholesale business due to policies being forced into the E&S space, and carriers changing their appetites. Powell Brown then adds a comment before Andy moves on to talk about captives.

Andy Watts explains that diversification is key for their business, and they have achieved this through their purchase of Working, a high-net-worth personal lines business in the Southeast. He also mentions that their captives had another good quarter, and that this was their last quarter of meaningful organic growth, as they began writing policies in the first quarter of the previous year. Finally, he notes that the potential impact of big admitted carriers pulling out of states like California creates challenges for those writing homeowners insurance.

Powell Brown explains that the premiums written in the fourth quarter have minimal organic impact, and the company is expecting to be on the high end of the previous guidance of 30-35. He also explains that there is no substantial change to the reinsurance structure and the captives are performing well in terms of organic growth and profitability.

Powell Brown commented on the economy, saying that people are spending money and that economists are dropping the probability of a recession. He does not have any real-time data to back up his view, but it is more of an instinct. He then goes on to explain that the substantial growth in their wholesale business is due to a combination of factors, such as property business, submission count, and market share gains.

Powell Brown explains that the increase in the submission count and higher hit rate across the entire wholesale platform is due to the disruption in the market, which creates more opportunities in the E&S market. Andy Watts adds that the personal lines had a tailwind in the second quarter of this year, which contributed to the strong 13% organic growth.

Andy Watts disclosed that the captive had a $6.5 million benefit in the second quarter, but will have a $5-7 million headwind in the third quarter due to accelerated revenue recognition. He also said that there will be minimal organic benefit in the fourth quarter, but they are not changing their overall outlook. He feels good about the business and potential for profitable growth.

Andy Watts and Elyse Greenspan discuss the potential losses and profits from the captives. Watts explains that there will not be a 100% margin if there are no losses this year, and that they are capped at $25 million. Greenspan confirms that even if contingents had been flat, there would have been margin expansion in the quarter.

Powell Brown and Andy Watts discussed the margin expansion in the Retail segment for the second quarter, with Powell Brown noting that both the commercial and employee benefits businesses were performing well. Elyse Greenspan asked about the growth between the two pieces in the second quarter, and Powell Brown explained that he looks at it over an extended period of time, such as the first half or yearly basis. Mike Ward then asked about the situation in Florida, and Powell Brown said that it is not getting any better and they will have to wait for the wind season.

Powell Brown does not believe that more need to be done around interpreting the law or carriers needing to see more from lawmakers. He believes that the players that have participated in CAT prone areas have been hit hard with losses in the last five to six years and need a break. He suggests to watch the storm season to see if there is a decrease in rates. He is also happy with the GRP and BdB acquisitions from last year and believes they will have a positive impact on organic growth.

Powell Brown clarifies that when they discussed the performance of GRP and BdB, they were referring to the performance of the businesses they acquired, which they are pleased with. Additionally, they believe the performance of GRP and BdB is in line with the overall division in terms of organic growth and margin basis. Lastly, they do not anticipate any major movements in interest income in the back half of the year, depending on cash balance and interest rates.

Powell Brown and Andy Watts discussed how the businesses they acquired are performing in line with their expectations, both in terms of top line and bottom line. They also discussed the revenue seasonality of Kentro, with the majority of the business being trade credit, and the margins being similar to similar businesses. Finally, they discussed how revenues will be distributed between the retail and programs business.

Powell Brown is pleased to have Bronek Masojada and Paul Krump join the Brown & Brown Board. Both have deep industry expertise and understand exposures in the US and overseas. Meyer Shields asked about competitive pricing in the wholesale casualty rate, to which Powell Brown responded that it is competitive and applies more broadly than just professional liability. Meyer Shields also asked about Florida pricing, to which Powell Brown responded that it is technically file and use, but is treated as prior approval.

Powell Brown discussed how the Florida Insurance Commissioner and CFO are looking for ways to retain existing carriers and attract new carriers due to the state's growing population. Meyer Shields asked if there was any receptivity on the part of either the insurance department or the legislature to make the market more competitive, to which Powell Brown replied that he was not aware of any such receptivity, but that the state was looking for ways to create a more competitive environment. Powell Brown concluded the call by thanking everyone for their time and looking forward to an exciting third and fourth quarter.

This summary was generated with AI and may contain some inaccuracies.