The operator welcomes listeners to Brown & Brown, Incorporated's Third Quarter Earnings Conference Call and reminds them that the call is being recorded. They caution that statements made during the call may relate to future events and are subject to risks and uncertainties. They also mention the possibility of the company's financial results differing from the preliminary numbers. The operator encourages listeners to refer to the company's filings with the Securities and Exchange Commission for more information. They also mention the use of non-GAAP financial measures in the call.

The company had a successful third quarter, with strong organic growth, increased margins, and completed acquisitions. They also announced a 13% increase in their dividend, marking the 30th consecutive year of increases. The full financial results and reconciliation of non-GAAP measures can be found on the company's website. The company's CEO, Powell Brown, welcomed the recent acquisition of Kentro and highlighted their capabilities in various lines of coverage.

Despite the challenges posed by inflation, our company was able to achieve outstanding results thanks to the dedication of our 16,000+ employees. The economy remained resilient, but businesses are cautious about making large investments. In the insurance marketplace, customers are struggling with rate increases and are making adjustments such as increasing deductibles and reducing limits. Rates for most lines of coverage remained consistent with the first half of the year, with some exceptions. Workers' compensation and professional liability rates continued to decline, with workers' comp rates declining less than in previous quarters and professional liability rates remaining flat to down 15%.

The cat-exposed property market remains challenging as carriers are not increasing their capacity and underwriters are pushing for higher insured values. However, the company is well positioned to help customers due to their relationships with carriers and multiple solutions. The M&A market has slowed down but the company has still acquired seven companies this quarter and is pleased with their success in North America and Europe. The retail segment saw 8% organic growth and the program segment saw 12% organic growth, driven by new business, retention, and rate increases.

The programs at the company had a strong quarter, with wholesale brokerage and other segments performing well. However, professional liability was under pressure due to rate declines. The services segment saw a 3% increase in organic revenue. The financial results, excluding certain items, showed strong growth in total revenues, income before taxes, and EBITDAC. The EBITDAC margin also increased significantly compared to the same quarter last year.

The margin increase in the company was driven by leveraging their cost base and strong organic growth, as well as higher contingent commissions and minimal claims costs. The effective tax rate for the quarter was in line with expectations and adjusted diluted net income per share increased by 42%. The retail segment grew 10% due to strong organic growth and acquisitions, while National Programs had an outstanding quarter with 20.1% growth and 12.1% organic growth, driven by an increase in contingent commissions.

The company's adjusted EBITDAC margin increased by over 11% in the fourth quarter due to organic growth, leveraging expenses, higher profit-sharing commissions, and lower claims costs. The wholesale segment also saw strong growth, while the services segment had a slight decline in adjusted EBITDAC margin. The company generated $704 million in cash flow from operations for the first nine months of the year and remains committed to reducing debt after recent acquisitions.

In the third quarter, the company reduced its outstanding debt by $100 million and is within its target debt-to-EBITDA ratio. They expect similar investment income and interest expense in the fourth quarter. Their full-year adjusted EBITDAC margins are expected to be up at least 100 basis points due to strong financial performance and higher investment income. The company remains in a strong position and is able to invest, de-lever, and acquire businesses. The impact of inflation and interest rates on customers and the economy is being monitored, and customers are remaining cautious with their investments. The company expects insurance rate increases to continue, leading customers to manage their insurance spend in various ways.

The company's carrier partners are focused on diversifying their portfolios and reducing volatility, leading to good underwriting results. The company is well positioned to maintain and possibly grow its capacity with these partners. The company is pleased with its results for the year so far, with organic growth, margin expansion, and earnings per share growth. The only potential unusual factors going forward could be low costs for captives and better-than-expected organic growth.

The speaker, Powell Brown, is responding to a question about the company's third and fourth quarter performance. He mentions that there were no significant one-time items in the third quarter and highlights the incentive bonus and claims revenue as the main items for the fourth quarter. He also mentions that the storm season is still ongoing and there could be unknown factors that may affect their performance. When asked about organic growth, he declines to give a forward-looking view but mentions that their business is influenced by both exposure units and rate increases, with coastal communities having a higher impact. He also notes that they have not seen a slowdown in exposure units yet but are monitoring the situation closely.

The speaker discusses how people are being cautious about making large capital investments in the business, leading to a lack of growth in exposure units. However, sales of products and construction revenues are continuing as usual. The speaker also mentions the possibility of more capacity from carriers next year, but cautions against assuming this will lead to faster growth. The focus is on maintaining current capacity rather than significantly increasing it.

The speaker discusses organic growth in the second quarter, which was stronger than expected due to an increase in net new business. He notes that the company is executing well.

The company is maintaining its existing customer relationships and gaining new customers in both the Wholesale and Retail segments. The main expense pressures are related to the cost of talent and stock compensation, but the company has seen some moderation in inflation and T&E expenses.

During a conference call, a question is asked about the impact of dealer services on the company's Retail sector. The CEO confirms that the headwind from dealer services has dissipated in the third quarter. The company has seen a 170 basis points improvement in margins so far this year, but there may be a contraction in the fourth quarter due to one-off revenue from the previous year. The company also notes a competitive M&A environment, with financial sponsors potentially waiting before making any deals.

In the National Programs slide, Powell Brown mentions that there has been improved loss development on Hurricane Ian. This is due to a better quarter compared to last year's issues, and there was no mention of any favorable development on the exposure.

In this paragraph, Andrew Watts and Meyer Shields discuss the development of losses in the third quarter of 2021. They mention that in the fourth quarter, there were some adjustments made due to the development not being as extensive as originally estimated. However, they are now in a good place with loss development according to carrier partners. Meyer asks about the process of catastrophe-close property moving from standard markets to E&S and if this trend will continue in the future. Powell Brown responds that there will likely be a continued transition of certain types of business into the E&S market, but it is possible that some of it may eventually return to the standard market.

Powell Brown, CEO of the company, discusses the current trends in the insurance industry. He mentions that there has been an increase in demand for excess and surplus insurance due to certain businesses being placed in a box based on their location. However, he predicts that in a couple of years, there may be a slight shift back to traditional insurance. In response to a question about employee benefits, Brown states that the company is seeing strong growth in this area and continues to invest in capabilities. Andrew Watts, CFO, adds that there have been no major changes in pricing rates for employee benefits.

During a conference call, Andrew Watts asks the operator to let in a few people who were unable to join earlier. The first question comes from C. Gregory Peters, but he seems to be muted and cannot be heard. The operator moves on to the next person, Scott Heleniak, who asks about the 3% growth in the Services segment. Watts explains that the growth was driven by expanded customer relationships and new business wins, and that the segment's revenue is recurring in nature. He also notes that the segment's performance cannot be forecasted on a quarterly basis.

The speaker asks a question about the company's debt leverage target and if there will be further debt reduction in the future. The response is that the company may increase leverage for larger acquisitions but generally maintains a conservative balance sheet. There are technical difficulties with two callers and the call may end soon unless they are able to join.

The speaker is thanking everyone for participating in the conference call and is pleased with the quarter's results. They are looking forward to the next quarter and will have another call in January. The operator then ends the call.

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