The speaker welcomes listeners to the Fourth Quarter Earnings Call for Brown & Brown, Incorporated and reminds them that the call is being recorded. They caution that any information discussed, including future financial results, may be subject to change due to various factors. The company is not obligated to update any forward-looking statements and may use non-GAAP financial measures during the call.

The company had a successful year in 2023, with strong financial performance and a focus on leveraging the Power of We. They made several acquisitions, expanded their capabilities, and maintained a disciplined approach to capital allocation. The results were only possible due to the hard work and dedication of their 16,000+ employees.

The company had a successful quarter, with revenues exceeding $1 billion and a strong adjusted EBITDAC margin. They also achieved their goal of exceeding $4 billion in revenue for the year, with a 19% total revenue growth and a 33.9% adjusted EBITDAC margin. The insurance marketplace remains challenging, with rate increases in most lines and difficulty in finding desired limits for CAT property and excess liability. However, there was some moderation in the rate of increase for CAT property in the London markets in December. The company also completed 13 acquisitions with estimated annual revenues of $109 million and is pleased with the quality of the organizations and capabilities gained.

In the fourth quarter of 2023, the insurance market saw a decrease in rates due to low hurricane activity and carriers holding capacity for the end of the year. Professional liability and cyber coverage continued to soften, with rate changes ranging from slightly up to down 20. Personal lines in certain states remained challenging, but the company is well-positioned to help customers navigate these markets. Despite economic uncertainties, customers are still investing in their businesses and hiring employees. The company had a successful year in terms of M&A activity, with several new businesses joining the team. The overall performance of the four segments was strong, with the Retail segment delivering 8.2% organic growth in the fourth quarter and nearly 8% for the full year.

In the fourth quarter, the Program segment experienced a 5.4% organic growth despite a one-time charge of $19 million related to changing reinsurance for one of their captives. For the full year, the segment saw a strong organic growth of over 17%. Wholesale Brokerage also had a successful quarter and year with organic growth of 14.5% and 12%, respectively. The Services segment, however, saw a decline of 5.9% in organic revenue for the quarter due to external factors, but remained flat for the full year. The completed sale of certain assets in the Services business was also announced during the quarter. The financial results presented are adjusted to exclude certain one-time costs and the impact of foreign currency translation.

In the fourth quarter, the company recorded a gain of $135 million from the sale of Services businesses, resulting in a 13.1% growth in total revenues. Income before income taxes and EBITDAC also increased by 15% and 11.7%, respectively. The Retail segment saw a 12% growth in adjusted total revenues with a 8.2% organic growth. The National Programs segment had an outstanding quarter with a 18.7% growth in adjusted total revenues and 5.4% organic growth, driven by acquisition activity and lower storm claim activity.

One of the captives in our company has undergone a change in re-insurance which will reduce our P&L exposure and drive organic growth. Despite a slower growth in adjusted EBITDAC, the captives have been successful in providing incremental organic growth, aligning us with carrier partners, and generating good returns on invested capital. In the Programs segment, there was strong margin expansion for the full year. The Wholesale segment had a strong quarter with a decrease in EBITDAC margin due to lower contingent commissions and higher non-cash stock-based compensation. The Services segment saw a decline in adjusted total revenue and organic revenue, mainly due to external factors affecting advocacy businesses. Future reporting for the Services segment will be discussed later. The results for both years are presented on an adjusted basis.

In 2023, the company saw significant growth in income before taxes and net income per share, with a strong EBITDAC margin. They also generated over $1 billion in cash flow from operations and expect similar results in 2024. The company anticipates flat-to-declining contingent commissions and a decrease in Programs due to lower CAT event losses and favorable loss development. They expect their effective tax rate to remain consistent and adjusted EBITDAC margins to increase slightly. The company will be making changes to their reporting, including renaming the National Programs segment to Programs and merging the remaining businesses in the Services segment into the Retail segment.

The company plans to make changes to their financial reporting, including moving sold businesses into different categories and adjusting their non-GAAP measures. They also expect inflation to continue to decrease and anticipate steady hiring and investment in the market. They predict similar rate changes for CAT property and a competitive market for M&A. The company's success is attributed to their strong team.

The company is confident about reaching their goal of $8 billion in annual revenues by 2024 and is experiencing positive momentum. The question from the analyst is about any potential changes in business mix and profit margins within the major segments, and if the company's current high profit margins will decrease when organic growth slows down. The CEO responds that there have been no significant changes in business mix and that the margin profile is consistent among the remaining businesses in Retail and Programs.

The speaker is responding to a question about the impact of Brown's exposure to different flavors of personal lines insurance on their organic growth levels. The speaker confirms that the personal lines business is having a positive impact on organic growth across all three of Brown's major segments. The speaker also clarifies that the change in reinsurance cost will limit P&L exposure for 2023 and drive an incremental organic growth of $15 million to $20 million. The expected loss for 2024 is estimated to be between $15 million and $20 million.

The speaker, Powell Brown, responds to a question about the impact of international deals completed in 2022 on retail growth and margins for the full year 2023. Brown states that they are pleased with the businesses that have joined in England and that they are performing at or above expectations. He also mentions that the acquisitions in Europe are performing similarly to their domestic retail business. The CFO, Andy Watts, adds that there may be some seasonality to consider, with potentially weaker margins in the third quarter due to a possible captive loss. He also notes adjustments to contingents in the second quarter that may affect margins.

The company's profit sharing and contingent commissions were strong in 2022, but may not be as high in 2023 due to potential storms and other factors. The exact impact of these events is difficult to estimate, but the company is prepared for potential changes in the market.

The speaker discusses the difficulty in predicting the impact and magnitude of future events on the company's growth. They also address the potential impact of rate increases on organic growth, noting that rate increases may vary in different segments and locations. The company does not provide organic growth guidance, but historically has experienced low to mid-single-digit growth in a steady-state economy.

The speaker discusses the company's recent over-performance in organic growth and emphasizes the importance of delivering for customers and constantly seeking new business. They also mention the difficulty of predicting future growth but express confidence based on the company's long history and understanding of the market. Another speaker adds that buyers consider more than just rate when making insurance decisions.

The speaker discusses how insurance companies adjust their limits and deductibles when rates go up or down. They also mention adjusting numbers for non-cash intangible amortization and state that it would have equated to $0.45 in adjusted earnings for 2023. The Benefits business performed well in Q4 and for the year. The reinsurance changes had a similar impact of $19 million on adjusted EBITDAC.

Powell Brown and Robert Cox discuss the company's margins and organic growth for the quarter, with Brown mentioning that the margins would have been up 900 basis points if not for a specific factor. Cox asks about the pricing acceleration in E&S casualty and potential reserve issues, to which Brown responds that the industry has been talking about inadequate pricing in casualty for a long time, but it is unlikely to see significant upward pressure on pricing due to the long-tail nature of premiums and the need to balance portfolios.

The speaker discusses the growth potential in the employee benefits space and the percentage of the business that is commission-based at Brown & Brown. They also mention the company's investment in this area and their success in earning new business. The speaker then moves on to address a question about the impact of company-owned life insurance on quarterly results.

The impact of the market going up on S&R and margins is almost zero. The S&R was a drag on the percentage of revenue, but it is expected to be flat year-over-year, excluding COLI. The upside to organic growth in Programs is due to the absence of a $19 million hit in the fourth quarter of this year. This is expected to continue in 2024, but there should not be a reversion in 2025. There is some uncertainty regarding the shift of catastrophe exposed property business to the wholesale channel in 2023, but it is expected to have a one year impact and then slow down in 2024.

The speaker discusses the trend of catastrophe-exposed property businesses moving from the retail to the wholesale channel in 2023, and whether this shift will continue in 2024. They mention that there is a significant amount of business in the E&S market and that carriers are evaluating their CAT property exposure. They believe that there will continue to be a flow of business from the admitted market to the E&S market in 2024, and that there is enough business in the wholesale space without accounts coming over from the admitted market. They also mention that this trend is more pronounced in the E&S market and that there are different profiles and activities in commercial and personal lines.

The speaker discusses the trend of personal lines moving into the E&S space in four states and expects this to continue until the markets calm down. They also mention that the remaining portion of Services will be moved to Retail and that they plan to hold onto these businesses. In terms of the macroeconomic climate, there is a cautious optimism among clients despite inflationary pressures. The speaker is interested to see if clients will make major capital investments this year.

The speaker discusses the current sentiment among their client base and notes a feeling of optimism, though not universal. They also mention that cash flow conversion was slightly below 24% in the previous year and they expect it to be similar in the upcoming year. The speaker also mentions that buyers are becoming more conservative and changing their terms and conditions, but this is not limited to one customer type or region.

The speaker discusses how condo associations in Florida have seen rate increases for the past five years and are frustrated with the situation, sometimes even blaming the messenger. They believe that the focus should not just be on rate increases, but also on the absolute amount the insured has to pay. The organization can thrive in all market conditions, including flat rates, in Retail, Wholesale, and Programs. The speaker then shares the captive revenue for the past two years and gives a rough idea of their growth in the next few years.

The speaker is pleased with the growth and returns from their captives. They clarify that this does not mean they will do more of them, but they are happy with the programs they currently have. Inflation may have a neutral impact on their organic revenue growth, and they do not see certain types of inflation as better or worse for their business. They believe their business is impacted by GDP, which is affected by inflation.

The speaker discusses the long-term impact of inflation and rates on their business, emphasizing the need to continue executing and selling new business. They also mention that standard markets are evaluating their books of business and making changes to their CAT exposure and loss profiles, but there is no indication of them encroaching back into the wholesale market.

The speaker discusses how some markets are backing off programs that are not profitable and predicts that there will be more changes in the Program space. They also mention that they did not give an outlook on investment income for the following year. The speaker ends by saying that Brown & Brown is a goal-oriented company.

The company sets and achieves goals, with a current goal of reaching $8 billion in revenue. They prioritize the best interest of shareholders, who own 22% of the company. They are pleased with their performance and optimistic about the future, despite potential economic slowdown. They thank listeners and look forward to future communication.

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