The speaker is welcoming listeners to the Brown & Brown Inc. Second Quarter Earnings Call, which is being recorded. They caution that some information discussed may be forward-looking and subject to risks and uncertainties. They also mention the possibility of their financial results differing from preliminary numbers and remind listeners to refer to their filings with the Securities and Exchange Commission for additional information. The speaker disclaims any obligation to update forward-looking statements and mentions the use of non-GAAP financial measures in the call.

In the second quarter, Brown & Brown had a strong performance with 12.5% revenue growth and 10% organic growth. They also improved their adjusted EBITDAC margin and earnings per share. The company completed 10 acquisitions and inflation remained high but moderated during the quarter. There is a divide in consumer spending based on income levels.

Business leaders are investing in their companies and new construction projects as interest rates have plateaued. Hiring has slowed down compared to previous years, but insurance pricing remains consistent except for the E&S property market. Medical and pharmacy costs have increased, driving demand for employee benefits consulting. Admitted P&C market rates are up, while workers' compensation rates continue to decrease. Non-CAT property rates have moderated, but there is still upward pressure in convective storm zones. Primary casualty layers have elevated rates due to legal judgments and inflation. Professional liability rates are flat to down 10%. CAT property rates have also moderated, with a balance of rate decreases and increases.

In the second quarter, renewals were generally flat-to-down with some carriers offering additional limits and new capital entering the market. While CAT property rates moderated, primary and excess casualty rates continued to increase. However, due to the company's highly diversified business, moderate rate changes do not significantly impact their overall results. The company also acquired 10 new businesses in the quarter and continues to maintain strong financial performance through its talented team and diverse capabilities.

In the second quarter, the program segment of the company had a 15.4% organic growth driven by new business and expansion of existing customers. The diverse portfolio of businesses also contributed to the impressive growth, with wholesale brokerage delivering an 11% organic revenue growth. However, the open brokerage business did not grow as much due to rate decreases in property. The company's EBITDAC margin increased by 150 basis points and diluted net income per share increased by 17.7%.

In summary, the company's weighted-average shares outstanding increased slightly, dividends per share paid increased by 13%, and the retail segment saw total revenue growth of 9.3% with organic growth of 7.3%. The Programs segment also had a strong quarter with total revenue growth of 15.8% and an EBITDAC margin expansion of 220 basis points. The wholesale brokerage segment also had a great quarter with total revenue growth of 14.4% and organic growth of 11%.

The company's incremental revenue growth was driven by recent acquisitions and their EBITDAC margin increased due to non-recurring costs and leveraging expenses. They issued $600 million in senior notes and used the proceeds to pay off debt. They had strong cash generation in the first half of the year and expect adjusted EBITDAC margin to improve by 50-100 basis points for the full year. The CEO expects the economy to continue growing at a similar rate in the second half of the year.

The company expects inflation to moderate and for customers to continue investing and hiring. Admitted markets are not expected to change significantly, while E&S markets may see pricing pressure. The company is in a strong position for mergers and acquisitions and credits their success to their disciplined approach and strong team. They are excited about the second half of the year and expect to deliver strong financial results. The first question in the Q&A session asks for a breakdown of the impact of property on organic growth for the quarter.

The speaker discusses the complexities of pricing, capacity, and policyholder retention in the property insurance market. They note that in the second quarter, property rates were under pressure and most accounts were seeing rate decreases, except for those with significant losses. The speaker also mentions that this trend was expected and that the impact of the upcoming storm season will determine future pricing. They also highlight the importance of diversification in their overall book of business to mitigate the impact of any changes in the property insurance market.

The speaker discusses the fluctuation of casualty insurance prices and notes that there may be various factors causing these changes. They mention that it is difficult to obtain high limits from one carrier and that certain classes of business, such as apartments, restaurants with high alcohol consumption, and residential construction, are facing higher prices. However, not all casualty insurance is under the same amount of pressure, as it varies based on location and type of business.

Powell Brown, CEO of Brown & Brown, discusses the current state of the insurance marketplace and the company's strong organic growth. He notes that there is upward pressure on casualty pricing and potential deceleration in property due to CAT season. He also mentions increased shopping and new business wins, which may not be sustainable. However, he cautions that there may be pressure on larger accounts in certain regions.

The speaker discusses their company's success in executing well and delivering for customers, attributing it to their unique culture and long-term thinking. They also mention seeing more rate declines in open brokerage versus binding authority within the wholesale segment, with upward pressure in casualty and downward pressure in professional liability.

During the earnings call, Andy Watts and Powell Brown discussed the company's guidance for the second quarter and the factors that will impact their margin expansion. These factors include the outlook for contingents, the mix of businesses, and potential storm activity. The guidance of 50 to 100 basis points implies a contraction in the back half of the year, which could be due to captive losses and conservatism around contingents. The company also had one-off revenue from reinsurance in the previous year, which may also impact their margin in the second quarter.

The speaker discusses the performance of their captives during the previous year's calm storm season. They use estimates and budget for storms each year, and any lack of storms would be considered upside. The speaker also mentions growth in their programs segment, which has seen consistent double-digit growth. They attribute this growth to a mix of CAT businesses and casualty/professional liability businesses, and anticipate continued growth through writing new customers.

The speaker clarifies that while they expected good results, there may be hesitation due to pricing pressures in the industry. They also confirm that their margin guidance includes allowance for potential storms. The speaker then discusses their experience with pricing pressures in the casualty sector, stating that it has been a consistent issue throughout their career in the industry.

The speaker discusses the struggles of certain businesses, such as habitational and residential construction, in the casualty industry. They clarify that while rates may not always increase, the overall pricing discipline has been strong. In terms of growth, the speaker notes that the leaders tend to be consistent over a long period of time.

The speaker clarifies that they may have given up some commission in the past to remain competitive in the property market, but now they are focused on pricing and being compensated fairly. The market is still experiencing some declines, but it is not a drastic change from previous years.

The speaker states that customers are pleased with the increase in limits and are willing to take the pain of the last few years. They also mention the impact of storm season and the potential impact on the contingent commissions. The loss activity has affected profit-sharing and contingencies across all lines of business. The speaker also mentions the pressure on auto insurance and the decline in retail segment's contingent commissions by over 50% year-over-year. The speaker does not expect this trend to change in the near future.

The company had a small amount of troops with the accruals made last year, primarily impacting the auto and other lines. The investment income line item is interest rate dependent with no seasonality. The company has a higher level of cash at the end of June, and will use it to pay down notes coming up in September. There was a slight increase in interest income in the quarter due to this. There is no significant bleed over of claims activity from retail to other segments. The company expects mid-single-digit organic growth over the long-term, which has been exceeded recently.

The speaker, Powell Brown, responds to a question about the company's organic growth and how long it can sustain at elevated levels. He states that they do not give specific guidance, but they are executing their plan well and seeing similar growth in both domestic and international businesses. He also acknowledges a lift in rate pressure, but remains positive about the future of organic growth. When asked about the company's ability to win market share, Brown compares it to 10 years ago and believes it represents a permanent change in growth prospects.

Brown & Brown has significantly expanded its capabilities in the upper-middle market and large accounts area, particularly in employee benefits. This has allowed them to pursue larger groups, not just in employee benefits but also in other areas such as casualty, property, D&O, cyber, and surety. Over the past five years, the company has enhanced its capabilities and improved collaboration among its teammates, leading to the ability to deliver custom solutions for customers. In terms of contingent commissions, commercial auto has been a problematic line of business for some time, and the pressure on contingent commissions is not a new development.

The speaker discusses the impact of unusual verdicts on the carrier's results, but notes that this has been an ongoing issue for several years. They decline to provide specific information on the exposure of programs to casualty or social inflation, and also do not give guidance on the performance of their captives business, although they are pleased with its performance and may consider further investments in the future.

The speaker is not going to discuss specific details about certain aspects of the company. He clarifies that they do not talk about the performance of individual offices and that the UK market has been growing due to acquisitions and increased capabilities. The company's consistent track record makes them appealing to firms in England.

Powell Brown discusses the success of his company's employee benefits business, comparing it to a competitive athletic team and highlighting the appeal of their ownership culture and long-standing history. He also mentions the potential for consolidation in the market and the company's strong organic growth opportunities. However, he clarifies that he cannot give specific guidance on individual lines of business. Overall, he is pleased with the company's capabilities and new business in both the property and casualty and employee benefits sectors.

The speaker discusses the growth of their capabilities in property and casualty insurance, which has allowed them to handle larger accounts. They also mention their success in the wholesale units, with an increase in organic growth and a lot of activity. They mention seeing new lines of business and some property business returning to admitted markets.

The speaker discusses the potential for standard insurance carriers to write sub-limits for wind coverage on properties that were previously insured by the E&S market. This trend is more common for properties with superior construction and high values. While more accounts are moving from standard to E&S, there are some instances of the opposite happening, but this is a strategic use of CAT capacity. The speaker also mentions the possibility of storms affecting the insurance industry in the near future.

The speaker is optimistic about the business and the opportunities in the M&A space. They believe the market is changing and there may be downward pressure on property prices if there are no storms, but the impact of storms is uncertain. The call has now ended.

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