Brown & Brown Q4 2024 Earnings Report

Brown & Brown EPS Results

• Actual EPS: $0.86
• Consensus EPS: $0.76
• Beat/Miss: Beat by +$0.10
• One Year Ago EPS: N/A

Brown & Brown Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $1.12 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Brown & Brown Announcement Details

• Quarter: Q4 2024
• Date: 1/27/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, January 28, 2025
• Conference Call Time: 8:00AM ET

Brown & Brown (NYSE:BRO) is an insurance agency, wholesale brokerage, insurance program and service organization. It engages in the provision of insurance brokerage services and casualty insurance underwriting services. It operates through the following segments: Retail, National Programs, Wholesale Brokerage, and Services. The Retail Segment receives fees in lieu of commissions. The National Programs segment acts as a managing general agent and provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches. The Wholesale Brokerage segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, as well as the company’s retail agents. The Services segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers' compensation and all-lines liability arenas, as well as Medicare Set-aside services, social security disability and Medicare benefits advocacy services and claims adjusting services. The company was founded by J. Adrian Brown and Charles Covington Owen in 1939 and is headquartered in Daytona Beach, FL.

Brown & Brown Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Brown and Brown Fourth Quarter Earnings Conference Call. Today's call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call and including answers given in response to your questions may relate to future results and events or otherwise be forward looking in nature. Such statements reflect our current views with respect to future events, including those relating to the company's anticipated financial results for the and are intended to fall within the Safe Harbor provisions of the securities laws. Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or desired or referenced in any forward looking statements made as a result of a number of factors.

[Operator]

Such factors include the company's determination as it finalizes its financial results for the that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday, other factors that the company may not have currently identified or quantified, and those risks and uncertainties identified from time to time in the company's report filed with the Securities and Exchange Commission. Additional discussion of these and other factors affecting the company's business and prospects, as well as additional information regarding forward looking statements, is contained in the slide presentation posted in connection with this call and in the company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward looking statements whether as a result of new information, future events or otherwise. In addition, there are certain non GAAP financial measures used in this conference call. A reconciliation of any non GAAP financial measures to the most comparable GAAP financial measures can be found in the company's earnings press release or in the investor presentation for this call on the company's website at www.bbinsurance.com by clicking on Investor Relations and then Calendar of Events.

[Operator]

With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

[Powell Brown, President & CEO at Brown & Brown]

Thank you, Michelle. Good morning, everyone, and welcome to our we'd like to express our deepest condolences to the many individuals impacted by the California wildfires. The magnitude of the devastation caused by these events is horrific. We're committed to assisting those impacted by these terrible fires. Now transitioning to our results.

[Powell Brown, President & CEO at Brown & Brown]

Our performance was just outstanding and capped off another incredible year where our team delivered nearly $5,000,000,000 of revenue, which included double digit organic and double digit earnings per share growth, as well as strong margin expansion. These results are only possible through the dedication of our 17000 plus teammates delivering for our customers every day. Over the years, we've worked diligently to build a highly diversified business that consistently generates best in class financial results. The reason we can deliver these results is due to our unique operating culture. Now let's get into the results for the I'm on Slide number 4.

[Powell Brown, President & CEO at Brown & Brown]

For the we delivered revenues of $140,000,000,0.0 growing 15% in total and 14% organically over Our adjusted EBITDAC margin improved by almost 200 basis points to 33% and our adjusted earnings per share grew 24.5% to $0,.86 On the M and A front, we completed 10 acquisitions with estimated annual revenues of $137,000,000 Across the board, it was a very strong quarter. I'm on Slide 5. For the full year of 2024, we delivered revenues of $480,000,000,0.0 growing 13% in total and over 10% organically. Our adjusted EBITDAC margin was over 35% increasing more than 100 basis points. On an adjusted basis, our diluted net income per share grew over 18% to 3.84 and we generated nearly $120,000,000,0.0 of cash from operations.

[Powell Brown, President & CEO at Brown & Brown]

We had another good year of M and A completing acquisitions with approximately $174,000,000 of annual revenue with the largest being Quintess in The Netherlands. We'd like to extend a warm welcome to all the new teammates that joined us during 2024 and we're pleased with the quality of the organization and our new capabilities. I'm on Slide 6. From an economic standpoint, there were no major changes for the markets in which we operate as compared to the last few quarters. Many business leaders have shifted from being cautious to cautiously optimistic.

[Powell Brown, President & CEO at Brown & Brown]

In addition, we did not see companies materially change their levels of investment as they're still hiring and growing their revenues generally at levels similar to the Overall, the economies in which we operate are relatively stable, which we view as a good backdrop for our growth opportunities in 2025 and beyond. From an insurance pricing standpoint, rate increases for most lines continued. However, they're moderating downward as compared to last quarter and last year, except for ongoing upward pressure on auto and casualty. The line that had the largest change for the quarter as compared to last year was cat property, which we'll discuss in more detail. Pricing for employee benefits was similar to prior quarters as medical and pharmacy costs continue to be up 7% to 9%.

[Powell Brown, President & CEO at Brown & Brown]

This ongoing upward pressure and the complexity of healthcare are driving strong demand for our employee benefits consulting businesses. With the investments we've made and continue to make, we are well positioned to help companies of any size navigate these market challenges. Rates in the admitted P and C market moderated slightly as compared to last quarter and were up 2% to 7% for most lines versus the prior year. The downward trend for workers' compensation rates remained and they were flat to down 5% in most states. For the rate increases for non cat property were still in the range of flat to up 5.

[Powell Brown, President & CEO at Brown & Brown]

For casualty, we continue to see rate increases for primary layers, mainly due to the ongoing size of legal judgments in The U. S. Consistent with the last few quarters, rates for excess casualty increased in the range of 1% to 10%. For professional liability, we saw rates flat to up 5% as compared to last year. Now shifting to the E and S markets.

[Powell Brown, President & CEO at Brown & Brown]

First, in reference to cat property. At the beginning of the there was speculation that the impact of Hurricane Helene and Milton would slow the recent declines of cat property rates or even reverse the trend entirely. Based on insured losses and the fact that both storms were heavy flooding events versus wind, cat property rates continue to decrease throughout the On average, rates were down 10% to 20%, similar to the end of the with more customers seeing decreases closer to or in excess of 20%. From a buyer's perspective, some leverage the lower rates to increase their limits or modify deductibles, while others realize the savings. As a result of our broad diversification, rate changes for individual lines of business generally will not materially impact the total results for our company.

[Powell Brown, President & CEO at Brown & Brown]

The major drivers of our organic growth are the economy and our ability to win net new business. This quarter was another good example. We had some lines that were up and some lines that were down, while still delivering strong results. On the M and A front, we had a good quarter. We acquired 10 great companies of $137,000,000 of annual revenue, and our largest acquisition was Quintess.

[Powell Brown, President & CEO at Brown & Brown]

We're very excited about our Dutch market position and our ability to grow over the coming years. From an overall market perspective, competition remains fierce for high quality businesses and we're starting to see more activity from financial sponsors for the smaller and mid sized deals as interest rates are beginning to decrease. I'm now on Slide 7. Let's transition to the performance of our 3 segments for the Retail delivered 4.4% organic growth driven by good performance in most lines of business. We're pleased with the level of net new business as it was consistent with our strong performance over the last few quarters.

[Powell Brown, President & CEO at Brown & Brown]

Organic growth was partially impacted by the timing of our new business and certain non recurring revenue. For the full year, we delivered strong organic growth of 5.8% as our team is performing well and we feel good about our prospects for 2025. Programs delivered another outstanding quarter with organic growth of 38.6%. This performance was driven by a number of our programs with strong new business and exposure unit expansion, as well as claims revenue associated with the and Our lender placed business and captives performed very well and our cat property business continued to grow even with cat property rates decreasing. For the full year, we grew 22.4% organically, an amazing result.

[Powell Brown, President & CEO at Brown & Brown]

As 1 of the largest, if not the largest, global operator of MGAs and MGUs, we've made thoughtful and strategic investments creating meaningful differentiation and resiliency in the marketplace. Wholesale Brokerage delivered another good quarter with organic revenue growth of 7.1%. This performance was driven by growth across all lines through a combination of net new business and exposure unit increases that was somewhat muted by the downward pressure of cat property. For the full year, wholesale delivered strong organic growth of 9.1% and we have good momentum heading into 2025. Now, I'll turn it over to Andy to get into more details regarding our financial results.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Great. Thank you, Powell. Good morning, everyone. I'll review our financial results in additional detail. When we refer to EBITDAC, EBITDAC margin, income before income taxes or diluted net income per share, we're referring to those measures on an adjusted basis.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

The reconciliations of our GAAP to non GAAP financial measures can be found either in the appendix of this presentation or in the press release we issued yesterday. We're over on Slide number 8. We delivered total revenues of $11.84,000,000 dollars growing 15.4% as compared to the Income before income taxes increased by 27.2% and EBITDAC grew by 22.6%. Our EBITDAC margin was 32.9%, expanding by 190 basis points over the of the prior year. Our effective tax rate for the quarter increased slightly to 24.7% versus 24.1% in the of the prior year.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Diluted net income per share increased 24.6% to $0,.86 Our weighted average shares outstanding increased slightly compared to last year as we continue to prioritize paying down our floating rate debt. Lastly, our dividends paid per share increased by 15.4% as compared to the Overall, it was a very strong quarter. On Slide number 9, the retail segment grew total revenues by 9.5% with organic growth of 4.4%. The difference between total revenues and organic revenue was driven substantially by acquisition activity over the past year and higher contingent commissions. EBITDAC margin expanded by 100 basis points to 27.8%, driven by higher contingent commissions, finalization of full year performance incentives and leveraging of our expense base.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

This growth was partially offset by higher non cash stock based compensation. We're on Slide number 10. Programs had an excellent quarter with total revenues increasing 28.7% and organic growth of 38.6%. Keep in mind that a portion of this growth was associated with the $19,000,000 charge recorded in 2023 for the change in reinsurance related to 1 of our captives. Growth in total revenues benefited from higher contingent commissions, but was lower than organic due to net disposition activity in the prior year.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Our EBITDAC margin expanded by six sixty basis points to 47.9%, primarily driven by leveraging our expense base and to a lesser extent the sale of certain businesses in the As we discussed in our earnings call, we anticipated recording $12,000,000 to $15,000,000 of flood claims processing revenue in the associated with hurricanes Helene and Milton. As a result of faster than anticipated adjudication and increased average severity, we recorded approximately $28,000,000 With increased visibility into the timing of adjudicating claims and severity, we now anticipate recognizing revenues of approximately $14,000,000 to $18,000,000 in the with the majority being recorded in the We're on Slide number 11. Our wholesale brokerage segment had another good quarter with total revenues increasing 11.6% and organic growth of 7.1%. The incremental expansion in total revenues in excess of organic was driven substantially by higher contingent commissions. Our EBITDAC margin decreased by 140 basis points to 25.7% due to the finalization of full year performance incentives along with certain 1 time costs.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

We're over on Slide number 12. This slide presents our results for both years. Our EBITDAC grew by 17% with the margin increasing 130 basis points to 35.2% with net income before income taxes growing 19.6% and net income per share was $3,.84 growing by 18.2. These compare to total revenue growth of 12.9%. Overall, we are extremely pleased with the results for 2024.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

We have a few other comments regarding our capital structure, cash generation and outlook. From a cash perspective, we generated $11.74,000,000 dollars of cash flow from operations, growing 16.2% over the prior year. Our full year ratio of cash flow from operations as a percentage of total revenues remained strong at 24.4%. As a reminder, we have also deferred the payment of approximately $90,000,000 of federal income taxes for the related to the IRS tax relief associated with the twenty twenty four hurricanes. These taxes are due to be paid in the During the quarter, we also drew down $2.50,000,000 dollars on our revolving credit facility in connection with the closing of the Quintess acquisition.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

For the full year, we continue to delever and finish 2024 in a conservative position as our gross debt to EBITDA ratio is in line with our ten year average. We have a few comments regarding outlook for 2025. As it relates to contingent commissions, based on what we know now, we anticipate contingents for the full year of 2025 will be down slightly compared to 2024. The unknown variables are the potential impact of the California wildfires and the outcome of the twenty twenty five Atlantic hurricane season. For the retail division, we have 2 items.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

The first relates to the phasing of revenues between quarters. Based on the forecasted timing of net new business, organic revenue growth for the is anticipated to be approximately 100 basis points lower than the organic growth for the other 3. The second item relates to our recent acquisition of Quintess and the phasing of its revenues and profit. In The Netherlands, a substantial number of policies are placed in the first quarter of the year. As a result, we will record approximately 60% of Quintessa's annual revenues in the with the remaining revenues recognized fairly evenly over the following three quarters.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

From a margin perspective, this will improve margins and will unfavorably impact the margins in the other quarters. From a full year perspective, we anticipate revenue and EBITDA to be within the ranges outlined during our August 2024 call. As it pertains to taxes, we expect our effective tax rate to be relatively consistent with 2024 and should be in the range of 24% to 25%. Based on the current outlook regarding interest rate cuts in 2025, we anticipate interest expense to be in the range of $170,000,000 to $180,000,000 for the full year. In regard to interest income, we anticipate this to be in the range of $65,000,000 to $70,000,000 given recent reductions in the benchmark rate in certain territories.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Finally, taking into consideration that net income and continuance will more than likely be down in 2025. We're expecting our adjusted EBITDA margins for 2025 to be relatively flat. With that, let me turn it back over to Powell for closing comments.

[Powell Brown, President & CEO at Brown & Brown]

Thanks, Andy. Great report. From an economic standpoint, we expect the economies in which we operate continue to be stable and grow at levels similar to the We believe this is a good backdrop for companies to grow and invest at moderate levels. From a U. S.

[Powell Brown, President & CEO at Brown & Brown]

Perspective, the main topics that most business leaders are watching include policy changes from the new presidential administration, the outcomes of potential tariffs, the timing and trajectory of interest rates, inflation and finally geopolitical matters. Depending on the outcome of each, it will influence the pace and intensity of investments and business growth. For insurance pricing, we'll provide our thoughts on rates for the as too many things can change during the year. Specifically, timely extinguishment of the California wildfires will be critical and we're hopeful there will not be another large there will not be other large wildfires as the estimated losses are significant. Then depending on the magnitude of insured losses, there could be impacts on California pricing for both admitted and non admitted property.

[Powell Brown, President & CEO at Brown & Brown]

Subject to this outcome, we anticipate rates for admitted lines to be relatively similar or maybe moderate downward slightly versus their pricing in the across the country. There will be similar outliers that we talked about earlier. For the E and S markets, the discussion will really be split between cat property and all other lines. We expect rates for casualty and professional liability should be similar to what they were in the Cat property, we expect there will be additional downward pressure in rates as compared to pricing in the Based on what we are seeing, early indications in would lead us to believe that property rates could be down more than 20% based on construction quality and loss experience. On the M and A front, we feel good as we have a robust pipeline, both domestically and internationally, and are building relationships with lots of good companies.

[Powell Brown, President & CEO at Brown & Brown]

As a result of some of the larger transactions last year, we're starting to see a moderation in multiples in the larger PE backed businesses. From our perspective, we finished the year in a strong cash and balance sheet position and have access to capital to deploy for companies that fit culturally and make sense financially. We're looking forward to another successful year in 2025. Our businesses are performing well as we're leveraging our collective capabilities to win more new business and help our existing customers achieve better results. Our market position is great as we will continue to leverage our solutions selling model to win and retain more customers across our 3 segments.

[Powell Brown, President & CEO at Brown & Brown]

With that, I'll turn it back over to Michelle to open for Q and A.

[Operator]

Thank And our first question is from Gregory Peters with Raymond James. Your line is now open.

[Gregory Peters, Managing Director - Equity Research at Raymond James Financial]

Thank you and good morning everyone. In your comments, you spoke about net new business and the success you had last year. I was wondering if you could and certainly you're seeing it in retail and programs. I was wondering if you could give us some perspective on some of the drivers there and how your outlook is for '25 on net new business and how it compares with the industry and maybe inside that sort of map out for us what California might do or how that might affect new business for you in next year?

[Powell Brown, President & CEO at Brown & Brown]

Good morning, Greg. A couple of things that I would just say broadly across the business in 2024, we wrote more new business than we ever have in all 3 of our divisions. So we're really pleased with that, number 1. Number 2, we anticipate our ability to continue to do that because of the capabilities that we have and we've invested in, both built and purchased. And we are working really well together, as you know, as a collaborative company to leverage the capabilities to the benefit of all of our customers.

[Powell Brown, President & CEO at Brown & Brown]

As it relates to California, and I think that's a whole kettle of fish unto itself, I think there's a lot of variables there. And so number 1, the impact to the fair plan and

[Powell Brown, President & CEO at Brown & Brown]

in

[Powell Brown, President & CEO at Brown & Brown]

the event the losses are in excess of all monies accessible both surplus and reinsurance, how do the assessments work? That's a big question. Number 2, the number of admitted carriers in the state today doing business, and the number of non admitted carriers will be impacted probably by the actions on a go forward basis. And so, the Governor and the Insurance Commissioner there are dealing with a difficult scenario where they're trying to provide an acceptable market. So availability of product with competitive pricing of that product.

[Powell Brown, President & CEO at Brown & Brown]

And so at a very high level, I would tell you that we believe that there is it would seem to us that it would be a massive expansion in the E and S market in that area. Having said that, many people not in our industry don't fully understand the impact of demand surge and the need for quality contractors to rebuild. And I can't stress the importance of those 2 things because that drives pricing and the ability to respond that is independent of any regulatory or permitting actions.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Greher, are you still there?

[Operator]

I'm sorry.

[Powell Brown, President & CEO at Brown & Brown]

Go ahead, Michelle.

[Operator]

Our next question comes from Robert Cox with Goldman Sachs.

[Robert Cox, Vice President - Equity Research at Goldman Sachs]

Hey, thanks for taking my question. Yes, curious just to maybe start off with retail. Last quarter, I think you all mentioned that the run rate going into the was about 5%. Is that still the run rate as we think about heading into next year or into And could you sort of size the impact to the retail organic this quarter from the non recurring item?

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Good morning, Rob. It's Andy here. On the comment that we made in our prepared remarks regarding kind of timing is, as you know, we've got a number of businesses that we can have comparables by quarters, timing when kind of things come in, some of our employee benefits businesses as well as bonds, businesses such as those. Those can move around by quarters and then there's always just kind of timing of net new business. We think that probably impacted the organic by 40 to 60 basis points in the quarter.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

We'll see that. That will just come back over the coming quarters. It can move around by quarters, but nothing that gave us any underlying pause in there. But we feel really good about momentum heading into 2025 and just how well the business is collaborating and within the net new business as Pal talked about earlier.

[Robert Cox, Vice President - Equity Research at Goldman Sachs]

Okay. Thank you. And just on my follow-up, for the program segment, seems like a lot of moving pieces. I was just hoping you could talk about sort of the sustainability of the underlying organic growth in that segment into 2025? And also, what does a normal run rate year of contingent commissions look like in programs?

[Powell Brown, President & CEO at Brown & Brown]

You want to answer the contingent?

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Yes, Rob, let me take contingents first on it. We've had a really good year as well as on contingents in the programs business as well as honestly across all of our segments. I think the 1 that had downward pressure during the year was in retail primarily in personal lines. But I think as we head into 2025, we know we had some adjustments to calculations this year related to finalization of the contingents on 2023. And so we think at least going into next year that we'll have probably some downward pressure on contingents in that space.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

And I think the other areas just kind of exactly how the losses play out in California and how that may impact a couple of our programs. It's hard to tell

[Powell Brown, President & CEO at Brown & Brown]

right now. So Robert, on your other question, if you think about 2 of the components of the growth in programs this quarter, you had the increase well, you had the total flood revenue and you had the $19,000,000 reinsurance component. And so if you think about in our program space, a lot of growth in the last several years has been driven from wind and quake and some of our other larger programs. And in those particular areas today, we're starting to see more rate pressure. And so that does not mean we don't think we can grow.

[Powell Brown, President & CEO at Brown & Brown]

I'm not trying to give you that impression, but I think that you're seeing not only in programs, but kind of across the industry kind of a moderating of growth rates. And so we don't give guidance as you know on organic growth in that area, but what I would say is we feel really good about our programs business. Part of that is really driven by the results we've delivered for our carrier partners and their willingness to work with us in adjusting prices downward to remain competitive in the marketplace. It's not easy, but we feel good about '25

[Powell Brown, President & CEO at Brown & Brown]

and beyond for programs.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

And then Rob, also keep in mind our captive, right? And we write a specific amount of premium inside of there and we're kind of hitting that, we'll call it that run rate now. So we won't see that same amount of lift going into as we've seen over kind of and It's performing very well, but we capitate that in order to limit the exposure.

[Robert Cox, Vice President - Equity Research at Goldman Sachs]

Thanks for all the color.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Thanks.

[Operator]

And our next question will come from Elyse Greenspan with Wells Fargo. Your line is open.

[Elyse Greenspan, Managing Director at Wells Fargo Securities]

Hi, thanks. My first question is on retail. So it sounds like with some of the timing stuff, it gets you right closer to the 5%, which was the adjusted number as well. Andy, I know you pointed out, right, 01/00 better than the other 3 quarters of the year. And I know you guys typically don't want to give forward guidance on that segment.

[Elyse Greenspan, Managing Director at Wells Fargo Securities]

But can you just help us think about triangulating that 5% maybe even just to the given this 1% headwind that you're pointing to is the right way to think that it's 5% less 1% just given the noise we saw in the back half of 2024?

[Powell Brown, President & CEO at Brown & Brown]

I'd like to answer that Elyse. So I know this frustrates you, but at the end of the day, we've said that our retail business is a low to mid single digit organic growth business. So we're not going to give you the number, but whatever the number is that you think, as you said, we've articulated that we foresee a 100 bp headwind in That does not impact our overall outlook for the year. We just are giving you that guidance relative to

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

So at least the easiest way to think that, whatever number you have on it, so if it's a four, five, 6, whatever your number is, you want to keep your full year number correct or keep it in line with where you are, just adjust down the and then push up the second, third and fourth. Okay?

[Elyse Greenspan, Managing Director at Wells Fargo Securities]

And then with the margin guide, right, obviously programs, right, there's some headwind right from you obviously had greater flood related revenue in than you expect in So I'm assuming that could be a margin headwind in that segment depending upon organic. Do the other segments, I guess, feel clean from just thinking about organic relative to margin expectations? And then 1 just random 1, the corporate segment had like $11,000,000 of negative EBITDA in the quarter. I just wasn't sure what was flowing through there.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

So I think the color that we gave on full year guidance, at least, was on total company. We don't break it down by the individual segments. And you're right, I think 2 areas that we think will represent headwinds will be investment income and contingents. Depending upon what happens with storm claim activity this year, we do have the storm claim revenues in the for primarily and some over into the for last year. We think at least with the headwinds that we know about on the contingents and investment income that the remainder of the business should perform pretty well next year.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Again, there's always moving parts back and forth. That should get total company relatively flat on adjusted EBITDA margins.

[Elyse Greenspan, Managing Director at Wells Fargo Securities]

And then just the corporate in the

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

We just had some 1 off cost in there in the nothing real unusual in nature. So those can always kind of move around by quarters and by years, but unusual.

[Operator]

And the next question will come from Alex Scott with Barclays. Your line is open.

[Alex Scott, Insurance Research Analyst at Barclays]

Hi. First, what I have for you is just to see if you could expand on some of the commentary provided on the M and A environment. Just looking at what some of your peers have done, it seems like maybe the environment is more ripe for larger scale M and A of some of these private equity backed companies that have gotten maybe too big for the private markets. Are you seeing more of those types of opportunities? And any way we could think about your appetite in terms of how big you should go?

[Powell Brown, President & CEO at Brown & Brown]

So good morning, Alex. So as you know, we talk mostly about cultural fit, first and foremost, and then would it make sense financially. What's occurring in the market was not only last year, but this year and what we anticipate in years to come is exactly what we thought for some time. Two plus years ago, we started and I started talking about internally the potential for great consolidation in our industry in the next three to five to seven years. And what you've seen is you're seeing parts of that.

[Powell Brown, President & CEO at Brown & Brown]

The firms that were acquired last year were all the larger ones were all private equity backed. And there are other private equity backed firms out there that are seeking to buy other large private equity backed firms. There are other strategics that are thinking about or looking to buy the right firm. What we would tell you is, we look at every individual opportunity on its own merits. And so what we have done and we're very proud of is that we have been very conservative financially and paid down our debt when we make larger acquisitions to prepare us to make an investment of pretty much any size business that we might want to buy.

[Powell Brown, President & CEO at Brown & Brown]

That doesn't mean we're going to buy anything big or but we want the ability to do it if we find the right 1. And so we feel really good about our positioning not only from the core business that we have and the opportunity to do very good acquisitions on a standalone basis and if a larger acquisition came along that fit culturally and made sense financially, we absolutely look at it. But we feel really good about the business and where we're going. And the most important thing is we want to have, which we do, the ability to invest how we want to invest, when we want to invest in our business.

[Alex Scott, Insurance Research Analyst at Barclays]

That's really helpful. Thanks. Next 1 I have is just on lender placed. I wanted to get a sense for, is that business operate more in sort of Southeast Florida? Or do you have exposure to California?

[Alex Scott, Insurance Research Analyst at Barclays]

I'm just trying to understand where we are in sort of the cycle of non renewals and how that may impact lender placed? I think Florida maybe we're hopefully getting closer to the end of a challenging environment where there were a lot of non renewals, but in California it seems like we're probably going into 1, right? So I'm just trying to understand tailwinds and tougher costs and that sort of thing?

[Powell Brown, President & CEO at Brown & Brown]

We will make it simple, Alex, the entire United States.

[Alex Scott, Insurance Research Analyst at Barclays]

That's clear. All

[Alex Scott, Insurance Research Analyst at Barclays]

right. Thank you.

[Powell Brown, President & CEO at Brown & Brown]

I'm not trying to be funny. I'm just telling you we have exposure everywhere.

[Alex Scott, Insurance Research Analyst at Barclays]

Understood. That is what I wanted to get at. So thank you.

[Operator]

And our next question will come from Mark Hughes with Truist Securities. Your line is open.

[Mark Hughes, Analyst at Truist Securities]

Yes. Thank you. Good morning.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Good morning.

[Mark Hughes, Analyst at Truist Securities]

Andy, I want to just make sure I'm thinking about this $19,000,000 change to reinsurance item. Are we to think the impact on organic growth is the fact that you didn't have that item this year, the $19,000,000 good guide organic and that's the way to calculate it?

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Yes, I think that would be fine, Mark. I mean, remember, we last year in the so this we took that adjustment for the change in the treatment. So that was a negative impact to our organic in And now we're on a comparative basis. So it's not like you're going to see next year that it's a difficult comp that's already in there. So we'll be comparable to comparable to

[Mark Hughes, Analyst at Truist Securities]

Understood. Then, Pal, you had mentioned, I guess, in Florida, you've got the lot more experience with the need for quality contractors to rebuild. Do you have any observations about the supply of quality contractors in California?

[Powell Brown, President & CEO at Brown & Brown]

Well, this would be purely speculative, Mark. But the answer is based on the magnitude of the losses, there cannot humanly possible be enough contractors. I'm not trying to be funny, but I'm just saying the demand will be so massive. And 1 of the things that I've been told, please don't quote me on this, but is that getting a permit to build a home can take up to a year and a half. So I believe that the Governor and the rest of the elected officials there will need to do something that will be more thoughtful in terms of expediting the rebuild.

[Powell Brown, President & CEO at Brown & Brown]

So think of something on a much larger scale, which would allow them to expedite construction. So let me lead you down the path of something like the Marshall Plan.

[Operator]

And our next question will come from Michael Zaremski with BMO. Your line is open.

[Charlie Lederer, Vice President - Equity Research at BMO Capital Markets]

Hey, thanks. This is Charlie on for Mike. Maybe just going back to the flattish margin expectations. Can you just provide some color on what the drivers of margin expansion ex contingents and ex flood revenue since that will likely be lower? Is it more operating expense or comp and then?

[Charlie Lederer, Vice President - Equity Research at BMO Capital Markets]

And is it just operating leverage driving that or is there anything more you can touch on? Thanks.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Yes. Hey, good morning, Charlie. It's really around operating leverage. Again, remember, we run hundreds of businesses across the platform. So we're always looking to try to make sure we grow profitably, but also we invest in our businesses at different times.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

So it's not like each 1 of them grows the exact same percentage and delivers the exact same profit. There's a lot of moving parts inside the organization. So we're just trying to kind of make it relatively simple for the outside world as to how we see all the moving parts. And we'll get some benefits of investments we made in previous years, and we'll make some more investments in the current year end in different areas.

[Charlie Lederer, Vice President - Equity Research at BMO Capital Markets]

Got it. Thank you. And then I guess for my follow-up, we've seen some data showing relatively significant depopulation out of citizens into the private market in Florida. I guess do you guys is that materially expecting or impacting your guidance or do you see that having an impact just based on the different commission structures there?

[Powell Brown, President & CEO at Brown & Brown]

No.

[Operator]

And the next question will come from Dean Cricutillo with KBW. Your line is open.

[Dean Criscitiello, Equity Research Associate at Keefe, Bruyette & Woods (KBW)]

Hi. I was wondering if the decelerating pricing in property implies less customer shopping or in other words, are you seeing less property accounts migrate for the wholesale markets?

[Powell Brown, President & CEO at Brown & Brown]

Absolutely not. So let me just Dean explain the dynamics there in an extreme example, but a real 1. Dean, you are an owner of cold storage warehouses in Florida.

[Powell Brown, President & CEO at Brown & Brown]

They are $50,000,000 total insured values and you have 1 in Miami, you have 1 in Naples, you have 1 in Tampa and you have 1 in Jacksonville. And for the last five years or more, but for the last five years, your insurance premium has gone up every year, and in some instances substantially. And so, you are you're not feeling so good about insurance unfortunately. And so 1 of 2 things happens. You want to make sure that your broker is doing the right thing and either we will bring you what the market will bear and in this case the market will bear typically downward pressure on rates.

[Powell Brown, President & CEO at Brown & Brown]

But I would tell you that any way a property owner or manager can save money, particularly in light of five years of upward pressure, they are looking to try to capture that because they're a little bit kind of it's like a really they're just worn out with it. And so, and I believe that people understand that at an intellectual level, but I don't think people understand it at an emotional level. And so having said that, everybody is different, but I'm just saying there is a lot in there. And so we write a lot of business that way and we have to face competition in many instances that way. We have to earn the respect and trust of our customers every day.

[Powell Brown, President & CEO at Brown & Brown]

But please, Dean, don't think that there is this this is a ultra competitive market where there is angst and there is a more emotion around that buying decision than you can imagine.

[Dean Criscitiello, Equity Research Associate at Keefe, Bruyette & Woods (KBW)]

Got it. Yes, that makes sense. Sort of staying on the topic of submissions, but moving to casualty, sort of given that trajectory of like rate increases there, like can you just talk about the impact that's having on casualty line submission growth into the wholesale lines?

[Powell Brown, President & CEO at Brown & Brown]

Depends on what lines that you're talking about.

[Powell Brown, President & CEO at Brown & Brown]

Here's what I would say, there is still a net inflow into the E and S market today in aggregate, okay. So there are more accounts flowing in today than there have been and we think that that in the near to intermediate term will continue to occur. That said, when we say casualty, casualty could be automobile, that's an admitted line of and we continue to see rate increases, Dean, on automobile on a regular and recurring basis. So I know I think what you're trying to do is trying to figure out is it going into wholesale versus the retail or both or whatever the case may be. The answer is, we're seeing more submissions in the wholesale than we have.

[Powell Brown, President & CEO at Brown & Brown]

So increasing submissions, increasing written business in the non admitted market, and that is exacerbated by events, some of which you read about and some maybe you don't read about, but it's areas that people become more and more uncomfortable with. That could be, you know, hypothetically convective storms in places like Oklahoma and Nebraska and Kansas and things where they might have been in the admitted property market for a long time and or the admitted property market wants massive deductibles or it goes into the E and S market. So I know that I'm talking property, but the same concept applies with casualty. So it but the wholesale market continues to expand.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

And Dean, we talked about this on a couple of calls. The thing to keep in mind, you always have to look about how the buyer thinks about it. While they are focused on rate online, what they're really focused on is their premium. And they're trying to figure out how to balance the premium because ultimately they got to cut a check for that amount. And so they're trying to figure out what's the right balance with their retention that they want to keep through deductibles, etcetera, what limits do they want to buy.

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

They're going to move or other exclusions, etcetera, they're going to move all of that around in order to figure out the premium. So you're not going to see that if rates go up 5 or down 5, there's going to be a direct correlation in our commissions or potentially even direct correlation into the premium that the customer pays. Okay?

[Dean Criscitiello, Equity Research Associate at Keefe, Bruyette & Woods (KBW)]

And

[Operator]

our next question comes from Scott Heleniak with RBC Capital Markets. Your line is open.

[Scott Heleniak, Equity Analyst at RBC Capital Markets]

Just wondering if you could talk about some of the organic hiring you've done in 2024 in the past few years, kind of how that's stacked up, anything you can share on that? And has that been a big driver behind the organic growth? Just curious what's going on behind the scenes there in terms of that part outside of M and A?

[Powell Brown, President & CEO at Brown & Brown]

So Scott, we don't discuss in detail how we hire teammates. However, I would tell you that we have been actively hiring for the last several years and through COVID in that regard. And that's teammates in all positions, service teammates, marketing teammates, production teammates, claims adjusting teammates, all types of teammates. And so we look at it as we want the best athletes on the team. And so we're it's the best athlete routine.

[Powell Brown, President & CEO at Brown & Brown]

We hire people from other industries that have made very, very successful transitions in firms. And we obviously get a lot of very talented people through our acquisitions. But yes, we're very pleased with the acquisition, I mean the hiring of new teammates that we've made in addition to the acquisitions we made last year.

[Scott Heleniak, Equity Analyst at RBC Capital Markets]

Okay. That's helpful. And then just on the captive business, I know you guys had guided to last quarter $5,000,000 to $10,000,000 of claims cost. What did that come in for the quarter? Was it within that range?

[Scott Heleniak, Equity Analyst at RBC Capital Markets]

Or how did what was it? Do you have that number?

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Yes, it was in that range. Yes.

[Scott Heleniak, Equity Analyst at RBC Capital Markets]

Okay. And then, I guess, the only question just on the CapEx was just to clarify. So you're saying you still see growth for 2025 in CapEx just not at the same rate as before. Was that the comment that you had made before?

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Correct, yes. Because remember, we write a target amount of premium in there. Again, there's more complexity behind, but that will we're just about at a run rate there.

[Operator]

And the next question comes from Michael Zaremski with BMO. Your line is open.

[Michael Zaremski, Managing Director & Senior Equity Research Analyst at BMO Capital Markets]

Just 1 quick follow-up. Just curious, sorry if I missed it, where the if you can touch on where the contingents kind of landed for Helane and Milton, if there were any adjustments in the quarter or adjustments you expect in the on that?

[Andrew Watts, EVP, CFO & Treasurer at Brown & Brown]

Hi, Mike. Sorry, that's right. You got Charlie stepping in there for Mike. We had some adjustments back in the for Helene, and then we had some adjustments in the for Milton, nothing significant that we called out. And ultimately, we've got to see how loss development plays out there and what that might mean for And I think that's why we at least have a little bit of cautionary outlook on those as well as what happens in California.

[Operator]

This does conclude the Q and A session. I would now like to turn it back over to Powell Brown for closing remarks.

[Powell Brown, President & CEO at Brown & Brown]

Thanks, Michelle. I wanted to thank everybody for your time today. We are really pleased with the performance of our business last year and equally excited about 2025. There are a lot of cool things going on at Brown and Brown as you can tell. And I've said this before, but I am pumped on our performance last year and equally feel the same way about 2025 and beyond.

[Powell Brown, President & CEO at Brown & Brown]

Hope you all have a nice day and we look forward to talk to you next quarter. Bye.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Powell Brown, President & CEO
• Andrew Watts, EVP, CFO & Treasurer

Analysts

• Gregory Peters, Managing Director - Equity Research at Raymond James Financial
• Robert Cox, Vice President - Equity Research at Goldman Sachs
• Elyse Greenspan, Managing Director at Wells Fargo Securities
• Alex Scott, Insurance Research Analyst at Barclays
• Mark Hughes, Analyst at Truist Securities
• Charlie Lederer, Vice President - Equity Research at BMO Capital Markets
• Dean Criscitiello, Equity Research Associate at Keefe, Bruyette & Woods (KBW)
• Scott Heleniak, Equity Analyst at RBC Capital Markets
• Michael Zaremski, Managing Director & Senior Equity Research Analyst at BMO Capital Markets