Brown & Brown, Inc.

Good morning and welcome to the Brown and Brown, Inc. second quarter earnings 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 second quarter 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. Such factors include the company's determination as it finalizes its financial results for the second quarter, that its financial results differ from the current preliminary unaudited numbers set forth in the currently identified or quantified and those risks and uncertainties identified from time to time in the company's reports 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 measure can be found in the company's earnings press release or in the investor presentation for this call on the company's website at .bbrown.com by clicking on investor relations and then calendar of events. With that I will now turn the call over to Powell Brown, president and chief executive officer. You may begin.

Thanks, Dee Dee. Good morning everyone and welcome to our second quarter earnings call. Before we get into the results for the quarter, we wanted to provide an update on the acquisition of RSC Topco or as we refer to it, a session. Post the announcement, John, Meena, myself, and a number of other senior leaders met with many of the teammates from a session and the feedback has been positive. We're very excited about our expanded capabilities and how we can leverage them for the benefit of our customers.

From a

regulatory standpoint, we have substantially all approvals and anticipate an 8-1 close. From a financing standpoint, we completed a very successful follow-on equity issuance and a multi-tranche bond issuance that were both significantly oversubscribed. Teams have been working on our integration plans and efforts are well underway to bring our two great companies together. Now let's transition to the results. I'll provide some high-level comments regarding our performance along with updates on the insurance market and the M&A landscape. Then Andy will discuss our financial performance in more detail. Lastly, I'll wrap up with some closing thoughts before we open it up for Q&A. I'm on slide number four. For the second quarter, we delivered $1.3 billion of revenue, growing .1% in total and .6% organically as compared to the same period in the prior year. Our adjusted EBITDAQ margin improved by 100 basis points to .7% and our adjusted earnings per share grew over 10% to $1.03. On the M&A front, we completed 15 acquisitions with estimated annual revenues of $22 million. I'm on slide five. At a macroeconomic level, things have not changed substantially. Customer outlook and confidence seem to be fairly similar to the first quarter. Generally, customers are cautiously optimistic that the uncertainties of tariffs and other matters will resolve in a favorable manner. We continue to see many customers investing in their businesses while some customers are delaying investment decisions until they have a better view on growth trajectory. With continued economic and job expansion, we think some customers will more than likely only be able to delay their investment decisions for so long. Overall, we believe the economy is still in a good place. From an insurance pricing standpoint, rates from most lines moderated even further in the second quarter and in some cases more than we expected. The outliers were auto, casualty and cap property. We're now seeing classic market softening signs for certain lines of business where carriers can have a material difference in quoted rates for renewal business versus new business on similar insured assets. Pricing for U.S. employee benefits was similar to prior quarters as medical costs are up 6 to 8% and pharmacy costs are generally up over 10%. We do not expect this trend to slow over the coming quarters which will continue to drive demand for our consulting businesses. Rates in the admitted PNC market continue to moderate down while rates were up 1 to 5% versus the prior year. This is in comparison to rate increases of 2 to 7% in the first quarter of 25 and rate increases of 5 to 10% in the second quarter of last year. The downward trend on workers' compensation rates remained in most states and were flat to down 5%. For non-cap property, we're seeing a general softening of rates which were down 5 to up 5. It totally depends on the loss experience. For casualty, we're seeing rate increases of 5 to 10 for primary and excess layers and believe this trend will continue over the coming quarters. For professional liability, rates were down 5 to up 5 as compared to last year. Shifting to 20%. The trend continued throughout the second quarter with rates down 15 to 30%. We saw more pressure on rates at the end of the quarter. Consistent with previous quarters and the softening cycle, there continues to be exceptions to the ranges. With the decline in admitted rates, customers were more times than not pocketing the savings. While we saw certain non-admitted customers consider higher limits or deductible buy downs which partially offset the premium decline related to the changes in rates. On an M&A front, we had another good quarter. On a -to-date basis, we've acquired 29 companies with annual revenues of approximately $60 million. Come on slide 6. Let's transition to the performance of our three segments for the quarter. Retail delivered organic growth of 3% with the results impacted by slowing admitted property rates and lower new business. Regarding new business, we continue to have a good pipeline and can have fluctuations by quarter. Programs delivered .6% organic growth for the quarter. We had several programs that performed well including our lender placed business. Our organic growth was impacted by the slowing of our commercial cat programs. We saw increased pressure on rates late in the quarter. Brokerage delivered organic revenue growth of 3.9%. This performance was driven by growth across most lines of business with the growth partially offset by rate declines and the seasonality of property renewals. From an open brokerage standpoint, we had a good quarter even with the decline in property rates. For both binding and personal lines, we're seeing increased competition from other markets. Professional liability rates continue to decline during the quarter for DNO and EPL. Now it's our turn over to Andy to get into more details regarding our financial results.

Thank you, pal. Good morning, everyone. Before we get into the financial details, we wanted to share and talk about the impact on our earnings related to the acquisition of a session and our related debt and equity issuances in June. As discussed during our call announcing the acquisition, transaction and integration costs related to our pending acquisition of a session will be excluded from our calculation of adjusted EBITDAF and adjusted earnings per share, which for this quarter included approximately $37 million of one-time transaction integration related costs. In addition, with the debt issuance, we recorded approximately $13 million of incremental interest income for the quarter and we recorded incremental interest expense of approximately $5 million. The shares issued as a result of our equity offering increased our weighted average share count by approximately $8.5 million for the quarter. Transitioning now to our consolidated results for the quarter. As a reminder, when we refer to EBITDAF, EBITDAF margin, income before income taxes or diluted net income per share, we were referring to those measures on an adjusted basis. The reconciliations of our gapped and non-gapped financial measures can be found either in the appendix of this presentation or the press release we issued yesterday. On a consolidated basis, we delivered total revenues of ,000,000, growing .1% as compared to the second quarter of 2024. Income before income taxes increased by .6% and EBITDAF grew by 12.1%. Our EBITDAF margin was 36.7%, expanding by 100 basis points over the second quarter of the prior year, driven by incremental interest income and underlying margin expansion. For the quarter, our margin expansion was partially offset by the seasonality of revenue and profit associated with some recent acquisitions. Our effective tax rate for the quarter decreased slightly to .7% versus .3% in the second quarter of the prior year. Diluted net income per share increased .8% to $1.03. Our weighted average shares outstanding increased by approximately 10 million, primarily due to the share issuance we mentioned earlier. Lastly, our dividends paid per share increased .4% as compared to the second quarter of 2024. Overall, we are pleased with our performance and how our team delivered for the quarter. We're on slide number eight. The retail segment grew total revenues by .9% with organic growth of 3%. The difference between total revenues and organic revenue was driven substantially by acquisition activity over the past year. Our EBITDAF margin decreased by 50 basis points at .5% due to the impact of revenue on the quarter. We also have a new seasonality for quintests, which we acquired in the fourth quarter of 2024. As we discussed previously, approximately 60% of the revenues for quintests are recognized in the first quarter. Therefore, we have higher margins in the first quarter and lower margins than the others. We will see similar impacts in the third and fourth quarters of this year. We're on slide number nine. Programs delivered organic growth of 4.6%. Total revenues increased .1% driven by higher contingent commissions. Our EBITDAF margin expanded by 320 basis points to 52.8%, primarily driven by organic revenue growth, incremental contingent commissions, and managing our expenses. We're on slide number 10. Our wholesale brokerage segment had another good quarter with total revenues increasing .5% and organic growth of 3.9%. The incremental expansion in total revenues in excess of organic was driven by acquisitions completed in the last 12 months and higher contingent commissions. Our EBITDAF margin increased by 80 basis points to 34.1%, primarily due to higher contingent commissions. Our margin was impacted due to a recent acquisition that has a lower margin than the average for the total business. As we've done in the past, we expect to increase the margin for this business over time. As a reminder, starting in the third quarter, we will be combining our programs and wholesale segments into one division, which will be called specialty distribution. A few other comments. From a cash perspective, we generated $537 million of cash flow from operations, which was an increase of $164 million over the first half of 2024. In addition, in connection with our pending acquisition of the session, we successfully issued $4.4 billion of equity and $4.2 billion of debt. Both offerings were significantly oversubscribed, demonstrating the support for Brown & Brown. The discount on the equity was just over 3%, and the average coupon on our debt was 5.4%. Lastly, we also paid the outstanding balance of $400 million on our revolving credit facility during the quarter. Our balance sheet is in great shape, and we have strong cash flows to support de-levering post-closing, which is consistent with our historical approach after a larger deployment of capital. With that, let me turn it back over to Powell for closing comments.

Powell Thanks, Andy, and a great summary of our results. From an economic standpoint, we believe the main areas of focus will be tariffs and interest rates. As we mentioned earlier, we think there's still a good backdrop for economic expansion. Hiring remains solid, and most companies are growing. This is even while leaders have a cautious bias, and some are delaying investment decisions. From a pricing standpoint, we expect admitted rates to continue to moderate in the second half of the year at a rate similar to the second quarter. Cap property rates should continue to decrease in the third and fourth quarters, subject to the of hurricane season. We expect rate changes for casualty and professional liability in the second half of the year to be similar to the second quarter. On the M&A front, we're diligently working on our integration plans for the acquisition of the session and have teams from both organizations focused on bringing us together. As we mentioned on our announcement call, we plan to remain active in the M&A space and have a good combined pipeline, both domestically and internationally. Our balance sheet remains strong, and we have outstanding cash flow conversion to help fuel our growth. We're focused on deploying our capital in a very disciplined manner to ensure we get a compounding effect over many years. We're in a great position as a company and are very pleased with our strong results for the first half of 2025. Our team delivered double digit growth in total revenue and adjusted diluted net income per share, expanded our margins, and we are now at a With the planned closing of our acquisition in August, our team is going to grow to over 23,000 outstanding teammates. We will further increase our diversification and specializations, which will enhance our ability to deliver creative solutions for our customers. We're looking forward to a successful second half of the year and continuing profitability to grow our company profitably. With that, I'll turn it over to Dee Dee to open it up for questions.

Thank you. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. In the interest of time, we ask that you limit your questions to one question. Please stand by while we compile the Q&A roster. Our first question comes from Mark Hughes of Truist Securities. Your line is open.

Thank you very much. When you think about the retail organic in the quarter, you had talked last quarter about maybe some timing of new business. In this quarter, you talk about a strong pipeline, but likewise with some fluctuations on a quarterly basis. Could you expand on that? What fluctuations there might have been? How is that shaping up for 3Q?

Sure. Based on the consensus of what we were going to grow in Q2 and retail versus what we delivered, over half that discrepancy was because of rates, so downward pressure on rates. The other half is we basically just had lower new business in the quarter. Sometimes that can happen. As I said, I feel that we have good new business going into the third quarter. Every quarter is a little different, and our visibility into it seems to indicate that we are in good shape for Q3. I just want to make sure that everybody understood that over more than half the discrepancy was because of rate pressure. Thank you very much.

Thank you.

Our next question comes from Rob Cox of Goldman Sachs. Your line is open.

Thanks. I just wanted to ask on the contingents, some strong growth in the contingent commissions there. I'm just curious, is there a theme, or is that more driven by certain products?

Good morning, Rob. I think probably a couple themes on that front is what we're seeing, at least in a number of areas in our business, is that overall profitability for a number of the carriers is up, and also for a number of our programs, they're performing really well. We're participating in the profits that underpin those. Again, maybe just a piece to keep in mind is when you see the organic growth at times starting to moderate down, the other side of that is also generally an increase in the contingent commissions. That's why we focus so much on growth in the cash, because that's why we also look at it on a total revenue basis, because there is a linkage inside of there. But overall, we feel really good with how we're performing on the contingent commissions. In the program space, it's one of the things that we really pride ourselves on is the discipline of our underwriting, and making sure that we're delivering really good results back for our carrier partners. Thank you.

Thanks. Thank you. And our next question comes from Gregory Peters of Raymond James. Your line is open.

Good morning, everyone. So, I guess for my question, I'm going to focus on Ascension Risk Strategies in 180. I guess since you've had some time to look at the business in a lot greater detail, I know you said, Paul, that you're excited, but I'm curious about your perspective on the financials. I know you previously had mentioned out some integration expenses, revenue synergies, expense synergies, et cetera. I'm wondering if you have any visibility on how the timing of those costs and synergies might be realized over the next couple of years. And related to that, just the retail, the organic profile of the business, in particular, 180. I'm curious what your perspectives are on the business since you've had some more time to look at it.

So, good morning, Greg. So, first off, as it relates to the numbers that we talked about in the announcement and the revenue and expense synergies, we talked about capturing those over the next three and a half years. So, nothing's changed on that from what we talked about in the previous call. As it relates to the two businesses' risk strategies and 180, I would make this comment. Number one, we have been very impressed with the talent inside both of the organizations. So, they do have deep specializations and very talented people, and that's very nice. I've met a lot of them now or talked to a lot of them, which I can confirm that that is absolutely true. As it relates to 180, not unlike our program facilities, they have a deep commitment to underwriting, and they have more of a casualty book of business than a property-driven or cat-heavy book of business. And some of those are tougher classes of business, meaning transportation and some other things. And so, I continue to be very, very impressed with the discipline and the people in those businesses. And we believe that, as I think we said the last time, that their growth profile is substantially similar to ours over time. And so, we feel really good about the business overall, individual divisions, the whole deal. We're excited about it.

Just a clarification, and it's just because I've been getting some inbound questions on it. Can you just spend a second and talk about the $750 million set-aside that happened, and talk about your perspective and the due diligence you did around that?

Sure. As we said before, that they have some discontinued operations that are in runoff, and basically we felt that it would be appropriate to have a set-aside for those operations. And when those are all wrapped up, that whole thing will be wrapped up as well. So, we felt really good about the process, and we did a lot of work around it, but I want to stress that it's not something that they do anymore. And those operations or accounts are just in runoff.

Thanks so much.

Yep.

Thank you. And our next question comes from Elise Greenspan of Wells Fargo. Your line is open.

Hi, thanks. Good morning. I wanted to come back to just the retail segment, right? Prior guidance was for the full year to be about 1% better than the Q1. It does, from your commentary, sound right. New business was slower and pricing got worse. Powell, sorry, I think you said half of the change in the quarter was due to just the deceleration in property rates. I'm just trying to get a sense of how do you guys see, I guess, the full year relative to that prior guide, based on your expectations for continued deceleration in property rates in the back half of the year?

So, I said that the deceleration or the downward pressure on rates was over half the discrepancy, and I believe that you and everyone else needs to factor that into your organic growth expectations in Q3 and Q4.

Okay, and then did you see, I mean, I know, right, Q2 is a heavy property quarter. Did the slowdown get worse, like, in June relative to the rest of the quarter? I'm just trying to get a sense of just kind of the pace of slowdown you saw during the quarter.

Go ahead, Andy. Yeah, good morning, Elise. Yeah, we saw during the quarter, and then June definitely had a further trail off compared to what we were seeing in April and May.

Okay, and then the programs, you called off some one-off impact on margins in the slides. Can you just provide a little bit more detail on what that was in the quarter?

We just had, we had mentioned inside there we had a true up on contingent calculation for last year as we got all the final numbers completed. So that had some benefit to the margin for the quarter. That's what we were talking about.

Thank

you.

Thank you.

Thank you.

And our next question comes from Mike Zuremski of BMO. Your line is open.

Hey, good morning. Sticking with organic from the top down level, if we look at the kind of the year over year deceleration trend line, I know you gave some color that, you know, some of it was just lower new business, which could be temporary. But, you know, are we, if I mesh the decel trend line with your comments and color on the classic softening marketplace, you know, I guess what, is there any underlying causes that's just causing the decel to be so much faster than I think we've seen historically? Is that, you know, is there some kind of underlying trend we should better understand? Because you named a lot of softening lines of business that some of them are somewhat surprising like casualty, for example.

Yeah, I don't want to give you the impression that casualty is negative. I want you to keep in mind that we don't believe casualty pricing will go up as quickly. So there's an importance there. And I apologize if I gave you the impression otherwise. But Mike, here's the thing that I would tell you. This is a classic cycle. And, you know, I've only been doing this for 35 years and I've seen this rodeo a couple times. And as you know, pricing, particularly in the case of property, typically goes up very rapidly. This is ENS. I'm just using the ENS market as the example. And then it can come down rapidly. And so what you find is there are lots of people out there, carriers, who have made commitments in terms of their portfolios and bought reinsurance to support those portfolios. And they don't want to not use that capacity. And so what that does is on your existing book of business, they take a position typically that we would not like to lose our renewals. And then you have new underwriters that basically say, or new markets to that account, who basically say, we believe that the rates are more than adequate to do this. We've also purchased the reinsurance program and we want to go and write enough business to support that program as well. And so what you have is you have more pressure today than we have seen. And so there's been a long period of upward pressure on property rates. And depending on your perspective, but if you look at it from our customer standpoint, this is very good for the customers. But it does put pressure on organic growth on any business in the industry. But if you have a lot of property, and we have a lot of property in Q2, you see it more clearly. But there's not something, Mike, that is occurring that is out of the ordinary. I don't want to give you the impression there's some, oh, this is a weird thing. We've never seen this or... Absolutely not. This is exactly what we expected. I expected it to happen a year ago, personally. But again, what you heard me say, and my mistake, it surprised us in the speed of decline in Q2, and particularly in the latter part of the quarter. That's the difference that we're talking about. Not that we were surprised by the decline, it was the speed of it.

And Mike, I think maybe one other thing. We've been talking about this for almost two years. We've been saying we expect things to be moderating back to more normal, right, on the back end of what happened through COVID. But our earlier comments, we said that admitted rates were up 5 to 10% in the second quarter of last year. That's not normal to get that level of broad-based increases. We were 2 to 7 in the first quarter, 1 to 5. It's now starting to get back to more realistic ranges in what you would see historically. So part of it is off of where was it coming from. Got it. That's a good color. My only

follow-up is on the profit margins or cash flow margins, which one you want to speak to. If we think, if we're painting a picture of a more moderating back to normal kind of organic growth trajectory, or I guess your 10-year organics, I think high fives, but then during soft markets, low singles. But should we be thinking about it kind of also if we do go into a low singles organic environment about a moderating profit margin kind of downward trajectory as well potentially? Or is the business mix shift so different that we're at a much newer, higher profit margin level if we think on a high level basis?

Yeah, Mike. One, we're not giving any long-term changes to the guidance on our margins. Those continue to be the same for the business right now. A couple things to keep in mind is we've got a highly diversified business, and we have quarters where the growth can be higher or lower, and we have on an organic basis, and this is why our earlier comment, it's not all about organic. It's a portion of the equation that comes through, but even if organic is down and we've got really good contingents, well, that's probably going to help in the margin profile for the organization. But I think as we've proven over time, we've been really successful, and that's because of the great leaders that we have inside the organization on how do we grow profitably. It doesn't mean that we might not have a quarter here and there over time that'll bump up and down, but we're focused on making sure that we invest in the business for the long term in an appropriate fashion both in talent and technology, and then try to be able to make sure that we can expand our margins. That, again, might not happen every quarter, but that's our overall goal for the business. Thank you.

Thank you. And our next question comes from Alex Scott of Barclays. Your line is open.

Hi, good morning. I wanted to circle back on the comments on the lower new business, and just wanted to see if you could give us a feel for how much of that this quarter was just timing and maybe you'd characterize as more random fluctuation as opposed to what's going on in the market. And you talked a little bit here and there about some of the new markets that are competing and so forth. How much of those dynamics causing that versus things just about one way or the other this quarter?

Well, I don't want to give you, Alex, the impression that there's some unusual thing going on in the market that is impacting our ability to write new business or not. And I'm trying to make it simple in the sense that we just didn't write as much new business for the quarter. It's that simple. And that means that sometimes you write more new business and sometimes you don't write as much new business as you think, but it's not, you know, one quarter doesn't make a trend. And new business is the lifeblood of our company. We understand that. And you combine that with the importance of taking care of our existing customers through our teammates. And you kind of get that, you know, life cycle or customer cycle at Brown & Brown. So there's no, there's no, I know you're looking for something and there's no something other than we just didn't write as much new business. It's that simple. I mean, either we, you know, we didn't win on some accounts or whatever the case may be, but it's just simply we just didn't write as much new business and we anticipate writing more new business next quarter. And I'm not going to say that there's a delay or there's a this or whatever. There's always things that get pushed. So it's not, we're not, we're not saying that. I would just leave it at that.

Got

it.

That makes a lot of sense. Can I ask if the E&S pricing and competition you've seen, is any of that affecting volume just in terms of admitted versus E&S? Like is some of the competition from admitted taking business back at all?

Yeah. So please do not take this comment out of context. But we have seen some admitted markets take some business back in all size areas. And that what I mean by that is that could be binding authority in wholesale. It could be transactional wholesale. And so we are, but it's not enough, Alex, for us to call it out as a mover. That that's not what I'm going to say. But we have seen it in places that, you know, kind of. So I'll give you an example. You'd say like what? You know, a year ago, the California, the state of California was suffering horrific fires and all kinds of disruption and their marketplace was in disarray. And therefore, lots of business flowed into the E&S market. That does not mean that business isn't flowing into the E&S market now. But what I'm saying is, is the insurance commissioner out there has figured out a way, and I don't know how, because I'm not as close to it in that state, to get some admitted markets to come back in. And we're seeing some admitted markets write some personal lines there. That is anecdotal. That is not something that I want you to print. That is not something because there's not enough data to support it. But if I hear that XYZ company is writing, you know, 15 homeowners and admitted where last year they didn't want to touch anything, that is, you know, you're kind of like, huh. So that's what I would say relative to the admitted involvement and limited involvement with some non-admitted accounts. Thank you. Thank you.

Thank you.

And our next question comes from Andrew Anderson of Jeffries. Your line is open.

Hey, good morning. I think you mentioned you expect to increase the margin of acquired businesses over time for Tuck and M&A. Can you just touch on how long do you usually find it takes to get those acquired entities to target levels?

It truly depends on the business, Andrew. And again, you made an assumption there. I think that may or may not be fair. I can see why you made the assumption. But the acquisition that we referred to is a standalone business. So I do want to make a distinction there. So you would think normally that in a business that folds into an existing business, we would get to the margin, the targeted margin more quickly. But the business that Andy referred to is a standalone business. So it takes a little longer, obviously.

Andrew, our approach when we do the acquisitions, especially on the standalone, is

we're not going

in and ripping everything off the wall on day one. We don't think that's a good approach. So generally you just kind of see as we work through it over quarters in different areas, being able to benchmark different areas, getting benefits of synergies, then the margins will come along. Same thing, and that's if you're thinking about the expense side, same thing on the revenues. They'll just come along over time. So you'll see it over 12, 24, 36 months.

Thanks. And then maybe on professional liability or do you know more broadly, can you maybe just talk about what you're seeing in terms of rate? Is there any bottoming going on there? And are you seeing any pipeline of exposure units come into market?

Well, I would say that as we said, D&O and EPL continue to have rate pressure on them. And I think that that will continue. That's my impression.

Thank you.

Thank you.

And our next question comes from Meyerfields of KBW. Your line is open.

Great, thanks so much and good morning. Paul, you've talked about economic growth explaining call it two thirds to three quarters of organic growth with the rest being from pricing. That was a smaller, different brown on brown. I was hoping you could update us on that split between economic growth and pricing in terms of driving organic.

Good morning, Meyer.

So what I would say is this. You know, and I have to be honest, I'm going to have to spend some time on that response. Once we bring our friends from a session in to Brown and Brown and specifically the 180 and how we're thinking about it. But what I would tell you is you have sort of unique. You have three or four unique parts to our business. So you have the core middle market and upper middle market Brown and Brown business and risk strategies business that business right there in a steady state economy is I would not say would change those metrics. Unless you have an inordinate amount of cat property in a quarter or in a business or whatever the case may be. So I'd stick to the two thirds, one third and large accounts. So you're going to have large benefits, large upper middle market and large accounts. That business is although rate driven, some of that's in fees and some of that's in commissions. So I might say it might be slightly different in terms of programs and wholesale. And, you know, inside of wholesale, you have a binding authority business and a transactional piece. I

would

say that it's.

I

think because of the the makeup of our book in and remember, I have to go back and preface the statement by saying before a session joins us. But our programs business was more impacted by rate because of the cat concentration. And that's one of the reasons I've highlighted that the casualty is as a balance or a ballast to that in the wholesale. I would say similar, but to a lesser degree. That's how I would answer it. So you've asked a good question and I'd like to give it some thought. But particularly in light of not not existing or existing business, but and I would say overseas, it's it's probably the same. It's exposure units and rate two thirds, one third.

Mayor, keep in mind, I think our comments still holds over the long term. And the one third, two thirds, depending upon where we are in a cycle, either on the uptake or downtake inside their rates just going to represent a larger portion. And so we've talked about that in the past that rate was making up more like 50 percent. And I think that's similar to the comment that we said this quarter. When you have those bigger swings, it's just going to take a larger percentage of on a waiting basis. But when you're kind of in that normal market growth, normal pricing and everything else, generally, I think that the trends still pretty consistent. We said.

OK, that was very thorough, very helpful. A second question, and I'm asking this when you're looking at performance, is there a range or let's say performance is slightly below expectations. Is there a number where you say, OK, we expect normal fluctuation to be 50 basis points of organic growth and anything worse than that is a problem? I'm asking this numerically, but it's something you can talk about at least qualitatively.

Yeah, so so let me let me try to answer that. What Andy said earlier is we've always said and I know you know this, that our business is a low to mid single digit organic growth business in a steady state economy. You can have fluctuations in there because of events, i.e. rates, economics, things like that, that would would potentially in a near or shorter term impact that range. But but over a long period of time, that's how we think about the business. So I think it's I know what you're saying, but I want to make sure that you understand that we don't believe one quarter makes a trend. And so did we in our retail business, which is what you're referring to, perform lower than we anticipated for the quarter? Yes, we did. And I told you why. But I don't want you to get the feeling that that we believe or anybody out there should believe that something's wrong. Quite the contrary. I would tell you that I feel as good today about our business and particularly with the addition of a session that I've ever felt about Brown and Brown and our capabilities to serve our customers. So it's not like that, Mayor. But, you know, nobody likes surprises. And one of the things that's kind of interesting is when you have a shifting market, you're going to have changes sometimes that like this, that is, you know, you might not have expected exactly. But over a long period of time, we're going to continue to grow our business

and

run it profitably and reinvest that business in a thoughtful manner. So I feel good about it. I don't feel meaning that the future I feel good about the future. And there's nothing that is a numeric quantitative or qualitatively that says, here's the deal. Now, we have a bunch of talented people that put their shoulder to the wheel. You know, I think it's all about culture and Andy does and our senior leadership team does. And so that emanates throughout our organization. And over a long period of time, it's worked really well. So I feel good about it, but I don't want to give you the impression that there's some range. Like if you if you miss by 100 bits, there's, you know, it's red. A red light goes off. It's not it's not like that. You know, I look at it as saying, yeah, I mean, I look at it as saying, hey, that that was last quarter. We're on to this quarter.

Mayor, just I think this is why we never get too worked up about any one quarter that's out there. We just kind of look how we're progressing and moving the ball down the field on a year to date basis and on an annual basis. And we feel awesome about where we are at the half year mark. We've grown the top line over over 10 percent. We're over five percent on an organic basis. Our margins are over 37 percent. We've got double digit EPS growth. Our conversion is over 20 percent, which is outstanding. We've grown it 44 percent year over year. We think we're in really good shape at the half year mark. And quarters always move around. We don't get too anxious about those things.

So. No, thank you. That just helps us reconcile. Thank you.

Thank you. And our next question comes from Josh Shanker of Bank of America. Your line is open.

Yeah, thank you for giving me some time today. You know, we've just come off a very interesting time economically in the country. The reopening post covid and a huge growth period. Our prices were up for a number of years in a row. Underwriting profitability for the industry is very, very good. You know, I've been looking at the stock for 20 years and I think back when I first heard the term EBITDAF, the argument was that the C earnouts are going to be both positive and negative and should net to zero over time. But most of the acquisitions that anyone has done in the past half decade have turned out to be wildly successful and maximize their earnouts anyway. Is that the right impression? Should we think about that normalizing? And how much organic growth did earnouts contribute over the last couple of years?

Yeah. Hey, good morning, Josh. Let me see if I can tackle a couple of those pieces. Is what we try to do. And again, the change in the acquisition is the delta off of what we expect from the business based upon when we purchase it. So we've already got expectations for growth or profitability or any sort of combination for the business. And most of our earnouts are generally over a three year period. We estimate all of that on the front end. If you look back over that 10 year period, I'm going to probably be off on these numbers a little bit, excluding the positive and negative adjustments we made around covid because it's just the unknowns. If you look back, our change in acquisition earnouts pretty immaterial. So we do a pretty nice job of estimating the performance. Now, that performance may already have incorporated expectations of really strong performance, but we already put that in the opening earn out. So wouldn't want you to draw a conclusion that because of the backdrop and the change in the acquisition that therefore the businesses were wildly successful by itself. They may have been wildly successful anyway in the process. So just there's a couple of pieces just to think about inside of there on how that works.

OK. And do you expect that to normalize, I guess? Wild is an extreme word, but let's just use it anyways. In terms of being wildly successful, should the earn out and performance of acquired businesses be more moderately successful in the forward looking period?

I don't think you can make that. You can draw that conclusion. It's highly dependent upon the business and how the economic and operating environment impacts that individual business. So I wouldn't draw that conclusion. I think that what you're saying, though, at a macro level is, do you think that growth rates in the brokerage space are moderating back towards more traditional levels? And the answer to that question is yes. Having said that, I don't think you should try to point out acquisitions as one thing. And remember, acquisitions, depending on how you handle it, counts in organic growth after year two in our business. And so just something to think about. So yeah. Yeah. You

could have a specialty business in there, Josh, that could be growing crazy percentage. And you could have another business that's growing modestly. It just really depends upon the profile of them.

Yep.

Thanks, Josh. I

just want to add a quick thing. That specialty comment, a couple of carriers in the specialty market have said some disparaging things about MGA on the recent conference calls. And there was just a very successful IPO in the MGA space. Can you talk about what you think, Ed, your two cents about what you think is going to happen over the next three years with MGA and how that affects Brown & Brown's business?

Sure. Well, I believe that MGA's ultimate success is based on trust and performance. And so there are a lot, and that's based on an underwriting culture that delivers results for the carriers that support them. So we've worked really hard over a long period of time to earn that trust with our carrier partners. And actually, I believe that there are more carrier partners that want to do more with our organization in MGA facilities than ever before. Having said that, I don't know the specifics of what you're referring to. However, I would say there can be a few bad apples. And over time, there's been a lot of bad apples. And so if I take you back only, only 13 short years ago, MGA, when we bought Arrowhead General Agency, was a bad word. And some of you thought, oh, Powell is changing the business. This is a huge acquisition and this is different. And the answer is it is different. And yes, we did change the business and we think it's worked out pretty well. And so we're still doing the same thing. So it does not surprise me, Josh. And there will always be people that go off the rails and do things that undermine or violate the trust and or authority that has been given. But that is not the organization that we have built or are building. We are a forever company, as you know. So we've only done it for 86 years. And so people do business with people they like and they trust. And so when carrier partners come to us and say, we want to write programs with you and lots of them in big and big numbers, I would tell you that the support is as good as it's ever been for us. So I think that's wonderful. So that might be an opportunity for us to go and write something else. Yeah, we're going to take one more question, please. Thank you, Josh.

Thank you.

And our last question is a follow up from Mark Hughes of Tourist Securities. Your line is open.

Powell, in the Florida excess and surplus data, you see a big jump in policy counts in the E&S market. At the same time, you've got a meaningful decline in premium per policy. So it seems like a lot of more people are doing business in the E&S market, but at a lower price point. Do you think that's accurate? And if so, is that a new phenomenon?

I don't think it's a new phenomenon, Mark. What I would tell you is in a shifting market, typically you will see upticks in submission counts and policies that go into, let's say, not admitted markets. And that's just normal because people are attacking or trying to capture the savings. That's the way I look at it. And so we've seen this before. This is not something that's new, meaning in terms of other cycles. I'm not talking about, you know, last quarter versus this quarter. I'm talking about historically. And it's interesting because the E&S market, if you want to think philosophically for just a moment, the E&S market, you can grow your business with lots of opportunities as the market is going up. And you can grow your business, although it's harder as the rates are going down. But when the markets are flat, which rarely it is, that's the part where there's a little bit of a, I'm not going to say pause, but sort of that's not the optimal time in the E&S space. And so I normally think of it being up or down as opposed to flat. And so you can see flattish in the standard markets and you can see growth. And so that's a long answer for your question. Yeah, I appreciate that. Thank you. Thank you.

I'd like to turn it back to Powell Brown for any closing remarks.

All right. Thank you, Dee Dee. Thank you all very much. And we appreciate your interest today. As I said, we look to close at the end of the week with our new teammates from a session. And we believe that the opportunities together are very good. And we look forward to talking to you next quarter. Have a nice day and a nice week. Thank you.

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