Q2 2024 Earnings Summary
- Brown & Brown has significantly expanded its capabilities over the past decade, now successfully serving upper-middle market and large accounts, especially in employee benefits. This expansion has enabled them to win more market share and write new business. ,
- The company is executing well, delivering strong net new business across all segments by leveraging their collective capabilities, resulting in three quarters of double-digit organic growth out of the last six quarters. ,
- Brown & Brown is well-positioned for future growth, with a robust M&A pipeline and strong capital position, and sees positive prospects ahead.
- The company is experiencing declining rates in property and professional liability within the wholesale brokerage segment, resulting in a shift from tailwinds to headwinds in two out of three areas, which may negatively impact revenue growth. ,
- Increased loss activity is impacting profit sharing and contingencies, particularly in auto, which has been under pressure for a while and is not expected to abate soon, potentially leading to lower earnings in the Retail segment.
- The company's recent elevated organic growth rates may not be sustainable, as they acknowledge potential pressure on larger accounts and do not expect to modify their long-term mid-single-digit growth expectations, indicating a possible slowdown in growth momentum. ,
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Casualty Pricing Discipline
Q: Is casualty pricing pressure now worse than before?
A: Powell Brown stated that in his career since 1990, this is the broadest impact of pricing discipline in casualty he recalls. The industry is showing unprecedented discipline in maintaining pricing, especially in challenging classes like habitational properties, establishments with high liquor consumption, and residential construction. This discipline has made it harder to obtain significant umbrella limits from single carriers, requiring clients to build desired limits with multiple carriers. ** ** -
Property Pricing Trends
Q: How did property pricing affect your business this quarter?
A: Property rates have begun to decrease for most accounts, except those with significant losses. Even poorly constructed properties are seeing rate reductions. This trend was anticipated after several years of high rates, which reached some of the highest levels ever. Future pricing will depend on the impact of the storm season. -
Margin Expansion Factors
Q: What influences your margin expansion guidance?
A: The projected 50 to 100 basis points of margin expansion depends on several factors: the outlook for contingents, the mix and growth of different business lines, and storm activity affecting the flood business and captives. They budget for storms each year; if storms do not occur, it results in upside to margins. ** ** -
Impact of Storm Season on Margins
Q: Does your margin guidance account for potential storms?
A: Yes, even in best-case scenarios, they model some storms into margin guidance. Storm activity impacts the captives and flood business, particularly in the third quarter. If storms do not occur, it provides upside potential to margins. ** ** -
Sustainability of Organic Growth
Q: Is your current organic growth rate sustainable?
A: The company feels confident about the amount of new business and attributes success to strong execution and a unique culture. While acknowledging market pressures in certain regions and lines, they emphasize long-term thinking and believe their ownership culture, with 22% owned by teammates, contributes to consistent performance. -
Commissions on Property Business
Q: Are you seeing changes in property commission percentages?
A: While they may adjust commissions to secure accounts, the company believes it is being compensated fairly. Pricing is paramount, and there isn't significant compression from downward pressure on rates. The focus remains on offering the best price to customers rather than on commission levels. -
Programs Segment Growth Drivers
Q: What's driving growth in the Programs segment?
A: Growth is primarily driven by a handful of programs that have been expanding consistently over a long period. These long-standing programs continue to be significant contributors to growth, a common trend within the industry.