Q4 2023 Earnings Summary
- Brown & Brown has set a new intermediate goal of achieving $8 billion in annual revenues, leveraging their history of effectively doubling revenues every few years. They have grown from $1 billion to $2 billion in 7 years, and from $2 billion to $4 billion in 5 years, demonstrating their capability to reach ambitious targets.
- International acquisitions are performing at or above expectations, particularly businesses acquired in England since mid-2022. These acquisitions contribute positively to Retail growth and margins, and the company continues to pursue further acquisitions overseas, expanding their footprint and capabilities.
- The employee benefits segment represents about 35% of the Retail business and has been a focus of investment over the last decade. Brown & Brown is pleased with their ability to serve customers across all segments and sees continued success and growth potential in this area.
- Moderation in rate increases may lead to lower organic growth in 2024 compared to 2023, potentially impacting revenue growth across Brown & Brown's footprint.
- Free cash flow conversion was below 24% in 2023, with guidance for 2024 remaining flat at 22% to 24%, indicating no expected improvement in cash flow conversion.
- A $19 million charge related to changing reinsurance for one of their captives decreased organic growth by approximately 9 percentage points in Programs for Q4 2023, highlighting challenges in managing reinsurance costs and their impact on margins.
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Reinsurance Changes Impact
Q: How do reinsurance changes affect P&L and organic growth?
A: The reinsurance changes had a $19 million impact on P&L, reducing expected losses from $25 million to $15–$20 million. This will drive incremental organic growth of $15–$20 million in 2024. ( , , ) -
Organic Growth Outlook
Q: Will moderating rate increases lower organic growth?
A: Historically, two-thirds of our growth comes from exposure units and one-third from rate. While rate impacts vary by segment and location, our focus on new business activity supports a good organic growth profile for 2024, despite moderating rates. ( ) -
Client Sentiment and Macro Outlook
Q: How are clients feeling about the macro environment?
A: Clients are showing a more optimistic view despite global challenges. Inflationary pressures are trending down, and while some have paused major capital investments, overall sentiment is cautiously optimistic. ( , ) -
Impact of International Acquisitions
Q: How did international deals affect Retail's growth and margins?
A: The businesses acquired in England since mid-2022 are performing at or above expectations, similar to our domestic Retail business. We continue to be pleased and pursue further acquisitions. ( ) -
Benefits Business Performance
Q: How did the benefits business perform and outlook for Q1?
A: We are very pleased with the benefits business performance in Q4 and for the year. The business is working well, contributing positively to our results. ( , ) -
Impact of Storms on Contingent Commissions
Q: How do storms affect contingent commissions?
A: The impact depends on the magnitude of the storm. We had a great year in profit-sharing, but future impacts are hard to estimate. We anticipate some impact but can't determine exact figures. ( ) -
Free Cash Flow Expectations
Q: What is the outlook for free cash flow conversion?
A: For 2024, we expect cash flow from operations to be 22%–24% of revenue, a similar level to 2023. This feels like a good range for us. ( ) -
Buyer Behavior to Rate Increases
Q: Are buyers changing terms due to rate exhaustion?
A: Buyers are adjusting terms like deductibles and limits in response to rate increases. It's more about the absolute dollars paid rather than just rates. This behavior isn't confined to one customer type or region. ( ) -
Standard Markets and E&S Risks
Q: Are standard markets encroaching on E&S risks?
A: No, standard markets are evaluating their books, especially cat exposure. Some admitted carriers are backing off unprofitable programs. We expect more changes as markets review profitability. ( ) -
Impact of Inflation
Q: Is moderating inflation a headwind to organic growth?
A: Textbook answer is yes, but in practice, it's neutral. Over the long term, growth is two-thirds exposure units, one-third rate. We focus on executing and selling new business regardless of inflation. ( ) -
Noncash Intangible Amortization Adjustment
Q: Impact of adjusting intangible amortization like peers?
A: If we adjusted noncash intangible amortization in 2023, adjusted earnings would increase by $0.45. ( ) -
Captive Revenue Outlook
Q: Update on captive revenue and growth outlook?
A: We generated over $25 million last year and about $30 million in 2023 from captives. We're extremely pleased with the returns but not necessarily planning to do more captives. ( ) -
Company-Owned Life Insurance Impact
Q: What was COLI's impact on quarterly results?
A: COLI was a drag of about 150 basis points on S&R as a percentage of revenue this quarter, compared to about 60 basis points last year. Impact on margins is almost zero. ( ) -
Personal Lines Impact on Growth
Q: Are personal lines boosting organic growth?
A: Yes, personal lines are having a positive impact on organic growth across all three major segments. Previously a headwind in Wholesale, it's now a growing segment. ( ) -
Plans for Services Moving to Retail
Q: Will you keep the Services businesses moving to Retail?
A: Yes, we anticipate holding onto those businesses. ( ) -
Investment Income Outlook
Q: What's the outlook for investment income and margins?
A: We haven't given an outlook on investment income. Factors like capital flows can impact it, and it's subject to interest rate movements, which we won't predict. ( )