BRO - NYSE

Ladies and gentlemen, thank you for standing by, and welcome to the Brown & 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 fourth 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 fourth quarter 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 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 www.bbinsurance.com by clicking on Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

Thank you, Michelle. Good morning, everyone, and welcome to our fourth quarter earnings call. First, 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. Our fourth quarter performance was just outstanding and capped-off another incredible year, where our team delivered nearly $5 billion 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 17,000 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 fourth quarter. I'm on Slide number 4. For the fourth quarter, we delivered revenues of $1.4 billion growing 15% in total and 14% organically over Q4 of 2023. 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&A front, we completed 10 acquisitions with estimated annual revenues of $137 million. Across the board, it was a very strong quarter. I'm on Slide 5. For the full year of 2024, we delivered revenues of $4.8 billion 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 $1.2 billion of cash from operations. We had another good year of M&A completing acquisitions with approximately $174 million of annual revenue with the largest being Quintes 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. 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 second and third quarters of 2024. 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%. 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&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 fourth quarter, rate increases for non-CAT property were still in the range of flat to up 5. 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&S markets. First, in reference to CAT property, at the beginning of fourth quarter, 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 fourth quarter. On average, rates were down 10% to 20%, similar to the end of third quarter 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. 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&A front, we had a good quarter. We acquired 10 great companies of $137 million of annual revenue and our largest acquisition was Quintes. 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-size deals as interest rates are beginning to decrease. I'm now on Slide 7. Let's transition to the performance of our three segments for the fourth quarter. 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. 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 Q3 and Q4 hurricanes. 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. As one 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.

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. 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 $1.184 billion growing 15.4% as compared to the fourth quarter of 2023. 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 fourth quarter of the prior year. Our effective tax rate for the quarter increased slightly to 24.7% versus 24.1% in the fourth quarter of the prior year. 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 fourth quarter of 2023. Overall, it was a very strong quarter. We’re 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. This growth was partially offset by higher non-cash stock-based compensation. We're over 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 million charge recorded in 2023 for the change in reinsurance related to one 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. Our EBITDAC margin expanded by 660 basis points to 47.9%, primarily driven by leveraging our expense base and to a lesser extent, the sale of certain businesses in the fourth quarter of 2023. As we discussed in our third quarter earnings call, we anticipated recording $12 million to $15 million of flood claims processing revenue in the fourth quarter associated with Hurricanes Helene and Milton. As a result of faster than anticipated adjudication and increased average severity, we recorded approximately $28 million. With increased visibility into the timing of adjudicating claims and severity, we now anticipate recognizing revenues of approximately $14 million to $18 million in the first half of 2025, with the majority being recorded in the first quarter of this year. 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 one-time cost. 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. We have a few other comments regarding our capital structure, cash generation, and outlook. From a cash perspective, we generated $1.174 billion 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 million of federal income taxes for the third and fourth quarters of 2024 related to the IRS tax relief associated with the 2024 hurricanes. These taxes are due to be paid in the second quarter of 2025. During the quarter, we also drew down $250 million on our revolving credit facility in connection with the closing of the Quintes acquisition. 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 10 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 2025 Atlantic hurricane season. For the Retail division, we have two items. The first relates to the phasing of revenues between quarters. Based on the forecasted timing of net new business, organic revenue growth for the first quarter is anticipated to be approximately 100 basis points lower than the organic growth for the other three quarters. The second item relates to our recent acquisition of Quintes 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 Quintes’ annual revenues in the first quarter with the remaining revenues recognized fairly evenly over the following three quarters. From a margin perspective, this will improve Q1 margins and will unfavorably impact the margins in the other quarters. From a full year perspective, we anticipate revenue and EBITDAC 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 million to $180 million for the full year. In regard to interest income, we anticipate this to be in the range of $65 million to $70 million, given recent reductions in the benchmark rate in certain territories. Finally, taking into consideration that net income and contingents will more than likely be down in 2025. We're expecting our adjusted EBITDAC margins for 2025 to be relatively flat. With that, let me turn it back over to Powell for closing comments.

Thanks, Andy. Great report. From an economic standpoint, we expect the economies in which we operate to continue to be stable and grow at levels similar to the second half of ‘24. We believe this is a good backdrop for companies to grow and invest at moderate levels. From a U.S. 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 in business growth. For insurance pricing, we'll provide our thoughts on rates for the first half of 2025 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. Subject to this outcome, we anticipate rates for admitted lines to be relatively similar or maybe moderate downward slightly versus their pricing in the second half of 2024 across the country. There will be similar outliers that we talked about earlier. For the E&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 second half of '24. CAT property, we expect there will be additional downward pressure in rates as compared to pricing in the fourth quarter. Based on what we're seeing, early indications in Q1 would lead us to believe that property rates could be down more than 20% based on construction quality and loss experience. On the M&A front, we feel good as we have a robust pipeline both domestically and internationally and are building relationships with lots of good companies. 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 solution selling model to win and retain more customers across our three segments. With that, I'll turn it back over to Michelle to open for Q&A.

Thank you. [Operator Instructions] And our first question is from Gregory Peters with Raymond James. Your line is now open.

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 to 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?

All right. Good morning, Greg. A couple of things that I would just say broadly across the business in ‘24. We wrote more new business than we ever have in all three of our divisions. So we're really pleased with that, number one. Number two, 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. As it relates to California, and I think that's a whole kettle of fish onto itself, I think there's a lot of variables there. And so number one, the impact to the fare plan and in 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 two, 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. 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&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 two things because that drives pricing and the ability to respond, that is independent of any regulatory or permitting actions.

Gregory, are you still there?

Yes. I'm sorry.

Go ahead, Michelle.

Our next question comes from Robert Cox with Goldman Sachs.

Hey, thanks for taking my question. Yeah. Curious just to maybe start-off with Retail. Last quarter, I think you all mentioned that the run rate going into the fourth quarter was about 5%. Is that still the run rate as we think about heading into next year or into 1Q '25? And could you sort of size the impact to the retail organic this quarter from the non-recurring item?

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 basis points to 60 basis points in the quarter. 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 winning the net new business as Powell talked about earlier.

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?

Do you want to answer the contingent?

Yeah, Rob. Let me take contingents first on it is, we've had a really good year as well as fourth quarter on contingents in the Programs businesses, as well as -- obviously, across all of our segments. I think the one 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. And I think the other area is 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 right now.

So Robert, on your other question, if you think about two 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 million 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. 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 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 and beyond for programs.

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 ‘25 as we've seen over kind of ‘23 and ‘24. It's performing very well, but we capitate that in order to limit the exposure.

Thanks for all the color.

Yeah. Thanks.

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

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 Q3 number as well. Andy, I know you pointed out, right, Q1, 1% better than the other three quarters of the year. And I know you guys typically don't want to give forward guidance on that segment. But can you just help us think about triangulating that 5, maybe even just to the Q1 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?

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 Q1. That does not impact our overall outlook for the year. We just are giving you that guidance relative to Q1.

So Elyse, the easiest way to think that whatever number you have on it, so if it's a 4, 5, 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 first quarter and then push up to the second, third and fourth, okay?

And then with the margin guide, right, obviously, programs, right, there's some headwind, right, from, you obviously had greater flood related revenue in ‘24 than you expect in ‘25. 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 one just random one, the corporate segment had like $11 million of negative EBITDA in the quarter. I just wasn't sure what was flowing through there?

Okay. So I think the color that we gave on full year guidance, Elyse, was on total company. We don't break it down by the individual segments. And you're right, and I think two 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 first quarter for -- primarily first quarter and some over into the second quarter 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. Again, there's always moving parts back and forth, that should get total company relatively flat on adjusted EBITDAC margins.

And then just the corporate in the Q4?

We just had some one-off costs in there in the fourth quarter, nothing real unusual in nature. So those can always kind of move around by quarters and by years, but nothing unusual.

Okay. Thank you.

Yeah. Thank you.

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

Hi. First one I had for you is just to see if you could expand on some of the commentary provided on the M&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&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 it you would go?

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 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. The firms that were acquired last year were -- 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. It doesn't mean we're going to buy anything big or -- but we want the ability to do it, if we find the right one. 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 stand-alone basis. And if a larger acquisition came along that fit culturally and made sense financially, we'd 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.

That's really helpful. Thanks. Next one I had is, just on lender-placed. I wanted to get a sense for, is that business operate more in sort of the Southeast Florida or do you have exposure to California? 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 were 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 one, right? So I'm just trying to understand tailwinds and tougher cost and that sort of thing.

We'll make it simple, Alex, the entire United States.

That's clear. All right.

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

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

Yeah.

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

Yeah. Thank you. Good morning.

Good morning.

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

Yeah. I think that would be fine, Mark. I mean remember, we -- last year in the fourth quarter, so this fourth quarter of '23, right? We took that adjustment for the change in the treatment, so that was a negative impact to our organic in fourth quarter of last year. 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 Q4 '24 to Q4 '25.

Understood. Then Powell, 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?

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 one 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 1.5 years. 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. 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.

Very good. Thank you.

And our next question will come from Michael

Hey, thanks. This is Charlie (ph) 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 bend (ph)? And is it just operating leverage driving that or is there anything more you can touch on? Thanks.

Yeah. 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. So it's not like each one of them grows the exact same percentage and delivers the exact same profit. There's a lot of move 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 in different areas.

Got it. Thank you. And then I guess for my follow-up, we've seen some data showing relatively significant deep population out of citizens into the private market in Florida. 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?

No.

Okay. Thank you.

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

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.

Absolutely not. So let me just, Dean, explain the dynamics there in an extreme example, but a real one. Dean, you are an owner of cold storage warehouses in Florida, their $50 million total insured values, and you have one in Miami, you have one in Naples. You have one in Tampa and you got one 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 one of two 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. 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. But please, Dean, don't think that, that this is an ultra-competitive market where there is angst and there is more emotion around that buying decision than you can imagine.

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 to just talk about the impact that's having on casualty line submission growth into the wholesale line?

Depends on what lines that you're talking about. Here's what I would say. There is still a net inflow into the E&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, the -- when we say casualty, casualty could be automobile, that's an admitted line up. 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 into wholesale than we have. 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 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&S market. So I know that I'm talking property, but the same concept applies with casualty. So -- but the wholesale market continues to expand.

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, etc. What limits do they want to buy. They're going to move or other exclusions, etc., 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?

Okay. Thank you.

Okay.

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

All right. Yeah. Good morning. Just wondering if you could talk about some of the organic hiring you've done in 2024 and 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&A?

So it's 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. We hire people from other industries that have made very, very successful transitions into our industry. We hire people with insurance background that could be carrier background or from other 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.

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

Yeah, it was in that range.

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

Correct. Yes. Because remember, we will -- 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.

Yeah. Okay. Thanks.

And the next question comes from Michael

Hey, thanks. Just one quick follow-up. Just curious, sorry if I missed it, where the -- if you can touch on where the contingents kind of landed for Helene and Milton, if there are any adjustments in the quarter or adjustments you expect in the first quarter on that?

Okay. Hi, Mike. Charlie, that’s right. We got Charlie, you’re stepping in there for Mike. We had some adjustments back in the third quarter for Helene and then, we had some adjustments in the fourth quarter 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 '25. And I think that's why we just have a little bit of cautionary outlook on those as well as what happens in California.

Thanks, guys.

Okay. Thank you.

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

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