Please standby, we are about to begin. Good morning, and welcome to the Brown & 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 the - 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 press release issued yesterday, other factors that the company have made may not currently identified or quantified and those risks and uncertainties identified from time to time in the company's reports filed with 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 the conference call.

A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measures can be found in the company's earnings press release or in the investor presentation for this call in the company's website at www.bbinsurance.com by clicking on the 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, Ally. Good morning, everyone, and thanks for joining us for our second quarter 2022 earnings call. We had another strong quarter growing double digits organically, while expanding our adjusted EBITDAC margins. Our business performed well during the first half of the year and has great momentum.

Additionally, we completed our acquisition of Global Risk Partners early this month, and we couldn't be more excited. I'm very pleased to see how the teams are executing on our proven integration plan. We'd like to extend a warm welcome to the more than 2,000 new teammates in England, Ireland and Northern Ireland.

Now let's transition to the results for the quarter. I'm on Slide number 4. We delivered $840 million of revenue growing 15.5% in total and 10.3% organically. Our adjusted EBITDAC margin was 32.7% for the quarter, an increase of 30 basis points compared to the second quarter of 2021.

Our net income per share was $0.51 on an as reported and adjusted basis. Andy will discuss our financial results in more detail later in the presentation. We also completed eight acquisitions during the quarter with annual revenues of approximately $11 million. In summary, this is a very strong performance. I'm on Slide 5.

During the quarter, most businesses continued to expand slightly, even with continued downward moderation in GDP to more traditional levels. As we've seen in previous quarters, businesses continue to face inflation, labor shortages and rising interest rates.

For many renewals, the quoted increase in premium is growing faster than the company's revenues. All of these issues continue to put pressure on margins for companies across multiple industries and are influencing how and what to levels leaders invest in their businesses. The carrier landscape remained relatively consistent with previous quarters.

The focus is on the availability of limits for certain classes or geographies, heightened pricing sensitivity and increased underwriting rigor. Consequently, customers continue to modify their deductibles and limits to best manage premium increases.

In an environment like this, we leverage our collective capabilities to provide creative solutions to our customers. Admitted market rates were similar to prior quarters and were up 4% to 8% across most lines with the outlier being workers' compensation rates, which continue to be down 1% to 3%.

From an E&S perspective, premium rates increased in the range of 10% to 20%. Cat wind property rates were up 15% to 35%, while earthquake rates were up 7% to 10%. Similar to last quarter, carriers were focused on insurable values as replacement costs have increased materially over the past couple of years.

The impact of higher values, coupled with losses will more than likely keep property rate increases in a similar range through year-end. The placement of professional liability and excess liability for most accounts remain challenging with rates up 5% to 15%. While we did see some slight decreases in public company D&O in June and the 1st of July.

Regarding cyber, the story is substantially the same with rates and deductibles continuing to increase and carriers requiring effective security protocols. Personal lines for property in California, Florida and Louisiana continue to be challenging due to losses in aggregate concentrations.

We expect carrier appetite in these markets will continue to be constrained through at least the end of the year and a number of accounts will move into the state plans. I'm on Slide 6. Now let's transition and discuss the performance of our 4 segments.

Our Retail segment had a great quarter, delivering nearly 9% organic growth, as a result of good new business, solid retention, rate increases, modest exposure unit expansion. We delivered robust growth in most lines of business. National Programs had an outstanding quarter with organic growth of 19%.

This is one of the best quarters in the division's history. The growth was driven by onboarding of new customers within our lender-placed business, strong new business, our good retention and exposure unit expansion across many of our programs.

Wholesale Brokerage segment delivered a good quarter with 7% increase in organic revenue, led by strong growth in our open brokerage business. Our overall performance continued to be impacted by headwinds within our personal lines businesses.

The organic revenue for our Services segment declined by less than 1% with the main drivers being higher prior year claims activity related to travel cancellations and weather events. Now let me turn it over to Andy to discuss our financial performance in more detail..

Great. Thank you, Powell. Good morning, everybody. We're over on Slide number 7. Like previous quarters, we'll discuss our GAAP results and then certain non-GAAP financial highlights. For the second quarter, we delivered 15.5% total revenue growth and double-digit organic revenue growth of 10.3%.

Our net income grew 4.2% or $5.9 million, and our diluted net income per share increased by 4.1% to $0.51. The growth of net income and net income per share was impacted by the incremental debt associated with the GRP, Orchid & BdB acquisitions for which we have not yet realized the full run rate of revenue and profit.

The effective tax rate increased to 27% for the second quarter of this year, as compared to 25.2% in the second quarter of last year.

The higher rate was primarily impacted by the change in the market value of the assets associated with our deferred compensation plan and the reduced tax benefit associated with shares vesting from our stock incentive plans. We continue to anticipate our full year effective tax rate will be in the range of 24% to 25%.

Our weighted average number of shares increased slightly compared to the prior year, and our dividends per share increased to $10.03 or 10.8% compared to the second quarter of 2021. We're over on Slide number 8.

This slide presents our results on an adjusted basis, which excludes the impact of movements in foreign currencies on both revenues and expenses, the net gain or loss on disposals, the onetime acquisition and integration costs associated with GRP, Orchid & BdB and the change in earn-out payables.

Please refer back to Slide 16 and 17 for reconciliations of these amounts to our most comparable GAAP results. On an adjusted basis, income before income taxes increased by 8.6% and EBITDAC grew faster than revenues increasing 16.9% with our adjusted EBITDAC margin improving by 30 basis points over the prior year, even with higher variable cost.

Our net income increased by 6% and our adjusted diluted net income per share was $0.51, which grew by 6.3%. For the quarter, salaries and related and other operating expenses were impacted by the changes in the liabilities and assets associated with our deferred compensation plan.

As we've mentioned before, when the market changes year-over-year, we realize offsetting movements within these expenses. As a percentage of revenue, the year-over-year benefit to salaries and related was approximately 3%, and there was a corresponding offset in other operating expenses.

Overall, it was a great quarter and the strong operating results are the outcome of continued high performance from our team. We're on Slide number 9. Our Retail segment delivered adjusted total revenue growth of 14.4%, driven by organic revenue growth of 8.8% and acquisition activity over the last 12 months.

Adjusted EBITDAC grew 12.6%, with the associated margin decreasing by 50 basis points for the quarter due to year-over-year increased variable costs such as travel and entertainment. We're on Slide number 10. Our National Programs segment delivered adjusted total revenue growth of 28.1%, an impressive organic revenue growth of 19%.

This was an outstanding performance.

As a result of our strong top line growth, adjusted EBITDAC grew by 42.1% over the prior year, and the margin increased by 430 basis points to 44.4% due to the leveraging of our expense base in relation to the growth in revenue, as well as the timing of prior year revenues and expenses associated with the onboarding of new customers in our lender-placed business.

Regarding the second half of the year, we're expecting good growth, but not at the levels we recognized in the second quarter due to seasonally fewer property placements and the revenue associated with the onboarding of new customers in our lender placed business becoming more comparable to the prior year. We're over on Slide number 11.

Our Wholesale Brokerage segment delivered adjusted total revenue growth of 7.5%, driven substantially by organic revenue growth. Adjusted EBITDAC increased by 2.2%, with the associated margin declining by 160 basis points due primarily to higher year-over-year variable operating expenses. We're on Slide number 12.

Adjusted total revenues in our Services segment decreased by 2% and organic revenue declined by 0.5%. For the quarter, adjusted EBITDAC decreased approximately $1 million or 12.9% due to fewer claims and some non-recurring costs. We're on Slide number 13.

Since we closed Orchid at the end of Q1, GRP at the beginning of July and are expecting BdB to close August 1, we wanted to provide an updated outlook for these acquisitions as a result of the changes in foreign exchange rates. In the underlying currencies, revenues and EBITDAC margins are unchanged from our previous guidance.

We're anticipating total revenues for July 2022 through June 2023 to be in the range of $375 million to $400 million, and we've also provided the projections by segment. We continue to expect the adjusted EBITDAC margins associated with these revenues to be slightly higher than the margins of the segments in which they will be reported.

We anticipate the revenue and profit associated with these businesses should be recognized evenly by quarter. Note that our second quarter results for this year included approximately $18 million of revenue associated with Orchid. A few comments regarding liquidity and cash conversion.

For the first half of 2022, we delivered cash flow from operations of approximately $346 million. Our ratio of cash flow from operations as a percentage of total revenues was 19.8% for the first 6 months of this year as compared to 24.4% in the first 6 months of 2021.

This ratio was lower than the prior year due to the difference in the timing of payroll funding as compared to the prior year. The payment of earn-outs as certain acquisitions have over performed our original expectations and paying higher incentive bonuses to our teammates for their outstanding performance in 2021.

Overall, we are in a very strong cash generation and capital position. During the second quarter, we repaid $100 million on our revolving line of credit. It is also our expectation to continue to decrease our leverage over the coming quarters as we have done in the past post larger acquisitions.

We will have incremental interest associated with the debt related to the acquisitions of GRP, Orchid & BdB and increased interest on our floating rate debt. As a result, we are projecting our quarterly interest expense for the remainder of the year to be in the range of $41 million to $43 million.

Regarding the outlook for the quarterly amortization expense. We anticipate this to be in the range of $44 million to $46 million for the second half of the year, this includes the amortization associated with GRP, Orchid and BdB does not - but does not include any future or unannounced acquisition activity.

And then lastly, we expect our full year adjusted EBITDAC margins to be flat or to increase slightly as compared to 2021. This would represent a very strong performance given the increase in variable costs such as travel and entertainment as compared to the prior year. With that, let me turn it back over to Powell for closing comments..

Thanks, Andy, for a great report. We have a lot of momentum and believe this positions us well for continued profitable growth.

As we mentioned last quarter, we believe economic growth will continue to moderate to more normal levels, federal rate increases, the prospect of continued inflation and resolution of supply chain constraints and geopolitical matters have the potential to further cool the economy.

With that said, we are well positioned to navigate these potential headwinds. We have a significantly more diversified business today than we did a decade ago, which should make us more resilient to a slowdown in the economy.

From a rate perspective, we anticipate premium increases for admitted markets will remain relatively constant through the end of the year. From an E&S standpoint and all of this is subject to what happens during the hurricane season.

Premium rate increases for the remainder of the year should be fairly similar or potentially slightly lower as compared to what we experienced in the second quarter.

As it relates to California, Florida and Louisiana, these markets will more than likely continue to be challenging and further rate increases for both personal and commercial property lines are possible. We continue to deliver creative solutions for our customers.

We have a good pipeline of acquisition candidates and are engaging with firms that we believe will fit culturally and make sense financially. History has proven that when we get a good cultural alignment, we deliver strong performance and value for our stakeholders.

We're making good progress in our innovation - on our innovation agenda, which is focused on leveraging data to enhance the customer experience, simplifying the placement of coverage and creating new products.

In addition, we're focused on implementing efficiency tools to enhance the experience for our teammates and enable them to spend more time delivering solutions for our customers. In closing, we feel great about our business, the momentum we have and how well our team is executing and expanding our capabilities.

The addition of GRP, Orchid and BdB will further fuel our success with the addition of more than 2,000 talented teammates with very diverse capabilities in the U.K., U.S. and Continental Europe. While the economy might present some challenges, we remain focused on delivering for our customers, winning more new business and acquiring great companies.

As we've done in the past, these will be key drivers of our steady long-term growth. With that, let me turn it back over to Ally for the Q&A session..

[Operator Instructions] And we'll go ahead and take our first question from Greg Peters with Raymond James. Please go ahead..

Good morning, everyone. I have a couple of questions for you. And Powell, I was listening to your comments and you spoke about potential macro headwinds, organic doesn't reflect that. But maybe you could spend a minute and talk to us about what you're seeing in the market as it relates to you know, whether we're in a recession or not.

And talk about how you think your businesses are going to perform over the next year in the face of this uncertainty?.

Okay. So let me first clarify. I'm not an economist, although I did major in economics in college. That said, this is - where we are today is obviously much different than where we were in 8, 9, 10 and the last slowdown. So let's make a couple of broad statements and then get right to what you were referring to.

Number one, the banks are in better position today than they were in that period of time, one. Two, the consumer allegedly is in a better position with additional savings, at least in the near to intermediate term. You have rates that are going up now generally speaking, across the board, where rates were going down then.

And you also have inflation going up now and inflation was not going and we have a labor - the labor market is different in terms of unemployment then being much higher 10-plus percent. And today, let's say, it's 3.6% to 4%.

That said, what does that mean for us? Well, there's a couple of things, on insured values we are seeing the increase on replacement cost on, let's just say, any kind of property. It could be habitational, it could be industrial, it could be whatever. So that's a nice way of saying you can't build it back for $60 a square foot.

And so they're moving into 120 or whatever the number is, that's appropriate between us and the underwriter. That's the first thing. The second thing is, as I said, rates they are not moving and you're hearing that in consistency, there's not going to be, we don't believe some drop in rates very dramatically.

And so rates continue to be high relatively speaking. They may moderate a little bit, but they're still going up. That's number two. Number three, depending on the business, the businesses although may be cautious. In many instances, the businesses are having the best years they've ever had. So let me give you an example.

If you talk to most of our construction customers, the business in their pipeline for the next year is off the chart. So my point is that's already work in progress. That's in the pipe or they're getting set. And so that said, more people are traveling to hotels. They're coming to Florida. They're going to California and Arizona.

There is lots of stuff going on and our - the restaurants are full, all this other stuff. So we haven't - although prices are up inflation, I'm talking about inflation prices, whether it's in a restaurant or your gas or whatever the case might be, we just haven't seen it yet with our customers.

So Andy, do you want to say something on that?.

The other thing I would tell you is that we're really proud of, though, one final comment is this, and I said it in our comments. Our business today is much different than our business in 2009. So I want everybody to know. And I think it's kind of interesting.

I know you don't think this, Greg, but there are some people out there that think that we're a retail business. And I would say that we are a diversified insurance broker, because 58% of our revenue is retail, but for everybody else that maybe isn't getting it, that's 42% other than retail. And that part of our business performed really well.

And so we're very pleased with how we're positioned, the diversification of our business. And quite honestly, yes, we know it's happening out there, but we're not seeing yet with our customer base. And let's - let's clear up one other thing. We are writing a lot of new business. So that is awesome.

So we're continuing to deliver for our existing customers, and we're writing a lot of new customers. So this creates a lot of opportunity for us..

Thank you for the answer. That’s helpful. Can we....

Little more than you thought you're going to get there..

I'm a little bit taken aback by that. So that's good. And I like the construction analogy, an example. Can we pivot, on Slide 5 and on Slide 14, and I know you kind of answered - touched upon this in your previous answer.

But there's a bullet [ph] point in both Slide 5 and Slide 14 regarding placement of California, Florida, Louisiana property being challenging.

Can you provide us what does that mean to Brown & Brown financially? Where are we seeing the pressures, the positives and negatives of that issue manifest itself in your results?.

Right. So here's the way I would look at it. You have - in our business, we have a large personal lines book, particularly in Florida, but we have a large habitational book. Just - these are 2 examples. You know, large condominiums on the coast.

And so what you're seeing is this, you've got, number one, as you know, in the state of Florida, we have - they have takeout companies, which you've read about are Demotech rated and they're reevaluating that. They're not going to come out with adjustments today and tomorrow, like they talked about, that's number one.

Number two, there's a flow of business back towards Citizens, which anticipates there are a number of - policies could be somewhere in the range of $1.2 million or up to as high as $2 million by year-end if everything went to hell in a hand basket, technical term. We don't anticipate that, but I'm saying it's possible.

And so in our business, we think the order of magnitude relative to the impact on it, residential properties is in the neighborhood of several million dollars that could be moved from some of these things over into a facility like Citizens or something like that. That's the first part.

The second part, which is much harder to put your finger on is, in some instances, we are seeing individuals who have very nice large homes in Florida who do not have mortgages, basically raise their hand and say, the insurance for personal lines is too expensive. We're going to self-insure. And that's hard for me to understand, I mean, but I got it.

But their insurance rates are going up - this we primarily in Southeast Florida, I haven't heard of that yet anywhere on the West Coast or any of that Tampa, but I haven't heard that yet, but I'm talking to Dade, Broward and Palm Beach County, but specifically Dade and Broward.

And so what I mean by that is you have this very interesting shift in California because of the wildfires and lots of accounts are coming out of markets and they either have to pour into the fair plan or they're going to go into an E&S market where the rates are going up substantially.

Louisiana has been under intense pressure because of the losses, and they're having the same issue in their homeowners market, although the values in Louisiana, as you know, are much different than they are in Florida or California.

So that's a long-winded answer, Greg, of saying, one, the order of magnitude, in our opinion, on residential for us is several million dollars. If that were to all go to Lenahan [ph] basket. That said, we haven't quantified it on our commercial book because we think there's commercial options.

It's not - Citizens does write in Florida commercial business, but most of the business that we write is actually in E&S markets that's on the coast..

Is it several million dollars….

Go ahead. Sorry, Andy..

Go ahead, finish your question, then I'll round it out..

Well, I was just going to ask about the several million dollars.

Is that principally in retail?.

Yes, primarily in retail, and that would be the delta if we had to move all of it to another market, and if it went to Citizens and the delta on the commission rate. So we don't see that as a material headwind for us. We still have that impact going wholesale and we called that out in terms of the personal lines.

So we do have a good sized personal lines book there, and that will continue to be under pressure.

But if you think about just the overall, you know, from a commercial property space and where rates are going, generally, it's a positive for us, Greg, when you look across programs and all the wind programs that we run in the wholesale business, as well as on the retail from the placement component of in - inside of there.

So I just want to make sure we balance that out..

Got it. Final cleanup question I have for you is just, you did push some revenue numbers for GRP, Orchid, BdB, revised for currency. Can you talk to us about the integration? That's my last question..

Yeah. I'll take – you take that. First of all, Orchid's on and up and going and where it's pumped for the team to be part of Brown & Brown here in Florida. So very little integration hurdles there. As it relates to GRP, we've got a lot of good stuff going in terms of information sharing from teams there and in teams here.

We've got leaders from here spending time there and vice versa, their leaders coming here. And we have senior leaders over there. This summer, I've asked Barrett to go over and spend six weeks with family there, getting to know all of our teammates and carriers and customers in a period of time that within reason.

And so we have a lot of good stuff going on there, and we're very, very pleased with what's going on with the integration, but it takes time. And I know Andy will make a couple of comments on this, but we're continuing to get them kind of on to our - how we think about it and reporting structure and all that stuff.

So you want to expand on that a little bit?.

Yeah. Greg, we touched on this briefly in the opening comments, but we've got a proven way in which we go about integrating acquisitions and bringing the teams together. And that covers everything to how we think about the go-to-market with customers, how we're engaging with our carriers and expanding the potential markets.

How are we integrating the back office, all the way through from the front to the back. So we feel really good how all our teams are collaborating. And obviously, it's still early days, but going all in the right direction, which is really good..

Got it. Thanks for the answers..

Perfect, yeah. Thank you. We'll go to the next question..

We'll take our next question from Weston Bloomer with UBS. Please go ahead..

Hi, good morning. My first question is just a follow-up on the integration of the deal and the lower revenue guidance associated with that.

Could you just give us a sense of the economic backdrop that you're baking into those assumptions? And could that guidance hold a potential recessionary environment? Are there additional FX or maybe lower GRP baked into that currently?.

Yeah, Weston, what we did in here, so when we originally communicated this back in March, we had just used a spot rate at that time, not knowing exactly what it's going to look like over the next 12 months. The sterling, as well as the euro has - they both devalued materially since that stage.

So what we wanted to do is provide the updated range on revenues from where they were. Again, those numbers are realistically going to move around again if FX - if the exchange rates go back up. So that's how we got from the 375 to 400. A couple of important things to keep in mind.

There is no change in our expectation for the underlying performance of the business. They had a really good first half of the year from everything we can tell, and they're running a little bit ahead of their plan on the GRP front, which is very good.

The margins on the businesses are still running right in the range of what we had anticipated back when we communicated before. And as we mentioned, the margins will probably be a little bit slightly higher than each of the segments that we're going into. So the health of the business is very good.

All of the movement is just FX right now, and it's going to continue to move around over time, okay?.

Got it. That's helpful. And then just switching over, and you maintained your EBITDA guidance for the year, and that does imply stronger growth in the second half of the year.

So I guess, does the inflationary environment really change how you invest in your business, either from hiring talent or other investments? And maybe you could just give us a broader sense of how investment spend could trend in the second half and the resiliency of gross [ph] business?.

Sure. We'll split this into two pieces. So one for clarity, we've actually - we've increased our guidance for the full year. As you probably recall, Weston, when we originally gave guidance for the year, we said down slightly to flat to up slightly.

Based upon the strong performance in the first half of the year and taking into consideration some of the headwinds of continued inflation, we now think that we'll be flat to up a little bit, which is good. But there's still inflation going on in the business both from a compensation standpoint, as well as just operating expenses.

If you've taken an airline flight likely, you can definitely see where the costs are today versus where they were a year ago. So we're trying to take all that into consideration. So as it relates to how we think about investing in the business, number one, as you know, our business is all about teammates.

So we're focused on getting the right people on the team, rewarding them, challenging them to work to the best interest - for the best interest of our customers and grow personally and professionally and financially.

That said, some of the hiring that we're doing, obviously, is costing a little bit today than it was a year ago, and that's going to be reflected in S&R. That's - but that doesn't mean we think differently about it. We're always looking for the right people. That's number one. Number two, Andy made the comment about travel.

Let's just talk about plane flights and hotel rooms. And we saw an uptick in our business in T&E in the second quarter. And so as more people go out to see customers and go to events and do things, we're going to continue to see that. And at the present, he cost for that is higher today than it was a year ago or 2 years ago. So just keep that in mind.

The third thing is about acquisitions. And the answer is we're always looking for acquisitions because it's all about cultural fit and doesn't make sense financially.

We have not seen any indication that the purchase price multiples are coming down as a result of any increase in Fed rates or anything to that effect and actually don't anticipate that in the near to intermediate term. But we will continue to be out meeting with people and why and when people do transactions is very different for different firms.

But we think there continues to be a great a number of opportunities for us to invest in businesses that will either embellish existing capabilities or expand into new capabilities..

Great. Just a quick follow-up on the M&A comments. I know you did eight deals for $11 million and deal activity was up $1 million was down versus historical trends.

How much of that is a reflection of kind of the multiple environment? Or if you integrate M&A? Or maybe just those were the opportunities you had that you saw in the quarter?.

It was the latter. It really was. And I think here's the thing Weston, we don't get caught up in the number of transactions. I think that's important.

That's not a criticism, but we don't get caught up in it, whether we do eight, whether we do 10, whether we do three, whether we do none or we do more than that, it's all about investing in the right firms. Now just coincidentally, it's kind of interesting. GRP bought eight businesses in the second quarter.

So that's - and that's just a statement, it's not a here or there. And so when we look at it as when the right firms that fit culturally and make sense financially present themselves, we don't think it's down or up because of anything other than that..

Great. Thank you for the color..

Yeah..

Thank you..

And we'll take our next question from Michael Phillips with Morgan Stanley. Please go ahead..

Hey, thanks. Good morning. Powell, you mentioned something somewhere we've heard from some of the carriers on the admitted side, that is rate deceleration is kind of slow, if not gone back up again. I guess, and your numbers were a little bit the same that you quoted.

Is that pretty broad-based by line? Or is that specific to property lines, that's driving that?.

Remember, let's look at it this way. Let's talk about the areas where you see pressure. Automobile continues to be under pressure because of the number of accidents and more importantly, the cost of the claims that are being paid, that's number one.

Number two, liability, if you're going to see some downward rate pressure, I think in the primary, you might see it there if it's priced appropriately, you may not see increases as much. Excess continues to be challenging, that's umbrellas. You heard us say that - and this is kind of across the board. We talked about umbrellas under pressure.

You talk – where workers' compensation rates being down 1% to 3%, I think, is what it was. And - and from a standpoint of property, Cat property continues. That's not admitted. I know that. But even admitted property carriers continue to look at their property portfolios.

Part of that is highly driven around the reinsurance placements and any limitations or pullbacks from the reinsurers into them into like a large Siemens [ph] one of the primary carriers. So it's interesting how carriers are viewing their property portfolios. Broadly speaking, there's a broad statement.

Carriers want to figure out ways to reduce volatility and diversify their books of business. That's kind of a - that would be conceptually what any carrier would like to do, and it's easier for some than others..

Okay. Thank you. That makes sense. Second question on the National Program. Obviously, really strong numbers on the organic side.

I just want to confirm, is there anything at all that was kind of a one-off or [indiscernible]?.

Good morning, Mike, it's Andy here..

Morning..

I would say there was one-offs inside of there. The big drivers that we saw across all National Programs as we talked about, we had a really good business in many of our programs.

We had good retention, and we're seeing some exposure unit expansion in addition, and we've talked about this for a few different quarters, starting last year was the on-boarding of some new customers in our lender placed business. And this was the final quarter before we make the lap [ph] on the revenue and the expenses coming around.

So that's part of what is driving the increase. That's why we made the earlier comment about it will be on a more comparable basis. And we think the organic - we're still expecting good organic in the back end of the year for the National Program segment, but we would anticipate it would slow down.

We love the growth at 19%, but part of that has just making the lap on the lender place, but that is not the majority of it. It just - it was a really, really good quarter.

Now keep in mind, when we head to the third quarter, and this is traditional in that business, we have less property placements in the third quarter than what we have in the second quarter. So if you look at the organic, it normally does dip down a little bit in the third quarter in comparison to others.

So if you look back over history, that's a pretty traditional trend..

Yeah, okay. Thank you for the comments Andy. Appreciate it..

Thank you..

We'll take our next question from Elyse Greenspan with Wells Fargo. Please go ahead..

Hi, thanks. Good morning. Powell, you spoke about macro headwinds. I recognize you said you guys really aren't seeing them yet. But - and did stay right that this - what you're expecting, right, wouldn't necessarily compare to some prior slowdowns. As you also mentioned, right, inflation, still good pricing environment.

Historically, you know, Brown & Brown hasn't necessarily guided organically, but you have said in a steady-state environment that you guys typically grow around mid-single digits.

So when you think about those factors that you mentioned that I just reiterated, how do you see the organic growth environment playing out over the rest of the year and into 2023 as well?.

So I know - I appreciate that you ask that every quarter, Elyse. But as you know, we're not going to give organic growth guidance in our retail business or any of our businesses. You're correct in saying what I've said historically and that was just kind of put that out there to allow you to chew on that and everyone in the investment community.

But the short answer is this. We're going to continue to service our customers. That's our first and foremost. Number two, we're going to try to write a lot of new business, which we've been successful so far in doing. And number three, we're going to continue to look for businesses that we can - that fit culturally that makes sense financially.

And those businesses typically are growing organically and they have capabilities to either expand on our existing capabilities or create new capabilities for our organization. So I'm sorry. I know you'd like to hear me say something differently on a certain quarter, but I'm not going to do that. But we feel really good about the business.

We feel good about what we can control. We can't control the economy. And so what we can do is we can do a great job for our customers, and we can go out and write a lot of new business or be aggressively seeking new business.

And that's how we have positively impacted our organic growth, not only this year but last year, and you've seen the results accordingly..

Yeah, Elyse, as we think about at least the economy over the coming quarters, this comment is consistent with what we said over the last quarters. We anticipate that GDP is going to continue to moderate down to more normal levels. We don't think that it goes negative, but who knows what can happen out there in the future.

But we're coming off of almost historic highs on GDP. It's got to moderate itself back down to more normal levels. And that's just going to take a number of quarters in order to get there. So depending upon the actual trajectory of it is how it will influence our business over time, but we feel really good with how we're positioned today..

And then my second question is on the margin side. You guys saw a 20 basis points of margin expansion in the first half of the year. Andy, you mentioned, right, that the updated guide kind of reflects the better - better-than-expected start to the year. We don't lap right some of the T&E coming back in the second half of last year.

So is it the fact that you guys still might just come in at flat margins for the year, does that just reflect some conservatism around inflation that should more than overshadow the easier T&E comp in the back half?.

I think as we look into the - back into the year, we anticipated originally that comp would be a little bit easier with the incremental inflation on the areas that we mentioned earlier, yes, that may take some of that potential tailwind out. So just being a little bit conservative.

I just don't know exactly what it's going to look like in the back end of the year, but we feel really good with how all our leaders are managing their expenses and investing in the business. We do a really, really good job with us across the organization, and we'll see ultimately how the numbers play out the back end of the year..

And then one last one. We've seen rates move a good amount.

Can you just give us a sense of how that could start to benefit you guys see a potentially greater for your share investment income?.

Yeah. We - I know we've had - this comments come up on a few calls on the fiduciary income is, if you look back over time, is that is not a significant driver of revenue for us. And I know some of the other brokers make different comments that are out there. And again, maybe their businesses have a different profile underneath.

But we don't see, for every 1% increase in the Fed rate that, that drops out millions upon millions of dollars for us. It just - this has not historically done that one.

Because the other thing that is something to think about in that equation is even if the Fed takes rates up by 1%, they won't flow through from the banks at the same rate, there's always going to be some sort of a spread in there and there's always a delay. So theoretically, yes, that makes sense.

In reality, that's not what really happens that's out there. So we do a great job of managing our capital and all the fiduciary to the extent that we can.

Also, I think we've mentioned this in the past is, in many cases, on the fiduciary side, there are restrictions put in place by either the states or by our carrier partners that only allow us to earn interest up to the extent of the bank fees that we incur and then after that, we cannot earn it.

So again, that's a portion of our fiduciary funds that are out there..

Okay. That's helpful. Thanks for the color..

Thank you..

We'll take our next question from Mark Hughes with Truist. Please go ahead..

Yeah. Thank you. I was in the presentation, you commented on the frequency and magnitude of losses driving reduced appetite. You certainly touched on construction replacement costs and maybe a coastal property or wildfire losses.

Were you making any broader point there about the frequency and severity of claims, maybe really the broader inflationary issues, are you seeing anything among your customers or our carriers talking about loss trends perhaps picking up? Just curious..

Yeah. I wasn't - there was not a subliminal message there. I don't want to give you that impression. I just was trying to give you a state of the marketplace and how we see it, which is the - in some instances, depending on the class of business, the line of business, whatever the case may be, there may be a higher frequency.

But for sure, pressure on the loss costs. So the losses that happen are paying out at a higher rate today than they were a year or 2 years, 3 years ago.

That's what I'm saying, and that was just trying to have an underlying support for the pressure on - the upward pressure on rates, albeit they could be going down slightly, but they're moderating at a slower pace or just slowly moderating. That was the implication Mark..

Yeah, I appreciate that. What do you think workers' comp, I think you implied that it's declining at a slower pace. Do you think that hits an inflection? Or I'll ask you this.

Are there any signs of any kind of inflection?.

Yeah. The answer to the question is no, there's nothing that I've seen that there's some - we've hit the bottom or whatever the case may be. But let me be clear on that. I don't, me personally, I don't think as much about the rates in workers' compensation as the payrolls because remember, that's what's driving that business.

And so if the economy is expanding or payrolls are going up, then typically, our business is performing better. So in a high unemployment environment, you have lower payrolls typically. And therefore, that's a downward pressure on our business.

At the present time, we haven't seen that because it's the exact opposite because it's a very low unemployment and actually, the pressure on wages is higher today than it has been.

So therefore, that's - in the near to intermediate term, that's typically a positive from a workers' compensation, which I believe offset any negative downdraft of that 1% to 3% that we talked about..

Yeah. And then finally, a quick one. You talked about very good pipeline visibility within the construction sector.

Is that more Florida centric? Or are you seeing that across the country?.

That's everywhere, and it's not just residential, it's commercial. It's both..

Very good. Thank you..

Thank you..

And we'll take our next question from Robert Cox with Goldman Sachs. Please go ahead..

Hey.

Can you talk about how the premium audit process has been this year and how you're seeing inflation work its way into insured values? And aside from property lines, what areas are you seeing material benefits from inflation?.

You can take that, Andy, if you want to..

Good morning, Robert. Is from the audits and at least what we've been seeing over the last few quarters, is we've been in an advanced position, but there's been no material increases or decreases in the audits.

So I guess if you're trying to get a feel for or the insurance trying to materially understate their insured values or payrolls, whatever the case might be, and then having a big adjustment on the back end. No, we're not seeing anything major there, at least in the first half of this year..

Got it….

Yeah, let me try to address your question about inflation and insured values. So remember, I'm just going to make it simple, let's just use computational property. So that could be apartments, that could be condominiums, that could be anything of the sort.

For sake of this discussion, let's put it anywhere in Florida, in Texas or California, just as an example. Large population states, we write a lot of business there. And basically, underwriters, both in the E&S market and in the admitted market are looking at replacement cost values and saying that does not look right.

And so therefore, there's a slight embedded upward pressure there in addition to the rate increase. So we are continuing to see that. And in some instances, underwriters are looking for higher increases in values than we think we can get - it can all be done in a year. I mean we've had to say, look, there's just no way the insured can buy that.

And so there is an issue going on there. So the most - to your point, the most marked increase from an inflationary standpoint would be around the following. Let me give you an example. You have a car that actually you get in an accident yourself, a personal automobile accident. It's not your fault.

You drive a jeep, just made that up, and you needed to get fixed. So the part is going to cost more, and it takes longer to get. So the insurance company of the person that hit you is paying you for a rental car for six weeks or eight weeks when in essence, it used to be done in two weeks.

So there's additional costs there, which increases the total overall claim. That would be an example. Case in point, you have a fire loss and people, you got to get wood right away or cinder block or whatever the case may be.

Those products cost more, the cost to get it to this - the site, the job site is more and the cost of the goods is higher and the cost of installing it is higher. So you have kind of the - the trifecta there. It's kind of across the board. So we're seeing it kind of in all segments of our business.

Interestingly enough, you didn't ask this, Robert, but I would tell you that we're seeing that in a similar fashion in England, so their inflation rate, obviously, is high as it is here, and we're seeing the same kind of thing going on there..

Thank you. That's very helpful. And just for your second question, just going back to your comments in the presentation regarding acquisition multiples continuing to expand.

Can you just talk about that a little bit and why they would continue to increase in light of rising interest rates?.

Okay. So depending on who you ask, the number of acquirers out there continues to grow. And so you have strategic buyers like us and the other public companies. You have buyers that are short term in nature, which are typically backed by private equity, which will be sold.

And then - but they have businesses and then you have private equity firms that are trying to get in that don't have businesses. That's kind of the way I look at the different buckets.

And so when you have firms that don't have businesses and they say they want to get in, they may be willing to so-called pay up for a business or for an asset that we would not be able to get our heads and around evaluation. Having said that, as crazy as that sounds, they're willing to take lower returns to put that money to work.

So they may project a return of X, but they're willing to take half of X to put that money to work. And so again, we invest for the very long term. We are all about the high-quality people that do the right thing for our customers. And we try to invest in a manner that will build long-term value for all of our stakeholders.

So again, the other thing that I do want to mention, which I think purchase price multiples, people say, well, they're up or they're flat or they're high or whatever. And the answer is a purchase price multiple of what, okay. So let's make sure we're clear on that.

An investment banker or a business broker can gussy up a pro forma and make it look a lot better than the reality of life.

And so it's a multiple of what? Is it a multiple of the real earnings? Is it the multiple of the adjusted earnings? Is it a multiple of what? And so again, I find it very interesting what people will buy based on the projections because we don't think those are true ongoing - it's not an indication of ongoing concern. So that's the way I look at it.

Thanks a lot, Robert..

Thank you..

And we'll go ahead and take our last question from Yaron Kinar with Jefferies. Please go ahead..

Thank you. My first [Technical Difficulty].

We're not able to hear you Yaron. Yeah, your headset is breaking up..

Can you hear us?.

Yeah, we can't hear you, Yaron..

We can't hear you. All right. Why don't we do this, Yaron, why don't you work on your headset. I think we've got another question in queue. We'll take that one and we'll come back..

There we go..

Yeah, we can hear you. Go ahead..

Better now, sorry about that. My question was around margins or the margin guidance of flat to slightly up. It would be at either end of that range.

Is that really going to be driven by the level of organic growth that you'll achieve through year-end? Or are there other drivers that would impact the margin range?.

Yeah, it could be a number of things in there, Yaron. So organic would be one of the drivers. There will be the travel and entertainment costs in the back end of the year, just potential inflation on other operating costs that we have, as well as salary. So it's going to be kind of a combination of all of those together.

We haven't put a specific weighting on each one of those in our guidance, but just trying to take all of them into consideration..

Okay. And then I did have a couple of questions on the M&A front.

So one, did I hear you correctly in saying that GRP executed on eight deals since you announced the acquisition? And if so, were those eight deals already contemplated in the guidance?.

No, no. So two different things on that comment. So the eight that we had mentioned, Yaron, those were the ones that they had completed during the second quarter, this year. So we're just trying to give you kind of perspective on the activity that they had. And then they've already completed two or three this quarter already.

And all of - almost all of those were anticipated as part of the overall transaction..

Okay.

And then the earn-out for GRP, BdB and Orchid, are those all in local currency? And are they based on EBITDA earned in local currency? And would they be paid out in local currency?.

Where there are earn-outs, yes, those are based in their functional currency..

Okay. And final quick one, if I could. Are the margins from GRP BdB and Orchid going to be any different on a U.S.

dollar base?.

The margins is - and we mentioned this earlier, we're expecting the margins from those three businesses to be slightly higher than the margins for the segments in which they will operate. In FX should have a minimal impact on the actual margin….

Okay….

The margin percentage, sorry, not margin dollar because that will move around..

Right. Understood, thank you..

Thank you..

And we'll go to last question from Meyer Shields with KBW. Please go ahead..

Great, thanks.

Really quickly, I know it's very thin [ph] can you share what your European current and future colleagues are thinking about economic growth there?.

Well, remember, we don't give organic growth guidance. So we - our European teammates look at the environment much the same way we do in terms of the inflation being almost 10% and how that impacts everything from food and gas to supplies to you name it. And so there is a similar feeling there as we have here about being mindful of it.

But there is an optimism about the business and our ability to serve our existing customer base and the ability to write new customers and bring new and innovative solutions to them. So I would tell you that, as it relates to the inflationary pressure, I would say they're cautiously optimistic.

As it relates to business operations, I would say they're extremely enthusiastic and optimistic..

Okay. Fantastic. And then one last question, just to make sure that we understand it.

When we look to National Programs in the first and second quarter of 2023, will the onboarding have any impact there? Or should we look at what you've reported so far the right baseline for next year's revenue?.

If you're impairing the dollars yes, don't compare the growth percentages for our earlier comments because of part of that is making the lap around for the onboarding, but dollars, yes, that would be good to work from..

Excellent. Thanks so much..

Okay. Thank you..

All right, Ally. We're going to wrap this up, and I'd like to say thank you for everyone joining us this quarter for our earnings call. We're very pleased with our 10.3% organic growth with a slight improvement in our adjusted EBITDAC margins, and we wish you a great quarter, and we look forward to talking to you next time. Good day..

And with that, that does conclude today's call. Thank you for your participation. You may now disconnect..