Brown & Brown, Inc. 2026 Q3 Earnings Call

You may begin. Good morning, everyone, and welcome to our third quarter earnings call.

Before we get into our performance for the quarter, we wanted to recognize the 5,000 plus teammates from our Accession acquisition that marked their one-year anniversary on August 1st. It's amazing what we've accomplished over a relatively short period of time, and we look forward to everything we'll accomplish together in the future. A bit later, we'll provide additional color on our accomplishments and the first year of performance. Additionally, we'd like to highlight that last week our board of directors raised our dividend by 9%, which represents an increase for the 33rd year in a row. Now, let's move on to our results for the quarter. In total, our overall financial performance represented a continuation of the improvement we delivered last quarter. Retail had a good quarter and performed above the top end of our expectations.

Specialty distribution had some incremental headwinds and came in below our expectations, which we will talk about in a few minutes. Our overall improvement was the result of utilizing our robust specializations to win more new business. I will provide some comments regarding our performance, the insurance markets, and our customers. Then Andy will discuss our financial performance in more detail, including a first-year recap for Accession. Lastly, I will wrap up with some thoughts on our AI journey and closing comments regarding outlook. Then we will open the call up to Q&A. I am on slide five. For the third quarter, we delivered revenues of $1.7 billion, growing 7.4% in total. Organic revenue increased 1.2% from the prior year and 1.5% when including organic contingents. Our adjusted EBITDAC margin decreased 200 basis points to 34.6%, and our adjusted earnings per share grew nearly 2% to $1.07.

Through the first nine months of 2026, we generated strong cash flow from operations and repurchased $750 million of our shares. That includes $250 million in Q3. On slide number six, from an economic and customer investment standpoint, conditions in the third quarter were consistent with the first half of the year. Sentiment remained relatively stable, but varied based on industry and customer size. Some customers were more bullish than others regarding their level of hiring or investments, and were generally influenced by exposure to inflation and interest rates. Rate changes this quarter were fairly consistent with the first half of 2026. Rates in the admitted market moderated downward slightly compared with the first half of this year. Casualty and auto rates continued to increase with primary casualty generally up 2%-5%. Although the pace of increases for auto moderated slightly in some regions.

Excess and umbrella layers continue to see the largest increases, and capacity continues to tighten for certain classes. Non-CAT property moderated downward and was generally flat to down 5%. Workers' compensation rates continue to decrease at rates similar to the first half of 2026. Outside the U.S., commercial rates in the U.K., Ireland, and the Netherlands remain modestly negative, with larger accounts seeing greater decreases than smaller accounts. Shifting to the E&S markets, property rates decreased 15%-35%, and casualty rates continued to increase at a pace similar to the first half, with transportation and excess casualty remaining quite difficult to place. For employee benefits, medical rates increased 9%-11%, driven by high-cost claimants and surging healthcare costs. Materially higher medical and pharmacy costs are more pronounced for smaller, fully insured groups.

These cost pressures continue to create demand for our advisory and consulting capabilities as customers need to evaluate plan designs, employee contributions, and alternative funding arrangements, including self-funded and captive solutions. Overall, when we step back and look at both the economy and the insurance market, customers are operating with discipline while overall growth and investment levels remain steady. The insurance market continues to be competitive for many lines while casualty pressures persist. In these market conditions, we believe our capabilities position us well to win more new business and help our customers navigate this complex landscape. I am on slide number five. Let us transition to the performance of our two segments for the third quarter. Retail delivered organic growth of 2.6% and 2.5% when including organic contingents. These growth rates reflect continued incremental improvement in our net new business and good performance within our employee benefits and bond practices.

In addition, the growth was driven by the alignment of our teams to enhance collaboration, identify incremental opportunities, and generate new business wins that leverage our capabilities. Turning to specialty distribution, organic revenue growth for the quarter was down 80 basis points and increased 30 basis points, including organic contingents. As we discussed last quarter, we anticipated organic growth of +2% to +4% for the second half of the year. The third quarter performance was below our expectations due to several factors. First, the desire of admitted carriers to write more business and the abundance of capital drove incrementally more downward pressure during the quarter. For binding and personal lines accounts, we realized incremental movement from the E&S market into the admitted market. As an example, we are seeing admitted carriers now wanting to write in California and Texas.

In addition, available capacity drove prices and terms downward even further for certain programs, primarily commercial earthquake. As we have mentioned previously, our disciplined approach to underwriting means we will walk away from business at certain times with the objective to balance organic growth and profitability. Second is our lender-placed program. While we did realize the $10 million of revenue delayed from last quarter, this same amount was offset by another delay on onboarding a portfolio of loans. When our customers acquire portfolios, they provide an estimate of loans as well as projected onboarding timelines. Due to size and complexity, the volume and timing can change over quarterly periods. We anticipate onboarding these loans during 2027. Finally, a quiet storm season resulted in lower than anticipated flood claims processing revenue. Areas where we have delivered growth were in brokerage and programs for casualty, professional liability, and public entity lines.

In our CAT-exposed lines of business, we saw increased policies in force even though our revenues declined due to significant rate decreases. Despite specialty distribution facing cyclical headwinds as CAT property rates decline and some policies return to the admitted market, we have a great business. Its differentiating capabilities, a broad global distribution network, and world-class carrier partners. This has enabled our team to deliver double-digit organic growth over the past five years and organic growth above 8% over the past 10 years. We have been through cycles like this and have confidence that our team knows how to navigate this market for the long-term success. Now, I will turn it over to Andy to discuss our financials in more detail.

Great. Thanks, Alan. Good morning, everybody. I will dive a bit deeper into our consolidated results and certain non-GAAP financial measures. As a reminder, when we refer to EBITDAC margin, income before income taxes, or diluted net income per share, we are referring to those measures on an adjusted basis. We delivered total revenues of $1.7 billion, growing 7.4% as compared to the third quarter of 2025. We had another good quarter for contingent commissions that grew by over 8% on an organic basis. Income before income taxes increased by 1.3%, and EBITDAC grew by 1.7%. Our EBITDAC margin was 34.6%, a 200 basis point decrease from the third quarter of the prior year. Over half of this decrease was driven by approximately $29 million of lower interest income as compared to the prior year, when we were holding cash for the acquisition of Accession.

Our effective tax rate for the quarter was 25.5%, slightly higher as compared to 24.7% in the third quarter as a result of an increase in state taxes. Diluted net income per share increased by 1.9% to $1.07, with growth slower than revenues due primarily to the higher investment income in the prior year. Lastly, our dividends paid per share increased by 10% as compared to the third quarter of 2025. On slide number 9, the retail segment grew total revenues by 10.8%. This expansion was driven by the combination of acquisition activity during the past year and organic growth. Regarding the litigation impact associated with individuals who left to join the startup broker, current period adjustment to organic revenue was $16 million. Based on currently available information, we are not changing our previously communicated expected full-year impact for 2026 of $50 million to $60 million.