Today's Viewpoint: A MarshBerry Publication

BRO ANNOUNCES 1Q2022 EARNINGS

Brown & Brown, Inc. (NYSE: BRO) reported first quarter 2022 earnings today. BRO delivered strong revenue growth, driven by good new business and solid retention. BRO reported 1Q22 net income per share of $0.78 on total revenue of $904.7M. This compares to 1Q21’s net income per share of $0.70 on $815.3M total revenue.

Below were key figures highlighted during this morning’s earnings call:

  • Total revenue growth was 11.0% in 1Q22 vs. an increase of 15.0% in 4Q21. Organic revenue growth in 1Q22 was 7.8% vs. 4Q21’s 9.0%.
  • The Retail segment reported organic growth of 8.9% down from 9.5% in 4Q21. For this segment, BRO reports solid growth across all lines of business.
  • The National Programs and Wholesale Brokerage grew at 6.1% (vs. 10.4% in 4Q21) and 11.6% (vs. 8.3% in 4Q21) organically in 1Q22. New business growth, good retention, rate increases and modest exposure unit improvement drove growth in these segments.
  • Services revenue (third party administration and Social Security and Medicare services) was down 6.2% organically from the increase of 1.2% in 4Q21. The decline is primarily being driven by fewer weather-related claims this year.

Below are other notable takeaways from the first quarter:

  • BRO noted strong growth in its Retail, National Programs and Wholesale segments. Retail total revenue growth of 14.2% was boosted by acquisition activity over the last 12 months. The National Programs segment’s revenue growth was boosted by organic revenue; however, slightly lower contingent commissions and the sale of a program in the prior year caused restrained total growth for the segment.
  • BRO management spoke of potential issues that could affect future economic growth. The primary topics of concern were continued high levels of inflation and rising interest rates. Additional themes include the availability of employees across all industries, the resolution of supply chain constraints, and the resolution of current global geopolitical matters.
  • Rates in admitted markets remained consistent with prior quarters, up 3%-7% across most lines, except for workers’ compensation which continued decreases of 1%-3%. In Excess & Surplus (E&S) lines, rates increased 10%-20% which is inline with prior quarters. BRO noted that rates and deductibles in cyber continued to increase with carriers requiring effective security protocols to obtain coverage.
  • In terms of rate projections, BRO expects admitted market premium increases to remain relatively constant for the next few quarters, while E&S premium increases are expected to continue at 1Q22 levels into 2Q22.
  • In states like California and Florida, premiums are becoming expensive due to past losses and customers are modifying deductibles or aggregate limits to manage expenses.
  • BRO completed two acquisitions in 1Q22 representing annual revenue of about $65 million. The acquisition of Orchid Underwriters Agency accounted for most of the revenue acquired.
  • Management also discussed the pending international acquisitions of UK based Global Risk Partners Limited and BdB Holdings Limited, subject to closing conditions and regulatory approvals. The acquisitions are expected to close in 3Q22 with a purchase price of $2.5B. BRO issued $1.2B of new 10- and 30-year bonds and a new $800M bank facility in 1Q22 to help fund the acquisitions. The remaining purchase price will be funded with cash on hand.
  • Regarding the M&A front, BRO expects competition and valuations to remain at peak levels until interest rates increase materially. BRO also believes its excellent capital position and strong cash flow continues to support its strategy to acquire great companies.

Overall, BRO’s first quarter results were impacted by continued growth from most lines of business through a combination of improving new business, good retention, and continued rate increases. While management believes economic growth will continue to return to more normal levels, they are also monitoring potential challenges to economic growth, such as interest rate increases, inflation, supply chain issues, an ongoing competitive hiring environment, and current global geopolitical matters.

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This earnings summary has been prepared by Marsh, Berry & Co., LLC. and is not intended to provide investment recommendations on any company. It is not a research report, as such term is defined by applicable laws and regulations, and it does not contain sufficient information upon which to make an investment decision. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities, financial instruments or to participate in any particular trading strategy. These materials are based solely on information contained in publicly available documents and Marsh, Berry & Co., LLC has not independently attempted to investigate or to verify such information.

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