Today's Viewpoint: A MarshBerry Publication

Brown & Brown, Inc. (NYSE: BRO) reported third quarter 2021 earnings results on October 25, 2021. BRO delivered strong revenue growth, driven by “robust new business, good retention, rate increases and some expansion of exposure units.” BRO reported 3Q21 adjusted Earnings Per Share (EPS) of $0.58 (vs. consensus $0.53 on total revenue of $770.3M (vs. consensus estimates of $760.6M). This compares to 2Q21’s adjusted EPS of $0.49 on $727.3M total revenue.

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

  • Total revenue growth was 14.3% in 3Q21 vs. an increase of 21.5% in 2Q21. Organic revenue growth in 3Q21 was 8.5% vs. 2Q21’s 14.7% and 1Q21’s 9.8%.
  • The Retail segment reported organic growth of 8.3%, down from 17.6% organically in 2Q21.
  • The National Programs and Wholesale Brokerage grew at 13.2% (vs. 13.3% in 2Q21) and 5.1% (vs. 12.3% in 2Q21) organically in 3Q21. The company noted wholesale growth is being impacted by its particular exposure to Florida and California markets which are currently “in flux.”
  • Services revenue (third party administration and Social Security and Medicare services) was up 0.5% organically. This is down from the increase of 4.6% in 2Q21 and was “driven by claims processing revenue associated with recent weather events, which was substantially offset by external factors continuing to impact BRO’s advocacy businesses.”

Below are other notable takeaways from the third quarter:

  • BRO noted strong retail growth once again from solid new business, good retention, rate increases, and higher exposure units across all lines of business. Wholesale program growth was also driven by new business and rate increases for most lines of coverage.
  • The company stated that premium rate increases for most lines remained fairly consistent with prior quarters, but sees premium rate increases moderating for many lines, with the exception of cyber, professional, excess, and automobile. BRO noted that admitted rates were up 3%-8% across most lines, while Excess & Surplus saw rates “up 10% to 20% with some outliers. Coastal property, both wind and quake, are up 10% to 30% with this being a slightly broader range than we saw in the previous quarter.”
  • While BRO was generally positive about the economy into year end and next year, the company also expressed some concern around challenges hiring employees across all industries, supply chain constraints, and inflationary pressures. These issues are putting pressure on costs and margins.
  • Management stated that they continue to make progress on common operating platforms, which helps improve its client experience and applications, while leveraging data to benefit customers.
  • BRO completed seven acquisitions in the third quarter with annual revenues of about $21 million. CEO J. Powell Brown commented on the earnings call: “We’ve closed a total of 11 deals year-to-date with annual revenues of $65 million, and I’ve already announced a couple of additional acquisitions in October. Our pipeline remains full, and we feel good about our level of activity and engagement with prospective sellers.” BRO noted that there is a continuation in demand for merger & acquisitions (M&A) in the insurance brokerage sector and expects the M&A market to be very active with valuations at heightened levels as a result of many buyers and high levels of available capital.
  • Brown & Brown also discussed its recent announcement (on October 12) to unify its branding across all branches in the retail segment, with all brands using the name Brown & Brown starting on January 1, 2022. This will assist in building brand recognition and strength across small, medium and large accounts, while providing clarity in the marketplace.

Overall, BRO’s quarterly results benefited from continued growth from most lines of business through a combination of improving new business, good retention, and continued rate increases. Looking forward, there is the likelihood that comparables remain more challenging in the last quarter of the year (from the first half of 2021). There are also potential economic challenges like inflation, supply chain issues, and a very competitive hiring environment, which could impact future results.

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This earnings summary has been prepared by Marsh, Berry & Co., Inc. 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., Inc. has not independently attempted to investigate or to verify such information.