Brown & Brown, Inc. (NYSE: BRO) reported 4Q2021 earnings results today. BRO had strong revenue growth with 10.4% organic growth for the full year 2021 which was the “highest level since the early 2000s” when the company was “much smaller and less diversified.” BRO reported 4Q21 Earnings Per Share (EPS) of $0.42 on $738.5 (vs. consensus of $0.39 on revenue of $725.4). This compares to 3Q21’s adjusted EPS $0.58 on $770.3 million total revenue.
Key Figures Highlighted During the BRO Q4 2021 Earnings Call:
- Total revenue growth was 15% in 4Q21 vs. an increase of 14.3% in 3Q21. Organic revenue growth in 4Q21 was 9.0% vs. 8.5% in 3Q21 and 2Q21’s 14.7%.
- The Retail segment delivered organic growth of 9.5% up from 8.3% in 3Q21. Growth resulted from new business, good retention, rate increases and modest exposure unit improvement. This segment saw rate increases for most lines relatively constant at 3%-8%, with higher increases in commercial and condo property, and professional liability.
- The National Programs and Wholesale Brokerage grew at 10.4 % organically in 4Q21 (vs. 13.2% in 3Q21) and 8.3% organically (vs. 5.1% in 3Q21), respectively.
- Services revenue (third party administration and Social Security and Medicare services) was up 1.2% organically in 4Q21compared to an increase of 0.5% organically in 3Q21. The organic growth in 4Q21 was mainly driven by “additional commercial and workers’ compensation claims, which were partially offset by continued pressure in the advocacy business.”
Other Notable Takeaways from the Fourth Quarter:
- BRO noted strong growth in its Retail, Wholesale Brokerage, and National Programs segments from solid new business, good retention and rate increases. The retail revenue growth of 19.1% was boosted by acquisition activity over the last 12 months and 9.5% organic revenue growth across most lines. The National Programs segment’s revenue growth was boosted by organic revenue growth and higher profit-sharing contingent commissions.
- BRO management spoke of potential issues that could affect future economic growth: availability of employees across all industries, resolution of supply chain constraints, inflation, interest rate increases, global geopolitical matters and the continued management of COVID-19.
- Rates in admitted remained consistent with prior quarters, increasing 3%-8% across most lines, except for workers’ compensation which saw decreases of 1%-3%. In Excess & Surplus (E&S), rates increased 10%-20% which is similar to prior quarters. BRO noted that rates and deductibles in cyber “in many instances increased dramatically with carriers requiring enhanced security protocols to obtain coverage.”
- In terms of rate projections, BRO expects premium increases to “remain relatively constant or moderate downwards slightly” in the first half of 2022 vs. the second half of 2021. BRO noted that the biggest challenge for the E&S segment will be the availability of capacity which could affect growth this year.
- BRO completed an additional eight acquisitions in 4Q21 representing annual revenue of about $67 million. In terms of full year 2021 mergers and acquisitions (M&A) activity, the company completed 19 acquisitions with approximately $132 million of annualized revenue.
- CEO J. Powell Brown spoke of expectations for future M&A activity: “Until interest rates increase materially and capital becomes constrained, we expect competition and valuations to remain at peak levels. We continue to feel good about our positioning and have a solid pipeline to attract great companies to join the Brown & Brown team.”
Overall, BRO’s fourth 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 is confident about its ability to execute and the state of its business in 2022, they are also monitoring potential challenges to economic growth, such as interest rate increases, inflation, supply chain issues, and an ongoing competitive hiring environment.
Subscribe to MarshBerry’s Today’s ViewPoint blog for the latest news and updates and follow us on social media.
Investment banking services offered through MarshBerry Capital, LLC, Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, LLC. 28601 Chagrin Boulevard, Suite 400, Woodmere, Ohio 44122 (440.354.3230)
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.
