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Top insurance brokers: Brown & Brown Inc.

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Brown & Brown Inc. boosted its brokerage business in 2015 despite the market's competitive environment and sees ongoing opportunity as a result of the U.S. health care reform law, but it also has cooled its hot acquisition pace of recent years.

The broker historically has grown its revenue with acquisitions, “mostly through smaller kinds of tuck-in deals,” said Elyse Greenspan, New York-based vice president at Wells Fargo Securities, who covers the property/casualty industry. “But over the past several years, there have been a few larger-scale acquisitions they've brought in.”

Last year, Brown & Brown reported $56 million in acquisitions, down from the prior three years, when its acquisitions totaled about $150 million in annualized revenue, the brokerage said in its annual report.

Because of the acquisition slowdown, Ms. Greenspan said the publicly held company repurchased $175 million in stock.

“I think that was used positively as an effort to better manage their capital and cash position, since they weren't finding as many acquisitions as they had in the past,” she said.

When 2015 was done, Daytona Beach, Florida-based Brown & Brown had increased its brokerage revenue 5.7% to $1.66 billion, making it No. 7 in the 2016 Business Insurance ranking of the world's largest brokers. Gross revenue, meanwhile, increased 5.4% to $1.66 billion.

“By and large, they saw growth,” Ms. Greenspan said. “Their margins were relatively flat, with a little bit of deterioration.” For 2016, “we're looking for continued growth, but we're looking for some level of margin deterioration, mostly due to some of the technological-related investments they've been making, and a little bit of a slowdown in organic revenue growth.”

The broker's organic growth last year was reported as 2.6%.

Once the IT-related retail system investments are done, that “could help lead to future organic growth opportunities,” she said.

J. Powell Brown, Brown & Brown's president and CEO, said in the company's 2015 annual report that it would spend $30 million to $40 million on technology improvements over the next two to three years.

In an interview, he said that while acquisitions are important to continue growing, they must fit culturally and financially.

“Cultural fit is the most important thing, and if they don't fit culturally, then we don't move forward. But they also have to make sense financially,” Mr. Brown said. “So there were several acquisitions we thought could fit culturally, but we just couldn't make sense financially with the transactions, or the other offers they were giving. We're OK with that.”

“We don't have employees at Brown & Brown; we have teammates,” he said. “When we're looking to make an acquisition, it's forever. There are businesses out there that are acquiring companies that are going to sell the whole thing in three to seven years. There's nothing permanent about that. They can't create a culture in that period of time. We are very, very focused on culture and our teammates and doing what's in the best interests of our clients over a very long period of time and we've done for it for 76 years.”

The best acquisitions, he said, “are when you get the head and the heart of the leader, and he or she then delivers the talent. In smaller acquisitions, it's different from when you put two behemoths together. There's a war on talent out there. People are our greatest asset and our greatest challenge as we continue to grow and move forward.”

Mr. Brown acknowledged that property rates ranged from flat to down 5%. “So whether it's South Texas or South Florida or up the East Coast or the Gulf Coast, it's very competitive,” Mr. Brown said. “There continues to be a difference between renewal pricing and new business pricing.”

However, opportunities abound in employee benefits, he said.

The Affordable Care Act “has created a lot of confusion, particularly around compliance and understanding how to make that work for employers of all sizes, so we're seeing a lot of opportunities there.”

Brown & Brown in 2015 boosted its employee benefits revenue 5.2% to $260.1 million.

“I think it was a good year,” Mr. Brown said. “We're trying to grow our company a little more organically, but I was pleased with the overall performance, and we're excited about this year and the years in the future.”

Ms. Greenspan said, “We have a positive view on the insurance brokers in general.”

“I think we're operating in an environment where, even with prices declining on the property/casualty side, you can still see brokers push through organic revenue growth by virtue of seeing economic improvement and a pickup in exposure growth,” she said.