Insurance Brokers (MMC, AON, AJG, WTW, BRO)

[dealraker]

Dinar, management has lowered its margin goal accoding to the conference call - that margin was already the lowest of the peers.  The stock sells for about 13.3 times what Welll Fargo predicts for 2024 earnings so that's not expensive.  Wells Fargo, which I follow as to the brokers, does an excellent job with this sector and has for years and years.  They have a "same ole Willis" view and that opinion is seemingly endless.  Wells below:

 

Our Call
WTW shares sold off today reflective of the company lowering its 2024 EPS guidance 
and posting a weak margin in the Q2. While investors were expecting a guide down, they 
expected it for pension not also the company lowering its margin goal.
The stock from here: We believe the shares should trade in a tight range until we see a 
clearer picture of WTW's path to 2024 targets. WTW should see good organic growth 
and margin improvement in the back half, however we believe investors won't step in 
until they start to see more consistent execution with both margins and free cash flow. 
The 2024 guidance implies around 120-220bps of margin improvement vs our 2023 
estimate, and we believe WTW needs to show that it can improve its margins.
Estimates and PT changes: We are lowering our 2023 EPS to $13.85 (from $14.20) to 
reflect a higher tax rate and weaker margins, while 2024 and 2025 go to $16.00 (from 
$17.30) and $18.40 (vs $20.00) to reflect lower pension income, weaker margins and a 
higher tax rate. Our price target goes down to $224 (from $243) based off a 14.0x P/
E against our 2024 EPS estimate, about a 34% discount to peers given the volatility in 
margin and free cash flow versus peers.
Cash, cash and cash: The guided 12% FCF margin for 2023 is estimated to be the worst 
among peers, where the average is 21% (see Exhibit 4). Tranzact was a 200bps headwind 
on FCF conversion in 2022 and the business is not expected to breakeven on FCF until a 
"couple" of years. Away from Tranzact WTW expects an additional 200 bps of FCF yield 
from transformation program spend going away, and improved margins. Working capital 
improvements could then help expand its FCF conversion even higher.
R&B hiring more, which is impacting margins: WTW pointed to more hiring in R&B, 
albeit with lower open positions relative to 2022, as they focus on their specialization 
strategy. The company attributed the margin guide down to this investment in talent. 
While hiring to drive revenue growth is a positive, we believe it is hard for investors to have 
conviction that Willis can show margin improvement until ts starts showing consistent 
quarterly improvement.
Is this the last guide down?: Numbers now seem more realistic, with the caveat that 
we still are not convinced savings from the savings program are falling to the bottom 
line and WTW will need those savings to hit its now lower margin target for 2024. If the 
new numbers are the numbers, the stock is cheap versus peers at 13.3x our 2024 EPS 
estimate. With that being said, we would need to see traction on margins and FCF for us 
to want to step in.
Equity Analyst(s)
Elyse Greenspan, CFA
Equity Analyst | Wells Fargo Securities, LLC
Hristian Getsov
Associate Equity Analyst | Wells Fargo Securities, LLC
Matthew Byrnes, CFA
Associate Equity Analyst | Wells Fargo Securities, LLC
Wes Carmichael, CFA
Equity Analyst | Wells Fargo Securities, LLC
Rating Equal Weight
Ticker WTW
Price Target/Prior: $224.00/$243.00
Upside/(Downside) to Target 5.5%
Price (07/27/2023) $212.25
52 Week Range $197.30 - 258.93
Shares Outstanding 106,413,057
Market Cap (MM) $22,586
Enterprise Value (MM) $26,554
Average Daily Volume 1,787,073
Average Daily Value (MM) $379
Dividend (NTM) $3.34
Dividend Yield 1.6%
Net Debt (MM) - last reported $3,968
ROIC - Current year est. 13%
3 Yr EPS CAGR from current 
year (unless otherwise noted)
11%
$ 2022A 2023E 2023E 2024E 2024E
EPS Curr. Prior Curr. Prior
Q1 (Mar) 2.66 A 2.84 A NC 3.32 E 3.60E
Q2 (Jun) 2.32 A 2.05 A 2.20E 2.37 E 2.89E
Q3 (Sep) 2.20 A 2.13 E 2.19E 2.50 E 2.76E
Q4 (Dec) 6.33 A 6.92 E 7.01E 7.87 E 8.10E
FY 13.41 A 13.85 E 14.20E 16.00 E 17.30E
P/E 15.8x 15.3x 13.3x
ROIC - Current year est.: Represents return on equity (ROE)EPS: 
Adjusted EPS
Source: Company Data, Wells Fargo Securities estimates, and Refinitiv.
NA = Not Available, Volatility = Historical trading volatility

 

 

[dealraker]

Wells on AJG:

 

Our Call
AJG reported Q2 EPS of $1.90 beating both our estimate of $1.83 and consensus of 
$1.86. The company beat us in Brokerage ($0.06 per share) and Risk Management 
($0.01) with better organic growth in both and a better margin in Brokerage.
Estimates and price target changes: Our 2023, 2024, and 2025 EPS estimates are now 
$8.85, $10.40, and $11.75, respectively (from $8.85, $10.35, and $11.75). Our estimates 
reflect better organic growth, counter-balanced by some modest changes to our margin 
and Corporate earnings. Our price target goes up to $237 (from $233), using a 22.5x 
multiple on our cash EPS plus $3 per share for our clean coal DCF.
Stock call: AJG shares should trade up on the better-than-expected Q2 and strong 
outlook for the back half of the year and for 2024 in our view. The results stand out 
especially in light of mixed results this week from BRO and WTW. Gallagher had an 
optimistic outlook on its organic growth for this year (and said that next year looks a 
lot like 2023), is improving its margins, and has a strong M&A pipeline. We reaffirm our 
Overweight rating and AJG remains our top pick among insurance brokers.
The good: Gallagher saw organic growth in both businesses that came in above 
expectations set at its June investor day, driven by a strong June. AJG expects Brokerage 
organic growth to be at the high-end of its 8-9% target for the FY and said that it thinks 
2024 is shaping up to look a lot like 2023. Gallagher is also now looking for 30-40 basis 
points of margin improvement for FY 23 (70-90 bps ex Buck) in Brokerage, up from the 
prior 20-30 basis points (60-80 bps ex Buck).
The bad: Benefits organic growth was 5% adjusted for the large life sale last year, slowing 
from 7% in Q1. In the Q2, Gallagher issued 851,000 shares to finance transactions and the 
average share count of 219 million was higher than our 217.5 million. Buck continues to 
hinder margins as expected, but this should flip after we annualize the deal in Q1 2024. 
AJG thinks it can take Buck's margin from the low-to-mid teens into the low-20s, which 
could serve as a boost to AJG's margins in 2024.

[Spekulatius]

On WTW - you would think that it this can be fixed bit examples like AAP showed to me again and again that sometimes these things sometimes never get fixed. Might have to do with structural issues, employee base, management or more likely all of them together.

 

So in my opinion, you want to see a fundamental change (management) and then see some evidence that action taken is actually producing some results.

 

I think WTW is fortunate that the business itself is so strong and cash generative that it is almost impossible to bankrupt, but you sure can run almost anything into the ground given a long enough timeframe and competitors eating you alive slowly but surely.

[dealraker]

6 hours ago, Spekulatius said:

On WTW - you would think that it this can be fixed bit examples like AAP showed to me again and again that sometimes these things sometimes never get fixed. Might have to do with structural issues, employee base, management or more likely all of them together.

 

So in my opinion, you want to see a fundamental change (management) and then see some evidence that action taken is actually producing some results.

 

I think WTW is fortunate that the business itself is so strong and cash generative that it is almost impossible to bankrupt, but you sure can run almost anything into the ground given a long enough timeframe and competitors eating you alive slowly but surely.

Spek I ate lunch today with a guy who is in the business and very good at it as an owner.  His basic response to this is, "I'd think there's tremendous interest from somebody to gain access/ownership to their underperforming units given how desparate the industry is for acquisitive profitable growth."  

Edited July 28, 2023 by dealraker

[AlwaysDay1]

Brown and Brown recent earnings call they spoke a lot about captives and contingents. Does anyone know this well? Are they actually setting up captive insurance companies and bearing risk? 

[valueseek]

Great discussion here. Thanks @longterminvestor for some invaluable insights. 

 

Does anyone here have any insights on $RYAN- what Pat Ryan is building?

 

Also, this is not a broker - $KNSL, so disregard if not appropriate for this thread but $KNSL is an E&S insurance player. They have just kept on delivering since their IPO in 2016 or so. It was brought to the market by JPM. Mike Kehoe, CEO and founder used to do the same at a previous company before founding Kinsale in 2009 with some PE backing if I remember vaguely. I had the good fortune of meeting him for an hour back in 2019 and was quite impressed by the meeting as my recollection is he primarily talking a much different tone than a typical ceo - about wealth building, partnering, controlling risk and the opportunity for them. But due to valuation and primarily my lack of understanding of the space, did not do much. Since listing some 7-8 years ago, EPS is up 10x and stock is up 20x. It has mostly traded at 25+ PE multiple and 5+ times PB (or 8 times curr.).

 

It will be great, if anyone has anyone has comments/insights about any of these two businesses $RYAN/$KNSL.

Tks.

[longterminvestor]

1 hour ago, valueseek said:

Great discussion here. Thanks @longterminvestor for some invaluable insights. 

 

Does anyone here have any insights on $RYAN- what Pat Ryan is building?

 

Also, this is not a broker - $KNSL, so disregard if not appropriate for this thread but $KNSL is an E&S insurance player. They have just kept on delivering since their IPO in 2016 or so. It was brought to the market by JPM. Mike Kehoe, CEO and founder used to do the same at a previous company before founding Kinsale in 2009 with some PE backing if I remember vaguely. I had the good fortune of meeting him for an hour back in 2019 and was quite impressed by the meeting as my recollection is he primarily talking a much different tone than a typical ceo - about wealth building, partnering, controlling risk and the opportunity for them. But due to valuation and primarily my lack of understanding of the space, did not do much. Since listing some 7-8 years ago, EPS is up 10x and stock is up 20x. It has mostly traded at 25+ PE multiple and 5+ times PB (or 8 times curr.).

 

It will be great, if anyone has anyone has comments/insights about any of these two businesses $RYAN/$KNSL.

Tks.

First on Ryan, then Kinsale.  

 

This is what RYAN are building (see below - taken from Ryan's S1).  Actually pretty good for the thread on what the actual insurance distribution landscape looks like.  Efficient in some ways, others not so much, but insurance is just hard to put in a portal and spit out a quote - case in point look at Lemonade (LMND).

  

 

The chart shows how vital the retail facing insurance agent is to the distribution system.  Pat Ryan owns too much of AON so he couldn't be a retail facing agent, so he just took the wholesale segment by storm.  The underlined "bound" terminology is SUPER important.  When you as the MGA/MGU can bind, it means the insurance company has given you the underwriting authority.  In the trade, its called "the pen", meaning you can write it.  This is where the MGA/MGU does all the work and really the insurance company just sits back, manages the book, collects checks and pays claims.

 

Wholesale Brokerage is where a retailer needs help placing a portion of an account the admitted market wont write period or wont write competitively.  In my region, wholesale is a huge part of the business.  When ever people refer to the E&S market or Non-Admitted market, a wholesale broker is involved.  Pat Ryan put it best, E&S is freedom of rate and form.  Meaning carriers can charge whatever they want and throw down whatever coverage they want.  Versus the admitted market where the carriers have to sit in front of the insurance commissioner, get the coverage language approved and file the rates they want to charge for approval.  

 

EVERYONE that Ryan hires is like 25 and super Type A.  Young and aggressive.  You can call a random number at Ryan in a region you need to place a risk and get an immediate pick up or call back in like 2 hours.  Never fails, they dont know who you are but they are ready to talk about a deal.  Its pretty incredible.  I'm sure there are lots of folks who call back but it is seriously a culture thing at Ryan.  And the older folks who are there were bought in a acquisition.  I'm long RYAN and probably should have bought more.  I bought some more when it tanked after earnings a like 2 Quarters ago.  Pat Ryan was buying big chunks himself.  Which I loved.  The story of how Ryan got started is pretty awesome.  For another time.

 

KINSALE

2nd tier risk bearing insurance company who writes the stuff no one else wants to write.  They will quote things no one else will.  I have not looked at the business as investment, but we trade with them and they will turn things quickly.  Gonna be on the tougher classes of business for sure with some language that is favorable to them, not the insured.  Doesn't make them a bad market, this is just how companies grow up into bigger risk bearing companies.  Gotta get your start on stuff no one else will write.  There are worse insurance companies than Kinsale so they are not bad, they just are a carrier who doesn't have any polish.  Markel started this way, and actually Markel and Kinsale compete on business in my market.  

 

 

[longterminvestor]

On 7/28/2023 at 9:14 PM, AlwaysDay1 said:

Brown and Brown recent earnings call they spoke a lot about captives and contingents. Does anyone know this well? Are they actually setting up captive insurance companies and bearing risk? 

The Captive was set up by Brown to actually help them write more retail facing insurance.  Brown has some programs where they have the pen and because of the hard market, Brown lost capacity to write business.  This posed a problem because without capacity Brown could not serve their customers.  So they set up their own Captive insurance company to fill the gap/holes in the program and allows them to keep writing the business they want to write.  It is SUPER conservative and well done for sure.  Big brokers have been doing this for a long time.  Usually in big towers where no risk bearing insurance company wants to participate high up in the layers for a small part of the tower for a small premium, so the broker just puts the risk on their balance sheet as like a one off (they might fill the tower later in the year, client may/may not even know).  Brown is different because it is more methodical and the Captive is designed to serve the retail production of insurance and the numbers work because its conservative and its re-insured.  CFO commented on the conference call the max payout is like $25M, not that much considering the volume on retail commissions the Captive supports.  This comment is where Andy mentioned "We look to the Captive acting a little like a contingency payment".  What he meant was their lens is they could go through the season without taking a hit on the Captive or take a $25M hit max.  A contingency payment is similar because if lets say Brown has $500M premium with Travelers and expects a 5% contingency payment ($25M) if the book performs well, then Brown gets $25M but if the Travelers book has a hick-up - maybe some big claims, and Travelers does not pay the $25M, Andy is trying to compare the Captive in that fashion.  Its $25M in revenue as contingent payment or nothing because of claims VS. Nothing because there were no claims or a $25M loss in expense due to an event.  There's probably a tax treatment for the loss as well that reduces the hit (dont know this, just speculating).    

 

The captive supports Cal Fire and Florida Wind.  Unknown, if its 1 or a couple captives.  The actuaries call that "diverse".  It may be or may not be.  But its helping Brown make money on the commission side and they are not taking ALL the risk, its shared.  Its actually a total cultural shift for Brown - cardinal rule for Brown is "We are not in the risk bearing business".  One of their other culture statements is "We are in the money making business" so when you cant make money selling insurance because their is no insurance, you gotta get creative.  I give the management at Brown credit for setting this up, shows they can change.  

[longterminvestor]

On 7/27/2023 at 8:08 PM, Dinar said:

@longterminvestorand @dealraker, gentlemen, in your opinion, how hard would it be to turnaround WTW?  Thank you.

Don't know WTW like I want to.  They are an amalgamation of a few firms.  Just doesn't seem like they have found their footing.  One of the guys who was fired for lack of production at Brown runs a team at WTW in my region.  That probably taints my view on the business unfairly.  

 

A huge team left WTW in my region during the AON/WTW talks.  That was a big hit in revenue at that time.  Just seems like its a big company looking for leadership and trying to find an identity.  Wish I knew more about them.

 

I was consulting for a big account, they had WTW as their agent.  Had a call with their "Broking team", and the first thing they said was "We broker deals European style".  I guess that may impress some folks but I remember the call was a little weird and I said "Do you accept euros?  Cause the client is gonna pay in dollars - lets just get best execution on the trade".  

 

Odd they are changing the reporting segment names, just looks like white paint.  My post on WTW is getting super negative, and I don't want to be negative, I really don't know the company as well as I know others in the business.  

[dealraker]

Super posts longterminvestor.  I've hoped to interact or read such online now for about 30 years without success until now.  I'm nowhere near as capable as to writing as you are and fail miserably trying to do it.  But your posts while detailed are quite clear as to general thinking and a big plus.  

[dwy000]

12 hours ago, longterminvestor said:

First on Ryan, then Kinsale.  

 

This is what RYAN are building (see below - taken from Ryan's S1).  Actually pretty good for the thread on what the actual insurance distribution landscape looks like.  Efficient in some ways, others not so much, but insurance is just hard to put in a portal and spit out a quote - case in point look at Lemonade (LMND).

  

 

The chart shows how vital the retail facing insurance agent is to the distribution system.  Pat Ryan owns too much of AON so he couldn't be a retail facing agent, so he just took the wholesale segment by storm.  The underlined "bound" terminology is SUPER important.  When you as the MGA/MGU can bind, it means the insurance company has given you the underwriting authority.  In the trade, its called "the pen", meaning you can write it.  This is where the MGA/MGU does all the work and really the insurance company just sits back, manages the book, collects checks and pays claims.

 

Wholesale Brokerage is where a retailer needs help placing a portion of an account the admitted market wont write period or wont write competitively.  In my region, wholesale is a huge part of the business.  When ever people refer to the E&S market or Non-Admitted market, a wholesale broker is involved.  Pat Ryan put it best, E&S is freedom of rate and form.  Meaning carriers can charge whatever they want and throw down whatever coverage they want.  Versus the admitted market where the carriers have to sit in front of the insurance commissioner, get the coverage language approved and file the rates they want to charge for approval.  

 

EVERYONE that Ryan hires is like 25 and super Type A.  Young and aggressive.  You can call a random number at Ryan in a region you need to place a risk and get an immediate pick up or call back in like 2 hours.  Never fails, they dont know who you are but they are ready to talk about a deal.  Its pretty incredible.  I'm sure there are lots of folks who call back but it is seriously a culture thing at Ryan.  And the older folks who are there were bought in a acquisition.  I'm long RYAN and probably should have bought more.  I bought some more when it tanked after earnings a like 2 Quarters ago.  Pat Ryan was buying big chunks himself.  Which I loved.  The story of how Ryan got started is pretty awesome.  For another time.

 

KINSALE

2nd tier risk bearing insurance company who writes the stuff no one else wants to write.  They will quote things no one else will.  I have not looked at the business as investment, but we trade with them and they will turn things quickly.  Gonna be on the tougher classes of business for sure with some language that is favorable to them, not the insured.  Doesn't make them a bad market, this is just how companies grow up into bigger risk bearing companies.  Gotta get your start on stuff no one else will write.  There are worse insurance companies than Kinsale so they are not bad, they just are a carrier who doesn't have any polish.  Markel started this way, and actually Markel and Kinsale compete on business in my market.  

 

 

This was really interesting (something I never thought I'd say about insurance!!). 

 

Two questions came up reading it:  a) if the broker "has the pen", who is doing the actuarial work?  It seems the broker can just underpriced non-standard risk to win business.  How does the risk taking company control the pen if it's not off the shelf stuff?

 

B)  on the wholesale, who is taking the risk and doing the pricing while the book builds to something big enough to pass along as wholesale?  And if they aren't standard risks how are they grouped and packaged as wholesale? It feels like a fine line between wholesaling and actually being an insurance company that can hang onto risk to  make the quarter if necessary. 

 

Thanks as always!

Edited July 30, 2023 by dwy000

[valueseek]

Thanks so much @longterminvestorfor your invaluable insights. Worth their weight in gold!

 

Have been reading about them most of yesterday and today. Had a few questions on Ryan - not urgent at all.

 

Wrt wholesale brokerage business, my understanding is that the retail brokers still primarily own the client relationship. If this is true, then can the Aon, mmc, etc. threaten Ryan, amwin or Crc to move business away from them and/or continue to keep more of the commission for themselves? In other words are retail brokers more robust a business and could they squeeze margins from wholesalers over time or the technical knowhow wholesalers present doesnt allow the retail brokers to do that?

I guess wholesalers would have pricing power or much value creation for the sub $10m rev. retail brokers?

 

How easy is it for large producers on the wholesale channel to go out on their own and start their own shop? In other words is it more difficult at wholesalers to do that vs at retail brokers because end clients for the producers at wholesalers will have to be the retail brokers?

 

From a producer perspective, is working at a wholesale broker a tougher job or higher paying job than retail or both are similar and does not matter? Seems to me wholesale brokerage might be a better higher paying gig with higher inherent growth as well.

 

 

In Ryan’s slide regarding the growth algorithm, any comments

1 growing from panel consolidation. How big of a tailwind is this given the market seems already quite consolidated with the top 3?

 

2 e&s market continuing to grow 4-6% above admitted market growth rate. This has been happening for the last decade to the tune of 500bps or so but of late there seem to be at least in some conference calls discussed that this trend may reduce. Any thoughts for next few years on this?

 

3 how much contribution from MnA in this wholesale brokerage space one should assume given top 3 are 70%+ of the market already (and only wholesalers vs 1000s of retail brokers (mmc, aon, etc.) that are much less concentrated in top 3 at around 25% or so. Or would it be that they could be acquiring on the retail side as well?

 

4 Which between the mga/mgu part of the business and the binding authority part of the business is the more attractive from a growth and industry structure/tailwinds perspective?

 

Thanks

[longterminvestor]

11 hours ago, dwy000 said:

This was really interesting (something I never thought I'd say about insurance!!). 

 

Two questions came up reading it:  a) if the broker "has the pen", who is doing the actuarial work?  It seems the broker can just underpriced non-standard risk to win business.  How does the risk taking company control the pen if it's not off the shelf stuff?

 

B)  on the wholesale, who is taking the risk and doing the pricing while the book builds to something big enough to pass along as wholesale?  And if they aren't standard risks how are they grouped and packaged as wholesale? It feels like a fine line between wholesaling and actually being an insurance company that can hang onto risk to  make the quarter if necessary. 

 

Thanks as always!

A) Binding authority, or the pen, is given to a wholesaler where there are strict guidelines on what they can and can not write.  For example on property, things like occupancy/tenants, year built, construction class, roof age, distance to coast, updates to electrical system/plumbing/ac with in last 10 years, number of stories, total insured value, cost per foot are all what wholesalers will call "the box".  if the risk fits the box, the wholesaler can issue a bindable quote immediately - there are folks that crank out 25-30 of these a day.  No need to talk to an underwriter or get approval.  The approval was provided when the guidelines were set out to the wholesalers.  Maybe you might have a deal that fits 8 of the 10, then you have have to go get approval from the carrier.  The pricing is all pre-set with rates and then you get "scheduled credits", you'll hear people say all the time, we maxed out the scheduled credits on this meaning thats as low as the price will get.  Then every quarter the auditors will come from the carrier and check a bunch of policies to make sure all the documentation is there and the risk fits the box.  if you write a bunch of deals that are not inside the box, you get your contract pulled.  no more money making.  So there are internal folks at the wholesaler that double check what the newbies are writing to make sure it fits.  These are not big deals, they are like $1000-$15000 maybe $20K deals max.  As am individual wholesale broker you are not gonna get rich cranking out these deals for the rest of your life, you can make a living.  The guys that hit it big are in the brokerage deals, doing $250K-$500K+ deals, thats where the money is.  Its always fun writing a new piece of business, big or small, but renewing it is the trick.  If you write 10 deals as a wholesaler on binding authority, you gotta renew those 10 next year.  It can become tedious and time consuming.  And there in lies, the rub, lets say the binding authority deal gets shut down, now you gotta roll the entire book to a new market, lots of work, emails, time, phone calls, you are responsible for notifying the first named insured they are getting non-renewed with statutory time requirements.  I mean its a shit load of work.  Also, sometimes, the binding authority guys forget to notify and then the retailers catches wind of that and says "you gotta offer renewal" even though the carrier wants off the risk but they are stuck - legally they have to put out terms.  So this is like the tail risk of these programs.  Shutting something down takes a ton of time.  Could take 12-18 months to actually get off all the risks you want to as a risk bearer.   

 

The admitted carriers have this but it is on a portal and its retail facing.  As a retailer, you can get quotes from admitted markets just as fast, as long as they fit the box.  

 

Quick comment of pricing, if you are good in your region and you know the type of account, who the carrier is, you already know what the client is paying.  its funny when policies come in redacted and the client thinks they are playing some game.  we laugh in the office, "Oh, we got a professional shopper on our hands".  We just look up that carrier with a similar class of business in our system, we can tell what they are paying within a 5%-7% margin.  I just pass those to the young guys in the office to work on, I want to whale hunt - more fun and obviously better incentive.  You are not gonna see wild disparity in pricing.  A carrier who quotes a deal, will quote it very similar for the same situation 2 blocks away.  But the key is its not always the same situation.  For example, same business, same city, 1 is in an old building, 1 is in a brand new building - you are gonna see disparity in pricing.  Mostly because the better carriers are gonna jump for the newer building.  

 

B) Wholesalers do not take risk at all.  there is no "making the quarterly number by writing business".  Wholesalers can only grown by getting more submissions from their retail insurance agent partners.  The good wholesalers are on the road meeting agents drumming up business, they are not in the office.  A wholesaler will call on a retail office for months/years before they start getting flow from a retailer.  Because the retailer already has 5-7-10 wholesalers that they are buddies with anyway.  The key to wholesale, and retail for that matter, is having markets no one else has.  Because an insurance agent/broker can not write business without a carrier partner.  An insurance agent/broker is only as good as the carriers they represent.  The best agents/brokers have access to the best markets.  Period.  Full stop.  You could have the best relationships with the biggest accounts but without a market to get quotes, you got nothing.  When a new market comes into a market, everyone calls and says "we have the exclusive with XYZ carrier".  Bullshit, everyone has them or will be getting them.  But thats how Wholesalers make new friends in retailers because maybe they got the new market first and the retailer needs that market so the submission comes to that wholesaler and boom, new flow starts to come, team flies in and meets everyone, and now begins a new relationship.  

 

Retailers would prefer to write everything admitted, better comp for them and they are closer to the underwriter.  A submission will come in, retailer will check the admitted markets for pricing/see if they are blocked, and start negotiating.  Wholesale is the second option.  its not bad, its just another part of the overall distribution.  

 

Insurance is just like NFL.  Its a copy cat league.  Once somebody starts being successful with a product or a market, everyone hears about it and then everyone wants it - clients are the last to hear about it.  they just want to talk price.  

[longterminvestor]

7 hours ago, valueseek said:

Thanks so much @longterminvestorfor your invaluable insights. Worth their weight in gold!

 

Have been reading about them most of yesterday and today. Had a few questions on Ryan - not urgent at all.

 

Wrt wholesale brokerage business, my understanding is that the retail brokers still primarily own the client relationship. If this is true, then can the Aon, mmc, etc. threaten Ryan, amwin or Crc to move business away from them and/or continue to keep more of the commission for themselves? In other words are retail brokers more robust a business and could they squeeze margins from wholesalers over time or the technical knowhow wholesalers present doesnt allow the retail brokers to do that?

I guess wholesalers would have pricing power or much value creation for the sub $10m rev. retail brokers?

 

How easy is it for large producers on the wholesale channel to go out on their own and start their own shop? In other words is it more difficult at wholesalers to do that vs at retail brokers because end clients for the producers at wholesalers will have to be the retail brokers?

 

From a producer perspective, is working at a wholesale broker a tougher job or higher paying job than retail or both are similar and does not matter? Seems to me wholesale brokerage might be a better higher paying gig with higher inherent growth as well.

 

 

In Ryan’s slide regarding the growth algorithm, any comments

1 growing from panel consolidation. How big of a tailwind is this given the market seems already quite consolidated with the top 3?

 

2 e&s market continuing to grow 4-6% above admitted market growth rate. This has been happening for the last decade to the tune of 500bps or so but of late there seem to be at least in some conference calls discussed that this trend may reduce. Any thoughts for next few years on this?

 

3 how much contribution from MnA in this wholesale brokerage space one should assume given top 3 are 70%+ of the market already (and only wholesalers vs 1000s of retail brokers (mmc, aon, etc.) that are much less concentrated in top 3 at around 25% or so. Or would it be that they could be acquiring on the retail side as well?

 

4 Which between the mga/mgu part of the business and the binding authority part of the business is the more attractive from a growth and industry structure/tailwinds perspective?

 

Thanks

 

Why does AON, MMC, and other retailers want to do all the work on placing it direct when they can just submit to Ryan, AmWins, CRC - have them do all the work and as the retailer just sit back and wait for terms?  you're giving up maybe 3% or 5% or in some cases 7% but doing way less work.  Yes, you are giving up contingency payments, yes, you make less money.  and Yes, there is some chatter that the bigger shops are going to start trying to pull their wholesale relationships in house and place it direct however the carriers like having a wholesaler involved because there is a little bit more trust and the wholesaler "cleans up" the submission.  There are a bunch of carriers who are and will always be wholesale only.  Some play both sides.  The old saying, retailer goes to lunch and brings back a paper napkin with the specs, the wholesaler prepares the submission.  I grew up in a tech age so my submissions were always super tight, the wholesalers like my deals when I send them in because they are super clean with all the information ready to send out.  Carriers like tight/clean submissions so they can look at it once, and quote it or move on to next deal.  Time is the asset.  Wholesale also got stupid, Ryan caused some of it.  Retailers were fine working on wholesale deals at 10%, wholesaler taking 5%.  But Ryan started paying 11% or 12% (higher in some cases) so then everyone went to 11%-12%.  I'm sure the carriers were paying more as well but 10% to 12% is a big swing with volume.  and admitted pays 15% so youre kinda fine just leaving it E&S and go find more accounts.  I'm jaded because my region is super wholesale focused.  Other parts of the country are probably less E&S and more admitted.  

 

Its really not about pricing power, its about the accounts and exposures.  You might have a retail shop who has 1 class of business, car dealerships, they could probably get tight with a market and grow that channel but most retail shops have tons of classes of business and need the support of multiple wholesalers for the expertise.  Professional Liability is a lot different than GL or Property.  Back to car dealer example, the market they get tight with might only be writing the Property, Garage Dealers, and Open lot cover, the retailer needs a relationship for the D&O/EPL and there is an opportunity for a wholesale relationship.  Or they need capacity for Umbrella.  And then you get a call from the owner of your biggest account who has a son who is starting a General Contracting business, you gotta quote that and take care of it before another retailer gets in there and starts asking the son to introduce them to his dad.  Next thing you got 10 GC's in your book.  it happens all the time.  A great coach in insurance told me once, "You can have a couple of pets around, but we are not running a zoo!"  I love that line, use it all the time.  Having all your eggs in one baskets is great until it isnt.  Maybe the carrier gets downgraded from A- to B+ and you have to move the whole book.  That sucks when that happens.  Its a good thing to have wholesalers around for the retailer.  Its work but it also allows the retailer to manage the client relationship - for big accounts sometimes thats a full time job.  Haven't even talked about claims or servicing.  That takes up alot of time.  

 

To leave and start their own shop, Wholesalers need a couple of stable markets and some key markets.  Sure, if they want to be business owners and deal with payroll, accounting, HR, hiring new people to service the book, contracts, carrier relations, they could leave.  Just dont see much of that happen.  Happens more on the retail side for whatever reason.  Have not seen a wave of wholesale brokers leave to start up their own shops.  It does happen more in retail, partly because of the wholesale market being so easy - wholesaler will open almost anyone with a pulse.  

 

1.  Tail winds - IDK, big is big but big doesn't always mean better.  Bridge Specialty on that slide deck is Brown and Browns wholesale arm.  Thats a whole thing to explain what/why Brown re-named it Bridge Specialty.  RPS is owned by AJG.  and CRC is owned by BB&T.  I mean, Ryan definitely saw an opportunity, them buying All Risk was a big move for Ryan.  If E&S continues to grow, all ships will rise with the tide.  But you gotta execute.  

 

2.  E&S vs Admitted.  tough to gauge.  I mean most E&S carriers are a subsidiary of a name you would know.  Hartford has E&S and Admitted carriers inside their risk bearing entities, same with Zurich, AIG, Travelers, all the big carriers.  Travelers admitted might price something and then Northfield (Travelers E&S) may quote the same risk for more/less price - Travelers management would not even know assuming it was a small-mid size account.  if it was a big deal, like $500K or something they probably would know.  Ryan is incentive is to tell that story because their wagon is hitched to the E&S train.  That's truly a macro question - kinda like "Where is inflation gonna be in 3-5 years or where are interest rates in 3-5 years".  You could guess but no one knows - its a market place - things happen.   

 

3. Dont know much about the small-medium wholesale broker marketplace for acquisitions - only know retail acquisitions because we are acquiring.  Its smaller today for sure.  but if i had to guess, theres room.  Do not under estimate Ryans ability to attract and train new talent.  They really have a machine there, so do other brokers.  Constantly hear about them at all the risk management schools getting kids to go brokerage rather than work a desk with a clip on tie at a carrier.  Brokerage is much sexier than working for a carrier coming out of college.  There are some brokers where all the guys are like 25-30yrs old making $250K+, its like a fraternity.  Type A loves that culture.  

 

4.  MGA/MGU/Binding - all completely different skill sets and much more dependent on the carriers appetite than the brokers wants/needs.  Brokers would love to have the pen and an exclusive program.  Thats the killer app in the insurance business.  Everyone wants that.  Its when the carrier actually grants that authority to a broker that makes the market go WOW.  Remember what Mr. Buffett said about what brokers would do for their clients "If you were on a deserted island and whispered a price, brokers would swim to you, with their fins showing".  Heres a funny post on an insurance instagram account insurance folks just love, and its spot on about what I am talking about:

 

 

 

 

 

[dealraker]

Wells on AON--- again my Wells opinion as to when/what to invest in as far as the brokers is very high.  I think they are superb at this.

 

AON shares traded down reflective of a fourth straight quarter of organic revenue growth 
underperforming the peer group. The company's 2023 outlook was unchanged, and they 
expect the lower M&A volume to continue to serve as a headwind in H2.
The stock from here: AON shares should underperform the broader insurance brokerage 
sector until they are able to close the gap from an organic revenue growth perspective. 
The company's guidance was mostly unchanged (minus modest updates around FX and 
cap-ex) and while they are expecting mid-single-digit or greater organic revenue growth 
for the year they said that the lower M&A/SPAC deal volume should continue to have an 
impact on its organic growth in H2.
Estimates and price target changes: We are lowering our 2023 EPS estimate to $14.25 
(from $14.40), our 2024 EPS estimate is now $16.45 (from $16.60), and 2025 is now 
$18.50 (from $18.60). Our estimates reflect the Q2 shortfall, combined with slightly 
lower revenue and margin estimates. Our price target falls to $317 (from $318) to reflect 
the lower EPS estimates.
M&A slowdown should serve as a headwind in H2: AON will lap when the downturn in 
M&A activity started in Q3, they think that the pressure should continue in H2 as the 
external outlook remains soft. In Q4 22 AON disclosed that capital markets activity offset 
its organic growth in Commercial Risk by 5%. MMC reported 9% organic growth within 
Marsh in Q1 vs. 5% at AON Commercial Risk and even if AON has more exposure to M&A 
activity we are not sure that explains the whole delta between the two.
Employee attrition below 2019 levels: AON said that they feel well about attrition (2023 
attrition is below 2019 levels), engagement levels at highest they have ever been. The 
company's outlook remains for mid-single-digit organic revenue growth, as compared 
to high-single digit at MMC (although MMC includes fiduciary investment income within 
its organic revenue), and we are now looking for 5.9% organic growth for the full year as 
compared to 7% at MMC (excluding fiduciary investment income).
Free cash flow guidance unchanged: Cap-ex is now expected to be $220-250 million in 
2023, up from $200-225 million. Free cash flow was down 7% in H1 and AON thinks it can 
still see double-digit growth for the full-year as cash flow growth tends to be heavier in 
H2. When asked about buybacks, AON said that they do not forecast buyback by quarter 
but that in any year share repurchase is typically the highest use of cash from both debt 
and operating cash flow. See Exhibit 1 for AON's guidance.

[longterminvestor]

This just occurred to me because of the questions.  Most retail insurance agents do not even know what binding authority vs. brokerage is/means.  The retailer just looks at the price (then the commission), likes/dislikes the language, and presents the quote to the customer.  Its a small part of the business.  The concept really is more because of the regionality of insurance and pushing costs down stream to give "underwriting authority" to brokers so the carriers can be more efficient with their human capital.  People refer to it as having in house quoting authority, or what not.  Early in my career an old salt asked me, what is the difference between an agent and a broker?  I didn't have the foggiest, and the answer was simple: an agent can bind coverage, a broker needs to ask permission to bind and have the order accepted by the underwriter.  unique concept there but powerful.  The term "program" is way over used, and everyone has a "special relationship" with "XYZ carrier". just like any other business, gotta trust who you work with and know the game.  

 

no need for the thanks.  if i can give to the forum, happy to, I have gotten a ton so its only natural to want to give.  Glad people are getting something out of it.  a huge chunk of my net worth is tied to insurance distribution, been apart of a regional privately owned top 100 agency, watched that get sold off, worked for a big publicly traded broker, and started my own shop from scratch, and then have been acquiring agencies/books of business.  i have partners so it helps but we do care more about running a well managed/well run business more than most.  its not surprising to me why people dont know much about insurance or distribution, customers/buyers hate insurance.  Surveys say people would prefer to go to the dentist than talk to their insurance agent.  Powel Brown puts it really well, "Insurance is not a sexy business, we run the ball every down, never throwing deep".  and that is just not appealing to many people.   

[dealraker]

17 minutes ago, longterminvestor said:

This just occurred to me because of the questions.  Most retail insurance agents do not even know what binding authority vs. brokerage is/means.  The retailer just looks at the price (then the commission), likes/dislikes the language, and presents the quote to the customer.  Its a small part of the business.  The concept really is more because of the regionality of insurance and pushing costs down stream to give "underwriting authority" to brokers so the carriers can be more efficient with their human capital.  People refer to it as having in house quoting authority, or what not.  Early in my career an old salt asked me, what is the difference between an agent and a broker?  I didn't have the foggiest, and the answer was simple: an agent can bind coverage, a broker needs to ask permission to bind and have the order accepted by the underwriter.  unique concept there but powerful.  The term "program" is way over used, and everyone has a "special relationship" with "XYZ carrier". just like any other business, gotta trust who you work with and know the game.  

 

no need for the thanks.  if i can give to the forum, happy to, I have gotten a ton so its only natural to want to give.  Glad people are getting something out of it.  a huge chunk of my net worth is tied to insurance distribution, been apart of a regional privately owned top 100 agency, watched that get sold off, worked for a big publicly traded broker, and started my own shop from scratch, and then have been acquiring agencies/books of business.  i have partners so it helps but we do care more about running a well managed/well run business more than most.  its not surprising to me why people dont know much about insurance or distribution, customers/buyers hate insurance.  Surveys say people would prefer to go to the dentist than talk to their insurance agent.  Powel Brown puts it really well, "Insurance is not a sexy business, we run the ball every down, never throwing deep".  and that is just not appealing to many people.   

Over time it would be superb to have the board discussion assist as to investing outcomes.  

Edited July 31, 2023 by dealraker

[valueseek]

On 7/31/2023 at 12:57 AM, longterminvestor said:

 

Why does AON, MMC, and other retailers want to do all the work on placing it direct when they can just submit to Ryan, AmWins, CRC - have them do all the work and as the retailer just sit back and wait for terms?  you're giving up maybe 3% or 5% or in some cases 7% but doing way less work.  Yes, you are giving up contingency payments, yes, you make less money.  and Yes, there is some chatter that the bigger shops are going to start trying to pull their wholesale relationships in house and place it direct however the carriers like having a wholesaler involved because there is a little bit more trust and the wholesaler "cleans up" the submission.  There are a bunch of carriers who are and will always be wholesale only.  Some play both sides.  The old saying, retailer goes to lunch and brings back a paper napkin with the specs, the wholesaler prepares the submission.  I grew up in a tech age so my submissions were always super tight, the wholesalers like my deals when I send them in because they are super clean with all the information ready to send out.  Carriers like tight/clean submissions so they can look at it once, and quote it or move on to next deal.  Time is the asset.  Wholesale also got stupid, Ryan caused some of it.  Retailers were fine working on wholesale deals at 10%, wholesaler taking 5%.  But Ryan started paying 11% or 12% (higher in some cases) so then everyone went to 11%-12%.  I'm sure the carriers were paying more as well but 10% to 12% is a big swing with volume.  and admitted pays 15% so youre kinda fine just leaving it E&S and go find more accounts.  I'm jaded because my region is super wholesale focused.  Other parts of the country are probably less E&S and more admitted.  

 

Its really not about pricing power, its about the accounts and exposures.  You might have a retail shop who has 1 class of business, car dealerships, they could probably get tight with a market and grow that channel but most retail shops have tons of classes of business and need the support of multiple wholesalers for the expertise.  Professional Liability is a lot different than GL or Property.  Back to car dealer example, the market they get tight with might only be writing the Property, Garage Dealers, and Open lot cover, the retailer needs a relationship for the D&O/EPL and there is an opportunity for a wholesale relationship.  Or they need capacity for Umbrella.  And then you get a call from the owner of your biggest account who has a son who is starting a General Contracting business, you gotta quote that and take care of it before another retailer gets in there and starts asking the son to introduce them to his dad.  Next thing you got 10 GC's in your book.  it happens all the time.  A great coach in insurance told me once, "You can have a couple of pets around, but we are not running a zoo!"  I love that line, use it all the time.  Having all your eggs in one baskets is great until it isnt.  Maybe the carrier gets downgraded from A- to B+ and you have to move the whole book.  That sucks when that happens.  Its a good thing to have wholesalers around for the retailer.  Its work but it also allows the retailer to manage the client relationship - for big accounts sometimes thats a full time job.  Haven't even talked about claims or servicing.  That takes up alot of time.  

 

To leave and start their own shop, Wholesalers need a couple of stable markets and some key markets.  Sure, if they want to be business owners and deal with payroll, accounting, HR, hiring new people to service the book, contracts, carrier relations, they could leave.  Just dont see much of that happen.  Happens more on the retail side for whatever reason.  Have not seen a wave of wholesale brokers leave to start up their own shops.  It does happen more in retail, partly because of the wholesale market being so easy - wholesaler will open almost anyone with a pulse.  

 

1.  Tail winds - IDK, big is big but big doesn't always mean better.  Bridge Specialty on that slide deck is Brown and Browns wholesale arm.  Thats a whole thing to explain what/why Brown re-named it Bridge Specialty.  RPS is owned by AJG.  and CRC is owned by BB&T.  I mean, Ryan definitely saw an opportunity, them buying All Risk was a big move for Ryan.  If E&S continues to grow, all ships will rise with the tide.  But you gotta execute.  

 

2.  E&S vs Admitted.  tough to gauge.  I mean most E&S carriers are a subsidiary of a name you would know.  Hartford has E&S and Admitted carriers inside their risk bearing entities, same with Zurich, AIG, Travelers, all the big carriers.  Travelers admitted might price something and then Northfield (Travelers E&S) may quote the same risk for more/less price - Travelers management would not even know assuming it was a small-mid size account.  if it was a big deal, like $500K or something they probably would know.  Ryan is incentive is to tell that story because their wagon is hitched to the E&S train.  That's truly a macro question - kinda like "Where is inflation gonna be in 3-5 years or where are interest rates in 3-5 years".  You could guess but no one knows - its a market place - things happen.   

 

3. Dont know much about the small-medium wholesale broker marketplace for acquisitions - only know retail acquisitions because we are acquiring.  Its smaller today for sure.  but if i had to guess, theres room.  Do not under estimate Ryans ability to attract and train new talent.  They really have a machine there, so do other brokers.  Constantly hear about them at all the risk management schools getting kids to go brokerage rather than work a desk with a clip on tie at a carrier.  Brokerage is much sexier than working for a carrier coming out of college.  There are some brokers where all the guys are like 25-30yrs old making $250K+, its like a fraternity.  Type A loves that culture.  

 

4.  MGA/MGU/Binding - all completely different skill sets and much more dependent on the carriers appetite than the brokers wants/needs.  Brokers would love to have the pen and an exclusive program.  Thats the killer app in the insurance business.  Everyone wants that.  Its when the carrier actually grants that authority to a broker that makes the market go WOW.  Remember what Mr. Buffett said about what brokers would do for their clients "If you were on a deserted island and whispered a price, brokers would swim to you, with their fins showing".  Heres a funny post on an insurance instagram account insurance folks just love, and its spot on about what I am talking about:

 

 

 

 

 

Thanks much @longterminvestor. Just great color and insights!

[Dudley]

@longterminvestor  I'm in the insurance distribution space as well, but as an investor and partner. I agree with all of your posts. Great commentary!

 

@valueseek You asked if retail brokers have a more robust business model than wholesalers. I think they do. Whoever "owns" the client and is closer to them has a more robust business model, in my opinion. That being said, RYAN offers a compelling value prop to both insurance carriers (distribution & field U/W) as well as retail brokers. For small retail brokers, RYAN offers market access and ease of doing business. RYAN has more expertise than a small retail broker and can help them level-up with their clients. For the very largest retail brokers, I'm less certain of the value prop. RYAN may have access to certain unique programs with carriers.

 

My guess is that RYAN has more "premium under management" than the vast majority of retail brokers, as they are taking a smaller commission on a larger volume. So, RYAN's ability to aggregate risk in unique carrier programs is likely better than everyone outside of maybe the top 5 retail brokers.

 

Pat Ryan's thesis is essentially two-fold (which I happen to agree with):  1) E&S will continue to grow at a faster clip than the broader market; and 2) Retail brokers continue to want a consolidated wholesaler panel. On the 2nd point, Pat is saying that whereas in the past retail brokers may have worked with 3 or 4 wholesalers. They are starting to whittle that down to 1-2 wholesalers (likely, Amwins and RYAN).

[valueseek]

Thanks @longterminvestor, @Dudley and @dealraker. Attaching the initiation from a couple years ago. Without taking into account the end opinion, the report is reasonably good in terms of industry analysis and background - one of the more diligent analysts on the insurance side.

Ryan Specialty Group __ Multiple Levers for Outsized Growth, but Valuation Appears Full; Initiating with Neutral Rating.pdf

[dealraker]

As to insurance brokers, as Spec mentioned sometime earlier it would likely be a worthwhile experience to look at BRP Group.  I had bought a little BRP in a plunge that I had no understanding of, but have bought significantly more at $22.50 and I added today.  The more I read the more I like it.  

[Spekulatius]

10 hours ago, dealraker said:

As to insurance brokers, as Spec mentioned sometime earlier it would likely be a worthwhile experience to look at BRP Group.  I had bought a little BRP in a plunge that I had no understanding of, but have bought significantly more at $22.50 and I added today.  The more I read the more I like it.  

There is just too much debt for me on BRP balance sheet for my taste (including a revolver).

 

I did buy a bit WTW recently and keep holding my BRO late last year.

[dealraker]

1 hour ago, Spekulatius said:

There is just too much debt for me on BRP balance sheet for my taste (including a revolver).

 

I did buy a bit WTW recently and keep holding my BRO late last year.

Yes but evidently the pay down of debt is relatively rapid for BRP so they say.  I too bought WTW several times recently to add to what I have had.

Edited August 30, 2023 by dealraker

[Seoshin]

Can I just say that this thread is really amazing and its like a crash course for me on insurance brokers. Thank you so much @longterminvestor- your insights are chef's kiss and to the others also @dealraker for posting links for further reading. Again, amazing!

 

[longterminvestor]

The model is not difficult - it just comes in the difficult to understand mystical wrapper called "insurance".  The street even puts brokers in buckets at times with risk bearing insures for comps - not even close to the same model.  Brokerage is financial services at the end of the day.  Everyone wants the 100X bagger, founder led/founder controlled, serial acquirer, strong ROIC, management in place, durable model, capital light "compounder" - look no further than Brown & Brown.  Business was born in 1939 in dusty Daytona Beach, FL by Adrian Brown and Cousin Cov.  10 years later, they had $6,597 in net income.  As a kid, Hyatt (son of Adrian and mastermind behind B&B) would hang out in the office and at an early age he understood personal relationships and salesmanship were key, “I would be sitting and listening and saying nothing, and the first 85% of the customer visit was about hunting, fishing, jokes and all that stuff . And then finally the last part was insurance.” Hyatt recalls. Hyatt graduates from University of Florida and immediately turns around and writes a policy for the college as his first "big account".  Annual revenue jumps of the business jumps from $42K to $60K.  Hyatt later buys the business for $75K and a note worth 10% interest.  The annual meetings were held in the office kitchen.  (Abbreviated version of origin story taken from the 2008 annual report). 

 

 Net income from 1949 to 2022 grew from $6,597 to $671.8M - a 10,183,316% increase.  $60K topline rev to $3.5B in 2022!  Along the way they took on some modest debt (lately they have taken on substantial debt at historically cheap rates to support the acquisitions).  4 parts to the business.  Retail, Wholesale, Programs, Services.  Retail leads the business with large portion of revenue  focusing on the "middle market" accounts where spend is $25K - $250K - they will get into larger accounts and love those but at that stage the bigger "alphabet houses" will be knocking on their door.  There is a time when an account can outgrow the capabilities a B&B can provide and the client needs more risk management rather than just transactional insurance.  Wholesale is the 2nd bucket of revenue, recently rebranded this as "Bridge Specialty" and this is the intermediary between the retail broker and the insurance company - lots of growth in this space with E&S action and changes in risk bearing market segment.  Programs is a niche - think lawyers, plumbers, A/C repair, school buses - something that is homogenous in nature and specialized in 1 arena - they are the experts in that niche and make the retail agent look really good.  Services at B&B is super small and has never scaled. 

 

I remember describing the business to a fund manager as an early investor - still had not discovered my own personal style of investing (I would stare at charts like I was reading tarot cards waiting for the chart to "speak to me" - hopefully I am not the only person who started like this - please tell me I was not alone!!) - and the fund manager just said "This is a 3rd generation family business, the 3rd generation is always the one who f*cks it up" - that thought was seared into my head and held me back from buying more.  My father also held me back from buying more reminding me that owning a large stake in the business you work for is an issue because of the Enron risk (should not have listened to him - different business model entirely).  I owned the stock in my PA for a while, not knowing what I had and stupidly sold it - proceeds were rolled into my personal investment in my own insurance agency - so I traded 1 public broker for my own privately held broker - however looking back I could have scratched together the cash another way if I would have tightened my belt - was newly married, buying a house, and pregnant wife so I felt I needed all the cash on hand possible.  These are just great lessons of investing and still serve as a good lessons today.  

 

Regarding B&B, the question is now about runway - how big can the business get?  Time will tell. 

 

I am looking forward to the future for some new IPO's on horizon with AssuredPartners, Acrisure, and some others that may/not be looking for some liquidity in the public market.  I will be doing a deeper dive into BRP's financials and share my findings.  stay tuned.