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

[UK]

16 minutes ago, dealraker said:

UK, anything you write is fair, I've seen it for a long time.

 

The answer begins with...it wasn't too long ago that we had a family member die and I was the person chosen to handle the trust.  I posted about that....that I bought some  AJG (this wasn't long ago) at $185 per share.  I put more though into Berkshire.  Someone asked me on this forum why I didn't put more into AJG vs Berk and I rambled some crazy response, but it was of course very likely a poor decision not to buy more AJG.

 

But price and time, and industry conditions, have changed.  Today I'd not invest in AJG at this valuation level.  Would this investment if done today likey outperform Mr. Market, the question most ask that I never consider?   Probably.

 

I'd wait, it seems we are somewhat too excited and happy right now as to this sector.  Won't last.  

 

 

 

 

Thank you for answering!

[dwy000]

I tend to agree with the transparency argument.  While complexity and customization is definitely a factor, in other industries most outsized broker or agency rates have come down due to transparency (as well as the internet taking away information advantage).  When you buy or sell a house, you know exactly how much you're getting for the house and how much the broker is getting.  When you buy a stock, bond or option, you know exactly how much the stock costs and how much the commission is (often free now!).  But when you buy insurance, all you see is the premium(s).  You have no idea how much of that is true underwriting risk, how much is administration and how much is commission.  If they were forced to break out those numbers in your premium it would be too easy to go to another broker and say "beat this price" and they could do it with the exact same underwriter.  I can't see a circumstance where anyone (other than the customer) wants to have that level of transparency and kill the golden goose.  So maybe the anomaly continues for the indefinite future.

[73 Reds]

4 minutes ago, dwy000 said:

I tend to agree with the transparency argument.  While complexity and customization is definitely a factor, in other industries most outsized broker or agency rates have come down due to transparency (as well as the internet taking away information advantage).  When you buy or sell a house, you know exactly how much you're getting for the house and how much the broker is getting.  When you buy a stock, bond or option, you know exactly how much the stock costs and how much the commission is (often free now!).  But when you buy insurance, all you see is the premium(s).  You have no idea how much of that is true underwriting risk, how much is administration and how much is commission.  If they were forced to break out those numbers in your premium it would be too easy to go to another broker and say "beat this price" and they could do it with the exact same underwriter.  I can't see a circumstance where anyone (other than the customer) wants to have that level of transparency and kill the golden goose.  So maybe the anomaly continues for the indefinite future.

Back in the day OTC stock commissions were hidden in the "spread".  And frankly, its not that different than going to your doctor and then getting a bill for the "uninsured" portion.

[longterminvestor]

little chatter on AJG.  vid starts there.  its not that long but wanted to keep the thread alive.  

 

 

[dealraker]

longterminvestor the thing I mostly get from the short clip in the video is the same as I've gotten in my 37 years of being in this business - 30 as a publicly traded shareholder.   Investors touch-and-go on it, but don't stick around much, there's too much more mentally stimulating stuff for highly intelligent people needing challenges to investigate. 

 

Along the same lines it is a normal discussion in the insurance business to say, "Well if you can't compete here you can always go sell."   

Edited September 25, 2024 by dealraker

[tnathan]

Does anyone have thoughts on TWFG? They IPO'ed in July here is the s-1 https://www.sec.gov/Archives/edgar/data/2007596/000162828024029560/twfginc-sx1.htm

[longterminvestor]

TWFG (The Woodlands Financial Group) – it’s a Personal Lines outfit

 

I have built this mental model in my head for competitors in a certain class of business, I am always looking for the dual monopoly, for example there is “a Coke” and “a Pepsi” and then everyone else.  If Goosehead is Coke, then TWFG is Pepsi.  The metaphor is for when a business model works, there will be a competitor.  The metaphor is not to compare financial staying power/market dominance of a Coke/Pepsi debate.  TWFG does do commercial insurance where Goosehead is strictly Personal Lines.  TWFG is based in Texas, so is Goosehead. 

 

TWFG, founded by Richard “Gordy” Bunch, III.  $180M topline revenue in 2023.  The revenue comes from “Agencies in a Box” Captive Agencies, MGA’s (captive to TWFG and sell to non-TWFG agents), “independent branches”, and corporate branches.  With over 400 Agencies in a box representing 77% of revenue and 14 Corporate Branches representing 4% of revenue and 2 MGA’s representing roughly 18% of revenue (over 2000 appointed agencies with TWFG’s owned MGA facility). 

 

Average commission for TWFG on a deal is 12% - fine/solid – could be cut or could grow.  TWFG has pre-set calculation to buy agency in a box and become a corp branch.  Has done this in the past.  Branches over $1M revenue and geographically desired could be a target. 

 

TWFG does not bear expense of running the branches but sends the revenue to them.  Seems like each branch has a direct split bases on (taken from S-1):“Unlike some other insurance distribution models, the operating costs incurred by our Branches do not transfer to TWFG. Instead, we receive all commission revenue and subsequently pay and record a commission expense to each Branch based on the relevant exclusive Branch agreement”.

 

The Parent company retains 20% of revenue and cedes 80% to branch.  Found this language interesting in S-1:

 

Exclusive Branch agreements

We enter into exclusive Branch agreements with our Branches under which the Branch operates as an independent contractor. TWFG receives 100% of the commission revenue on the Branch’s Book of Business that is paid by the insurance carriers and typically remits 80% of the commission revenue to the Branch, while typically retaining 20%of the commission revenue and 100% of all contingency commission revenue. The Branches are responsible for all of their operating costs, including fees for technology, E&O premiums and other services charged by us. The exclusive Branch agreement requires the Branch to exclusively sell insurance products through TWFG’s insurance carrier relationships. Our exclusive Branch agreements are straight-forward and written in plain English.

 

When the Branch reaches a minimum term and threshold of commission revenue, the Branch is granted the right to require TWFG to purchase the Branch’s Book of Business upon termination of the Branch agreement at a negotiated price. The Branch agreement remains in force indefinitely, unless earlier terminated by either party with 30 days advance notice or immediately by TWFG in the case of fraud, bankruptcy, death and other events. Upon termination of the Branch agreement, the Branch must sell its Book of Business related to P&C products to TWFG or another TWFG-approved Branch at an agreed upon valuation, or if the parties cannot agree, at a valuation determined by independent appraisal. TWFG also has a right of first refusal on any proposed sale of the Branch to a third party. Our Branch agreements require confidentiality of all Client information and include Client non-solicitation clauses that generally stay in effect for two years following termination of the Branch agreement and our purchase of the Branch’s Book of Business.

 

Within TWFG’s product offerings, each Branch may utilize the products that best serve its Clients. Branch principals also have a high degree of autonomy in which to operate their business and expand their footprint.

Branches use our comprehensive technology and agency management system, benefiting from enterprise group rates that we believe are typically lower than agents would receive on their own or from leading agency management system vendors. Branches also participate in TWFG’s group professional liability E&O insurance policy, benefiting from a reduced group rate, as TWFG passes these savings on to our Branches.

 

TWFG is jumping on the dislocation of insurance agencies in the small business/personal lines marketplace.  TWFG has GREATLY benefited from the hard market and wondering if the growth they have had in the past is sustainable.  People shop when they get non-renewed, canceled, price increases significantly, ect.  That’s been happening a lot in the past 3 years, if the insurance market stabilizes, wonder if TWFG (or Goosehead as well) will get the looks on accounts like they have over the past 3 years.  TWFG has scale now so total destruction is not what I am talking about, its just can it grow in the same manner it has for the previous few years. 

 

A bet on TWFG is a bet on Gordy – he controls the business with 3 classes of shareholder stock.  It is profitable (I’m shocked).  Same Up-C, Tax Receivable Agreement as Baldwin.  I guess TRA’s are socially acceptable now. 

At 40X earnings, its pricey for me – however people like Goosehead at 49X earnings. 

 

I will be watching it. 

 

[longterminvestor]

Headline: Marsh Buys McGriff (ACTUAL STORY-MIDDLE MARKET IS WHERE THE MONEY IS)

 

FACTS ON WHAT IS HAPPENED:

 

Stonepoint Investment Group purchased Truist Insurance Holdings (TIH) with an implied value at $15.5B – deal was closed May 7^th 2024 – it was an ALL CASH transaction which McGriff was the “retail facing brand” inside TIH who is a “middle market agency”. Stonepoint Investor Group players to include: United Arab Emirates’ Sovereign Wealth Fund named “Mubadala Investment Company” & other PE name Clayton Dubilier & Rice.   

 

Enter Big Daddy Marsh using their middle market brand Marsh McLennan Agency (MMA) to buy McGriff for $7.75B IN CASH 6 MONTHS LATER?!? – EXACTLY 50% of the value of Truist Holdings deal previously closed. This takes 50% of the implied value out of the Truist Holdings deal.  I mean, imagine being a producer at McGriff right now, their heads must be spinning. 

 

Marsh needed a big uppercut to AON after their purchase of NFP, which was AON’s entrance into true middle market. 

 

MY OPINION:

 

If ultimate goal of Stonepoint Investor Group is to IPO this thing, why sell off the retail facing piece?  If the deals are all cash, there are no issues with debt, why not just keep the retail facing business inside?  2 ideas I have: #1 Gotta be transactional fees/fees/fees for the funds incentivized to “do deals” and #2 – Stonepoint may have gotten VERY expensive debt on the backend and needed to pay it off fast….only 2 conclusions I have at this time. 

 

This transaction cements my feelings towards the short/medium/long term outlook for Middle Market Brokers (BRO is the best of the lot). For many years they have stayed under the radar in middle market allowing the big 5 to chase after each other for the Fortune 500. The secret of middle market is no longer a secret.  Everyone figured it out, PE backed brokers, Big 5, and others know the institutional accounts are a race to the bottom comp wise so now the big broker cohort has turned their cannons to the “middle market” which BRO/other middle market specialists have been feasting on for years. 

 

Short term BRO and other middle market brokers are fine, medium/long term they will face increased competition for accounts as the big brokers deploy sales force to take their biz/future biz. 

 

 

Marsh McLennan to acquire McGriff Insurance Services _ MMA.pdf

[dwy000]

1 hour ago, longterminvestor said:

Headline: Marsh Buys McGriff (ACTUAL STORY-MIDDLE MARKET IS WHERE THE MONEY IS)

 

FACTS ON WHAT IS HAPPENED:

 

Stonepoint Investment Group purchased Truist Insurance Holdings (TIH) with an implied value at $15.5B – deal was closed May 7^th 2024 – it was an ALL CASH transaction which McGriff was the “retail facing brand” inside TIH who is a “middle market agency”. Stonepoint Investor Group players to include: United Arab Emirates’ Sovereign Wealth Fund named “Mubadala Investment Company” & other PE name Clayton Dubilier & Rice.   

 

Enter Big Daddy Marsh using their middle market brand Marsh McLennan Agency (MMA) to buy McGriff for $7.75B IN CASH 6 MONTHS LATER?!? – EXACTLY 50% of the value of Truist Holdings deal previously closed. This takes 50% of the implied value out of the Truist Holdings deal.  I mean, imagine being a producer at McGriff right now, their heads must be spinning. 

 

Marsh needed a big uppercut to AON after their purchase of NFP, which was AON’s entrance into true middle market. 

 

MY OPINION:

 

If ultimate goal of Stonepoint Investor Group is to IPO this thing, why sell off the retail facing piece?  If the deals are all cash, there are no issues with debt, why not just keep the retail facing business inside?  2 ideas I have: #1 Gotta be transactional fees/fees/fees for the funds incentivized to “do deals” and #2 – Stonepoint may have gotten VERY expensive debt on the backend and needed to pay it off fast….only 2 conclusions I have at this time. 

 

This transaction cements my feelings towards the short/medium/long term outlook for Middle Market Brokers (BRO is the best of the lot). For many years they have stayed under the radar in middle market allowing the big 5 to chase after each other for the Fortune 500. The secret of middle market is no longer a secret.  Everyone figured it out, PE backed brokers, Big 5, and others know the institutional accounts are a race to the bottom comp wise so now the big broker cohort has turned their cannons to the “middle market” which BRO/other middle market specialists have been feasting on for years. 

 

Short term BRO and other middle market brokers are fine, medium/long term they will face increased competition for accounts as the big brokers deploy sales force to take their biz/future biz. 

 

 

Marsh McLennan to acquire McGriff Insurance Services _ MMA.pdf 124.36 kB · 2 downloads

On its headline, Marsh seems to be getting quite a deal at less than 6x revenues.  Plus there's a $500m deferred tax asset included. If Stonepoint bought Truist 6 months ago it's likely your assumption of refinancing high cost debt is playing a role here.

[Spekulatius]

$112 - the stock is now a double for me. Not a large position, but now I can cheer Go $Bro! I also made some friends along the way.

 

Results look very good to me:

https://investor.bbinsurance.com/news-releases/news-release-details/brown-brown-inc-announces-third-quarter-2024-results-including

Edited November 10, 2024 by Spekulatius

[valueventures]

While all the names referenced in this thread have been quality compounders, they obviously have large market caps.

 

Curious if anyone has thoughts on companies that are more small-to-mid cap in size that are earlier in their compounding lifecycles. I own FFH over BRK because it is much smaller and should therefore compound from a lower base, and am looking for a similar dynamic among insurance brokers.

 

Thanks!

[dealraker]

21 hours ago, valueventures said:

While all the names referenced in this thread have been quality compounders, they obviously have large market caps.

 

Curious if anyone has thoughts on companies that are more small-to-mid cap in size that are earlier in their compounding lifecycles. I own FFH over BRK because it is much smaller and should therefore compound from a lower base, and am looking for a similar dynamic among insurance brokers.

 

Thanks!

The insurance brokers are running along in the higher end of their pricing cycle which corresponds to what is surely maybe the best environment in their history.  Life is good!

 

As to grasping the business?  longterminvestor who posts right here has many excellent rants - that if you are a detailed type - can do a sound job of delivering information as to insight into the businesses.  There are industry publications too, but I'd go with reading a BRO or AJG annual report or conference call for further insight.

 

As I have posted before, owning the stocks is a good way to understand the businesses.  Finding a decent starting spot is the hard part.  After that?  Well, the less I think and "understand" the business........the more money I make.

 

 

Edited November 29, 2024 by dealraker

[dealraker]

This is a big one:

 

GTCR Announces Sale of AssuredPartners to Arthur J. Gallagher & Co. for $13.45 Billion

 

 

 

Edited December 9, 2024 by dealraker

[longterminvestor]

dealraker......I knew you would be on the informational edge.

 

Brief dive into transaction.  Transaction based on "Proforma Revenues & EBITDAC".....how does one proforma-lize top line revenues?  

 

Love LOVE Jim Henderson's negotiating skills (Old School insurance guy who was gracefully pushed out of Brown & Brown and started AP) - "we want USD paper- cash only, we don't want your AJG paper".   So AJG says, "that's fine Jim.  We will write you a check and dilute our shareholders by raising the cash in the market by selling shares".  Happy for the guys at AP, what a testament to business model of insurance distribution. AP was seeded by PE, sold/re-capped multiple times.  

 

Quote from PE Fund who owned AP press release: "Over the past 13 years, the Company has acquired and successfully integrated over 500 businesses, building a national leader in insurance brokerage. GTCR originally sold the Company to Apax Fund VIII in 2015, and GTCR reacquired a majority stake in partnership with Apax Fund IX in 2019. Today, the business is led by Mr. Henderson and CEO Randy Larsen."

 

I may dive deeper into the numbers but these sky high valuations are incredible.  

Edited December 9, 2024 by longterminvestor

[Dinar]

52 minutes ago, longterminvestor said:

dealraker......I knew you would be on the informational edge.

 

Brief dive into transaction.  Transaction based on "Proforma Revenues & EBITDAC".....how does one proforma-lize top line revenues?  

 

Love LOVE Jim Henderson's negotiating skills (Old School insurance guy who was gracefully pushed out of Brown & Brown and stared AP) - "we want USD paper- cash only, we don't want your AJG paper".   So AJG says, "that's fine Jim.  We will write you a check and dilute our shareholders by raising the cash in the market by selling shares".  Happy for the guys at AP, what a testament to business model of insurance distribution. AP was seeded by PE, sold/re-capped multiple times.  

 

Quote from PE Fund who owned AP press release: "Over the past 13 years, the Company has acquired and successfully integrated over 500 businesses, building a national leader in insurance brokerage. GTCR originally sold the Company to Apax Fund VIII in 2015, and GTCR reacquired a majority stake in partnership with Apax Fund IX in 2019. Today, the business is led by Mr. Henderson and CEO Randy Larsen."

 

I may dive deeper into the numbers but these sky high valuations are incredible.  

I am not a tax lawyer/accountant, but my guess is that the headline price is roughly 20% lower due to tax savings, I am sure that it was a section 382 transaction with asset step-up.

[dwy000]

Is there any reason the industry is taking it on the chin today?  Was there an analyst downgrade of the major players?  I dont normally care about daily moves but this was large and across the board.  Worried i missed some news.  They are all down like 4-5%.

[Xerxes]

1 hour ago, dwy000 said:

Is there any reason the industry is taking it on the chin today?  Was there an analyst downgrade of the major players?  I dont normally care about daily moves but this was large and across the board.  Worried i missed some news.  They are all down like 4-5%.

the industry fell on sympathy for FFH not making it into the index. 

[Junior R]

1 hour ago, Xerxes said:

the industry fell on sympathy for FFH not making it into the index. 

lol

 

2 hours ago, dwy000 said:

Is there any reason the industry is taking it on the chin today?  Was there an analyst downgrade of the major players?  I dont normally care about daily moves but this was large and across the board.  Worried i missed some news.  They are all down like 4-5%.

Many stocks dropped today ....

[longterminvestor]

12 hours ago, Dinar said:

I am not a tax lawyer/accountant, but my guess is that the headline price is roughly 20% lower due to tax savings, I am sure that it was a section 382 transaction with asset step-up.

 

Not an accountant either.  However, they are calling if a deferred tax asset - to the tune of $1B - roughly 7.4% of the purchase price.  Solid edge when you an extra Billion to spend others do not.  See below.  CFO of AJG gets a gold star!  

 

[Spekulatius]

Just a year or two ago, they were stating they were making acquisition at 10-11x and that was before synergies, I think. However that applied to smaller acquisition than this monster here.

 

I do think the BRO edge was their ability to make many plankton size acquisition at lower multiples, similar to what  CSU does in software.

 

Eventually as the whale becomes bigger, living off plankton becomes harder and AJG at least starts to go bigger in the food chain.

[dealraker]

Wells Fargo likes the AJG acquisition:

 

 Equity Research
Price Target Change — December 9, 2024
Insurance Brokers
Arthur J. Gallagher & Co.
Reaffirm Overweight On Accretive AssuredPartners 
Transaction
Overweight
Price Target: $344.00
Our Call
We raise our estimates and price target for AssuredPartners deal. Our EPS estimates 
go up 9.6% in 2025 and 9.2% in 2026 and price target rises to $344 (from $315). The 
expected deal accretion and favorable multiple paid had AJG outperforming peers.
Out year estimates and price target go up: Our 2024 EPS estimate is now $10.03 from 
$10.11 while our 2025 and 2026 estimates go to $12.60 and $14.30, from $11.50 and 
$13.10. The changes to our estimates reflect the incorporation of the AssuredPartners 
transaction as AJG stated on its call there was no other change to its financial condition 
since it last gave guidance. Our price target rises to $344, using a 27x multiple on our 
2025 cash EPS (24x 2026) plus $4 per share for our clean coal DCF.
More thoughts on the multiple paid: Gallagher is paying 14.3x EBITDAC (13.3x when 
adjusting for the $1b DTA with the transaction), which screens favorable to other large 
broker deals (EBITDAC multiples of 20x and above). We think AJG benefited from the PE 
partners looking to monetize the assets (they will be fully out of AP with this transaction) 
and they are also known not to pay up for deals (Gallagher also received a great price 
when buying Willis Re in 2021).
Synergies could be conservative: Gallagher is looking for expense saves of $100m, 5% 
of AP's expenses, which could prove to be conservative in our view (Aon/NFP was a lower 
3.5% of expenses, while MMC did save 15% of expenses with JLT). Further, the revenue 
synergies outlined in the deal ($60m) could be higher as well as they ignored any revenue 
synergies from the Risk Management business as well as on the wholesale side.
Thoughts around owning a broker in the midst of a large deal: While we recognize there 
are often pitfalls to large broker deals, we believe the financials outlined with this deal are 
achievable and the expected accretion as well as low multiple paid has us viewing the deal 
favorable, even against the backdrop of an industry that often sees noise with large deals. 
AJG has a strong track record of integration larger deals stemming from its internaional 
expansion in 2014/2015 and Willis Re.
Valuation post transaction: AJG shares are now trading at 23x 2025 and 20.4x 2026 
EPS estimates, favorable to historical levels given the expected accretion with the deal 
(average P/E is just around 23x). On an EV-to-EBITDA basis shares are at 15.9x 2025 
EBITDA post the equity issuance (and our assumption of $4.5b debt issued with the deal), 
versus the peer group (ex WTW) at 17.3x on average and 17.1x prior to the transaction. 
For additional thoughts see first look note & conference call takes.

[gfp]

earnings season is starting - good results from BRO

https://www.bbinsurance.com/news/brown-organic-revenue-growth-of-13-8-diluted-net-income-per-share-of-0-73-and-dil/

[dealraker]

12 hours ago, gfp said:

earnings season is starting - good results from BRO

https://www.bbinsurance.com/news/brown-organic-revenue-growth-of-13-8-diluted-net-income-per-share-of-0-73-and-dil/

Wells on BRO today:

 

   Equity Research
Flash Comment — January 27, 2025
Insurance Brokers
Brown & Brown, Inc.
Q4 Upside Driven by Program; Retail Organic Falls Short Overweight
Price Target: $115.00
Our Call
BRO reported Q4 core EPS of $0.86, beating our $0.76 and consensus of $0.77 reflecting 
stronger organic growth and EBITDA margins (most upside driven by Programs; BRO did 
not say how much flood-related revenue added). Tax benefited results by $0.03.
Initial Thoughts
Stock call: Shares should trade based on conference call commentary given another 
weaker organic growth quarter in Retail. Organic had a healthy beat (13.8% vs. our 10.5%) 
with the upside all driven by National Programs (38.6% vs. our 34.1%). Organic fell slightly 
short of us in Retail (4.4% vs. our 5.0%) and Wholesale (7.1% vs. our 8.0%). We expect 
a focus of the call to be on another quarter of slower growth in Retail, any one-offs in 
Programs, plus the margin guide for 2025.
Q4 2024 Variance (Key Metrics)
Actual WFS Cons WFS Cons WFS Cons
Adjusted EPS $0.86 $0.76 $0.77 12.4% 12.1% Beat Beat
Organic Growth 13.8% 10.5% 9.4% 3.3% 4.4% Beat Beat
EBITDAC margin 32.9% 31.7% 32.0% 1.2% 1.0% Beat Beat
Contingents Commissions 57.0 29.6 29.5 92.4% 93.0% Beat Beat
Acquired Revenues 26.0 36.4 35.1 (28.5%) (25.8%) Miss Miss
Tax Rate 22.9% 26.5% 26.1% (3.6%) (3.2%) Beat Beat
Investment Income 22.0 22.9 19.9 (3.9%) 10.6% Miss Beat
Retail Organic Growth 4.4% 5.0% 6.2% (0.6%) (1.8%) Miss Miss
National Programs Organic Growth 38.6% 34.1% 21.7% 4.5% 16.9% Beat Beat
Wholesale Brokerage Organic Growth 7.1% 8.0% 8.1% (0.9%) (1.0%) Miss Miss
Source: Company Reports, Visible Alpha and Wells Fargo Securities, LLC estimates
Note: $ in millions except per share and where indicated
Variance vs WFS and Consensus Q4 2024 Delta (%) vs Beat / Miss
The good: Organic growth of 13.8% came in ahead of our 10.5% and consensus of 9.4%. 
The upside was driven by National Programs (38.6% vs. our 34.1% and consensus of 
21.7%) while both Retail and Wholesale fell short of us. Contingent commissions of $57m, 
beat our $29.6m and improved from $42m last Q4. EBITDAC margin of 32.9% beat 
our 31.7% as well as consensus of 32.0%, with most of the upside driven by National 
Programs (47.9% margin vs our 40.6%); Retail margin also beat at 27.8% vs our 27.4%.
The bad: Wholesale organic of 7.1% came in below our 8.0% and consensus of 8.1% and 
Retail organic of 4.4% was short of our 5.0% and consensus of 6.2%. Growth in Wholesale 
represented a slowdown from 8.4% in Q3 and 11.0% in the Q2. Retail growth picked up 
only modestly from 3.9% in the Q3 (which was hurt by ~100 bps from a YTD true-up in 
certain incentive comp as well as quarterly volatility) and BRO pointed to the Q3 adjusted 
4.9% as being a good estimate for Q4.
The ugly: In addition to the organic shortfall, Wholesale posted an EBITDAC margin of 
25.7%, well short of our 28.5% and down from the 27.1% in the prior Q4. Wholesale 
margin was offset by the finalizaiton of FY performance incentives and one-time costs.
Other detracted from EBITDAC by about -$11m, worse than our estimate for an $8m 
benefit, as it usually is positive to EBITDAC (through 9/30 other EBITDAC was +$20m 
YTD).
Ticker BRO
Upside/(Downside) to Target 6.6%
Price (01/27/2025) $107.84
52 Week Range $75.79 - 114.15
Market Cap (MM) $30,627
Source: Company Data, Wells Fargo Securities estimates, and Factset.
NA = Not Available, NC = No Change, NE = No Estimate
Elyse Greenspan, CFA
Equity Analyst | Wells Fargo Securities, LLC
Matthew Byrnes, CFA
Associate Equity Analyst | Wells Fargo Securities, LLC
Hristian Getsov
Associate Equity Analyst | Wells Fargo Securities, LLC
Nicholas Annitto
Associate Equity Analyst | Wells Fargo Securities, LLC
Westar Zong
Associate Equity Analyst | Wells Fargo Securities, LLC
All estimates/forecasts are as of 1/27/2025 unless otherwise stated. 1/27/2025 21:25:54EST. Please see page 5 for rating definitions, important disclosures and required analyst certifications. 
Wells Fargo Securities, LLC does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could 
affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision.
Insurance Brokers Equity Research
Additional M&A color: BRO completed 10 deals in Q4, bringing on $137m of revenue 
(modestly below our $135m estimate) with the largest being the Quintes deal 
($110-120m of revenue) which closed in Q4. BRO said pricing and terms for quality deals 
remained competitive, with no change from prior quarter. Conference call tomorrow at 
8:00 AM EST; Webcast here. The biggest focus of the call should be the relative weakness 
in the Retail and Wholesale segments as well as its outlook for its 2025 margin
2 | Equity Research
Brown & Brown, Inc. Equity Research
BRO reported Q4 adjusted EPS of $0.86, beating both our $0.76 and consensus of $0.77, reflecting 
organic upside (driven by Programs), higher contingent commissions, stronger margin, and a lower 
tax rate. The lower tax rate benefited EPS by $0.03. Organic growth was 13.8%, beating our 10.5%
and consensus of 9.5% per Visible Alpha. Organic beat us in National Programs, but missed us in 
Wholesale and Retail. National Programs organic was 38.6%, beating our 34.1%, and a pickup from 
22.8% in Q3 (BRO did not call out the impact of flood servicing revenue in the quarter and had guided 
to $12-15m). Retail posted organic of 4.4%, short of our 5.0%, and while it improved from 3.95 in Q3 
BRO had guided to retail coming in at least at the Q3 adjusted 4.9% (the Q3 had ~100bps of headwind 
from timing) as increases in net new business were partially offset by the timing of non-recurring 
business. Wholesale organic of 7.1% was short of our 8.0% estimate and slowed from 8.4% in Q3 due 
to net new business and exposure unit increases. Acquired revenue added $26m, short of our $36m.
The EBITDAC margin was 32.9% (+190 bps Y/Y), above our (31.7%) as well as consensus (32.0%) as 
National Programs and Retail beat us, while Wholesale missed (Other detracted from EBITDAC by 
about -$11m, worse than our estimate for an $8m benefit). The tax rate was 22.9%, better than our 
26.5% estimate. BRO’s FCF of $341m was higher than our $316m estimate. In the Q4, operating 
cash flow was 30.5% of revenue, which was higher than its 24-26% 2024 target as Q4 is a high cash 
generative quarter (operating cash flow was 29.8% of revenue last Q4).
Exhibit 1 - BRO's Actuals versus Estimated Results and Prior Year Quarter
Results Variance
Q4 2024 Q4 2024E % Absolute Q4 2023 %
Total revenue $1,184 $1,137 4.2% $47.3 $1,026 15.4%
YoY Growth in revenue 15.4% 10.8% - 4.6% 13.8% -
Contingents commissions $57.0 $29.6 92.4% $27.4 $42.0 35.7%
Investment income $22.0 $22.9 (3.9%) ($0.9) $18.0 NM
Acquired revenue $26.0 $36.4 (28.5%) ($10.4) $18.0 NM
Annual revenue from completed deals $137.0 $135.0 1.5% $2.0 $109.0 NM
Organic revenue $1,078 $1,047 3.0% $31.2 $946 14.0%
YoY Growth in organic revenue 13.8% 10.5% - 3.3% 7.7% -
Employee comp and benefits as a % of commissions and fees 50.1% 52.7% - (2.6%) 55.1% (4.9%)
Other operating expenses as a % of commissions and fees 18.3% 17.1% - 1.2% 15.8% 2.5%
Change in acquisition earn out payables $11.0 $0.0 - $11.0 ($9.0) NA
Reported EBITDAC margin 32.9% 31.7% - 1.2% 31.0% 1.9%
YoY Change in Margin (Deterioration) 1.9% 0.8% - 1.2% (0.4%) -
Tax Rate 22.9% 26.5% - (3.6%) 24.4% (1.5%)
Cash flow from operations $361.0 $333.3 8.3% $27.7 $305.4 18.2%
Capital expenditures $20.0 $17.5 14.3% $2.5 $30.5 (34.4%)
Free cash flow $341.0 $315.8 8.0% $25.2 $274.9 24.0%
FCF % of Revenue 28.8% 27.8% - 1.0% 26.8% 2.0%
Adjusted EPS $0.86 $0.76 12.4% $0.09 $0.69 23.6%
YoY Growth in EPS 23.6% 10.1% - 13.6% 15.1% -
Segment Results:
Retail:
Organic revenue YoY growth 4.4% 5.0% - (0.6%) 8.2% (3.8%)
Commissions and Fees $619.0 $614.1 0.8% $4.9 $570.0 8.6%
Adj EBITDAC margin 27.8% 27.4% - 0.4% 26.8% 1.0%
YoY Change in Margin (Deterioration) 1.0% 0.4% - 0.5% NM NM
National Programs:
Organic revenue YoY growth 38.6% 34.1% - 4.5% 5.4% 33.2%
Commissions and Fees $348.0 $331.2 5.1% $16.8 $268.0 29.9%
Adj EBITDAC margin 47.9% 40.6% - 7.3% 41.3% 6.7%
YoY Change in Margin (Deterioration) 6.7% (2.7%) - 9.4% NM NM
Wholesale Brokerage:
Organic revenue YoY growth 7.1% 8.0% - (0.9%) 14.5% (7.4%)
Commissions and Fees $137.0 $137.8 (0.6%) ($0.8) $126.0 8.7%
Adj EBITDAC margin 25.7% 28.5% - (2.8%) 27.1% (1.4%)
YoY Change in Margin (Deterioration) (1.4%) 1.3% - (2.7%) NM NM
Actual Versus Estimates Year-Over-Year Change
Results Variance
Source: Company reports and Wells Fargo Securities, LLC estimates
Equity Research | 3
Insurance Brokers Equity Research
Investment Thesis, Valuation and Risks
Brown & Brown, Inc. (BRO)
Investment Thesis
BRO is looking for margins to improve over 100bps in 2024 and has said they should be able to see low to mid-single digits organic growth 
in a steady state economy. Brokers should outperform with a more volatile economic backdrop. BRO should outperform relative to the 
broader brokerage group given its middle-market exposure (seeing best rate increases), combined with its lack of a consulting business. We 
rate BRO shares Overweight.
Target Price Valuation for BRO: $115.00 from NC
• Our price target of $115 is based on a 28.0x multiple of our 2025 adjusted cash EPS estimate.
• The 28.0x compares to the peer group at 22.2x. The multiple represents and average of the 5-year average and the peak multiple. 
BRO pulled intangible amortization out of its EPS on its Q4 2023 conference call, so historical levels are not comparable. Given our 
anticipation for above-average organic and margin expansion, we believe the shares should be valued between recent levels and the 
peak.
Risks to Our Price Target and Rating for BRO
Risks include tough economic conditions, which would pressure organic growth, a slowdown and leveling off of the P&C rating 
improvement, and the completion and successful integration of its recent large international acquisitions.
4 | Equity Research
Brown & Brown, Inc. E

[longterminvestor]

Baldwin Insurance Group still boggles my mind but I guess there is some learning in there for me.  Insurance brokers can lose money for a long...long time and market is still forgiving.  $191M net loss since 2019 through 9 months 2024.  The learning I guess is its just a topline revenue money grab and bottom line will take care of itself.  VERY hard for me to get there tho.  Good for them, sincerely.  The dilution is staggering as well.    

 

in 000's, except shares out

[dealraker]

6 hours ago, longterminvestor said:

Baldwin Insurance Group still boggles my mind but I guess there is some learning in there for me.  Insurance brokers can lose money for a long...long time and market is still forgiving.  $191M net loss since 2019 through 9 months 2024.  The learning I guess is its just a topline revenue money grab and bottom line will take care of itself.  VERY hard for me to get there tho.  Good for them, sincerely.  The dilution is staggering as well.    

 

in 000's, except shares out

As stated previously I do follow Wells Fargo research on the brokers and honestly it is surprising how good this stuff has been for 15 years or so.  Wells is negative on BWIN, leverage, dilution, and all kinds of other issues, but does indicate free cash flow of $1.46 per share.

 

Currently Wells is most positive on Willis and Aon.  They nailed the change as to Willis perfectly and Aon's recent too.  I've had Willis for some time but added when Spek began writing about it.  Spek sold his but I just kept my added shares plus original ones and the performance so far is crazy good.  I already owned Aon and had all I wanted so I just watched that one.

 

I'm as much mystified by Ryan, Goosehead, and some of the others as to valuations.  The Erie exchange is something I've greatly profited by but also have little understanding except that the guy I'm probably best friends with (and former business partner) has a business where he sales insurance mostly Erie with about $36mil of sales.  So this high school grad only says he gets 3 times sales offers daily, that Erie controls a lot of what he does.  But given he took over his dad's one person agency some 45 years ago I don't think he's much complaining.

Edited Thursday at 12:07 PM by dealraker