Brown & Brown, Inc (BRO) Q4 2025 Earnings Call Transcript

Brown & Brown, Inc (NYSE: BRO) Q4 2025 Earnings Call dated Jan. 27, 2026

Corporate Participants:

J. Powell Brown — President & Chief Executive Officer

R. Andrew Watts — Executive Vice President, Chief Financial Officer & Treasurer

Analysts:

Unidentified Participant

Gregory Peters — Analyst

Jimmy Buller — Analyst

Rob Cox — Analyst

Tracy Vingigi — Analyst

Mike Zyrinski — Analyst

Elsie Greenspan — Analyst

Presentation:

operator

Good morning and welcome to the Brown and Brown Inc. Fourth Quarter Earnings Call. Today’s call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call and including answers given in response to your questions and may relate to future results and events or otherwise be forward looking in nature. Such statements reflect our current views with respect to future events, including those related to the Company’s anticipated financial results for the fourth quarter and are intended to fall within the safe harbor provisions of the security laws.

Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or or desired or referenced in any forward looking statements made as a result of a number of factors. Such factors include the Company’s determination as it finalizes its financial results for the first quarter that its financial results differ from the current preliminary unaudit numbers set forth in the press release issued yesterday, other factors that the Company may not have currently identified or quantified, and those risks and uncertainties identified from time to time in the Company’s report filed with.

The securities and Exchange Commission. Additional discussion of these and other factors affecting the Company’s business and prospects as well as additional information regarding forward looking statements is contained in the slide presentation posted in connection with this call and in the Company’s filings with the securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. In addition, there are certain non GAAP financial measures used in this conference call. A reconciliation of any non GAAP financial measures to the most comparable GAAP financial measure can be found in the Company’s earnings press release or in the investor presentation for this call on the company’s website@bbrown.com by clicking on Investor Relations and then Calendar of Events.

With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may now begin.

J. Powell Brown — President & Chief Executive Officer

Thank you Tonya Good morning everyone and welcome to our fourth quarter earnings call. Before we get into the results, I want to to share that we lost a key member of our leadership team, an incredible individual and great friend. Last week Rob Mathis, our Chief Legal Officer, passed away. Our thoughts and prayers go out to Rob’s family. We’ll miss his friendship, his leadership and his wit. Now let’s transition to our results. The fourth quarter capped off another year of strong top and bottom line financial performance. For the full year we grew our revenue by 23%.

Through a combination of M and A, organic revenue growth and strong growth in our contingent commissions, we expanded our margins materially and grew our cash flow from operations by nearly 24%. This strong performance was in spite of softening cap property rates and economies returning to more normal growth levels. Our performance was driven by our culture, teammates, diversification and disciplined leadership. In addition to the good financial results, we also completed the largest acquisition in our history, welcoming over 5,000 incredible teammates from a session. We’re very pleased with the integration efforts to date. We’ll touch on that more later.

Lastly, we invested in talent and technology to help us deliver even better solutions for our customers. Indeed, it was a very eventful year that we’re very proud of. Before we get started, we wanted to share some comments related to Brown and Brown and also involve our industry in general. First and foremost, we believe in competition. That’s what makes great companies great leaders and great individuals. We also believe in integrity, honesty, loyalty and trust. However, when a startup US Broker conducts what appears to be a highly coordinated plan to lift entire teams from its competitors, taking information and customers in the process, it must be addressed.

As of today, approximately 275 of our former teammates have joined this startup, taking with them customers currently representing known annual revenues of $23 million. As we’ve done in the past, we will defend our rights in court and already have obtained an injunction. We stand behind our values and will continue to stay customer focused with the goal of achieving the best possible outcomes for our customers and our trading partners. Now back to our results. I’ll provide some high level comments regarding our performance along with updates on the insurance market and the M and A landscape. Then Andy will discuss our financial performance in more detail.

Lastly, I’ll wrap up with some closing and forward looking thoughts before we open it up to Q and a. On slide 4. For the fourth quarter we delivered revenues of 1.6 billion, growing 35.7% in total, with organic revenue decreasing 2.8% driven substantially by flood claims processing revenue. We recognized in the fourth quarter of last year, our adjusted EBITDAC margin remained flat at 32.9% and our adjusted earnings per share grew over 8% to 93 cents. Both are very strong considering last year’s flood claims processing revenue. On the M and A front, we remained active and completed six acquisitions with estimated annual revenue of 29 million.

On slide 5 for the full year of 25 we delivered revenues of 5.9 billion, growing 23% in total and 2.8% organically our adjusted EBITDA margin was approximately 36%, increasing 70 basis points. On an adjusted basis, our diluted net income per share grew over 10% to $4.26 and we generated nearly 1.5 billion of cash from operations. Lastly, we had a record year for M and a, adding approximately 1.8 billion of annual revenue from 43 acquisitions, with the largest being a session I’m on slide 6. From an economic standpoint, growth was relatively consistent compared to the last few quarters.

We view this stability as positive. Our customers for the most part continue to hire at a modest pace and invest in their businesses as they see steady demand for their products and services. Not all industries are equal as some companies are hiring while others are holding steady and we’re not seeing any major workforce reductions impacting our diversified customer base. In general, our customers have a cautiously optimistic outlook. From a commercial insurance pricing standpoint, rates for most lines were fairly similar to the third quarter, but we did see some moderation across some lines. Casualty and cat property remain the outliers on both ends of the spectrum.

Pricing for employee benefits increased slightly as compared to prior quarters with medical costs up 7 to 9% and pharmacy costs up over 10%. As we’ve mentioned in the past, we do not see any signs that this trend will slow. Our customers continue to be challenged to balance rising healthcare costs and the impact of their employees and their P&Ls during strategic planning sessions with our customers. Management of high cost claimants, specialty pharmacy and population health remain the key areas of focus. Rates in the admitted PNC market moderated slightly as compared to last quarter and continued to be in the range of flat to up 5.

Workers compensation rates remains flat to down 3%, but we’re seeing a few states increasing rates. For non cap property Overall, rates were down 5 to up 5 depending on loss experience, with the blended rates relatively flat for the quarter. For casualty lines, rates increased 3 to 6% for primary layers, with excess layers increasing even more. For professional liability, rates remained similar to the last couple of quarters and were down 5 to up 5. Shifting to the ENS property market rate. Changes for the fourth quarter were similar. To the third quarter and were generally down 15 to 30%. We did see some incremental drop off at the end of the year, but not as much as we did in June. With the availability of capital and lower insured storm losses, you have a lot of firms looking to put capital to work. Therefore, the pricing environment and approach by carriers did not surprise us from a customer perspective. They continue to manage their total insurance spend, both commercial as well as employee benefits. As a result, we’re seeing some customers leverage the lower rates, enabling them to decrease their deductibles or increase their limits.

In some cases, they’re utilizing the savings to purchase incremental limits on other lines or they’re just capturing the savings on Slide 7. Now let’s transition to the performance of our two segments for the fourth quarter retail delivered organic growth of 1.1% as a reminder, during our third quarter earnings call, we anticipated Q4 organic growth to be negatively impacted by multiyear policies written in 4Q24. In addition, we had certain one time adjustments to incentive commissions that were larger than anticipated. Lastly, we had certain project work that was delayed into 2026. In total, these items negatively impacted organic growth by 100 to 150 basis.

For the full year, our team delivered. 2.8% organic revenue growth, a good performance given the headwinds we have discussed related to incentive commissions and multi year policies. We feel good about our capabilities and how our team is positioned and therefore we’re expecting improved organic performance in 2026. For the quarter, organic revenue for specialty distribution segment decreased by 7.8%. As we discussed, the decline was primarily impacted by 28 million of flood claims processing revenue recognized in the fourth quarter of last year. In addition, the decrease in CAT property rates was slightly more than expected and we saw some binding authority business move back into the admitted market.

For the full year, we grew 2.8% organically, a good result considering a tough comparison for 24 and the continued decline and CAT property rates. Now I’ll turn it over to Andy to get into more details about our financial results.

R. Andrew Watts — Executive Vice President, Chief Financial Officer & Treasurer

Thank you pal. Good morning everyone. Before we get into the financial details, we want to talk about the impact on our earnings related to the acquisition of a session. For the quarter, A Session’s total revenue was approximately 405 million. This is below the guidance of 430 to 450 million. As a result of refining our revenue recognition estimates by quarter, revenue margins and adjusted earnings per share were impacted for the quarter. However, these revisions do not change our annual expectations for the business. From an adjusted earnings per share perspective, the impact of lower revenues versus our guidance was approximately $0.05 for the quarter.

As it relates to the margin for the quarter due to the phasing of revenue and profit, the Sessions results decreased our margins by approximately 200 basis points for the total company company transitioning now to our consolidated results. As a reminder, when we refer to ebitda, EBITDAAC margin income before income taxes or diluted net income per share. We are referring to those measures on an adjusted basis. The reconciliations of our GAAP to non GAAP financial measures can be found either in the appendix of this presentation or in the press release we issued yesterday. Now let’s get into more detail regarding our financial performance for the quarter and the year.

On a consolidated basis, we delivered Total revenues of $1,607,000,000 growing 35.7% as compared to the fourth quarter 2024. Contingent commissions grew by an impressive 37 million with 21 million coming from recession. The underlying increase was driven by minimal storm claim activity and higher underwriting profitability. Income before income taxes increased by 23.1% and EBITDA grew by 35.6%. Our EBITDA margin was 32.9% remaining flat versus the fourth quarter of the prior year. This was a good result considering the negative 200 basis point impact of a session mentioned earlier and the prior year. Floods Claim Flood Claim Processing Revenue the strong underlying margin expansion was driven by significant higher contingent commissions and lower claims within our captives, both due to the quiet storm season along with our continued disciplined management of our expenses.

Our effective tax rate for the quarter was 21%, a decrease over the prior year rate of 24.9%. The lower tax rate was driven by the benefit from our international operations and certain end of the year adjustments. Diluted net income per share increased 8.1% to $0.93. Our weighted average shares outstanding increased by approximately 55 million to 339 million primarily due to shares issued in connection with the acquisition of a cession. Lastly, our dividends paid per share increased by 10% as compared to the fourth quarter of 2024. We’re moving over to slide number nine. The retail segment grew total revenues by 44.4%.

This growth was driven primarily by acquisition activity. Over the past year our EBITDA margin decreased by 120 basis points to 26.6% resulting from the quarterly phasing of revenue and profit associated with a session. The accession impact more than offset good underlying margin expansion driven by the leveraging of our expense base and certain one time items. We’re on slide number 10. Specialty distribution grew total revenues by 27% driven by the acquisition of a session and a substantial increase in contingent commissions. The higher contingents were driven by acquisition activity, certain end of the year adjustments and growth due to our favorable underwriting performance.

Generally, our contingent commissions will increase when there are low loss ratios and Strong Underwriting Underwriting Profitability Traditionally, when there is a strong underwriting profitability, it has the long term effect of decreasing rates over time. This inverse correlation for contingent commission helps put stability in our long term revenue growth, margins and cash flow generation as contingents are a core part of our business model. Our EBITDA margin decreased by 60 basis points to 41.3% due to the lower flood claims processing revenue and the impact of a session having a lower overall margin as compared to our existing specialty distribution segment.

These impacts more than offset the increase in margins driven by higher contingent commissions, lower claims in our captives and the disciplined management of our expenses. Over on slide number 11, this slide presents our results. For both years, our EBITDA grew by 25.6% and our margin increased 70 basis points to 35.9%. We view this as a very strong result given that coming into the year we are anticipating margins to be flat due to lower contingent commissions. The difficult comparison 2024 driven by the flood claims revenue and the seasonality of a session’s profitability which negatively impacted the full year margin by approximately 80 basis points, we’re very pleased with the strong underlying performance.

This performance was driven by significant growth in our contingent commissions, higher profitability in our captives, increased interest income and the disciplined management of our expenses while still investing in our teammates and capabilities. Net income before income taxes increased 21.8% and net income per share was $4.26 growing 10.9%. Overall, it was another good year of strong top and bottom line performance. We had a few other comments. From a cash perspective, we generated $1,450,000,000 of cash flow from operations growing 23.5% over the prior year. This is in comparison to 23% revenue growth. Our full year ratio of cash flow from operations as a percentage of total revenues remains strong and increased to 24.6%, a reflection of our margins and disciplined working capital management.

In addition, during the quarter we paid 100 million on our revolving credit facility and bought back 100 million of shares of our common stock as we continue to deploy our capital in a balanced manner. Before we wrap up, we want to provide guidance on a few items now that we have a better view on the seasonality of revenues and profit for recession. Both are substantially equally weighted between the first and second half of the year. For the second half, revenue and profit are more heavily weighted towards the third quarter. Lastly, due to the high margins in the first quarter for the legacy Brown and Brown business, we anticipate a session will have a modest negative impact on our adjusted margins in Q1.

From a synergy perspective, as Powell described earlier, we’re very pleased with the progress made on our integration activities over the last few months. We continue to anticipate integration efforts will be completed by the end of 2028, so we have only just begun our journey. The team has made great progress in a short period of time and we expect EBITDA synergies of approximately 30 to 40 million dollars in 2026. Regarding contingents, as we mentioned, they are a core part of our business and have a recurring nature and represented over $250 million of revenue last year. They will fluctuate quarterly with changes in our organic growth and underwriting profitability, so it’s better to assess them on an annual basis for next year.

We anticipate contingents for specialty distribution will be down approximately $15 million due to certain one time adjustments in 2025 and ultimately subject to storm claim activity. For specialty distribution, we anticipate organic growth to be somewhat flat in the first quarter due to flood claims processing revenue in the first quarter of last year and continued cap property rate growth decreases as it relates to 2026 organic revenue outlook for the retail segment, we anticipate modest improvement over the 2.8% we delivered in 2025. As a reminder, we think about our retail business as a mid to low single digit organic growth business in a normal pricing environment and a stable economy.

Our team continues to work hard to grow net new business and we feel really good about our prospects for 2026 as it relates to organic revenue growth. Depending on the materiality of revenues taken by the startup broker, we will quantify the impact in our commentary and may adjust our organic growth calculation in order to give a better representation of our underlying performance of business from a margin perspective. As we look into 2026, we are projecting lower investment income due to the income generated in 2025 by the cash held for the acquisition of a session as well as lower interest rates.

This will have a downward impact on our total margins in 2026 while the underlying business is projected to achieve relatively flat margins. We view this projection as a great outcome and a reflection of the strength of our operating model, our teammates and our performance based culture. As we’ve discussed in the past, our long term adjusted EBITDA margin target range is between 30 and 35%. As a result of our changing business mix over the years, the addition of a session along with our combined synergies, increased contingents, utilization of technology and our continued focus on our balanced profitable growth which is enabled by our unique decentralized sales and service model.

We are increasing our long term margin target range to 32 to 37% as we always have. We will continue to invest in our teammates and our businesses which may result in the margins increasing or decreasing, but over time the ultimate goal is to drive long term growth and value. Lastly, from a tax perspective, we anticipate our effective tax rate will be in the range of 24 to 25% in 2026. With that, let me turn it back over to Powell for closing comments.

J. Powell Brown — President & Chief Executive Officer

Thanks Andy and good summary of our results as we head into 2026. We continue to believe economic growth will be relatively stable, which we view as positive assuming interest rates continue to decrease in 2026. This should provide additional economic stimulus for many companies as well as individuals. As we’ve said in the past, we believe diversification of customers, geography and lines of coverage are very powerful as it creates stability in our revenues, margins, cash flow and earnings per share. Overall, we feel that the economies in which we operate should be generally stable, barring something unusual happening.

From a pricing standpoint, we expect admitted rates to be fairly similar to what we experienced in the fourth quarter or might moderate slightly. We believe casualty rates will continue to increase which are the largest segment of the market and that admitted property will continue to be competitively priced for the ENS space. We anticipate pricing will be very similar to the fourth quarter, casualty lines being the most challenging to place due to the lack of meaningful insured losses from hurricanes last year and the amount of available capital. We believe capped property rates will decline modestly from the levels in the fourth quarter.

On the M and A front, our pipeline looks good and we expect to remain active in 2026. For us it comes down to finding businesses and leaders that fit culturally and then it needs to make sense financially. From a session integration standpoint, things are coming together well. I’m very pleased with the progress the teams are leveraging the best of both in order to win more new business and we’re bringing offices together where it makes sense. We have a lot to get done in 2026, but I feel confident that we have the right team focused on the key value drivers.

I’m extremely pleased with how the teams are collaborating together. Our balance sheet and cash flow remain very strong which enables us to continue to delever, invest in our teams and acquire more businesses. We’ll continue our disciplined approach of capital allocation, investing the capital like it’s our own and striving to create long term shareholder value. 2025 was another great year for Brown and Brown. We grew the top and bottom line significantly. We added to our capabilities, invested in innovation, data and analytics and most importantly added over 6,000 new teammates. While the markets might have some volatility, we believe our operating model provides stability as well as industry leading margins and cash flow.

I’m proud of how our team is focused on our customers and creating innovative solutions for them. We look forward to 2026 being another good year for our company which will enable us to deliver solid top and bottom line results that will drive shareholder value as we continue to march towards our intermediate goal of 8 billion and beyond. With that, I’ll turn it back over to Tanya to open up the lines for Q and A.

Questions and Answers:

operator

Certainly as a reminder to ask a question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. In the interest of time, please limit yourself to one question, One moment. Our first question will be coming from Gregory Peters of Raymond James. Your line is open.

Gregory Peters

Good morning everyone. So I guess Happy New Year to you all. I guess I only have one question, so I’d like to focus on all your comments regarding the 275 former teammates that left for the competitor and the $23 million of revenue that is going with them. I guess there’s a lot of questions you can ask, but I’d like to focus just on have you changed your strategy about retaining your producers? And more importantly, can you talk about, and I know you’re not going to talk about ongoing litigation, but can you talk about, generally speaking, your legal defenses around your customers and your company ip?

J. Powell Brown

Yeah. Okay. So good morning. So first off, what I want you to know is the way we pay our teammates and specifically producers, is a mix between cash compensation and equity based on performance. And we believe that that has worked really well over a period of time and continues to work well. So as it relates to, is there something unusual or different going on or we’re changing something? No, that’s not the case on both fronts. I think this is a highly unusual instance, just like it was with the other large broker firms that were affected.

As it relates to the second part.

Gregory Peters

Of the question, legal defense.

J. Powell Brown

Yes. In the industry, as you know Greg, typically there are, and it might be slightly different in certain states, but generally there are non piracy and non solicitation agreements and those typically have a two year period on customers and a two year period on hiring teammates. It also has a component on intellectual property which is in perpetuity. And so obviously we can’t talk about legal actions or anything that’s in the legal system at the present time. But as we said in our comments earlier, there’s currently some. You can read all of it out.

Gregory Peters

There, let’s put it that way. That’s where I’d leave it.

J. Powell Brown

Thank you, Greg.

operator

Our next question will be coming from Jimmy Buller of JPMorgan. Your line is open.

J. Powell Brown

Hey, good morning. First, just had a question on your. Comments around the sort of shift of. Business from ENS to Standard. Are you seeing that in specific lines or is it more prevalent and what are your expectations for that, for the.

Jimmy Buller

Move of exposures from the ENS market to Standard over the next year or so?

J. Powell Brown

So, Jimmy, as you may know, there are accounts that I’m going to call them tweeners and tweeners, depending on the market cycle, either are in ENS or in Standard. And typically they look or lean a little bit more towards the ENS market. And many times you see this in the smaller accounts. They’re not small, but smaller accounts. And those counts might be up to $50,000 or more in premium. But typically when the market starts to change in property in particular, you see standard markets will come back in and accept some of those. So again, I believe that where we saw this that we’re referencing is in our binding authority business in the specialty distribution.

And it’s too early to draw a conclusion. I don’t believe one quarter is a trend. However, we’ve seen this movie before, so I do think that there may be some continued movement from ENS to Admitted, particularly in the smaller binding authority business.

Jimmy Buller

Okay. And thanks. And just on your phone.

R. Andrew Watts

Hey, Jamie. Hey, Jamie. Just one second before you move to the next one, just one other thing just to keep in mind is that while, you know, accounts could, can in fact migrate from the ENS back into Admitted, we continue to believe that there’s going to be more insured assets, though, moving into the ENS space versus moving back into the admitted. So it’s always kind of talked about back and forth, but you just look at the trend over the last 10, 15, 20 years, there’s more and more moving into ENS because they want the flexibility of pricing in terms.

Jimmy Buller

Yeah. And so there’s the secular component, obviously, but I think cyclically there’s been a lot more business than normal that’s moved into ENS the last several years. So maybe some of that goes back into Standard. Right.

R. Andrew Watts

In the short Term, at least. Yeah, it can probably somewhat. You’ll see it on the fringes.

Jimmy Buller

And then on your comment around Howden is like they’re being pretty aggressive and other brokers have sued them as well for similar issues.

R. Andrew Watts

Is competition picked up in general even.

Jimmy Buller

Outside of that, or is Howden really a one off and you’re not seeing other companies being more proactive in either.

R. Andrew Watts

Poaching or paying people more to add producers?

Gregory Peters

So the answer is the startup firm is one of many that are aggressively looking to hire people. The question is how they’re doing it. And so again, as I said earlier, we’re all for competition. And when we hire people from other firms, we ask them to abide by the contracts, whatever those contracts are that they have. And so there’s a difference in opinion with that particular startup here in the States. And there are others, there are others in the United States that think that way as well. But that’s the story. Thank you.

R. Andrew Watts

Thank you.

Jimmy Buller

Thanks.

operator

And our next question will be coming from Rob Cox of Goldman Sachs Carolina System.

Rob Cox

Hey, thanks. Good morning. I just wanted to ask about in the presentation your commentary on casualty pricing. It sounds like you guys are still talking about it. As you know, of course, seeing strong. Increases, but it looks like the range you provided, 3 to 6, fell a good bit from the 5 to 10 last quarter. I just was curious to see what’s driving that deceleration and casualty pricing increases and if you had any additional color to provide there. Sure.

J. Powell Brown

So once again, in a market that is changing, just a broadly broad statement, I believe that you’re going to continue to see more competitive pricing across the board. So what you’re seeing, at least in primary business, is a slight moderation of those rate increases. Remember, the biggest pressure in that area is on the excess. That has not changed because of the way the court system views accidents and things like that. So I don’t, Rob, I think it’s a normal course of the market. I don’t think there’s some structural change that’s happened or some carrier has figured out how to make so much money in casualty.

That’s not what I’m trying to say. But I’m just giving you what we’re seeing in the quarter in terms of rate impact. And Rob, with our commentary, don’t read anything into that, that we’re saying we expect casualty rates to go negative. So don’t read anything into the trend or whatever. It’s just kind of how the pricing was for the quarter. It can move.

J. Powell Brown

Okay. So as you look Forward, you would think, you know, I don’t want to put words in your mouth, but you think like relatively similar on casualty pricing going forward. We think at least based on what we see, that would be the state or the case. I don’t know if there’s something we’re not aware of or can’t see right now, but based on what we see at the present time, yes.

Rob Cox

Gotcha. Thank you.

J. Powell Brown

Thank you, Rob.

operator

Thank you. And our next question will be coming from Tracy Vingigi of Wolf Research. Your line is open.

Tracy Vingigi

Thank you. Good morning. I appreciate hearing your comments on contingent commissions. Can you talk about which accident years are used in that formula? I’m trying to get a sense if you’re still benefiting from those harder market years.

R. Andrew Watts

Hi, good morning, Tracy. It’s Andy here. So a number of our calculations generally because a lot of these are around property less on the casualty side, normally it’s kind of shorter term in nature. Generally it’s over a 12 month horizon. But you might see that it could have a rolling two or three year inside the calculation. But in general it’s normally over kind of a 12 month horizon. And then what we in our commentaries you’ll see kind of movements around by quarter as we’re doing ultimate, you know, true ups to calculations back and forth and why we kind of look at them on a total basis in there.

We suggest again you look at it kind of differently between specialty distribution versus retail. The retail is honestly it’s a pretty consistent number as a percentage of revenue. SD will in fact move around by quarters. But it’s an important part of our business.

Tracy Vingigi

Thanks. And then just going back to the comments about those 275 producers that were poached by a competitor, can you just walk us through the cadence of the reduction of those 23 million of revenues? Was it mostly in employee benefits so that we could see that in the fourth quarter and 26. And is it fair to assume there was no impact this quarter?

R. Andrew Watts

Yeah. Hey Tracy, on those. So it was a mix of business that was more heavily weighted towards employee benefits. So you probably see more of the impact probably earlier in the year. And it’s not 275 producers, it’s 275 people. A small portion of that group were producers. The vast majority of them were in non production roles.

Tracy Vingigi

Great.

operator

Thanks for the clarification. And our next question will be coming from Mike Zyrinski of bmo. Your line is open.

Mike Zyrinski

Great. Good morning. Maybe just a question on the profit margin commentary. Andy, you said underlying margins Expected to be flattish. Just to clarify, the definition of underlying. Is that include contingents and investment income. And it sounds like the. Which is a good flattish outcome is. The result of the accession synergies waterfalling in 26.

R. Andrew Watts

If you, if you think that’s the right read. Yeah. Hey, good morning, Mike. Yeah, I think that’s. So what we were saying is if you isolate the impact of lower investment income next year, we would say the remainder of the business will be flat. And yeah, we do view that as a really strong performance next year considering the different puts and takes that we have and having contingents down inside of there. So that’d be a really good year for us. Okay, great.

Mike Zyrinski

And my follow up might just be a quick yes or no, but. Because Tracy just asked for clarification. But I just want to make sure that the 23 million of lost revs, that’s all we’re going to see from the lost employees.

R. Andrew Watts

For the most part, it doesn’t build up over time to a much larger number.

Mike Zyrinski

I just wanted to just make sure.

R. Andrew Watts

Because as a 23 million divided by 275 employees, it’s a fairly, you know. Not immaterial, but small number.

Mike Zyrinski

Thanks.

J. Powell Brown

So let’s make sure we clarify that, Mike. Number one, that is the amount that they have taken at the present time. So what I’m saying is when something like this happens, which we haven’t had before, they can impact retention going forward. Some of that may be legally. I’m. Not going to say prevent it, but run afoul with legal matters or whatever the case may be. But the answer is at the present time it is 23 million. And yes, relatively speaking, at the present time it is a big number in a regular sense. But as it relates to the overall organization, it is a small number. And your statement is correct. But we don’t know what has been said to existing customers. And that will bear itself out in the next year or so.

R. Andrew Watts

Mike. That’s why in our commentary we said depending upon the materiality on a quarterly basis, we may call it out just to help give an idea of how the underlying business is performing. This will take a number of quarters to ultimately play itself through. And again, it’s not that it’s all one one business. Thank you. Thanks, Mike.

operator

And our next question will be coming from Elsie Greenspan of Wells Fargo. Your line is open.

Elsie Greenspan

Hi. Thanks. Good morning. My first question was on the retail organic. I think you guys said within the guidance, right. That there should be some modest improvement from the 2.8% that you guys saw in 20. Does that, I guess, adjust out the impact of the Howden departures? Because I think you said you may or may not adjust it out or does that account, would that be leaving in the 23 million impact and you. Might adjust out if it’s larger, that adjusts that out. Okay, got it. Thank you. And then in terms of the fourth quarter, what was the impact of the government shutdown on both retail and specialty distribution? And would you expect. Are you expecting any impact in Q1 or in 26?

R. Andrew Watts

Yeah. Hey, good morning, Elyse. No, nothing material, obviously, when it especially you’ll see it kind of in our flood business when, when you have these shutdowns. But I guess, sorry to say we’re fairly adept at knowing how to manage through these since our government seems to have this as a recurring challenge at times. And so our team’s really good about getting ahead of upcoming renewals, et cetera. But normally if you have any delays, they kind of get caught up over 30, 60 days. So nothing major.

Elsie Greenspan

Okay, thank you.

J. Powell Brown

Thank you.

operator

And our next question will be coming from Yaron Kinnar. Mr. Ho, your line is open.

Unidentified Participant

Thank you. Good morning. So my first question is on the specialty distribution organic. So I think even when we adjust for the flood, revenues organic did decrease by low single digits. You called out the greater than expected pressure from property cap pricing, some binding authority business, moving back to the emitted market. I assume both of those will be headwinds that remain in 26. So what offset drivers do you have that would still get the segment back up to positive organic growth in 26?

J. Powell Brown

Yeah. Hey, good morning, Aaron. So I think in our commentary, we highlighted a couple things.

One, we think that the organic will be challenged in the first quarter with the flood claims that we recognized in Q1 of last year. And then with the cat, property pricing is it’ll probably still be a little bit challenged in the second quarter. Then as we start looking into the back end of the year, we start getting the benefit of the organic growth of the specialty distribution businesses that have joined us from a session. And again, remember that those businesses have very, very little CAT inside of them. There’s quite a bit of casualty plus other specialty lines inside.

And then obviously there’s less cap property placed in the third quarter. And then we’ll see what the fourth quarter looks like. But we feel good about the business and the outlook probably a little bit modest in the first part of the year, but then if everything continues on with trend, it’ll pick up some Momentum in the back end of the year. Okay. And you’ve given us a flavor of what kind of steady state organic should be or has been in retail over the years in kind of the low to mid single digit range. I realize that it may be a bit more challenging to offer that for specialty distribution, but nonetheless, I’ll give it a shot.

So you broke up at the end. Aaron, can you repeat the end of the question, please? Yeah, I’d just like to see if there’s a steady state organic level that you’d expect from the specialty distribution segment, kind of the equivalent of the low to single digits you’ve offered for retail. Yeah. When we look at that business, because you’ve got the ENS component to it as well as they’re still admitted inside of there, it’s generally going to grow faster than retail. Not all the time. And you’re going to have kind of different periods, but we would normally think about that being a slightly faster growing business than our retail.

Thank you.

Elsie Greenspan

Thank you.

operator

And our next question will be coming from Mark Hughes of Truist. Your line is open.

Unidentified Participant

Yeah, thank you. Good morning, Juan. Yes. The procedure when you lose teammates like that, going back to the Howden issue, how quickly would they change, say the broker of record and so the business would shift immediately. I think how you had alluded to, you didn’t know kind of what conversations they might have had with other clients, maybe positioning themselves for the renewal. But what’s the usual cadence where you learn about how much has shifted over just so we can think about what that 23 million might end up being as it progresses throughout the year?

J. Powell Brown

Well, Mark, there’s two parts.

So as you know, people do business with people that they like and they trust. And depending on how this story is presented, sometimes, and we’ve run into this already, they were said, they were told one thing and then the customer determines that maybe it happened a little differently. And so having said that, in our experience, or hearing what they the scenario is here, we have seen a group of accounts, which is the 23 million in question, that move right away. And we believe that those discussions occurred with them either before the departure or right around that time.

We don’t know exactly. And that will bear itself out. But having said that, there are other people that when presented with the scenario, they may end up thinking that they need to review their program, their placement. Sometimes they would go to an rfp. Not all, but I’m saying some. And some of that may be honest and honorable and some of that may have Something else embedded in it. And we just don’t know. And so we think about how do you deliver better customer outcomes? And I have been hard pressed to determine at the present time how the startup presents better customer outcomes to those insureds.

So ultimately that will pan itself out. But we don’t have a way. It would be purely speculative, Mark, and we’re not going to do that on what that number could ultimately be. But what I’m saying is we are rehiring teammates in the affected areas. We are engaging capabilities across the platform to continue or to show these customers how we can bring, have the best customer outcomes. And I’m very pleased with the, with the engagement of our team across the entire organization. Appreciate that. And then Hal, I think you had said you anticipate cat property rates might decline modestly from four Q levels.

Do you think the market has pretty close to bottoming? I’m not going to say that, Mark. And let me tell you why you have this really unique dynamic because you have all these issues with convective storms and fires and all this other stuff and yet when the wind doesn’t blow in Florida as an example, you have this great pressure on rates. And as you know, it’s a little bit like a pendulum and the pendulum usually swings too far one way and too far the other way. Well, the rates, quite honestly, you know, we would all agree probably were too high and we don’t control the pricing, the carriers do.

But then all of a sudden when it becomes profitable again and it looks really good, it brings everybody back in. So I believe that we’re going to continue to have some pretty significant competition on those rates in the near to intermediate term. And I would typically say that really exist down between now and May or June and then you get into hurricane season. So I would tend to say that I think it’s still going to be quite competitive between now and then. Very good, thank you.

operator

And our next question will be coming from Josh Shanker of Bank of America. Your line is open.

Unidentified Participant

Yeah, thank you for fitting me in here. Good morning everybody. You know, obviously you were very proud and have a good view of a long term success for your business. But someone much smarter than me said that the hard market is an escalate is an elevator and the soft market is an escalator. When you’re looking at the dynamics of the market and you have a view of what the long term growth rate of this industry is, do you believe we’re entering into an extended period of suboptimal growth? Well, I think that we are entering a more normal historically growth rate in the industry.

And so I wouldn’t say it the way you just said it, Josh. I also think it’s very interesting.

J. Powell Brown

The. Weight that people place on organic growth versus other important metrics like cash flow and margins. And so I have this. Andy and I have this healthy debate where we discuss with our team, the more and more the changes that occur in gaap, the further it moves away from real cash. Doesn’t mean that it’s wrong. I mean, that’s the SEC’s deal and they figure it out and everybody or the generally accepted accounting principles. But what I would say is we think about it is how do we grow our business? How do we do that profitably? How do we reward those teammates, all of our teammates, enable them to create wealth over a long period of time for helping us grow the business? And then how do we translate those revenues and earnings into cash, as you saw at 24.6% for the year, and then use that to either buy businesses, hire more teammates, acquire our stock or something else that those are the three that come right to mind.

So I believe it’s. This is exactly, Josh, what Andy and I have been saying for the last 12 months, which was more of a return to the normal growth rates historically seen in the brokerage space. Yeah.

R. Andrew Watts

Hey, Josh, you know, the other thing, again, it’s interesting to us, I think the way in which people write about the market, if you think about the retail space and just think about our business for a second, the large majority of what we place there is admitted markets, right. And those rates, they had to come down from where they were during kind of that 22, 23, 24 period just because of inflation. Everything else, they’ve kind of leveled back out. They’re kind of normal again. And so we don’t see anything else unusual. So we don’t see like this significant, like softening market maybe that people are writing about.

That’s not what we’re seeing seen in the rates on the admitted side actually feels fairly stable and the economy feels pretty good to us right now. Even though the headlines may potentially indicate something else, that’s not actually what we see. The place where you see more of the volatility is over in the ENS space. But nobody talks about casualty continues to just keep going up though. And casualty is a really large part of the marketplace. And so look, we feel good about the backdrop. The numbers can move around again for anybody by quarter. But when we think about our business and heading into 2026.

We feel really good about our ability to continue to capture market share and.

J. Powell Brown

Grow net new business. And that’s the kind of the key performance metrics that we focus on in, across the entire organization. So we don’t, we don’t hear that, we don’t hold that maybe that potential dire view that you kind of put out there. That’s not our perspective on the market. Well, I don’t know if it’s dire, but I just want to follow up on what Powell said about, you know, that investors don’t focus enough on cash flow. And I agree that’s true. But would you believe that over the next three year period that Brown and Brown’s business can outgrow the organic pace of the rest of the industry? Are you in a position. It doesn’t matter. Cash flow will be the guiding factor for how we operate our business. Yeah.

R. Andrew Watts

Hey, Josh. We don’t think that’s actually the right question. If you don’t mind me coming back. This one. Because the organic is only one part of the equation. One of the things that we’ve been saying for an extended period of time is you have to also look at contingents as part of our business model. And in total, otherwise you get kind of a false understanding of how the business performing. Look at last year, we grew the top line total revenues 23%. We grew our cash by 24. The organic sure didn’t grow that level. Right. So you have to put contingents inside. Maybe. Look, maybe our business is just different than everybody else, but when you think about Brown and Brown, you have to put the contingents inside of it because you’re going to have scenarios where your organic will be down and the contingents will be up. Right. And the contingents are very profitable for us ultimately because these businesses should really be valued off of cash, not organic. And the question is, how can you grow your cash over time? We grew at 24% last year to 1,450,000,000. That’s an incredible year. And just look back to the last 10 years at how we’ve grown our cash.

Right. And it’s a combination of our acquisitions, organic and contingents.

J. Powell Brown

Thanks, Josh. Thank you.

R. Andrew Watts

Thank you. No, thanks. Appreciate it.

operator

And our next question will come from Andrew Anderson. Jeffrey, your line is open.

Unidentified Participant

Hey, good morning. Into 26 and recognizing that the loss headcount, is there a scenario where you actually have a margin benefit as you’re not incurring the comp and bend cost but you are keeping the revenues? Are you thinking about that? In underlying margin guidance.

J. Powell Brown

I think that what I want you to understand is we are rehiring teammates that display the characteristics that we look for to deliver very creative solutions to our customers. So some of those people are being hired in those markets are that effective? Some may be hired elsewhere, but in the near term, technically that could be the case, but we don’t believe that it’s going to have a significant impact or material impact because we are hiring people back. So I think the question is the right question. But I don’t want you to go away and say there’s some hidden bonus in here.

So we believe it’s immaterial.

Unidentified Participant

Okay, thanks. And traditionally, I thought of you all as not really doing team lifts, but if there’s an effort to replace these folks kind of quickly, is that strategy kind of contemplated here?

J. Powell Brown

No, we don’t think really that way. We think about hiring good people and bringing them onto the team. And so I don’t like to use the term never or always, but that is not really thin our thought process. Yeah.

R. Andrew Watts

Hey, Andy, Keep in mind.

J. Powell Brown

Yeah, Andy, keep in mind our comment.

R. Andrew Watts

Earlier because I think maybe some people have believed that, you know, it was whatever, 200, 250, 275, those were all producers. That represents teammates across the board.

Unidentified Participant

Mm. So that’s. That’s service, account executives, et cetera. Thank you. Okay, we’ll take one more question. Is that what we’re gonna do, Andy? Well, we’ll run. We got a few more in the queue. Two more in the queue. Okay, go ahead.

R. Andrew Watts

Next up, our next question will be.

operator

Coming from Alex Scott of Barclays. Line is open.

R. Andrew Watts

Hey, thanks for taking it late here. I wanted to ask about the incentive commissions, and I guess we’ve seen some of the national carriers who are trying to be a little more disciplined in the face of more competition, beginning to have lower premium growth numbers. And so I just wanted to understand if we should expect any impact from maybe volume based incentive commissions being impacted by that. And Alex, is that just an overall comment on the market or is it related to something specific when you ask that? Yeah, I’ll try to be more clear. We’re seeing some national carriers have very low premium growth numbers at this point because of competition.

And I’m trying to understand if in 2026 your incentive commissions could be negatively impacted by that. Always a potential for that. I think you saw some of that actually in 2025, Alex, that we called out in the third and fourth quarter because the carriers are always moving around different measurement targets that could be on persistence or on growth. So yes, those are some of the dynamics going on.

J. Powell Brown

Okay. But is there anything embedded in sort of what you commented on your retail organic did include that or is that something that could be incremental to help me understand that includes our commentary unless we get something unusual thrown at us that we we don’t know about. Okay. And then I wanted to see if we could circle back on a session and just see if you would be willing to provide any commentary around how that performed in 4Q and its contribution to revenue. And I know we probably should care and look at more cash flow, but for a session in particular, just thinking through the different pieces of guidance you’ve given in the past, I wanted to understand how the growth is going there.

Yes, I would say it top up good for the businesses. So we’re very pleased with the performance of the businesses inside there. Extremely, extremely pleased with how all our new teammates are leaning in, which is wonderful to see in there. The item on the growth in the quarter, when we called out the 405 versus the 430 versus 450 again, that was just an estimate we had going into the quarter. We had to refine revenue recognition, but nothing changes full year how we think about the business. Everything’s going really well and coming along with integration. So we’re extremely pleased.

Great, thank you.

operator

And our next question will be coming from Meyer Shields of Keith Briet and Woods In Line system.

Unidentified Participant

Great. Thank you so much for fitting me in. Two quick questions. First, Andy, the 15 million of adjustment. Related contingents, is that a fourth quarter issue? Is that where we should expect the drop off? No, we’ll probably see that more kind of spread between the third and fourth quarters of next year. Mayor.

J. Powell Brown

Okay, that’s helpful. And second, just to clarify, I know you said that the retail segment should. Have organic growth better than the 2.8%.

R. Andrew Watts

Is that comment also applicable to specialty distribution? We would expect that the organic growth also would improve for specialty distribution during the year. Yes.

Unidentified Participant

Okay, perfect. Thanks so much. Yep, thank you.

Unidentified Participant

And our next question will be coming from Brian Meredith at ubs. Your line is open.

Unidentified Participant

Yeah, thanks for filling me in. Two questions here. The first one, do you call that multi year policies as a headwind in retail growth again this quarter? Maybe you can quantify that. And is that going to continue to be a headwind in 2026? Good morning, Brian. Yeah, we wouldn’t quantify that level of granularity. I think we included that in our commentary about the 100, 150 basis points in addition to incentives and some other projects, those are always kind of moving around by quarters. Remember, if they’re a headwind this year, remember they come up for renewal next year.

Gotcha. Okay, and then second question, pal. This is more for you. If I think about going back and when we transition into these soft cycles, I found that historically you do get these talent wars. And this is obviously a little unusual what’s going on with Howden. But as I think about here going forward, is that a correct characterization and.

J. Powell Brown

Maybe, is there likely to be maybe. Potential pressure on margins? Not only Brown, and Brown for the industry is Perhaps, you know, SMB’s got to grow at a faster rate than organic revenue growth, given just the talent work going on right now to try to sustain growth. That’S possible. Yeah. I mean, I’m not trying to be flippant, but yes, your thought process is fair on that. That could impact the industry.

R. Andrew Watts

Yes. Hey, Brian, just, you know, the other thing. This industry’s always been competitive though. Yeah. I mean it’s been competitive for, for many decades. And so I think, you know, to our earlier comments, it’s why we’re very thoughtful about our compensation plans, both on cash and equity and how that creates long term wealth for our teammates. And we, you know, we continue to invest across the entire organization. But don’t think that like all of a sudden, like competitions just showed up in the last six months. It’s been here for decades. Thank you.

J. Powell Brown

Thanks, Brian.

R. Andrew Watts

Thank you. All right, anything else?

operator

And I would now like to turn the conference back to Powell for closing remarks.

J. Powell Brown

All right, thank you all very much and we look forward to talking to you after Q1. Have a nice day.

operator

Concludes today’s conference call. Thank you for participating. You may now disconnect.