Good morning and welcome to the Brown & Brown Inc. Second 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 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 relating to the company’s anticipated financial results for the second quarter and are intended to fall within the Safe Harbor provisions of the securities 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 referenced in any forward-looking statements. Such factors include the company’s determination as it finalizes its financial results for the second quarter and its financial results could differ from the current preliminary unaudited numbers set forth in the press release issued yesterday. Other factors that the company may not have currently identified or qualified and those risks and uncertainties identified from time to time in the company’s reports filed with the Securities and Exchange Commission could also affect results. 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, further 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 measures can be found in the company’s earnings press release or in the investor presentation for this call on the company’s website at www.bbinsurance.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 begin.

Thank you, Anita. Good morning, everyone. Thank you for joining us for our second quarter 2020 earnings call. Over the last four months, we've successfully transitioned over 10,000 teammates to a remote work environment and have commenced a staged return to the workplace for our businesses. We will remain focused on the safety of our teammates, their families, our customers and trading partners. I wanted to mention that I contracted COVID-19 a number of weeks ago. While I felt a little sluggish at times, it did not prevent me from making phone calls and engaging with people virtually. I'm feeling fine now and I received a negative test result yesterday. As it relates to the economy, we believe a full return of the economy to pre-COVID-19 levels is going to be slow and sporadic. Therefore, we as a society cannot lose our focus and determination to do our best to contain the coronavirus. This is possible through the efforts of all our frontline workers and each of us taking our own personal responsibility to help contain further spread. Our teammates continue to do an outstanding job of focusing on our customers and providing them with creative and innovative risk management solutions. During the quarter, we continued to host regular COVID-19 response calls for customers and prospects, with the goal of helping other companies share best practices and successfully manage through these difficult times. In addition, our COVID-19 relief center has been well-received and we will continue to find creative ways to help everyone get back to the new normal. Like last quarter, I continue to be humbled by the determination, dedication and commitment of our teammates to our customers. Now let's transition to the results of the quarter. I'm on slide 3. For the second quarter we delivered $599 million of revenue, growing 4.1% in total and 50 basis points organically. I will get into more detail in a few minutes about the performance of each of our segments. Our EBITDAC margin was 29.5%, which is up 20 basis points over the second quarter of 2019. Our net income per share for the second quarter was $0.34, increasing 3% on an as-reported basis and 6.3% on an adjusted basis, as compared to the prior year, when excluding the change in acquisition earn-out payables. During the quarter, we completed another three acquisitions with approximately $46 million in annual revenue, the largest being Loan Protector Insurance Services. We'd like to extend a warm welcome to all of our new teammates that joined during the quarter. In summary, we're pleased with our performance for the quarter, given the headwinds. I'd like to thank all of our teammates for doing their best to retain our customers and win new business. They're all doing an excellent job. Later in the presentation, Andy will further discuss our financial results in more detail. I am now on slide 4. During the second quarter, we started to see the financial effects of the pandemic with certain industries significantly slowing down, including hospitality, restaurants and entertainment, resulting in corresponding reductions in exposure units. Conversely, other industries such as healthcare and construction were resilient and in some cases continued to expand. For the quarter, we expected there would be significant declines in payrolls and consequently our employee benefits and workers' compensation lines of business would be the most impacted. However, our employee benefits business grew during the quarter due to new business and many employers furloughed employees rather than reducing their workforce. On the other hand, our workers' compensation lines declined faster than we anticipated. As a solutions provider, we worked with many customers during the quarter to manage their cost. This included collaborating with carriers to provide mid-term premium adjustments for certain coverages that are impacted by changes in sales or payrolls. While there has already been a significant impact on many businesses, it's unknown what the full effect will be over the coming quarters. A lot depends on how much additional funding is provided at the federal or state level for businesses and individuals. We'll talk more about our views on outlook later in the presentation. From a rate perspective, we continue to see upward movement from most lines of coverage, as carriers further tightened underwriting standards and reduced their participation in certain lines of coverage, geographies, industries or limits. These increases were generally above what we experienced in the first quarter and continued the trend from the past few quarters. Ultimately, the amount of rate increase was driven by the loss experience for a given account or class of business for the carrier. During the quarter, we did see a slowing in the rate of decline for workers' compensation rates, which were down 1% to 5%. Premium rates for accounts in the admitted markets generally increased 2% to 7%, excluding commercial auto, which continued to increase 5% to 10% or more. From an ENS perspective, coastal property rates increased 15% to 25%, general property rate increases were 5% to 10%, professional liability rates increased 10% to 20% and cyber rates were up 10% to 20%. Based on what we experienced in the second quarter, we expect rate increases will remain fairly consistent for the remainder of the year. Regarding the M&A landscape, I thought things would slow down a bit for a while. However, we were still able to close three transactions with estimated annual revenues of $46 million and have already completed a few deals in July. The biggest questions for buyers and sellers remain how to project the financial implications of the pandemic and therefore how to appropriately value businesses. With this uncertainty, the percentage of money paid at closing might decrease somewhat, but it does not appear valuations will materially change at this point. I am now on slide 5. Let's talk about the performance of our four segments. Our Retail segment's organic revenue declined 2.6% for the second quarter. This quarter we recorded a reduction in organic revenues of approximately $8 million for general liability policies resulting from the economic disruption associated with COVID-19. This adjustment represents an impact to organic revenue growth of over 250 basis points for the quarter. We also experienced rate increases for most lines and good retention. While we experienced a decline in new business, as it was harder to engage with prospects, we still had a number of great wins and are pleased with our results for Q2. Our National Programs segment grew an impressive 15.5% organically, delivering another strong quarter. Once again, the organic revenue growth was one of the highest we've ever delivered. Our growth was driven by continued strong performance from many of our programs, including our lender-placed, our commercial and residential earthquake and wind programs, just to name a few. This growth was driven by new business, good retention and rate increases. Some of our programs did experience headwinds during the quarter, such as our sports and entertainment and workers' compensation programs. In early May, we completed the acquisition of Loan Protector, as I said earlier. We're pleased with this acquisition and the solutions we'll be able to deliver to our customers over the coming months and in the future. Overall, it was a great quarter for National Programs. Our Wholesale Brokerage segment's organic revenue growth was slightly positive for the quarter. Our performance was impacted by lower new business and retention driven by the impact of the pandemic and the continued reduction in appetite from carriers for certain lines of coverage, industries and geographies, primarily in the binding authority space. The organic revenue for our Services segment decreased 15.4% for the quarter. The main drivers of our decline were our Social Security Advocacy businesses, driven by lower claims volume, a terminated customer contract and one of our claims processing businesses, and lower claims for many of our businesses related to the pandemic and fewer weather-related claims, as compared to the prior year. As we've seen in the past, our Services segment can have more volatility in its revenues depending on the volume and timing of claims activity. Based on what we're seeing now, we expect organic revenues for the Services segment to decline 5% to 10% in the second half of the year, as compared to the second half of the prior year. Overall, a good quarter and we'd like to thank all of our teammates who delivered innovative solutions in this very challenging environment. Now let me turn over to Andy to discuss our financial performance in more detail.

Thank you, Powell. Good morning, everybody. I'm on slide number 6. Consistent with previous quarters, we'll discuss our GAAP results, certain non-GAAP financial highlights and then our adjusted results, excluding the impact of the change in acquisition earn-out payables. For the second quarter, we delivered total revenue growth of $23.6 million or 4.1% and organic revenue growth of 50 basis points. Our EBITDAC increased by 4.8% and grew faster than revenues, as we were able to manage our expenses in relation to lower organic revenues and offset the headwinds associated with increased non-cash stock-based compensation cost of approximately $10 million, lower guaranteed supplemental commissions (GSCs) and the results from one of our acquisitions from the third quarter of 2019 that recognizes substantially all its revenue in the first quarter of each year. We're pleased with the expansion of the EBITDAC margin, as it demonstrates the power of our operating model and the focus of our leaders to manage their cost. A quick comment regarding our employee compensation and benefits and other operating expenses as a percentage of revenue. The employee compensation and benefit ratio increased as compared to the prior year, driven by higher non-cash stock-based compensation cost and an increase in the value of deferred compensation liabilities, driven by changes in market values; this increase was offset within other operating expenses. The ratio of other operating expenses decreased due to proactively managing our variable expenses and to a lesser extent the benefit from the aforementioned change in deferred compensation cost. Our income before income tax increased by 4.8%, growing in line with EBITDAC. While we had incremental amortization and depreciation from recent acquisitions, our interest expense declined due to lower rates. Our net income increased by $4.2 million or 4.5% and our diluted net income per share increased by 3% to $0.34. Our effective tax rate for the second quarter was 25.2% compared to 25% in the second quarter of 2019. The effective tax rate for the quarter was impacted by a one-time state tax refund, as well as the change in the market valuation of our company-owned life insurance related to our deferred compensation plan. Our weighted average number of shares were substantially flat compared to the prior year and our dividends per share increased to $0.085 or 6.3% compared to the second quarter of 2019. We're on slide number 7. This slide presents our results after removing the change in estimated acquisition earn-out payables for both years. We believe this presentation provides a more comparable year-on-year basis. During the second quarter of 2020, we had minimal changes in our earn-out liabilities. Isolating the change in acquisition earn-outs in both years, our income before income taxes grew $9.3 million or 7.7%. Our net income on an adjusted basis increased by $6.8 million or 7.5% and our adjusted diluted net income per share was $0.34, increasing 6.3%. All of these increased faster than total revenue growth of 4.1%. Overall it was a really good quarter. On slide number 8, this slide presents the key components of our revenue performance. For the quarter, our total commissions and fees increased by 4.4%. Our contingent commissions and GSCs decreased by $1.7 million, as compared to the second quarter of last year. This decrease was driven by a one-time GSC in the second quarter of 2019, but was partially offset by qualifying for incremental contingent commissions within our National Programs segment and a positive adjustment related to finalization of the estimates we recorded in 2019. Our organic revenue, which isolates the net impact of M&A activity, increased by 50 basis points for the second quarter. On slide number 9, our Retail segment delivered total revenue growth of 60 basis points, primarily driven by acquisition activity and higher profit-sharing contingent commissions, which were substantially offset by declining organic revenue growth at 2.6%, driven primarily by the impact of COVID-19. In accordance with ASC 606, we lowered our estimates for the revenues we expect to earn from existing general liability and other policies where the premiums are subject to modification based on changes in exposure units, such as the revenue of the insured. Our revenue estimates were revised after assessing the projected impact of the pandemic, which resulted in a reduction of organic revenue by approximately $8 million and organic revenue growth by over 250 basis points for the quarter. Our EBITDAC margin for the quarter decreased by 150 basis points and EBITDAC declined 5.1% due to the profit impact of the $8 million negative revenue adjustment, the impact of the aforementioned prior year acquisition, decreased organic revenue, higher non-cash stock-based compensation and intercompany IT cost; all of these items offset material cost savings achieved in response to the pandemic. Our income before income tax margin decreased 240 basis points and grew slower than total revenues due to higher acquisition amortization expense and an increase in acquisition earn-outs. On slide number 10, our National Programs segment increased total revenues by $22.9 million or 17.4% and organic revenue by 15.5%. The increase in total revenue was driven by strong organic growth, new acquisitions and an increase in profit-sharing contingent commissions, which were partially offset by decreased GSCs. The organic growth was driven by many programs due to good retention, new business and rate increases and was partially offset by certain programs impacted by COVID-19. EBITDAC increased by 22.7% and our margin increased by 180 basis points due to strong organic growth and increased contingent commissions, the continued leveraging of our expense base, as well as decreased variable cost, but was partially offset by lower GSCs. It was another great quarter for our National Programs segment, growing EBITDAC substantially faster than total revenues. Income before income taxes increased $8.1 million or 20.1%, increasing the margin by 70 basis points. This was driven by EBITDAC margin expansion, which was partially offset by higher acquisition earn-outs and intercompany interest expense. On slide number 11, our Wholesale Brokerage segment delivered total revenue growth of 9.5% and organic growth of 10 basis points. Total revenues grew faster than organic revenue due to new acquisitions and higher contingent commissions. EBITDAC grew by 9.1% and the margin was substantially flat as compared to the prior year, due to lower organic growth, higher intercompany IT expenses and increased non-cash stock-based compensation. We were able to offset these headwinds with higher contingent commissions and the delivery of reduced variable expenses. Our income before income taxes grew by 7.9% and the margin decreased by 40 basis points, due primarily to higher intercompany interest expense. On slide number 12, total revenues and organic revenues for our Services segment declined 15.4%, driven by the items Powell mentioned earlier. For the quarter, income before income taxes decreased 31.2% and our margin decreased by 340 basis points. EBITDAC declined by 25.2% and the margin declined by 280 basis points, driven by the mix of profitability associated with lower organic revenue and higher intercompany IT expenses. These were partially offset by reducing certain variable expenses. A few comments regarding outlook and liquidity and cash conversion for the quarter. First on our outlook. We mentioned earlier that contingent commissions and non-cash stock compensation for the second quarter increased as compared to the prior year. As of now, we are not expecting material differences for either of these items for the second half of the year versus the same period last year. As it relates to liquidity and cash conversion, earlier in the second quarter we borrowed $250 million on a revolving line of credit to pay for the Loan Protector acquisition and to have additional liquidity in case premium payment moratoriums impacted our cash receipts. Based on our financial performance, we repaid $150 million on the revolver before the end of the quarter. You'll also see our cash flow from operations as a percentage of revenue increased to levels higher than normal. This was primarily due to the CARES Act allowing companies to pay their first quarter federal taxes in July. We expect our cash flow from operations as a percentage of revenues for the third quarter will decrease from historical conversion levels, due to making this payment of approximately $50 million. At the end of the quarter, we remain in a strong financial and liquidity position. With that, let me turn back over to Powell.

Thanks, Andy, for a good report. Lastly, I started with comments about our teammates and their families and I want to close with the same focus. We are a team of 10,000-plus dedicated and hardworking individuals who are driven to serve our customers. We cannot deliver great solutions and grow our business if we don't have our team at full strength. Therefore, our focus is always on the safety and health of our teammates. We previously provided guidance that our revenues could be up slightly to down low- to mid-single digits for the year. Based on the continued uncertainty of the recovery, we believe our full-year organic growth could be slightly positive to slightly negative. However, there are still a lot of questions regarding how and when the economy will recover. We believe it's going to be slow and sporadic and we may not see a recovery to pre-pandemic levels until 2022. The big questions right now are: will employment levels continue to increase? Will consumers continue to increase their spending? How much additional stimulus will be needed and provided? Regarding rates, we think most rates will continue to increase in the second half of the year. We continue to talk with a lot of acquisition candidates and have a really good pipeline. Through the end of the second quarter, we closed 10 transactions with estimated annual revenues of $85 million. We've also closed a few deals already in July and are hopeful we'll close more over the remainder of the year. But we expect the marketplace will remain highly competitive. The main questions will be around financial forecasts and valuations. In these times, customers need innovative and creative risk management solutions. We believe our teammates and capabilities are well positioned to be great partners for our customers. At Brown & Brown, we’re committed to delivering as many innovative solutions as possible for the benefit of our customers and teammates. We look forward to a successful second half of 2020. And with that, let me turn it back over to Anita for the Q&A session.

Thank you, sir. Let's take the first question from Mike Zaremski from Credit Suisse. Please go ahead.

Hey, good morning. Powell, we're all happy to hear you've recovered. First question: in terms of the $8 million adjustments, it sounded similar to an audit premium adjustment. It sounds like something that could recur to the extent your clients remain under pressure, or is this something where you looked through the entire book and hope it's one and done? I'm just trying to better understand how to think about that adjustment.

Hi Mike. It's Andy here. You're correct. What we tried to do for this quarter after working with customers and our carrier partners and seeing that the carriers were receptive in a number of cases to doing mid-term premium adjustments, which we would traditionally see at the end of audits for those GL policies, is estimate the impact across outstanding policies. For all of the outstanding policies that were out there, we looked at consumer spend and tried to come up with an estimate as to what we thought revenues could be down in general across the outstanding policies that we have. Hopefully we've captured that well. A lot depends on how the next few quarters play out. We may need to adjust that up or down and that's our best estimate right now.

Okay. That's helpful. And thanks Powell for the update on organic uncertainty in the back half of the year. Year-to-date organic has been fairly healthy and resilient. Some of your peers have talked about pulling expense levers; you guys have as well this quarter. Would you say that if the back half starts looking mildly negative, the expense levers you cited could continue to help in terms of margin impact?

Let's talk about that for a moment. There are certain costs that are fixed in our structure and certain variable costs. A variable cost would be travel and T&E, as an example. We have many teammates that travel a lot to see customers under normal circumstances. Obviously, if a customer says we want you to come, we ask customers, but we go. So we have people that are flying to see customers now, but it's just not as frequently. I don't want to leave you with the impression that we have some lever yet to pull or something. It's not like that. Each office is running its business the best way they see fit to serve the customers there, and as a result our T&E and some other variable expenses are down because of this operating environment. Those could go up if the economy started to open up and improve, or conversely they could remain down if we stay in the current environment. It's speculative and predicated on what happens going forward.

Sorry, one last follow-up. Any way to estimate what percentage of your expense base T&E is, just so we can get a feel for how much that's moving up and down given the benefits it's having on margins?

Sorry Mike, we don't disclose that.

Okay. No problem. Thank you for the answers.

Thank you. Now we take the next question from Elyse Greenspan from Wells Fargo. Please go ahead.

Hi, thanks. Good morning. Powell, I echo Mike’s comments—glad to hear you're feeling a lot better. My first question goes to the updated organic guide. When we spoke last quarter you and most of your peers pointed to a lag, where the third quarter could conceptually be worse than the second quarter. I wanted updated thoughts there and how we should think about the third quarter, including the $8 million adjustment and whether the impact could be more negative?

Hi Elyse. When we made those comments in the Q1 call, we believed Q3 could be the toughest quarter. With the adjustment in Q2 for the $8 million, we believe that is our best estimate of the impact on future policies that we can see right now. There are many variables that are hard to anticipate. First, customer solvency—are customers going to be solvent next quarter or not. Second, the impact of rate increases on the purchase of insurance—there is a point where some people cannot afford to buy the same coverage. Third, the next round of stimulus and how that impacts consumer behavior. And finally, the ability to get to new prospects—some customers are willing to see us virtually, some prefer in-person, and some are so busy they just want to renew with their existing provider. We may see new business continue to wane a bit. That said, I couldn't be happier with the way the team is responding under what I would call a very difficult situation.

That's helpful. Powell, to sum up, would you say the narrower outcome you're suggesting compared to three months ago is a combination of being in a better place now, the impact of stimulus money supporting the economy, and market timing?

There are a couple parts to that. We try not to give guidance on organic growth historically, and these are unusual circumstances. We give our best snapshot, but it takes into account many variables beyond our control. Also, comparing Q2 to Q1 is like comparing apples to oranges. Our business reflects the middle and upper middle market economy and our mix of customers may be impacted differently than others. If the economy had performed in Q2 as it did in Q1, our organic growth numbers would have been dramatically higher. We're trying to give the best estimate, and while it may frustrate you, we were very pleased with the second quarter both for financial results and the internal attitude—how we're working with customers and teammates. This is a different environment and I think we're doing remarkably well under the circumstances.

That's helpful, Powell. My last question goes back to the reduced variable expenses referenced several times: it sounds like a good chunk is T&E, which you aren't quantifying. Are there other expenses you're trimming? Trying to get a sense of the go-forward impact on margins for the balance of the year.

Good morning Elyse. There was more than just T&E. Everything from professional services to overtime and other variable costs were reviewed—any variable cost our leaders could adjust to match the needs of their customers. That's what drove the reductions.

I used T&E as an example; it was not the only item.

We're trying to give additional color regarding movement between employee benefits and compensation and other operating costs. There were offsets between deferred compensation costs recorded in the two different categories.

Okay. If you don't want to quantify the full impact for the rest of the year, is the other operating expense as a percent of revenue a reasonable metric to watch given Q2's low level?

No, don't use that low of a ratio because it's artificially low due to the deferred compensation item. There's a credit sitting in other operating and an expense in employee benefits. If the economy continues to open, we would expect variable costs to start increasing over time. They probably won't immediately jump back to prior levels; they'll likely slowly increase as conditions allow.

Okay. Thank you for the color.

Also, to clarify our change in outlook from Q1: the unknown factor was how much mid-term adjustments we'd see. We had little visibility then. The $8 million adjustment recorded in the second quarter is our best estimate and should take some pressure off of the third and fourth quarters and a bit into the first quarter of next year.

Okay, that's helpful. I appreciate the color.

Thank you. Next question from Phil Stefano from Deutsche Bank. Please go ahead.

Thanks. Powell, a question on the expense actions: it feels like variable costs have been addressed. But on non-variable expenses, are you getting commentary from regions about actions they might take or how they might think about the business differently to impact non-variable costs?

Our leaders are looking at their businesses and doing what they see fit to run the business long-term. I want to clarify that we don't operate by issuing mandates or pulling generic levers. Our operating culture relies on local leaders making the right decisions for their customers, teammates and the long-term health of the business. There are companies laying people off or furloughing broadly; we're not taking that approach. If somebody departs our team, historically it's been performance-related, not a broad-based action. We've adapted in many ways: the remote work transition in seven days, interfacing with customers via video, and other innovations. There's no hidden agenda to cut a big number abruptly; our focus is long-term.

What we tried to convey in the first quarter was how we run our company. We don't put out mandates; we rely on business leaders to adjust costs. The second quarter demonstrates how that works and how well the team managed variable costs to meet their customers' needs. They did an outstanding job.

That's a fair point. Growth in programs was stronger than I expected. Can you help me understand the makeup of the programs portfolio and why it might be positioned for stronger growth in economic downturns? Any negative correlation versus the broader market? Lender-placed was highlighted as particularly strong—could you discuss the proportionality of countercyclical elements in the segment?

A few broad comments. Think about wind and earthquake coverage: those lines have seen rate increases—coastal property up 15% to 25% and other property up 5% to 10%. Capacity constraints create tension in this environment. Unlike 2008-2011 when the economy went down and rates went down, now rates are going up while the economy is pressured. There could be seasonality depending on renewal dates, for example public entities often renew around July 1 and large exposures can cluster. Also, there's a lot of activity around new capital entering the market—new insurance and reinsurance start-ups. That new capacity could increase the ability to serve customers, which is positive, but it could moderate upward pressure on rates if it competes against existing carriers. We haven't seen a large moderation yet. We're pleased with the organic growth in National Programs but we don't want you to assume next quarter will match this quarter; we have a moderated view on that. Much depends on existing capital provider actions and the entrance of new capital providers.

Got it. Thanks so much.

Thank you. Next question from Greg Peters from Raymond James. Please go ahead.

Good morning. Two quick questions: have you seen continuing lack of involvement from private equity, or is the private equity side back up and running? Also any potential benefit or fallout year-to-date from the Aon and Willis Towers Watson proposal?

Private equity is very active. The best analogy is someone taking their foot off the gas briefly, then putting it back to the floor; deals slowed for a short period and now activity is back. As for the proposed merger of the two firms you mentioned, we don't speculate on that. There are people exploring opportunities, but we won't comment or speculate; it's a complex deal and we'll continue to focus on our own opportunities.

That's fair. Can you talk about producer retention through the first six months relative to historical standards?

Producer retention and overall teammate retention have held up exceptionally well. Our producer retention and overall teammate retention has been really strong.

Can you review the puts and takes on profit sharing and guaranteed supplementals (GSCs) year-to-date and how we should think about that for the full year?

Greg, for the first half of the year combined, we were up year-over-year about $8.8 million in the first quarter and down about $1.7 million in the second quarter. The second quarter decrease was primarily due to a one-time GSC we received in the second quarter of 2019. For the first half, the movement represented new GSCs or contingent commissions that we qualified for, or adjustments to finalize estimates recorded in 2019. With ASC 606, we record contingents throughout the year based on written policies to the best estimate we can, and then when we receive the cash we do final true-ups. As of now we don't anticipate material differences for the second half versus the same period last year, barring new developments.

Thanks. On Services: it feels like this could be a trough year in organic and total revenue for that business. Is that the right sense or is something structurally going on that could lead to further revenue shrinkage beyond this year?

Your first assessment is correct: we view it as a trough year. There's nothing structurally wrong with the business. It's a combination of items we've outlined previously. We'll work our way through it and we expect it to be better in the future.

One of the unknowns in that segment has been the Social Security Advocacy business. It's impacted by what happens at the Social Security Administration and federal processes. That can adjust things up and down over time, so it's a wildcard we monitor.

Got it. Thanks for the answers and Powell, stay away from the nightclubs and beaches in the third and fourth quarter, okay?

Thanks a lot. I have 10 weeks of immunity.

Thank you. Next we take a question from Yaron Kinar from Goldman Sachs. Please go ahead.

Hi. A couple questions on the $8 million of revenue adjustments for COVID. Last quarter you had about $10.5 million on workers' comp and employee benefits; you had $8 million on GL now. Are there any other lines where similar adjustments could take hold? Also, have the workers' comp and employee benefits estimates held well so far?

Good morning, Yaron. As of right now, we don't see other lines that we've not captured. What we tried to do is address outstanding policies in Q1 and Q2 and incorporate those into our adjustments. That's our best estimate today, and we'll continue to monitor as reporting improves. One challenge was reporting lags: we didn't start getting good monthly reporting on employee benefits and workers' comp until May and June, so we only have a few months of data. We'll monitor renewals in Q3 to see how return premiums look and how we did estimating the $8 million.

So far the workers' comp and employee benefits estimates are holding well?

Yes, they are holding well in total, though the mix is different.

Can you say what the earnings impact of the $8 million was this quarter?

It's fairly high in impact; that negative revenue adjustment had a notable profit impact in the quarter.

And how many of your customers, specifically retail and wholesale, have taken actions or chosen to cut programs to lower insurance costs versus the carrier initiating adjustments?

There are two parts. For small businesses, some customers have gone out of business and simply cancelled coverage—those are small accounts. For larger accounts, we see cost increases that lead to purchasing less coverage, not eliminating coverage. For example, if a company had $25 million in umbrella coverage at a certain premium and carriers now quote a lower amount of the primary layer at the same price, the customer may buy less excess. In tougher classes like transportation, excess liability premiums have risen substantially, so some customers buy lower excess limits. So in small accounts we see more accounts going out of business; in middle market most are renewing though with some compression; in large accounts, particularly tough classes, we may see reduced excess limits because rate increases are substantial.

Got it. Understood. Thank you for the color, and Powell, I hope you and your teammates and families stay healthy.

Thank you very much.

Thank you. Next we take a question from Mark Hughes from SunTrust. Please go ahead.

Thanks. On wholesale, you mentioned binding authority was a little slower this quarter. What are the prospects for it to pick back up? Is this the new normal or should we expect more mid-single-digit growth?

Wholesale has two parts: brokerage (transactional, larger accounts) and binding authority (smaller-premium accounts, often $25,000 of premium and under). Binding authority was impacted and it's hard to estimate the full impact because much depends on the business prospects in the marketplace. In April and May, binding authority new business was way down because the economy was closed, and in June it picked up when things reopened. Now it’s moving in the other direction again. I think binding authority will be under pressure in the near to intermediate term. Brokerage has opportunities to grow, but there is pressure where some business might move between admitted and non-admitted markets. I would moderate growth expectations for the second half of the year for binding authority given the market uncertainty.

Understood. Quick follow-up: interest expense—good run rates absent big use of capital?

Yes, second quarter is probably a good run rate, presuming that rates stay where they are and we don't have incremental borrowings for acquisitions.

Thank you.

Mark, one nuance: personal lines binding authority in California has been disrupted by wildfire exposure and carriers reducing participation in certain zones. That creates market disruption; some business moves to state plans. There are forces that affect supply and demand locally, and we'll work through it.

Thank you. Next we take a question from Meyer Shields from KBW. Please go ahead.

Thanks. Powell, if I understand correctly, there's more revenue pressure on small accounts in retail and wholesale. Overall margins are holding. Does that market shift have any margin implications? Does mix change have margin implications?

We like small business and it's been a nice part of our business. As part of the whole, it’s a smaller segment but it does impact margins. Having less small business is a negative for margins.

So less small account business being a negative means the quarter results are even more impressive—good to hear. On retention, last quarter you anticipated less new business and higher retentions. What happened and is the lower retention tied to small business components?

Retention can vary by segment. Retail overall might have revenue retention rates around 92% to 95%. Wholesale, depending on binding authority or brokerage, can be 10 to 15 points lower or more. There's more churn in that book. If you can't replace lost business with new business, it impacts results. Also, compression in hospitality, restaurants and entertainment—if an account's receipts are much lower, they renew at lower exposure units. That compression affects retail and other segments, not just wholesale. So it's a combination of smaller accounts going away and renewal exposure compression in certain industries.

That was helpful. Thank you.

Thank you. Next we have Michael Phillips from Morgan Stanley. Please go ahead.

Thanks. Two quick ones. Powell, you mentioned many accounts can't pay. Have you seen pressure from outside parties to issue rate relief or rebates, like we've seen on the personal side? And on commercial, what have you seen?

We've seen some actions on the health side with regional adjustments by insurers. On commercial, carriers have been willing in many cases to adjust exposures mid-term—reducing chargeable exposures as operations slow. It's often not framed as a rate cut but as an exposure adjustment: for example, if trucks are parked, payroll or exposures can be adjusted down so premiums reflect actual exposure. Some carriers are willing to do that; others are not. We've seen every scenario.

On M&A, private equity is active. Any comments on valuation levels or what's being held up relative to recent prior quarters?

Multiples being paid today are very similar to what was paid in Q1 and possibly late last year. The bigger issue is how to get comfortable with the pandemic's impact on earnings. That's the primary concern for buyers and sellers.

Okay, that makes sense. Thanks for your time and stay well.

Absolutely. Thank you. We're about 17 minutes past the top of the hour. We'll take one last question in the queue and then we'll wrap up for today.

This is our last question from Elyse Greenspan from Wells Fargo. Please go ahead.

Thanks for keeping me in the queue. Follow-up on the guide: as you mentioned, you don't normally give organic guidance, but as we think about slightly positive to slightly negative for the year, in the best case where you see slightly positive, is that based on an economic improvement across the next two quarters? And with the $8 million adjustment, do you see Q3 or Q4 as likely to be better?

Given the uncertainty and the spikes in COVID-19 cases, our growth could be positive—of course it could. But it could also be negative; it depends on how exposures and renewals trend and how stimulus and consumer behavior evolve. The $8 million adjustments in Q1 and Q2 were our best judgments based on what we could see. We could see further adjustments in Q3 if facts change. For now, we've made our best estimate based on current visibility, and that's the important distinction.

Okay, that's helpful. Thank you.

Thank you. We have no further questions at this time.

Okay. Thank you all very much for your time today. We look forward to talking to you in Q3. Please be well and be safe. I will tell you I contracted it and you don't want it. I have a number of people I know who have gotten it or recovered. So be well and be safe and we look forward to talking to you next quarter. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.