Good morning and welcome to the Brown & Brown, Incorporated 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 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 fourth 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 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 fourth quarter that its financial results 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 quantified and those risks and uncertainties identified from time-to-time in the company's reports 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 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, Michelle. Good morning, everyone, and welcome to our earnings call. We delivered another outstanding performance in the fourth quarter, capping off an incredible year. We delivered over $4 billion of revenues, double-digit organic growth, strong margin expansion, and generated operating cash in excess of $1 billion. 2023 was a great year for the Brown & Brown team as we continue to focus on how best to leverage the Power of We. This topic was discussed at our September Investor Day and our goal is to leverage our collective capabilities in order to create and deliver the best solutions for our customers. Our 2023 results were a reflection of these efforts as we meaningfully increased our new business and had strong retention. We continue to enhance existing capabilities and add new capabilities both domestically and internationally. On the M&A front, we were quite active acquiring over 30 companies across our largest three divisions, expanding our footprint in North America and Europe. From a capital allocation perspective, we continued our disciplined approach with the goal of optimizing shareholder returns with a balanced mix of M&A and internal investments, while also continuing to pay down our debt and maintain a conservative balance sheet. We also increased our dividends for the 30th consecutive year. At the end of the day, these results are only possible due to the hard work and dedication of our 16,000 plus teammates throughout the world. We thank all of them for their incredible efforts in 2023. Now let's get into our results for the quarter. I'm on slide five. We delivered another quarter of revenues exceeding $1 billion, growing 13.8% in total and 7.7% organically over the fourth quarter of '22. Our adjusted EBITDAC margin remained strong at 31% and our adjusted earnings per share grew 16% to $0.58. On the M&A front, we were active and completed 13 acquisitions with estimated annual revenues of $109 million. On slide six. In '23, we achieved our interim goal of exceeding $4 billion of revenue. We delivered nearly $4.3 billion, growing 19% in total and over 10% organically. Our adjusted EBITDAC margin was 33.9%, increasing 120 basis points. Over the past four years, we've grown total revenues by over 75% and have increased our industry-leading margins in excess of 400 basis points. On an adjusted basis, our net income per share grew over 23% to $2.81. Lastly, we had a good year of M&A, completing acquisitions with approximately $162 million of annual revenue. We are very pleased with the quality of the organization, the new capabilities and the teammates that were added during the year, with the largest being Kentro. I'm on slide seven. Transitioning the insurance marketplace overall is relatively similar to last quarter. Rates in the admitted market were up 5% to 10% for most lines and we continue to see rate decreases in workers compensation in most states. Placement for CAT property and excess liability continued to be difficult with rates for property up 10% to 30% and liability flat to up 10%. In addition to rate increases, it's also challenging to find desired limits. Buyers are exhausted with the level of premium increases. Customers continue to either reduce limits or participate in certain layers in order to manage their premium increases. In December, we did see some moderation in the rate of increase for CAT property, primarily in the London markets. We believe this was driven by low hurricane activity in 2023 and carriers holding capacity for the end of the year. Do not take this comment that we believe rates are going to start decreasing in the first half of 2024. Professional liability and cyber coverage continued to soften as compared to last year. Rate changes for professional liability were up slightly, maybe five to down 20. The insurance marketplaces in California, Florida, Louisiana and Texas for personal lines remain challenging with policies continuing to move in the state-sponsored plans or the E&S market. Even with these challenges, we are well-positioned to help our customers navigate these difficult markets. Our customers continue to invest in their businesses and hire employees, although the level of investment is not as high as last year. We would summarize the overall economic sentiment for our customers as cautiously optimistic. We're very pleased with our M&A activity in the fourth quarter and the year, although volumes across the industry were down materially as compared to 2022. We had a number of great businesses join the Brown & Brown team. From our standpoint, we continue to be active and disciplined during the quarter. We're extremely pleased with our full year results, delivering 10.2% organic revenue growth, over $4 billion in revenues and nearly $1.5 billion of adjusted EBITDAC. Our team did an incredible job of delivering for our customers and winning a bunch of new business along the way in a very difficult market. I'm on slide eight. Let's transition to discuss the performance of our four segments. Our Retail segment had another great quarter, delivering organic growth of 8.2%. This performance was delivered by continued strong net-new business and rate increases. It was also a very good year for retail, delivering nearly 8% organic growth. The Program segment grew 5.4% organically in Q4, even with materially higher flood claims revenue and incentives in the prior year. During the quarter, we recorded a one-time $19 million charge related to the changing of the reinsurance for one of our captives. This decreased our organic growth by approximately nine percentage points in Programs. For the full year, the team delivered outstanding results with organic growth over 17%. This strong performance was driven by good new business, solid retention and rate increases across most of our programs. Wholesale Brokerage had an outstanding quarter and year growing organically 14.5% in the quarter and 12% for the year. We're seeing good growth in delegated authority personal lines and open brokerage. Organic revenue in our Services segment declined 5.9% for the quarter, primarily due to continued external factors impacting our advocacy businesses and our organic growth for the full year was substantially flat. During the quarter, we announced the completed sale of certain assets in the Services business. Now, I'll turn it over to Andy to get on more details regarding our financial results.

Right. Thank you, Powell. Good morning, everyone. I'm going to review our consolidated financial results on an adjusted basis, which exclude the change in estimated earn-out payables, one-time acquisition integration costs associated with GRP, BdB, and Orchid, gains and losses on business divestitures, the non-recurring costs recorded in the first quarter of this year and the impact of foreign currency translation. The reconciliations of our non-GAAP financial measures, including these adjusted amounts to the most closely comparable GAAP amounts can be found either in the appendix of this presentation or in the press release we issued yesterday. In conjunction with the sale of the Services businesses mentioned earlier, we recorded a gain on disposal of approximately $135 million in the fourth quarter, which equates to approximately $0.35 of as-reported earnings per share. On an adjusted basis, total revenues were over $1 billion for the quarter, growing 13.1%, as compared to the fourth quarter in the prior year. Income before income taxes increased by 15% and EBITDAC grew by 11.7%. EBITDAC margin was 31%, a slight decrease as compared to the fourth quarter of 2022 due to the previously mentioned one-time change in a reinsurance policy. The adjusted effective tax rate for the quarter was 23.9%, a decrease from the fourth quarter of last year, primarily driven by the change in market value for our company-owned life insurance. Our adjusted diluted net income per share increased by 16% from last year to $0.58. Lastly, our dividends paid increased by 13% as compared to the fourth quarter of 2022. Overall, it was an excellent quarter. We're on slide number 10. The Retail segment grew adjusted total revenues by almost 12% with organic growth of 8.2%. The difference between total revenues and organic revenue was driven by acquisition activity over the past year. EBITDAC grew slightly faster than revenues, and our EBITDAC margin expanded to 27%. This expansion was driven by leveraging our expense base but was partially offset by the impact of higher non-cash stock-based compensation. We're over on slide number 11. National Programs had another outstanding quarter with adjusted total revenues growing 18.7% and organic growth of 5.4%. The incremental growth in total revenues in excess of organic was driven by acquisition activity completed over the last 12 months, increased profit-sharing contingent commissions, and higher interest income. The growth in contingent commissions was primarily driven by lower storm claim activity in 2023, as compared to the prior year and favorable loss development related to 2022. Let's talk about the change in reinsurance for one of our captives. This change allows us to reduce our P&L exposure from a maximum of $25 million down to approximately $15 million to $20 million. In addition, we anticipate that this change to drive incremental organic growth of $15 million to $20 million in 2024 as compared to 2023. Overall, the captives have been a huge success for our company as they've driven incremental organic growth, aligned us better with our carrier partners, and delivered great returns on our invested capital. Adjusted EBITDAC grew slightly slower than revenues, and our EBITDAC margin was 43.4%. The decrease in the EBITDAC margin was due to the one-time reinsurance change along with lower flood claim revenues and incentives. These items more than offset higher contingent commissions and leveraging our expense base. For the full year, we had strong margin expansion in Programs. We're over on slide number 12. Our Wholesale segment delivered another strong quarter with adjusted total revenue growth of 14.7% and organic growth of 14.5%. Our EBITDAC margin decreased by 60 basis points to 27.3% due to lower contingent commissions, as well as the impact of higher non-cash stock-based compensation. We're over on slide number 13. For the quarter the decline in adjusted total revenues in the Services segment was primarily associated with the sale of certain businesses that we mentioned earlier. Organic revenue declined by approximately 6%, driven mainly by continued external factors impacting our advocacy businesses. Adjusted EBITDAC margin for the quarter was primarily driven by the decline in organic revenue as well as certain one-time items. We'll talk more about future reporting for the Services segment in a few moments. We're over on slide number 14. This slide presents our results for both years on an adjusted basis. Our income before income taxes grew 24.3% and net income per share was $2.81, growing by 23.2% as compared to total revenue growth of 18.7%. EBITDAC margin remained strong at 33.9%, an increase of 120 basis points over the prior year. Overall, we are very pleased with the results for 2023. A few comments regarding cash generation and capital allocation. From a cash perspective, we hit another major milestone, generating over $1 billion of cash flow from operations, growing 14.5% over the prior year. Our full-year ratio of cash flow from operations as a percentage of total revenues remained strong at approximately 24%. A few other comments regarding outlook for 2024 and some enhancements to our reporting. For contingent commissions, we anticipate them to be relatively flat-to-down year-over-year but this will ultimately be driven by loss experience. For Programs, we would expect for them to be down as the higher-level contingent commissions were driven by lower CAT event losses in 2023 and favorable loss development related to 2022. Keep in mind, this outlook is excluding the impact of future acquisitions. As it pertains to taxes, we expect our effective tax rate to be relatively consistent with 2023 and should be in the range of 24% to 25%. For adjusted EBITDAC margins in 2024, we anticipate them to be up slightly. Finally, in conjunction with our earnings release for the first quarter of 2024, we'll be making a few changes to our reporting. First, with the expansion of our global MGA and MGU platforms, we will refer to the National Programs segment as Programs. Second, in conjunction with the divestiture of certain businesses within our Services segment late in the fourth quarter of 2023, we will not report the remaining businesses as a standalone segment, moving from four to three segments. Those being Retail, Programs, and Wholesale Brokerage. Almost all of the remaining revenue and profit in the Services segment will now be reported in the Retail segment. For the prior periods, we'll move sold businesses into Programs and the remaining businesses into Retail. Third, we will be modifying the definition of our non-GAAP adjusted measures to exclude the impact of non-cash intangible asset amortization. With this adjustment, we will be on a more consistent presentation with the majority of other public brokers. And lastly, for simplicity, we'll only be excluding the impact of changes in foreign exchange on the calculation of organic growth. For all other non-GAAP metrics, we may identify the impact of FX when it's meaningful to do so, but we will not restate the prior year to be on a constant-currency basis. With that, let me turn it back over to Powell for closing comments.

Thanks, Andy. Great report. As we look at the economy and outlook for 2024, we anticipate that inflation will continue to moderate downwards in the markets in which we operate. As a result, we're expecting the consumer to further drive demand for products and services and we anticipate most companies will continue to hire and invest, although at a potentially slower rate. Regarding the admitted markets, we believe rate changes will be similar to 2023. We think CAT property rates are nearing their peak. Therefore, we would expect CAT property rate increases for the first half of '24 to be in the range of flat-to-up 10%, obviously, subject to loss experience in construction type. On an M&A front, the overall market will remain competitive and we don't expect any material changes in multiples. We have a very good pipeline and are talking with many companies. As we've mentioned, cultural alignment is the key to our long-term success. Lastly and most importantly is our team. Our consistently strong industry-leading results are only possible through the dedication and determination of our team to deliver for our customers. As we head into 2024 and on our way to our next intermediate goal of $8 billion in annual revenues, we have great momentum across the entire company and feel really good about our position. With that, I'll turn it back over to Michelle, and open the lines for Q&A.

Thank you. Our first question comes from Michael Zaremski with BMO. Your line is now open.

Hey, good morning. This is Jack on for Mike. My question is about any intra-segment business mix shift changes and whether they're having an incremental impact on Brown & Brown's profit margin profile. And have there been any mix changes within the major segments we should keep in mind such as more employee benefits or something else? And we're just asking in the context of Brown's profit margins being above historical average levels, and so we get asked if we should expect a downward mean reversion if and when organic growth eventually decelerates.

Okay, Jack. I think you've got a bunch of things inside there. Your first part of the question broke up a little bit, but I think you said is, with the divestiture of the businesses, would we expect the margins to go up? Was that your question?

No. He mentioned something.

I'm not asking about divestitures. I'm just asking if any intra-segment business mix shifts changes.

You got to get closer to your phone or something. You're cracking up quite a bit coming through on the phone.

I'm sorry. That's correct. Just any intra-segment business mix shift changes.

No, just the ones we mentioned. Our commentary indicates that the remaining businesses and services will transition into Retail. Additionally, the historical data will be adjusted for the businesses moving to Retail as well as those sold transitioning into Programs. Therefore, the margin profile is not significantly different between all the sold and retained businesses.

Got it. Okay, thank you. And then second question is on Brown's exposure to different flavors of personal lines insurance. We appreciate the personal lines comes in different textures across the three main segments. The question is, are Brown's personal lines exposed business having a positive impact on organic growth levels as compared to the non-personal exposures which comprise most of Brown's revenues?

So the answer, Jack is, yes, they are having a positive impact. Remember, we have personal lines in all three of the major segments. And as you may remember, in many years past that was a headwind in the wholesale. And we've said that that is now a growing segment, which we're positive about. It's growing in Retail, and it's also growing in Programs. So we think it's a positive.

Thank you.

Thank you.

Please standby for the next question. The next question comes from Elyse Greenspan with Wells Fargo. Your line is open.

Hi, thanks. Good morning. My first question is regarding the reinsurance cost that you mentioned, which was $19 million. However, I noticed that your expected loss is changing from $25 million to between $15 million and $20 million. I'm trying to reconcile these figures because the reinsurance cost seems quite high for the expected loss to decrease by only $5 million to $10 million.

You need to consider that there are two parts to this, Elyse. It does limit our profit and loss exposure. We indicated that in 2023, it was around $25 million. Looking into 2024, it's expected to be between $15 million and $20 million. Additionally, it will contribute an incremental organic growth of $15 million to $20 million. So it's important to look at both of those aspects together.

Thank you. For my second question, could you provide insight into how the international deals you completed in 2022 have impacted retail growth and margins for the full year 2023 compared to expectations?

So, Elyse, good morning, and thank you for the question. We are very pleased with the businesses that have joined in England since the middle of 2022, and they are performing at or above our expectations. While we do not provide guidance, I can tell you that their performance is very similar to our domestic retail business. We are pleased and continue to pursue acquisitions there. Mike Bruce, who heads our European Operations, and his team have kept making small and medium acquisitions in that region. We are very satisfied with the capabilities and people that have been added to our team.

Okay. And then on the margin, Andy, is there any seasonality that we need to think about? I guess maybe a little weaker in the third quarter given at a potential for a captive loss. But how should we think about the guide for improvement in margins in '24 and just quarterly seasonality?

I think it's important to note that for the third quarter, we typically factor in about 1.5 storms. While the exact outcome is uncertain, there is a greater chance they'll occur in the third quarter. This approach suggests that margins may see a slight decrease in that period. Additionally, keep in mind the carrying into the fourth quarter related to the $19 million. In the second quarter, we also mentioned some adjustments to the contingents regarding lost development during the year. Those are the main points to consider. Otherwise, there are no significant changes in the seasonal patterns of the margins.

Thank you.

Thank you. I appreciate it.

Thank you.

Please standby for the next question. The next question comes from Gregory Peters with Raymond James. Your line is open.

Good morning, everyone. I want to revisit your previous response regarding the expectation for contingent commissions to remain flat or decrease next year. Looking at the segment results, profit sharing contingent commissions were impressive in 2023, totaling $65 million compared to $27.6 million in 2022. You also mentioned considering at least one storm. How does the occurrence of a storm impact contingent commissions, not only for National Programs but also on a consolidated basis for the full year?

Good morning, Greg. You may not be pleased with this answer, but it really depends on the severity of the storm and how that affects the admitted versus non-admitted markets, which are different. Within the admitted markets, the Program business, Wholesale business, and Retail business are distinct as well. Estimating the impact is quite challenging. We do not operate a model that simply inputs a significant storm in Florida, Texas, or Louisiana to predict outcomes. Last year, we experienced a strong year in profit sharing, but as Andy mentioned, it might have been an extraordinary performance rather than just an over-performance.

Yeah. And Greg, keep in mind that in 2022, we removed $15 million in contingencies in the third quarter, some of which involved lost development that turned out to be less significant than originally expected. Adjustments were made in the fourth quarter, and there were further adjustments in 2023. It's really challenging to determine the potential impact, its magnitude, and other factors. We would expect some sort of impact, but the specifics are unclear.

Okay, that makes sense. I want to revisit a broader question regarding organic growth. I understand that part of your response is likely to be that you do not provide forecasts for organic growth in 2024. However, regarding the organic results for your company in 2023, there has clearly been a benefit from the rate increases occurring in the market. You mentioned this in your comments. In the Wholesale market, as noted in your commentary and the slide deck, there may be some moderation in cap pricing. So, if I consider all these different factors, if rate increases are likely to moderate in 2024 compared to 2023, wouldn’t that naturally lead to a lower organic growth rate across your footprint? Any insights on this would be appreciated.

Sure. If you look back over a long period, we've consistently stated that two-thirds of our growth comes from exposure units and one-third from rate. That hasn't changed since I've been in this role. Additionally, the effect of rate varies across different segments and locations. For instance, in a coastal community in Florida, property rates could significantly contribute to growth, while in places like Denver or Nashville, the rate impact may be less pronounced. We don’t provide guidance on organic growth specifically, but historically, we've indicated that this business sees low to mid-single-digit organic growth in a stable economy. We have exceeded expectations in organic growth over the past couple of years, which we're very proud of. I understand you're trying to predict what this means moving forward. However, our priority is to serve our customers effectively. By doing well for our existing clients, we can also attract new business. It's important to focus on our overall activity, rather than just on rates. Our culture at Brown & Brown emphasizes engagement with prospects and current customers, which we believe positively influences our organic growth for 2024. While we can't predict the exact figures, we’ve been in this field for 85 years and have a solid grasp of our operations and the markets we serve. We are pleased with last year's performance. Compared to our publicly traded peers, we rank highly in that context, having maintained strong margins and cash flow for many years. Overall, we’re very optimistic about the direction of the business.

Hey, Greg, I want to add that it's important to view the marketplace from the buyer's perspective. While rate is a significant factor, it isn't the only thing that influences the buyer's decision. They often pay attention to the total dollar amount because they're managing costs within their profit and loss statements. There are numerous factors they consider. We have discussed this over the past few years. If rates are rising, buyers may adjust their coverage limits and deductibles. Conversely, if rates decrease, they might choose to increase their limits or make other adjustments. It's essential to focus on the premium rather than just the rate. Many people are discussing this topic extensively now, but in some ways, it's both simpler and more complicated than it seems.

Got it. Thanks for the detail and it's glad to hear that you're pumped, Powell. Thanks.

All right.

Please standby for the next question. The next question comes from Mark Hughes with Truist. Your line is open.

Yeah, thanks. Good morning.

Good morning.

Andy, you say you're going to adjust the numbers for the non-cash intangible amortization to be more in line with peers. If you had done that in 2023, how much would that have impacted adjusted earnings?

It would equate to about $0.45.

$0.45. Okay. And then the Benefits business. How did that perform in the quarter? Any kind of early feel on Q1? I know that's a more important driver for organic in the first quarter.

We're very pleased with the way the business performed in Q4, and more importantly, for the year. So we're very pleased with the way the Benefits business is working.

Okay. Thank you.

Thank you.

Please standby for the next question. The next question comes from Rob Cox with Goldman Sachs. Your line is open.

Hey, thanks for taking my question. Maybe firstly, on the reinsurance changes, did that have an equal $19 million impact to adjusted EBITDAC?

It's pretty close, Rob. That's why we mentioned that although we were down 40 basis points for the quarter, our margins would have improved significantly if we isolate that factor, which we are very pleased about.

Can I add something here, Rob, that you haven't asked? I mentioned that the organic growth, if that had not occurred, would have been up 900 basis points. The overall business, when viewed, would have grown 9.9%.

Yeah, that's great. Thank you. Maybe just as a follow-up. Saw E&S casualty pricing accelerated in the quarter, and we've heard a lot of commentary around potential reserve issues and casualty. So wondering if you could provide any color on what's driving that pricing acceleration and if you think that could continue in 2024.

Sure. Rob, I've been in the insurance business for 34 years, so I don’t have the same depth of knowledge that my father has at age 86. However, since I started, the industry has been discussing the inadequate pricing of casualty, which has been a topic since 1990. The industry has struggled to raise prices in this area. I believe we will continue to hear from those assuming risk about the necessity of increased reserves, which means we need to raise prices as well. The reality is that people are trying to balance their portfolios with their current capacities. Consequently, casualty premiums are long-tail in nature and attractive. I don’t think they will achieve the pricing they desire, and I would be surprised if there is significant upward pressure on casualty pricing. They might discuss it, but based on my experience, that’s unlikely.

Got it. That's helpful. And if I could follow up with one more, just on the employee benefit space, how are you thinking about the growth environment between pricing and employment growth? And if you could remind us what percentage of the business is commission based at Brown & Brown?

Let's discuss employee benefits. From this perspective, there are a couple of things to consider. Typically, when you add a new employee to a plan, it would seem logical that this would lead to an increase in commission or potential fees. However, there's a smaller segment of our business where the fee is fixed per employee, and it does not increase like a commission. I think of it as somewhat similar to a capitated plan. Additionally, in our Retail division, which generates approximately $2.5 billion, we have about...

About 35%.

Yeah, about 35% of the business is employee benefits. And that's a business that we have consciously invested in over the last, let's say 10 years. And when I say consciously invested, not only in the middle market space, but in the upper middle market and the very large space and are very pleased with the ability to serve customers in all of those segments. And we very much enjoy going out and trying to earn business and have been successful and think we can even be more successful going forward. So we think it's a great business for us.

Please standby for the next question. The next question comes from Meyer Shields with KBW. Your line is open.

Great, thanks, and good morning. Andy, you mentioned company-owned life insurance and I didn't catch what the impact was on the quarterly results.

Yes, regarding company-owned life insurance, its impact on our numbers fluctuates with market trends, both upward and downward. When the market rises, it affects both our S&R and results in a reduction in other operating expenses. The effect on margins is nearly negligible. For this quarter, it acted as a drag on S&R as a percentage of revenue by about 150 basis points, compared to approximately 60 basis points last year. Overall, when we analyze these factors, it indicates that our S&R remains relatively flat year-over-year, excluding COLI. However, these figures will continue to vary, and we cannot predict them accurately, as they depend on market movements and past comparisons.

Okay. No, that's perfect. That's helpful. Second question, when you talk about the upside to organic growth in Programs, that's just because you're not going to see the same what was a $19 million hit in the fourth quarter of this year. If that is flat next year, then that's $19 million of organic revenue. Am I thinking about that right?

Correct. And, yes, we'd expect that in '24.

Okay.

And we would not expect any sort of reversion though in '25, just in case you're wondering, Meyer.

Yeah, no, that's exactly what you needed. And then final question because we've gotten different viewpoints from different people. But when you look at the shift of some catastrophe exposed wholesale or, sorry, catastrophe exposed property business to the wholesale channel in 2023, is that basically like a one year shift, and now we're done, and if nothing changes, then that impact slows or should that persist in 2024 at more or less the same pace that we saw this year or I guess it's last year now.

I want to make sure I heard that correctly. Meyer, can you repeat the question? Because there was a word or two that cracked up in there.

Yeah, absolutely. One of the themes of 2023 seems to be a lot of catastrophe exposed property business moving to the wholesale channel from the retail channel, which is great news for companies with wholesale brokerage, and wondering basically whether that shift, as you see it, is mostly done or there are reasons to expect it to continue in 2024.

There is a significant amount of business related to catastrophe exposure that has already been present in the excess and surplus market. Companies are continuously assessing their catastrophe property exposure in the traditional admitted market and deciding whether to renew it on an admitted basis, have it picked up by another admitted market, or transfer it to the excess and surplus market. I can say that there is a considerable flow of business into the excess and surplus market in 2023, and I expect this trend to continue into 2024. While I cannot predict if the amounts will be equal, it is crucial to note that within the wholesale sector, there are numerous opportunities for us to engage in business that has historically been in the excess and surplus space. There is more than enough business available for us without relying on accounts moving over from the admitted market. This trend is likely to persist because, throughout my career and likely yours as well, we have seen a notable shift in the excess and surplus market, and admitted carriers will keep evaluating their stance, especially in regions prone to catastrophes.

Okay, fantastic. That's very helpful. Go ahead. I'm sorry.

Hey, Meyer, on that, it's also probably always helpful is to bifurcate that between the commercial and the personal lines, because there's different kind of profile and activity underneath of there. Back to our comments, in the four states that we talked about, we are seeing more personal lines into the E&S space, and we would expect to see that in 2024 until those markets calm down. And then it may seem some of the other carriers come back in, but that doesn't appear to be anything in the near term.

Okay, no, that's excellent. Thank you so much.

Thank you.

Please standby for the next question. The next question comes from Michael Ward with Citi. Your line is open.

Thanks, guys. Good morning. You mentioned the remaining portion of Services was moving to Retail. I was just curious if you anticipate holding on to those businesses or if there's any alternative plans.

We anticipate holding on to those businesses.

Great. And then maybe on the, in the slide deck, the macro commentary kind of seemed a little bit less cautious to us. Just curious if you might agree with that. There's a lot influx, kind of with the Fed and rates and inflation, but just curious how your clients are feeling if there's, I guess, a little bit more positivity or uncertainty, vice versa.

I think we continue to see inflationary pressures while things are trending down. It's interesting, Michael, that there seems to be a more optimistic outlook among our consumers, despite the global challenges we face. This creates a unique situation, and how people think about investing in their businesses remains uncertain. Over the past year, we've described our outlook as cautiously optimistic, which I believe accurately reflects the situation. However, we've noticed that over the past year, many have hesitated to make significant capital investments, like purchasing new machines instead of just performing maintenance. I'm curious to see if our customers will decide to invest in new machinery this year. While it’s not universal, there is definitely a sense of optimism among our client base, and on a broad level, it appears more positive.

Interesting. Thank you. Maybe one last one. Just on free cash flow. I think cash flow conversion for you guys was a little below 24% in '23. Just curious if we should expect that similar level into next year or this year, if there's any puts and takes there.

For 2024, we anticipate that cash flow from operations will be around 22% to 24% of revenues, which seems to be a reasonable range for us, while we will let you gauge the CapEx and other factors.

Great. Thank you, guys.

Thank you.

Please standby for the next question. The next question comes from Grace Carter with Bank of America. Your line is open.

Hello?

Hey, it does appear that she did drop. One moment for our next question, please.

Okay.

Our next question comes from Scott Heleniak with RBC Capital Markets. Your line is open.

Good morning. It's interesting to hear your comments on the economy and your customer base's sentiment. However, could you elaborate on your previous remark about buyers feeling exhausted? You mentioned it last quarter regarding increasing deductibles and lowering limits. Have you noticed any acceleration in that trend over the past few months? Additionally, which customer types are you observing changes in terms and conditions?

Well, let's back up for just a moment. I don't think that there's necessarily one customer type or one region, but I'm going to give you an example. But this is not only the capacity in this example. If you take a condo association in Florida, and for the last five years in a row, they've seen rate increases. They're exhausted and tired of it. And in some instances, the condo association will shoot the messenger, even though we are delivering the best product in the market. And so whether you apply that same philosophy to a manufacturer, a developer, an owner of nursing homes, a non-profit, whatever the case may be, I believe, Scott, sometimes people in the analyst community believe it's all about rate increases. And as Andy said earlier, it can be about rate, but really it's more about the absolute dollars that the insured has to pay. And so there is a lot of chafe when their exposure units are flat to down and their premium dollars are going up. That's the way I try to put it. And so there's not one class of business, I will tell you this, that our organization, if you make a broad statement, we can thrive in a market where the rates are going up, when the rates are sideways, and when rates are going down. Generally speaking, in Retail, it works in all of those. In Wholesale, it works up or down, generally flat is kind of a little weird, and it works in Programs. So that's kind of a very broad statement around your question on rates.

Okay, that's definitely helpful. Could you provide an update on the captive revenue for 2023 compared to 2022 and share your long-term growth outlook for that business over the next five to ten years?

Let's see. I don't know. We probably won't go that far out. But if we look at the captives as we generated $25 million plus last year, generated about $30 million in 2023, and then we've kind of given an idea of guidance of what we think it looks like for 2024. We're really, really pleased with the captives, with the growth we've delivered on the top line, as we mentioned, the alignment with our carriers and the returns that they provided for the capital that we've put into those. We're extremely, extremely pleased with them. So don't take that that means that we're going to do more of them, whatever. That's not the comment. But for the ones that we have, we're very, very pleased with the programs that they sit on top of. And again, they're sitting on programs that we think deliver some of the best underwriting results in the industry.

All right. Understood. All right. I appreciate the answers. Thanks.

Thank you.

Please standby for the next question. The next question comes from Brian Meredith with UBS. Your line is open.

Thank you. Powell, I think you may have answered this, but I just want to clarify. How significant is inflation's impact on your organic revenue growth? Looking ahead, the economic outlook appears to be decent, but inflation is clearly moderating. Does this present a challenge to organic growth when we consider it from an exposure perspective?

I think if you want to think of it in a textbook answer, the answer is yes. But in practical application, I think it's a neutral.

Oh, interesting. Is there certain types of inflation that are better or worse for you all's business?

No, I don't want you to view it that way. Many people have a certain perception of the brokerage space. It's related to GDP, but it's a growing business. You need to consider how inflation affects GDP. When you think about it, it's somewhat integrated into our business operations. However, it's important to remember the long-term effects of inflation and interest rates. When I mention a long time, I'm referring to 10, 20, or 30 years. In a more stable economy, we typically see two-thirds of our exposure coming from volume and one-third from rates. The exposure can fluctuate due to economic influences and inflation, but we must keep executing, selling new business, and maintaining our existing accounts. That's our perspective.

That's really helpful. Thank you. For my second question, I'm curious about what you're observing in the standard markets regarding their appetite for E&S type risks. I understand that some areas, like Texas, remain quite challenging, but are you noticing any movement from the standard markets trying to re-enter the wholesale sector?

The answer to that is no. Over the last half of the year and into the first part of this year, admitted markets continue to evaluate segments of their business. Looking at three segments similar to our business: in Retail, they are assessing their catastrophe exposure and loss profile, including casualty and executive liability, to determine what they need to offload and what they want to write more of. This impacts catastrophe capacity. In Wholesale, although it may seem that admitted carriers with their wholesale markets are growing, the reality is that this represents only a small percentage of their overall premium. Lastly, in Programs, whether related to catastrophe or casualty, they are closely examining the profitability of those programs. I've noticed several markets pulling back on programs that do not meet their profitability criteria. Therefore, I anticipate that there will be additional changes in the Program space as markets continue to assess the profitability of various lines of business, especially since their results are improving and they aim to strengthen their positions for the long term.

Thank you. That's really helpful.

Yeah.

Please standby for the next question.

And, Michelle, we'll take one last question. Okay?

Thank you. Our last question comes from Grace Carter with Bank of America. Your line is open.

Hi, everyone. Sorry about my technical difficulties earlier. I just had one that I wanted to really touch on. I'm sorry if I missed this earlier, but I was curious if you all have shared an outlook for investment income next year and how that factors into your expectations for slight margin improvement.

Morning, Grace. It's Andy here. No, we didn't provide an outlook on investment income. Therefore, we aren't going to speculate on future interest rates, at least concerning all the regulatory banks and markets we operate in. We believe you are well equipped to come up with your own conclusions on this matter since some of it also depends on the amount of capital that flows through the organization and what we hold throughout the year. These factors can fluctuate.

Thank you.

Yeah. No, thank you.

I show no further questions at this time. I would now like to turn the call back to Powell Brown for closing remarks.

Thanks, Michelle. We appreciate everybody's time this morning. I was surprised we didn't get one question. So I will ask the question and then I will answer it. You know at Brown & Brown, we're a very goal-oriented company. We set goals. We achieve those goals and then we set a new goal. 12 years ago, we were roughly $1 billion of revenue and we set a goal to get to $2 billion in revenue. And in seven years, we took it from $1 billion to $2 billion. Then we set a new goal which was to bring $2 billion to $4 billion. And five years hence, we actually went from $2 billion to $4 billion. Now we're setting a new goal of $8 billion in revenue. Somebody would have asked, when are you going to get there? And the answer is, we don't have a timeframe. And the reason I say that is if we wanted to be $8 billion of revenue, we could go out and do that, but it would not be in the best interest of our shareholders, which in turn, 22% of the company is owned by teammates. So there is incredible alignment in our organization in terms of our long-term goals and objectives. As you heard in Andy's remarks and my remarks, we are very pleased with the performance of 2023 and we are equally excited about the prospects for '24. We also know that at some point the economy will slow down. All right. So we acknowledge that. But it seems that that probably will not happen in the near term is that the next six to 12 months. I think one of the things that's buoying that is the presidential election. But there's a lot more that goes into that. So you're not going to want to have changes if you can help it in the economy. It will be interesting to see what the Fed does with interest rates and how all that translates into the business environment. With that said, I'd like to say thank you again. We are pumped about our business and the future at Brown & Brown on our way to $8 billion, and we look forward to talking to you next time. Good day and good luck.

This concludes today's conference call. Thank you for participating. Have a wonderful day. You may now disconnect.