Brown & Brown, Inc. Q1 FY2026 earnings call

Overall, delivered good financial results for Q1 with revenues of $1.9 billion, growing 35.4%. Adjusted EBITDA margin increased 40 basis points to 38.5%, and adjusted earnings per share grew nearly 8% to $1.39. Generated over $260 million of cash flow from operations. Economic conditions during the quarter were stable with customers focused on balancing cost and coverage. Commercial insurance rates had changes, with admitted P&C markets in a range of flat up 5% but moderated slightly. Workers' comp rates flat to down three in some states. Non-cap property rates down five to up five. E&S property rates for wind and quake had more modest declines. Casualty pricing continued to increase. Talked about technology and data journeys, leveraging capabilities and AI to provide more value. Retail segment growth driven by acquisition activity and organic growth. Specialty distribution growth driven by acquisition and increase in contingents

Retail: Organic growth, including contingents, was 1.3% for the quarter, and organic growth excluding contingents was 1%. This was due to a combination of rate, a change in the revenue model of one pharmacy consulting business, and lower net new business. The revenue model change of this business is expected to negatively impact organic growth by 50 to 100 basis points over the next couple of quarters but is expected to start growing towards the end of the year. With integration efforts, a new sales model underpinning industry and line and coverage specialization is being created, and increased activity gives optimism for the second half of the year and 2027. Specialty distribution: Organic revenue, including contingents, increased by 3.9% for the quarter, and decreased by 2% when excluding contingents. These metrics were negatively impacted by nearly 300 basis points from $12 million of flood claims processing revenue recognized in the first quarter of last year. Expected flat organic growth excluding contingents in Q2 due to heavy weighting of cat property placements, with improving growth in the second half of the year as cap property placements decrease and 180 business drives growth as it has less property and more casualty weighting compared to legacy Brown & Brown specialty distribution business

Projecting modest organic growth improvement each quarter this year for retail compared to the first quarter. Anticipate relatively flat organic growth, excluding contingents in Q2 for specialty distribution due to heavy weighting of cat property placements. Expect improving growth in the second half of the year for specialty distribution as cap property placements decrease and 180 business drives growth. Anticipate contingents for the entire company will be up this year. Expect admitted rates to continue to moderate slightly and E&S casualty pricing to continue increasing

Litigation impact on organic revenue growth, such as loss of business due to the startup broker. More significant decline in cap property rates than anticipated. Uncertainty in the pharmacy consulting business revenue model change. Geopolitical issues and oil and gas costs influencing customers to be more cautious. Litigation-related uncertainties like the TRO in Massachusetts

Q: On the operating model in retail.

A: Steve Hearn and his team are blending the best of Legacy Risk Strategies' regional sales model and Legacy Brown & Brown Middle Market's local sales model to create a new sales model underpinning with industry and line and coverage specialization, enabling producers to have access to more capabilities and positively received by producers.

Q: On the specialty pharma revenue model change.

A: The business helps customers and their employees reduce pharmacy spend, and the model is going from a volume-based model to a PEPM model over the next several quarters.

Q: On unpacking why looking at personal lines, small and micro commercial policies with less than $25,000 in premium is the right starting point.

A: Working with complex and customized commercial risks, which is the space they operate in, and that's why defined at $25,000.

Q: On updated outlook for contingents.

A: Anticipate contingents for the entire company will be up this year based on first quarter performance.

Q: On litigation impact on top line.

A: Lost business is 31 million annualized, with quarterly impacts throughout the year, and the number will move around.

Q: On Brown's organic growth with contingents versus peers.

A: Combination of large acquisition, disruption around startup, more substantial than anticipated property rate decline, and pharmacy business issue.

Q: On employee benefit business evolution.

A: Like the employee benefit business, it's an opportunity to solve complex problems for customers, pricing pressure is a challenge, but they continue to invest and it's a big part of retail and will grow.

Q: On AI and margins.

A: Think there are opportunities to invest in talented people to help grow businesses, AI has positive impact, and organic with contingents is a good metric for correlation to margins and EPS.

Q: On revenue opportunities from AI.

A: AI improves customer experience, helps identify growth opportunities, and examples like scaling AI agents in specialty distribution.

Q: On AI and insurers taking value back.

A: Disagree, complexity in business leans more in favor of brokerage community.

Q: On AI and appetite for smaller Tuck and M&A.

A: Depends on the businesses, evaluate on a case-by-case basis, and AI doesn't disintermediate trust which is important for their business