BRO

• Overall Financial Performance

  • Consolidated Q2 2026 total revenue was $1.7 billion, growing 30.4% year-over-year, coming in modestly ahead of internal expectations amid continued downward pressure on property catastrophe rates
  • Organic revenue decreased 70 basis points year-over-year excluding contingents, and increased 70 basis points including contingents
  • Adjusted EPS grew nearly 4% to $1.07; adjusted EBITDA margin decreased 100 basis points to 35.7%, driven by lower year-over-year interest income
  • The company acquired six small agencies in Q2 2026, and disposed of a non-core retail business with $30-$35 million in annual non-recurring revenue
  • Year-to-date through H1 2026, operating cash flow was $610 million, up 13% year-over-year; the cash flow conversion ratio fell to 17% from 20% due to one-time higher-than-expected Accession earn-out payments and working capital timing
  • The company deployed $500 million to repurchase shares in H1 2026, and raised dividends per share by 10% year-over-year

• Capital Allocation Priorities

  • Organic growth remains the top priority, focused on hiring talented producers to grow the business long-term to $8 billion+ in revenue
  • Share repurchases are viewed as an attractive current use of capital, followed by debt reduction, technology investments, and selective strategic acquisitions (not focused purely on scale)

• Strategic AI and Technology Initiatives

  • The company announced new partnerships with McKinsey, Accenture, and Anthropic to accelerate ongoing AI work and enable holistic application of AI solutions across the business
  • AI is positioned as an enabler for employee productivity, faster go-to-market, better efficiency, and improved customer outcomes, not a replacement for human risk advisors and brokers
  • The company is moving beyond initial awareness and pilot programs to rewire core processes (sales, underwriting, placement, support functions), with the goal of driving faster cycle times, higher productivity, and stronger organic growth
  • No incremental near-term technology spend is expected, as the company is redirecting existing resources from legacy business operations to AI, data analytics, and innovation

• Market and Business Conditions

  • Overall economic conditions remained stable, with flat customer spending, neutral hiring/investment sentiment, and stable labor markets; positive audit premium activity signals ongoing broad business growth
  • Commercial insurance pricing trends: property catastrophe rates continued to decline 15-35% QoQ, primary casualty/professional liability rates rose ~5%, excess casualty saw ongoing rate pressure, workers' comp/non-cat property was flat to down 5%, and employee benefits medical costs rose 8-10% with pharmacy costs up over 10%
  • Integration of the recently combined large organizations is progressing well, with the retail segment's new aligned go-to-market model building momentum and driving incremental new business wins
  • Synergy targets of $30-$40 million for full-year 2026 remain on track

• Organic growth for H2 2026: Retail (excluding contingents) is expected to range from 1.5% to 2.5%, while Specialty Distribution (excluding contingents) is expected to range from 2% to 4%, with overall organic growth projected to improve across both segments
• Full-year 2026 consolidated margins are expected to be roughly flat year-over-year, excluding the impact of lower 2026 interest income versus the prior year; this guidance is reaffirmed following Q2 results
• Full-year 2026 Accession annual revenue is still expected to land in the 1.7 billion to 1.8 billion yen range, with the Q2 shortfall covered by expected Q3 2026 revenue following seasonally strong July placement activity
• Economic activity is expected to remain at similar levels to recent quarters, with business leaders maintaining cautious hiring and investment plans amid ongoing geopolitical instability, inflation, and potential higher interest rates
• Commercial insurance pricing is expected to see slight moderation in admitted rates; excess casualty rates will continue to increase, and property catastrophe rates will continue declining at similar rates to H1 2026, with no material overall change expected in H2
• Full-year 2026 litigation and incentive adjustment impacts from the departure of employees to a competing startup are expected to total $50 million to $60 million, which matches current Q2 estimates

1. Retail Segment: Total revenue grew 35.9% year-over-year, driven primarily by prior-year acquisition activity. Organic growth including contingents was 2.5%, and 1.5% excluding contingents, which was slightly above management expectations. A $18 million current-period organic revenue adjustment was recorded for litigation related to employees who left for a competing startup broker, with full-year 2026 total litigation/incentive-related impacts expected to range from $50 million to $60 million. EBITDA margin expanded 230 basis points year-over-year, driven by higher contingent commissions, disciplined expense management, synergy realization, a 110 basis point one-time accrual adjustment benefit, and a 30-50 basis point net margin benefit from departed employees. Retail contributes ~61.2% of total consolidated Q2 2026 revenue.

2. Specialty Distribution Segment: Total revenue grew 28.1% year-over-year, driven by the Accession acquisition and increased contingent commissions. Organic growth including contingents was -1.6%, and -3.5% excluding contingents; approximately 200 basis points of this negative organic growth is attributed to $10 million in delayed new business revenue that will be recognized in Q3 2026. EBITDA margin decreased 400 basis points year-over-year to 42.7%, primarily due to lower organic growth and investments in European growth capabilities, which offset the benefit of higher contingent commissions. Specialty Distribution contributes ~38.8% of total consolidated Q2 2026 revenue.

• Sustained downward pressure on property catastrophe pricing and increased competition from admitted markets and MGAs in the excess and surplus lines space creates ongoing headwinds for organic growth in specialty program business
• A $100 billion to $150 billion industry-wide catastrophic loss event would be required to stabilize declining property catastrophe rates, which would have significant negative impacts on customers and the broader insurance market
• Inflation, volatile oil prices, and heightened geopolitical instability are weighing on business sentiment, though no material impact on current activity levels has been observed
• Talent competition remains intense across the industry, broadly distributed across geographies post-COVID, creating ongoing pressure to attract and retain top production talent
• AI adoption carries uncertainty around long-term technology costs, as current AI token usage and operational cost structures are not fully understood by the industry; faster-than-expected implementation could require incremental capital expenditure that would impact margins
• Litigation related to employees who left for a competing startup broker will create a $50 million to $60 million hit to 2026 organic revenue
• Unexpected one-time costs, such as the higher-than-expected Accession acquisition earn-out payments in H1 2026, can negatively impact near-term cash flow conversion

Q: Why was Q2 2026 Accession revenue lighter than expected, how does Accession impact overall margins, and was the H1 cash flow hit from earn-outs a one-time event?

A: Q2 Accession revenue of $410 million was fully in line with prior management guidance for quarterly revenue balancing, with seasonality shifting more revenue to July in Q3. Accession's 35% margin matches the company's consolidated margin target, so it will not change overall Brown and Brown margins, it only reduces reported Specialty Distribution margins due to a weighting shift from higher-margin legacy programs. The higher earn-out payment was a one-time H1 2026 item, with no expected similar impact going forward; long-term cash flow conversion will remain in the 24-26% range, in line with historical performance.

Q: How does contingent commission accounting work, and will pricing competition create future headwinds for contingent revenue?

A: Contingents are split into two buckets. Retail contingents are mostly one-year contracts, with adjustments made in the following year after full carrier profitability data is available. Specialty Distribution contingents have high program-by-program visibility, with adjustments made based on current observed profitability. Contingent revenue depends on program-specific carrier profitability, not broad industry pricing trends; Brown and Brown's disciplined underwriting has delivered stable contingent growth even amid industry pricing pressure, so management remains confident in future contingent results.

Q: When will cat property pricing find a bottom, and what would stabilize the current declining trend?

A: Management would not speculate on calling a near-term bottom, but notes that coastal Florida cat rates are already back to 2017 levels after two years of rapid declines. A $100-150 billion industry catastrophic loss event would likely be required to stabilize pricing, though management emphasizes this outcome is not desired and would harm consumers and the industry. Significant excess capital continues to drive competition in cat property, so declines are expected to continue for the foreseeable future.

Q: What is the strategic direction for future M&A, and will deals focus solely on the Specialty Distribution segment?

A: Management is focused on strategic acquisitions that add specialized capabilities, not acquisitions pursued purely for scale. This does not mean deals will only target the Specialty Distribution segment; specialized capabilities can be added to either Retail or Specialty Distribution, depending on what enhances the company's overall platform. The company's current top priority remains organic growth via hiring, followed by share repurchases, debt paydown, and technology investment, so M&A will remain selective.

Q: How will AI investments impact long-term margins, and when will benefits materialize?

A: Management expects AI to drive incremental organic growth and margin expansion over multi-year time horizons, with the clearest benefits expected in years 3-5, not the near term. No incremental near-term AI spending is needed, as the company is reallocating existing budget from legacy operations to AI. The company tracks clear KPIs for each AI use case via its value management office, and will fail fast on initiatives that do not deliver expected value. Management does not expect material negative margin impact even as AI ramps, but will disclose incremental spending requirements publicly if they arise.