Business Context and Reporting Period
Brown & Brown, Inc. filed its Form 10-K for the fiscal year ended December 31, 2023. The company is a diversified insurance intermediary providing retail brokerage, national insurance programs, wholesale brokerage, and insurance-related services. It operates primarily as an agent or broker and generally does not assume underwriting risk, although it participates in limited captive insurance facilities and operates a write-your-own flood insurer.
At December 31, 2023, Brown & Brown operated from 322 domestic and 177 international locations and employed 16,152 people. During 2023, it completed 33 acquisitions. The company also sold certain third-party claims administration and adjusting businesses in the fourth quarter; the sale represented approximately 3% of consolidated revenue, 2% of assets, and 2% of net income and was not classified as discontinued operations.
Key Financial Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenues | $4,257.1 million | $3,573.4 million | 19.1% |
| Commissions and fees | $4,199.4 million | $3,563.2 million | 17.9% |
| Core commissions and fees | $4,069.5 million | $3,474.5 million | 17.1% |
| Profit-sharing contingent commissions | $129.9 million | $88.7 million | 46.4% |
| Income before income taxes | $1,146.1 million | $876.1 million | 30.8% |
| Net income | $870.5 million | $671.8 million | 29.6% |
| Net income per diluted share | $3.05 | $2.37 | 28.7% |
| Income before income taxes margin | 26.9% | 24.5% | 240 basis points |
| Adjusted EBITDAC | $1,444.7 million | $1,173.8 million | 23.1% |
| Adjusted EBITDAC margin | 33.9% | 32.7% | 120 basis points |
| Operating cash flow | $1,009.5 million | $881.4 million | 14.5% |
| Capital expenditures | $68.9 million | $52.6 million | 31.0% |
The effective income tax rate was 24.0% in the MD&A discussion and 24.1% in the tax footnote. Fee revenue represented 23.9% of commissions and fees in 2023, compared with 25.8% in 2022. Organic Revenue growth was 10.2%, compared with 8.1% in 2022.
Segment Performance
| Segment | 2023 Revenue | Revenue Growth | Organic Revenue Growth | Adjusted EBITDAC Margin |
|---|---|---|---|---|
| Retail | $2,440.0 million | 17.1% | 7.9% | 30.6% |
| National Programs | $1,077.3 million | 25.3% | 17.2% | 45.3% |
| Wholesale Brokerage | $540.7 million | 19.3% | 12.2% | 31.9% |
| Services | $163.1 million | (5.1%) | (0.6%) | 16.6% |
National Programs benefited from strong new business, retention, rate increases, higher contingent commissions, and lower captive claims costs. Retail growth reflected acquisitions, new and renewal business, and rate increases, partly offset by weakness in automobile and recreational vehicle dealer services. Wholesale Brokerage benefited from new business, retention, and rate increases. Services revenue declined following the business divestiture and continued weakness in Social Security disability, Medicare advocacy, and Medicare Set-aside services.
Cash Flow, Liquidity, Debt, and Capital Allocation
- Cash and cash equivalents increased to $700.3 million from $650.0 million. Fiduciary cash was $1,602.6 million, but these funds are generally restricted or held for insurance-related remittances.
- Operating cash flow was $1,009.5 million. Cash uses included $630.7 million for acquisitions, $118.8 million for acquisition earn-out payments, $68.9 million for capital expenditures, $135.0 million for dividends, and $250.6 million for long-term debt principal payments.
- Total debt was $3,795.6 million at December 31, 2023, down from $3,942.1 million. Current debt maturities were $568.7 million, including $500.0 million of 4.20% senior notes due in September 2024.
- The company reported $700.0 million of available capacity under its revolving credit facility at year-end and stated that existing cash, investments, operating cash flow, and available borrowing capacity should meet normal liquidity needs. Subsequent to year-end, it drew $150.0 million under the revolver for general corporate purposes.
- The company had $1,075.0 million of floating-rate debt tied to SOFR. Management reported compliance with applicable debt covenants at year-end.
- Dividends paid increased to $135.0 million, or approximately $0.475 per share. The board approved a $0.1300 per-share dividend paid in February 2024. Year-end remaining share repurchase authorization was approximately $249.5 million; 2023 repurchases were immaterial at $0.1 million.
Material Changes Versus the Prior Comparable Period
- Revenue growth accelerated, with total revenues increasing 19.1% and Organic Revenue growth rising to 10.2% from 8.1%.
- Profitability improved, with net income increasing 29.6% and adjusted EBITDAC margin expanding to 33.9% from 32.7%.
- Investment income increased to $52.4 million from $6.5 million, primarily because of higher interest rates.
- Interest expense increased 34.6% to $190.0 million due to higher average debt balances and higher floating-rate benchmarks.
- Profit-sharing contingent commissions increased substantially, partly because of a quieter hurricane season and improved underwriting results relative to 2022.
- The company recorded a $143.3 million net gain on disposals, including a $134.6 million pre-tax gain from the Services divestiture. This gain materially benefited reported income before taxes and net income.
- A nonrecurring $11.0 million business-resolution cost was incurred in the first quarter of 2023.
- Goodwill increased to $7.34 billion from $6.67 billion, primarily due to acquisitions and foreign currency translation. No goodwill or amortizable intangible asset impairments were recorded.
Outlook, Commentary, Risks, and Unusual Items
The filing does not provide a specific quantitative earnings or revenue forecast. Management emphasizes continued growth through net new business, customer retention, insurance rate and exposure-unit changes, acquisitions, and its decentralized sales and service model.
- Key operating risks include competition, changes in insurance premium rates and commission rates, reduced insurer capacity, adverse economic conditions, inflation, higher interest rates, and timing variability in policy renewals and contingent commission payments.
- Acquisition execution and integration remain central to the growth strategy and create risks related to valuation, earn-outs, employee retention, systems integration, unfamiliar markets, and potential goodwill impairment.
- Cybersecurity, data privacy, technology disruption, regulatory change, and third-party vendor failures could affect operations, customer relationships, compliance costs, and reputation. The company reported prior malware, phishing, and vulnerability incidents that had not materially affected operations.
- Natural catastrophes may reduce contingent commissions, restrict insurer capacity, and generate claims expenses through the company’s captive facilities. Hurricane Ian-related captive losses were estimated at $3.9 million in 2023, with $3.8 million expected net loss.
- The company has limited but not eliminated underwriting exposure through captive facilities. WNFIC cedes its NFIP and excess flood exposure to FEMA or highly rated reinsurers.
- The company is concentrated in Florida, California, Massachusetts, Georgia, Michigan, New York, and the United Kingdom, exposing results to regional regulatory, economic, and catastrophe risks.
- Legal claims arise in the ordinary course, but management stated that no current proceedings are expected to be material. Accrued legal liabilities were not material at year-end.
- Deloitte & Touche issued an unqualified opinion on the financial statements and internal control over financial reporting. Management and the auditor concluded that controls were effective, although certain 2023 acquisitions were excluded from management’s controls assessment.
Important Facts for Investors to Verify
- Assess the sustainability of 2023 earnings growth excluding the $143.3 million disposal gain, higher interest income, and unusually strong contingent commissions.
- Review the September 2024 maturity of $500.0 million of senior notes and the company’s refinancing plan, including the subsequent $150.0 million revolver draw.
- Evaluate acquisition returns, integration progress, goodwill of $7.34 billion, and maximum future acquisition contingency payments of $640.2 million.
- Monitor organic growth and margin trends by segment, particularly Retail margin pressure and the post-divestiture structure of Services.
- Verify the effect of catastrophe activity, insurer capacity, captive claims, and contingent commission estimates on future results.
- Review exposure to SOFR-based debt, regulatory and data-privacy developments, cybersecurity incidents, and concentrated geographic markets.
- Confirm that fiduciary cash of $1.60 billion is not generally available for corporate liquidity and distinguish it from unrestricted cash.