Brown & Brown, Inc. (NYSE:BRO) Q4 2025 Earnings Call Transcript

Brown & Brown, Inc. (NYSE:BRO) Q4 2025 Earnings Call Transcript January 27, 2026

Operator: Good morning, and welcome to the Brown & Brown, Inc. 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 related 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 first 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 measure can be found in the company’s earnings press release or in the investor presentation for this call on the company’s website at bbrown.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 now begin.

J. Powell Brown: Thank you, Tanya. Good morning, everyone, and welcome to our fourth quarter earnings call. Before we get into the results, I wanted to share that we lost a key member of our leadership team, an incredible individual and great friend. Last week, Rob Mathis, our Chief Legal Officer, passed away. Our thoughts and prayers go out to Rob’s family. We’ll miss his friendship, his leadership and his wit. Now let’s transition to our results. The fourth quarter capped off another year of strong top and bottom line financial performance. For the full year, we grew our revenue by 23% through a combination of M&A, organic revenue growth and strong growth in our contingent commissions. We expanded our margins materially and grew our cash flow from operations by nearly 24%.

This strong performance was in spite of softening CAT property rates and economies returning to more normal growth levels. Our performance was driven by our culture, teammates, diversification and disciplined leadership. In addition, to the good financial results, we also completed the largest acquisition in our history, welcoming over 5,000 incredible teammates in Accession. We’re very pleased with the integration efforts to date, and we’ll touch on that more later. Lastly, we invested in talent and technology to help us deliver even better solutions for our customers. Indeed, it was a very eventful year that we’re very proud of. Before we get started, we wanted to share some comments related to Brown & Brown and also involve our industry in general.

First and foremost, we believe in competition. That’s what makes great companies, great leaders and great individuals. We also believe in integrity, honesty, loyalty and trust. However, when a start-up U.S. broker conducts what appears to be a highly coordinated plan to lift entire teams from its competitors, taking information and customers in the process, it must be addressed. As of today, approximately 275 of our former teammates have joined this start-up, taking with them customers currently representing known annual revenues of $23 million. As we’ve done in the past, we will defend our rights in court and already have obtained an injunction. We stand behind our values and we’ll continue to stay customer-focused with the goal of achieving the best possible outcomes for our customers and our trading partners.

Now back to our results. I’ll provide some high-level comments regarding our performance along with updates on the insurance market and the M&A landscape. Then Andy will discuss our financial performance in more detail. Lastly, I’ll wrap up with some closing and forward-looking thoughts before we open it up to Q&A. On Slide 4. For the fourth quarter, we delivered revenues of $1.6 billion, growing 35.7% in total with organic revenue decreasing 2.8%, driven substantially by flood claims processing revenue we recognized in the fourth quarter of last year. Our adjusted EBITDAC margin remained flat at 32.9% and our adjusted earnings per share grew over 8% to $0.93. Both are very strong considering last year’s flood claims processing revenue. On the M&A front, we remained active and completed 6 acquisitions with estimated annual revenue of $29 million.

On Slide 5. For the full year of ’25, we delivered revenues of $5.9 billion, growing 23% in total and 2.8% organically. Our adjusted EBITDAC margin was approximately 36%, increasing 70 basis points. On an adjusted basis, our diluted net income per share grew over 10% to $4.26, and we generated nearly $1.5 billion of cash from operations. Lastly, we had a record year for M&A, adding approximately $1.8 billion of annual revenue from 43 acquisitions with the largest being Accession. I’m on Slide 6. From an economic standpoint, growth was relatively consistent compared to the last few quarters. We view this stability as positive. Our customers for the most part continue to hire at a modest pace and invest in their businesses as they see steady demand for their products and services.

Not all industries are equal as some companies are hiring while others are holding steady, and we’re not seeing any major workforce reductions impacting our diversified customer base. In general, our customers have a cautiously optimistic outlook. From a commercial insurance pricing standpoint, rates for most lines were fairly similar to the third quarter, but we did see some moderation across some lines. Casualty and CAT property remain the outliers on both ends of the spectrum. Pricing for employee benefits increased slightly as compared to prior quarters with medical costs up 7% to 9% and pharmacy costs up over 10%. As we’ve mentioned in the past, we do not see any signs that this trend will slow. Our customers continue to be challenged to balance rising health care costs and the impact to their employees and their P&Ls. During strategic planning sessions with our customers, management of high-cost claimants, specialty pharmacy and population health remain the key areas of focus.

Rates in the admitted P&C market moderated slightly as compared to last quarter and continue to be in the range of flat to up 5%. Workers’ compensation rates remains flat to down 3%, but we’re seeing a few states increasing rates. For non-CAT property, overall rates were down 5% to up 5% depending on loss experience with the blended rates relatively flat for the quarter. For casualty lines, rates increased 3% to 6% for primary layers with excess layers increasing even more. For professional liability, rates remained similar to the last couple of quarters and were down 5% to up 5%. Shifting to the E&S property market. Rate changes for the fourth quarter were similar to the third quarter and were generally down 15% to 30%. We did see some incremental drop off at the end of the year, but not as much as we did in June.

With the availability of capital and lower insured storm losses, if you have a — you have a lot of firms looking to put capital to work. Therefore, the pricing environment and approach by carriers did not surprise us. From a customer perspective, they continue to manage their total insurance spend, both commercial as well as employee benefits. As a result, we’re seeing some customers leverage, the lower rates enabling them to decrease their deductibles or increase their limits. In some cases, they’re utilizing the savings to purchase incremental limits on other lines or they’re just capturing the savings. On Slide 7. Now let’s transition to the performance of our 2 segments for the fourth quarter. Retail delivered organic growth of 1.1%. As a reminder, during our third quarter earnings call, we anticipated Q4 organic growth to be negatively impacted by multiyear policies written in the fourth quarter of ’24.

In addition, we had certain onetime adjustments to incentive commissions that were larger than anticipated. Lastly, we had certain project work that was delayed into 2026. In total, these items negatively impacted organic growth by 100 to 150 basis points. For the full year, our team delivered 2.8% organic revenue growth, a good performance given the headwinds we have discussed related to incentive commissions and multiyear policies. We feel good about our capabilities and how our team is positioned, and therefore, we’re expecting improved organic performance in 2026. For the quarter, organic revenue for Specialty Distribution segment decreased by 7.8%. As we discussed, the decline was primarily impacted by $28 million of flood claims processing revenue recognized in the fourth quarter of last year.

In addition, the decrease in CAT property rates was slightly more than expected, and we saw some binding authority business move back into the admitted market. For the full year, we grew 2.8% organically, a good result considering a tough comparison for ’24 and the continued decline in CAT property rates. Now I’ll turn it over to Andy to give you more details about our financial results.

R. Watts: Thank you, Powell. Good morning, everyone. Before we get into the financial details, I want to talk about the impact on our earnings related to the acquisition of Accession. For the quarter, Accession’s total revenue was approximately $405 million. This is below the guidance of $430 million to $450 million. As a result of refining our revenue recognition estimates by quarter, revenue, margins and adjusted earnings per share were impacted for the quarter. However, these revisions do not change our annual expectations for the business. From an adjusted earnings per share perspective, the impact of lower revenues versus our guidance was approximately $0.05 for the quarter. As it relates to the margin for the quarter, due to the phasing of revenue and profit, Accession’s results decreased our margins by approximately 200 basis points for the total company.

Transitioning now to our consolidated results. As a reminder, when we refer to EBITDAC, EBITDAC margin, income before income taxes or diluted net income per share, we are referring to those measures on an adjusted basis. The reconciliations of our GAAP to non-GAAP financial measures can be found either in the appendix of this presentation or in the press release we issued yesterday. Now let’s get into more detail regarding our financial performance for the quarter and the year. On a consolidated basis, we delivered total revenues of $1.607 billion, growing 35.7% as compared to the fourth quarter 2024. Contingent commissions grew by an impressive $37 million, with $21 million coming from Accession. The underlying increase was driven by minimal storm claim activity and higher underwriting profitability.

Income before income taxes increased by 23.1% and EBITDAC grew by 35.6%. Our EBITDAC margin was 32.9%, remaining flat versus the fourth quarter of the prior year. This was a good result considering the negative 200 basis point impact of Accession mentioned earlier and the prior year floods claim — flood claim processing revenue. The strong underlying margin expansion was driven by significantly higher contingent commissions and lower claims within our captives, both due to the quiet storm season along with our continued disciplined management of our expenses. Our effective tax rate for the quarter was 21%, a decrease over the prior year rate of 24.9%. The lower tax rate was driven by the benefit from our international operations and certain end of the year adjustments.

Diluted net income per share increased 8.1% to $0.93. Our weighted average shares outstanding increased by approximately 55 million to 339 million, primarily due to shares issued in connection with the acquisition of Accession. Lastly, our dividends paid per share increased by 10% as compared to the fourth quarter of 2024. We’re moving over to Slide #9. The Retail segment grew total revenues by 44.4%. This growth was driven primarily by acquisition activity over the past year. Our EBITDAC margin decreased by 120 basis points to 26.6%, resulting from the quarterly phasing of revenue and profit associated with Accession. The Accession impact more than offset good underlying margin expansion driven by the leveraging of our expense base and certain onetime items.

We’re on Slide #10. Specialty Distribution grew total revenues by 27% driven by the acquisition of Accession and a substantial increase in contingent commissions. The higher contingents were driven by acquisition activity, certain end of the year adjustments and growth due to our favorable underwriting performance. Generally, our contingent commissions will increase when there are low loss ratios and strong underwriting profitability. Traditionally, when there is a strong underwriting profitability, it has the long-term effect of decreasing rates over time. This inverse correlation for contingent commissions helps put stability in our long-term revenue growth, margins and cash flow generation as contingents are a core part of our business model.

Our EBITDAC margin decreased by 60 basis points to 41.3% due to the lower flood claims processing revenue and the impact of Accession having a lower overall margin as compared to our existing Specialty Distribution segment. These impacts more than offset the increase in margins driven by higher contingent commissions, lower claims in our captives and the disciplined management of our expenses. We’re over on Slide #11. This slide presents our results for both years. Our EBITDAC grew by 25.6% and our margin increased 70 basis points to 35.9%. We view this as a very strong result given that coming into the year, we are anticipating margins to be flat due to lower contingent commissions, the difficult comparison to 2024 driven by the flood claims revenue and the seasonality of Accession’s profitability, which negatively impacted the full year margin by approximately 80 basis points.

We’re very pleased with the strong underlying performance. This performance was driven by significant growth in our contingent commissions, higher profitability in our captives, increased interest income and the disciplined management of our expenses, while still investing in our teammates and capabilities. Net income before income taxes increased 21.8% and net income per share was $4.26, growing 10.9%. Overall, it was another good year of strong top and bottom line performance. We have a few other comments. From a cash perspective, we generated $1.450 billion of cash flow from operations, growing 23.5% over the prior year. This is in comparison to 23% revenue growth. Our full year ratio of cash flow from operations as a percentage of total revenues remained strong and increased to 24.6%, a reflection of our margins and disciplined working capital management.

In addition, during the quarter, we paid $100 million on our revolving credit facility and bought back $100 million of shares of our common stock as we continue to deploy our capital in a balanced manner. Before we wrap up, we want to provide guidance on a few items. Now that we have a better view on the seasonality of revenues and profit for Accession, both are substantially equally weighted between the first and second half of the year. For the second half, revenue and profit are more heavily weighted towards the third quarter. Lastly, due to the high margins in the first quarter for the legacy Brown & Brown business, we anticipate Accession will have a modest negative impact on our adjusted margins in Q1. From a synergy perspective, as Powell described earlier, we’re very pleased with the progress made on our integration activities over the last few months.

We continue to anticipate integration efforts will be completed by the end of 2028, so we have only just begun our journey. The team has made great progress in a short period of time, and we expect EBITDA synergies of approximately $30 million to $40 million in 2026. Regarding contingents, as we mentioned, they are a core part of our business and have a recurring nature and represented over $250 million of revenue last year. They will fluctuate quarterly with changes in our organic growth and underwriting profitability, so it’s better to assess them on an annual basis. For next year, we anticipate contingents for Specialty Distribution will be down approximately $15 million due to certain onetime adjustments in 2025 and ultimately subject to storm claim activity.

For Specialty Distribution, we anticipate organic growth to be somewhat flat in the first quarter due to flood claims processing revenue in the first quarter of last year and continued CAT property rate decreases. As it relates to 2026 organic revenue outlook for the Retail segment, we’d anticipate modest improvement over the 2.8% we delivered in 2025. As a reminder, we think about our Retail business as a mid- to low single-digit organic growth business in a normal pricing environment and a stable economy. Our team continues to work hard to grow net new business, and we feel really good about our prospects for 2026. As it relates to organic revenue growth, depending on the materiality of revenues taken by the start-up broker, we will quantify the impact in our commentary and may adjust our organic growth calculation in order to give a better representation of our underlying performance of the business.

From a margin perspective, as we look into 2026, we are projecting lower investment income due to the income generated in 2025 by the cash held for the acquisition of Accession as well as lower interest rates. This will have a downward impact on our total margins in 2026, while the underlying business is projected to achieve relatively flat margins. We view this projection as a great outcome and a reflection of the strength of our operating model, our teammates and our performance-based culture. As we’ve discussed in the past, our long-term adjusted EBITDAC margin target range is between 30% and 35%. As a result of our changing business mix over the years, the addition of Accession, along with our combined synergies, increased contingents, utilization of technology and our continued focus on our balanced profitable growth, which is enabled by our unique decentralized sales and service model, we are increasing our long-term margin target range to 32% to 37%.

As we always have, we will continue to invest in our teammates and our businesses, which may result in the margins increasing or decreasing. But over time, the ultimate goal is to drive long-term growth and value. Lastly, from a tax perspective, we anticipate our effective tax rate will be in the range of 24% to 25% in 2026. With that, let me turn it back over to Powell for closing comments.

J. Powell Brown: Thanks, Andy, and good summary of our results. As we head into 2026, we continue to believe economic growth will be relatively stable, which we view as positive. Assuming interest rates continue to decrease, in 2026, this should provide additional economic stimulus for many companies as well as individuals. As we’ve said in the past, we believe diversification of customers, geography and lines of coverage are very powerful as it creates stability in our revenues, margins, cash flow and earnings per share. Overall, we feel that the economies in which we operate should be generally stable, barring something unusual happening. From a pricing standpoint, we expect admitted rates to be fairly similar to what we experienced in the fourth quarter or might moderate slightly.

We believe casualty rates will continue to increase, which are the largest segment of the market and that admitted property will continue to be competitively priced. For the E&S space, we anticipate pricing will be very similar to the fourth quarter, with casualty lines being the most challenging to place. Due to the lack of meaningful insured losses from hurricanes last year and the amount of available capital, we believe CAT property rates will decline modestly from the levels in the fourth quarter. On the M&A front, our pipeline looks good, and we expect to remain active in 2026. For us, it comes down to finding businesses and leaders that fit culturally and then it needs to make sense financially. From an session integration standpoint, things are coming together well, and I’m very pleased with the progress.

The teams are leveraging the best of both in order to win more new business, and we’re bringing offices together where it makes sense. We have a lot to get done in 2026, but I feel confident that we have the right team focused on the key value drivers. I’m extremely pleased with how the teams are collaborating together. On balance sheet and — our balance sheet and cash flow remain very strong, which enables us to continue to delever, invest in our teams and acquire more businesses. We’ll continue our disciplined approach of capital allocation, investing the capital like it’s our own and striving to create long-term shareholder value. 2025 was another great year for Brown & Brown. We grew the top and bottom line significantly. We added to our capabilities, invested in innovation, data and analytics, and most importantly, added over 6,000 new teammates.

While the markets might have some volatility, we believe our operating model provides stability as well as industry-leading margins and cash flow. I’m proud of how our team is focused on our customers and creating innovative solutions for them. We look forward to 2026 being another good year for our company, which will enable us to deliver solid top and bottom line results that will drive shareholder value as we continue to march towards our intermediate goal of $8 billion and beyond. With that, I’ll turn it back over to Tanya to open up the lines for Q&A.

Q&A Session

Operator: [Operator Instructions] Our first question will be coming from Gregory Peters of Raymond James.

Charles Peters: So I guess happy New Year to you all. I guess I only have one question. So I’d like to focus on all your comments regarding the 275 former teammates that left for the competitor and the $23 million of revenue that is going with them. I guess there’s a lot of questions you can ask, but I’d like to focus just on — have you changed your strategy about retaining your producers? And more importantly, can you talk about — and I know you’re not going to talk about ongoing litigation, but can you talk about, generally speaking, your legal defenses around your customers and your company IP?

J. Powell Brown: Yes. Okay. So first off, what I want you to know is the way we pay our teammates and specifically producers is a mix between cash compensation and equity based on performance. And we believe that, that has worked really well over a period of time and continues to work well. So as it relates to, is there something unusual or different going on or we’re changing something, no, that’s not the case on both fronts. I think this is a highly unusual instance, just like it was with the other large broker firms that were affected. As it relates to the second part of the question…

R. Watts: Legal defense.

J. Powell Brown: Yes. In the industry, as you know, Greg, typically, there are — and it might be slightly different in certain states. But generally, there are nonpiracy and nonsolicitation agreements. And those typically have a 2-year period on customers and a 2-year period on hiring teammates. It also has a component on intellectual property, which is in perpetuity. And so obviously, we can’t talk about legal actions or anything that’s in the legal system at the present time. But as we said in our comments earlier, there’s currently some — you can read all of it out there, let’s put it that way. That’s where I’d leave it.

Operator: Our next question will be coming from Jimmy Bhullar of JPMorgan.

Jamminder Bhullar: First, just had a question on your comments around the sort of shift of business from E&S to standard. Are you seeing that in specific lines? Or is it more prevalent? And what are your expectations for that — for the move of exposures from the E&S market to standard over the next year or so?

J. Powell Brown: So Jimmy, as you may know, there are accounts that I’m going to call them tweeners and tweeners, depending on the market cycle, either are in E&S or in standard. And typically, they look or lean a little bit more towards the E&S market. And many times, you see this in the smaller accounts. They’re not small but smaller accounts, and those accounts might be up to $50,000 or more in premium. But typically, when the market starts to change in property, in particular, you see standard markets will come back in and except some of those. So again, I believe that where we saw this that we’re referencing is in our binding authority business and in the Specialty Distribution. And it’s too early to draw a conclusion. I don’t believe 1 quarter is a trend. However, we’ve seen this movie before. So I do think that there may be some continued movement from E&S to admitted, particularly in the smaller binding authority business.

Jamminder Bhullar: Okay. And just on your comment around…

R. Watts: Jimmy, just one second before you move to the next question. Just one of the things just to keep in mind is that while accounts can, in fact, migrate from the E&S back into admitted, we continue to believe that there’s going to be more insured assets though moving into the E&S space versus moving back into the admitted. So it’s always kind of talked about back and forth. But if you can just look at the trend over the last 10, 15, 20 years, there’s more and more moving into E&S because they want the flexibility of pricing and terms.

Jamminder Bhullar: Yes. And so there’s the secular component, obviously, but I think cyclically, there’s just been a lot more business than normal that’s moved into E&S the last several years. So maybe some of that goes back into standard, right, in the short term at least?

R. Watts: Yes, it can probably somewhat. You’ll see it on the fringes.

Jamminder Bhullar: And then on your comment around Howden, is like they’re being pretty aggressive, and other brokers have sued them as well for similar issues. Is competition picked up in general even outside of that? Or is Howden really a one-off and you’re not seeing other companies being more proactive in either poaching or paying people more to add producers?

J. Powell Brown: So the answer is the start-up firm is one of many that are aggressively looking to hire people. The question is how they’re doing it. And so again, as I said earlier, we’re all for competition. And when we hire people from other firms, we ask them to abide by the contracts, whatever those contracts are that they have. And so there’s a difference in opinion with that particular start-up here in the States. And there are others. There are others in the United States that think that way as well. But that’s the story. Thank you.

Operator: And our next question will be coming from Rob Cox from Goldman Sachs.

Robert Cox: I just wanted to ask about in the presentation, your commentary on casualty pricing. It sounds like you guys are still talking about it as, of course, seeing strong increases, but it looked like the range you provided, 3% to 6% fell a good bit from the 5% to 10% last quarter. So I just was curious to see what’s driving that deceleration in casualty pricing increases and if you had any additional color to provide there?

J. Powell Brown: Sure. So once again, in a market that is changing, just a broadly broad statement, I believe that you’re going to continue to see more competitive pricing across the board. So what you’re seeing, at least in primary business is a slight moderation of those rate increases. Remember, the biggest pressure in that area is on the excess. That has not changed because of the way the court system is — views accidents and things like that. So I don’t — Rob, I think it’s a normal course of the market. I don’t think there’s some structural change that’s happened or some carrier has figured out how to make so much money in casualty. That’s not what I’m trying to say. But I’m just giving you what we’re seeing in the quarter in terms of rate impact.

R. Watts: Yes. And Rob, with our commentary, don’t read anything into that, that we’re saying we expect casualty rates to go negative. So don’t read anything into the trend or whatever. It’s just kind of how the pricing was for the quarter. It can move around.

Robert Cox: Okay. So as you look forward, you would think — I don’t want to put words in your mouth, but you think like relatively similar on casualty pricing going forward?

J. Powell Brown: We think at least based on what we see, that would be the state or the case. I don’t know if there’s something we’re not aware of or can’t see right now. But based on what we see at the present time, yes.

Robert Cox: Got you.

Operator: And our next question will be coming from Tracy Benguigui of Wolfe Research.

Tracy Benguigui: I appreciate hearing your comments on contingent commissions. Can you talk about which accident years are used in that formula? I’m trying to get a sense if you’re still benefiting from those harder market years.

R. Watts: Tracy, it’s Andy here. So a number of our calculations generally because there is — a lot of these are around property less on the casualty side. Normally, it’s kind of shorter term in nature. Generally, it’s over a 12-month horizon, but you might see that it could have a rolling 2- or 3-year inside the calculation. But in general, it’s normally over kind of a 12-month horizon. And then what we — in our commentary is, you’ll see kind of movements around by quarter as we’re doing ultimate true-ups to calculations back and forth and why we kind of look at them on a total basis in there. We suggest, again, you look at it kind of differently between Specialty Distribution versus Retail. The Retail is, honestly, it’s a pretty consistent number as a percentage of revenue. SD will, in fact, move around by quarters, but it’s an important part of our business.

Tracy Benguigui: And then just going back to the comments about those 275 producers that were approached by a competitor. Can you just walk us through the cadence of the reduction of those $23 million of revenues? Was it mostly in employee benefits so that we could see that in the fourth quarter in ’26? And is it fair to assume there was no impact this quarter?

R. Watts: Yes. Tracy, on those. So it was a mix of business that was more heavily weighted towards employee benefits. So you probably see more of the impact probably early in the year.

J. Powell Brown: And it’s not 275 producers…

R. Watts: Right.

J. Powell Brown: It’s 275 people. A small portion of that group were producers.

R. Watts: Right.

J. Powell Brown: The vast majority of them were in nonproduction roles.

Operator: And our next question will be coming from Mike Zaremski of BMO.

Michael Zaremski: Maybe just a question on the profit margin commentary. Andy, you said underlying margins is expected to be flattish. Just to clarify the definition of underlying, does that include contingency and exclude investment income? And it sounds like the — which is a good flattish outcome is the result of the Accession synergies waterfalling in ’26, if you think that’s the right read.

R. Watts: Yes. Mike. Yes, I think that’s — so what we are saying is if you isolate the impact of lower investment income next year, we would say the remainder of the business will be flat. And yes, we do view that as a really strong performance next year, considering the different puts and takes that we have and having contingents down inside of there. So that would be a really good year for us.

Michael Zaremski: Okay. Great. And my follow-up might just be a quick yes or no, but because Tracy just asked for a clarification, but I just want to make sure that the $23 million of lost revs, that’s — that’s all we’re going to see from the lost employees for the most part. There’s not — it doesn’t build up over time to a much larger number. I just wanted to — just make sure because there’s a $23 million divided by 275 employees, it’s a fairly not immaterial, but small number.

J. Powell Brown: So let’s make sure we clarify that, Mike. Number one, that is the amount that they have taken at the present time. So what I’m saying is when something like this happens, which we haven’t had before, they can impact retention going forward, some of that may be legally — I’m not going to say prevent it, but run a foul with legal matters or whatever the case may be. But the answer is, at the present time, it is $23 million. And yes, relatively speaking, at the present time, it is a big number in a regular sense. But as it relates to the overall organization, it is a small number. And your statement is correct, but we don’t know what has been said to existing customers, and that will bear itself out in the next year or so.

R. Watts: Mike, that’s why in our commentary, we said depending upon the materiality on a quarterly basis, we may call it out just to help give an idea of how the underlying business is performing. But this will take a number of quarters to ultimately play itself through. And again, it’s not that it’s all one business.

Operator: And our next question will be coming from Elyse Greenspan of Wells Fargo.

Elyse Greenspan: My first question was on the Retail organic. I think you guys said within the guidance, right, that there should be some modest improvement from the 2.8% that you guys saw in ’25. Does that, I guess, adjust out the impact of the Howden departures? Because I think you said you may or may not adjust it out? Or does that account — would that be leaving in the $23 million impact and you might adjust out if it’s larger?

R. Watts: That adjusts that out.

Elyse Greenspan: Okay. Got it. And then in terms of the fourth quarter, what was the impact of the government shutdown on both Retail and Specialty Distribution? And would you expect — are you expecting any impact in Q1 or in ’26?

R. Watts: Elyse. No, nothing material. Obviously, when — especially you’ll see it kind of in our flood business when you have these shutdowns. But I guess, sorry to say we’re fairly adept at knowing how to manage through these since our government seems to have this as a recurring challenge at times. And so our team is really good about getting ahead of upcoming renewals, et cetera. But normally, if you have any delays, they kind of get caught up over 30, 60 days. So nothing major.

Operator: And our next question will be coming from Yaron Kinar of Mizuho.

Yaron Kinar: So my first question is on the Specialty Distribution organic. So I think even when we adjust for the flood revenues, organic EBITDA decreased by low single digits. You called out the greater-than-expected pressure from property CAT pricing, some binding authority business moving back to the admitted market. I assume both of those will be headwinds that remain in ’26. So what offset drivers do you have that would still get the segment back up to positive organic growth in ’26?

R. Watts: Yaron. So I think in our commentary, we highlighted a couple of things. One, we think that the organic will be challenged in the first quarter with the flood claims that we recognized in Q1 of last year. And then with the CAT property pricing is, it will probably still be a little bit challenged in the second quarter. Then as we start looking into the back end of the year, we start getting the benefit of the organic growth of the Specialty Distribution businesses that have joined us from a session. And again, remember that — those businesses have very, very little CAT inside of them. There’s quite a bit of casualty plus other specialty lines inside. And then obviously, there’s less CAT property placed in the third quarter, and then we’ll see what the fourth quarter looks like.

But we feel good about the business and the outlook, probably a little bit modest in the first part of the year, but then if everything continues on with trend, it will pick up some momentum in the back end of the year.

Yaron Kinar: Okay. And you’ve given us a flavor of what kind of steady-state organic should be or has been in Retail over the years in kind of the low to mid-single-digit range. I realize that it may be a bit more challenging to offer that for Specialty Distribution. But nonetheless, I’ll give it a shot.

R. Watts: Sorry, you broke up at the end, Yaron. Can you repeat the end of the question, please?

Yaron Kinar: Yes. I’d just like to see if there’s a steady-state organic level that you’d expect from the Specialty Distribution segment, kind of the equivalent of the low to single digits you’ve offered for Retail.

R. Watts: Yes. I think when we look at that business, because you’ve got the E&S component to it as well as there’s still admitted inside of there, it’s generally going to grow faster than retail, not all the time, and you’re going to have kind of different periods. But we would normally think about that being a slightly faster-growing business than our Retail.

Operator: And our next question will be coming from Mark Hughes of Truist.

Mark Hughes: Yes. The procedure when you lose a teammates that going back to the Howden issue, how quickly would they change, say, the broker of record and so the business would shift immediately? I think, Powell, you had alluded to you didn’t know kind of what conversations they might have had with other clients maybe positioning themselves for the renewal. But what’s the usual cadence where you learn about how much has shifted over just so we can think about what that $23 million might end up being as it progresses throughout the year?

J. Powell Brown: Well, Mark, there’s 2 parts. So as you know, people do business with people that they like and they trust. And depending on how this story is presented, sometimes, and we’ve run into this already, they were said — they were told one thing and then the customer determines that maybe it happened a little differently. And so having said that, there — in our experience or hearing what the scenario is here, we have seen a group of accounts, which is the $23 million in question, that move right away. And we believe that those discussions occurred with them either before the departure or right around that time. We don’t know exactly, and that will bear itself out. But having said that, there are other people that when presented with the scenario, they may end up thinking that they need to review their program, their placement.

Sometimes they would go to an RFP, not all, but I’m saying some. And some of that may be honest and honorable and some of that may have something else embedded in it, and we just don’t know. And so we think about how do you deliver better customer outcomes. And I have been hard-pressed to determine at the present time how the start-up presents better customer outcomes to those insureds. So ultimately, that will pan itself out. But we don’t have a way — it would be purely speculative, Mark, and we’re not going to do that on what that number could ultimately be. But what I’m saying is we are rehiring teammates in the affective areas. We are engaging capabilities across the platform to continue or to show these customers the — how we can bring — have the best customer outcomes.

And I’m very pleased with the engagement of our team across the entire organization.

Mark Hughes: Appreciate that. And then, Powell, I think you had said you anticipate CAT property rates might decline modestly from 4Q levels. Do you think the market has pretty close to bottoming?

J. Powell Brown: I don’t — I’m not going to say that, Mark, and let me tell you why. You have this really unique dynamic because you have all these issues with convective storms and fires and all this other stuff. And yet when the wind doesn’t blow in Florida, as an example, you have this great pressure on rates. And as you know, it’s a little bit like a pendulum and the pendulum usually swings too far one way and too far the other way. Well, the rates, quite honestly, we would all agree, probably were too high, and we don’t control the pricing the carriers do. But then all of a sudden, when it becomes profitable again, and it looks really good, it brings everybody back in. So I believe that we’re going to continue to have some pretty significant competition on those rates in the near to intermediate term.

And I would typically say that really exists down between now and May or June, and then you get into hurricane season. So I would tend to say that I think it’s still going to be quite competitive between now and then.

Operator: And our next question will be coming from Josh Shanker of Bank of America.

Joshua Shanker: Obviously, you were very proud and have a good view of the long-term success for your business, but someone much smarter than me said that the hard market is an elevator, and the soft market is an escalator. When you’re looking at the dynamics of the market and you have a view of what the long-term growth rate of this industry is, do you believe we’re entering into an extended period of suboptimal growth?

J. Powell Brown: Well, I think that we are entering a more normal historically growth rate in the industry. And so I don’t — I wouldn’t say it the way you just said it, Josh. I also think it’s very interesting, the weight that people place on organic growth versus other important metrics like cash flow and margins. And so I have this — and Andy and I have this healthy debate where we discuss with our team, the more and more of the changes that occur in GAAP, the further it moves away from real cash. Doesn’t mean that it’s wrong. I mean that’s the SEC’s deal and they figure it out and everybody, but — or the generally accepted accounting principles. But what I would say is we think about it is how do we grow our business; how do we do that profitably?

How do we reward those teammates, all of our teammates enable them to create wealth over a long period of time for helping us grow the business, and then how do we translate those revenues and earnings into cash, as you saw at 24.6% for the year and then use that to either buy businesses, hire more teammates, acquire our stock or something else that — those are the 3 that come right to mind. So I believe it’s — this is exactly, Josh, what Andy and I have been saying for the last 12 months, which was more of a return to the normal growth rates historically seen in the brokerage space.

R. Watts: Yes. Josh, the other thing it’s — again, it’s interesting to us, I think, the way in which people write about the market. If you think about the retail space and just think about our business for a second, the large majority of what we place there is admitted markets, right? And those rates, they had to come down from where they were during kind of that ’22, ’23, ’24 period just because of inflation and everything else. They’ve kind of leveled back out. They’re kind of normal again. And so we don’t see anything else unusual. So we don’t see like this significant like softening market maybe that people are writing about. That’s not what we’re seeing in the rates on the admitted side actually feels fairly stable and the economy feels pretty good to us right now.

Even though the headlines may potentially indicate something else, that’s not actually what we see. The place where you see more of the volatility is over in the E&S space. But it seems nobody talks about casualty continues to just keep going up, though. And casualty is a really large part of the marketplace. And so look, we feel good about the backdrop. The numbers can move around again for anybody by quarter. But when we think about our business and heading into 2026, we feel really good about our ability to continue to capture market share and grow net new business. And that’s kind of the key performance metrics that we focus on in — across the entire organization. So we don’t hear that — we don’t hold that — maybe that potential dire view that you kind of put out there.

That’s not our perspective on the market.

Joshua Shanker: Well, I don’t know if it’s dire, but I just want to follow-up on one thing that Powell said about that investors don’t focus enough on cash flow, and I agree that’s true. But do you believe that over the next 3-year period that Brown & Brown’s business can outgrow the organic pace of the rest of the industry? Are you in a position — or it just doesn’t matter, cash flow will be the guiding factor for how we operate our business.

R. Watts: Yes. Josh, we don’t think that’s actually the right question, if you don’t mind me coming back at this one because the organic is only one part of the equation. One of the things that we’ve been saying for an extended period of time is you have to also look at contingent as part of our business model in total. Otherwise, you get kind of a false understanding of how the business is performing. Look at last year, we grew the top line, total revenues 23%. We grew our cash by 24%. The organic sure didn’t grow that level, right? So you have to put contingents inside. Maybe look — maybe our business is just different than everybody else. But when you think about Brown & Brown, you have to put the contingents inside of it because you’re going to have scenarios where the organic will be down and the contingents will be up, right?

And the contingents are very profitable for us ultimately because these businesses should really be valued off of cash, not organic. And the question is, how can you grow your cash over time? We grew at 24% last year to $1.450 billion. That’s an incredible year. And just look back to the last 10 years at how we’ve grown our cash, right? And it’s a combination of our acquisitions, organic and contingents.

Operator: And our next question will come from Andrew Andersen of Jefferies.

Andrew Andersen: Into ’26 and recognizing the lost headcount, is there a scenario where you actually have a margin benefit as you’re not incurring the comp and ben costs, but you are keeping the revenues? Are you thinking about that in underlying margin guidance?

J. Powell Brown: I think that what I want you to understand is we are rehiring teammates that display the characteristics that we look for to deliver very creative solutions to our customers. So some of those people are being hired in those markets effective. Some may be hired elsewhere. But in the near term, technically, that could be the case, but we don’t believe that it’s going to have a significant impact or a material impact because we are hiring people back. So I think the question is the right question, but I don’t want you to go away and say there’s some hidden bonus in here. It’s — we believe it’s immaterial.

Andrew Andersen: Okay. And traditionally, I thought of you all is not really doing team lifts, but if there’s an effort to replace these folks’ kind of quickly, is that strategy kind of contemplated here?

J. Powell Brown: No, we don’t think really that way. We think about hiring good people and bringing them on to the team. And so I don’t like to use the term never or always, but that has not really been our thought process.

R. Watts: Andy, keep in mind our comment earlier because I think maybe some people have believed that it was whatever, 200, 250, 275, those were all producers. That represents teammates across the board. So that’s service, account executives, et cetera.

J. Powell Brown: We’ll take one more question. Is that what we’re going to do.

R. Watts: We’ll run it. We got a few more in the queue.

J. Powell Brown: We’ve got few more in the queue. Okay, go ahead.

Operator: Our next question will be coming from Alex Scott of Barclays.

Taylor Scott: I wanted to ask about the incentive commissions. And I guess we’ve seen some of the national carriers who are trying to be a little more disciplined in the face of more competition beginning to have lower premium growth numbers. And so I just wanted to understand if we should expect any impact from maybe volume-based incentive commissions being impacted by that?

R. Watts: And Alex, is that just an overall comment on the market? Or is it related to something specific when you asked that?

Taylor Scott: Yes, I’ll try to be more clear. We’re seeing some national carriers have very low premium growth numbers at this point because of competition. And I’m trying to…

J. Powell Brown: Yes.

Taylor Scott: Understand if in 2026, your incentive commissions could be negatively impacted by that.

R. Watts: Always a potential for that. I think you saw some of that actually in 2025, Alex, that we called out in the third and fourth quarter because the carriers are always moving around different measurement targets that could be on persistence or on growth. So yes, those are some of the dynamics going on.

Taylor Scott: Okay. But is there anything embedded in sort of what you commented on your retail organic that include that? Or is that something that could be incremental? To help me understand.

R. Watts: That includes our commentary unless we get something unusual throwing out that we don’t know about.

Taylor Scott: Okay. And then I wanted to see if we could circle back on Accession and just see if you would be willing to provide any commentary around how that performed in 4Q and its contribution to revenue. And I know we probably should care and look at more cash flow. But for Accession in particular, just thinking through the different pieces of guidance you’ve given in the past, I wanted to understand how the growth is going there.

R. Watts: Yes. I would say, good for the businesses. So we’re very pleased with the performance of the businesses inside there. We’re extremely, extremely pleased with how all our new teammates are leaning in, which is wonderful to see in there. The item on the growth in the quarter when we called out the 405 versus the 430 versus 450. Again, that was just an estimate we had going into the quarter. We had to refine revenue recognition. But nothing changes full year how we think about the business. Everything is going really well and coming along with integration. So we’re extremely pleased.

Operator: And our next question will be coming from Meyer Shields of Keefe, Bruyette, & Woods.

Meyer Shields: Two quick questions. First, Andy, the $15 million of adjustment-related contingents, is that a fourth quarter issue? Is that where we should expect the drop-off?

R. Watts: No, we’ll probably see that more kind of spread between the third and fourth quarters of next year, Meyer.

Meyer Shields: Okay. That’s helpful. And second, just to clarify, I know you said that the Retail segment should have organic growth better than the 2.8%. Is that comment also applicable to Specialty Distribution?

R. Watts: We would expect that the organic growth also would improve for Specialty Distribution during the year, yes.

Meyer Shields: Okay, perfect.

Operator: And our next question will be coming from Brian Meredith of UBS.

Brian Meredith: Two questions here. The first one, you called out multiyear policies as a headwind in retail growth again this quarter. Maybe you can quantify that. And is that going to continue to be a headwind in 2026?

R. Watts: Brian, yes, we wouldn’t quantify that level of granularity. I think we included that in our commentary about the 100 to 150 basis points in addition to incentives and some other projects. Those are always kind of moving around by quarters. Remember, if there’s a headwind this year, remember, they come up for renewal next year.

Brian Meredith: Got you. Okay. And then second question, Powell, this is more for you. If I think about going back and when we transition into these soft cycles, I found that historically, you do get these talent wars, and this is obviously a little unusual what’s going on with Howden. But as I think about here going forward, is that a correct characterization? And maybe is there likely to be maybe potential pressure on margins, not only Brown & Brown for the industry is perhaps SMB has got to grow at a faster rate than organic revenue growth given just the talent war going on right now to try to sustain growth?

J. Powell Brown: That’s possible. Yes. I mean I’m not trying to be flippant, but yes, your thought process is fair on that. That could impact the industry, yes.

R. Watts: Brian, just the other thing, this industry has always been competitive, though. I mean it’s been competitive for many decades. And so I think to our earlier comments, it’s why we’re very thoughtful about our compensation plans, both on cash and equity and how that creates long-term wealth for our teammates. And we continue to invest across the entire organization. But I don’t think that like all of a sudden, like competition just showed up in the last 6 months. It’s been here for decades.

Operator: And I would now like to turn the conference back to Powell for closing remarks.

J. Powell Brown: All right. Thank you all very much, and we look forward to talking to you after Q1. Have a nice day.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.