Insurance broker Brown & Brown, Inc. reported second quarter revenues of $598.8 million, an increase of $23.6 million, or 4.1%, compared to the second quarter of the prior year,
Commissions and fees increased in the quarter by 4.4% and organic revenue was up by 0.5%.
Net income was $96.8 million, increasing $4.2 million, or 4.5%, compared to the second quarter of the prior year.
During the quarter, Brown & Brown completed three acquisitions with annual revenues of approximately $46 million, the largest being loan protector insurance services.
The firm’s EBITDAC (earnings before interest, taxes, depreciation, amortization and coronavirus) margin was 29.5%, up 20 basis points over the second quarter of 2019.
Revenues for the six months ended June 30, 2020 were $1,297.3 million, increasing $102.8 million, or 8.6%, as compared to the same period in 2019, with commissions and fees increasing by 8.8%, and organic revenue increasing by 3.1%.
J. Powell Brown, president and chief executive officer of the company, disclosed that he had contracted COVID-19 a few weeks ago but has recovered. “While I felt a little sluggish at times, it did not prevent me from making phone calls and engaging with people virtually. I’m feeling fine now and I have received my negative test results yesterday,” the CEO told analysts.
He said his team believes a return of the economy to pre-COVID-19 levels is going to be “slow and sporadic” and the CEO called upon society to focus on containing the coronavirus. “This is possible through the efforts of all our frontline workers and each of us taking our own personal responsibility to help contain further spread,” he said.
He noted that more than 10,000 Brown & Brown employees have transitioned to remote work and the firm has begun a staggered return to the workplace.
Brown said the agency started seeing the effects of the pandemic in the second quarter with certain industries “significantly slowing down.” These included hospitality, restaurants and entertainment.
At the same time, healthcare and construction were “resilient and in some cases continued to expand.”
The second quarter performance veered a bit from expectations.
“For the quarter, we expected there would be significant decline in payrolls and consequently our employee benefits and workers’ compensation lines of business would be the most impacted,” he told analysts. “However, what occurred is that our employee benefits business grew during the quarter due to the new business and many employers furloughed employees rather than reducing their workforce. On the other hand, our workers’ compensation lines of business declined faster than we anticipated.”
He said his employees collaborated with carriers to provide customers with mid-term premium adjustments for certain coverages affected by changes in sales or payrolls. The premium adjustments totaled about $8 million.
“While there has already been a significant impact on many businesses, it’s unknown what the full effect will be over the coming quarters. A lot depends on how much additional funding is provided at the federal or state level for businesses and individuals,” he said.
He said the quarter saw carriers further tightening their underwriting standards and reducing their participation in certain lines of coverage, geographies, industries or limits. The resulting increases were generally above those of the first quarter.
“Ultimately, the amount of rate increase was driven by the loss experience for a given account or the class of business for the carrier. During the quarter, we did see a slowing in the rate of decline for workers compensation rates being down 1% to 5%,” he added.
Effect on Business
Andrew Watts, chief financial officer, expanded on the effect of the pandemic on business customers.
He said that in the small accounts area, Brown & Brown has seen people going out of business. “That’s a scenario where we have people that call and say, ‘We’re done, here’s the keys,'” and they’re out of business.
In the middle market accounts area, he said accounts are “mostly renewing, but there’s some mashing of the teeth.”
Larger accounts are tending to buy less of the coverage because the cost is going up. “But that doesn’t mean they don’t buy the coverage,” he added. “In the large accounts, particularly in tougher classes of business, we may see lower excess limits purchased because the rate increases are so substantial.”
During the second quarter, Brown & Brown said it saw premium rates for accounts in the admitted markets generally increase 2% to 7%, excluding commercial auto, which continued to increase 5% to 10% or more. From an excess and surplus lines perspective. coastal property rates increased 15% to 25%, general property rates increased 5% to 10%, professional liability rates increased 10% to 20% and cyber rates were up 10% to 20%.
“Based on what we experienced in the second quarter, we expect rate increases will remain fairly consistent for the remainder of the year,” Brown said.
Brown provided an outlook for the rest of the year for his firm and the economy.
“Based on the continued uncertainty of the recovery, we believe our full year organic growth could be slightly positive to slightly negative. However, there are still a lot of questions regarding how and when the economy will recover. We believe it’s going to be slow and sporadic and we may not see a recovery to pre-pandemic levels until 2022,” he said.
“The big questions right now are will employment levels continue to increase? Will consumers continue to increase their spending? How much additional stimulus will be needed and provided?”
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