Insurance brokerage Brown & Brown reported net income increased 5 percent in the 2006 fourth quarter, but profits were cut into by a settlement ending a contingency fee investigation, an executive said.
Daytona Beach, Fla.-based Brown & Brown reported net income in the quarter increased $1.9 million from $36 million to $38 million. Net income per share rose 2 cents, from 25 cents to 27 cents. Revenues rose 9 percent, or $18 million, from $197 million to $215 million.
During an analyst’s conference call today, Cory T. Walker, chief financial officer, said income would have risen 15 percent in the quarter if the company had not agreed to pay $5.8 million to settle allegations that it did not disclose to customers fees and commissions it received from carriers.
The company announced in early December it reached the settlement with the state of Florida ending the probe. The broker neither accepted nor admitted any wrongdoing in the case.
For the year, Brown & Brown reported net income increased 14 percent, or $22 million, going from $151 million to $173 million. Earnings per share rose 14 cents from $1.08 to $1.22. Revenues rose 12 percent, or $92 million, from $786 million to $878 million.
Organic growth in the quarter rose 2.5 percent, with Florida retail showing the greatest increase at 15 percent, while national retail dropped 1.7 percent and western retail dropped 8.4 percent.
J. Hyatt Brown, chairman and chief executive officer, said the markets are very competitive at this point, but termed competition in the West as “kind of a blood battleground for us” especially in the area of workers’ compensation.
However, he said he did not believe the competition for business as prices trend lower is as bad as what took placing during the 1980s soft market.
“It’s not worse than any other year,” he observed of the past soft market cycle.
Producers, he noted, are seeing some increases in their commissions on some lines to compensate for the loss in premium price, but it is only minor movement that may grow as the pricing falls.
“This is America,” said Mr. Brown. “It’s a competitive society; it will work out.”
On the question of the impact of changes made in the ability of the state’s residual market to write property business in Florida, Mr. Brown said that legislation giving Citizens Property Insurance Corporation the ability to compete against standard line carriers has good and bad points.
He said it is opening up some competition in the state on upper layers of reinsurance coverage. He also said writing condominium coverage will be more reasonable.
On the negative side, it is more expensive to do business with Citizens because it is less efficient than working with standard line carriers, he said. Mr. Brown also felt that Citizens would make pricing more competitive on the wholesale side of the business, where the firm has brokering business.
The major question waiting to be answered, Mr. Brown said, is how the rules being drawn up by the state’s insurance department to implement the legislation will ultimately affect business. Until then, there will continue to be a feeling of anxiety among some in the industry, he said.
One positive note Mr. Brown observed is that the absence of hurricanes hitting the United States last year has freed up some capacity on both the admitted and nonadmitted property market for wind coverage, causing prices to dip or at least allowing customers to increase terms without price increases.