Economy Weighs On Brown & Brown Results

Insurance broker Brown & Brown reported third quarter net income dropped 12 percent from the same period last year as the combination of declining prices and economic dislocations affected earnings.

For the third quarter, the Daytona Beach, Fla.--based insurance broker reported net income was down $5.6 million to $40.6 million. The loss in net income did not affect revenue which increased 4 percent, or $9.7 million, to $247 million.

Net income for the first nine months of this year compared to last year, was down 16 percent, or $25 million, to $133 million. Revenues were down less than 1 percent, or $3 million, to $745 million.

The firm reported an increase in commissions and fees for the quarter of 8 percent, or $18 million, to $244 million, and 5 percent increase for the first nine months compared to the same period last year, of $35 million to $736 million.

The increase in fees and commissions was helped by a total of 44 acquisitions representing annualized revenues of $100 million. The combination of soft market pressures and the challenging economy are "prompting a favorable increase in [mergers and acquisition] activity," the firm said.

However, organic growth reported a loss in the quarter of 5 percent.

During a conference call with financial analysts, J. Hyatt Brown, chairman and chief executive officer of Brown & Brown said, "We are no less optimistic about the future than we have ever been. However, what we know is that the economy is the joker in the deck and for the next year, going into '09, it is going to be difficult.

"Having said that, it is also a positive for us; the positive for us is that A, we are under leveraged; and B, we have a substantial amount of cash flow; and C, we got the people who can make it happen."

He later added, "We are running into a head wind that is fairly strong from the economy, but once that turns around, things are going to be fairly good."

Mr. Brown said that there was some sense the soft market might be bottoming out, but overall it remains soft. Carriers are beginning to push-back on pricing in some areas, but have not been too successful at sustaining either flattening or rate increases. He noted that in at least one segment, the Florida condominium market, rates can not go lower than they have.

J. Powell Brown, the firm's president, in answer to a question about American International Group's position in the insurance market place, said there has been no reduction in capacity from the company and its coverage remains competitive "as it has ever been, or more so."

He said the firm continues to write new and renewal business as it has in the past with AIG and he described that book of business as substantial.

He said risk managers are more careful with the placement of professional liability insurance with AIG, willing to place short-tail business with the carrier, but questioning long-term exposures, still concerned with the company's ability to pay claims in the future.

J. Hyatt Brown noted that underwriter's loss ratios will increase, especially on workers' compensation as the economy worsens. He said this happens because as lay-offs are announced the number of injuries in the workplace increases.

"Once that line starts to turn a lot of things happen [with pricing]," said Mr. Brown.