Brown & Brown Reports 4Q Net Income Increased 1%

Daytona, Fla.-based insurance broker Brown & Brown reported fourth-quarter net income increased 1 percent, but the overall year-end results produced a drop in net income of 13 percent primarily on investment losses.

The soft market combined with the economic downturn took a toll on organic growth, the company said, with overall growth at negative 5 percent. Retail organic growth stood at negative 7 percent, while wholesale stood at negative 14 percent.

During a conference call with financial analysts, Jim Henderson, vice chairman and chief operating officer, said in 2008 Brown & Brown closed on 45 agency acquisitions with more than $115 million in revenue.

He said the current economic environment, coupled with the ongoing soft market, make this year a very good time for acquisitions, and it has the cash on hand to make purchases, but he cautioned that the firm would only be paying for the revenues the agencies actually produce.

For the fourth quarter, Brown & Brown reported net income rose $369,000 to $33.4 million, or 24 cents a share, from the prior year's $33 million, or 23 cents a share. Revenues rose 7 percent, or $15 million, to $232 million from prior-year $217 million.

For the year, net income dropped $25 million, to $166 million, or $1.17 a share, from prior-year $191 million, or $1.35 a share. Revenues rose 2 percent, or $18 million, to $978 million from prior-year $960 million.

Commissions and fees showed significant increase in the quarter rising 8 percent, or $17 million, to $230 million. For the year, commissions and fees increased 6 percent, or $51 million, to $970 million.

However, investment income for the quarter dropped 64 percent, $1.7 million, to 943,000. For the year, investment income dropped 80 percent, or $24 million, to more than $6 million.

J. Hyatt Brown, Brown & Brown's chairman and chief executive officer, said the economy remains a major question mark affecting insurance placements this year. He said there appears to be some market discipline returning to underwriting with prices firming in some lines of business. However, regional companies suffered unexpected catastrophe losses this year which could cause them to become more conservative in their underwriting.

He said the firm expects 2009 to be a difficult year, but "we're feeling pretty good" about handling the situation. He added that things could change if the economic stimulus package that recently passed Congress proves effective.

"Whatever happens, we have to be prepared for it," he said.

Asked a question about State Farm pulling out of Florida, he said the firm has been getting a lot of phones calls from "irate customers" seeking to place their business elsewhere. Many of these customers will be placed with companies at a higher rate than they enjoyed in the past. He said placements in Florida's residual market property plan, Citizens, will produce higher premiums, predicting the company is expected to increase insurance rates by 10 percent in each of the next three years beginning in 2010.

He added that there is some concern on the part of banks about the viability of Citizens should it be hit with a major catastrophe and prove unable to raise money in the equity markets to pay claims.

J. Powell Brown, president, said the firm is actively recruiting new producer trainees from other industries who are becoming available as a result of the massive layoffs taking place. Cory Walker, the firm's chief financial officer, said Brown & Brown is not seeking to recruit from insurance carriers or other brokerage firms, but is taking advantage of an opportunity that "we might not otherwise see in another economy."