Economy Still Poses Challenge, Brown & Brown Says

NU Online News Service, July 21, 2:40 p.m. EDT

Daytona Beach, Fla.-based insurance broker Brown & Brown reported a slight increase in net income for the second quarter of this year, but the economic downturn continues to produce strains on the firm's organic growth.

"Q-2 was another interesting quarter," said J. Powell Brown, Brown & Brown's president and chief executive officer, during an earnings conference call with analysts today. "The economy continues to have the biggest impact on our numbers and rates are under pressure all over and all around the country as we continue to watch Washington D.C. with great interest relative to health care reform."

For the second quarter, the broker reported net income increased over the same period last year by less than 1 percent, or $270,000, to $40.67 million. Earnings per share were flat at 29 cents a share. Revenues showed a slight up-tick of 2 percent, or $4.65 million, rising to $246 million.

For the first six months of the year, net income dropped 4 percent from the previous year, or $3.48 million, to $88.7 million. Earnings per share dropped 2 cents during the period to 63 cents. Revenues rose 2 percent, or $11.5 million to $510 million.

Cory T. Walker, chief financial officer for the firm, noted that despite an increase in core commission and fees of almost 3 percent, or $6 million, to $238 million, much of that growth came through acquisition. Without acquisitions, core commissions and fees would have been down close to 5 percent.

The results were also helped by an increase in contingent commission of $1.4 million to $6.8 million in the quarter.

Mr. Walker said the firm estimates third-quarter contingent commission payments between $8 million and $9 million, and fourth-quarter commission to drop to around $1 million.

Jim W. Henderson, vice chairman and chief operating officer, commenting on the effects of the economic downturn on the firm, said that up until last year Brown & Brown had never experienced negative organic growth in its 70-year history.

In general, the executives described an insurance market that remains very competitive, with the standard market still taking business away from the wholesale market.

Mr. Brown said rates throughout the country were still exhibiting downward pressure along with clients purchasing less risk.

Competition remains intense, coming primarily from regional carriers, and Mr. Brown said he expected that to continue.

Mr. Henderson said that despite the flight to the standard market, the excess and surplus lines market remains disciplined in its underwriting. He said he expected to see some moderate organic growth on that end of the business in the third and fourth quarters because of it.

The strategy for most insurers is to be very aggressive in pricing new business but maintain pricing on renewals, Mr. Powell said. Carriers are not dropping their rates, but there are exceptions, he added. The only overall increase he could point to was for coastal properties.

The biggest challenge on renewal business is dealing with lost accounts due to bankruptcies, he observed.

Overall premiums are down despite insurers' attempts to keep prices flat because the overall insured risk, such as the number of personnel or auto fleets on the road, have dropped as clients have downsized, noted Mr. Powell.

On the health care issue, he did not venture to say how any individual proposal would affect employee benefit offerings.

"We don't really know," he observed. "We're watching closely."