Brown and Brown 4Q16 Earnings Call Notes

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Brown & Brown’s (BRO) CEO Powell Brown on Q4 2016 Results

cat property rates will remain under pressure in 2017

” Now that the 2016 hurricane season is behind us and insured losses were not material, we believe cat property rates will remain under pressure in 2017. Insureds continuing to evaluate the hurricane deductibles, flood coverage, and flood excess of the NFIP.”

When everything is overvalued we stockpile cash

“We have also been asked what happens if our stock price is fully valued and the acquisition marketplace continues to be fully priced or even goes up. And the answer to that is we stockpile cash on our balance sheet. So we constantly evaluate share repurchase as one of the investment options for the cash that we buildup. But as you know we don’t have a stated amount that we’re going to purchase on a quarterly basis, we’re going to look at it opportunistically just like acquisitions and we’re going to do it when we think it makes sense for the company.”

Conversations with clients haven’t changed dramatically post election

“I think the discussions with our client has not dramatically changed prior to the election versus postelection of our new President. And the reason I say that is the conversation typically is focused around managing cost. Obviously some people talk about bending the cost curve and all these other things. I just make it simple, I just basically say how do you manage your cost in a thoughtful manner over the next several years it’s not a one-year window. And so in doing that changes in ACA everybody is, doing a lot of speculating right now. Do we think there is going to be changes? Yes. Do we think it’s going to be totally repealed? I don’t know about that and that may be semantics in terms of how you define total repealed.”

Uncertainty creates opportunity to talk to clients

“, is it creates more uncertainty which actually creates an opportunity for us to talk with our clients about options and how they can think about it and attack it going forward particularly based on whatever is the outcome of the changes.”

Marketplace is fully priced and expectations of some sellers are unrealistic

“As it relates to tax rate, I think there is two parts to think about, yes, I do think you have corporate tax rate and then you have the potential for capital gains changes as well. And as we said earlier we believe that the marketplace is fully priced and so expectations of some sellers are unrealistic and with a tax cut either in one or both, I believe that those expectations would probably go up because the bankers will facilitate that. That said, at the end of the day, remember, Kai, we are focused on looking for acquisitions that fit culturally and make sense financially. And so therefore as you’ve heard we’ve only done $55 million of acquisition for the last two years and I would tell you that I’m comfortable with that because we didn’t find ones that fit culturally and made sense financially. We found a couple that fit culturally last year but financially would not have made sense and that’s not our plan. ”