Brown & Brown (BRO) Q3 2026 Earnings Call Transcript

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DATE

Tuesday, Oct. 27, 2026

CALL PARTICIPANTS

• President and Chief Executive Officer - Powell Brown
• Chief Financial Officer - R. Andrew Watts

TAKEAWAYS

• Total Revenue -- $1.7 billion, representing 7.4% total growth compared to the third quarter of 2025.
• Organic Revenue Growth -- 1.2%, or 1.5% when including organic contingents, reflecting gains in the Retail segment partially offset by headwinds in Specialty Distribution.
• Adjusted EBITDAC Margin -- 34.6%, a decrease of 200 basis points from the prior year driven primarily by $29 million in lower interest income.
• Adjusted EPS -- $1.07, growing 1.9% year over year despite slower growth relative to revenue due to prior-year investment income.
• Retail Organic Revenue Growth -- 2.6%, driven by net new business and performance in employee benefits and bond practices.
• Specialty Distribution Organic Revenue -- Decreased 0.8%, or increased 0.3% including contingents, due to downward pressure from admitted carriers and delayed onboarding in the lender-placed program.
• Share Repurchases -- $750 million through the first nine months of 2026, including $250 million in the third quarter.
• Dividend Increase -- 9% annually, marking the 33rd consecutive year of dividend growth for the company.
• Accession Revenue -- $1.7 billion for its first full year since the Aug. 1, 2025, acquisition anniversary.
• 2026 EBITDAC Synergies -- Approximately $50 million, an increase from the previous range of $30 million to $40 million due to operating efficiencies and carrier engagement.
• Run-Rate Net Synergies -- $175 million by the end of 2028, raised from the prior target of $150 million.
• Integration Costs -- $250 million to $300 million over three years, plus $90 million for pre-funded or debt-like items required to be expensed by GAAP.
• Q4 Retail Guidance -- 2% to 3% organic growth, excluding contingents.
• Q4 Specialty Distribution Guidance -- A decline of 2% to 4% organic growth, excluding contingents, influenced by timing-related items of $8 million to $12 million.
• 2027 Segment Guidance -- 2% to 4% organic growth for Retail and 1% to 3% for Specialty Distribution, excluding contingents.
• Contingent Commissions Guidance -- A decrease of $14 million to $16 million year over year in the Specialty Distribution segment for the fourth quarter.
• Cash Flow from Operations -- $1.1 billion through the first nine months, an increase of 13% compared to the prior year.
• Litigation Impact -- $16 million reduction in quarterly organic revenue, with a full-year 2026 expected impact of $50 million to $60 million.
• E&S Property Rates -- Decreased 15% to 35% during the quarter.
• Casualty and Auto Rates -- Primary casualty rates increased 2% to 5%, while medical rates rose 9% to 11%.
• AI Deployment -- 6,000 teammates were equipped with Claude within 45 days, with an active usage rate exceeding 90%.

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RISKS

• Watts warned that the company anticipates downward adjustments to Specialty Distribution contingent commissions in the fourth quarter of $14 million to $16 million, reflecting lower program profitability.
• Brown warned that "property markets can do and have done some very unusual pricing at year-end" during years with low catastrophe losses, representing a risk to fourth-quarter revenue.

SUMMARY

Brown & Brown, Inc. (NYSE:BRO) reported third-quarter results marked by the first anniversary of the Accession acquisition and the introduction of its AI-first strategic roadmap. Management highlighted that the company's financial performance was driven by gains in the Retail segment and improved synergy realization from recent integrations, which offset cyclical headwinds in Specialty Distribution. The company raised its long-term synergy targets for the Accession integration while increasing share repurchases and maintaining a 33-year streak of dividend increases. Management also detailed a measured approach to artificial intelligence investment through the launch of the COMPASS ecosystem.

• CEO Powell Brown stated, "We have a nice London brokerage business and some program businesses there," indicating expansion in international wholesale capabilities.
• Watts noted that "the hardest part is behind us" regarding the integration of Accession, following the alignment of leadership structures and financial systems.
• Management launched COMPASS, an intelligent ecosystem that integrates AI capabilities with proprietary data to support risk management decisions in the Retail segment.
• Powell Brown indicated that the company would avoid multiyear programs for AI, instead investing in one-year measurable tranches tied to specific returns.
• The company reported that a quiet storm season resulted in lower than anticipated revenue from flood claims processing in the Specialty Distribution segment.
• Management observed admitted carriers entering markets for binding and personal lines accounts in California and Texas, placing downward pressure on E&S pricing and terms.

INDUSTRY GLOSSARY

• ASC 606: The accounting standard for revenue from contracts with customers.
• Binding Authority: An agreement where an insurer allows a broker to accept risks and issue policies on its behalf.
• Claude: An artificial intelligence platform developed by Anthropic used for data extraction and claims analysis.
• COMPASS: A connected intelligent ecosystem integrating AI with proprietary data for risk management decisions.
• E&S Market: Excess and Surplus insurance market for risks that standard insurers will not cover.
• EBITDAC: Earnings before interest, income taxes, depreciation, amortization, and the change in estimated acquisition earn-out payables.
• Lender-Placed Program: Insurance policies purchased by a mortgage lender to protect its interest in a property when a borrower fails to maintain coverage.
• Organic Revenue: Commissions and fees adjusted for acquisitions, dispositions, foreign currency translation, and litigation-related impacts.

Full Conference Call Transcript

Operator: Good morning, and welcome to the Brown & Brown, Inc. third quarter earnings call. Today's call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call and including answers given in response to your questions may relate to future results and events or otherwise be forward-looking in nature. Such statements reflect our current views with respect to future events, including those relating to the company's anticipated financial results for the third quarter, and are intended to fall within the safe harbor provisions of the securities laws.

Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or desired or referenced in any forward-looking statements made as a result of a number of factors. Such factors include the company's determination as it finalizes its financial results for the third quarter that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday. Other factors that the company may not have currently identified or quantified, and those risks and uncertainties identified from time to time in the company's reports filed with the Securities and Exchange Commission.

Additional discussion of these and other factors affecting the company's business and prospects, as well as additional information regarding forward-looking statements, is contained in the slide presentation posted in connection with this call and in the company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, there are certain non-GAAP financial measures used in this conference call.

A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measure can be found in the company's earnings press release or in the investor presentation for this call on the company's website at bbrown.com by clicking on Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

Powell Brown: Good morning, everyone, and welcome to our third quarter earnings call. Before we get into our performance for the quarter, we wanted to recognize the 5,000 plus teammates from our Accession acquisition that marked their one-year anniversary on August 1st. It's amazing what we've accomplished over a relatively short period of time, and we look forward to everything we'll accomplish together in the future. A bit later, we'll provide additional color on our accomplishments and the first year of performance. Additionally, we'd like to highlight that last week our board of directors raised our dividend by 9%, which represents an increase for the 33rd year in a row. Now, let's move on to our results for the quarter.

In total, our overall financial performance represented a continuation of the improvement we delivered last quarter. Retail had a good quarter and performed above the top end of our expectations. Specialty distribution had some incremental headwinds and came in below our expectations, which we will talk about in a few minutes. Our overall improvement was the result of utilizing our robust specializations to win more new business. I will provide some comments regarding our performance, the insurance markets, and our customers. Then Andy will discuss our financial performance in more detail, including a first-year recap for Accession. Lastly, I will wrap up with some thoughts on our AI journey and closing comments regarding outlook.

Then we will open the call up to Q&A. I am on slide five. For the third quarter, we delivered revenues of $1.7 billion, growing 7.4% in total. Organic revenue increased 1.2% from the prior year and 1.5% when including organic contingents. Our adjusted EBITDAC margin decreased 200 basis points to 34.6%, and our adjusted earnings per share grew nearly 2% to $1.07. Through the first nine months of 2026, we generated strong cash flow from operations and repurchased $750 million of our shares. That includes $250 million in Q3. On slide number six, from an economic and customer investment standpoint, conditions in the third quarter were consistent with the first half of the year.

Sentiment remained relatively stable, but varied based on industry and customer size. Some customers were more bullish than others regarding their level of hiring or investments, and were generally influenced by exposure to inflation and interest rates. Rate changes this quarter were fairly consistent with the first half of 2026. Rates in the admitted market moderated downward slightly compared with the first half of this year. Casualty and auto rates continued to increase with primary casualty generally up 2%-5%. Although the pace of increases for auto moderated slightly in some regions. Excess and umbrella layers continue to see the largest increases, and capacity continues to tighten for certain classes. Non-CAT property moderated downward and was generally flat to down 5%.

Workers' compensation rates continue to decrease at rates similar to the first half of 2026. Outside the U.S., commercial rates in the U.K., Ireland, and the Netherlands remain modestly negative, with larger accounts seeing greater decreases than smaller accounts. Shifting to the E&S markets, property rates decreased 15%-35%, and casualty rates continued to increase at a pace similar to the first half, with transportation and excess casualty remaining quite difficult to place. For employee benefits, medical rates increased 9%-11%, driven by high-cost claimants and surging healthcare costs. Materially higher medical and pharmacy costs are more pronounced for smaller, fully insured groups.

These cost pressures continue to create demand for our advisory and consulting capabilities as customers need to evaluate plan designs, employee contributions, and alternative funding arrangements, including self-funded and captive solutions. Overall, when we step back and look at both the economy and the insurance market, customers are operating with discipline while overall growth and investment levels remain steady. The insurance market continues to be competitive for many lines while casualty pressures persist. In these market conditions, we believe our capabilities position us well to win more new business and help our customers navigate this complex landscape. I am on slide number five. Let us transition to the performance of our two segments for the third quarter.

Retail delivered organic growth of 2.6% and 2.5% when including organic contingents. These growth rates reflect continued incremental improvement in our net new business and good performance within our employee benefits and bond practices. In addition, the growth was driven by the alignment of our teams to enhance collaboration, identify incremental opportunities, and generate new business wins that leverage our capabilities. Turning to specialty distribution, organic revenue growth for the quarter was down 80 basis points and increased 30 basis points, including organic contingents. As we discussed last quarter, we anticipated organic growth of +2% to +4% for the second half of the year. The third quarter performance was below our expectations due to several factors.

First, the desire of admitted carriers to write more business and the abundance of capital drove incrementally more downward pressure during the quarter. For binding and personal lines accounts, we realized incremental movement from the E&S market into the admitted market. As an example, we are seeing admitted carriers now wanting to write in California and Texas. In addition, available capacity drove prices and terms downward even further for certain programs, primarily commercial earthquake. As we have mentioned previously, our disciplined approach to underwriting means we will walk away from business at certain times with the objective to balance organic growth and profitability. Second is our lender-placed program.

While we did realize the $10 million of revenue delayed from last quarter, this same amount was offset by another delay on onboarding a portfolio of loans. When our customers acquire portfolios, they provide an estimate of loans as well as projected onboarding timelines. Due to size and complexity, the volume and timing can change over quarterly periods. We anticipate onboarding these loans during 2027. Finally, a quiet storm season resulted in lower than anticipated flood claims processing revenue. Areas where we have delivered growth were in brokerage and programs for casualty, professional liability, and public entity lines. In our CAT-exposed lines of business, we saw increased policies in force even though our revenues declined due to significant rate decreases.

Despite specialty distribution facing cyclical headwinds as CAT property rates decline and some policies return to the admitted market, we have a great business. Its differentiating capabilities, a broad global distribution network, and world-class carrier partners. This has enabled our team to deliver double-digit organic growth over the past five years and organic growth above 8% over the past 10 years. We have been through cycles like this and have confidence that our team knows how to navigate this market for the long-term success. Now, I will turn it over to Andy to discuss our financials in more detail.

Andy: Great. Thanks, Alan. Good morning, everybody. I will dive a bit deeper into our consolidated results and certain non-GAAP financial measures. As a reminder, when we refer to EBITDAC margin, income before income taxes, or diluted net income per share, we are referring to those measures on an adjusted basis. We delivered total revenues of $1.7 billion, growing 7.4% as compared to the third quarter of 2025. We had another good quarter for contingent commissions that grew by over 8% on an organic basis. Income before income taxes increased by 1.3%, and EBITDAC grew by 1.7%. Our EBITDAC margin was 34.6%, a 200 basis point decrease from the third quarter of the prior year.

Over half of this decrease was driven by approximately $29 million of lower interest income as compared to the prior year, when we were holding cash for the acquisition of Accession. Our effective tax rate for the quarter was 25.5%, slightly higher as compared to 24.7% in the third quarter as a result of an increase in state taxes. Diluted net income per share increased by 1.9% to $1.07, with growth slower than revenues due primarily to the higher investment income in the prior year. Lastly, our dividends paid per share increased by 10% as compared to the third quarter of 2025. On slide number 9, the retail segment grew total revenues by 10.8%.

This expansion was driven by the combination of acquisition activity during the past year and organic growth. Regarding the litigation impact associated with individuals who left to join the startup broker, current period adjustment to organic revenue was $16 million. Based on currently available information, we are not changing our previously communicated expected full-year impact for 2026 of $50 million to $60 million. Our EBITDAC margin expanded 10 basis points from the third quarter of last year. The increase was driven by disciplined expense management, revenue phasing from Accession, and the impact of synergies. We are on slide number 10. Specialty Distribution Group, total revenues by 8.5%, driven by the acquisition of Accession.

Our EBITDAC margin decreased by 60 basis points to 43.3% due to lower organic growth and investments in our European wholesale capabilities. We are at slide number 11. Turning to Accession, the third quarter marked the first anniversary of the acquisition. During the past year, over 5,000 new teammates have become part of the Brown & Brown team. We are pleased with the cultural alignment, financial performance of the business, and the progress of our integration efforts. During the first year, Accession generated approximately $1.7 billion of revenue, as well as EBITDAC margins and accretive diluted earnings per share that were substantially in line with our expectations.

Regarding our EBITDAC synergies, we previously communicated our full-year estimate for 2026 would be in the range of $30 million to $40 million. Based on the efforts of our teammates, we are increasing our full-year 2026 expected benefit to approximately $50 million. The incremental synergies reflect strong execution across the organization and include operating efficiencies, enhanced carrier engagement, and the continued alignment of our go-to-market capabilities. We are now targeting run rate net EBITDAC synergies of $175 million by the end of 2028, up from the $150 million previously anticipated. Regarding integration cost, when we announced the acquisition, we estimated incurring $200 million to $250 million over the first three years.

With the higher expected synergies, we are increasing our range to $250 million to $300 million. In addition, GAAP requires that we expense certain pre-funded or debt-like items that approximate $90 million. As such, they will be recorded incrementally to the $250 million to $300 million. From an integration standpoint, we have made incredible progress. Key milestones include aligning leadership structures, operating models, and brands. We also harmonized teammates' benefits and producer compensation, integrated financial and HR systems as well as controls, consolidated offices and selected businesses, and refined our carrier engagement strategies. We want to thank all our teammates for their incredible efforts to achieve these major milestones in the first year.

While substantial work has been completed and there is still more to do, we believe the hardest part is behind us. We see meaningful opportunities on the horizon as our teams collaborate more closely, leverage broader capabilities, and create new opportunities to serve customers and carrier partners. We are pleased with the performance of the Accession business and teammates for the first year. We also remain confident in our ability to deliver incremental organic growth, margin expansion, and long-term shareholder value on a company-wide basis. We have got a few other comments.

Transitioning to cash flow and the balance sheet, we generated $1.1 billion of cash flow from operations, increasing approximately $135 million or 13% as compared to the first 9 months of 2025. Our ratio of cash flow from operations to total revenues was 22% for the first 9 months and was substantially in line with the prior year. We anticipate continued strong cash generation in the fourth quarter and will balance our deployment of capital between hiring people to help us grow organically, share repurchases, de-leveraging, and M&A.

Regarding outlook and taking into consideration the improvement we have delivered over the past couple quarters, we are now anticipating Retail's organic growth, excluding contingents, to be in the range of 2%-3% for the fourth quarter. For Specialty Distribution, based on our earlier comments regarding market headwinds, as well as the incremental negative impact of certain non-recurring and timing-related items of $8 million-$12 million, we are anticipating organic growth, excluding contingents, to decline 2%-4% in the fourth quarter. As it relates to 2027, currently we are in the process of finalizing our budgets, and based on what we see today, we are expecting improving organic growth, excluding contingents, for both divisions.

For the Retail segment, we are projecting organic growth in the range of 2%-4% and 1%-3% for Specialty Distribution segment. Once we finalize the year-end results, we will clarify or adjust the ranges based on incremental information. A few other comments regarding contingent commissions within Specialty Distribution. Taking into consideration accrual adjustments in the fourth quarter of last year and anticipated adjustments in the fourth quarter of this year, we are anticipating our year-over-year contingent commissions for Specialty Distribution to decrease $14 million-$16 million in the fourth quarter as compared to the fourth quarter of 2025. With that, let me turn it back over to Pal for an update on our AI initiatives and closing comments.

Powell Brown: Thanks, Andy. Good report. We want to update you on the progress of our AI initiatives. 90 days ago, we announced a partnership with McKinsey & Company, Accenture, and Anthropic to further strengthen our business with an AI-first mindset. This phase has four priorities: enhance our technology foundations, further equip our teammates with new skills and tools, evolve how we operate, and most importantly, deliver better outcomes and experiences for our customers. Our efforts are surrounded by a responsible framework anchored in strong cybersecurity and governance that was designed to accelerate our years of investment in data analytics and technology.

Our latest accomplishments include completing a comprehensive assessment of our technology environment, building a governance and cybersecurity structure so the AI use cases and agents operate within clear protocols or in clear controls, and establish a value management office to measure investments and returns by initiative. We've also moved quickly to deploy incremental AI capabilities in addition to all teammates having access to Copilot over the past year. In just 45 days, we deployed Claude to over 6,000 teammates, with more than 90% actively using the platform. We're also in the process of rolling out Claude to the next group of teammates.

From an implementation standpoint, we're using AI throughout the insurance placement process across most of the company, including prospecting, submissions, claims analysis, analytics, and data extraction, just to name a few functions. Our continued experiences and results reinforce our view AI is not a disruptor to our model, but rather is an accelerator. Everything we've built and will build is to help our teammates serve customers better. This is the idea behind COMPASS, which we announced in our press release last week. COMPASS is a connected, intelligent ecosystem that integrates AI-powered capabilities with our proprietary data analytics and specialized knowledge within our retail segment to support important risk management decisions and recommendations.

By the end of this year, we expect COMPASS-powered assistance and business intelligence solutions to reach thousands of teammates with an expanded suite of customer solutions planned throughout 2027. We're building out our 2027 plan and will outline it, including investments and related benefits, when we release our year-end earnings. To give a preview, we will not announce a multi-year, multi-hundred-million-dollar program. This landscape is evolving quickly, and we believe the prudent approach is a one-year measurable tranches that tie the dollars we invest more closely to the returns that we expect. Now, a few final comments.

From an economic perspective, we expect conditions in the markets in which we operate to remain stable and relatively consistent with what we've seen through the first 9 months of the year. As a result, we expect investment and hiring to continue at levels similar to the last few quarters, with some companies deferring larger capital investments. As our customers have done in the past, they will navigate current challenges and capture opportunities to deliver growth. From a pricing standpoint, we expect rate changes for most admitted lines for the fourth quarter to remain consistent with the third quarter, with the potential for some continued slight moderation. In the E&S market, we're looking at it from three perspectives.

First, we expect casualty rates to continue increasing. Second, we expect CAT property rates will remain down in the fourth quarter. And please remember, in years with low or no CAT property losses, property markets can do and have done some very unusual pricing at year-end. Third, we expect the admitted markets will remain competitive on certain accounts that are currently written in the E&S space. Our balance sheet and cash flow remain strong, and our capital allocation philosophy is unchanged. We're focused on hiring teammates to help us grow organically, share repurchases, debt reductions, and selective M&A with the goal of deploying capital we generate annually to drive long-term shareholder value.

In closing, we're pleased with our progress and accomplishments this quarter. Our focus remains on the customer and disciplined execution. There will be continued headwinds within our wholesale business and CAT property programs. But we believe the diversity of our businesses and our talented leaders will help deliver improving organic growth in 2027. As we continue our AI journey, we will enhance the effectiveness and productivity of our teammates to help deliver better customer outcomes, resulting in incremental organic growth and margin improvement. Now, let me turn it back over to Crystal to open the lines for Q&A.

Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 again. As a reminder, we do kindly ask that you please limit your questions to one at a time. Please stand by while we compile our Q&A roster. Our first question will come from Michael Phillips from Oppenheimer. Your line is open.

Michael Phillips: Thanks. Good morning. Thanks for the time. I wanted to start with specialty, I guess. You're expecting a rebound next year. I think you said 1%-3%, Andy said. It sounds like I want to be sure I understood your opening comments on that. The headwinds that you listed, those sounded to me, at least most of them, except for the one on the lender-placed program, sounded like they may be here to stay for a while. Can you go through whether you agree with that or not, and how you expect the specialty to rebound given those opening comments?

Andy: Yeah. Good morning, Mike. How you doing? Andy here. I think when we look out to kind of taking into consideration will be some headwinds heading into 2027. We also know that we've got some growth in some businesses for next year. That would include a number of our specialty businesses that came over through the acquisition of Accession. So that includes our reinsurance, MGU, our affinity programs, our captive management programs. They've got good projections next year, and that helped drive some growth in the back end of the year, but that's building going into next year.

We've also got some of the timing that we talked about in our lender-placed program, and that business is expected to come on next year. Don't know exactly the date on it because some things are moving around there. But that will also help us in moving forward in that business. We feel comfortable with that growth from those businesses, that'll help offset the headwinds on the cat programs as well as wholesale and get us into that low single digits for organic growth.

Michael Phillips: Okay, Andy. Thank you. Maybe just a little more general question. In your experience with larger acquisitions, do you ever see maybe a temporary slowdown in the acquired business organic growth just from maybe broker distraction as they deal with integration in general? Then have you seen any of that recently with your Accession acquisitions at all?

Powell Brown: The short answer is, Powell, Mike, the answer at a conceptual level is yes. As we've said, the performance of the acquired business is in line with the overall business, and now we're one business, so we don't break it out anymore. But the answer is, when you're bringing two groups together, particularly large organizations, there is a lot going on. So yes to your first question. The second part is performed some better, some similar, some below. It's just like anything else. There's lots of different. Andy alluded to several of the businesses that he alluded to in the SD area.

Some of those have seasonal growth patterns, and those were not reflected in 2026 because that occurred prior to August of the year. So that's also next year. Thanks, Mike.

Andy: Yeah. Mike, that was why when we listed out the accomplishments that we've done in the last year, that's some serious heavy lifting that we just pulled off in the last 12 months. So, yeah, did it cause some disruption? Yeah, probably did somewhere inside it when you're moving parts around. But our comment was, we think we got the hardest part behind us. Our view when we go through these acquisitions is try to get it done as quickly and as thoughtfully as possible. We still got some more to go, but we'd rather just get it behind us and move forward. We feel like we're one united team now, which is really good.

Michael Phillips: Okay. Thank you, guys. Appreciate it.

Powell Brown: Thank you.

Andy: Thank you.

Operator: Thank you. Our next question will come from Andrew Kligerman from TD Cowen. Your line is open.

Andrew Kligerman: Hey, good morning. Powell, you talked a little bit about hiring. Could you give us a little color on net hiring and maybe the change in your producer count this year and where you see that going next year?

Powell Brown: Yeah. Andrew, couple things. One, I want to clarify that we're always looking to hire talented people across the system. You asked specifically about producers, and I'll address that, but we are always looking to hire talented people. As you know, we have a stated goal to get to $8 billion of revenue as our next intermediate step. In order to get there, we're going to either have to hire or acquire a number of very talented people. That's the first thing. As it relates to numbers specifically, we don't discuss the specifics in terms of numbers, but I would tell you that we are hiring more producers today, but that's not new.

I'm saying we are reinforcing, and some people have, I think, misinterpreted some of our comments, or seemingly, in the information that was put out that there's some correlation between our statements on talent and retention or something to that effect. Our producer retention inside of our organization, and remember, we don't talk about Accession anymore post 8/1, but the retention of our producers in that business prior to the one-year anniversary and Brown & Brown were very similar. So we're very pleased with a larger acquisition, the retention of those people. Those producers. That's number one.

Number two, again, there's lots of changes out there, as you know, in the insurance space, which can create opportunities for certain people who may not be happy in other places to come to Brown & Brown. We're always talking to people about that, and we've hired a number this quarter, and we'll continue to hire people in the coming quarters. The interesting thing about that, the flip side is that people realize that we have good people too, so they want to try to hire our people.

We're doing the very best to create a platform for our producers to be the most successful and arm them with the most capabilities to be successful, which in turn will enable them to grow personally, financially, and otherwise, and help us grow the business.

Andrew Kligerman: Got it, Powell. I would like to get a sense also as we look at the specialty business, or actually just before that. Should I get the sense that net hiring will be up without any particular guidance? My next question, my follow-up question is just around the different sub-segments of specialty. It sounds like Arrowhead Specialty has the most juice in it, as you talked about some of the unique programs there, MGU, reinsurance affinity. I think that's allocated all in Arrowhead Specialty. But I would like to get a little more color on what's going on there, and then maybe a little bit on Arrowhead Programs and Bridge Specialty and how they are doing in terms of growth.

Powell Brown: Sure. Okay, the short answer to question one is yes, that's the desire. As it relates to two, the answer is yes, a number of those that we pointed to are in the specialty segment. Let's start with just wholesale for just a moment. Remember, our wholesale business, we have lots of binding authority. We have a good bit of property, and casualty and professional. But in there, in the binding authority and personal lines in our wholesale space, one of their biggest headwinds is the admitted market continued intrusion into that space.

As you know, there are certain accounts that I call betweeners or in-betweeners or whatever you want to call it, that typically look more like an E&S account, but in a softening rate environment, admitted carriers will come in and write those. When the market stabilizes, typically those flow back into the E&S market. That's the first part. The second part, as you know, is in the last several years, there have been a lot of challenges in personal lines in places like California and Texas, and others, but those two in particular.

There was a lot of business that rolled into the E&S market in California, and some of the admitted carriers have gotten comfortable with rates and terms through the insurance department out there to be able to write some of that business. So what I would say is they are facing normal pressure just like anything else. It's very competitive in the wholesale space. If you talk to anybody, private or public, that was what they would say. Remember, our business may be reflected, the makeup of our wholesale business might be slightly different than theirs. The results of every wholesaler are highly dependent on the portfolio of businesses that are in there.

As it relates to Arrowhead regular or programs, if you think about it, several of the big programs that have been discussed are wind-related businesses, quake-related businesses, and lender-placed businesses. So quake and wind, although Q3 is not a big property quarter, it is a big quake quarter, because quake is every quarter. So there's a lot of pressure there. That's very positive for our customers, but it's a challenge to grow. Lender-placed is not as much premium. It's not subject to such wild whips in the pricing. But as I alluded to earlier, portfolios, we are given direction on when portfolios we think are coming online, and sometimes those don't happen as planned.

So we think that's a great business. It's just facing challenging dynamics right now, and they'll work their way through it. Thanks, Andrew.

Andrew Kligerman: Thank you.

Operator: Thank you. Our next question will come from Gregory Peters from Raymond James. Your line is open.

Gregory Peters: Good morning. Thank you for providing the organic guidance not only for the fourth quarter, but give us an early view on what you think 2027 might look like. You also highlighted some contingent headwinds in the fourth quarter. Can you give us some ideas of what's going on there and if this is related to price competition and movements between the E&S admitted side of the market? Is it possible that when we look and think about contingents for next year, that it could be a very tough comp as competition continues to ripple through the marketplace?

Andy: Good morning, Greg. It's Andy here. Let me take that and just add a little bit more color to it. On the contingent front, as you know, we're making accruals throughout the year and then generally doing adjustments towards the end of the year or early in the year when we start receiving the cash. We did have positive adjustments in the fourth quarter of last year in specialty distribution. As we look through some of the accruals we made this year, we think we've got some adjustments that we'll need to make downward in the fourth quarter. That's what causes that kind of $14 million-$16 million impact year-over-year in the fourth quarter.

But if you look at it on a full year basis for 2026, we had a really good year for contingent commissions. We're very pleased with that. As it relates to 2027, still getting our arms around those as we're working through the projections. Probably would anticipate some downward pressure in 2027 on contingents in specialty distribution.

Powell Brown: Just again, as overall profitability is shrinking in some of the programs, it will pull some of those down some. But we're probably not going to see potentially what might be talked about in the general market because, again, we're calculating these on a program-by-program basis. Our comment's not relevant to retail. Those are pretty consistent over time, so they don't move by a tremendous amount.

Gregory Peters: Got it. Thanks for that color. I guess I'll pivot to slide 11, which you talk about the Accession year-end review. You highlight the projected EBITDAC synergies. I think you called out an unusual additional expense that's not inside this $250 million-$300 million number that's on the slide deck. Can you just give us. I thought this was a multi-year basis. You said a multi-year project. You're kind of leaving us with the impression that a big chunk of the heavy lifting has been done. But maybe you can give us some more detail on progress update on the integration.

Andy: Sure. Let me tackle the first one on it, Greg. As part of the acquisition, the legacy Accession had a number of agreements in place on some of their previous acquisitions, and those need to be paid out post our acquisition. In that case, GAAP is going to require that we actually expense those because they are associated with performance in the future. Those were funded by the sellers before, that is why we are calling that out as kind of individual, something that occurred pre-acquisition. That is the $90 million. You will see that flowing down into the integration cost. We just want to be clear on that front.

As it relates to the overall integration, we still have some systems work still to be done in retail. We have made a lot of progress, but we still have that underway. We still have some offices we still need to consolidate. We still have not finalized all that work at this stage. Then we have some additional combinations that still need to occur in specialty distribution.

Gregory Peters: Got it. Thanks for the answers.

Andy: Yeah. Thank you.

Operator: Thank you. Our next question will come from Mark Hughes from Truist. Your line is open.

Mark Hughes: Yeah, thank you. Good morning. Andy, any

Andy: Hello

Mark Hughes: early thoughts on margins, just roughly speaking as we think about Q4 and 2027 EBITDAC margin?

Andy: We haven't given any guidance yet, Mark, on 2027 margins. We'll tackle that when we get through year-end results and everything. As it relates to the fourth quarter, if you take into consideration our commentary on revenue guidance as well as contingents, we would expect the margins will be down in the fourth quarter compared to last year.

Mark Hughes: Okay. How about cash flow next year? I think you are up 13% year to date with the integration costs, et cetera. How would you think about cash flow trending relative to revenue?

Andy: Should be good, and we would normally anticipate that our conversion ratio on a normal basis is kind of that 24%-26% of revenues. That will continue. We will keep heading back towards that range as the interest income comes down, but we would expect that ratio from where we are this year to increase a little bit next year, expecting good cash flow.

Mark Hughes: Yeah. I might sneak one in. The quake pressure you are seeing, is that largely pricing, or is there a mix in so far as maybe bigger carriers are just taking more of the quake along with their underlying property exposure? Is there some competitive dynamic like that?

Andy: It is a bit of both, Mark, because what you have is you are seeing admitted carriers providing a sub-limit in some instances where they might not have been doing that before, or a slightly higher sub-limit. It is a combination of, I think of it more as pricing pressure, but there is absolutely a component of admitted markets assuming some of it, too. Yes.

Mark Hughes: Thank you.

Operator: Thank you. Our next question will come from Tracy Benguigui from Wolfe Research. Your line is open.

Tracy Benguigui: Thank you. Good morning. You gave helpful color on the reverse.

Andy: Good morning.

Tracy Benguigui: Good morning. You gave helpful color on the reverse flow from not admitted to admitted in California, Texas, and commercial earthquake. Should we think of it as relatively bespoke to those pockets, or is it showing up more broadly, even on the margin?

Powell Brown: The answer is it could happen anywhere, Tracy, and I think that's a good distinction. I just used that because we were talking about those components. But remember, binding authority business is everywhere. Personal lines business is everywhere. You have accounts that and they don't have to just be property. These can be casualty accounts or professional, where somebody in an admitted market will write it for a couple of years, even though it looks and acts like a not admitted account. It is everywhere. Yes.

Tracy Benguigui: To be sure you're seeing it everywhere more broadly.

Powell Brown: Correct.

Tracy Benguigui: Okay. This also may be a very basic question, but when you say you're walking away from programs because of your underwriting discipline, given that you're not a balance sheet company, is that primarily a reflection of the fronting carriers pulling back and applying tighter standards, and your discipline basically is a second derivative of that? Or is that driven more by your own focus on shared profitability, where you walk away from a program if it won't clear your hurdle rate?

Powell Brown: Okay. It is typically not a program, it could be accounts inside of a program. That is a first clarification. The second thing is, we are the largest delegated underwriter, we know in the U.S., but we believe in the world. We have relationships with both insurance companies and reinsurance companies. The way we approach it is similar in either scenario. What I would say is, typically, carriers are looking to achieve certain metrics on programs. We are given the authority to underwrite business within certain parameters.

In the event that there are accounts that actually do not fit those parameters, the carrier could, one, accept one on a one-off basis or make a wholesale modification to what they are achieving or looking to achieve. At the end of the day, we believe that we must deliver profitable growth or profitable premium to our carrier partners. As a result of doing that for decades, we have a lot of support, because it is truly a partnership.

Again, there might be an account that is a good account, you can put it in any category, but somebody will do something in a market like this that does not make sense, and we have to take the disciplined approach and walk away from it. In many instances, we may get the opportunity to match or improve in our programs area. Not every scenario, but in many instances to match the terms and conditions. If they do not fit, we do not do it.

Tracy Benguigui: Thank you.

Andy: Yeah. Hey, Tracy, just one other thing just keep in mind, and this is why we provide two metrics, the organic and then organic with contingents. We have talked about this on a few different calls in the past, is when you go through cycles like this, right, and you are never going to have this match I am going to talk about on a quarterly basis or sometimes on an annual basis. But when you have got rates going up where they did a number of years ago, right, that drives up overall profitability. So contingents are up in our programs, right? Then you go down the back end of this thing on rates, right?

Our contingents continue to still be very high, but the organic, those two need to be looked at together, okay? Do not look at them separately like that. You will not end up with the right outcome.

Tracy Benguigui: Thank you.

Andy: Yeah.

Operator: Thank you. Our next question comes from Pablo Singzon from JPMorgan. Your line is open.

Pablo Singzon: Hi. Good morning. First question I had, so the upsize 2026 EBITDAC synergy number, how much of that showed up in Q3 2026 vis-a-vis unexpected incremental benefit in Q4?

Andy: Well, if you look on it, Pablo, we said originally we were anticipating $30 million-$40 million this year. We took that range up to approximately $50 million for this year.

Pablo Singzon: Right. But the question was how much of that already showed up in Q3 versus what might show up in Q4?

Andy: We haven't broken out that level of granularity by quarters. It's building over time. You'll see some incremental, but you're not going to see an incremental $15 million or $20 million in the fourth quarter. It won't jump by that much.

Pablo Singzon: Got it. Thank you.

Andy: Yeah.

Pablo Singzon: My second question is a bit broader. Brown's margins have always been industry-leading. The question is, do you have a view on the structural ceiling for your business, if any? Do you think current technology, including AI, helps lift that? I will just throw one more in there, right? Just on the topic of margins. Is overall margin expansion contingent on growing specialty faster than retail? Thank you.

Powell Brown: I would like to comment on that. I will take the last question first. No, it is not. Historically it has grown more quickly than retail on an organic basis. Number 2, if you think about it, what we are trying to do is deliver the best customer outcomes. Obviously, the investment community wants growth. Andy and I might argue, growth at all cost, except if you have a good margin. We are fortunate we do have a good margin. What we want to do is grow the business more organically with good margins. The short answer is, could our margins go up?

If we did not invest in the business the way we think we need to invest in the business, the answer is yes, but we are not going to do that. It is going to be very balanced and it is very clear to us what is valued, and we understand that. We are very focused on growing our business organically and profitably, Pablo.

Andy: Thanks, Paul.

Operator: Thank you. Our next question will come from Rob Cox from Goldman Sachs. Your line is open.

Rob Cox: Hey, thanks. Good morning. Just first question on the litigation impact. I saw there was no change in guidance as it relates to the startup broker. I think there was also a favorable judge ruling for you all this quarter. But as we think about 2027, would you think that there could be any lingering litigation impacts, or you think that will wrap up in 2026?

Powell Brown: I think that is going to stretch for a while. I wish that the system would move more quickly, but we do not have any idea, Rob, on that.

Andy: Yeah.

Powell Brown: Just so you know.

Andy: Yeah. From a settlement standpoint, Rob, there will probably be some carryover of some revenues into 2027. Again, probably not a significant amount because not all of the business was a one-one or anything. We will have some carryover.

Rob Cox: Okay, great. Then just wanted to hopefully put a finer point on the Accession revenues from July and over the trailing 12-month acquisition integration period in the acquisition revenues. Just trying to tie out how that might compare to 2024 revenues for Accession and think about how to disaggregate the drivers between the net new business and pricing, deal breakage, or anything else.

Andy: Yeah. Rob, when we announced the transaction, we said it was around about $1.7 billion. It is still right around that range. During that time, we did dispose of a couple of businesses that just do not fit with us strategically. Not that they are bad businesses, they just do not match with the Brown & Brown model. We have some businesses in there that perform really well. We have some businesses that are cyclical in nature with it, and then we got parts of it grew very similar to Brown & Brown. Really pleased with the underlying performance on the pieces that we can control.

Some things we cannot control in the marketplace, but when we step back and look at the business, it has performed really, really well for us since acquisition over a year ago.

Powell Brown: The other thing, if I can interject, Rob, is the number of talented people far exceeded even our expectations. We knew they had a great group of people on the team. But once we joined forces, we really realized that and are pumped about the combined entity and the capabilities that we now have as one organization.

Andy: Rob, if your question was around breakage or something like that, just to again, come back and put a finer point on this one. If the concern, and we have heard this swimming around out there in the marketplace, that we have lost all kinds of producers and everything else, that is absolutely factually incorrect. Our retention of producers on the legacy Accession side has been really good. It is right in line with Brown & Brown. We are very, very pleased with the retention, not only producers, but all of our teammates.

Rob Cox: Great. Thank you.

Andy: Yeah, thanks.

Operator: Thank you. Our next question comes from Elyse Greenspan from Wells Fargo. Your line is open.

Elyse Greenspan: Hi, thanks. Good morning. My first question is on retail. You guys updated, give us fourth quarter and guidance for next year. So Q4, 2%-3%. Next year, you said 2%-4%. Obviously, part of it depends where you fall in the ranges, but I guess as you are thinking about 2027, what are you seeing as getting slightly more favorable relative to what you are expecting to be the drivers of organic growth in the fourth quarter in retail?

Powell Brown: We are just more pleased with the execution of our plan, and we have talked about that in terms of go-to-market strategy, placement, how we are doing business with certain partners across the platform, both in wholesale and from a carrier standpoint. It is a combination of all of those. Remember, Steve Hearn and the team rolled out the plan in Q1. It started to take shape in Q2. You are starting to see some opportunities that have come out of it in Q3, and we think although it is not linear in nature, it will continue to improve in Q4 and going into next year. That is how I would answer that, Elise, and good morning.

Elyse Greenspan: Thanks. My second question is on programs. I just want to make sure I am not missing something. I think you said there was some negative timing from the lender-placed program that was $10 million in Q3. Q4 guide implies another $8 million-$12 million. Are you expecting the comp, all of that, around $20 million all to come back in 2027 in the 1%-3% guide? Also with the programs organic guide, are you expecting Accession to be a tailwind relative to what the guide would have been without it?

Andy: Yeah. Good morning, Elise. On the guidance for specialty distribution for 2027, yes, that would include the timing from this year being recognized in 2027. Again, we do not know the exact dates on some of that. We do have some one-time items in the fourth quarter, some ASC 606 adjustments that we know we need to make so that will not impact going into next year on it. From growth expectations, we touched on this earlier, in specialty distribution, yes, we are anticipating that those businesses will contribute to our organic growth.

Just for clarity, as we move forward now as a company, we are not breaking out and saying, "Here is what legacy Access or legacy Brown & Brown did." We are one company at this stage as we move forward, and specifically in retail, there are a lot of these, we have combined offices, et cetera. You actually can't split them apart anymore. That's a really good thing. That means that we've combined efforts and capabilities and teammates.

Elyse Greenspan: Thank you.

Andy: Yep.

Operator: Thank you. Our next question will come from Andrew Andersen from Jefferies. Your line is open.

Andrew Andersen: Hey, good morning. You had cited some investment in European wholesale capabilities as a margin headwind. Could you just talk about what you're investing in there, what growth opportunities you're investing behind, and when that could contribute to specialty organic growth and margins?

Powell Brown: Sure. We've been making those investments throughout this year, the calendar year of 2026, and that would be embellishing North American wholesale capabilities and international wholesale capabilities. As you know, we have a nice London brokerage business and some program businesses there. But we have some really neat opportunities in the wholesale component. We're pleased with the performance of our London business, even in Q3, and we anticipate that to continue to improve into next year. We've been making the investments this year. We have obviously called it out that it will continue to be a slight headwind into Q4.

But the answer is, we anticipate and we're starting to see some of the benefits already, but into next year and beyond.

Andrew Andersen: Perfect. Thanks.

Andy: Hey, just to help. Hey, just to help manage expectations for everybody on the phone, we still got a number of people in the queue. We're going to run to about 9:15 and then cut it off. So we'll try to be crisp on questions and responses on this end and try to get through as many people as possible.

Andrew Andersen: Okay. Thanks. Technology costs had increased this quarter, I think offsetting some benefit on comp. But as you build that 2027 plan, should we expect total tech spend to increase further? When do you see those benefits beginning to offset that investment?

Powell Brown: We are going to get into all of that in the January call, so we will have a much better idea. We are finalizing all of that right now. We are going to lay out a one-year spend, 2027 spend, and projected benefits in January.

Andrew Andersen: Thanks.

Operator: Thank you. Our next question will come from Alex Scott from Barclays. Your line is open.

Alex Scott: Hey, thanks for taking it. Wanted to ask about retention. Not producer retention, but more client retention in retail. I guess we are hearing from some of the private equity-backed middle-market brokers that they have seen, or at least one of them saw some decline in retention that attracted some interest. Just wondering if that is an industry dynamic and if you are seeing a little more churn in the customer base and if you are a net winner of that.

Powell Brown: The answer to the question is, any time you have dramatic price changes, you will probably see a little uptick in, your term, churn or switching clients. The reason being is good producers will try to exploit that and go and talk to people sometimes before people have spoken to their client about it. Not exclusively, not all the time. I am just saying as a general rule. Is our retention outside of normal levels? No, not. But if you are going to make the comment, have you seen a little more churn in your retail book? The answer is yes, we have. That is expected in this type of cycle.

One of the things that is interesting, depending on the people, the producers, the organization, whatever the case may be, there are people who are in our industry, and some are at Brown & Brown, but they are all over the place, who have not seen a softening rate environment. They came in as the market was going up. There are different dynamics in different parts of the cycle. That is how we would address it. Alex, as a result, though, we are writing a ton of new business. The opportunities ahead, we believe, are very significant.

That is why Andy and I have spoken about the increased capabilities across the platform and why we are so excited about that, because our producers have more arrows in the quiver to help deliver for our customers and prospects. All of that is a positive, but I am just saying that there is a lot of activity out there, and we are trying to be more than just active, if that makes sense.

Alex Scott: Yep, that is helpful. Second question I had is on the increased synergy guidance, the $175 million. Does that reflect revenue synergies or is that all expense synergies? Maybe if you could comment quickly on the revenue synergies you are focused on executing on.

Andy: All right, Alex. Yes, when we originally communicated, we said that the $150 million was, again, going to be predominantly all from expense synergies over time. Most of that incremental 25 is also anticipated to come from expense synergies.

Alex Scott: Thank you.

Andy: Mm-hmm. Thank you.

Operator: Thank you. Our next question comes from Yaron Kinar from Mizuho. Your line is open.

Yaron Kinar: Thank you. Good morning. Should the increased admitted market appetite for business previously placed in the E&S market be a tailwind for the retail segment? If so, should we expect maybe a bit of a lift to Q4 organic outlook?

Powell Brown: I would say that in concept, possibly slightly. I would rather guide you towards a neutral because there is so much change in a changing marketplace, and with the property rates being down, I would not want to give you the impression that is an offset to the downward pressure on pricing rates. I would caution you, Yaron, about that.

Yaron Kinar: Okay. That is helpful. Then for my follow-up, switching gears a bit, free cash flow picked up meaningfully compared to the first half. M&A was modest, and yet buybacks remained steady at $250 million. Why not accelerate the repurchases given the strong free cash flow generation and the current share price?

Powell Brown: Typically, we like to invest in our business out of cash flow that is generated and when it is generated. We have sort of taken the position that we would buy stock back if and when the price is appealing. But we have not seriously considered the idea of a leveraged stock buyback.

Yaron Kinar: Just to be clear, I am not talking about leverage. I am just talking about deploying the free cash flow that is accelerated in the quarter.

Powell Brown: Yeah. As I said, Andy and I know Andy has outlined this, but we have some debt repayment that comes up in Q4, in December as well, so we are working through how to do that as we consider how and what we might do in share repurchases as well. We are thinking about deploying the free cash. I do not want anybody to think that we are not. But if you notice, in the history of at least that I have been in this situation, we have bought now $850 million back in the last year. Prior to this year, I think we had bought, purchased back total, is it, Andy, 267 or something like that? Total.

Andy: No, it would be higher.

Powell Brown: But the answer is, we have bought more back in the last year than in the history of the company. We will continue to try to deploy the capital in the best ways that we think make sense, and share repurchases right now are right near the top.

Yaron Kinar: Thanks so much.

Powell Brown: Thanks.

Operator: Thank you. Our next question will come from Josh Shanker from Bank of America. Your line is open.

Josh Shanker: Yeah, thank you for taking my question, and given the time constraints, I'll ask both real quick, they're related. When we talk about organic growth guidance out there, how should we think about unit volume versus a year ago or whatnot? Obviously, pricing's a headwind, but pricing's always going to be there. What does it mean for the actual amount of contracting and the amount of policies that you're seeing through? How does that change versus a year ago? You mentioned in the prepared remarks that more product was coming online in the admitted markets in the Florida and Texas markets, which was viewed as a positive.

I would argue that in a difficult marketplace, that's really Brown & Brown's opportunity to shine and demonstrate value for their customers. How do those two things contrast each other? That, yes, there's more product, but when there's more product, there's also more competitors who can easily place that risk.

Powell Brown: Right. Let me talk about unit volume today versus a year ago and in construction and just in hiring. First of all, if you take out, as I know you've probably done all of these numbers and are more familiar than even we are. If you take out all the construction and/or spending as it relates to new technology and AI-related spends, that makes the economy look a lot different in terms of GDP growth. Number one. Number two, as it relates to, it is highly dependent on parts of the country as it relates to unit and volume growth.

People, I believe, leaders of all businesses are much more cautious today in light of geopolitical and economic potential outcomes. i.e., what do the midterms do? What is the situation in the next two years, in the U.S. relative to economic policy, and then global conflict. How does just think about oil, if it went to $120 a barrel. What I would say is this, it is highly dependent on the business. I think that the level of enthusiasm by business leaders that I talk to is more muted today, and I would point to, if you take out all AI and frontier spending and related spending from GDP, what is it?

It is at least 100, if not 150 basis points down, is my understanding. I look at that. As it relates to more units, and I want to make sure, Josh, I am answering the question. When you are talking about more units in Florida, are you talking about more carriers writing the state, or what are you talking about in terms of that? I just want to make sure.

Josh Shanker: First of all, is Brown & Brown growing? When we talk about 1 or 2, 3% organic growth guidance, that is not a lot of growth, but of course, there is pricing in that. I want to know how busy is Brown & Brown and the extent to which that number might hide or accurately show the extent that growth is really happening at the company. That is the first question. The second question relates to your comments about more availability of product in the admitted lines and treating that as a good thing.

But it is also when more product comes out Brown & Brown, being able to deliver to their clients, it is easier for everyone else to deliver for their clients as well.

Powell Brown: Yeah. Let me assure you that we are working very hard at Brown & Brown, and there is no question about that. Number two, I try to look at that I am an optimist, but I am a realist, which means when you have more product to deliver to customers, you have better customer outcomes. We can control and try to control the controllables. We cannot control the economy, we cannot control pricing, but we can control the quality of the products and the thought process and the advice that we give to our customers and prospects. Although the thought process is fine, I think you are thinking about it one way.

I actually would tell you and caution you about that because we actually look at it and say, "Okay, do we have enough new business inventory? Is our retention level, are they high enough? Do we have the right people in the right spots? How are you using technology to the benefit of our customers to deliver better outcomes?" All of those are things that we think about. If in fact, because of the dynamic, let us just use in Florida, because of the amount of CAT property, it is hard to grow your business organically in, let us say, Southeast Florida, and yet we are writing an inordinate amount of new business and our policy counts are going up.

That is telling you something. There is a nuance there, and I know that you understand our business, but you got to be in it and see it to really understand that part, because it is not easy in environments. Particularly, let us just say you write condominiums in Dade, Broward, and Palm Beach County. That is an extreme example. But it is tough to grow your business.

Josh Shanker: Okay. Well, is there any way we can think about unit volume in regards to the guidance that you're giving of 1%-3% organic growth?

Powell Brown: Josh, that would presume from your standpoint, unit growth inside of there. Just remember, unit growth is only one component of the revenue growth. You've got rate in there, you've got exposures, limits, deductibles. There's a ton of moving parts. So I think to our earlier comments, we are seeing policies growing in a number of our programs. We are doing a good job of growing our customer base also through all of it. That doesn't always play out perfectly, though, in the actual revenue number because of all of the other moving parts back and forth. But we feel really good with the underlying performance of the things that we can control.

Josh Shanker: Well, thank you for all the details. Appreciate it.

Powell Brown: Yeah. No worries.

Operator: Thank you. Our next question will come from Meyer Shields from Keefe, Bruyette & Woods. Your line is open.

Meyer Shields: Hi. Pardon me. I will try and be quick. I was just hoping we can get a sense as to the property pricing expectations that are underlying the specialty distribution 2027 organic outlook.

Powell Brown: Well, we are still working on those as we finalize our budget, but I would tell you that there is a feeling out there that property rates CAT property rates will be somewhere between 10% and 20% down in the industry. I would tell you, if you ask me right now, that I think it's on the high end of that. But we haven't finalized that into our. That's one of the reasons Andy said we will be finalizing our budgets this quarter, and then we'll give any additional feedback on our next call.

Meyer Shields: Okay. Thank you. Really quickly, I guess, are we seeing any closure of the bid-ask spread in terms of M&A?

Powell Brown: The short answer is, in some cases, sellers' expectations, albeit, were unrealistic. Some are trending down and some aren't. The answer is, I would tell you that ultimately, don't try to infer by headline price, be it high or low, that the entire industry is pivoted. I think it's very specific to each individual business, the quality of the business, the growth of the business, the leadership in the business, the specialisms in the business, all of those other things. So that's a nice way of saying not really.

Meyer Shields: Okay. Thank you very much.

Powell Brown: Appreciate it.

Operator: Thank you. Our next question comes from Bob Huang from Morgan Stanley. Your line is open.

Bob Huang: Hi. Good morning. First question is on employee benefit pricing. Can you maybe just help us get a better sense of what is pressuring the market today? It seems like some folks have workers' comp and disability loss trends that is not trending the right way. It feels like, is it fair to say that you are seeing this trend is likely to continue to 2027? Just curious if that is going to be reflected in pricing going forward.

Powell Brown: Now, wait a minute, Bob. You started with EB, and then you end this with work comp. Are you trying to make sure we talk about the correlation between the two? Or I thought you wanted to talk about pricing and EB.

Bob Huang: Let us do employee benefits. Sorry about that.

Powell Brown: Okay. Let us start with, these are very high-level comments about EB. Think about medical trend, high-cost claimants, and specialty pharmacy. Okay? Medical trend, 7%-9%, depending on who you are talking to, typically. High-cost claimants, highly dependent on the individual customer. You could have a family that has premature babies. You could have cancer or an organ transplant, but sometimes they have multiple things in a policy year. And then pharmacy, specialty pharmacy, that is not excluding that is not just GLP-1s. That is actually including all types of specialty pharmacy.

As you can see in many, many, many programs out there, and we see this across our customer base, people that intended for GLP-1s to be used for weight loss have seen it used for other things. They see that there are benefits for it, and you have a wider usage. People were using it and not changing their dietary and/or exercise routines, so it was used for weight loss only as opposed to get you to the certain threshold and then you come off. There is a lot of discussion around specialty pharmacy pricing, and that is only going to continue.

I will make one interesting comment just since you made the question, which is depending on the way your worker's compensation plan is set up, sometimes you can see movement between if we handle the worker's compensation and the employee benefits, you can see movement from one area to the other, depending on the design of the platform. So if you have a more restrictive EB platform or offering, sometimes you will see higher work comp claims, and sometimes those higher work comp claims will move over into the EB area. There is a correlation, and I am not saying direct, you got to walk through there, but it is threading the needle.

In EB, we are talking to all of our clients about plan design to manage cost, because cost is a major issue. Bob, I just, again, want to make sure that clear. We have been talking about this for a number of years. This trend has been going on for 5-10 years, and it does not appear to be slowing down.

Bob Huang: Got it. Really appreciate that. Second question is on some of the things you mentioned a little bit earlier. Can you maybe help us unpack a little bit more details on the habitational and the construction programs? I know you talked about it a little bit, but just curious if there is any additional color on what that is trending going forward.

Powell Brown: Sure. Let us just say, and these are anecdotal evidence, because I am not in this every day like I used to be. In Southeast Florida, when rates go up for 5 or 6 years, and then in actually 2 years, the rates come down from 2024, 2025 levels to the equivalent rate in 2015 or 2016. That is pretty darn dramatic, and that is 30% decrease on a 30% decrease. What is a little bit misleading there is, in that period of time, underwriters also were increasing insurance to value.

So when somebody says we can replace the apartment building for $200 a square foot, everybody knows you cannot build an apartment complex in Southeast Florida of good construction for $200 a square foot. So you have something built in there. Quite honestly, if you take out the adjustment for increased cost of construction, these rates are way back into the early 2000s would be the equivalent. That's a dramatic fall. That's number one. Number two, as it relates to what I was alluding to on construction, is in my mind, construction is all about what is your workload or backlog in the next 12 months. More specifically, do you have anything beyond, let's say, nine months?

What you see in periods as the economy would slow or when things have been really hot, you might see in areas of the country where all of a sudden, contractors don't have as much workload. Is that telling you that they are actually just down, or is the economy slowing down? You got to look at it, and it's different in different parts of the country. I'm not trying to draw a parallel and say, because this is happening in Orlando, that's indicative of the entire country. That's not what we're saying. The answer is rates are continuing to be down in habitational countrywide in property. Liability is typically up or flat, and particularly in umbrellas, it's higher.

In construction, we have a lot of good contractors and a lot of them are growing. I'm just saying the question that we have is: What's our inventory look 12 months out?

Bob Huang: Got it. I really appreciate that. Thank you.

Powell Brown: Hey, Crystal, we're going to take a final question, then go ahead and wrap, okay?

Operator: Thank you. Our last question will come from Michael Zaremski from BMO. Your line is open.

Michael Zaremski: Hey, thanks. Kudos to you all for extending the call, given the demand. I will just go with one question. Powell, when I hear your comments about the 2027 outlook in retail being a 2%-4% organic growth relative to the rate environment, to me, it sounds like more business as usual. I would be curious if you agree or disagree, and you mentioned Steve Hearn rolled out a plan in 1Q, and it is your go-to-market strategy right now. I do not know if you are willing or able to reflect a bit of what ADO thinks Steve Hearn's plan and your all plan attempted to fix to bring your organic back to much healthier levels relative to the market.

Thanks.

Powell Brown: Yeah. I think the way I would answer the question, Michael, is the following. Number one, we had a lot of really good capabilities prior to Steve Hearn's leadership in retail. Having said that, I think we are collaborating and using those capabilities better. That is what I would basically say. So there is not a criticism on pre, post Steve. That is not where I am going. I just think that, again, it is complemented by the addition of 5,000 new teammates and the capabilities that came with Accession, and we are all one now, so let us not lose sight of that.

But again, somebody earlier asked, when you bring a large organization into your organization, there is a lot of people focused on some things that were internally, and you got to do that. So I think that we are through a great deal of that. Not all of it, but a great deal of that. And we are just focusing on executing better. And I think Steve and the senior leadership team in retail are doing a great job of leveraging the capabilities, delivering for our customers, and doing it in a way that is helping deliver better customer outcomes with our carrier partners and our distribution partners. So I am very positive on our business.

I would wrap up, Crystal, in making my final comments as we wrap up by saying this. Number one, in my history at Brown & Brown, that is 31 years, I am the most pleased with the leadership team and the way we are delivering for our customers than I ever have been, number one. Number two, do I think that we could execute a little bit better, and were we a little bummed on the underperformance in one of our divisions? Sure. But the answer is we're going to work our way through that because both of our divisions are very good businesses. And number three, I would tell you, it's all about people.

We are going to continue to allocate our capital in the best way we see fit. But we're always looking for talented people, and we got a lot of them on the team, and we're excited about what the future presents. So thank you all very much, and we look forward to talking to you in January. Thank you, Crystal, and have a nice day, everyone.

Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.

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