Elyse Greenspan: Yeah, it’s great. And then last one, retail. You guys both highlighted it seems like a good environment there both on the core brokerage and the benefits business. I guess, good growth in both in the Q1. Anything one-off or anything you guys want to highlight as we think about just the go-forward organic growth of that segment?
Powell Brown: No, I wouldn’t say anything that we haven’t said Elyse. We’re really pleased with how retail is performing. And as I like to say, we continue to hire talented teammates to help us service the market and producing the business that we’re bringing on and that those customers that we already have, our existing customer base. So nothing out of the ordinary about growth itself, but I would just tell you we are very pleased with where the retail business is positioned both domestically and with our new acquisitions, not just like last year in GRP but in Ireland and excited about Canada as well.
Elyse Greenspan: Thank you.
Andy Watts: Thank you.
Operator: Your next question is from the line of Gregory Peters from Raymond James. Please ask your question.
Gregory Peters: Good morning Paul and Andy. I guess, I’m going to go back Powell to your comments about the impact of all the challenges in Florida. It’s my impression that if there’s a migration to Citizens that might be some pressure on commission rates for the company. And so maybe you could spend a minute and just talk to us about the economic conditions in Florida, considering what’s going on in the property insurance market. Are you seeing any other pressures economically with any of the business developments et cetera? And then talk about the migration of Citizens and its impact on your business?
Powell Brown: Sure. So first of all I’d like to clarify that in a business that’s $2-plus billion of revenue, the impact of Florida today versus the impact of Florida 15 years ago is much different. So I think it’s important to start there. The second thing that I would tell you is that from an economic standpoint, generally speaking in our — with our customer base in Florida, they seem to be doing quite well. And what I mean by that is the construction is booming, people are growing. That does not mean that their margins are necessarily growing, because they — different industries are having different levels of inflation and impact on cost into their P&Ls. But I would tell you that — and if you go to dinner, it’s packed.
So it’s still — the economy is doing well in Florida. As it relates to Citizens, I’d like to talk about two scenarios, because this is — there are some similarities and some differences for those of you that have been around since 2007. I’d like to talk about that. So here’s basically the parallels. In 2007 and today. Citizens is deemed as the market of last resort, okay? So let’s start there and we’re going to start in retail and that’s where the similarities end. So in 2007 if in fact — and these are just examples. This is not — it’s a hypothetical example, so just bear with me. If the market was bearing an $0.85 rate on a condominium and Citizens being the market of last resort was quoting a dollar rate and the then Governor implemented wind mitigation credits, that took that rate from $1 in Citizens down to $0.50.
So effectively the buyer was going from $0.85 to $0.50 per – in terms of insured values. That action in and of itself took us to negative organic growth in 2007, as an organization, much different concentration in Florida all that stuff. The final thing is Citizens was the market of last resort. They would write anything, anything, okay? So now fast forward to 2023 and Citizens has underwriting guidelines and there’s not a rate cut. So if in fact, I’m just going to use the same scenario that we just had there. If they were at $0.85 and Citizens was $1 or $1.25, and the general market is at $1.75 or $1.50 then there are underwriting criteria, roof construction all kinds of things where Citizens is actually trying to qualify accounts. So remember, it’s much different.
It doesn’t mean it’s not complex. It is complex. So it takes a lot of time to get through a government entity to get the – but that’s the difference now. In Retail, if you take an account that’s from the E&S market and you bring it over into Citizens, the commission level would be, let’s say flat to down slightly to up slightly. But let’s just call it flattish but it has a lot more work. That said, in the wholesale segment, it has the potential to one an account can move. So you could go in the E&S market and they lose the entire account because it goes to Citizens with the retailer or you can have a scenario where Citizens quotes the wind-only and we quote an ex-wind quote. And remember, the example is it was $0.85 on – and its superior construction, the wind-only rate – I mean the ex-wind rate might be $0.07 or $0.10.
So all of a sudden the premium has gone down substantially and we get paid commission on that much lower rate. So that’s how it manifests itself Greg. And maybe a little more than you wanted but I think it’s important for people to understand the difference today between 2007 because it’s a big difference. And it’s important you understand that.
Gregory Peters: Yes. That’s great color. Just a point of clarification. Is it fair to sort of I’m guessing right now but is it – when I look at your Florida residential book of property, is it fair to say that Citizens is about 20% of that book, or do you think it is a lower or higher percentage?
Powell Brown: I think now I want to make sure that you – when you say residential, are you talking about residential homes, or you talking about condos and apartments as well?
Gregory Peters: Yes. Residential homes, condos and apartments.
Powell Brown: Okay. So the short answer is no, I don’t think it’s 20% presently. And what you find is there’s a lot of activity in the residential, specifically condos and apartments in the first half of the year. So there’s a lot of activity right now going on. And as I said, there are properties, not only where you live but up and down the West Coast and the East Coast, that are currently in the E&S market that have been submitted to Citizens but we don’t know yet, if they’re going to qualify. So how that ultimately plays out this year is yet to be determined.
Andy Watts: Yes Greg, keep in mind that the limitation that Powell talks about, on the homeowners side if you go down into Tri-County, I think the limit — I might be off on this just by a little bit. I think the line is $999,000 I believe is the number. So if you think about how many homes are below $900,000 or $999,000 in Tri-County, not a lot of them. It’s a very expensive real estate market down there. And then the rest of the state, I believe it’s $700000 is the limit. So, not everything can actually go into Citizens. So there’s a lot of press around all of it. But only certain things go into that box. And then there’s a lot of limitations as to what they will take in the way of quality. So, the reason why we added all that color is the market is very different today than what it was in 2007.
So there’s been a lot of speculation regarding what this does to our numbers. And we’ve talked a lot about diversification of our organization and that we’re not a Florida-based organization, the way we were at least weighted 15, 20 years ago. But our Florida businesses performed really well in the first quarter. We’re very, very pleased both in Retail as well as Wholesale and Programs.
Gregory Peters: Got it. That’s excellent detail. And I feel like we could probably have an hour-long conversation just on this topic alone. But I’m going to pivot, and my last question just will focus on inside your commentary around GRP, you commented about how they’re making acquisitions, and I guess I haven’t really seen any press releases come out from Brown. So, how are — how is that coming through in the reported numbers, or where are we — where do we see the acquisition activity inside GRP as is reported through Brown & Brown’s consolidated statements?
Andy Watts: Yes Greg, you should see those on our IR website. We tag them inside there. They come out underneath of a GRP press release that’s got Brown & Brown in the footer, but we pull all those over into our normal IR website. So they should all be there.
Gregory Peters: Got it. And then just on that point your approach to organic has been pretty — well, you’ve set a benchmark on trying to not include acquisitions as part of organic. I assume you’re taking the same conservative approach in applying it to how you count in GRP organic. Is that correct?
Powell Brown: Correct.
Andy Watts: Yes.
Gregory Peters: Got it. Thanks for your answers.
Powell Brown: Yes.
