Grace Carter: And I guess thinking about the interest rate environment, it seems like rates might be staying a bit higher for longer relative to what a lot of economists thought at the beginning of the year. I know that you all said that the competition for M&A has stayed pretty steady so far this year, but just as some of your competitors that have historically been a bit more sensitive to interest rates when considering deal activity, just kind of come to the realization that rates might be higher for longer. Do you expect any sort of changes to the environment when looking at deals for the remainder of the year or everything should stay pretty steady?
Powell Brown: So, Grace, this is Powell. I would say that we think that it will continue to be a very competitive environment from M&A. Having said that, there are certain firms that are more short term in nature that are highly leveraged that would be more sensitive that to interest rates. And we may see one or some of them not be as active for a period of time because of their debt load. Having said that, there seems to be plenty of other shorter-term firms that are based on leverage that seem to be active as well. So, I don’t want you to get the impression that the higher interest rate environment is going to dramatically change the level of competition. That might change the names of the participants, but not the number or how competitive it is. We haven’t seen that.
Andy Watts: Grace, I want to come back to one of the things just on the contingent. I know we talked about programs. Just other thing, keep in mind, in Retail, and you saw it in the numbers and everything, contingents were down in the Retail business and year-over-year, about $1.4 million or so is — and we’ve had downward pressure on the contingents that we earn within personal lines just based upon overall profitability within personal lines in that — just that sector right now. We expect that to probably continue on for this year. So, can you just kind of keep that in mind as you’re looking at trending on also on retail, okay.
Operator: [Operator Instructions] Our next question comes from the line of Scott Heleniak with RBC Capital Markets. Your line is now open.
Scott Heleniak: There’s some data showing M&A was slower for the industry in Q1. And just wondering, I know you talked about just a minute ago, what you’re seeing in your pipeline and outlook there for 2024 as specific to you because your M&A has held up pretty well in 2023. Just any thoughts there?
Powell Brown: Sure. Scott, I want you to, again, don’t draw too many conclusions from one quarter or even six months. Acquisitions are not linear as you know, and when and why people sell is different. And we are always talking to people to want to be at the table when and if, but it’s usually when they decide to sell. And so, we believe it’s all about cultural fit and obviously, it has to make sense financially for both parties. But usually, in these competitions when we are talking to someone, it becomes very obvious in the process that there may be on cultural fit, whether that’s us or not, maybe it may not be us that fit with that seller. And then many times, that is who they do a transaction with, not exclusively, but many times.
And so, when I say that, I would tell you that you’ll laugh when I say this, but our pipeline is good. It will be good next quarter. It will probably be good next year or two, and I’m not trying to be funny, but we got plenty of opportunities. It’s just a question of do they fit culturally and do they make sense financially. And we’re not rushing to do something. The one thing that you may know about us is in the investment community, there are three things that they say about Brown & Brown this with certainty. Number one, we pay with cash. It’s hard to argue with greenbacks. Number two, when we give someone a term sheet that is not a license to renegotiate after due diligence like some others. So, we do what we say and say what we do. And three is when we make a decision, we get a up and go.
So those, we believe, are three redeeming factors, but we talk to people, and we are trying to make sure that they understand what day two is going to look like, not the process of courtship. And so, we feel really good about the things that we got going on. We got people talking to people all the time. And I think that there will continue to be an enormous amount of consolidation in our industry in the next three to seven years. And we are going to be right here able to look at and/or participate in a lot of it.
Scott Heleniak: Okay. Just the other — just the other follow-up I had was just — I know you don’t break it out specifically, but anything you can share on organic growth trends outside of the U.S. And just kind of — I’m not looking for a specific number. Just anything you can comment on in terms of what you’re seeing in Europe and with some of the acquisitions you’ve closed over the past few years. Just any kind of general comment on revenue growth trends you’re seeing there?
Powell Brown: Sure. So, Scott, I would say that it is performing in a very similar fashion to our businesses domestically. So, we’re very pleased with the performance of our businesses overseas. And that’s not just Europe. I mean, Canada, we got a lot of cool stuff going. But we are very pleased and — but I would say as a broad statement, I think that its performance is very similar to what we say.
Operator: [Operator Instructions] It comes from the line of Michael Ward with Citi.
Michael Ward: Maybe just taking a step back on programs. There’s been a lot of discussion around this. I just — can you — are you able to help us understand the breakout in the strength just between rate versus exposure versus new business?
Andy Watts: Andy here. So, we don’t break out that level of granularity, but we’re very pleased with the growth in the business of what we’re driving from new business where we are on policy retention in that business as well as the rate mix across all the programs again to Powell’s earlier comment. Depends on individual programs, they can be impacted more or less by rate, but we operate 60 programs around the world. And so, we’re really pleased with the overall mix. But generally, that overall business as well as the others, a lot of ours comes out of net new business as we talked about.
Powell Brown: Let me mention one other thing, Mike, just as a broad statement, I know you know this. But remember, we’re underwriting on behalf of our carry partners. So, we have this enormous responsibility to try to the best of our ability to write good risks. And so, we take that responsibility very seriously. And having said that, the growth that we have enjoyed, albeit quite good is I have to — you’ve got to understand, we are doing our jobs of risk selection. So, what I’m trying to say is that is not we write everything that moves. And I know you know that, but I think it’s important for everybody to hear that. There is a lot of business that just doesn’t fit and that’s okay. And so, we would rather show disciplined underwriting on both ends of that spectrum.
So, some people — and by the way, we’ve grown very nicely. But the answer is if we didn’t do it the way we’ve done it, it could have grown a lot more, but the results longer term for our carrier partners would not have been as good. So very important distinction.
Andy Watts: Well — and also that one, Mike, is you can do that short term and grow the heck out of it. We also lose the contingents that probably come along with it, and that’s an important part of our business because we want to make sure that we’re placing good business for our carrier partners. We don’t want to go through a carrier change. That’s really painful for everybody. So, we try to think about these for a longer-term horizon rather than just growing it by a quarter or over four quarters.
Michael Ward: Got it. Really helpful. Maybe just thinking back to your comments, Powell, around casualty and liability pricing ticking up. Just sort of curious your views like if you think we’re kind of in the earlier innings of something a continued sort of upward trend or if it seems a little bit more short term?
Powell Brown: Well, Mike, it’s — as I said, I’ve only been in the insurance business for 34 years. And in that period of time, it seems most of that time, there’s been downward pressure on GL rates. And now there is — as you’ve read and are starting to see, there’s more and more adverse development in the last couple accident years particularly ’19, ’18, maybe ’20. And so, if you talk to our carrier partners more on a philosophical level, not just on an individual risk level, I think there is a feeling that there could be, well, a logical response would be there could and should be some upward pressure on liability rates in the near to intermediate term. That means the next several years. That’s what I think the logic and the rationale would say.
That said, our industry has never been known for being, on the risk-bearing side, totally rational or totally logical. But based on what I’ve seen, I think we’re going to continue to see more upward pressure on excess, meaning umbrellas. And I do think we’re going to start to see it may not be a big bump. I’m not talking about boom goes north, real fab, but I think we’re going to continue to see some upward pressure on general liability, and it’s not going to be this year or next year. It could be a couple of years.
Michael Ward: Really helpful. Maybe if I could sneak one specific one just on dealer services. Just curious what you guys are seeing in terms of like inventory levels out there and activity in that segment.
Andy Watts: Mike, it’s Andy here. I think what we’ve seen, at least over kind of the last year or so in that range is inventories are back, probably not to where they were, we’ll call it pre-COVID, but you can find cars and trucks today and RVs because we work in that space, which is good. I think you’re seeing some of the prices for used cars are coming down a little bit that are out there. You’ve got some sensitivity around interest rates depending upon the profile of the buyer and everything. But I think our overall customer base is doing well. We’re continuing to win more customers in that space and feel good about the outlook in comparison to kind of where we were coming down off of the highs of COVID when — I mean, cars and trucks were just flying off the lots back then. We feel like we’ve kind of got through that space. So, we don’t have at least today, thinking that we’ve got any headwinds coming at us.
Operator: At this time, I’m currently showing no further questions. I would like to hand the conference back over to Mr. Powell Brown for closing comments.
Powell Brown: Thanks, Norma, and thanks, everybody, for joining us. I just want to make a couple of concluding comments. One, we are seeing a lot of new business opportunities and capturing those. So, I’m very pleased about the amount of new business that we’re writing and the net new that that’s translating through into our books. Number two, change creates opportunity. And so, the changes that you’ve heard today, and I’m specifically thinking about CAT property, although it creates some chaos, that creates some opportunity and most importantly, it creates benefits for our customers. So, I just want to mention that. And three, relative to the acquisition space, we don’t have a hard and fast rule of exactly how much we want to buy every year.
We have a goal that we’d like to shoot at. But it’s always about acquisitions that fit culturally and make sense financially. Do I think there are going to be a lot of opportunities this year? I do. Do I think there will be more next year? I think the — I don’t know if there’s going to be more, but I think there will be an equal amount. I think there’s lots of change ahead in distribution. I think there are a lot of firms that are owned that are — that have private equity backing that are trying to figure out what the next step is. And so, it’s going to be an interesting time. I’m not signaling one over the other. That’s not what I’m trying to say. But we feel really good about the business. We had a great quarter. We feel really good going into Q2.
And we look forward to talking to you next time. You all have a nice day. Good day, and good luck. Goodbye.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone, have a wonderful day.
