Robert Cox: Thanks. Appreciate the color.
Andrew Watts: Thank you.
Operator: Thank you. One moment for our next question please. Our next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is now open.
Elyse Greenspan: Hi, thanks. Good morning. My question was on Retail. I know you guys had called out dealer services, right? That was a headwind last — second half of last year and the first part of this year. It seems given the strong results you guys saw this quarter that maybe that dissipated, is that correct? Or was there any impact of dealer services in the quarter?
Powell Brown: Yes, good morning, Elyse. So as you remember, we indicated that the headwind was kind of going to neutralize in the second half of the year relative to dealer services, and we did see that sort of neutralize in Q3. So we are very pleased with the overall business and even in dealer services. It’s just getting inventory for our dealer customers. But I would tell you that, that was a positive for us compared to prior quarters this year, yes.
Elyse Greenspan: Thanks. And then on the margin update, right, you guys have seen a good amount of margin improvement, I think 170 basis points so far this year. Is the Q4 contraction, just a function of Andy, the one-off revenue you guys had last year within Programs, the $7 million and the $8 million that you called out for — I know you don’t typically guide on a one-quarter basis, but I’m just trying to understand if there’s anything else in the Q4 that you’re highlighting.
Andrew Watts: No. Those would be — those are the big items, Elyse, that are in there.
Elyse Greenspan: Okay. And then one last one. You guys pointed to — it seems like a still competitive M&A environment, but it sounds like financial sponsors, I think you guys said interested in maybe waiting a little bit. What are you guys seeing on the M&A side in terms of the pipeline and multiples on transactions as well?
Powell Brown: So Elyse, I would tell you that the way we describe it is in the past, there might have been, let’s say, two handfuls of early participants in looking at a business that have financial backing whereas now there might be a handful. That doesn’t mean that there are none. It just means it’s not as many people that are from that segment of the space, number one. And part of that is obviously due to increased interest rates and their capacity to put their money to work. Having said that, we have not seen an enormous downward pressure on multiples. I would tell you that it’s — roughly there might be 0.25x to 0.5x down. But on good businesses, people are — they’re still very competitive for good businesses. So we are just out there looking all the time.
We are very pleased with the acquisitions we’ve made this year, and we’re — when and why someone sells, it’s different for every transaction. But we think that there are lots of opportunities that will present themselves in the next one, two, and three years and beyond, but I think there continues to be good opportunities for us, and we really like our position, and we like — and to your question specifically, the inventory is good. But remember, it’s always good. But we’re very pleased because it’s still good.
Elyse Greenspan: Thank you.
Powell Brown: Thank you, Elyse.
Andrew Watts: Thank you.
Operator: One moment for our next question please. Our next question comes from the line of Meyer Shields with KBW. Your line is now open.
Meyer Shields: Great, thanks. Good morning. Am I coming through?
Powell Brown: Yes, you’re coming through.
Meyer Shields: Okay. Fantastic. So two really quick questions. First, in the National Programs slide, this is Slide 9. You mentioned higher profit sharing or let me say it differently, improved loss development on Hurricane Ian. Was there any favorable development on the exposure? Or is this just a much better quarter than last year because of last year’s issues?
Andrew Watts: Hi, good morning, Meyer. Yes, it’s a combination of two things. So if you recall in the third quarter of last year, since Ian hit on the 28th of September, right? We had recorded what we thought the development would be at that stage. And if you recall in the fourth quarter, we had made some true-ups because the development was not as extensive as it was originally estimated. We made a few more of those kind of throughout the year. But now we’re kind of back to where, at least from everything we’re seeing and hearing from our carrier partners that we’re in a pretty good place on loss development. They got through most of the claims that are out there that we were on.
Meyer Shields: Okay. But to the extent that you had a little bit of exposure, there’s no change in sort of that, I’ll call it, underwriting loss?
Andrew Watts: No. No. If anything, it’s actually improved to the betterment.
Meyer Shields: Okay. Perfect. Second question, just trying to understand the process. One theme we’ve seen this year is a lot of catastrophe-close property move from the standard markets to E&S. When you look at that segment of the marketplace or that phenomenon, is that a one-year transition? Or should we expect to see that sort of directional move continue in 2024, maybe beyond?
Powell Brown: Sure. So I think that there fundamentally is a continued transition of certain types of business, not specifically and limited to cat properties that are rotating into the E&S market. So I think we’re going to continue to see that into ’24 and ’25. That said, is there a time in the future where some of that business that rotates out might come back into the standard market? And the answer is yes, I believe that to be the case. But we’ve got to have a couple of years of good loss experience for the carriers because I think sometimes there are certain businesses that are because of location, they may be put into a box, and if you looked at them on a one-off basis, they might not necessarily need to move to E&S or all of it to E&S. So I think there’s a continued trend towards it. But I also think that in a couple of years, there could be some slight rotation back.
Meyer Shields: Okay, that’s perfect. Thank you so much.
Powell Brown: Thanks.
Operator: Thank you. One moment for our next question please. Our next question comes from the line of Mark Hughes with Truist Securities. Your line is now open.
Mark Hughes: Thanks. Employee benefits, seems like the pricing rates are up pretty substantially. Andy, I know in the past, you’ve talked about how Q1 organic has benefited from employee benefits momentum. Could there be a little bit more this year because of pricing in that market?
Powell Brown: When you say this year, are you talking about in Q4 or?
Mark Hughes: No, I’m thinking Q1, this coming year.
Powell Brown: Well, again, we’re not giving — we don’t give growth guidance on lines of business, just like we don’t give organic growth. But we’re very pleased with the way our employee benefits line of business is growing, and we continue to invest in the capabilities and we are writing lots of new business across the platform.
