Elyse Greenspan: So, I guess theoretically, maybe the interest income is a tailwind. And that’s getting offset by something else because it sounds like you’re saying no headwinds, tailwinds, may be flat margins overall. But it does feel like that number in isolation would be a tailwind to the coming year.
Andy Watts: Yes. I think isolation, I think that’s probably fair at least. But there’s — within our business, like most businesses, but at least we’ll talk to ours specifically, there’s always a lot of moving parts, and you’ve always got things kind of moving back and forth. And that was really why we’re trying to give guidance about any major tailwinds or headwinds that are out there.
Elyse Greenspan: And then one last one, the employee benefit you guys said is concentrated in the first part of the year, but it does sound like what happened in the fourth quarter was maybe just — and just a really tough comp with last year, so when we think about retail and I know you don’t like to give guidance, but is there anything that stands out to start the year that would make the first part of ’23 have tougher comps in the back part of the year.
Andy Watts: Nothing at a top-level until Weston’s earlier question is, will there be potentially a little bit of headwind in the first quarter from what we saw in the fourth quarter a little bit, but we feel really good about our business and how it’s positioned and the capabilities that we have served customers of all sizes in that business and feel like we will perform well during 2023.
Elyse Greenspan: Okay. Thanks for the color.
Andy Watts: Great. Thank you.
Powell Brown: Thanks, Elyse.
Operator: Thank you. One moment for our next question. And our next question comes from Michael Zaremski with BMO Capital Markets. Your line is now open.
Michael Zaremski: Hi, good morning. Maybe focusing back on the dislocation in the parts of the property market. I’m just curious at a high level if your view has changed and whether this is — whether the environment is kind of net benefit or to growth or margins or net neutral or maybe even that negative because there’s a lot of moving parts clearly you came out and talk a little bit about commission pressures, but rates are moving materially higher, so just kind of curious if you see that all the moving parts net-net, as a wash potentially or if your view has changed.
Powell Brown: Yes. No. I would say, Michael, it’s probably a net positive but slight net-net positive, and the reason I say a hedge with a slight is because of changes that we can’t see in the market yet i.e., limits for — limits being reduced by carriers or some potential for any commission pressures or anything of that nature, but — and basically also clients just basically raising their hand and saying look uncalled. And I know that’s tough, but it’s true because we are the deliverer of bad news when it comes like this. So, it will be — I think it will be slightly positive that is how I would want you to think about that.
Michael Zaremski: Okay. That’s helpful. Maybe switching gears to inflationary impacts on the income statement of Brown. I think there was a comment made about some unknowns on inflation and T&E. When I think about the Brown’s commission model I think of it kind of being somewhat more insulated from wage pressures due to the kind of how the front-line salespeople are paid. But maybe I’m wrong and maybe you can just kind of elaborate on what do you mean by kind of where the T&E and inflation are.
Powell Brown: So, let’s talk about your comment around wage pressure. We’re not immune to wage pressure and I think that’s a very important thing. And one of the things that we find just like anybody else out there in our space is the war on talent is very competitive and people are looking for people not just salespeople, but there could be service people, or marketing people, or administrative people that administer claims or things like that. So, it’s a very competitive marketplace. So I don’t want you to think that we’re immune to that because we are far from that. That’s number one. Number two, when we say T&E pressure, it’s not as though we think there’s going to be so much — that much more travel and entertainment. We think that the — if you do the same, there’s just significant pressure on, let’s just say an airplane ticket or a hotel depending on where you’re going.
And so, that’s where we’re seeing that pressure. And so, our business is not unlike many of the other businesses that you know, or follow, or all of the above, it isn’t an inflationary environment. The pressure here although it is high is not as high as it is in England,, and in Ireland that wage pressure seems to be higher there. But we’re working through that as well. So, that’s kind of what we mean by that, Michael.
Michael Zaremski: That’s helpful. And just maybe sneak in one quick one. Any impact from the flooding in California to — that the flood program that you administer, that could be material.
Powell Brown: No. We haven’t seen anything interestingly enough in California. As you know, they don’t get a lot of rain to begin with. And so, when they do get a lot of rain, they get significant flooding, and there are not a lot of people that buy flood insurance in the State of California. So, it’s no. We don’t see that.
Michael Zaremski: Thank you.
Powell Brown: Thank you.
Operator: Thank you. One moment for our next question. And our next question comes from Yaron Kinar with Jefferies. Your line is now open.
Yaron Kinar: Hi, good morning, everybody, and thanks for my questions. I guess my first question and I think it may be tied back to a couple of other questions you have already received. As you think about the property CAT rate environment, where do you see maybe the — which segments do you think would benefit most and which ones would you see maybe facing greater pressure from the various components you talked about kind of reduced commissions, maybe more difficult placing business.
Powell Brown: I want to make sure I understand that, Yaron, can you just repeat the question or elaborate a little bit? You’re saying what do you think becomes more difficult, and then what becomes easier? Did I hear that correctly?
Yaron Kinar: I’m asking of the four segments that you have or I guess really three Retail National Programs and Wholesale which do you think would benefit more and which would maybe face greater pressure?
Powell Brown: Okay. So, first off, I would say the — I look at it a little differently than benefit more or not. You didn’t use this term or suffer more maybe the and things for that. Let’s look at retail for a moment. Retail has the good fortune. We deal directly with the customer. So, you’re going to have a lot of heavy lifting relative to delivering those particular increases and you may have, as I said, you might have commissioned reductions in some instances. But rates going to go up, and I’d say that it’s mildly positive relative to organic growth in that business. In wholesale, it makes their jobs, property brokers significantly more difficult, and trying to fill out lines of business. So, if you had a $100 million line and it was handled by one or two markets, and then now that market, it took 80% of it is pulling back or cutting their participation you got to put six or seven markets in to get your $100 million.
That said, there will continue to be pressure there as well. And I think that there is more — the most conflict if you want to call it that in placements will be in retail and wholesale. In National Programs, it’s a matter of capacity availability. So, as you know, there are a number of carriers out there who have allowed their capacity underwritten by a number of different type of MGAs and MGUs, and a number of those were not profitable, not just last year, but over many years before. And so, there is — what we consider a flight to quality. And in the sense of our underwriting facilities, we’re very pleased with the results that we’ve delivered prior to — excuse me — last year and including last year with the losses and Ian and Nicole.
So, I’d say that in programs it’s a different thing, their growth potential is limited by availability. It’s not a conflict of, in the other two, there is the hand-to-hand combat of getting people to actually put limits up and do it in the underwriting facilities, we have that authority and we can do what we can do, but we’re limited by the capacity. So if in fact, a market or markets decides to cut back on their capacity they give to us that will impact our ability to grow. And conversely, if they decide to change their commission level and that would impact our ability to grow. The one thing that I do want to mention, I think it’s important for everybody to think about this. Things are never as good as they seem or as bad as they seem. And what I mean by that is, even though the CAT market is very challenged right now, there will be a time in the future where it improves.
Now I’m not foreshadowing something, because we don’t have a crystal ball. That doesn’t mean 12 months from now, we’re going to have X or Y or Z, that’s not what I’m saying. But there are certain markets that are approaching it in a way that they are looking very opportunistically at it. And then there are other markets that are looking at it like a long-term partnership. Obviously, we would prefer the latter as opposed to the former. But we’re out looking for capacity globally. So, I just want everybody to kind of know that this pressure too will pass at some point.
