Brown & Brown's Q3 2025 Earnings Call: Contradictions Emerge on Retail Growth, Incentive Adjustments, and Specialty Segment Outlook

Date of Call: October 28, 2025

Financials Results

• Revenue: $1.606B, up 35.4% YOY
• EPS: $1.05 adjusted diluted net income per share, up 15.4% YOY
• Gross Margin: Adjusted EBITDAC margin 36.6%, up 170 basis points YOY

Guidance:

• Accession Q4 revenues expected $430M–$450M; adjusted EBITDAC margin slightly below full‑year due to seasonality.
• Q4 amortization $110M–$115M, interest expense $95M–$100M, investment income $20M–$25M.
• Q4 contingent commissions expected $30M–$40M (excludes Accession contingents).
• Retail organic growth expected similar to Q3 (as‑reported ~2.7%); Specialty Distribution organic could decline mid‑single digits in Q4.
• Full‑year adjusted EBITDAC margin outlook increased modestly versus prior expectation.

Business Commentary:

* Revenue and Organic Growth: - Brown & Brown, Inc. reported revenues of $1.6 billion for Q3 2025, growing 35.4% in total and 3.5% organically compared to the same period in the prior year. - The growth was driven by acquisitions, including the largest being Accession, and by strong demand in certain industry segments, despite headwinds from government shutdowns affecting some business lines.

• Profit Margin Expansion:
• The company's adjusted EBITDAC margin improved by 170 basis points to 36.6%, with adjusted earnings per share growing over 15% to $1.05.

• Margin expansion was partially offset by seasonal revenue and profit impacts from recent acquisitions like Accession and Quintes, but was also driven by higher contingent commissions and investment income.

• Insurance Market and M&A Activity:

• Brown & Brown completed 7 acquisitions with estimated annual revenues of $1.7 billion, with Accession being the largest.

• The company's focus on M&A was driven by a strong pipeline of domestic and international opportunities, aiming to culturally fit and financially sensible acquisitions to enhance capabilities and resources.

• Employee Benefits and Healthcare Costs:

• The Retail segment faced an 1% impact on organic growth due to adjustments related to employee benefits incentives.
• This was attributed to dynamics in the labor market and healthcare costs, requiring companies to manage costs by adjusting employee benefits plans and offering fewer comprehensive coverage options.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted strong results: "delivered revenues of $1.6 billion, growing 35.4%"; "adjusted EBITDAC margin improved by 170 basis points to 36.6%"; "adjusted earnings per share grew over 15% to $1.05"; Board raised dividend 10% and expanded share repurchase authorization to $1.5B.

Q&A:

• Question from Michael Zaremski (BMO Capital Markets Equity Research): How should we think about the relationship between organic growth and EBITDAC margins over time—can we correlate lower organic growth with margin pressure?
  Response: Do not directly correlate organic growth to margins because contingent commissions and investment income materially drive margins; company still targets adjusted EBITDAC in the ~30–35% range.

• Question from Michael Zaremski (BMO Capital Markets Equity Research): Are any businesses being impacted by the government shutdown that we should factor into Specialty or Q4 results?
  Response: Some Medicare/social‑security set‑aside and flood businesses are affected and may see revenue timing delayed into Q4/Q1, but renewals are largely manageable and backlog typically catches up.

• Question from Alex Scott (Barclays): Can you provide more color on the ~1% impact to Retail organic from the incentive commission adjustment called out in prepared remarks?
  Response: A year‑end negative adjustment to employee‑benefits incentive accruals (after overperformance in 2024) reduced Retail organic by ~1% versus prior year and will influence Q4 carryover.

• Question from Alex Scott (Barclays): As you plan for next year, is the Retail business reverting to the low single‑digit organic growth run rate you previously described?
  Response: Yes — management reiterates Retail is a low‑ to mid‑single‑digit organic growth business in steady‑state; no 2026 organic guidance provided.

• Question from Dean Criscitiello (Keefe, Bruyette & Woods): Will the incentive commission headwind in Retail continue into 2026 or is it transitory?
  Response: Management expects the incentive commission headwind to be isolated to Q4 and not to carry into 2026 based on current information.

• Question from Dean Criscitiello (Keefe, Bruyette & Woods): Are you seeing movement from E&S back to admitted market this quarter and what do you expect going forward?
  Response: There may be some movement back to admitted for select risks, but overall E&S market growth will not be offset; E&S remains expanding.

• Question from Mark Hughes (Truist Securities, Inc., Research Division): If carriers get aggressive at year‑end after a clean CAT season, what does that mean for rates?
  Response: If reinsurance softens (management cited 5–15%), it likely puts downward pressure on E&S/admitted pricing and selective carriers could offer aggressive year‑end pricing.

• Question from Mark Hughes (Truist Securities, Inc., Research Division): Any color on the construction market, especially Florida?
  Response: Construction costs are rising and activity remains robust in Florida, but home sales are slowing and living costs (including insurance) are increasing.

• Question from Bob Jian Huang (Morgan Stanley): How were property renewal rates in Q3 and what should we expect in Q4?
  Response: Property renewal rate environment is broadly similar to Q3, with the caveat that selective markets could become more aggressive in December.

• Question from Matthew Heimermann (Citigroup Inc., Research Division): How is the private flood rollout performing and can it offset NFIP disruptions?
  Response: Private flood distribution is additive (recent private flood deal closing 11/1) and growing, but private flood cannot replace NFIP for all risks; Wright Flood platform remains separate for NFIP.

• Question from Matthew Heimermann (Citigroup Inc., Research Division): How are cross‑currents in employee benefits (medical cost inflation vs. labor trends) affecting premium and plan design?
  Response: Clients are focused on containing spend via plan design, utilization management and pharmacy strategies; Brown & Brown is investing in capabilities to help clients manage multiyear healthcare costs.

• Question from Elyse Greenspan (Wells Fargo Securities, LLC, Research Division): Is the Accession deal tracking to prior expectations on revenue, margins and synergies?
  Response: Yes — Accession revenues and margins are in line with expectations and synergies are planned to be realized over a three‑year integration (target complete by end of 2028).

• Question from Mitchell Rubin (Raymond James & Associates, Inc., Research Division): What areas are you investing in technology and how should we think about the run rate into 2026?
  Response: Ongoing multi‑year investments focus on data analytics, underwriting, administrative automation and customer/teammate experience; early benefits are visible but the program continues.

• Question from Mitchell Rubin (Raymond James & Associates, Inc., Research Division): Post‑Accession, what is your target debt leverage range and timing to return there?
  Response: Gross leverage target 0–3x (net 0–2.5x); management expects to delever back into those ranges within roughly 12–18 months via scheduled paydowns and natural deleveraging.

• Question from Brian Meredith (UBS): Did new business in Retail return to normalized levels after Q2 issues or is there room to rebound?
  Response: No new‑business issues observed in Q3; Q4 may show lower multiyear policy volume versus last year but underlying new‑business activity is healthy.

• Question from Robert Cox (Goldman Sachs Group, Inc., Research Division): Did the Retail segment benefit from Accession seasonality this quarter?
  Response: Yes — Retail margin had a positive contribution from Accession, a headwind from Quintes seasonality, and benefit from expense management.

• Question from Robert Cox (Goldman Sachs Group, Inc., Research Division): How is the U.K. business performing versus the U.S. and what market factors matter?
  Response: U.K. performance is similar though weaker GDP growth and rate‑decrease pressure exist; liability rate increases are less pronounced than in the U.S.

• Question from Michael Zaremski (BMO Capital Markets Equity Research): Is lender‑placed insurance growth moderating and should we expect share loss?
  Response: Lender‑placed remains a strong business but growth is moderating after several years of outsized wins; competition and long sales cycles mean growth can slow or accelerate as contracts convert.

• Question from Joshua Shanker (BofA Securities, Research Division): With a $1.5B buyback authorization, how do you decide between share repurchases and tuck‑ins?
  Response: Capital allocation is evaluated case‑by‑case with a disciplined framework; management will pursue buybacks or M&A when each represents the best long‑term value.

Contradiction Point 1

Retail Organic Growth Expectations

It involves differing expectations for Retail organic growth, which impacts investor understanding of the company's performance and growth trajectory.

Can you clarify the 1% impact on Retail organic growth? - Justin (for Alex Scott, Barclays)

2025Q3: The impact is due to adjustments for incentive commissions in employee benefits. This year's adjustments are negative, unlike the positive adjustments in 2024. This will impact fourth-quarter organic growth. - R. Watts(CFO)

Could you explain the fluctuations in new business within Retail organic and their impact on Q3 expectations? - Mark Douglas Hughes (Truist Securities)

2025Q2: The growth discrepancy in the first half of the year was over 90% due to downward pressure on rates and about 10% due to lower new business. - J. Powell Brown(CEO)

Contradiction Point 2

Impact of New Business on Organic Growth

It highlights differing perspectives on the impact of new business on Retail organic growth, which affects how investors understand the company's growth dynamics.

Can you clarify the 1% impact on retail organic growth? - Justin (for Alex Scott, Barclays)

2025Q3: This year's adjustments are negative, unlike the positive adjustments in 2024. This will impact fourth-quarter organic growth. - R. Watts(CFO)

Can you elaborate on the fluctuations in new business and their impact on Q3 expectations? - Mark Douglas Hughes (Truist Securities)

2025Q2: The growth discrepancy in the first half of the year was over 90% due to downward pressure on rates and about 10% due to lower new business. - J. Powell Brown(CEO)

Contradiction Point 3

Economic Growth and Pricing Contribution to Organic Growth

It illustrates varying explanations of how economic growth and pricing contribute to organic growth, which influences investor understanding of the company's growth drivers.

How should we assess the link between organic growth and EBITDAC margins as future growth expectations decline? - Michael Zaremski (BMO Capital Markets Equity Research)

2025Q3: Economic growth is a significant driver of our organic growth in our core middle market and large account market. At this point, we're not seeing a marked decline in the overall economic conditions. That being said, we certainly are aware of some of the economic pressures. - J. Powell Brown(CEO)

Could you provide an update on the breakdown of economic growth and pricing contributing to organic growth? - Meyer Shields (Keefe, Bruyette, & Woods, Inc.)

2025Q2: The contribution of economic growth and pricing to organic growth varies across business segments, with economic growth driving 2/3 to 3/4 of growth in the core middle market and large accounts, while pricing contributes more in Programs and Wholesale. - J. Powell Brown(CEO)

Contradiction Point 4

Incentive Commission Impact on Organic Growth

It impacts expectations regarding the organic growth of the Retail segment, which is crucial for understanding the company's financial performance and investor expectations.

What explains the 1% impact on Retail organic growth? - Justin (for Alex Scott, Barclays)

2025Q3: The impact is due to adjustments for incentive commissions in employee benefits. This year's adjustments are negative, unlike the positive adjustments in 2024. This will impact fourth-quarter organic growth. - Andy Watts(CFO)

What specific numbers can you share regarding Quintes’ impact on retail margin and the organic timing shift in Q1, and what does this imply for the remainder of the year? - Mark Hughes (Truist Securities)

2025Q1: If you utilize the guidance that we provided before on Quintes, about 60% of those revenues came in the first quarter. So, it's just naturally going to be higher in terms of margin. - Andy Watts(CFO)

Contradiction Point 5

Growth Expectations for Specialty Segment

It involves differing expectations for the growth and impact of the Specialty segment, which is a critical component of the company's business strategy and financial outlook.

Should we consider the impact of the government shutdown on the Specialty segment in Q4? - Michael Zaremski (BMO Capital Markets Equity Research)

2025Q3: Yes, a few businesses are impacted by the shutdown, including those in the Medicare social security set-aside and flood businesses. Revenue is backlogged due to government closedown. Renewals will continue in the fourth quarter, but new policies are on hold until the government reopens. - Andy Watts(CFO)

What were the key drivers behind last year’s net new business success? How do you expect net new business to perform in 2025 compared to industry trends? How might California’s actions impact your new business in 2025? - Gregory Peters (Raymond James)

2024Q4: I would say, we had a very strong year throughout our business, 9% organic in the quarter and 7% for the year. If you look at our Specialty area, we grew 26% organically for the year. - Powell Brown(CEO)