Prepared remarks
Good morning, and welcome to Brown & Brown, Inc. Second Quarter Earnings Call. Today's call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call and including answers given in response to your questions, may relate to future results and events or otherwise be forward-looking in nature. Such statements reflect our current views in respect of future events, including those relating to the company's anticipated financial results for the second quarter and are intended to fall within the safe harbor provisions of the securities laws. Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or desired or referenced in any forward-looking statements made as a result of the number of factors. Such factors include the company's determination as it finalizes its financial results for the second quarter that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday. Other factors that the company may not have currently identified or quantified and those risks and uncertainties identified from time to time in the company's reports filed with the Securities and Exchange Commission. Additional discussion of these and other factors affecting the company's business or prospects as well as additional information regarding forward-looking statements is contained in the slide presentation posted in connection with the call and in the company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measures can be found in the company's earnings press release and the investor presentation for this call on the company's website at bbrown.com by clicking on Investor Relations and then Calendar of Events. With that said, I would now like to turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.
Thank you, Michelle, and good morning, everybody, and welcome to our second quarter earnings call. Before we get into our performance for the quarter, which we're pleased with, I'd like to touch on several topics that many investors are asking about our business and about the industry. First, we're very focused on our organic growth with and without contingents. Please keep in mind, our organic growth with contingents is a closer comparison to the other brokers as most do not break out their contingent commissions. This is why we added the additional performance metrics starting in 2026. We want to evaluate organic on both a quarterly and a year-to-date basis as contingents will fluctuate when compared to prior quarters or prior years. Second, capital allocation. We remain focused on hiring talented people to help us grow our business organically to $8 billion and beyond. Next, we're focused on buying back our stock. We continue to view share repurchases as an attractive use of capital at the present time. Finally, we're looking at acquisitions that are strategic in nature, not solely for scale. Third, you probably saw our announcements regarding our new partnerships with McKinsey, Accenture and Anthropic. These partners are helping us accelerate the work we've already done with AI and helping us think more broadly pertaining to the holistic application of these solutions. We believe new technologies and AI will enable our teammates. We're focused on better customer outcomes and assisting our teammates with the ability to go to market faster, be more efficient and be better prepared. We'll get into more detail about AI later in the conversation. Now let's pivot to our results. We're pleased with our financial performance for the quarter, which came in modestly ahead of our expectations, even with continued pressure from declining CAT property rates. This performance reflects the efforts of our exceptional team of professionals and their passion to deliver risk management solutions for our customers. I'll provide some comments regarding our performance, the insurance markets and our customers. Then Andy will discuss our financial performance in more detail. Lastly, I'll wrap up with some closing thoughts regarding the second half as well as technology before we open up the call for Q&A. I'm on Slide 4. For the second quarter, we delivered revenues of $1.7 billion, growing 30.4% in total. Organic revenue decreased 70 basis points from the prior year and increased 70 basis points when including organic contingents. We view this as a good result given the second quarter is the largest quarter of the year for CAT property placements. Our adjusted EBITDAC margin decreased 100 basis points to 35.7%, and our adjusted earnings per share grew nearly 4% to $1.07. Through the first six months of 2026, we generated good cash flow from operations and repurchased additional shares during the quarter. Lastly, we acquired six small agencies. I'm on Slide 5. From an economic standpoint, conditions during the second quarter remained relatively consistent with previous quarters. Customer spending patterns were stable overall, and most customers continue to take a fairly neutral position towards hiring and investment. We're seeing a relatively stable labor environment with capital investment decisions remaining modest across most of the economy. Depending on the industry, some customers are growing substantially and others are contracting. At the same time, we're seeing some positive audit premium activity, which suggests many businesses continue to grow. Based on conversations with our customers during the quarter, the primary areas they continue to monitor are inflation, oil prices and broader geopolitical matters. Those issues are influencing sentiment, but at this point, we've not seen a material change in overall activity levels. From a commercial insurance pricing standpoint, rate changes in the second quarter were broadly consistent with the first quarter, with some additional moderation in certain lines. In the admitted market, rates were substantially in line with the first quarter of 2026. Workers' comp and non-cat property were generally flat to down 5%. For casualty, the market is different for primary versus excess. Primary casualty and professional liability are generally up 5%, while excess layers in casualty experienced more rate pressure. In property, CAT rates continue to decrease 15% to 35%, which is similar to the first quarter. As we've said before, there's always exception to the ranges, but overall market conditions for CAT property remain favorable for our customers. There continues to be a significant amount of capital seeking to underwrite risk with supply exceeding demand. Certain customers are benefiting from the lower pricing environment and capturing the savings while others are redirecting the savings to change their structures, limits or deductibles. For employee benefits, pricing trends were similar to the first quarter. Medical costs remain up 8% to 10%, and pharmacy costs were up again over 10%. Those cost pressures continue to create demand for our advisory and consulting capabilities as customers look for strategies to better manage health care and pharmacy costs. Overall, when we step back and look at both the economy and the insurance market, customers are still operating with discipline and they're growing modestly. Insurance market remains competitive for many lines while casualty pressures persist. In these market conditions, we believe our capabilities position us well to help customers navigate the market. I'm on Slide 6. Let's transition to the performance of our two segments for the second quarter. Retail delivered organic growth, including contingents, of 2.5% and 1.5% excluding contingents. These growth rates were slightly above our expectations as net new business was better and contingent commissions were particularly strong. Our enhanced go-to-market sales model is building momentum with newly aligned teams collaborating, developing opportunities and generating incremental new business wins that leverage our collective capabilities. While the organic growth for retail is improving, it's not where we want it to be yet. Our team has been working hard to combine two large organizations, and we're making good progress to deliver improving organic growth over the coming quarters. I have confidence in our team. Turning to specialty distribution. For the quarter, organic revenue was negative 1.6% with contingents and negative 3.5% without. These organic revenue metrics were negatively impacted by nearly 200 basis points due to approximately $10 million of delayed new business revenue for one of our programs. This revenue is expected to be recorded substantially in the third quarter. Taking this timing into consideration and the downward pressure on CAT property rates, the results for the quarter were in line with our expectations. Similar to the last quarter, we received a large volume of submissions, expanded our underlying policies in force and it was another great quarter for contingents. We view this as a reflection of the quality of our capabilities and underwriting discipline as we're growing our base customers. Now I'd like to turn it over to Andy to discuss our financial results in more detail.
Thank you, Powell. Good morning, everybody. I'll dive deeper into our consolidated results and certain non-GAAP measures. As a reminder, when we refer to EBITDAC, EBITDAC margin, income before income taxes and diluted net income per share, we're referring to those measures on an adjusted basis. We're over on Slide 7. On a consolidated basis, we delivered total revenues of $1.700 billion, growing 30.4% as compared to the second quarter of 2025. Contingent commissions grew by an impressive $40 million, with $24 million coming from Accession. The underlying organic increase was driven by minimal storm claim activity and higher underwriting profitability primarily within our Specialty Distribution segment. Additionally, retail had a good quarter for contingents due to our enhanced carrier engagement model. Income before income taxes increased by 17.4% and EBITDAC grew by 27%. Our EBITDAC margin was 35.7%, a 100 basis point decrease from the second quarter of the prior year. This was driven substantially by lower interest income as compared to the second quarter of last year when we were holding cash in anticipation of purchasing Accession. Regarding Accession, we recognized total revenues of approximately $410 million for the quarter and margins were in line with expectations. During the quarter, we also disposed of a noncore retail business with nonrecurring annual revenues of approximately $30 million to $35 million. Our effective tax rate for the quarter was 24.6%, slightly below the second quarter of 2025. Diluted net income per share increased 3.9% to $1.07. Our weighted average shares outstanding increased by approximately $41 million to 334 million, primarily due to shares issued in connection with the acquisition of Accession. This increase was partially offset by approximately 9 million shares we repurchased over the last nine months. Lastly, our dividends paid per share increased by 10% as compared to the second quarter of 2025. We're moving over to Slide 8. The Retail segment grew total revenues by 35.9%. This expansion was driven primarily by acquisition activity over the past year and organic growth, including contingents of 2.5%. Regarding our previously discussed pharmacy consulting business, the negative impact on organic growth was approximately 60 basis points for this quarter. Regarding the litigation impact associated with individuals who left and joined the start-up broker, the current period adjustment to organic revenue was $18 million. The increase from the first quarter was primarily driven by the impact of earning lower incentive commissions, which we adjusted on a year-to-date basis. Based on currently available information, we anticipate the full year 2026 revenue impact related to new and lost business as well as incentives to be in the range of $50 million to $60 million. Our EBITDAC margin was strong, expanding 230 basis points from the second quarter of last year. This increase was driven by higher contingents, disciplined expense management and the impact of synergies. During the quarter, we realized an expense benefit of approximately 110 basis points from certain one-time accrual adjustments. Lastly, there was a net benefit to our margins of approximately 30 to 50 basis points due to individuals that departed to the start-up broker. We continue to expect this benefit will moderate over the coming quarters as we hire new teammates. We're moving over to Slide 9. Specialty Distribution grew total revenues by 28.1%, driven by the acquisition of Accession and increased contingent commissions. The higher contingents of $21 million were driven by $12 million of acquisition activity and $9 million from favorable underwriting performance. Our EBITDAC margin decreased 400 basis points to 42.7%, primarily due to lower unit growth and investments in our European capabilities to support incremental growth opportunities which more than offset higher contingent commissions. A few other comments regarding cash flow and our balance sheet. We generated approximately $610 million of cash flow from operations, increasing $70 million or 13% compared to the first half of 2025. Our ratio of cash flow from operations to total revenues was 17% for the first six months of this year as compared to 20% in the first half of last year. The current year's cash flow conversion ratio was negatively impacted by two items related to Accession. The first was nonrecurring related items with the largest component being higher than anticipated final earn-out payments. The second item was the timing of working capital during the first and second half of the year. Isolating these items, our underlying cash flow was strong. Lastly, during the past six months, we deployed $500 million to repurchase approximately 8 million shares. We continue to anticipate strong cash generation for the remainder of the year, and we'll balance our deployment of capital between hiring people to help us grow organically, share repurchases, deleveraging and M&A. Regarding the outlook for the second half of the year, we continue to believe organic growth will improve in both divisions and are anticipating retail organic growth excluding contingents to be in the range of 1.5% to 2.5% and organic growth for specialty distribution to be in the range of 2% to 4%, excluding contingent commissions. With that, let me turn it back over to Powell for closing comments.
Thanks, Andy. Great report. I'm on Slide 10. From an economic perspective, we expect growth for the markets in which we operate to be relatively consistent with the last few quarters. With heightened levels of geopolitical instability and inflation as well as the potential for higher interest rates, we believe business leaders will remain cautious. As a result, we think investments in hiring will continue to be similar levels to what we've seen over the last few quarters. As our customers have done in the past, they will navigate current challenges while pursuing growth opportunities. From a pricing standpoint, we expect admitted rates to moderate slightly, but we do not expect significant changes. E&S rates are expected to remain bifurcated: excess and casualty continue to increase and CAT property will decrease at rates similar to the first half of the year. In addition, we're seeing the admitted market become more competitive in some accounts in the E&S space. As a reminder, the third and fourth quarters are our lowest quarters for CAT property placements. From an integration standpoint, we're pleased with the progress we've made to bring our teams together to deepen collaboration and leverage our capabilities. Consistent with our messages last quarter, we remain confident in our integration activities and the ability to deliver synergies of $30 million to $40 million this year. Overall, our team is doing an outstanding job, and I'm pleased with our progress. Balance sheet and cash flow are strong and therefore, we'll remain focused on investing in teammates to help us grow organically, share repurchases, debt reduction, enhancing our technology capabilities and selectively acquiring specialized firms. Our goal is to deploy the capital we generate to drive long-term shareholder value. Lastly, we wanted to further the discussion from last quarter regarding artificial intelligence and our views on how AI may impact our business, our customers and our industry. As a reminder, we believe AI will be an enabler for our company and our teammates. We're focused on transforming our sales and service processes, optimizing our underwriting and placement processes and enhancing our support functions. We do not believe technology will replace the need for risk advisers, brokers or delegated underwriters; rather, we believe it will enhance our capabilities to make them more effective in their roles. Our technology strategy is aligned with our goal to be the leading global provider of risk management solutions. To further our journey and build on our momentum, you may have seen last week we entered into partnerships with Anthropic, McKinsey and Accenture to help enhance our strategy and execution. Each organization is a leader in its field and brings specific expertise that will support our ongoing AI strategy. As we've discussed last quarter, we followed a disciplined path: first building AI awareness and education across the organization, then advancing into pilot programs to validate value and practical use cases. Based on the success of these initiatives and our teammates leaning in, we're ready to take the next steps to thoughtfully rewire key business processes, including sales and placement, submissions and underwriting and in the functional support areas. The rewiring is expected to drive faster cycle times, higher productivity and stronger organic growth. As of now, we're not calling out any incremental technology spend. Based on our previous investments and the acquisition of Accession, we're able to redirect resources from running the business towards data analytics, innovation and AI. If facts change and we need to highlight an incremental investment in technology, we will communicate our approach and expectations like we did in the past when we made larger technology investments. Regarding expectations, we do anticipate incremental organic growth and margin expansion will occur over the coming quarters and years as AI, data and analytics become more embedded in our workflows and the workflows of the industry. In closing, we feel great about the business, our activity levels and how the team is leveraging our capabilities. Our focus continues to be on the customer and disciplined execution, which positions us well to deliver improving organic growth and strong bottom line results over the coming quarters. With that, I'll turn it back over to Michelle and open the lines for Q&A.
Questions and answers
The first question comes from the line of Mike Zaremski with BMO Capital Markets.
On the Accession integration, I have a two-part question. First, when we look at total revenues for the quarter, excluding the organic delta versus the Street, revenues appeared higher by at least a couple of percentage points. I assume that increase is due to Accession. Is there any revenue timing or other considerations we should keep in mind? Second, on the margin bridge: given that Accession is coming in at a material rate, can you help us understand how seasonality will impact margins going forward?
Mike, Andy here. On the revenues, the guidance that we gave over a few different quarters, we said revenues are relatively well balanced between each quarter. July is a big month for the business on placements for us. And so that's probably one of the areas that has some seasonality to it that moves the revenues around. But I think we were right in the range of about $440 to $445 million in the first quarter and $410 million in the second. That's pretty much right in line with what we're anticipating for the business and we didn't see anything unusual inside of there. And then you get a pretty good idea on the back end of the year on what we reported. We did have, like everybody else, some noise on the implementation of ASC 606. So there'll probably be a few things that move around by the quarters, but overall it should be pretty comparable for now. On the bridge, what we communicated was that the business runs around a 35% margin in total. So any addition or subtraction to Brown & Brown at a total level will fall around the margins in our Specialty Distribution, just purely from a weighting standpoint because our legacy programs and wholesale business ran higher than that, but that's kind of right in line with what we anticipated when we did the deal.
Okay. Then just quickly as a follow-up on the cash flow impact from Accession. I think you said in your prepared remarks, which were helpful, there was an earn-out impact. So that's not going to reverse. Is there a continued earn-out impact? Or is this earn-out sooner than expected? I just want to make sure when we think about your cash flow conversion, you guys still have one of the best cash flow conversions; I want to make sure we're thinking about that correctly on a go-forward basis.
Sure. Yes, Mike, our comment there was that was really a one-time item associated with earnouts that we carried over at the time of the acquisition. So we don't see that same level of impact to the cash flow going forward. We still think the overall business itself will run in that 24% to 27% on a cash flow conversion over the long term. We feel really good about it. The organization does have a lower cash flow conversion in the first half versus the second half, but very similar to Brown & Brown.
Understood. So one-time and even with the tech investments still 24% to 26%?
Yes, correct.
Our next question is going to come from the line of Gregory Peters with Raymond James.
So I'm going to pivot to the organic revenue growth. Powell, you said in your press release you have great momentum as we head into the back half of the year. And I'm trying to reconcile that comment with the numbers that we reported, particularly in the specialty business. There's a lot of rhetoric in the marketplace around price competition, especially coming from MGAs. I have to believe that's going to spill over and have some drag on your program business. But maybe you can just help us understand about the momentum that you're seeing internally.
Okay. So let's address the point that you just made because I think that's a very fair one. In the E&S space, there is more competition today from admitted markets and programs than there has been in the past, and that is exactly what you would expect in a transitioning market. So having said that, remember, we have all the new 180 programs, which are obviously part of Arrowhead Specialty today, coming online and the vast majority of those are casualty-driven. That doesn't mean that's good or bad. It just means it gives us a broader balance of our risk portfolio. And the answer is we are very disciplined about our underwriting. And so you're correct in saying that it will continue to put pressure on our programs. But as Andy said, we believe that programs will grow somewhere in the range of 2% to 4% organically in the second half of the year.
Okay. Thanks for that answer. I guess I'm going to pivot to — well, I guess, stay on the pricing cycle theme — can you walk us through the accounting on contingents and this is where I'm going with it. With price competition and price cuts, particularly in property CAT and other areas, it seems like there's going to be this natural downward drift or headwind towards what kind of contingents you can get in the future. So can you walk us through the accounting? Is the contingents a real-time assessment? Is there a lag associated with it? The reason why I'm asking this is not necessarily 2026; I'm thinking about 2027 and 2028.
Okay. So I'm going to answer part of that, and I'm going to let Andy answer part of that. So remember, CAT property typically is in the E&S market. And as a result, it is not subject to a profit sharing or contingency. Having said that, Andy, would you like to address Greg's assessment of how the rest of it works?
Greg, maybe a good way to think about it is break it into basically two buckets. When you think about the retail side of the business, the contingents are pretty consistent, but we are not able to actually see the overall profitability for the book until we get to the end of the calculations, which are in the next year. That's why there's always adjustments up and down and so we're accruing those placement adjustments back and forth. When you get to Specialty Distribution, we actually have really good visibility within our programs. So we are adjusting those based upon how we're seeing our profitability on each program. And this is maybe where some people are potentially struggling: they're thinking about overall profitability in the industry going down therefore there should be a direct correlation to our programs. We calculate ours program by program, and we're very focused on the profitability that we deliver for our areas and we feel really good about our contingents. That's why if you look at even the fact that organic, excluding contingents, went down, organic with contingents actually went up. We will continue to focus on making sure we can deliver good profitability for our carrier partners.
Our next question is going to come from the line of Elyse Greenspan with Wells Fargo.
I wanted to go to the discussion about incremental hiring that you've done. So I just wanted to get an update on some of the hiring activity that you guys have done this year. Are there expectations that those new producers will benefit the organic numbers that you laid out for the back half? And how should we think about the hiring incrementally benefiting revenue growth in next year as well?
So Elyse, I want to clarify — thank you. We're always hiring talented people. This is not some new or different strategy. I think that's an important distinction. But I want to make sure that you and everybody else understands that we're very focused on organic growth and we're committed to continuing to hire good people as we always have. This is just part of normal business operations. If, in fact, we decided to put some significant investments and new talent into the system, we would call those out, but we're not calling those out right now. I just want you to understand how committed we are to focusing on growing our business organically. That has always been and always will be the focus of our organization: getting the right people in the right spots to deliver solutions for our customers. That's the most important thing. And so at the current priority levels, probably share repurchases come next. Then after that, technology investments and selected M&A.
And then my second question on retail: you gave guidance for the back half of the year saying in the range of 1.5% to 2.5%. When you think about those growth levels, are you assuming similar pricing conditions? And most interested also what you guys are assuming on the property side, assuming an inactive wind season, which seems like that's what people are expecting at this point?
Yes. So the first part of your question is yes, we're assuming that rates are kind of in line with how we spelled them out. There will be some moderation in admitted rates, we believe, and in the E&S space CAT property rates there will probably be continued downward pressure barring an event or events, and there will be continued upward pressure in certain segments of casualty. It is interesting that here we are at the end of July and not a lot of people are talking about wind season. Historically, in the last couple of years, we've had later events in September and even early October. I'm not foreshadowing something, but I do think it's kind of interesting. I have a question for you, though, Elyse: we've always broken out our organic growth on a basis of core and now we're giving you another metric of with contingents and without. The other brokers just give you one. How do you think about that? I'm curious how you view the incremental disclosure.
I think we all value the incremental disclosure that you guys are showing with contingents and without. I think there is one other broker that does show it similarly to you guys and the rest do not. So now we can look at it both ways to put you guys on a level playing field.
Our next question will come from the line of Mark Hughes with Truist.
Powell, I'll maybe ask you again to prognosticate on CAT property pricing. Your language seemed to be a little more constructive and really don't expect material change in the second half versus the first half. I'm just sort of curious whether you would be bold enough to say we're getting closer to a bottom or who's going to tell?
Yes. I don't want to speculate on getting to the bottom. But what I can tell you is if you look at rates for a specific geography, for example Southeast Florida, many of the rates for CAT property along the coast are today at 2017 levels. So they went up very quickly and then they came down in a period of almost two years very quickly. The rhetorical question, which I cannot answer for you, Mark, is how much more can they go down? I don't know. Generally speaking, and it's interesting no one's asked this yet this time, but I think it's kind of interesting: someone usually asks what would it take to change or stabilize that market. As much as it pains me to say this, I think it would take somewhere between $100 billion and $150 billion of losses to materially change or stabilize that market. That's staggering. Having said that, we don't hope for that, obviously. It would not be good for the people affected. But a large storm in the Gulf when water is really warm or along the Atlantic Coast could do easily $100 billion of loss depending on where it comes in. So I'm not calling the bottom, and I'm not going to speculate when we get to the bottom. There's going to continue to be a lot of competition with property in the near to intermediate term.
Understood. And then this may be a little too technical, but in the Florida surplus lines database you see a lot more policies in the E&S market, the premium per policy is down substantially, but it seems like a lot more people on the property side, a lot more policies are getting done in the E&S market. Does that agree with your observation? And why are more people going into the E&S market?
Yes, I'd agree with that. From a carrier standpoint, moving CAT property into the E&S market gives them flexibility of rate and form versus a filed admitted rate. That flexibility lets them pivot pricing and structure. In residential, regulators and insurance departments are trying to maintain a competitive marketplace and we've seen depopulation of Citizens in some areas. Some carriers historically on large property placements that are admitted want to reduce that exposure and the E&S market, because of the competitive environment, is quickly picking that up. E&S gives more flexibility on rate and form which explains the shift.
Our next question will come from the line of Tracy Benguigui with Wolfe Research.
Before getting to my question, since you asked earlier in the Q about feedback on your new disclosures, it would be helpful if you could recast prior periods of organic revenue, including contingent, to make that data more useful. Now getting to my questions: Going back to the contingent discussion, quick question: when you calculate profitability since we're not talking about property, there is a tail associated with an accident or a policy. What does your contingent commissions look back period look like in terms of years?
I'll make a broad statement because there's not one answer. There are programs that are single-year in focus and others that are multi-year look-backs. Many times, multiyear look-backs are in programs and in wholesale. In a broad statement, typically retail things are one year in nature and specialty distribution could be one to multiple years.
Tracy, on the multiple years, sometimes it may have a rolling calculation, so it might be an average over three years. There's nuance in each of those. To your first question on contingents, we did restate the prior year in the quarter. Are you thinking of a further period back? I just want clarification.
Yes, more periods. Just to see how they perform through cycles, etc. Correct. And then I have a follow-up on the Accession question. Back in the fourth quarter, you shared revised revenue recognition and you basically retreated from $430 million to $458 million a quarter, but you didn't change your annual guide which I think would imply $1.7 billion to $1.8 billion. So it's good to hear Accession revenues in the quarter came in as expected. But that would basically imply that the next two months of the third quarter would make up the difference. So do you still think you'll achieve your annual guide?
Yes. We still believe the business will be in that range. July is a large month for the business and also take into consideration our comment about selling a noncore business in retail of about $30 million to $35 million annually. We feel really good about the business, its performance and the growth outlook.
And our next question is going to come from the line of Rob Cox with Goldman Sachs.
So on the margin, there are a lot of moving pieces. At this point, is there an expectation for the 2026 full year margin? Curious if you can walk us through the bigger pieces and your comments on Accession and synergies, combined with the AI spend — should we be expecting less of the Accession synergies to drop to the bottom line?
No, our commentary entering the year anticipated margins would be around flat excluding lower investment income, and that was really the extra investment income we had in the second quarter of last year. We continue to hold that guidance. Based upon performance year-to-date and the outlook for the back half of the year, we reaffirm our synergy targets of $30 million to $40 million this year. On technology spend, we've been consciously moving cost from running the business toward data analytics, innovation and AI. We feel very comfortable with where we are in cost at this stage and are not changing any guidance on our margins for 2026.
Okay. Great. And just a follow-up on the Florida surplus lines clearinghouse administrator opportunity: that opportunity is out there for somebody. Just curious if you could tell us why or why not the opportunity to be the Florida surplus lines clearinghouse administrator would be interesting for Brown & Brown, and if you have any idea what this could mean for revenue or profit going forward for the selected broker?
Rob, obviously we're based in Florida and would like to continue to grow our business there, so we believe it does create an opportunity. But at the present time, we're not going to speculate on what that opportunity might look like until the process identifies the winner. Once that's taken care of and if we were one of the parties considered, we might talk about it. But we're not going to speculate now because that process hasn't run its course.
Our next question comes from the line of Pablo Singzon with JPMorgan.
As we start thinking about Accession rolling into Brown's overall organic, can you please give perspective on how the block has been growing in the past two to three quarters? Based on what you've disclosed so far, it seems like LTM revenues are running maybe a little over $1.7 billion. When you announced pro forma revenues were about $1.7 billion, but maybe a bit lower because assuming you grew over that base. Any perspective you can provide when you think about showing Accession in the next couple of quarters?
Pablo, going forward we won't be breaking out growth for Accession versus the growth for Brown & Brown. We're one company now. The guidance we gave for the back end of the year is a combined business. The business has been growing well on a comparable basis. We're very pleased with underlying performance and with how our teammates are helping us grow the organization.
Understood. Second question on margins: I want to understand better the sustainability of the strong result in Q2. You called out about 110 basis points one-time benefit in retail, and referenced other items like lower noncash stock comp and lower claims in Brown's health plan as drivers of favorable expense. Aside from the one-time accrual, should we expect the other favorable factors to persist in the second half?
No, not the one-time items we called out — we would not anticipate those recurring in Q3 or Q4. On ongoing items like healthcare claims and noncash stock comp, those are running costs. Healthcare claims normally pick up in the back half of the year based upon the structure of our plan, so we'll see how that progresses.
And our next question is going to come from the line of Andrew Andersen with Jefferies.
On Accession and recognizing it's a small percentage of the overall transaction value: if it is performing in line with expectations and the integration is going well, could you expand on why the 10-Q discusses a reduction in the earn-out liabilities driven by lower projected operating results?
Andrew, we estimated earn-outs at closing. As we got in and refined our view, we've adjusted those estimates. I wouldn't say that's a reflection of underlying performance. If you look at Brown & Brown historically, we don't normally have significant adjustments. Year-to-date over the last nine months around Accession, the overall delta is very small. We took charges and adjusted them this year, but the net impact over those nine months is very small.
Okay. And on the slides you mentioned future M&A could primarily focus on specialty businesses. Is that because valuations are more attractive in that area or because you think specialty is a larger strategic opportunity for you going forward?
The point is we're not thinking about scale solely. We're thinking about firms that have specialized capabilities. Don't take that too literally to mean only one subsegment. It could be in retail or in specialty distribution. We're bringing 5,500 new teammates together, executing our plan, and remain committed to growing organically. Our priorities are hiring talented people to grow organically, share repurchases, debt paydown, technology investments and selective M&A.
Andrew, to clarify — if you were thinking we said we were only looking at E&S, that would not be the case. We're looking for businesses that have specializations that add to our capabilities, and those could be in retail or specialty distribution.
And our next question is going to come from the line of Alex Scott with Barclays.
In Specialty Distribution, can you expand on the investments you're making in Europe? What are some of the things you're doing there and how do you expect that to contribute to growth over time?
In Europe, we have a large retail business and a growing wholesale and programs business. The investments referenced are in wholesale and programs — hiring new people to bring specializations and capabilities to grow the business organically. We see opportunities in London in both wholesale and programs and are pleased with the talent that has joined and the opportunities to grow.
Going back to retail: net new business was a bit better than you expected this quarter and it's building momentum. Can you talk about what you're doing to build that momentum and what gives you confidence to guide the back half the way you did?
We've implemented a new go-to-market strategy led by Steve Hearn and the team. We're leveraging capabilities better across the platform to benefit customers. Inventory levels and new business opportunities reflect that. Growth is not linear; there are ups and downs. Based on what we know and see, we believe we'll be in the ranges we've given and we're working to improve upon that.
And our next question is going to come from the line of Brian Meredith with UBS.
Any thoughts on the reauthorization of the NFIP program in September and how that's proceeding?
Brian, these reauthorizations have been pushed down the line multiple times. I don't see anything that would change that to have a lengthy reauthorization. So I don't have more to add — I don't expect a long-term reauthorization at this time.
Appreciate it. Second, curious on the litigation impacted revenues that popped up again this quarter. When do you expect that to start phasing out as far as annual impact? And aside from those producers leaving, how has producer retention been aside from that?
As it relates to the indication Andy gave, that is a full year estimated impact today, and we believe that number will fall within the stated range based on available information. On retention, we're very pleased with teammate retention overall. When bringing two organizations together, an event where people leave to a start-up broker can have a galvanizing effect on our team. While it was a difficult and unfortunate event, it has brought our teammates together to work in the marketplace with customers and prospects. So while it's a near-term negative for revenue, it has galvanized the team and we see positive outcomes in working together and hiring talented people to replace and strengthen those positions over time.
Our next question comes from the line of Yaron Kinar with Mizuho.
Just wanted to go back to the start-up and the individuals who've left and tie that to the comment about hiring. Wouldn't the need or opportunity to replace some of these individuals ultimately lead to an extraordinary hiring opportunity?
Short answer: in the affected marketplaces we've used this difficult event as an opportunity to hire talented people who fit Brown & Brown's culture. We have not fully replaced all who left yet, but we've hired many back and are looking for highly talented people to serve customers and bring on new customers. We intend to replace most, if not all, of those positions. Some replacements may have different capabilities that can help us grow further in the future.
Got it. So there's still opportunity to add positions to replace those who left, not necessarily shifting responsibilities more to existing teammates or to technology instead?
No. We're thinking about replacing most of those positions, and some of the new hires may have different capabilities that help us grow the business in the future. It can be viewed as a short-term negative but a longer-term positive.
Our next question is going to come from the line of Jian Huang with Morgan Stanley.
On the broader talent retention and competition: competition for talent is still intense. Can you unpack the current landscape for retention and new hires and how to think about the impact from the broader competitive landscape on your business?
You're correct that competition for talent is intense. Historically that competition was concentrated in major metro areas, but post-COVID it's broader. We need to articulate our capabilities and tools that teammates get at Brown & Brown compared to other firms. Our core business remains middle and upper middle market, but we have many niche capabilities across retail and specialty distribution and across the size spectrum. We view the organization as an athletic team and seek the best 'athletes' — the best people — for the roles. We believe our culture and reward systems are attractive to the right people and drive desired outcomes. We'll talk more about that in future calls.
Appreciate it. Second question on technology and IT spending. You talked about partnerships with Anthropic, McKinsey and Accenture. As AI costs potentially increase going forward, how should we think about potential incremental AI cost as you're ramping up technological capabilities? How should we think about margin implications for 2027, 2028?
Thank you. Many speak about the benefits of AI in terms of EBITDA improvement; at Brown & Brown we present AI as enabling better customer outcomes and enabling teammates. We believe AI will drive incremental organic growth and margins over time, but the true benefits will likely be seen in years three, four and five. We don't yet fully understand all token and usage costs across different implementations. Some users may not be applying AI to business outcomes, while other heavy users streamline processes and save money. We're committed to validating value and implementing use cases that drive measurable outcomes. We also have Dori Henderson as Chief Technology Officer to help implement. Keys to success are leaders leading, business engagement in process redesign, and accountability for outcomes and adoption. In the near term we're moving cost from running the business to data analytics, innovation and AI. If incremental spend is required, we'll communicate that and its expected impact on margins.
We highlighted expansion of our value management office to ensure that as we go through use cases the value is realized. We want clear value drivers and KPIs for each use case and to fail fast if needed.
And our next question is going to come from the line of Matthew Heimermann with Citi.
What could cause the expenses associated with McKinsey, Accenture and Anthropic to be higher than the reallocation you're talking about? Is that new systems, infrastructure, particular apps or integration-related expenses to achieve a use case? What would be a surprise there?
It probably comes down to the pace at which change can be implemented across the organization. We've designed the plans for which value streams we will rewire and how much change the organization can absorb. We feel comfortable with our current projections and expenditures and the expenditures that we can absorb within our margins. If things change, we'll come back and update you.
We're very pleased with the partners we're working with and excited about the opportunities ahead.
Thanks, I appreciate it.
We're going to take one more question. That question is from Roland Mayer with RBC Capital Markets.
I hate to make this last question about buybacks, but do you have an upcoming debt maturity that you said you intend to repay with the buyback commentary? Have you thought about maybe refinancing that and being able to buy back more stock?
Roland, we'll evaluate that as we go into the fourth quarter. We have $400 million maturing in December. We have very good cash flow and thus plenty of optionality. We will determine whether to retire all or a portion of that and evaluate refinancing in the fourth quarter.
Thank you. I would now like to hand the conference back over to Powell Brown for closing remarks.
Thank you, Michelle. We appreciate everybody's time and energy today. Wrapping up: we're pleased about the future relative to organic growth; our technology and AI strategy; share repurchases; and a debt paydown and selective M&A. We look forward to talking to you next quarter. Have a nice day. Thank you.
This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.