Brown & Brown, Inc. Aktie

Good morning, and welcome to the Brown & Brown, Inc. third 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 with respect to future events, including those relating to the company's anticipated financial results for the third 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 a number of factors.

Such factors include the company's determination as it finalizes its financial results for the third 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 and prospects as well as additional information regarding forward-looking statements is contained in the slide presentation posted in connection with this 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 measure can be found in the company's earnings press release. or in 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 will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

Good morning, everyone, and welcome to our third quarter earnings call. Before we get into our performance for the quarter, we wanted to recognize the 5,000-plus teammates from our Accession acquisition that marked their 1-year anniversary on August 1. It's amazing what we've accomplished over a relatively short period of time, and we look forward to everything we'll accomplish together in the future. A bit later, we'll provide additional color on our accomplishments in the first year of performance. Additionally, we'd like to highlight that last week, our Board of Directors raised our dividend by 9%, which represents an increase for the 33rd year in a row.

Now let's move on to our results for the quarter. In total, our financial -- overall financial performance represented a continuation of the improvement we delivered last quarter. Retail had a good quarter and performed above the top end of our expectations. Specialty distribution had some incremental headwinds and came in below our expectations, which we'll talk about in a few minutes. Our overall improvement was the result of utilizing our robust specializations to win more new business.

I'll provide some comments regarding our performance in the insurance markets and our customers. Then Andy will discuss our financial performance in more detail, including a first year recap of Accession. Lastly, I'll wrap up with some thoughts on our AI journey and closing comments regarding outlook. Then we'll open the call up to Q&A.

I'm on Slide 5. For the third quarter, we delivered revenues of $1.7 billion, growing 7.4% in total. Organic revenue increased 1.2% from the prior year and 1.5% when including organic contingents. Our adjusted EBITDAC margin decreased 200 basis points to 34.6% and our adjusted earnings per share grew nearly 2% to $1.07. Through the first 9 months of 2026, we generated strong cash flow from operations and repurchased $750 million of our shares. That includes $250 million in Q3.

On Slide #6. From an economic and customer investment standpoint, conditions in the third quarter were consistent with the first half of the year. Sentiment remained relatively stable, but varied based on industry and customer size. Some customers were more bullish than others regarding their level of hiring or investments, and we were generally influenced by exposure to inflation and interest rates.

Rate changes this quarter were fairly consistent with the first half of '26. Rates in the mid-market moderated downwards slightly compared with the first half of this year. Casualty and auto rates continue to increase with primary casualty generally up 2% to 5%.

Although the pace of increases for auto moderated slightly in some regions, excess and umbrella layers continue to see the largest increases and capacity continues to tighten for certain classes non-CAT property moderated downward and was generally flat to down 5%. Workers' compensation rates continue to decrease at rates similar to the first half of 2026. Outside the U.S., commercial rates in the U.K., Ireland and the Netherlands remain modestly negative with larger accounts seeing greater decreases than smaller accounts.

Shifting to the E&S market, property rates decreased 15% to 35%, and casualty rates continue to increase a pace similar to the first half with transportation and excess casualty remaining quite difficult to place. For employee benefits, medical rates increased 9% to 11% given -- driven by high-cost claimants and surge in health care costs. Materially higher in medical and pharmacy costs are more pronounced for smaller, fully insured groups. These cost pressures continue to create demand for our advisory and consulting capabilities as customers need to evaluate plan designs, employee contributions and alternative funding arrangements, including self-funded and captive solutions.

Overall, when we step back and look at both the economy and the insurance market, customers are operating with discipline, while overall growth and investment levels remain steady. The insurance market continues to be competitive for many lines, while casualty pressures persist. In these market conditions, we believe our capabilities position us well to win more new business and help our customers navigate this complex landscape.

I'm on Slide #5 (sic) [ Slide #7 ] . Let's transition to the performance of our 2 segments for the third quarter. Retail delivered organic growth of 2.6% and 2.5% when including organic contingents. These growth rates reflect continued incremental improvement in our net new business and good performance within our employee benefits and bond practices. In addition, the growth was driven by the alignment of our teams to enhance collaboration, identify incremental opportunities and generate new business wins that leverage our capabilities.

Turning to Specialty Distribution. Organic revenue growth for the quarter was down 80 basis points and increased 30 basis points, including organic conditions. As we discussed last quarter, we anticipated organic growth of plus 2% to plus 4% for the second half of the year. The third quarter performance was below our expectations due to several factors. First, the desire of admitted carriers to write more business and the abundance of capital drove incrementally more downward pressure during the quarter.

For binding and personal lines accounts we realized incremental movement from the E&S market into the admitted market. As an example, we're seeing admitted carriers now wanting to write in California and Texas. In addition, available capacity drove prices and terms downward even further for certain programs, primarily commercial earthquake. As we've mentioned previously, our disciplined approach to underwriting means we'll walk away from business at certain times with the objective to balance organic growth and profitability.

Second is our lender-placed program. While we did realize the $10 million of revenue delayed from last quarter, this same amount was offset by another delay on onboarding a portfolio of loans. When our customers acquire portfolios, they provide an estimate of loans as well as projected onboarding time lines. Due to size and complexity, the volume and timing can change over quarterly periods. We anticipate onboarding these loans during 2027.

And finally, a quiet storm season resulted in lower than anticipated flood claims processing revenue. Areas where we've delivered growth were in brokerage and programs for casualty, professional liability and public entity lines. Our CAT exposed lines of business -- in our CAT exposed lines of business, we saw increased polities in force even though our revenues declined due to significant rate decreases. Despite specialty distribution facing cyclical headwinds as CAT property rates decline and some policies return to the admitted market, we have a great business.

Its differentiated capabilities, a broad global distribution network and world-class carrier partners. This has enabled our team to deliver double-digit organic growth over the past 5 years organic growth above 8% over the past 10 years. We've been through cycles like this and have confidence that our team knows how to navigate the market for the long-term success.

Now I'll turn it over to Andy to discuss our financials in more detail.

Great. Thanks, Powell. Good morning, everybody. I'll dive deeper into our consolidated results and certain non-GAAP financial measures. As a reminder, when we refer to EBITDAC, EBITDAC margin, income before income taxes for diluted net income per share, we're referring those measures on an adjusted basis.

We delivered total revenues of $1.7 billion, growing 7.4% as compared to the third quarter of 2025. We had another good quarter for contingent commissions that grew by over 8% on an organic basis. Income taxes increased by 1.3% and EBITDAC grew by 1.7%. Our EBITDAC margin was 34.6%, a 200 basis point decrease from the third quarter of the prior year. Over half of this decrease was driven by approximately $29 million of lower interest income as compared to the prior year when we were holding cash for the acquisition of Accession.

Our effective tax rate for the quarter was 25.5%, slightly higher as compared to 24.7% in the third quarter as a result of an increase in state taxes. Diluted net income per share increased by 1.9% to $1.07 with growth slower than revenue due primarily to the higher investment income in the prior year. Lastly, our dividends paid per share increased by 10% as compared to the third quarter of 2025.

Over on Slide #9. Retail segment grew total revenue by 10.8%. This expansion was driven by the combination of acquisition activity during the past year in organic growth. Regarding the litigation impact associated with individuals who left to join th startup broker, current period adjustment to organic revenue was $16 million. Based on currently available information, we are not changing our previously dedicated expected full year impact for 2026 of $50 million to $60 million. Our EBITDAC margin expanded 10 basis points from the third quarter of last year. The increase was driven by disciplined expense management, revenue phasing from Accession and the impact of synergies.

Over on Slide #10. Specialty Distribution grew total revenues by 8.5% driven by the acquisition of Accession. Our EBITDAC margin decreased by 60 basis points to 43.3% due to lower organic growth and investments in our European wholesale capabilities. Moving over on Slide #11. Turning to Accession. The third quarter marked the first anniversary of the acquisition. During the past year, over 5,000 new teammates have become part of the Brown & Brown team. We're pleased with the cultural alignment, financial performance of the business and the progress of our integration efforts.

During the first year, Accession generated approximately $1.7 billion of revenue as well as EBITDAC margins and accretive diluted earnings per share that was substantially in line with our expectations. Regarding our EBITDAC synergies we previously communicated, our full year estimate for 2026 would be in the range of $30 million to $40 million. Based on the efforts of our teammates, we're increasing our full year 2026 expected benefit to approximately $50 million. The incremental synergies reflect strong execution across the organization and include operating efficiencies, enhanced carrier engagement and continued alignment of our go-to-market capabilities. We are now targeting run rate net EBITDAC synergies of $175 million by the end of 2028, up from the $150 million previously anticipated.

Regarding integration costs, when we announced the acquisition, we estimated incurring $200 million to $250 million over the first 3 years. With the higher expected synergies, we are increasing our range to $250 million to $300 million. In addition, GAAP requires that we expense certain prefunded debt-like items that approximate $90 million. As such, they will be recorded incrementally to the $250 million to $300 million.

From an integration standpoint, we have made incredible progress. Key milestones include aligned leadership structures, operating models and brands. We also harmonized teammates benefits and producer compensation. integrated financial and HR systems as well as controls, consolidated offices and selected businesses and refine our carrier engagement strategies. We want to thank all of our teammates for their incredible efforts to achieve these major milestones in the first year.

While substantial work has been completed, and there's still more to do, we believe the hardest part is behind us. We see meaningful opportunities on the horizon as our teams collaborate more closely. We leverage broader capabilities and create new opportunities to serve customers and carrier partners. Pleased with the performance of the session business and teammates for the first year. We also remain confident in our ability to deliver incremental organic growth margin expansion and long-term share value on a company-wide basis.

We've got a few other comments. Transitioning cash flow and the balance sheet. We generated $1.1 billion of cash flow from operations, increasing approximately $135 million or 13% as compared to the first 9 months of 2025. Our ratio of cash flow from operations to total revenues was 22% for the first 9 months and was substantially in line with the prior year. We anticipate continued strong cash generation in the fourth quarter and will balance our deployment of capital between hiring people to help us grow organically, share repurchases, deleveraging and M&A.

Regarding outlook and taking into consideration the improvement we've delivered over the past couple of quarters, we are now anticipating retail's organic growth, excluding contingents to be in the range of 2% to 3% for the fourth quarter. for specialty distribution, based on our earlier comments regarding market headwinds as well as the incremental negative impact of certain nonrecurring and time-and-related items of $8 million to $12 million we're anticipating organic growth excluding contingents to decline 2% to 4% in the fourth quarter.

As it relates to 2027, currently in the process of finalizing our budgets. And based on what we see today, we are expecting improving organic growth, excluding contingents for both divisions. For the retail segment, we're projecting organic growth in the range of 2% to 4% and 1% to 3% for Specialty Distribution segment. Once we finalize the year-end results, we'll clarify or adjust the ranges based on incremental information.

Few other comments regarding contingent commissions within specialty distribution. Taking into consideration accrual adjustments in the fourth quarter of last year and the anticipated adjustments in the fourth quarter of this year we're anticipating our year-over-year contingent commissions for specialty distribution to decrease $14 million to $16 million in the fourth quarter as compared to the fourth quarter of 2025.

With that, let me turn it back over to Powell for an update on our AI initiatives and closing comments.

Thanks, Andy. Good report. We want to update you on the progress of our AI initiatives. 90 days ago, we announced partnership with McKinsey, Accenture and Anthropic to further strengthen our business with an AI-first mindset. This phase has 4 priorities: enhance our technology foundations, further equip our teammates with new skills and tools to evolve how we operate and most importantly, deliver better outcomes and experiences for our customers. Our efforts are surrounded by a responsible framework anchored in strong cybersecurity and governance that was designed to accelerate our years of investment in data, analytics and technology.

Our latest accomplishments include completing a comprehensive assessment of our technology environment, building and governance and cybersecurity structures to the AI use cases and agents operate within clear protocols, clear controls and establish a value management office to measure investments and returns by initiatives. We've also moved quickly to deploy incremental AI capabilities in addition to all teammates having access to copilot over the past year. Just 45 days, we deployed Claude over 6,000 teammates with more than 90% actively using the platform. We're also in the process of rolling out Claude to the next group of teammates.

From an implementation standpoint, we're using AI throughout the insurance placement process across most of the company, including prospecting submissions, claims analysis, analytics and data extraction, just to name a few functions. Our continued experiences and results reinforce our view, AI is not a disruptor to our model, but rather as an accelerator. Everything we've built and will build is to help our teammates serve customers better. This is the idea behind Compass, which we announced in our press release last week.

Compass is a connected intelligent ecosystem that integrates AI-powered capabilities with our proprietary data analytics and specialized knowledge within our retail segment to support important risk management decisions and recommendations. By the end of this year, we expect Compass powered assistance and business intelligence solutions to reach thousands of teammates with an expanded suite of customer solutions planned throughout 2027.

We're bringing out our 2027 plan and will outline it, including investment and related benefits when we release our year-end earnings. To give a preview, we will not announce a multiyear, multi-hundred million dollar program. This landscape is evolving quickly, and we believe the prudent approach is a 1-year measurable tranches that tie the dollars we invest more closely to the returns that we expect.

Now a few final comments. From an economic perspective, we expect conditions in the markets in which we operate remain stable and relatively consistent with what we've seen through the first 9 months of the year. As a result, we expect investment in hiring to continued levels similar to the last few quarters with some companies deferring larger capital investments. As our customers have done in the past, they will navigate current challenges and capture opportunities to deliver growth. From a pricing standpoint, we expect rate changes for most admitted lines for the fourth quarter remain consistent with the third quarter with the potential for some continued slight moderation.

In the E&S market, we're looking at it from 3 perspectives. First, we expect casualty rates to continue increasing. Second, we expect CAT property rates will remain down in the fourth quarter. And please remember, in years with low or no CAT property losses, property markets can do and have done some very unusual pricing at year-end. Third, we expect the admitted market will remain competitive on certain accounts that are currently written in the E&S space.

Our balance sheet and cash flow remains strong, and our capital allocation philosophy is unchanged. We're focused on hiring teammates to help us grow organically, share repurchases, debt reductions and selective M&A with the goal of deploying capital we generate annually to drive long-term shareholder value.

In closing, we're pleased with our progress and accomplishments this quarter. Our focus remains on the customer and disciplined execution. There will be continued headwinds within our wholesale business and CAT property programs. but we believe the diversity of our businesses and our talent leaders will help deliver improving organic growth in 2027. As we continue our AI journey, we will enhance the effectiveness and productivity of our teammates to help deliver better customer outcomes, resulting in incremental organic growth and margin improvement.

Now let me turn it back over to Crystal to open the line for Q&A.

[Operator Instructions] And our first question will come from Michael Phillips from Oppenheimer.

I wanted to start with specialty, I guess. You're expecting a rebound next year. I think you said 1% to 3%, Andy said. It sounds like -- I'm not sure I understood your opening comments on that, the headwinds that you listed, those sounded to me, at least most of the mix up for the one on the lender-placed program sounded like they may be here to stay for a while. So can you go through whether you agree with that or not? And how you expect the specialty to rebound given those opening comments?

Mike, Andy here. I think when we look out to -- kind of taking into consideration will be some headwinds heading into 2027, we also know that we've got some growth in some businesses for next year. That would include a number of our specialty businesses that came over through the acquisition of Accession. So that includes our reinsurance, MGU, our affinity programs, our captive management programs. They've got good projections next year and that helped drive some growth in the back end of the year, but that's building going into next year.

We've also got some of the timing that we talked about in our lender-placed program, and that business is expected to come on next year. I don't know exactly of the date because some things are moving around there. but that will also help us in moving forward in that business. And we feel comfortable with that growth from those businesses that will help offset the headwinds on the CAT programs as well as wholesale and get us into that low single digits for organic growth.

Okay, Andy. Maybe just a little more general question. When you -- in your experience with larger acquisitions, do you ever see maybe a slowdown -- a temporary slowdown in the acquired business organic growth just from maybe broker distraction as they deal with the integration in general? And then have you seen any of that recently with your Accession acquisition at all.

So the short answer -- this is Powell, Mike. The answer at a conceptual level is yes. And as we've said, the performance of the acquired business is in line with the overall business. And now we're one business, so we don't break it out anymore. But the answer is when you're bringing 2 groups together, particularly large organizations, there is a lot going on. So yes, to your first question, the second part is performed some better, similar, some below. It's just like anything else. There's lots of different -- and Andy alluded to several of the businesses that he alluded to in the SD area. Some of those have seasonal growth patterns, and those were not reflected in 2026 because that occurred prior to August of the year. So that's also next year. Thanks, Mike.

Mike, that was why when we listed out the accomplishments that we've done in the last year, that's some serious heavy lifting that we just pulled off in the last 12 months. And so, yes, it did cause some disruption? Yes, probably somewhere inside it when you're moving parts around. But our comment was we think we've got the hardest part behind us. And our view when we go through these acquisitions is try to get it done as quickly as thoughtfully as possible. We still got some more to go, but we'd rather just get it behind us and move forward. And we feel like one united team now, which is really good.

Our next question will come from Andrew Kligerman from TD Cowen.

Paul, you talked a little bit about hiring. Could you give us a little color on net hiring and maybe the change in your producer count this year and where you see that going next year?

Yes. So Andrew, a couple of things. One, I want to clarify that we're always looking to hire talented people across the system. You asked specifically about producers, and I'll address that, but we are always looking to hire talented people. And so as you know, we have a stated goal to get to $8 billion of revenue as our next intermediate step. And in order to get there, we're going to either have to hire or acquire a number of very talented people. That's the first thing.

As it relates to numbers specifically, we don't discuss the specifics in terms of numbers, but I would tell you that we are hiring more producers today but that's not new. I'm saying, we are reinforcing and some people have, I think, misinterpreted some of our comments or seemingly and the information was put out that there's some correlation between our statements on talent and retention or something to that effect. Our producer retention inside of our organization -- and remember, we don't talk about Accession anymore post 81, but the retention of our producers in that business prior to the 1-year anniversary and Brown & Brown were very similar. So we're very pleased with a larger acquisition, the retention of those people, that's -- those producers. That's number one.

Number two, Again, there's lots of changes out there, as you know, in the insurance space, which can create opportunities for certain people who may not be happy in other places to come to Brown & Brown. And so we're always talking to people about that. And we've hired a number this quarter, and we'll continue to hire people in the coming quarters. The interesting thing about that, the flip side is that people realize that we have good people, too. So they want to try to hire our people. So we're doing the very best to create a platform for our producers to be the most successful and arm them with the most capabilities to be successful, which in turn enable them to grow personally, financially and otherwise, and help us grow the business.

Got it, Powell. And I'd like to get a sense also as we look at the specialty business -- or actually just before that, how should I get the sense that net hiring will be up without any particular guidance. And then my next question, my follow-up question is just around the different subsegments of specialty. It sounds like Arrowhead Specialty has the most juice in it as you talked about some of the unique programs there, MPU, reinsurance affinity. I think that's allocated all in Arrowhead specialty. But I'd like to get a little more color on what's going on there? And then maybe a little bit on Arrowhead programs and bridge specialty and how they're doing in terms of growth?

Sure. Okay. So the short answer to question one is, yes, that's the desire. As it relates to 2, the answer is yes, a number of those that we pointed to are in the specialty segment. Let's start with just wholesale for just a moment. Remember, our wholesale business, we have lots of binding authority. We have a good bit of property and casualty and professional. But in there in the binding authority and personal lines in our wholesale space, one of their biggest headwinds is the admitted market continued intrusion into that space.

So as you know, there are certain accounts that I call betweeners or in-betweeners or whatever you want to call it, that typically look more like an E&S account, but in a softening rate environment, admitted carriers will come in and write those. And then when the market stabilizes, typically those flow back into the E&S market. That's the first part.

The second part, as you know, is in the last several years, there have been a lot of challenges in personal lines in places like California and Texas and others. But those 2, in particular, and there was a lot of business that rolled into the E&S market in California and some of the admitted carriers have gotten comfortable with rates and terms through the insurance department out there to be able to write some of that business. So what I would say is they're facing normal pressure just like anything else. It's very competitive in the wholesale space. If you talk to anybody private or public, that was what they would say.

Remember, our business may be reflected as the makeup of our wholesale business might be slightly different than theirs. So the results of every wholesaler are highly dependent on the portfolio of businesses that are in there. As it relates to wholesale, I mean, specialty Arrowhead regular or programs. If you think about it, several of the big programs that have been discussed are wind-related businesses, quake related businesses and lender-placed businesses. So quake and wind, although Q3 is not a big property quarter, it is a big quake quarter as quick as every quarter. And so there's a lot of pressure there. That's very positive for our customers, but it's a challenge to grow.

And then lender-placed is not as much premium. It's not subject to such a wild whips and the pricing. But as I alluded to earlier, portfolios, we are given direction on when portfolios we think are coming online and sometimes those don't happen as planned. So we think that's a great business. It's just facing challenging dynamics right now, and they'll work their way through it. So thanks, Andrew.

Our next question will come from Gregory Peters from Raymond James.

Thank you for providing the organic guidance, not only for the fourth quarter, but give us an early view on what you think 2027 might look like? And you also highlighted some contingent headwinds in the fourth quarter. Can you give us some ideas of what's going on there? And if this is related to price competition and movements between E&S admitted side of the market, is it possible that when we look and think about contingents for next year that it could be a very tough comp as competition continues to ripple through the marketplace.

Greg, it's Andy here. Let me take that and just add a little bit more color to it. The -- on the contingent front, as you know, we're making accruals throughout the year. and then generally doing adjustments towards the end of the year or early in the year that we start receiving the cash. We did have positive adjustments in the fourth quarter of last year and specialty distribution. As we look through some of the accruals we made this year, we've got some adjustments that we'll need to make downward in the fourth quarter, that's what causes that kind of $14 million to $16 million impact year-over-year in the fourth quarter. But if you look at it on a full year basis for '26, we had a really, really good year for contingent commissions. So we're very pleased with that.

As it relates to 2027, still getting our arms around those as we're working through the projections probably would anticipate some downward pressure in '27 on contingents and specialty distribution. Just again, as overall profitability is shrinking in some of the programs, it will pull some of those down some. We're probably not going to see potentially what might be talked about in the general market because, again, we're calculating these on a program-by-program basis. Our comment is not relevant to retail. Those are pretty consistent over time. So they don't move by a tremendous amount.

Got it. I guess I'll pivot to the Slide 11, which you talked about the Ascension year-end review and you highlight the projected EBITDAX synergies. And I think you called out an unusual additional expense that's not inside this $250 million to $300 million number that's on the slide deck. But can you just give us -- I thought this is a multiyear basis, you said a multiyear project, you're kind of leading with -- leaving us with the impression that a big chunk of the heavy lifting has been done, but maybe you can give us sort of some more detail on progress update on the integration.

Sure. Let me tackle the first one on it, Greg. So it was part of the acquisition, the legacy Accession had a number of agreements in place on some of their previous acquisitions, and those need to be paid out post our acquisition. So in that case, gap is going to require that we actually expensed those because they're associated with performance in the future. Those were funded by the sellers for [ it ]. So that's why we're calling that out as kind of individual something that occurred pre-acquisition. And that's the $90 million. So you will see that flowing down into the integration cost. We just want to be clear on that front.

As it relates to the overall integration, we still have some systems work still to be done in retail. And we've got -- we've made a lot of progress, but we still have that underway. We still have some offices we still need to consolidate. We say we haven't finalized all that work at this stage. And then we have some additional combinations that still need to occur in specialty distribution.

Our next question will come from Mark Hughes from Truist.

Andy, any early thoughts on margins. Just roughly speaking, as we think about Q4 and 2027 EBITDAC margin?

So we haven't given any guidance yet, Mark, on '27 margins we'll tackle that when we get through year-end results and everything. As it relates to the fourth quarter, if you take into consideration our commentary on revenue guidance as well as contingents, we would expect the margins will be down in the fourth quarter compared to last year.

Okay. And then how about the cash flow next year? I think you're up 13% year-to-date with the integration costs, et cetera. How do you think about cash flow trending relative to revenue?

Should be good, and we would normally anticipate that our conversion ratio on a normal basis is kind of that 24% to 26% of revenues. And that will continue -- we keep heading back towards that range as the interest income comes down, but we would expect that ratio from where we are this year to increase a little bit this year, expecting good cash flow.

Yes. I might sneak one in with the quake pressure you're seeing. Is that largely pricing? Or is there mix in so far as maybe bigger carriers are just taking more of the quake along with their underlying property exposure. Is there some competitive dynamic like that.

It's a bit of both, Mark, because what you have is you are seeing admitted carriers providing a sublimit in some instances where they might not have been doing that before or slightly higher supplement. And so it's a combination of -- I think of it more as pricing pressure -- but there is absolutely a component of admitted markets, assuming some of it to, yes.

Our next question will come from Tracy Benguigui from Wolfe Research.

You gave helpful color on the reverse flow from nonadmitted to admitted in California, Texas, commercial earthquake. Should we think of it as relatively bespoke to those pockets? Or is it showing up more broadly even on the margin?

So the answer is it could happen anywhere, Tracy. And I think that's a good distinction. I just used that because we were talking about those components. But remember, binding authority business is everywhere, Personal Lines business is everywhere. You have accounts that -- and they don't have to just be property. These can be casualty accounts or professional where somebody in an admitted market will write it for a couple of years even though it looks and acts like a nonadmitted account. So it is everywhere, yes.

To be sure you're seeing it everywhere, more broadly?

Correct.

Okay. And this also may be a very basic question. But when you say you're walking away from programs because of your underwriting discipline, given that you're not a balance sheet company, is that primarily a reflection of the fronting carriers pulling back and applying tighter standards? And your discipline basically is a second derivative of that? Or is that driven more by your own focus on shared profitability where you walk away from a program, if it won't clear your hurdle rate?

Okay. So let's -- it's typically not a program. It could be accounts inside of a program. So that's a first clarification. The second thing is we are the largest delegated underwriter. We believe -- we know in the United States, but we believe in the world. And so we have relationships with both insurance companies and reinsurance companies and the way we approach it is similar in either scenario.

So what I would say is typically, carriers are looking to achieve certain metrics on programs. we're giving the authority to underwrite business within certain parameters in the event that there are accounts that actually don't fit those parameters. The carrier could one, accept one on a one-off basis or make a wholesale modification to what they're achieving or looking to achieve. So at the end of the day, we believe that we must deliver probable growth or profitable premium to our carrier partners. And as a result of doing that for decades, we have a lot of support because we -- is truly a partnership.

And so again, there might be an account that is a good account in any -- you could put it in any category, but somebody will do something in a market like this that doesn't make sense, and we have to make -- take the disciplined approach and walk away from it. So in many instances, we may get the opportunity to match or improve in our programs area, not every scenario, but in many instances, to match the terms and conditions. And if they don't fit, we don't do it.

Tracy, just one other thing just to keep in mind, and this is why we provide 2 metrics: the organic and then organic with contingents. And we've talked about this on a few different calls in the past is when we go through cycles like this, right, and these are -- you're never going to have this match, I'm going to talk about on a quarterly basis or sometimes on an annual basis.

But when you've got rates going up where they did a number of years ago, right, that drives up over profitability. So contingents are up in our programs. But then you go down the back end of this thing on rates, right? Our contingents continue to still be very high, but the organic -- those 2 need to be that together, okay? Don't look at them separately like that. You won't end up with the right outcome.

Our next question comes from Pablo Singzon from JPMorgan.

First question I had, so the upsized '26 EBITDA synergy number, how much of that should have in 3Q '26 vis-a-vis an expected incremental benefit in 4Q.

Well, if you look on Pablo, we said originally we were anticipating $30 million to $40 million this year. We took that range up to approximately $50 million for this year.

Right. But the question was how much of that already showed up in 3Q versus what might show up in 4Q?

We haven't broken out that level of granularity by quarters. But -- so it's building over time. So you'll see some incremental time. You're not going to see an incremental $15 million or $20 million in the fourth quarter. It won't jump by that much.

Got it. And then my second trends a bit broader. So the Brown's margins have always been industry-leading. But the question is, do you have a view on the structural ceiling for your business, if any? And do you think current technology, including AI hubs lift that? And I guess I'll just throw one more in there, right, just on the topic of margins. Is overall margin expansion contingent on growing specialty faster than retail?

So I'd like to comment on that. I'll take the last question first. No, it's not. But historically, it has grown more quickly than retail on an organic basis. Number two, if you think about it, what we're trying to do is deliver the best customer outcomes. And obviously, the investment community wants growth. And we, Andy and I might argue, growth at all costs except if you have a good margin. And so we are fortunate we do have a good margin. So what we want to do is grow the business more organically with good margins.

And so the short answer is our margins go up. If we didn't invest in the business the way we think we need to invest in the business, the answer is yes, but we're not going to do that. And so it's going to be very balanced. And it's very clear to us what is valued, and we understand that. And so we're very focused on growing our business organically and profitably, Pablo.

Our next question will come from Rob Cox from Goldman Sachs.

So just first question on the litigation impact. So I saw there was no change in guidance as it relates to the start-up broker. I think there was also a favorable judge ruling for you all this quarter. But just as we think about 2027, would you think that there could be any lingering litigation impacts? Or do you think that will wrap up in 2026.

Well, I don't think -- I think that, that's going to stretch for a while. I wish that the system would move more quickly, but I don't -- we don't have any idea, Rob, on that. [ Just to ] say, you now.

Yes. From a settlement standpoint, Rob, there will probably be some carryover of some revenues into '27, again, probably not a significant amount because not all of the business was a 1/1 or anything. So we'll have some carryover.

Okay. Great. And then I just wanted to, like, hopefully put a finer point on the Accession revenues from July and over the trailing 12 months. acquisition integration period in the acquisition revenues. Just trying to tie out how that might compare to sort of 2024 revenues for a Accession and think about how to disaggregate the drivers between the net new business and pricing, deal breakage or anything else?

Yes. So Rob, when we announced the transaction, we said it was around about $1.7 billion. It still right around that range. So during that time, we did dispose of the whole businesses that just don't fit with us strategically, not that they're bad businesses. They just don't match with the Brown & Brown bottle. We have some businesses in there that performed really well. We have some businesses that are cyclical in nature with it. And then we got part of it grew very similar to Brown & Brown.

So really pleased with the underlying performance on the pieces that we can control, some things we can't control in the marketplace. But when we step back and look at the business, it's performed really, really well for us since acquisition over a year ago.

The other thing, if I can interject, Rob, is the number of talented people are exceeded even our expectations. We knew they had a great group of people on the team. But once we join forces, we really realized that and are pumped about the combined entity and the capabilities that we now have as one organization.

And Rob, your question was around range or something like that, just to give -- come back and put a finer point on this one. If the concern, and we've heard this swimming around out there in the marketplace that we've lost all kinds of producers and everything else, that is absolutely factually incorrect. It is our retention of production on the legacy Accession side has been really good. It's right in line with Brown & Brown. We're very, very pleased with the attention not only producer, but all of our team base.

And our next question comes from Elyse Greenspan from Wells Fargo.

My first question is on retail, right? So you guys are updated, give us fourth quarter and guidance for next year. So Q4 2% to 3% next year, you said 2% to 4%. Obviously, part of it depends where you fall on the ranges. But I guess, as you're thinking about '27, what are you seeing is getting slightly more favorable relative to what you're expecting to be the drivers of organic growth in the fourth quarter in retail.

We're just more pleased with the execution of our plan, and we've talked about that in terms of go-to-market strategy placement how we're doing business with certain partners across the platform both in wholesale and from a carrier standpoint. It's a combination of all of those. And remember, Steve Hearn and the team rolled out the plan in Q1. It started to take shape in Q2. You're starting to see some opportunities that have come out of it in Q3. And we think, although it's not linear in nature, it will continue to improve in Q4 and going into next year. That's how I'd answer that, Elyse.

And then my second question is on programs. I just want to make sure I'm not missing something. So I think you said right there was some negative timing from the lender replaced program that was $10 million in Q3. Q4 guide implies another $8 million to $12 million. And then are you expecting the comp -- all of that around $20 million all to come back in 27 in the 1% to 3% guide? And then also with the program's organic guide, are you expecting accession to be a tailwind relative to what the guide would have been about it?

Yes, Elyse, so on the guidance for Specialty Distribution for '27, yes, that would include the timing from this year being recognized in '27. And we don't know the exact dates on some of that. And then we do have some onetime items in the fourth quarter, some 606 adjustments that we know we need to make so that will impact going into next year on it.

From growth expectations. We touched on this earlier, and especially distribution, yes, we are anticipating that those businesses will contribute to our organic growth. But just for clarity, as we move forward now as a company, we're not breaking out and saying, here's what legacy Accession or legacy Brown & Brown did. We're one company at this stage as we move forward. And specifically in retail. There's a lot of these -- we've been buying offices, et cetera. You actually can't split them apart anymore. And that's a really good thing. That means that we've combined efforts and capabilities in teammates.

Our next question will come from Andrew Anderson from Jefferies.

You had cited some investment in European wholesale capabilities as a margin headwind. Could you just talk about what you're investing in there? Kind of what growth opportunities you're investing behind and when that could contribute to especially organic growth and margins?

Sure. So we've been making those investments throughout this year, the calendar year of '26, and that would be embellishing North American wholesale capabilities and international wholesale capabilities. So as you know, we have a nice London brokerage business and some program businesses there, but we have some really neat opportunities in the wholesale component.

And so we're pleased with the performance of our London business even than Q3, and we anticipate that to continue to improve into next year. So we've been making the investments this year. We have obviously called it out that will continue to be a slight headwind in Q4. But the answer is we anticipate and we're starting to see some of the benefits already, but into next year and beyond.

Just to help manage expectations for everybody on the phone, we still got a number of people in the queue. We're going to run to about 9:15 and then cut it off to risk. We'll try to be crisp on questions and responses on this and try to get through as many people as possible.

And technology costs had increased this quarter, I think, offsetting some benefit on comp. But as you build that '27 plan, should we expect total tech spend to increase further? And when do you see those benefits beginning to offset that investment.

We're going to get into all of that in the January call. So we'll have a much better idea. We are finalizing all of that right now. But you'll -- we're going to lay out a 1-year spend -- '27 spend and projected benefits in January.

Our next question will come from Alex Scott from Barclays.

Wanted to ask about retention, not producer retention, but more client retention in retail. I mean, I guess we're hearing from some of the private equity backed middle-market brokers that they've seen or at least one of them saw some decline in retention that attracted some interest. So just wondering if that's an industry dynamic and if you're seeing a little more churn in the customer base. And if you're a net winner of that.

So the answer to the question is, any time you have dramatic price changes you will probably see a little uptick in near-term churn or switching to clients. And the reason being is good producers will try to exploit that and go and talk to people sometimes before people have spoken to their client about it, not exclusively. Not all the time, I'm just saying a general rule. So with our retention outside of normal levels, no, not. But if you're going to make the comment, have you seen a little more churn in your retail book, the answer is yes, we have. And that is expected in this type of cycle.

And so one of the things that's interesting, depending on the people, the producers, the organization, whatever the case may be, there are people who are in our industry, and some are at Brown & Brown, but they're all over the place who have not seen a softening rate environment. So they came in as the market was going up. And so there are different dynamics in different parts of the cycle. So that's how we'd address it, Alex.

As a result, though, we are writing a ton of new business. So -- and the opportunities ahead, we believe, are very significant. And that's why Andy and I have spoken about the increased capabilities across the platform and why we're so excited about that. because our producers have more arrows in the quiver to help deliver for our customers and prospects. So all of that is a positive. But I'm just saying that there is a lot of activity out there, and we're trying to be more than just active if that makes sense.

Yes, that's helpful. Second question I had is on the increased synergy guidance, the $175 million, does that reflect revenue synergies? Or is that all expense synergies? And maybe you could you comment quickly on the revenue synergies you're focused on executing on.

Alex, yes, when we originally communicated, we said that the $150 million was again going to be predominantly all from expense synergies over time is most of that incremental '25 results were anticipated to come from expense synergies.

Our next question comes from Yaron Kinar from Mizuho.

Should the increased admitted market appetite for business previously placed in the E&S market be a tailwind for the Retail segment? And if so, should we expect maybe a bit of a lift to 4Q organic outlook?

I would say that in concept possibly slightly, I would rather guide you towards a neutral because there's so much change in a changing marketplace. And with the property rates being down, I wouldn't want to give you the impression that, that is an offset to the downward pressure on pricing rates. So I would caution you, Yaron, about that.

Okay. That's helpful. And then for my follow-up, switching gears a bit. Free cash flow picked up meaningfully compared to the first half. M&A was modest. And, yes, buybacks remained steady at $250 million why not accelerate the repurchases given the strong free cash flow generation in the current share price?

So typically, we have not we like to invest in our business out of cash flows generated and when it's generated. And so we've sort of taken the position that we would buy stock back as a if and when the prices appealing, but we have not seriously considered the idea of a leverage stock buyback.

Yes. Just to be clear, I'm not talking about leverage on just talking about deploying the free cash flow that accelerated in the quarter.

Yes. We -- as I said, Andy and I know Andy has outlined this, but we have some debt repayment that comes up in Q4 and December as well. And so we're working through how to do that as we consider how and what we might do in share repurchases as well. So we're thinking about deploying the free cash. I don't want anybody to think that we're not. But if you notice in the history of at least that I've been in this situation. We've bought now $850 million back in the last year. And prior to this year, I think we had bought -- purchased back total, was it Andy $267 million or something like that, total?

That would be higher.

But the answer is we bought more back in the last year than in the history of the company. And so we will continue to try to deploy the capital in the best ways that we think makes sense and share repurchases right now are right near the top.

Our next question will come from Josh Shanker from Bank of America.

Given the time constraints, both real quick, but related. When we talk about organic guidance out there, how should we think about unit volume versus a year ago or whatnot? Obviously, pricing is a headwind, but pricing is always going to be there. What does that mean for the actual amount of contracting and the amount of policies that you're seeing through? How does that change versus a year ago?

And you mentioned in the prepared remarks that more product was coming online in the admitted markets in the Florida and Texas markets, which was viewed as a positive. But also I would argue that in a difficult marketplace, that's really Brown & Brown's opportunity to shine and demonstrate value for their customers. How do those 2 things contrast to each other that, yes, there's more product, but when there's more product, there's also more competitors who can easily place that risk?

All right. So let me talk about unit volume today versus a year ago and in construction and just in hiring. So first of all, if you take out as I know you've probably done all of these numbers and are more familiar than even we are. If you take out all the construction and/or spending as it relates to new technology and AI-related spends, that makes the economy look a lot different in terms of GDP growth. Number one.

Number two, as it relates to it is highly dependent on parts of the country as it relates to unit and volume growth equal I believe, leaders of businesses are much more cautious today in light of geopolitical and economic potential outcomes i.e., what do the midterms do? What is the situation in the next 2 years in the United States relative to economic policy.

And then global conflict. And so how does -- just think about oil going to -- if it went to $120 a barrel. And so what I would say is this is highly dependent on the business I think that the level of enthusiasm by business leaders that I talked to is more muted today. And I would point to if you take out all AI and frontier spending and related spending from GDP, what is it? It's at least 100, if not 150 basis points down is my understanding. So I look at that as it relates to more units.

And I want to make sure, Josh, I'm answering the question. When you're talking about more units in Florida, are you talking about 4 carriers writing the state or what are you talking about in terms of that?

It's not about -- is Brown & Brown growing. When we talk about 1% to 2%, 3% organic growth guidance, that's not a lot of growth, but of course, pricing in that. I want to know how busy is Brown & Brown and the extent to which that number might hide or accurately show the extent that growth is really happening at the company. That's the first question.

The second question relates to your comments about more availability of product in the admitted lines and treating that as a good thing. But it's also when more product comes out of Brown & Brown being able to deliver with their clients, it's easier for everyone else to deliver for their clients as well.

Yes. So let me assure you that we're working very hard at Brown & Brown. And there's no question about that. And number two, I try to look at that. I'm an optimist but I'm a realist, which means when you have more product to deliver to customers, you have better customer outcomes. And so we can control and try to control the controllables. We cannot control the economy. We cannot control pricing, but we can control the quality of the products and the thought process and the advice that we give to our customers and prospects. And so although the thought process is fine.

I think you're thinking about it one way. I actually would tell you and caution you about that because we actually look at it and say, okay, do we have enough new business inventory? Is our retention level, are they high enough? Do we have the right people in the right spots? How are you using technology to the benefit of our customers to deliver better outcomes. All of those are things we think about. And if, in fact, because of the dynamics, let's just use in Florida because of the amount of CAT property, it's hard to grow your business organically in, let's say, Southeast Florida and yet we're writing an inordinate amount of new business, and our policy counts are going up, that's telling you something.

And so it's -- there's a nuance there. And I know that you understand our business, but you got to be in it and see it to really understand that part because it is not easy in environments, particularly, let's just say you write condominiums and DeBoer and Palm Beach County. That's an extreme example, but it's tough to grow your business.

Okay. Well. And so I guess, coming back to the first question, is there any way we can think about unit volume in regards to the guidance that you're giving of 1% to 2%, 3% organic growth?

Josh, that would presume from your standpoint, unit growth inside of there. But just remember, unit growth is only one component of the revenue growth, right? You've got rate in there, you've got exposures, limits, deductibles. There's a ton of moving parts. So I think to our earlier comments, we are seeing policies growing in a number of our programs. We are doing a good job of having a retail customer base also to all of it. That doesn't always play out perfectly though, in the actual revenue number because of all of the other moving parts back and forth. But we feel really good with the underlying performance of the things that we can control.

Our next question will come from Meyer Shields from Keefe, Bruyette, & Woods.

I'll try to be quick. I was just hoping you can get a sense as to the property pricing expectations that are underlying the specialty distribution 2027 organic outlook?

Well, it's -- we are still working on those as we finalize our budget. But I would tell you that there is a feeling out there that property rates CAT property rates will be somewhere between 10% and 20% down in the industry. And I would tell you, if you ask me right now that I think it's on the high end of that. But we haven't finalized that into our -- and that's one of the reasons that Andy said, we will be finalizing our budgets this quarter, and then we'll give any additional feedback on our next call.

Okay. And really quickly, I guess, are we seeing any closure of the bid-ask spread in terms of M&A?

The short answer is, in some cases, sellers' expectations, albeit were unrealistic. Some are trending down and some aren't. And the answer is I would tell you that ultimately, don't try to infer by headline price, be it high or low that the entire industry is pivoted. I think it's very specific to each individual business, the quality of the business, the growth of the business, the leadership in the business, the specialisms in the business, all of those other things. So that's a nice way of saying not really.

Our next question comes from Bob Huang from Morgan Stanley.

So first question is on employee benefit pricing. Can you maybe just help us get a better sense of what's pressuring the market today? It seems like some folks have a workers' comp and disability loss trends that is not trending the right way. It feels like fair to say that you're seeing this trend is likely to continue in 2027. Just curious if that's going to be reflected in pricing going forward?

Now wait a minute, Bob. You started with EB and then you finish with work comp. Are you trying to make sure we talk about the correlation between the 2? Or I thought you want to talk about pricing in EBT.

Let's do the employee benefit, sorry about that.

Okay. So let's start with -- these are very high-level comments about EB. So think about medical trend tie cost cements and specialty pharmacy, okay. So medical trend, 7% to 9%, depending on what you're talking to you typically, high-cost claimants highly dependent on the individual customer. You can have family that has premature babies. You can have all cancer, an organ transplant, but sometimes they have multiple things in a policy year.

And then pharmacy, specialty pharmacy, that is not excluding -- that is not just GLP-1 that is actually including all types of specialty pharmacy. As you can see in many, many, many programs out there, and we see this across our customer base, people that intended for GLP-1s to be used for weight loss have seen and used for other things. They see that there are benefits for it, and you have a wider usage or people were using it and not changing their dietary and or exercise routines. And so it was used for weight loss only as opposed to get you to the certain threshold and then you come off. And so a there's a lot of discussion around Specialty pharmacy pricing, and that is only going to continue.

Now I'll make one interesting comment just since you made the question, which is depending on the way your workers' compensation plan is set up. Sometimes, you can see movement between if we handle the workers' compensation and the employee benefits, you can see movement from one area to the other, depending on the design of the platform. So if you have a more restrictive EB platform in some -- or offering sometime you'll see higher work comp claims and sometimes those higher work comp claims will move over into the EB area. So there is a correlation, and I'm not saying direct, you got to walk through there. but it is threading the needle. And in EB, we are talking to all of our clients about plan design to manage cost because cost is a major issue.

And Bob, just again, I want to make sure that clear, we've been talking about this for a number of years. I mean, this trend has been going on for over 5 to 10 years, and it doesn't appear to be slowing down.

Got it. Really appreciate that. Second question is on some of the things you mentioned a little bit earlier. Can you maybe help us unpack a little bit more details on the capitation and the construction programs. What are some of the -- like I know you talked about a little bit, but just curious if there's any additional color on what that is trending going forward?

Sure. Well, let's just say -- and these are anecdotal evidence. So -- and because I'm not in this every day like I used to be. In Southeast Florida, when rates go up for 5 or 6 years and then in actually 2 years, the rates come down from 2024, '25 levels to the equivalent rate in 2020 -- 2015 or 2016, that's pretty darn dramatic. And that's a 30% decrease on a 30% decrease.

What's a little bit misleading there is in that period of time, underwriters also were increasing insurance to value. So when somebody says we can replace the apartment building for $200 a square foot everybody knows you can't build an apartment complex in Southeast Florida of good construction for $200 a square foot. So if you -- so you have something built in there. So quite honestly, if you take out the adjustment for increased cost of construction, these rates are way back into the early 2000s would be the equivalent. And so that's a dramatic fall, right? So that's number one.

Number two, as it relates to what I was alluding to on construction, is, in my mind, construction is all about what is your workload or log in the next 12 months. And more specifically, do you have anything beyond, let's say, 9 months. And you see in periods as the economy would slow or when things have been really hot you might see in areas of the country where all of a sudden contractors don't have as much workload. And so is that telling you that they are actually just down? Or is the economy slowing down.

And so you got to look at it, and it's different in different parts of the country. So I'm not trying to draw a parallel and say, because this is happening in Orlando, that's indicative of the entire country. That's not what we're saying. But the answer is rates are continuing to be down and have additional countrywide in property liability is typically up or flat, and particularly in umbrella, is higher. And then in construction, we have a lot of good contractors and a lot of them are growing, but I'm just saying, the question that we have is what's our inventory look 12 months out.

Crystal, we're going to take a final question then go ahead and wrap, okay.

And our last question will come from Michael Zaremski from BMO.

Kudos to you all for extending the call given the demand. I'll just go with one question. Powell, when I kind of hear your comment about the '27 outlook in retail being 2% to 4% organic growth relative to the rate environment. To me, it sounds like more business as usual. I'd be curious if you agree or disagree. And if you're -- you mentioned Steve Hearn rolled out a plan in 1Q, and it's your go-to-market strategy right now. I don't know if you're willing or able to kind of reflect a bit of kind of what [indiscernible] thinks kind of Steve Hearn's plan, you're all kind of attempted to fix to kind of bring your organic back to much healthier levels relative to the market.

Yes. I think the way I'd answer the question, Michael, is the following. Number one, we had a lot of really good capabilities prior to Steve Hearn, leadership and retail. Having said that, I think we are collaborating and using those capabilities better. That's what I would basically say. And so there's not a criticism on 3 post Steve. That's not where I'm going. I just think that, again, it's complemented by the addition of 5,000 new teammates and the capabilities that came with a Accession and we're all on now. So let's not lose sight of that.

But again, somebody earlier asked when you bring a large organization into your organization, there's a lot of people focused on some things that were internally and you got to do that. And so I think that we're through a great deal of that, not all of it, but a great deal of that. And we're just focusing on executing better. And I think Steve and the senior leadership team retail are doing a great job of leveraging the capabilities, delivering for our customers and doing it in a way that's helping deliver better customer outcomes with our carrier printers and our distribution partners. So I'm very positive on our business.

I would wrap up Crystal and making my final comments as we wrap up by saying this. Number one, in my history at Brown & Brown, that's 31 years. I'm the most pleased with the leadership team and the way we're delivering for our customers than I ever have been. Number one. Number two, do I think that we could execute a little bit better and were we a little bummed on the underperformance in one of our divisions? Sure. But the answer is we're going to work our way through that because both of our divisions are very good businesses.

And number three, I would tell you, it's all about people. We are going to continue to allocate our capital in the best way we see fit, but we're always looking for talented people, and we got a lot of them on the team, and we're excited about what the future presents. So thank you all very much, and we look forward to talking to you in January. Thank you, Crystal, and have a nice day, everyone.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

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, we -- 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 in 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 6 months of 2026, we generated good cash flow from operations and repurchased additional shares during the quarter. Lastly, we acquired 6 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 an 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 on inflation, oil prices and the 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 '26. Workers' comp and non-cap 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 and 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 remains 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 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 primary 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 2 segments for the second quarter. Retail delivered organic growth, including contingent of 2.5% and 1.5% excluding contingents. These growth rates were slightly above our expectations as the 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 2 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 or $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 period. 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 9 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 contingent 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 for the first -- 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 for certain onetime 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 contingent 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.

We've 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 6 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 2 items related to Accession. The first was for 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 6 months, we deployed $500 million to repurchase approximately [ 8 billion ] 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 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 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 a partnership with Anthropic, MacKenzie and Accenture to help enhance our strategy and execution. Each organization is a leader in its field and bring 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 teammate leaning in, we're ready to take the next steps to thoughtfully reward key business processes, including sales and placement, submissions and underwriting 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.

[Operator Instructions] Our first question comes from the line of Mike Zaremski with BMO Capital Markets.

On the Accession integration, maybe a 2-part question. When we look at total revenues for the quarter, kind of ex the organic delta versus The Street, it looked by at least a couple of percent. I'm guessing it's coming because of accession. Is there something on timing on revenues or anything we should keep in mind?

And I guess the 2-part question -- I can use this as my follow-up, that would be -- on the margin bridge, given the Accession kind of coming in at a material rate, is there a bridge or something you can kind of help us with to kind of think about the seasonality that's going to impact the numbers on a go-forward basis.

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 of them. July is a big month for the business on placements for us. And so that's probably one of the areas has some seasonality to it that moves the revenues around. But I think we were right in the range of about [ 440, 445 ] in the first quarter and [ 410 ] in the second. That's kind of pretty much right in line with what we're anticipating for the business and we didn't give exact details of what we said, relatively low balance.

So I 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 [ 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 we'll really have any addition or subtraction to Brown & Brown at a total level. It 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 earnout impact. So that's not going to reverse. It's like, I guess, the -- is there -- we should think about kind of the continued earn-out impact? Or is this earnout sooner than expected? I just want to make sure when we -- you guys still have one of the best cash flow conversions, I want to make sure we're thinking to that correctly on a go-forward basis.

Sure. Yes, Mike, our comment there was -- that was really a onetime 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 what 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 onetime 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 -- in the 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. And 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 81 and the vast majority of those are casualty-driven. That doesn't mean that, 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? And the reason why I'm asking this is not necessarily '26, I'm thinking about '27 and '28.

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 the works.

Greg, maybe a good way to think about it, break it into basically 2 buckets. Okay. And when we say 2 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 next year, that's why there's always adjustments up and down. And so we're accruing those placement of policies 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 with this one is because they're thinking about overall profitability in the industry going down that 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 has actually went up. as an organization. So -- and we'll 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, right. Panel, you were talking about, right, some incremental hiring that you've done. So I just wanted to kind of 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, right, the organic numbers that you laid out for the back half? And then how should we think about the hiring like incrementally potentially benefiting revenue growth in next year as well?

So Elyse. And so I want to clarify -- so I wanted to clarify, first of all, thank you. We're always hiring talented people. And so 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. And this is just part of normal business operations. And 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 Elyse and everybody else out there, how committed we are to focusing on growing our business organically. And in my mind, that is always been and it always will be the focus of our organization, which is getting the right people in the right spots to deliver solutions for our customers. That's the most important thing. And so as I've said also, if I said what's after that at the current levels, probably share repurchases. And then after that, we have the idea of technology investments and selected M&A.

And then my second question with the retail or just so as you guys are thinking about the retail, I know you gave guidance, right, for the back half of the year saying in the range, I think, of 1.5% to 2.5%. When you guys think about that -- those growth levels, are you assuming just similar pricing conditions? And I guess, most interested also just what you guys are assuming on the property side, right, assuming that there's 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 spell them out. There will be some moderation in admitted rates, we believe, in the E&S CAT property rates, there'll probably be continued downward pressure barring event or events and to continue upward pressure in certain segments of casualty primarily being under less pressure than excess. It is interesting, Elyse that here we are at the end of July, and we've -- not a lot of people are talking about wind season. And so historically, in the last couple of years, we've had later events that in September and even into early October. I'm not foreshadowing something, but I do think it's kind of interesting.

I have a question for you, though, Elyse, so if I may, we have always broken out our organic growth on a basis of core and then now we're giving you another metric of with contingents and profit sharing. And the other brokers just give you one. So how do you think about that? I'm curious if you just give us a little insight in the way how you think about that?

Well, look, I think we all write value the incremental disclosure, right, that you guys are kind of now showing it with right, with contingents and without. I think there is, right? I mean there is 1 other broker, right, that does show it similarly to you guys. And the rest does not. So obviously, now we can look at it both ways, right, to kind of put you guys on a level playing field.

Just curious. Thank you very much, Elyse.

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 this 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 whose 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, and I'll give you just a specific geography of the country as a comparator. If you look at the rates in Southeast Florida, many of the rates in that CAT property along the coast, are today at 2017 levels. So they went up very quickly and then they come down in a period of almost 2 years very quickly.

So the rhetorical question, which I cannot answer for you, Mark, is how much more can they go down. And so we don't know. Generally speaking, and no one's asked this yet this time, but I think it's kind of interesting. Somebody has usually asked me by this time of the year, what would it take to change or stabilize that market. And as much as it pains me to say this, I think it's somewhere between $100 billion and $150 billion of losses, which is just staggering.

Having said that, we don't hope for that, obviously. And it would not be good for the Americans affected. But you put a storm into the Gulf of Mexico when that water is really warm or up along the Atlantic Coast, along Florida, and they 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. I'm just kind of giving you parameters of what I think it would take to change or stabilize that. And 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 pretty 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 kind of agree with your observation to the extent that you look at that? And then why would that be? Why some more people going into the E&S market?

Okay. So yes, I'd agree with that. And think about it this way from a carrier standpoint, the idea of moving CAT property or property in Florida, defined as CAT exposed in many instances, gives them the flexibility of rate and form as opposed to a filed rate, which all admitted rates are. And as you know, that means you have an upper bound and a lower base. And so from a standpoint of whether it's commercial or residential, what you find is that gives them more flexibility to pivot the pricing and what in the residential area, the governor and the insurance department is trying to do is to continue to have a competitive marketplace.

And as you've seen, there continues to be a depopulation of the residential Citizens program. Having said that, there are lots of carriers that may have been on large property placements historically that are admitted that want to get off because they don't want that exposure themselves and the E&S market because of the competitive environment is quickly picking that up, but it gives them the flexibility of rate and form.

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.

And now getting to my questions. Going back to the contingent discussion, real quick, when you calculate profitability since we're not talking about property, there is a tail associated with that. so which accident or a policy or does your contingent commissions come from? Like what does that look back period in terms of years?

Okay. Yes. So I would tell you, I'm going to make a very broad statement because there's not one answer to the entire question. there are programs that are singular year in focus. And then there are other programs that are multiyear look-backs. Many times, the multiyear look backs are in programs and in wholesale. And so what I would try to -- in a broad statement, what I would try to say is typically retail thing are 1 year in nature and the specialty distribution, it could be 1 to multiple years.

And Tracy, on the multiple years, BLC sometimes it may have a rolling calculation inside of it. So it might be an average over a 3-year. So there's a lot -- there's some reasonable amount of nuances in each of those. To your first question on the contingents, we did restate the prior year in the Q. Are you thinking a further period back? Or I just want to get some clarification from me on it.

Yes, more periods. Just to see how they perform through cycles, et cetera. Correct. Yes.

Okay. And then I have a follow-up on the Accession question. So back in the fourth quarter, you did share a revised revenue recognition and you're basically retreated from the $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 that Accession revenues in the quarter came in as expected. But that would basically imply that the next 2 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 that the business will be in that range. July is a large month for the business and then also taking into consideration our comment about selling a nonring business in retail, about 30%, 35%. But no, we feel really good about the business and how it's performing 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's a lot of considerations moving pieces. At this point, is there an expectation for the 2026 full year margin? Just curious if you can kind of walk us through the bigger pieces and some of your comments on Accession and synergies there, combined with the AI spend, should we be expecting that less of the Accession synergies drop to the bottom line?

No, I think our commentary when we came into the year and guidance, as we said that anticipated that margins would be around flat, excluding lower investment income, and that was really the income that we picked up in the second quarter of last year [ are all ]. We continue to hold with that guidance. We think based upon the performance year-to-date that we're doing really well on and the outlook for the back end of the year continues to be good.

We reaffirm our synergy targets, as you heard from Powell at the $30 million to $40 million this year. And within the technology spend, we've been working on this for years, and we talked about this in the first quarter that we have been consciously moving our cost from "that running of the business" and moving a higher percentage to data analytics, innovation and AI. So we feel very comfortable with where we are in the cost at this stage, but 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?

So Rob, the answer to the question is, obviously, we're based in Florida and we would like to continue to grow our business in Florida. So we believe it does create an opportunity for us. But at the present time, we're not going to speculate on what that opportunity might look like in telling at which time they identify actually the winner.

And so we wouldn't want to speculate on that because that process hasn't run its course. Once that is taken care of and if, in fact, we were one of those parties that was considered then we might talk about that. But at the present time, we're not going to speculate.

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 a perspective on how the block has been growing in the past 2 to 3 quarters? I think based on what you've disclosed so far, it seems like LTM revenues are running maybe a little over 1.7. And when you announced your pro forma, revenues were about 1.7, but maybe a bit lower, right, because assuming you grew over that base. But any sort of perspective you could provide us when you think about showing Accession in the next couple of quarters here?

Yes. Pablo, as -- going forward, just for clarity, we won't be breaking out a growth for Accession versus the growth for Brown & Brown. We're one company in there. So that's when we gave guidance in the -- back end of the year for the second half. So that is a combined business at this stage because we'll be leveraging our joint capabilities across the organization. The business has been growing well on comparable business. We're very pleased with underlying performance and extremely pleased with how all our teammates are leading and helping us grow the organization.

Understood. And then second question just on margins. I just want to understand better the sustainability of the strong result in 2Q. I think -- and you had called it about 110 bps onetime benefit in retail. And then I think that then, you referenced is a bunch of things like lower noncash stock comp, lower claims in Brown's health plan as drivers of floor expenses. So I guess aside from the onetime accrual you expect these other favorable factors to persist in the second half?

No, not the onetime items that we called out, no, we would not anticipate those recurring in the third or fourth quarter.

Right. But things like lower noncash stock comp, lower claims and Brown's health plan. I think these are items mentioned in the Q.

Yes, on those where they're running costs, yes, I think for all companies, there's always the unknown of health care costs. And we're like almost all other companies want to be diligently to manage our overall health care claims. They normally do pick up in the back end of the year based upon the structure of our plan. So we'll see how that progresses along.

And our next question is going to come from the line of Andrew Anderson with Jeffries.

Sorry, one more on Accession and recognizing it's a small percentage of the overall transaction value. But if it is performing in line with expectations and the integration is going well, could you maybe expand a bit on why the 10-Q discusses a reduction in the earn-out liabilities driven by lower projected operating results?

Yes. Andrew, is what we're trying to do with all of those is we had to, we estimated those at closing. And then as we had an opportunity to get in and look at the businesses refined, we've adjusted those through. I wouldn't say that's a reflection of the underlying performance. If you look to Brown & Brown you can see ours doesn't make, we normally don't have significant adjustments.

If you go back and you look over the last 9 months or Accession, the overall delta is very small. So we had taken charges in the back end of the year, and we adjusted it this year. But your -- I'll call it by. But year-to-date over the last 9 months, it's very, very small in the charge.

Okay. And on the slides, you had mentioned that future M&A could primarily focus on specialty businesses. Is that because you're seeing valuations as more attractive in that area or because you think specialty is a larger strategic opportunity for you all going forward?

I think the point, Andrew, is this. We're not thinking about scale solely. We're thinking about those that have specialism specialty capabilities. So don't define that -- don't take that too literally. It could be more figurative in nature. That's how I would say that.

But again, remember, we're bringing -- we brought 5,500 new teammates together. We are executing a plan, and we're very committed to growing our business organically. And as I said earlier, we're focused on continuing to do what we've done in the past in terms of hiring good people that can help us grow our business. And at the present time, share repurchases debt pay down, investments in technology and selective M&A.

Andrew, a question for you. Just a follow-up. Based on your question, are you thinking that we were saying that we're only looking for a business that's a government specialty distribution segment? And no, that would not be the case. What we're saying is we're looking for businesses that have specializations that could be in the retail segment that could be in specialty distribution but it's something that ultimately would add to our overall capabilities.

Or enhance our [ logistic ] capabilities.

Does that help clarify?

Yes, I had taken it as E&S. So I appreciate the clarification.

And our next question is going to come from the line of Alex Scott with Barclays.

I wanted to see in specialty distribution, if you could expand on the investments that you're making in Europe. What are the some of the things you're doing there? How do you expect that to contribute to growth over time?

So we have -- as you may know, in Europe, we have a large retail business. We have a growing nice-sized wholesale business and programs business. And so the investments that we're referring to are in the wholesale and programs business and those are growth opportunities and hiring new people to bring new specializations and capabilities for us to grow that business organically going forward.

So we think there will continue to be opportunities there as there will be in other places in our system, but there are a lot of talented people that have -- a number have joined, and I think a number more will join as it continues to be changes in that marketplace and our business continues to grow there. So we're very pleased about the opportunities that are presented for us in London in both wholesale and programs.

Got it. Maybe going back to retail. I think it was mentioned the net new business was a bit better than you expected this quarter and that it's continuing to build momentum, can you talk about some of the things you're doing to build that momentum and what gives you confidence to point to that momentum and the way you guide in the back half?

Yes. So like I said, as you know, Alex, we have implemented a new -- Steve Hearn and the team have implemented a new go-to-market strategy. And we are -- we believe we are leveraging our capabilities better across the platform to the benefit of our customers. And so as we look at our inventory levels and our new business opportunities going forward, that's just a reflection of kind of how we're feeling I would tell you that EM and I both feel good about the progress we're making in retail and the outlook.

I have said in the past, and I'll say it again, that growth in any organization is not linear. It's not exactly a straight line. And so sometimes there's ups and downs. But based on what we know and what we see, we believe that it is going to be in the ranges that we've given you. And obviously, we're working to improve upon that.

And our next question is going to come from the line of Brian Meredith with UBS.

Just first one, I'm just curious, any thoughts on the reauthorization of the NFIP program in September and how that's proceeding?

Yes, Brian, the answer is I can't remember how many times it's been pushed down the line, but 27 sort of rolls around in my mind. So these are short-term kicking the can down the 9 months, 10 months, 12 months, 7 month, 5-month reauthorizations. Unfortunately, I don't see anything that would change that to have a lengthy reauthorization. So I wish I had more information for you, but we don't.

Appreciate it. And then the second, I'm just curious on the litigation impacted revenues, obviously popped up again this quarter. When do you think that's going to start picking out here as far as the annual impact of that. And aside from those producers leaving, how has been producer retention been aside from that?

Okay. So as it relates to the indication that Andy gave you, that is a full year estimated impact today. And so we believe that, that is the number that it will fall within based on all the information that we're seeing today. So I think it's important to note that. That's number one. Number two, I think that as it relates to our retention of our teammates, we're very pleased with the retention of our teammates.

But I want you to know that when you are bringing 2 organizations together and when something like that where an organization is in violation of the law. That's the startup. Actually, it has a very unusual impact on galvanizing the entire team. And so having said that, you can define it in 2 ways. One, you could say it was a very bad event, which it was and is, and we're very disappointed.

The second part you can say is a galvanized team together in a very short period of time, whereby our teammates are working in the marketplace with our customers and our prospects arm and arm. And so I try to see if there's a positive and a negative, we try to see the positive, if that makes sense. So that's kind of our view on that.

Our next question comes from the line of Yaron Kinar with Mizuho.

Just wanted to go back to the start-up in the individuals who've left and maybe trying to tie that to the comment you made earlier, Andy, about hiring and how you'd always call out extraordinary hiring initiatives. So wouldn't the need or the opportunity to replace some of these individuals ultimately lead to an extraordinary hiring opportunity?

I'd like to take that. The short answer is in the marketplaces that were affected Again, we have used this as an opportunity, a difficult one, but an opportunity to hire more really talented people that fit culturally at Brown & Brown. And so as Andy said in his prepared comments, we have not fully hired all of those that have left back, but we've hired a number of them back. And what we are trying to do is continue to look for people that are very talented to join our team in those spots as we continue to serve those customers, and we bring new customers on to the team.

Got it. Just to make sure I understood this correctly. There is still an opportunity to maybe add some positions that would replace those who left. It's not necessarily that you're looking to shift that over to the teammates that you already have or maybe moving more to institutional technology-driven opportunities?

The answer is no. We're thinking about replacing most, if not all, of those positions, but some of those people may have different capabilities. to help us grow our business in the future. So it can be viewed as a positive. It's a negative that you've got a shortfall in the near term, but it's positive that you may be bringing people in that have different capabilities that can help us grow our business more in the future.

Got it. And then my other question was just looking at our contingent commissions in the Specialty Distribution segment. Is there a way that you can maybe offer us some color as to how concentrated those contingents are to the top programs in the business?

Yaron, is most of those contingents that we have in there are associated with our CAT programs or basically non casualty in nature.

And our next question is going to come from the line of Bob Huang with Morgan Stanley.

So my first one on the broader talent retention and competition. I know that you talked about it a little bit. It feels like competition for talent is still intense. And then you briefly mentioned that about staffing. Can you maybe help us unpack the current landscape for retention, new hires? And how should we think about just the impact from the broader competitive landscape on your business from that perspective?

Okay. So Rob, I would tell you that you're correct in saying competition for talent is very intense. It has been very intense in other periods of time. So I'm not saying that that's different. It is intense I think that you find it historically that, that had been more focused around major metropolitan areas. And today, after COVID, I think that it's kind of anywhere more broadly.

One of the things that is incumbent upon us or any other firm for that matter is to be able to articulate the capabilities that we have that maybe others don't have and has a teammate if you're talking about specifically production teammates. If you -- when you come to Brown & Brown, these are the suite of services or capabilities or tools in the toolbox, whatever term you want to use, that you get as a part of our team. And if you're on another team, you don't get those or maybe you get them in a different way or something to that effect.

So one of the things that we will do in the future is our core business is middle and upper middle market business. That hasn't changed. But for many of you out there, I don't know if you fully understand all the capabilities that we have both in specific niche areas. These are in retail, but it could be in specialty distribution as well. And also on the ends of the size spectrum. So larger accounts, smaller accounts, specialty accounts and things like that.

And so in the future, we're going to talk some more about that on our earnings calls, not today. But the short answer is, it's important to where we think of our organization as an athletic team. And we're trying to get the best not literal, but athletes on the team. And so we have created a culture that we believe is actually quite attractive to the right type of person. We believe that our reward systems drive the desired outcomes. And what we're trying to do is get more people like that on the team so we can service our existing customers and grow with new prospects.

Got it. Really appreciate the answer. So my second question is on technology and IT spending. You kind of talked about partnership with Anthropic, MacKenzie and such. You also have easily the best margin in the industry. As AI costs potentially increases going forward. You mentioned that you're still really focused on margin. But just curious, how should we think about that potential incremental AI cost as you're ramping up the technological capabilities of Brown & Brown, how should we think about that margin down the road, not in the immediate future, but like maybe 2027, 2028. Is there a way to think about that?

All right. So first of all, thank you. You're the first person -- you're the 12th person asking a question and you're the first person to ask about technology. So thank you, Rob. So the first question is, don't you think it's interesting that everybody out there talks about the benefits of AI, not Brown & Brown has an EBITDA improvement. And we're not talking about that. We're talking about it as a better customer outcome and enabling teammates.

Now we have acknowledged that we believe that it will drive incremental organic growth and margins over time. So that is true. I don't believe anybody today fully understands the cost of tokens and the utilization and how people use new technologies in the workplace because I've heard of stories where people not at Brown & Brown and other organizations have looked at max users and they go to the person with this idea that they say, "Oh, my gosh, you've done all this great stuff. What is it that you're working on? Is it so profound? And the answer is they're writing a book. That is not a business active that I checked on.

Flip side is you have people that are coming up that are big heavy users that implement things that enable the business to be more effective and have processes that become streamlined, which in turn do save money. So I believe there's all kinds of opportunities out there, and I don't think anybody fully understands it. The benefits of AI in my mind and new technology will truly be seen in years 3, 4 and 5. That does not mean we're not going to see some benefits before then but I want everybody to understand that's how we think about it.

And so Andy and I are very committed to not only the implementation but the validation of the value that we are looking for from new technologies. We also are pumped that we have Dori Henderson as our Chief Technology Officer that are helping us implement it. And if you think about it, the keys to success. And this tech journey is leaders need to lead and businesses need to be part of the solution in helping craft the business is and the processes that will be improved and then whole business is accountable for outcomes and adoption.

So lots of people talk about, "hey, this is great. We're going to do this." And the answer is A lot of people don't talk about awareness and teammate training. And those are all very, very important and all will impact tech spend in the future. And Andy and I, as we've said in the near term, have tried to lay out that we don't see incremental spend because we're moving it from one area to another. But if, in fact, we do, we're going to lay that out for you at periods of time. And if that's going to impact the margin, then how will it ultimately benefit us down the road.

Bob, that's why we highlighted the expansion of our value management office in there to make sure that as we're going through different use cases that the value is coming out of those. And if they don't want to fail fast and that's okay if we work through things. So we want to make sure we have very, very clear value drivers and KPIs on the different cases.

And our next question is going to come from the line of Matthew Heimermann with Citi.

Just one follow-up to the last thread. It's just what -- I guess, what could cause the expenses associated with MacKenzie, Accenture, Anthropic to be higher than kind of the reallocation you're talking about. I'm wondering is that new systems? Is that infrastructure? Is it particular apps? Is it just integration-related expenses to achieve a use case? I'm just curious like what would be what would be the surprise there? Or where would those expenses potentially be surprising that would require greater investment. .

It probably comes down to the pace at which change can actually be implemented across the organization. And we try to be very thoughtful going into this and designed our plans as to one which value streams we will rewire but also how much change to the organization can take? Maybe want to talk about how easy it is, but we got to get people trained and get implemented. So as of right now, we feel comfortable with projections that we've got all and the expenditures that we can absorb back in our margins. If things change, we'll come back, as we said, we'll reiterate that for you.

I'll tell you one thing, though. We're very pleased with the partners that we're working with and excited about the opportunities ahead.

Okay. Was there another question there, Matt?

No, I think given the timing, that was all I had. I appreciate it.

Thank you very much. We're going to take one more question and bring it in for a landing. Number 14.

And our last question is going to come from the line of 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 come out from maturity in December. And we have very good cash flow. So we'll have plenty of optionality. One, we have to go ahead and retire that because they do expire, and we'll determine if we take out all of it or a portion of it, we'll valuate that in the fourth quarter.

Thank you. And 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. We -- and wrapping up are pleased about the future relative to organic growth to our technology and AI free share repurchases; and four, a debt paydown and selective M&A. So 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.

Good morning, and welcome to the Brown & Brown, Inc. first 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 with respect to our future events, including those relating to the company's anticipated financial results for the first 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 a number of factors. Such factors, including the company's determination as it finalized its financial results for the first 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 issues -- I'm sorry, 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 and prospects as well as additional information regarding forward-looking statements is contained in the slide presentation posted in connection with this call and in the company's filings in 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 non-GAAP financial measures to the most comparable GAAP financial measures can be found in the company's earnings press release or in 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, Towanda. Good morning, everyone, and welcome to our first quarter earnings call. Overall, we delivered good financial results for Q1, reflecting the continued dedication of our nearly 23,000 teammates who provide best-in-class solutions to our diversified customer base. These results are a continuation of the industry-leading top and bottom line performance we delivered in 2025.

I'll provide some high-level comments regarding our performance along with updates on our customers, the insurance markets and the M&A landscape. Then Andy will discuss our financial performance in more detail. This quarter, we also wanted to take some time to provide an update on our technology and data journeys with a focus on how we're leveraging these capabilities in combination with artificial intelligence to provide even more value to our customers, teammates and carrier partners. Lastly, I'll wrap up with some closing and forward-looking thoughts before we open up to Q&A.

I'm on Slide #4. For the first quarter, we delivered revenues of $1.9 billion, growing 35.4% in total. Beginning this quarter, we're also presenting our organic growth with contingent commissions as another comparable measure to other publicly traded brokers. Andy will get into more detail how this metric gives a good correlation to our margins and cash flow generation. For the first quarter, organic revenue growth was flat with the prior year and with contingents increased 2.2%. Both growth metrics were impacted by prior year flood claims processing revenue and continued pressure on CAT property rates.

The flood claims revenue represented a negative impact on our organic growth metrics of nearly 100 basis points. We had another great quarter for profitable growth. Our EBITDAC -- adjusted EBITDAC margin increased 40 basis points to 38.5% and our adjusted earnings per share grew nearly 8% to $1.39. For the first quarter, we generated good cash flow from operations of over $260 million. Overall, we're pleased with the solid top and bottom line results for the quarter.

I'm on Slide 5. From an economic standpoint, conditions during the quarter were stable. Customer hiring and investment activity levels were generally consistent with prior periods, which continue to drive demand for creative insurance and risk management solutions. Customers remain focused on balancing cost and coverage decisions while prioritizing value and risk management. At the end of the quarter, the geopolitical issues and specifically the cost of oil and gas did influence some of our customers. As a result, they began to make slightly more cautious -- take a slightly more cautious outlook and are balancing the implications of absorbing cost increases versus passing them on to their customers.

From a commercial insurance standpoint, the changes in rates remained relatively consistent with prior quarters except for CAT property, which declined further than in the fourth quarter of last year. Pricing for employee benefits was fairly similar to prior quarters with medical costs up 8% to 10% and pharmacy costs up over 10%. We continue to consult and advise our customers on multiple strategies that can be employed to manage high-cost claimants and pharmacy spend. We leverage our extensive consultative solutions to deliver high-impact strategy for population health, captives, stop loss and carve-outs for certain services.

Shifting to the rate environment, the admitted P&C markets continue to be in the range of flat to up 5% versus prior year but did moderate slightly as compared to last quarter. Workers' comp rates remained flat to down 3%, while we saw a few states increase rates modestly. For non-CAT property overall, rates remained down 5% to up 5%, depending on the loss experience and the location. For casualty lines, rates increased 2% to 5% for primary layers, with excess layers increasing materially more. For professional liability, rates remained similar to the last couple quarters and were down 5% to up 5%.

Shifting to the E&S market, let's split the conversation between property and casualty. For property, both wind and quake rates declined -- rate declines were modestly more than we experienced in Q4 of last year. Most of our placements for the quarter were down 15% to 35%. At the end of the quarter, we saw placements above and below this range. Generally, customers are capturing most of the savings.

However, some are utilizing the savings to decrease deductibles, increase limits or buy other lines of coverage. These tactics are common when rates are moderating or declining. On the casualty front, not much has changed versus prior quarters. The ability to get higher limits is extremely challenging. Pricing continued to increase. Primary layers are becoming more expensive, and carriers are decreasing the limits they'll offer. We do not expect this trend to change materially over the coming quarters.

I'm on Slide 6. Let's transition to the performance of our 2 segments for the quarter. Retail delivered organic growth including contingents of 1.3% and organic growth excluding contingents of 1%. This was due to the combination of rate, the change in our revenue model of one of our pharmacy consulting businesses and lower net new business in the quarter. The revenue model of this business in terms of consulting business is changing and is expected to negatively impact organic growth by 50 to 100 basis points over the next couple of quarters. Then we expect this business to start growing towards the end of the year.

In connection with our integration efforts to bring both companies together and position us to leverage our combined capabilities, we've been very deliberate regarding augmentation of our operating model. Legacy Risk Strategies was more of a regional sales model, while legacy Brown & Brown middle market was more of a local sales model. Steve Hearn and his leadership team have taken the best of both to create a new sales model that's underpinning with industry and line and coverage specialization. We believe these enhancements will drive higher net new business as leaders establish their operating rhythm.

While it's still a bit early, we're already seeing increased activity that gives us optimism about the second half of the year and heading into 2027. Based on the rate environment, the changes in one of our pharmacy consulting businesses and the operating model enhancements, we're projecting modest organic growth improvement each quarter this year as compared to the first quarter.

Now let's talk about Specialty Distribution. For the quarter, organic revenue, including contingents, increased by 3.9% and decreased by 2% when excluding contingents. These organic revenue metrics were negatively impacted by nearly 300 basis points driven by the $12 million of flood claims processing revenue we recognized in the first quarter of last year. We believe the results for the first quarter were strong considering CAT property rates were down 15% to 35% and even more later in the quarter. We have a highly diversified and specialized business, and when we look at the underlying volumes for policies in force, exclusive of any rate impact, most of our businesses had good growth. From a contingent standpoint, it was another great quarter.

As we look forward, we anticipate relatively flat organic growth excluding contingents in Q2 due to heavy weighting of CAT property placements. In the second half of the year, we're expecting improving growth as we place less CAT property and the 180 businesses from Accession help drive our organic growth. Remember, 180 has a comparatively smaller amount of property and heavier weighting of casualty as compared to the legacy Brown & Brown Specialty Distribution business.

Now I'll turn it over to Andy to get into more details of our financial results.

Thank you, Powell. Good morning, everybody. Before we get into the financial details, we want to talk about a few items. The first is reporting organic growth with contingents as another measure of our performance and a reference point to other public brokers. As we discussed in the past, our ability to generate contingent commissions is a core part of our business model and can fluctuate quarterly.

Contingent commissions are a higher percentage of total revenues in the Specialty Distribution segment as compared to Retail due to the fact that we substantially control underwriting discipline. While organic growth has been pressured in certain parts of our business, primarily due to CAT property pricing, we have realized a substantial increase in contingents due to underwriting profitability. Generally, when E&S rates are decreasing, our contingents will increase. This inverse correlation creates more stability in our revenues, margins and cash flow.

Transitioning now to our consolidated results. As a reminder, when we refer to EBITDAC, EBITDAC margin, income before income taxes or diluted net income per share, we're referring to those measures on an adjusted basis. The reconciliations of our GAAP to non-GAAP financial measures can be found either in the appendix of this presentation or in the press release we issued yesterday.

Now let's get into more detail regarding our financial performance for the quarter over on Page 7. On a consolidated basis, we delivered total revenues of $1.9 billion, growing 35.4% as compared to the first quarter of 2025. Contingent commissions grew by an impressive $54 million, with $22 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.

Income before income taxes increased by 28.7%, and EBITDAC grew by 36.6%. Our EBITDAC margin was 38.5%, a 40 basis point increase over the first quarter of the prior year. This was a strong result considering the impact from Accession, which we'll talk about in a few minutes, and the prior year flood claims processing revenue. The underlying margin expansion was driven by significantly higher contingent commissions along with our continued discipline, management of our expenses.

Regarding Accession, we recognized total revenues of approximately $445 million for the quarter. Due to legacy Brown & Brown's high margins in the first quarter associated with our employee benefits businesses and the expected quarterly phasing of revenue and profit for Accession, our adjusted EBITDAC margins were negatively impacted by approximately 200 basis points for the quarter. For the full year, we still expect the overall adjusted EBITDAC margins for the Accession business will be around 35%.

Our effective tax rate for the quarter was 22.8%, a slight increase over the prior year of 21.8%. The incremental rate was driven by an increase in certain state taxes. Diluted net income per share increased 7.8% to $1.39. Our weighted average shares increased by approximately 52 million to 337 million primarily due to shares issued in connection with the acquisition of Accession. During the last 6 months, we reduced our share count by approximately $5 million (sic) [ 5 million ] or 1.4% through $350 million of stock repurchases. Lastly, our dividends paid per share increased by 10% as compared to the first quarter of 2025.

We're over on Slide #8. The Retail segment grew total revenues by 33.4%. This growth was driven primarily by acquisition activity over the past year and organic growth, including contingents, of 1.3%. Since we're in litigation with the startup broker, we are excluding the impact on organic revenue growth associated with individuals that left and joined the startup. The impact for the first quarter was approximately $10 million. At the end of March, the startup has taken customers representing approximately $31 million of annual revenue as compared to the $23 million we announced last quarter.

Our EBITDAC margin decreased by 130 basis points to 36%, resulting from the quarterly weighting of revenue and profit for legacy Brown & Brown as compared to Risk Strategies. This impact of more than 300 basis points offset good underlying margin expansion driven by disciplined expense management. Additionally, there was a net benefit to our margins of approximately 40 to 60 basis points due to individuals that departed to the startup. As we hire new teammates over the coming quarters, a portion of this margin benefit will moderate.

We're over on Slide #9. Specialty Distribution grew total revenues by 40%, driven by the acquisition of Accession and a substantial increase in contingent commission. The higher contingent commissions of $52 million were driven by $22 million of acquisition activity and $30 million from favorable underwriting performance. We realized approximately $5 million of contingents associated with adjustments to prior year accruals based on finalization of the calculations and approximately $10 million of contingents this quarter that were recorded over the third and fourth quarters of 2025. Our EBITDAC margin increased by 30 basis points to 40.8% due to higher contingent commissions and our disciplined management of our expenses. These were partially offset by the profit associated with lower prior year flood claims processing revenue.

Turning to cash flow and the balance sheet. We had another strong quarter and generated over $260 million of cash flow from operations, increasing approximately $50 million or 23% versus the prior year. Our ratio of cash flow from operations to total revenues was approximately 14% for the quarter, down slightly as compared to 15% in the prior year. The decline reflected Accession integration cost and higher-than-anticipated final earnout payments related to acquisitions that outperformed our original estimates. These items offset strong underlying cash conversion. We continue to anticipate good cash generation for the remainder of the year and will balance our deployment of capital between share repurchases, M&A, dividends and delevering.

With that, let me turn it back over to Powell for some comments regarding technology, data and artificial intelligence.

Thanks, Andy, and great report. I was going to clarify that on the share repurchases, we reduced the share count by about 5 million shares in terms of the purchasing and $350 million of share repurchases. So let's change gears and discuss technology and data as those topics are shaping how we're thinking about the future of insurance brokerage and how we're positioned to capture the opportunities on the horizon.

I'm on Slide 11. Our technology and data journey commenced over 10 years ago, specifically when we began platform rationalization and data standardization across our business. These investments were foundational as AI is only effective when built on clean, standardized and scalable data platforms. Like most companies, our data journey is ongoing as we're always integrating acquisitions, seeking to better capture data and enhance our analytics. Over the past few years, we've been shifting more of our technology focus towards innovation and artificial intelligence. Our technology strategy is aligned with our goal to be the leading global provider of insurance solutions for our customers.

On Slide 12. Throughout our technology evolution, the focus has remained consistent, drive revenue growth, enhance the customer experience and improve teammate effectiveness and productivity. Our efforts are focused on developing enhanced solutions to increase sales velocity, improve customer interactions and reduce manual, low complexity or repetitive work. These efforts will empower our teammates to spend more time advising customers, underwriting and helping companies and individuals better manage risk.

Our progression is intentional, and therefore, we did not jump directly to AI. We're investing in the fundamentals first, which is enabling us to innovate and deploy AI reasonably, at scale, and in ways that directly support growth across the company. We view AI as an enabler and an accelerator of our existing strategy. As we deploy AI capabilities, they are led by the business and are focused on targeted use cases that have measurable success metrics that can be scaled.

Our value proposition continues to be built on trusted advisory relationships delivering outstanding service, strong carrier relationships and disciplined underwriting. We're in the early stages of a multiyear journey that has already delivered value through enhanced capabilities. We believe embracing AI will support incremental revenue growth and operating leverage over the long term.

I'm on Slide 13. Now let's talk about how we're building an AI-powered organization with enterprise capabilities that empowers local development to solve real business needs. Our organization is designed to incubate AI solutions quickly and then deploy the capabilities at scale. We're investing in world-class data and AI teammates, enterprise-grade technologies and a strong ecosystem of technology partners. Our approach is to combine out-of-the-box AI tools and proprietary Brown & Brown AI products that embed our data workflows and deep insurance knowledge.

We're embracing an AI-first culture built on fail-fast incubation, cloud-native platforms, modern APIs and a scalable data foundation. Our framework is anchored in secure design principles and reinforced by strong governance and responsible AI practices. This structure allows us to prove value early, subject ideas to rigorous scrutiny and scale quickly across the company.

I'm on Slide 14. Here are just a few of our AI-powered solutions that are live and delivering value. We're scaling AI agents that will automate more than 25% of the end-to-end submission process for many of our programs and wholesale businesses, achieving material cost reductions and removing throughput limits. This incremental underwriting capacity is being redirected to high-value revenue growth activities. These agents are enabling more processing in the same day, thereby improving the customer experience, accelerating growth through higher win rates and driving stronger underwriting results for our carriers.

In Retail, our policy checking agents automate traditionally manual proposal comparison and policy reviews, improving risk insight while reducing E&O exposure. We have also created capabilities that pull key features from complex policies to create clear customer summaries, simplify the customer conversations and improve retention. Lastly, we've built a proprietary platform that electronically interfaces with carrier billing portals, automatically extracts and validates billing data, flags exceptions for review and then files the customer policy in our agency management system. This platform is already saving more than 50,000 hours annually and continues to be rolled out across the company.

I'm on Slide 15. This slide frames how we think about our customers that pay under $25,000 in premium. In Retail, commercial and employee benefits account under this threshold, and monoline personal lines represents between 1% and 2% of total Retail revenues. Keep in mind that some of these policies are placed through an intermediary, making them more complex and less likely to be disrupted. We believe the primary risk is that customers think they no longer need a broker and choose to go direct. This can happen today with or without AI. Our differentiators remain breadth of carrier relationships, a solution mindset, technology, industry experience, service and claims advocacy. Our opportunity is to leverage these differentiators to grow market share over the coming quarters.

In Specialty Distribution, we've built a highly diversified and scalable specialty insurance distribution and underwriting platform, with technology powering the core part of our value proposition. We think business segments with the highest theoretical AI exposure are admitted aggregators and highly standardized small accounts businesses. These are not areas where we have invested significant capital or have material revenue.

Specialty Distribution business model is built on niche specialization with a significant portion of our revenue and profit generated by businesses with structural moats. These include regulation, capital or technology intensity, underwriting complexity, historical data, omnichannel distribution networks, claims management and the capacity for long-standing trusted carrier relationships. The opportunities created by AI and further industry automation would include higher submission flow and new revenue channels, thereby helping us capture more market share. In summary, we believe technology is an enabler that will drive incremental revenue growth and margin improvement in the future.

Now I have a few closing comments, and then we'll open it up to M&A (sic) [ Q&A ]. As has been the case in recent quarters, there are ongoing sources of volatility in the broader environment. Currently, geopolitical turmoil is causing some business leaders to have a more cautious bias. The impact of higher oil prices and inflationary ripple effects may influence growth in certain sectors. What we've learned from our customers post COVID is that they're resilient, creative and adaptive. Therefore, we feel comfortable our customers will navigate the current challenges and capture growth opportunities.

From a pricing standpoint, we expect admitted rates will continue to moderate slightly. E&S rates will remain bifurcated with casualty increasing and CAT property decreasing at levels similar to the first quarter. However, we would not be surprised if in the second quarter, if certain carriers or MGAs become more aggressive related to CAT property placements. From our perspective, we will remain disciplined and will not compromise the quality of our underwriting.

From an Accession integration standpoint, we're focused on bringing teams together, enhancing collaboration and leveraging our capabilities to win and retain more customers. Integration activities are on track for us to deliver our EBITDA synergies of $30 million to $40 million this year. The team's doing a great job, and I'm extremely pleased with our progress. We talked earlier about the positive impact of AI on our business. We feel confident that it will improve the customer experience, the underwriting and placement process, the productivity of our teammates and drive incremental growth in revenue and margins over the coming quarters.

Our balance sheet and cash flow are strong, and therefore, our focus will continue to be on delevering, investing in our teammates, enhancing our technology capabilities, repurchasing shares and acquiring smaller or specialized firms that fit culturally and make sense financially. We will continue to invest our capital with the goal of driving long-term shareholder value. We feel great about the business, about our activity levels, the integration efforts and how the team is leveraging our capabilities for the benefits of our customers. With our laser focus on execution and the customer, we're positioned to deliver solid top and bottom line results over the coming quarters.

With that, we'll turn it back to Towanda and open up the line for Q&A.

[Operator Instructions] Our first question comes from the line of Rob Cox with Goldman Sachs.

First question I have for you was on the operating model in Retail. Sounds like you're moving to a specialization model versus the local and regional models that Brown and Accession had previously. I was just hoping you could talk through, how is this changing how your business operates? Does this change how producers are incentivized? And is it right to think that this model is moving towards the model that a lot of your larger competitors have today?

I wouldn't want you to think exactly the way you described it, Rob. Think about they had -- they meaning strategies had a regional sales model and we had a local sales model and we're blending -- they're picking the best of both which is enabling, we believe, producers to have access to more capabilities and will enable them to be successful. So I wouldn't want you to draw the conclusion that we're trying to move towards what you were referring to on some of those larger competitors. I think it's kind of unique unto ourselves, and I think it's actually been very positively received by our producers.

Okay. Great. And then just follow-up on the specialty pharma revenue model change. Just curious how this came about. Is this shifting from commission to a fee? Why make this change and why now?

All right. So first of all, let's talk about what the business does. The business helps our customers and their employees reduce their pharmacy spend. And so the model is going from a volume-based model to a PEPM model over the next several quarters.

Our next question comes from the line of Tracy Benguigui with Wolfe Research.

I appreciate seeing your statistic about personal lines small and micro commercial policies with less than $25,000 in premium to be about 1% to 2% of your Retail revenues. But could you unpack why looking at that level of premiums is the right starting point? Like why not $50,000 or $100,000.

Well, I think -- well, the way we view it is we are working with complex and customized commercial risks. And so you can have that absolutely in accounts that pay in excess of $25,000. So that's how we've defined it. And again, if the business is highly standardized and not complex, then I think your point is valid. But I would tell you that in the middle market that we are so active in, that is the space that we operate in, the complex and the customized commercial risk. So that's why we define it as $25,000.

I wonder if you could provide a new outlook for contingents. Last quarter, you guided $15 million of less contingents in Specialty Distribution for the full year '26, and you're trending so far ahead of that...

Excuse me, you're breaking up.

Okay. So I was wondering if you could provide an updated outlook on contingents. Last quarter, you guided $15 million of less contingents within Specialty Distribution. And I'm just wondering, given your 1Q performance so far, you're trending ahead of that and it seemed like there've been some onetimers as well. So how should we put those pieces together?

Tracy, can you hear us okay?

Yes.

Okay. Perfect. Sorry, I didn't know if it was you breaking up or on our end. Based upon the performance in the first quarter, we are anticipating that our contingent commissions for the entire company will be up this year. We had an outstanding first quarter.

Okay. Is there any direction you could provide for that?

Let's see, well, last year, we were up -- I think we were about $255 million -- sorry, hold on, let me double check here. We were -- yes, we were about $255 million last year and obviously we had really nice upside in the first quarter. So we would anticipate most of that continuing to flow through on a variance for the full year.

Okay. I guess part of that was you mentioned $30 million from favorable underwriting performance, but if we're in a soft market, should we see some of that margin abating?

Yes. So I think that's maybe one of the things worth us just clarifying real quickly because keep in mind in the Specialty Distribution space, at least for us, is that we calculate our contingents on a program-by-program basis. They're not built upon overall industry profitability. And so some people have asked us about that in the past. In our prepared comments, we said that we substantially control all of the underwriting rigor and discipline, and we believe that we run some of the most profitable programs in the industry for our carrier partners and deliver great products for our customers that are out there. And so we're very, very in tune with making sure that we maintain profitability.

Our next question comes from the line of Elyse Greenspan with Wells Fargo.

My first question, if you look at your contingents over the past year, what percentage is volume-based versus profit-based? And would you expect the mix between the 2 to change over the course of the next year?

Elyse, on the contingent commissions, almost all of those are based on profitability. There's a few of them that have a combination of volume and profit, but that's a pretty small percentage. You normally don't get into the volume side until you get into incentives and GSCs.

Okay. And then on Retail, on the organic, I think you guys said 50 to 100 basis point impact from the change in the revenue model over the next couple quarters. But then you also guided to organic improving sequentially relative to the Q1. So I guess what's the offset that's driving the sequential improvement if you have a negative impact? Or was the model change, I guess, a similar magnitude in the Q1?

No, I think what we were trying to help everybody understand there is, one, we know we've got some headwinds from this business as it goes through the revenue model change. But as we said, improving organic growth by the quarters, and that is our expectation based upon the discussion on the change in our sales model and to Powell's comment earlier about starting to see some of the initial activity levels improving.

And then the guidance for Retail and Specialty Distribution, the organic color, does that assume similar property CAT rate declines over the course of the year? I know mix impacts a little bit less property in the Q2, but are you assuming similar level of rate declines for the remainder of the year?

So at least for the second quarter, we're anticipating that rates are definitely going to be under pressure like they were in the first quarter. And again, it won't surprise us if we see some unusual things towards the end of the quarter on rates. Remember what happened in June of last year right before storm season. So things could definitely move around. And then we don't place a lot of CAT property in the third quarter, Elyse, the industry doesn't either. And then we won't see it until the back end of the year. We wouldn't opine on potentially what CAT property rates would look like for the fourth quarter right now because that'll be subject to storm season.

I would just add, Elyse, 2 things. One, remember, Q2 is a heavy property quarter.

Exactly.

And number two, we -- that also doesn't assume if there was a wind event. So don't know if there would be a wind event, but if there's a wind event, that could change the dynamics and the pricing as well.

Our next question comes from the line of Michael Zaremski with BMO.

First question, just any update on the litigation impact on the top line as we progress throughout the year. The number -- the $10 million number was, I think, much lower, better than consensus had.

Mike, what we did, we provided just an update as to where the lost business is right now on it. So that's the $31 million. We were previously at $23 million. I think maybe one area where potentially folks thought it would be different. When we reported the $23 million, we said that was an annualized number. It's not anticipated that all of that was going to come out in the first quarter because of when ex dates are throughout the year. So we'll continue to see quarterly impacts this year. And that's just going to be the delta between the $31 million and the $10 million, get that number probably move around a little bit, but that gives you an idea of how it will flow by the following quarters.

Okay. Got it. I'm just -- I guess I'm assuming just given that you updated us on the 275 people that departed that number will grow. So I think the consensus is embedding a very much higher number than $31 million. But got it.

My follow-up, this might be an unfair question, but if we look at kind of Brown's organic growth with contingents, by the way, versus peers, it is expected to be a bit lighter than its historical relationship to peers. So I guess my question is, if -- are there idiosyncratic things that are impacting Brown that we know of that under normal circumstances, you would have expected Brown's organic to be just maybe a little bit better under current conditions? Or really, is it just more of an issue of Brown being a bit overweight property and properties under a lot of pressure?

So Michael, I think it's a combination of a couple things. So let's acknowledge several of the obvious things. One, we have a large acquisition where we're bringing people together. Two, we've had the issue or disruption around the startup. Three, property rates are down more than we anticipated, although we thought property rates were going to go down substantially. And we've been saying to you all that this is a year later than we anticipated. And finally, it's the situation in this pharmacy business. So I put those 4 things in there. Those are not excuses. Those are just an observation. And we are very pleased with the team. We're very pleased with the capabilities that we brought together and how we're going to market. But at the end of the day, we are, at the present time, slightly lower than the peers.

And then, Mike, keep in mind that in Specialty Distribution prior to the acquisition of Accession, is that we did have a higher weighting to CAT property in that business because of the programs that we operate there, right? So when capacity was tight a few years ago and rates were tight, that definitely helped drive growth for the overall business. With the addition of 180, as we mentioned in our commentary, that is much more weighted towards casualty, very little CAT property in there. So that will probably, over time, you'll see that'll start to level out some of the peaks and valleys in that business. And again, it's just something that we try to focus on as an organization of the more diversification that we can put across the company, more stability we can have in our revenues, our margins and our cash flow.

Our next question comes from the line of Mark Hughes with Truist Securities.

On the organic growth, you've talked about sequential improvement. Last quarter, you talked about getting to a point for the full year where you're ahead of 2025 with a weighting towards the back half of the year. Is that still what we should anticipate or just assume sequential improvement but not to reach or exceed last year.

Probably think about it from a sequential increase over the quarters, knowing that some quarters will be higher, some quarters will be down because it always obviously moves around back and forth. But when we look into kind of the back end of the year, we think organic growth rates should be higher than the first quarter, but probably an upper bound of 2.5%, somewhere in that ballpark and you're just going to -- some quarters are going to move around as they always do for us. But we feel really good about at least when we look at the activity and the structure of the organization, having the 180 business coming into organic in Specialty Distribution in the back end of the year. At least everything gives us good confidence as to the direction that it's going.

Very good. And then just this, the Howden issue again, you initially called out $23 million and then that increased modestly, let's say, to $31 million. When these sort of things happen, does the pace of the potential losses slow as time goes by? So the sequential increase in 2Q would be less than 1Q perhaps.

Yes. Maybe, Mark, a couple things. Keep in mind, and I'm sure a number of folks have seen this, but we have a quite expansive TRO that was issued in Massachusetts back at the end of December, right? And that has very, very tight restrictions. That TRO is still in place today with all of it. And so I think just keep that in mind around, I guess, how you're thinking about potentially the outlook. It doesn't mean that the number might not change back and forth, but...

So you're saying the -- I guess you're talking about restraining order, you're seeing that it's had an impact. You saw the slowdown in lost business in 1Q and so therefore, maybe the build from here is decelerating, so to speak?

So Mark, we don't, as you know, typically talk about ongoing litigation, and there is more going on, not just in that state. And so obviously there are certain things that are filed that you all can look at and you can see what has been, the judge has come forward with and in other states when and if that happens. But we really can't get into it. So I'd rather just not say anymore.

Our next question comes from the line of Bob Huang with Morgan Stanley.

So my first question, I want to shift gears a little bit towards employee benefit business. You talked about the fairly solid pricing environment in employee benefit right now. Can you maybe give us like a little bit more color in terms of how you think about the employee benefit business will evolve for -- towards the rest of the year? And then curious about how you think about the growth there as a contributor going forward.

So I just want to make sure that I heard the second part. I heard about the growth going forward. Bob, can you repeat that, the first part of that question?

Yes, sure, sir. Yes, so I just want to ask about a little bit more details around the employee benefit. Pricing has been strong based on your disclosures. Just curious about how you think about the employee benefit business going into rest of the year going forward and how that becomes a contributor.

Perfect. I just wanted -- I thought that's what you said. Number one, we like the employee benefits business very much. And we think that it is an opportunity for us to continue to solve what I call complex problems for our customers. That said, the pricing pressure continues to be a challenge on any buyer of health insurance. And so everybody we talk to is looking for ways to, bend the cost curve or moderate or what could they do and some will even consider skinnying down the benefits that their employees are receiving. But we continue to find lots of opportunities for us to help our customers with what is a very complex, expensive coverage that is utilized on a frequent basis. So we view it as a positive. We continue to invest in it. We have a lot of very talented teammates in it. It's a big part of our Retail business and is going to be bigger going forward.

Okay. No, that's helpful. My second question really revolves around your AI commentaries about the capabilities that you're adding onto the platform, right? It's more of a buy versus build question. As you're investing in AI, just curious your philosophy around acquiring AI capabilities from third-party vendors versus what are the things that you feel it is necessary to kind of maybe develop internally from a code-based perspective? I'm just curious your thoughts on that.

Sure. So I think there's really 2 ways to approach AI in a very broad sense. You can do it internally and that's typically where you're nibbling around the sides. And it takes longer typically, but it's probably overall less expensive. Conversely, you decide to partner with some firms that can help you accelerate and make big jumps forward. And I believe that we actually -- or at least to this point, but going forward, I believe we will do both. And so we are not at a point where we're going to discuss who those people are, but the answer is we look at it as sort of a combination. And depending on what we're trying to achieve will dictate what portion of the business and what we're trying to achieve would probably dictate which way we lean into.

Our next question comes from the line of Josh Shanker with Bank of America.

My first question, the business has evolved a lot, but you're still a big Florida participant. Can you talk about your pricing, how much Florida is impacting those numbers, and the extent to which there's a variance between your experience in Florida on pricing and your experience nationwide?

So let me take the second part of the question first. First of all, as a -- Josh, as a point of reference, the rates that we're seeing in coastal property today are similar to those that we saw in 2016 and '17. So I want you to think about that for just a moment. So I don't remember exactly the year it started going up, but let's say it was '18 or '19, and then it went up for 5 or 6 years, and then it has reduced all of that in a 2-year period, let's say. That's the first thing.

The second thing is impacts on the pricing is not limited to Florida. You have it also in other CAT-prone areas where they're seeing substantial decreases. The third thing is we are seeing in places around the country which might be defined as CAT, I'm talking inland CAT convective storms, we're seeing more downward pressure there in pricing than the traditional down 5% to up 5%.

So from a standpoint of the property thing, and by the way, we haven't been surprised that property is under pressure. We have been surprised at the decrease and the amount of decrease that has occurred. So let me give you an example. If you tell me that you have a condominium in Southeast Florida and it's a superior construction and the rate is below $0.20, I would tell you that of that $0.20, $0.07 to $0.08 of that is the fire rate, even though it's in a superior construction building. So that means the rest is all other perils, including wind. That's pretty unbelievable.

Did you want to address that? Can you hear us?

Hello? Hello there.

Yes, we're here. Can you hear us?

Yes. In casualty, you're not seeing any difference in the Florida market versus the rest of the country.

Not so much, no.

And one other question. I'm surprised, I guess, on disclosure that $25,000 and under is only 1% to 2% of your business. I mean a $25,000 property policy, that's a pretty juicy policy. Can you talk a little bit about the industry? And I mean you don't have to talk about your competitors, but who's going after that policy, if not Brown & Brown?

Well, and like I said, there are lots of independent agents in the United States that write lots of business that would be defined as small accounts. So again, from a standpoint of -- and they have people that actively service -- I mean, actively go out and solicit them. And what we're saying is typically, our producers are going after accounts that are in excess of that. That's just the way I want you to think about it.

There's also -- there might be an opportunity there, I guess, maybe who knows?

Yes, okay.

Our next question comes from the line of Alex Scott with Barclays.

For the first one, I wanted to ask you about margins. Over time, it's been somewhat linked to organic growth and the ability to get margin improvement is a lot better when you're growing. Just based on what you're seeing with the potential of AI, does it change the amount of growth that's needed to still get that margin improvement? Can you talk a bit about how you're thinking through that over the next few years if we do stay in a softer market here?

Sure. And remember, I think the important thing, Alex, is this. We think that there are opportunities to invest in talented people to help us grow our business going forward. So you can actually underinvest and margins could stay flat or go up. And that's not how we look at it. And so we've said -- I know there are other brokers that say you got to have X amount of organic growth in order to have margins go up. We actually would say depending on the quarter or the time period, that's different with us. But I want to clarify that we are actively looking to continue to invest with high-quality people to help us deliver solutions for our customers. That said, there's absolutely a positive impact from AI and the potential of that going forward.

And then Alex -- and the other reason why we included the additional performance metric of our organic with contingents is that's another really good metric in order to have a correlation down to margins and EPS. Because I think in the past, people have said, well, wait a minute, how can your margins go up if your organic goes down or vice versa? Because the contingents, because they're a core part of our model, can move the margins around in quarters, okay.

Yes. Got all that. The next one I had for you is on the revenue opportunities you see from AI. I mean I think you got into it some with Josh there, but I mean, is it about specializing? Is it about going down market? And then can you elaborate on any investments that are more concrete that we can think through on how you're advancing towards some of that?

So like I said, we tried to give you a good peek in the box on the 3 examples that we've used. I believe that -- and we will talk more about that in the future, but if you think about it, there are lots of people that think about it in the mid- and back-office efficiency. We don't view AI as a teammate replacement tool. That's number one. Number two, we absolutely believe it improves the customer experience and we talked a little bit about that as it relates to 25% of the stuff in Specialty Distribution going through and routing which makes us more efficient.

And then number three, it helps us identify growth opportunities with new or existing customers. And so what I would say is that we've kind of laid out what we want to talk about today. And as we move further into the year, we'll bring more information to you on that. But we feel positive about our steps we've put in place in terms of our AI journey.

Our next question comes from the line of Meyer Shields with Keefe, Bruyette, & Woods.

One question on the Howden revenues. Is that $31 million of annualized revenues, still all employee benefits?

No.

Okay. Go ahead, I'm sorry. I didn't mean to cut you off.

No. Go ahead.

Okay. This is unrelated question, but I think we're probably like within spitting distance of seeing pricing on June property renewals because it's less than 90 days out. And I'm wondering there's this thesis that the rate decreases on CAT property will slow down once we've gone through a full renewal cycle. And I'm wondering whether you're seeing any of that.

I haven't seen that yet.

Okay. And then final question. Are the higher state tax rates likely to be an issue for coming quarters?

Sorry, one more time on that. You broke up.

Sorry, you'd mentioned some higher state tax rates as a factor in the quarter, and I'm wondering whether we should expect that to persist in the rest of 2026.

Yes, that's probably fair to include that, Meyer.

Our next question comes from the line of Pablo Singzon with JPMorgan.

Given your commentary about 2Q being a heavier property quarter, would it be reasonable to think about some sequential deterioration in organic ex-contingents? Or do you think your comments about the cadence of quarterly improvement holds?

We believe what we said holds true.

Okay. And then this one's not related to the quarter, but Wright Flood is one of your larger businesses within specialty. Do you have any perspective on how your position as the government is contemplating potential changes to the NFIP that might push businesses into the private market?

Sure. I think, first of all, we like that business and Wright has been very successful. As you know, the government has had a hard time reauthorizing for any extended period of time and they're on multiple extensions. And so the answer is, the government would like to see more depopulated, but I don't believe that the private market will absorb the areas in the worst flood zones.

So it's all relative. So don't allow somebody that says we're writing private flood to lead you to believe that they're writing that in downtown New Orleans. I think that's a very important distinction. So we believe and we have private flood capabilities. We've invested in that. We have all kinds of opportunities to go along with that, both on NFIP and on the private side. But remember, the carriers are not going to want to desire to go into areas that flood on a regular and consistent basis.

Our next question comes from the line of Yaron Kinar with Mizuho.

Two quick ones on AI. First, there is a school of thought that says, look, most of the value in the P&C ecosystem falls to the brokers. And as such, maybe AI creates an opportunity for the insurers to take some of that value back. How do you think about that? How do you respond to that?

You're saying the insureds or the insurers? I want to make sure I heard you correctly. Who takes the value back?

The insurers.

Yes, I got it. Actually -- I actually would counter that. They do, in some instances, have a direct model on the very simplistic, not complex, not customized commercial risks. So I think that will continue, but I actually think anytime there's complexity, that leans much more in the favor of the brokerage community. So I actually would not agree with that statement.

Got it. And then the second one on AI and maybe going back to Josh's question with the $25,000 or less in annual premiums. Given that, that slice of the market tends to go more to the small independent agencies, does that impact your appetite for smaller tuck-in M&A over the long run?

Depends on those businesses, and we have to evaluate that on a constant and consistent basis going forward. We like small- and medium-sized tuck-in M&A, but we want to understand exactly what they've got in there and then how we would service it and continue to add additional value. Here's the one thing that I want to raise that I think is important. AI disintermediates tasks. AI does not disintermediate trust. And so our business is built on trust and good advice.

And so when people are spending, depends on -- I would ask you rhetorically, at what point -- what is the largest purchase you've made on the internet ever without ever talking to someone or having engagement? Many people say it's a television or a pair of golf clubs. But let's say you bought a car. I made that up, right, a used car or something, okay. But many people want to talk to somebody and have the advice. And this is not, as you know, just a product. There is -- this is a complex intangible sale. So just something to think about it. I know you knew that, but let's take the next question. Thanks, Yaron.

Our next question comes from the line of Brian Meredith with UBS.

Two quick ones here. First on AI, Powell, do you think it has any effect on kind of long-term commission rates? Or would you charge your clients given the productivity benefits you're likely to see from it?

I don't like to say never or always. But I actually think that if you look at the way the risk-bearing community is looking to grow and people are trying to come to market as evidenced by reinsurance companies trying to get into the insurance business and get closer to the market, I believe that there -- it's possible, but I don't think it's highly probable.

Brian, and one other piece on that, I think maybe that folks aren't always keeping in mind is there's the presumption that the cost of technology will not go up. And so don't know what that will actually look like in the future, but do we expect our overall cost of technology to go up as a result of implementing all these capabilities? Yes, probably will.

Makes sense. And then second question, just quickly on Accession here. It looked like the revenues were kind of flattish on a year-over-year basis. How are you thinking about Accession as you kind of look in the second half of the year on your kind of organic revenue growth improving? Maybe I've got that wrong.

I think split it into 2 pieces is, one, overall, we feel good about the business. As we mentioned in our commentary, we see that the 180 business as it rolls into organic in the back end of the year will be contributory to the organic in Specialty Distribution. And then the overall Risk Strategies business is performing relatively similar to those, so it's probably not going to have any major movements either direction just because of the pure size of it.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Powell for closing remarks.

Thank you, Towanda, and thank you all for your time today. We look forward to talking to you next quarter. Good day.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, and welcome to the Brown & Brown, Inc. fourth 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 with respect to future events, including those related to the company's anticipated financial results for the fourth 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 a number of factors. Such factors include the company's determination as it finalizes its financial results for the first 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 and prospects as well as additional information regarding forward-looking statements is contained in the presentation posted in connection with this 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 measure can be found in the company's earnings press release or in 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 will now turn the call over to Powell Brown, President and Chief Executive Officer. You may now begin.

Thank you, Tanya. Good morning, everyone, and welcome to our fourth quarter earnings call. Before we get into the results, I wanted to share that we lost a key member of our leadership team, an incredible individual and great friend. Last week, Rob Mathis, our Chief Legal Officer, passed away. Our thoughts and prayers go out to Rob's family. We'll miss his friendship, his leadership and his wit.

Now let's transition to our results. The fourth quarter capped off another year of strong top and bottom line financial performance. For the full year, we grew our revenue by 23% through a combination of M&A, organic revenue growth and strong growth in our contingent commissions. We expanded our margins materially and grew our cash flow from operations by nearly 24%. This strong performance was in spite of softening CAT property rates and economies returning to more normal growth levels.

Our performance was driven by our culture, teammates, diversification and disciplined leadership. In addition,to the good financial results, we also completed the largest acquisition in our history, welcoming over 5,000 incredible teammates in Accession. We're very pleased with the integration efforts to date, and we'll touch on that more later. Lastly, we invested in talent and technology to help us deliver even better solutions for our customers. Indeed, it was a very eventful year that we're very proud of.

Before we get started, we wanted to share some comments related to Brown & Brown and also involve our industry in general. First and foremost, we believe in competition. That's what makes great companies, great leaders and great individuals. We also believe in integrity, honesty, loyalty and trust. However, when a start-up U.S. broker conducts what appears to be a highly coordinated plan to lift entire teams from its competitors, taking information and customers in the process, it must be addressed.

As of today, approximately 275 of our former teammates have joined this start-up, taking with them customers currently representing known annual revenues of $23 million. As we've done in the past, we will defend our rights in court and already have obtained an injunction. We stand behind our values and we'll continue to stay customer-focused with the goal of achieving the best possible outcomes for our customers and our trading partners.

Now back to our results. I'll provide some high-level comments regarding our performance along with updates on the insurance market and the M&A landscape. Then Andy will discuss our financial performance in more detail. Lastly, I'll wrap up with some closing and forward-looking thoughts before we open it up to Q&A.

On Slide 4. For the fourth quarter, we delivered revenues of $1.6 billion, growing 35.7% in total with organic revenue decreasing 2.8%, driven substantially by flood claims processing revenue we recognized in the fourth quarter of last year. Our adjusted EBITDAC margin remained flat at 32.9% and our adjusted earnings per share grew over 8% to $0.93. Both are very strong considering last year's flood claims processing revenue. On the M&A front, we remained active and completed 6 acquisitions with estimated annual revenue of $29 million.

On Slide 5. For the full year of '25, we delivered revenues of $5.9 billion, growing 23% in total and 2.8% organically. Our adjusted EBITDAC margin was approximately 36%, increasing 70 basis points. On an adjusted basis, our diluted net income per share grew over 10% to $4.26, and we generated nearly $1.5 billion of cash from operations. Lastly, we had a record year for M&A, adding approximately $1.8 billion of annual revenue from 43 acquisitions with the largest being Accession.

I'm on Slide 6. From an economic standpoint, growth was relatively consistent compared to the last few quarters. We view this stability as positive. Our customers for the most part continue to hire at a modest pace and invest in their businesses as they see steady demand for their products and services. Not all industries are equal as some companies are hiring while others are holding steady, and we're not seeing any major workforce reductions impacting our diversified customer base. In general, our customers have a cautiously optimistic outlook.

From a commercial insurance pricing standpoint, rates for most lines were fairly similar to the third quarter but we did see some moderation across some lines. Casualty and CAT property remain the outliers on both ends of the spectrum.

Pricing for employee benefits increased slightly as compared to prior quarters with medical costs up 7% to 9% and pharmacy costs up over 10%. As we've mentioned in the past, we do not see any signs that this trend will slow. Our customers continue to be challenged to balance rising health care costs and the impact to their employees and their P&Ls. During strategic planning sessions with our customers, management of high-cost claimants, specialty pharmacy and population health remain the key areas of focus.

Rates in the admitted P&C market moderated slightly as compared to last quarter and continue to be in the range of flat to up 5%. Workers compensation rates remains flat to down 3%, but we're seeing a few states increasing rates. For non-CAT property, overall rates were down 5% to up 5% depending on loss experience with the blended rates relatively flat for the quarter. For casualty lines, rates increased 3% to 6% for primary layers with excess layers increasing even more. For professional liability, rates remained similar to the last couple of quarters and were down 5% to up 5%

Shifting to the E&S property market. Rate changes for the fourth quarter were similar to the third quarter and were generally down 15% to 30%. We did see some incremental drop off at the end of the year but not as much as we did in June. With the availability of capital and lower insured storm losses, you have a lot of firms looking to put capital to work. Therefore, the pricing environment and approach by carriers did not surprise us. From a customer perspective, they continue to manage their total insurance spend, both commercial as well as employee benefits.

As a result, we're seeing some customers leverage the lower rates, enabling them to decrease their deductibles or increase their limits. In some cases, they're utilizing the savings to purchase incremental limits on other lines or they're just capturing the savings.

On Slide 7. Now let's transition to the performance of our 2 segments for the fourth quarter. Retail delivered organic growth of 1.1%. As a reminder, during our third quarter earnings call, we anticipated Q4 organic growth to be negatively impacted by multiyear policies written in the fourth quarter of '24. In addition, we had certain onetime adjustments to incentive commissions that were larger than anticipated. Lastly, we had certain project work that was delayed into 2026. In total, these items negatively impacted organic growth by 100 to 150 basis points.

For the full year, our team delivered 2.8% organic revenue growth, a good performance given the headwinds we have discussed related to incentive commissions and multiyear policies. We feel good about our capabilities and how our team is positioned, and therefore, we're expecting improved organic performance in 2026.

For the quarter, organic revenue for Specialty Distribution segment decreased by 7.8%. As we discussed, the decline was primarily impacted by $28 million of flood claims processing revenue recognized in the fourth quarter of last year. In addition, the decrease in CAT property rates was slightly more than expected, and we saw some binding authority business move back into the admitted market. For the full year, we grew 2.8% organically, a good result considering a tough comparison for '24 and the continued decline in CAT property rates.

Now I'll turn it over to Andy to give you more details about our financial results.

Thanks, Powell. Good morning, everyone. Before we get into the financial details, I want to talk about the impact on our earnings related to the acquisition of Accession. For the quarter, Accession's total revenue was approximately $405 million. This is below the guidance of $430 million to $450 million. As a result of refining our revenue recognition estimates by quarter, revenue, margins and adjusted earnings per share were impacted for the quarter. However, these revisions do not change our annual expectations for the business.

From an adjusted earnings per share perspective, the impact of lower revenues versus our guidance was approximately $0.05 for the quarter. As it relates to the margin for the quarter, due to the phasing of revenue and profit, Accession's results decreased our margins by approximately 200 basis points for the total company.

Transitioning now to our consolidated results. As a reminder, when we refer to EBITDAC, EBITDAC margin, income before income taxes or diluted net income per share, we are referring to those measures on an adjusted basis. The reconciliations of our GAAP to non-GAAP financial measures can be found either in the appendix of this presentation or in the press release we issued yesterday.

Now let's get into more detail regarding our financial performance for the quarter and the year. On a consolidated basis, we delivered total revenues of $1.607 billion, growing 35.7% as compared to the fourth quarter 2024. Contingent commissions grew by an impressive $37 million, with $21 million coming from Accession. The underlying increase was driven by minimal storm claim activity and higher underwriting profitability.

Income before income taxes increased by 23.1% and EBITDAC grew by 35.6%. Our EBITDAC margin was 32.9%, remaining flat versus the fourth quarter of the prior year. This was a good result considering the negative 200 basis point impact of Accession mentioned earlier and the prior year flood claim processing revenue. The strong underlying margin expansion was driven by significantly higher contingent commissions and lower claims within our captives, both due to the quiet storm season, along with our continued disciplined management of our expenses.

Our effective tax rate for the quarter was 21%, a decrease over the prior year rate of [ 24.9% ]. The lower tax rate was driven by the benefit from our international operations and certain end of the year adjustments. Diluted net income per share increased 8.1% to $0.93. Our weighted average shares outstanding increased by approximately $55 million to $339 million, primarily due to shares issued in connection with the acquisition of Accession. Lastly, our dividends paid per share increased by 10% as compared to the fourth quarter of 2024.

We're moving over to Slide #9. The Retail segment grew total revenues by 44.4%. This growth was driven primarily by acquisition activity over the past year. Our EBITDAC margin decreased by 120 basis points to 26.6%, resulting from the quarterly phasing of revenue and profit associated with Accession. The Accession impact more than offset good underlying margin expansion driven by the leveraging of our expense base and certain onetime items.

We're on Slide #10. Specialty Distribution grew total revenues by 27% driven by the acquisition of Accession and a substantial increase in contingent commissions. The higher contingents were driven by acquisition activity, certain end of the year adjustments and growth due to our favorable underwriting performance. Generally, our contingent commissions will increase when there are low loss ratios and strong underwriting profitability.

Traditionally, when there is a strong underwriting profitability, it has the long-term effect of decreasing rates over time. This inverse correlation for contingent commissions helps put stability in our long-term revenue growth, margins and cash flow generation as contingents are a core part of our business model.

Our EBITDAC margin decreased by 60 basis points to 41.3% due to the lower flood claims processing revenue and the impact of Accession having a lower overall margin as compared to our existing Specialty Distribution segment. These impacts more than offset the increase in margins driven by higher contingent commissions, lower claims in our captives and the disciplined management of our expenses.

We're over on Slide #11. This slide presents our results for both years. Our EBITDAC grew by 25.6% and our margin increased 70 basis points to 35.9%. We view this as a very strong result given that coming into the year, we are anticipating margins to be flat due to lower contingent commissions, the difficult comparison to 2024 driven by the flood claims revenue and the seasonality of Accession's profitability, which negatively impacted the full year margin by approximately 80 basis points.

We're very pleased with the strong underlying performance. This performance was driven by significant growth in our contingent commissions, higher profitability in our captives, increased interest income and the disciplined management of our expenses while still investing in our teammates and capabilities. Net income before income taxes increased 21.8% and net income per share was $4.26, growing 10.9%. Overall, it was another good year of strong top and bottom line performance.

We have a few other comments. From a cash perspective, we generated $1.450 billion of cash flow from operations, growing 23.5% over the prior year. This is in comparison to 23% revenue growth. Our full year ratio of cash flow from operations as a percentage of total revenues remained strong and increased to 24.6%, a reflection of our margins and disciplined working capital management.

In addition, during the quarter, we paid $100 million on our revolving credit facility and bought back [ 100 million ] of shares of our common stock as we continue to deploy our capital in a balanced manner.

Before we wrap up, we want to provide guidance on a few items. Now that we have a better view on the seasonality of revenues and profit for Accession, both are substantially equally weighted between the first and second half of the year. For the second half, revenue and profit are more heavily weighted towards the third quarter. Lastly, due to the high margins in the first quarter for the legacy Brown & Brown business, we anticipate Accession will have a modest negative impact on our adjusted margins in Q1.

From a synergy perspective, as Powell described earlier, we're very pleased with the progress made on our integration activities over the last few months. We continue to anticipate integration efforts will be completed by the end of 2028. So we have only just begun our journey. The team has made great progress in a short period of time, and we expect EBITDAC synergies of approximately $30 million to $40 million in 2026.

Regarding contingents. As we mentioned, they are a core part of our business and have a recurring nature and represented over $250 million of revenue last year. They will fluctuate quarterly with changes in our organic growth and underwriting profitability, so it's better to assess them on an annual basis. For next year, we anticipate contingents for Specialty Distribution will be down approximately $15 million due to certain onetime adjustments in 2025 and ultimately subject to storm claim activity.

For Specialty Distribution, we anticipate organic growth to be somewhat flat in the first quarter due to flood claims processing revenue in the first quarter of last year and continued CAT property rate decreases. As it relates to 2026 organic revenue outlook for the Retail segment, we anticipate modest improvement over the 2.8% we delivered in 2025. As a reminder, we think about our Retail business as a mid- to low single-digit organic growth business in a normal pricing environment and a stable economy.

Our team continues to work hard to grow net new business,and we feel really good about our prospects for 2026. As it relates to organic revenue growth, depending on the materiality of revenues taken by the start-up broker, we will quantify the impact in our commentary and may adjust our organic growth calculation in order to give a better representation of our underlying performance of the business.

From a margin perspective, as we look into 2026, we are projecting lower investment income due to the income generated in 2025 by the cash held for the acquisition of Accession as well as lower interest rates. This will have a downward impact on our total margins in 2026, while the underlying business is projected to achieve relatively flat margins. We view this projection as a great outcome and a reflection of the strength of our operating model, our teammates and our performance-based culture.

As we've discussed in the past, our long-term adjusted EBITDAC margin target range is between 30% and 35%. As a result of our changing business mix over the years, the addition of Accession along with our combined synergies, increased contingence, utilization of technology and our continued focus on our balanced profitable growth which is enabled by our unique decentralized sales and service model, we are increasing our long-term margin target range to 32% to 37%.

As we always have, we will continue to invest in our teammates and our businesses, which may result in the margins increasing or decreasing. But over time, the ultimate goal is to drive long-term growth and value. Lastly, from a tax perspective, we anticipate our effective tax rate will be in the range of 24% to 25% from 2026.

With that, let me turn it back over to Powell for closing comments.

Thanks, Andy, and good summary of our results. As we head into 2026, we continue to believe economic growth will be relatively stable, which we view as positive. Assuming interest rates continue to decrease in 2026, this should provide additional economic stimulus for many companies as well as individuals.

As we said in the past, we believe diversification of customers, geographies and lines of coverage are very powerful as it creates stability in our revenues, margins, cash flow and earnings per share. Overall, we feel that the economies in which we operate should be generally stable barring something unusual happening.

From a pricing standpoint, we expect admitted rates to be fairly similar to what we experienced in the fourth quarter or might moderate slightly. We believe casualty rates will continue to increase, which are the largest segment of the market and that admitted property will continue to be competitively priced.

For the E&S space, we anticipate pricing will be very similar to the fourth quarter with casualty lines being the most challenging to place. Due to the lack of meaningful insured losses from hurricanes last year and the amount of available capital, we believe CAT property rates will decline modestly from the levels in the fourth quarter.

On the M&A front, our pipeline looks good, and we expect to remain active in 2026. For us, it comes down to finding businesses and leaders that fit culturally, and then it needs to make sense financially.

From Accession integration standpoint, things are coming together well, and I'm very pleased with the progress. The teams are leveraging the best of both in order to win more new business, and we're bringing offices together where it makes sense. We have a lot to get done in 2026, but I feel confident that we have the right team focused on the key value drivers. I'm extremely pleased with how the teams are collaborating together.

Our balance sheet and cash flow remained very strong, which enables us to continue to delever, invest in our teams and acquire more businesses. We'll continue our disciplined approach of capital allocation, investing the capital like it's our own and striving to create long-term shareholder value.

2025 was another great year for Brown & Brown. We grew the top and bottom line significantly. We added to our capabilities, invested in innovation, data and analytics and, most importantly, added over 6,000 new teammates. While the markets might have some volatility, we believe our operating model provides stability as well as industry-leading margins and cash flow. I'm proud of how our team is focused on our customers in creating innovative solutions for them.

We look forward to 2026 being another good year for our company, which will enable us to deliver solid top and bottom line results that will drive shareholder value as we continue to march towards our intermediate goal of $8 billion and beyond.

With that, I'll turn it back over to Tanya to open up the lines for Q&A.

[Operator Instructions] Our first question will be coming from Gregory peters of Raymond James.

So I guess happy new year to you all. I guess I only have one question. So I'd like to focus on all your comments regarding the 275 former teammates that left for the competitor and the $23 million of revenue that is going with them.

I guess there's a lot of questions you can ask, but I'd like to focus just on have you changed your strategy about retaining your producers? And more importantly, can you talk about -- and I know you're not going to talk about ongoing litigation, but can you talk about, generally speaking, your legal defenses around your customers and your company IP?

Yes. Okay. So first off, what I want you to know is the way we pay our teammates and specifically producers is a mix between cash compensation and equity based on performance. And we believe that, that has worked really well over a period of time and continues to work well. So as it relates to is there something unusual or different going on or we're changing something, no, that's not the case on both fronts. I think this is a highly unusual instance, just like it was with the other large broker firms that were affected.

As it relates to the second part of the question, yes, in the industry, as you know, Greg, typically, and it might be slightly different in certain states, but generally there are nonpiracy and nonsolicitation agreements. And those typically have a 2-year period on customers and a 2-year period on hiring teammates. It also has a component on intellectual property which is in perpetuity. And so obviously, we can't talk about legal actions or anything that's in the legal system at the present time. But as we said in our comments earlier, there's currently some -- you can read all of it out there, let's put it that way. That's where I'd leave it.

Our next question will be coming from Jimmy Bhullar of JPMorgan.

First, just had a question on your comments around the sort of shift of business from E&S to standard. Are you seeing that in specific lines? Or is it more prevalent? And what are your expectations for the move of exposures from the E&S market to standard over the next year or so?

So Jimmy, as you may know, there are accounts that, I'm going to call them, tweeners. And tweeners, depending on the market cycle, either are in E&S or in standard. And typically, they look or lean a little bit more towards the E&S market. And many times, you see this in the smaller accounts. They're not small but smaller accounts. And those accounts might be up to $50,000 or more in premium.

But typically, when the market starts to change in property in particular, you see standard markets will come back in and accept some of those. So again, I believe that where we saw this that we're referencing is in our binding authority business, in the Specialty Distribution. And it's too early to draw a conclusion. I don't believe 1 quarter is a trend. However, we've seen this movie before. So I do think that there may be some continued movement from E&S to admitted, particularly in the smaller binding authority business.

Okay. And just on your comment around...

Jimmy, just one second for me. Just one other thing just to keep in mind is that while accounts could, in fact, migrate from the E&S back into admitted, we continue to believe that there's going to be more insured assets though moving into the E&S space versus moving back into the admitted. So it's always kind of talked about back and forth. But if you just look at the trend over the last 10, 15, 20 years, there's more and more moving into E&S because they want the flexibility of pricing and terms.

Yes. So there's the secular component, obviously. But I think cyclically, there's just been a lot more business than normal that's moved into E&S the last several years. So maybe some of that goes back into standard, right, in the short term at least.

Yes, it can probably somewhat. You'll see it on the fringes.

And then on your comment around Howden, like they're being pretty aggressive, and other brokers have sued them as well for similar issues. Is competition picked up in general even outside of that? Or is Howden really a one-off and you're not seeing other companies being more proactive in either poaching or paying people more to add producers?

So the answer is the start-up firm is one of many that are aggressively looking to hire people. The question is how they're doing it. And so again, as I said earlier, we are all for competition. And when we hire people from other firms, we ask them to abide by the contracts, whatever those contracts are that they have. And so there's a difference in opinion with that particular start-up here in the States. And there are others. There are others in the United States that think that way as well. But that's the story.

And our next question will be coming from Rob Cox of Goldman Sachs.

I just wanted to ask about in the presentation, your commentary on casualty pricing, it sounds like you guys are still talking about it as, of course, seeing strong increases. But it looks like the range you provided, 3% to 6% fell a good bit from the 5% to 10% last quarter. So I just was curious to see what's driving that deceleration in casualty pricing increases, and if you had any additional color to provide there.

Sure. So once again, in a market that is changing, just a broadly broad statement, I believe that you're going to continue to see more competitive pricing across the board. So what you're seeing, at least in primary business, is a slight moderation of those rate increases. Remember, the biggest pressure in that area is on the excess. That has not changed because of the way the court system views accidents and things like that.

So Rob, I think it's a normal course of the market. I don't think there's some structural change that's happened or some carrier has figured out how to make so much money in casualty. That's not what I'm trying to say. But I'm just giving you what we're seeing in the quarter in terms of rate impact.

And Rob, with our commentary, don't read anything into that, that we're saying we expect casualty rates to go negative. So don't read anything into the trend or whatever. It's just kind of how the pricing was for the quarter. It can move around.

Okay. So as you look forward, you would think -- I don't want to put words in your mouth, but you think like relatively similar on casualty pricing going forward?

We think, at least based on what we see, that, that would be the state or the case. I don't know if there's something we're not aware of or can't see right now, but based on what we see at the present time, yes.

And our next question will be coming from Tracy Benguigui of Wolfe Research.

I appreciate hearing your comments on contingent commission. Can you talk about which accident years are used in that formula? I'm trying to get a sense if you're still benefiting from those harder market years.

Tracy, it's Andy here. So a number of our calculations generally, because a lot of these are around property, less on the casualty side, normally is kind of shorter term in nature. Generally, it's over a 12-month horizon, but you might see that it could have a rolling 2 or 3-year inside of the calculation. But in general, it's normally over kind of a 12-month horizon.

And then what we -- in our commentary is you'll see kind of movements around by quarter as we're doing ultimate true-ups to calculations back and forth and why we kind of look at them on a total basis in there. We'd suggest that you look at it kind of differently between Specialty Distribution versus Retail, the Retail is honestly, it's a pretty consistent number as a percentage of revenue. SD will, in fact, move around by quarters, but it's an important part of our business.

And then just going back to the comments about those 275 producers that were approached by a competitor. Can you just walk us through the cadence of the reduction of the $23 million of revenues? Was it mostly an employee benefit so that we could see that in the fourth quarter in '26? And is it fair to assume there was no impact this quarter?

Yes. So it was a mix of business that was more heavily weighted towards employee benefits. So you probably see more of the impact probably earlier in the year.

And it's not 275 producers. It's 275 people. A small portion of that group were producers. The vast majority of them were in nonproduction roles.

And our next question will be coming from Mike Zaremski of BMO.

Maybe just a question on the profit margin commentary. Andy, you said underlying margins expected to be flattish. Just to clarify,the definition of underlying, does that include contingent and investment income. It sounds like the -- which is a good flattish outcome as the result of the Accession synergies waterfalling in '26, if you think that's the right read.

Yes. Mike, I think that's -- so what we are saying is if you isolate the impact of lower investment income next year, we would say the remainder of the business will be flat. And yes, we do view that as a really strong performance next year, considering the different puts and takes that we have and having contingents down inside of there. So that would be a really good year for us.

Okay. Great. And my follow-up might just be a quick yes or no, but could just ask for clarification. But I just want to make sure that the $23 million of lost revs, that's all we're going to from the lost employees for the most part. It doesn't build up over time to a much larger number. I just wanted to just make sure because there's a -- $23 million divided by 275 employees, it's a fairly not immaterial but small number.

So let's make sure we clarify that, Mike. Number one, that is the amount that they have taken at the present time. So what I'm saying is when something like this happens, which we haven't had before, they can impact retention going forward. Some of that may be legally, I'm not going to say preventive, but run afoul with legal matters or whatever the case may be.

But the answer is at the present time, it is $23 million. And yes, relatively speaking, at the present time, it is a big number in a regular sense. But as it relates to the overall organization, it is a small number and your statement is correct. But we don't know what has been said to existing customers and that will bear itself out in the next year or so.

Mike, that's why in our commentary, we said depending upon the materiality on a quarterly basis, we may call it out. Just to help give an idea of how the underlying business is performing, this will take a number of quarters to ultimately play itself through. And again, it's not that it's all 1:1 business.

And our next question will be coming from Elyse Greenspan of Wells Fargo.

My first question was on the Retail organic. I think you guys said within the guidance, right, that there should be some modest improvement from the 2.8% that you guys saw in 2025. Does that, I guess, adjust out the impact of the Howden departures? Because I think you said you may or may not adjust it out. Or does that account -- would that be leaving in the $23 million impact and you might adjust out if it's larger?

That adjusts that out.

Okay. Got it. And then in terms of the fourth quarter, what was the impact of the government shutdown on both Retail and Specialty Distribution? And are you expecting any impact in Q1 or in '26?

Elyse. No, nothing material. Obviously, especially, you'll see it kind of in our flood business when you have these shutdowns. But I guess, sorry to say we're fairly adept at knowing how to manage through these since our government seems to have this as a recurring challenge at times. And so our team is really good about getting ahead of upcoming renewals, et cetera. But normally, if you have any delays, that kind of get caught up over 30, 60 days. So nothing major.

And our next question will be coming from Yaron Kinar of Mizuho.

So my first question is on the Specialty Distribution organic. So I think even when we adjust for the flood revenues, organic did decrease by low single digits. You called out the greater-than-expected pressure from property CAT pricing, binding authority business moving back to the admitted market. I assume both of those will be headwinds that remain in '26. So what offset drivers do you have that would still get the segment back up to a positive organic growth in '26?

Yaron, so I think in our commentary, we highlighted a couple of things. One, we think that the organically challenged in the first quarter with the flood claims that we recognized in Q1 of last year. And then with the CAT property pricing, it will probably still be a little bit challenged in the second quarter. Then as we start looking into the back end of the year, we start getting the benefit of the organic growth of the Specialty Distribution businesses that have joined us from Accession.

And again, remember, those businesses have very, very little CAT inside of them, just quite a bit of casualty plus other specialty lines inside. And then obviously, there's less CAT property placed in the third quarter. And then we'll see what the fourth quarter looks like. But we feel good about the business and the outlook. Probably a little bit modest in the first part of the year, but then if everything continues on with trend, it will pick up some momentum in the back end of the year.

Okay. And you've given us a flavor of what kind of steady state organic should be or has been in Retail over the years in kind of the low to mid-single-digit range. I realize that it may be a bit more challenging to offer that for Specialty Distribution. But nonetheless, I'll give it a shot.

Sorry, you broke up at the end, Yaron. Can you repeat the question, please?

Yes, I'd just like to see if there's a steady state organic level that you'd expect from the Specialty Distribution segment, kind of the equivalent of the low to single digits you've offered for Retail.

Yes. I think when we look at that business, because you've got the E&S component to it as well as there's still admitted inside of there, it's generally going to grow faster than Retail, not all the time, and you're going to have kind of different periods. But we would normally think about that being a slightly faster-growing business than our Retail.

And our next question will be coming from Mark Hughes of Truist.

Yes. The procedure when you lose the team, going back to the housing issue, how quickly would they change, say, the broker of record and so the business would shift immediately? I think how you alluded to, you didn't know kind of what conversations they might have had with other clients maybe positioning themselves for the renewal. But what's the usual cadence for you learn about how much is the shift over, just so we can think about what that $23 million might end up being as it progresses throughout the year?

Well, Mark, there's two parts. So as you know, people do business with people that they like and they trust. And depending on how the story is presented sometimes, and we've run into this already, they were told one thing and then the customer determines that maybe it happened a little differently. And so having said that, in our experience or hearing what the scenario is here, we have seen a group of accounts, which is the $23 million in question, that moved right away. And we believe that those discussions occurred with them either before the departure or right around that time, we don't know exactly, and that will bear itself out.

But having said that, there are other people that when presented with the scenario, they may end up thinking that they need to review their program, their placement. Sometimes they would go to an RFP, not all but I'm saying some. And some of that may be honest and honorable and some of that may have something else embedded in it and we just don't know. And so we think about how do you deliver better customer outcomes. And I have been hard pressed to determine at the present time how the start-up presents better customer outcomes to those insureds. So ultimately, that will pan itself out. But we don't have a way, it would be purely speculative, Mark, and we're not going to do that on what that number could ultimately be.

But what I'm saying is we are rehiring teammates in the affected areas. We are engaging capabilities across the platform to continue or to show these customers how we can have the best customer outcomes. And I'm very pleased with the engagement of our team across the entire organization.

Appreciate that. And then, Powell, I think you had said you anticipate CAT property rates might decline modestly from 4Q levels. Do you think the market has pretty close to bottoming?

I'm not going to say that, Mark. And let me tell you why. You have this really unique dynamic because you have all these issues with convective storms and fires and all these other stuff. And yet when the wind doesn't blow in Florida, as an example, you have this great pressure on rates. And as you know, it's a little bit like a pendulum and the pendulum usually swings too far one way and too far the other way.

Well, the rates, quite honestly, we would all agree probably were too high. And we don't control the pricing, the carriers do. But then all of a sudden, when it becomes profitable again and it looks really good, it brings everybody back in. So I believe that we're going to continue to have some pretty significant competition on those rates in the near to intermediate term. And I would typically say that really exists down between now and May or June, and then you get into hurricane season. So I would tend to say that I think it's still going to be quite competitive between now and then.

And our next question will be coming from Josh Shanker of Bank of America.

Obviously, you are very proud and have a good view of the long-term success for your business. But someone much smarter than me said that the hard market is an elevator and the soft market is an escalator. When you're looking at the dynamics of the market and you have a view of what the long-term growth rate of this industry is, do you believe we're entering into an extended period of suboptimal growth?

Well, I think that we are entering a more normal historically growth rate in the industry. And so I wouldn't say it the way you just said it, Josh. I also think it's very interesting, the weight that people place on organic growth versus other important metrics like cash flow and margins. And so Andy and I have this healthy debate where we discuss with our team, the more and more of the changes that occur in GAAP, the further it moves away from real cash.

Doesn't mean that it's wrong. I mean that's the SEC's deal and they figured it out and everybody but -- or the generally account accepted accounting principles. But what I would say is we think about it as how do we grow our business? How do we do that profitably? How do we reward those teammates, all of our teammates enable them to create wealth over a long period of time for helping us grow the business? And then how do we translate those revenues and earnings in the cash, as you saw at 24.6% for the year, and then use that to either buy businesses, hire more teammates, acquire our stock or something else that -- those are the three that come right to mind.

So I believe this is exactly, Josh, what Andy and I have been saying for the last 12 months, which was more of a return to the normal growth rates historically seen in the brokerage space.

Yes. Josh, the other thing that again is interesting to us, I think, the way in which people write about the market. If you think about the retail space and just think about our business for a second, the large majority of what we placed there is admitted markets, right? And those rates had to come down from where they were during kind of that '22, '23, '24 period just because of inflation, everything else. They've kind of leveled back out. They're kind of normal again.

And so we don't see anything else unusual. So we don't see like this significant like softening market maybe that people are writing about. That's not what we're seeing in the rates on the admitted side. Actually feels fairly stable and the economy feels pretty good to us right now. Even though the headlines may potentially indicate something else, that's not actually what we see. The place where you see more of the volatility is over in the E&S space. But it seems like nobody talks about casualty, continues to just keep going up, though. And casualty is a really large part of the marketplace.

And so we feel good about the backdrop. The numbers can move around again for anybody by quarter. But when we think about our business and heading into 2026, we feel really good about our ability to continue to capture market share and grow net new business. And that's kind of the key performance metrics that we focus on across the entire organization. So we don't hear that -- we don't hold maybe that potential dire view that you kind of put out there. That's not our projective on the market.

Well, I don't know if it's tire, but I just want to follow up on one thing that Powell said about that investors don't focus enough on cash flow, and I agree that's true. But would you believe that over the next 3-year period, that Brown & Brown's business can outgrow the organic pace of the rest of the industry? Are you in a position? Or it doesn't matter. Cash flow will be the guiding factor from how we operate our business?

Josh, we don't think that's actually the right question, if you don't mind me coming back to this one. Because the organic is only one part of the equation. One of the things that we've been saying for an extended period of time is you have to also look at contingent is part of our business model and in total. Otherwise, you get kind of a false understanding of how the business is performing.

Look at last year. We grew the top line. Total revenue is 23%. We grew our cash by 24%. The organic sure didn't grow that level, right? So you have to put contingents inside. Maybe our business is just different than everybody else. But when you think about Brown & Brown, you have to put the contingents inside of it because you're going to have scenarios where organic will be down and the contingents will be up, right? And the contingents are very profitable for us, ultimately, because these businesses should really be valued off of cash, not organic.

And the question is how can you grow your cash over time? We grew at 24% last year to $1.450 billion. That's an incredible year. And just look back to the last 10 years at how we've grown our cash, right? And it's a combination of our acquisitions, organic and contingents.

And our next question will come from Andrew Andersen of Jefferies.

Into '26, and recognizing the lost headcount, is there a scenario where you actually have a margin benefit as you're not incurring the comp and ben costs but you are keeping the revenues? Are you thinking about that in underlying margin guidance?

I think that what I want you to understand is we are rehiring teammates that display the characteristics that we look for to deliver very creative solutions to our customers. So some of those people are being hired in those markets effective, some may be hired elsewhere. But in the near term, technically that could be the case.

But we don't believe that it's going to have a significant impact or a material impact because we are hiring people back. So I think the question is the right question, but I don't want you to go away and say there's some hidden bonus in here. It's, we believe, immaterial.

Okay. And traditionally, I thought of you all as not really doing team lifts. But if there's an effort to replace these folks kind of quickly, is that strategy kind of contemplated here?

No, we don't think really that way. We think about hiring good people and bringing them on to the team. And so I don't like to use the term never or always, but that has not really been our thought process.

Andy, keep in mind our comments earlier because I think maybe some people have believed that it was, whatever, 200, 250, 275, those were all producers. That represents teammates across the board. So that service, account executives, et cetera.

Our next question will be coming from Alex Scott of Barclays.

I wanted to ask about the incentive commissions. And I guess we've seen some of the national carriers who are trying to be a little more disciplined in the face more competition beginning to have lower premium growth numbers. And so I just wanted to understand if we should expect any impact from maybe volume-based incentive commissions being impacted by that.

Alex, is that just an overall comment on the market? Or is it related to something specific when you ask that?

All right. I'll try to be more clear. We're seeing some national carriers have very low premium growth numbers at this point because of competition. And I'm trying to understand if in 2026, your incentive commissions could be negatively impacted by that.

Always a potential for that. I think you saw some of that actually in 2025, Alex, that we called out in the third and fourth quarter because the carriers are always moving around different measurement targets that could be on persistence or on growth. So yes, those are some of the dynamics going on.

Okay. But is there anything embedded in sort of what you commented on your Retail organic that include that? Or is it something that could be incremental, to help me understand.

That includes our commentary unless we get something unusual thrown at us that we don't know about.

Okay. And then I wanted to see if we could circle back on Accession and just see if you would be willing to provide any commentary around how that performed in 4Q and its contribution to revenue. And I know we probably should care and look at more cash flow. But for Accession in particular, just thinking through the different pieces of guidance you've given in the past, I wanted to understand how the growth is going there.

Yes, I would say good for the businesses. So we're very pleased with the performance of the businesses inside there. Extremely, extremely pleased with how all our new teammates are leaning in, which is wonderful to see in there. The item on the growth in the quarter when we called out the $405 million versus the $430 million versus $450 million, again, that was just an estimate we had going into the quarter. We refined revenue recognition. But nothing changes full year how we think about the business. Everything is going really well and come along with integration. So we're extremely pleased.

And our next question will be coming from Meyer Shields of Keefe, Bruyette, & Woods.

Two quick questions. First, Andy, the $15 million of adjustment related contingents, is that a fourth quarter issue? Is that where we should expect the drop off?

No, we'll probably see that more kind of spread between the third and fourth quarters of next year, Meyer.

Okay. That's helpful. And second, just to clarify, I know you said that the Retail segment should have organic growth better than the 2.8%. Is that comment also applicable to Specialty Distribution?

We would expect that the organic growth also would improve for Specialty Distribution during the year, yes.

And our next question will be coming from Brian Meredith of UBS.

Two questions here. The first one, you called out multiyear policies as a headwind in Retail growth again this quarter. Maybe you can quantify that. And is that going to continue to be a headwind in 2026?

Brian, yes, we wouldn't quantify that level of granularity. I think we included in our commentary about the 100 to 150 basis points in addition to incentives and some other projects. Those are all kind of moving around by quarter. Remember, if there's a headwind this year, remember, they come up for renewal next year.

Got you. Okay. And then second question, Powell, this is more for you. if I think about going back and when we transition into the soft cycles, I found that historically you do get these talent wars. This is obviously a little unusual, what's going on with Howden.

But as I think about here going forward, is that a correct characterization? And is there likely to be maybe a potential pressure on margins, not only Brown & Brown for the industry, is perhaps SMBs got to grow at a faster rate than organic revenue growth, given just the talent we're going on right now to try to sustain growth?

That's possible. Yes. I mean I'm not trying to be flippant, but yes, your thought process is fair on that. That could impact the industry, yes.

Brian, just the other thing, this industry has always been competitive, though. Yes. I mean it's been competitive for many decades. And so I think to our earlier comments, it's one we're very thoughtful about our compensation plans, both on cash and equity and how that creates long-term wealth for our teammates. And we continue to invest across the entire organization. But don't think that like all of a sudden like competition has just showed up in the last 6 months. It's been here for decades.

And I would now like to turn the conference back to Powell for closing remarks.

All right. Thank you all very much, and we look forward to talking to you after Q1. Have a nice day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good morning, and welcome to the Brown & Brown, Inc. Third 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 with respect to future events, including those relating to the company's anticipated financial results for the third 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 a number of factors. Such factors include the company's determination as it finalizes its financial results for the third 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 businesses and prospects as well as additional information regarding forward-looking statements is contained in the slide presentation posted in connection with this 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 measure can be found in the company's earnings press release or in the investor presentation for this call on the company's website at www.bbrown.com by clicking on Investor Relations and then Calendar of Events.

With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.

Thanks, Deedee. Good morning, everyone, and welcome to our third quarter earnings call. We'd like to first welcome our 5,000-plus new teammates from a session that joined us on August 1. We're excited to be working together to grow our company as these talented teammates bring new capabilities for our customers. I also wanted to talk about leadership changes we announced last Monday.

Based on the evolving global breadth of our Retail segment and the importance of continuing our forward momentum, I've appointed Steve Hearn as the new retail President on a go-forward basis. I've known Steve for over 20 years and have admired his leadership style. He brings more than 35 years of deep industry experience, acquisition, integration and a proven record of driving growth and innovation, both in the U.S. and internationally. With his leadership, we will further enhance our world-class solutions and value to our customers, carrier partners, shareholders and teammates.

Regarding my brother, Barrett, I have a ton of respect for him as a leader and also I love him dearly. He's taking a personal leave of absence. I ask that everyone respects his privacy. When he's ready to return to the company, I look forward to welcoming him back.

Last week, our Board of Directors raised our dividend by 10%, which represents an increase for the 32nd year in a row. In addition, our Board expanded our authorization to repurchase shares up to $1.5 billion. As we've done in the past, we will purchase shares when we believe the company is undervalued and to help manage dilution associated with our equity plans. Our goal is to help drive earnings per share growth and meaningful shareholder value.

Now let's transition to the results. I'll provide some high-level comments regarding our performance along with updates on the insurance market and the M&A landscape. Then Andy will discuss our financial performance in more detail. Lastly, I'll wrap up with some closing thoughts before we open it up for Q&A.

I'm on Slide #4. As you know, we focus on growth, both overall and organic, margins, earnings per share and cash flow as key metrics that should drive shareholder value creation. For the third quarter, we delivered revenues of $1.6 billion, growing 35.4% in total and 3.5% organically as compared to the same period in the prior year.

Our adjusted EBITDAC margin improved by 170 basis points to 36.6%. And our adjusted earnings per share grew over 15% to $1.05. On the M&A front, we completed 7 acquisitions with estimated annual revenues of $1.7 billion, with the largest being Accession.

I'm on Slide 5. From an economic standpoint, growth remained relatively stable with the second quarter. We view this as positive since we continue to see businesses growing as consumers are still spending. From a hiring and capital investment perspective, it remained relatively modest for most companies. Depending on the industry, some companies are looking to hire while others are relatively flat. This concept applies to capital investments as well. Generally, concerns over the impact from tariffs sees to have dissipated for many industries, while business leaders continue to have a cautious bias.

From a commercial insurance pricing standpoint, rates for most lines were similar to the second quarter. We continue to see CAT property and casualty as the outliers on both ends of the spectrum. Pricing for employee benefits was similar to prior quarters with medical costs up 6% to 8% and pharmacy costs generally up over 10%. We do not see any signs that this trend will slow over the coming quarters, almost all companies are challenged to balance rising health care costs and the impact of their employees and their P&Ls.

Management of high-cost claimants, specialty pharmacy and population health continue to be key areas of our focus, which are driving more demand for our health care consulting businesses. Rates in the admitted P&C markets were substantially similar to last quarter and were flat to up 5% versus the prior year. Workers' compensation rates remained similar to prior quarters in most states and were flat to down 3%.

For non-CAT property, overall rates were down 5% to up 5% depending on the loss experience. For casualty, we're seeing rate increases of 5% to 10% for primary layers and excess layers increasing even more. We believe this trend will continue over the coming quarters. For Professional Liability, rates remained similar to Q2 and were down 5% to up 5%.

Shifting to the E&S property market. Rate changes for the third quarter were similar to the second quarter and were generally down 15% to 30%. Keep in mind that we placed the largest amount of CAT property in the second quarter and the least amount in the third quarter of each year. From a customer perspective, they're managing their total insurance spend, both commercial as well as employee benefits. As rates move up and down for certain lines, this will influence customers' buying behavior and corresponding premiums paid.

I'm on Slide 6. Let's transition to the performance of our 2 segments for the quarter. Retail delivered organic growth of 2.7%, which was impacted by approximately 1% due to the adjustments related to certain employee benefits incentives. Isolating this impact, the organic growth was generally in line with our expectations as a result of good net new business performance.

As a reminder, beginning this quarter, our previously reported Programs and Wholesale segments were combined into one segment, which is now referred to as Specialty Distribution. The go-to-market brand is Arrowhead Intermediaries, which is comprised of 3 distinct divisions: Programs, Wholesale and Specialty. This segment also includes the 180 division of Accession. We believe that on a combined basis, Arrowhead Intermediaries is the largest global operator of over 100 MGA, MGUs and places approximately $20 billion of written premium.

For the quarter, the Specialty Distribution team delivered good organic revenue growth of 4.6%. Organically, wholesale grew high single digits, driven by strong brokerage performance. Programs grew low to mid-single digits, driven by good net new business while being partially offset by our wind and quake programs due to the continued downward rate pressure for commercial CAT properties.

Now I'll turn it over to Andy to get into more details of our financial results.

Great. Thank you, Powell. Good morning, everybody. Before we get into the details, we want to talk about the impact on our earnings related to the acquisition of Accession and our related debt and equity issuances. As previously discussed, transaction and integration costs related to our acquisition of Accession are excluded from our calculation of adjusted EBITDAC and adjusted earnings per share.

For this quarter, acquisition and integration costs were approximately $50 million. Additionally, beginning this quarter, we have a [ legal ] line on the income statement called mark-to-market of escrow liability related to the acquisition of Accession. This account is also excluded from our calculation of adjusted EBITDAC and adjusted EPS.

For the third quarter, we recorded approximately $8 million of a noncash charge related to the change in the fair value of our common stock held in escrow. As our stock price changes over the coming quarters, we will have additional noncash movements. For the stub period of August and September, Accession's total revenue was approximately $285 million. The margins were in line with our expectations and were slightly below the full year margin discussed during our announcement call.

Due to the seasonality of revenue and profit for certain businesses, the margin will fluctuate by quarter. In addition, we recorded approximately $29 million of incremental investment income for the quarter as a result of the proceeds of our follow-on common stock offering and senior notes issued in June.

Now transitioning to our consolidated results. As a reminder, when we refer to EBITDAC, EBITDAC margin, income before income taxes or diluted net income per share, we are referring to those measures on an adjusted basis. The reconciliations of our GAAP to non-GAAP financial measures can be found either in the appendix of this presentation or in the press release we issued yesterday.

Now let's get into more detail regarding our financial performance for the quarter. On a consolidated basis, we delivered total revenues of $1.606 billion, growing 35.4% as compared to the third quarter of 2024. Contingent commissions grew by an impressive $46 million in total with $12 million coming from Accession. Income before income taxes increased by 34% and EBITDAC grew by 41.8%. Our EBITDAC margin was 36.6%, expanding by 170 basis points over the third quarter of the prior year, driven by good underlying margin expansion together with increased contingents and investment income.

For the quarter, our margin expansion was partially offset by the seasonality of revenue and profit associated with the acquisitions of Accession and Quintes. Our effective tax rate for the quarter was 24.7%, substantially flat versus the prior year. Diluted net income per share increased 15.4% to $1.05. Our weighted average shares outstanding increased by approximately 48 million to 332 million, primarily due to the shares issued to Accession's equity holders.

Lastly, our dividends paid per share increased by 15.4% as compared to the third quarter of [ 2024. ] Overall, we are very pleased with our performance for the quarter as well as our year-to-date results.

We're on Slide #8. The Retail segment grew total revenues by 37.8% with organic growth of 2.7%. The difference between total revenues and organic revenue were driven substantially by acquisition activity over the past year. As it relates to the fourth quarter, we anticipate our organic growth will be similar to the third quarter. This is due to the previously mentioned employee benefits incentive adjustments and the relative impact of multiyear policies written in 2024 in the fourth quarter. At this point, we do not see the same potential revenue associated with multiyear policies in the fourth quarter of this year.

Our EBITDAC margin increased by 150 basis points to 28%, driven by the management of our expense base, along with the positive impact of Accession. This was partially offset by revenue seasonality for Quintes, which we acquired in the fourth quarter of 2022.

We're on Slide #9. Specialty Distribution grew total revenues by 30%, driven by the acquisition of Accession, contingent commissions and organic revenue growth. Our organic growth was 4.6%, which was a strong performance considering the very tough comparison to the prior year.

Our EBITDAC margin decreased by 110 basis points to 43.9% due to the impact of Accession, having a lower overall margin as compared to our existing Specialty Distribution segment. This impact more than offsets the increase driven by higher contingent commissions, organic growth and managing our expenses.

Regarding the Q4 organic revenue growth outlook, recall that we reported approximately $28 million of nonrecurring flood claims processing revenue in the fourth quarter of last year. Presuming there are no hurricanes through the end of this year as well as the continued rate pressure on CAT property and we are expecting slower growth in our lender-placed business, we anticipate the organic growth rate for our Specialty Distribution segment could decline in the range of mid-single digits. Taking this organic growth into consideration, it will also impact the margin for the fourth quarter this year.

As it relates to the fourth quarter outlook for contingents, we anticipate them to be in the range of $30 million to $40 million, depending on the outcome of storm season. This excludes any contingents that may be recognized by Accession.

We had a few other comments. First, from a cash perspective in the first 9 months of 2025, we generated $1 billion of cash flow from operations. This was an increase of over $190 million or 24% growth for the first 9 months of 2025 versus the same period in 2024. From a cash flow conversion perspective, our discipline remains strong, and the ratio of cash flows from operations to total revenues was approximately 23.5% or 100 basis points higher than the prior year. For the full year, we estimate our ratio of cash flow from operations to total revenues will be in the range of 23% to 25%.

While we wrap up, we want to provide guidance on a few items. As it relates to Accession, we anticipate Q4 revenues to be in the range of $430 million to $450 million and the adjusted EBITDAC margin to be slightly below the full year margin discussed in our announcement call due to the seasonality of revenue and profit for certain businesses.

Regarding amortization expense, we anticipate this to be in the range of $110 million to $115 million for the fourth quarter. Interest expense, we anticipate it to be in the range of $95 million to $100 million and investment in other income to be in the range of $20 million to $25 million for the fourth quarter.

As it relates to our full year outlook for adjusted EBITDAC margin, you may remember during our earnings call in January of this year that we anticipated our margins to be flat compared to 2024. Based on our strong year-to-date performance and incorporating the slightly lower margins due to the seasonality of Accession, [ we are ] increasing our full year margin expectations to be modestly.

With that, let me turn it back over to Powell for closing comments.

Thanks, Andy, and good report. As we enter the fourth quarter, we believe economic growth will be relatively similar to the last couple of quarters. The uncertainty regarding tariffs appears to be lessening as time passes. Interest rates are starting to decrease, and our customer base is continuing to grow and invest. This does not apply to all customers. With our broad diversification across geographies, industries, lines of coverage and customer segments, we will always have certain customer segments doing well and others working hard just to deliver growth.

This diversification puts stability in our overall customer base and consequently in our key financial metrics. Overall, we feel the economies in which we operate are generally stable. From a pricing standpoint, we expect admitted rates to be fairly similar to what we experienced in the third quarter. As of now, we're not seeing any major disruptors that will cause admitted rates to materially change. We believe casualty and auto rates will continue to increase, which are the largest segments of the market and the admitted property, and that admitted property will continue to be very competitively priced.

For the E&S space, we anticipate casualty lines will continue to be challenging to place. This includes both rate and available limits. Unless there is meaningful [ tort ] reform across the country, we expect upward -- continued upward pressure on rates on casualty lines. Presuming we don't have a meaningful late season storm or storms, the capital deployment -- and capital deployment remains active, pricing for CAT property will more than likely look similar to what we experienced in the third quarter. Then once we clear hurricane season, we could see certain markets or carriers get very aggressive at the end of the year utilizing the remaining capacity. This would not surprise us.

On the M&A front, our pipeline looks good domestically and internationally. We continue to look to buy businesses that fit culturally and make sense financially. From an Accession integration standpoint, things are progressing well. We're focused on our customers and the solutions we can deliver for them. As we mentioned before, the strategic rationale for this acquisition is to bring together organizations to add new capabilities and enhance existing resources.

Our balance sheet remains strong, and we have outstanding cash flow conversion to help fuel our growth. There will be periods when M&A is higher or lower weighting on our total growth. In the past 10 years, our growth has been well balanced between organic and inorganic. We'll remain disciplined in our capital deployment strategy so we can continue to drive long-term shareholder value. Our company is in a great place, and we feel good about the economic outlook. As I mentioned earlier, the third quarter was strong as we look at our key financial metrics, understanding the actual organic growth of retail was lower due to the change in employee benefits incentives for the quarter.

Our teams are collaborating well, and we're working hard to leverage our capabilities for our customers and win more new business. We're looking forward to delivering a solid fourth quarter that will be the capstone and a really good year for Brown & Brown.

With that, we'll turn it back over to Deedee and open the lines for Q&A.

[Operator Instructions] Our first question comes from the line of Mike Zaremski from BMO.

My first question is on the relationship of organic growth to EBITDAC margins, not in any given quarter, but maybe over time, there's some correlation to time frames when organic growth is well above historical, there's more margin improvement and vice versa. So I guess I'm trying to get at -- I know you're not going to provide a guidance for '26. But to the extent we're painting a picture of lower organic growth, especially versus recent years or maybe towards the low end of your historical range, too, in the future, should we be thinking about kind of that margin correlation? Or are there just -- there's a lot of moving pieces with the acquisition and just other structural things going on in the company? Or is there something different about the relationship today than in the past?

Mike, it's Andy. I think one of the things that is helpful when you look at, at least our numbers and you think about our company, the organic is just a component of our -- how we drive our margins, how we drive our cash flows. Important that you take into consideration contingent commissions inside [ of there ] if you think about just this quarter, right, and you look at the amount of contingents that we grew. So we were approximately $46 million of contingent this quarter, $12 million of that came from Accession. Our organic growth was $40 million.

So the contingents are a material portion of the value that we [ do ] in the organization. So we wouldn't want you to do a direct correlation between organic and margins, it won't actually work that way, at least for our business, okay, so that just kind of think about that as you work through calculations. But we still continue to think about our business in that 30% to 35% range, and it will move around back and forth over time. But we feel really, really good with the business, as we mentioned, on just how we're growing this year on an underlying basis and how Accession is performing.

Okay. That's helpful. For my follow-up, curious, I believe you have some businesses. I know this is maybe just hopefully short term, but that are impacted by the government shutdown. Should we be -- are you -- should we be factoring in any implications of that in the -- probably your Specialty segment for 4Q?

Yes. Mike, we've got a few businesses that are impacted, and it's both in specialty as well as in retail. So we've got a couple of businesses that are in the Medicare [ social ] security set aside. And those get impacted based upon the government. Generally, that revenue kind of gets caught up over time. It just kind of gets backlogged in there. So yes, there could be some impacts in the fourth quarter or even into Q1 despite how [ long it gone ] resolved up there in Washington.

And then the other piece is in our flood business. So again, the way that works is we are able to actually do renewals. We just can't -- and nobody -- it's not just Brown & Brown, it's anybody is part of the [ right room ] program, is you can't write new policies right now. But what you can do is once the government opens back up, then you do retro policies in there. So we're in good shape. We kind of -- we're able to [ frontline ] all the renewals for the fourth quarter.

Our next question comes from the line of Alex Scott from Barclays.

This is Justin on for Alex. The first question I wanted to ask was on Retail organic. I was wondering if you can provide a little bit more color as to the 1% impact that you had called out in your prepared remarks?

Sure. Justin. So the comment we made inside of there is we had an adjustment for incentive commissions in employee benefits. The way those work is, again, we're accruing throughout the year. And then ultimately, we have to do adjustments at the end of the calculations again, and we'll always have positive and negatives. When you look at 2024 for that time period, it was actually a positive adjustment. And then for this year, it was actually a negative adjustment. And normally, how those calculations work is depending upon kind of where you get in an applicable year, the targets are moved in the next year. So we overperformed in '24, and we just didn't get all the way to the targets, the increased targets in 2025.

So you have kind of year-over-year and up and down is what causes the spread in there, and that's about 1% of the impact. That will continue. And the other thing I'd just mention is, and we highlighted in our commentary, that will have some impact in the fourth quarter because we are still improving at a higher rate in Q4 of last year.

Got it. And I guess just on -- got it. Appreciate it. And just on a related note, I suppose as you guys are kind of gearing up for planning and budgeting for the upcoming year, I just wanted to kind of bring us back to a comment you had mentioned earlier in terms of how -- I think a few quarters ago, you mentioned you see sort of this business as sort of like in the low single digits, like on a longer term through the cycle. I was just wondering whether or not sort of the results in the recent quarters are sort of indicative of whether that mean reversion is starting to kind of happen at the present moment or how you see sort of the trend for sort of the organic as you guys are sort of thinking about planning for next year?

So Justin, for the last 16 years, we've been saying that the Retail business is a low to mid-single-digit organic growth business in a steady state economy. And so we're staying [ by that, ] we're consistent. So 16 years running. And the answer is, as you know, we don't give organic guidance for '26, but you have gotten a sense of how the business is running right now with a couple things that are headwinds or actually -- I'm not going to say they're one-off adjustments, but we are not skirting the issue.

I mean the state -- the organic growth for Retail is 2.7%. I mean you can look inside of it and say, this could adjust it by 1 basis point, but we're not skirting the issue that was 2.7%. So I think -- I hope that answers your question. So thank you.

Our next question comes from the line of Meyer Shields from Keefe, Bruyette, & Woods.

This is Dean on for Meyer. My first question is a follow-up to just on the Retail segment's incentive commission. I know you mentioned there's some headwinds in Q2. I'm just wondering if that will continue in 2026? Or are we expecting moderating from there?

Yes. At least as everything that we can see right now, we think this is more isolated into the fourth quarter and doesn't carry over into 2026. Facts can always change, positive or negative, but at least what we can see right now appears to be isolated to the fourth quarter.

Got it. My second question is on the admitted E&S. Last quarter, you mentioned seeing signs of business going from E&S back to the admitted market. Just curious what are you seeing this quarter? And what do you expect going forward?

The short answer is there are admitted markets that are talking about it more and thinking about it as growth for admitted carriers becomes more challenging. And so I think that there will be a lot of talk about it, but I don't think that the movement from -- non-admitted to admitted will offset the increase in the size of the E&S market, if that makes sense. So yes, I think there will be some movement back across. But the E&S market is continuing to grow at a pace that I think that it will not offset that. So thank you.

Our next question comes from the line of Mark Hughes from Truist.

Yes. Powell, you had suggested that with a clean CAT season, you might see extra capital being put to work, the carriers could be more aggressive at year-end. What do you think that means for rates if you do see that scenario?

Well -- and again, Mark, let me say that I am not a reinsurance expert. So let's preface my statement by that. I think that reinsurance rates are going to be under pressure 5% to 15% down and then that's going to translate into admitted primary business in a similar or higher fashion or E&S, maybe I should say. And so I think we could see an environment where it's similar to this year, next year and what we're currently seeing.

I do want to highlight something that we have seen before, and we haven't seen it yet that I'm aware of, but you get into the last part of Q4 and you get into December and you get a couple of markets that basically decide to get really aggressive because they still have unutilized capacity. And so I think we could see more rate pressure at the end of Q4 than we currently see. That's not across the board. It's in select. And I'm not aware of any markets teeing up the Blue Light especially yet, but I'm just telling you that is a possibility.

And as it relates to next year, again, you have -- I do not believe this is going to have an impact on the United States pricing, but you also have the events that are occurring in Jamaica, and that's going to be on the news and the resulting damage and hopefully, not a lot of loss of life, but it could be. And so you're going to have things that are out there and yet the capital markets as it relates to deploying capital in the United States are not thinking about that here, they're thinking about that there. So that's my impression.

And Mark, in our commentary, remember when we said it wouldn't surprise us if it happened at the end of the year. Remember our commentary at the end of the second quarter, and we said what happened in June, right, before storm season. So you can get really unusual pricing, right, at the end of a quarter or whatever. So that's why we said it wouldn't surprise us.

Understood. And Powell, anything on the construction front, particularly Florida construction? You gave us some good commentary about the overall business environment. How about the construction market?

Well, it's interesting. Construction costs continue to go up, but there's a lot of building going on in Florida. As a countermeasure, I would tell you that in real estate, houses are not selling as quickly. And so you see houses sitting on the market much longer today. And if you -- and this is not a Florida-specific thing, but there are some indications as such. You hear a lot about the impact of cost of living, meaning, one, rents, so in apartments and condos; two, food; and three, the cost of insurance.

So you hear a lot of that as it relates to people that maybe own second homes here that are in the more modest size homes that are thinking about the cost to operate and cost to live. And so the overall expense -- it's becoming more expensive. It's still relatively affordable. Don't get me wrong. But it's becoming more expensive in Florida for all the reasons I've just said.

Our next question comes from the line of Bob Jian Huang from Morgan Stanley.

This is [ Sid ] on for Bob. I wanted to ask about property renewal rates in the third quarter and kind of how you guys are thinking about that in the fourth quarter, if it should be at a similar level or potentially worsening?

As we said, Sid, it's similar going into it with the potential as we get into, let's say, December, where there might be some outliers where you get a couple of markets or a market that becomes a little more aggressive. So I would say similar to what we saw with the caveat that in December, there might be some people that are getting a little aggressive and we haven't seen that yet. A little more aggressive.

Got it. And then are you seeing a similar trend in the admitted and E&S property markets? Or is there like any kind of divergence going on?

Well, the rate pressure, obviously, is much higher on E&S property. But I would tell you, there is continued interest in the admitted market for good property, and I believe that will increase.

Our next question comes from the line of Matthew Heimermann from Citi.

It's actually me. Just a couple of questions. One, just on Wright Flood. You had rolled out or started to roll out private flood product on that platform. I'm just curious how the initial uptake is going on that. And I'm assuming it's not at a development stage in terms of geographic coverage and the like that it could make up for any demand that is not -- that can't be fulfilled through the [indiscernible] your own right now, but just any color there would be great. Sorry for talking over you.

Yes. So glad you are who you say you are, Matthew, that's good. I have a couple of things. Number one, yes, we have historically written private flood in our business. And as you know, we've just announced to close effective [ 11/1 Polten ], which is a private flood business, which will be -- which we're very pleased about them joining us and very additive. And so private flood, we believe, can be a very -- is a very good product.

I want to caution you by saying that private flood is not the answer for all flood policies, please note. So maybe different than some might say, you -- not every policy in every flood zone can be written in private flood or maybe shouldn't be written in private flood depending on who's underwriting it. And so we do think that there's an opportunity for us.

And as Andy alluded to, we believe in our flood business through most of the fourth quarter, we feel pretty good about the renewal streams. And obviously, it depends on when the party in power will make the decisions, some sort of compromises with all parties in Washington to figure out how to get the thing back open. And so we believe that the pressure there will continue to go up, and we like to think, hope it's not a good business strategy, but that they'll come to some sort of conclusion in the near to intermediate term.

Matt, I want to clarify one thing that you had mentioned at the beginning of your question. You said that we write private flood on our Wright Flood platform. We do not write on the Wright Flood platform. That is for -- that is part of the NFIP program. Our private flood business that we had before is written under the separate carriers in there. So separate technology, everything else.

Yes. I was aware you had 2 platforms, but I thought I saw a press release that Wright was rolling out, and maybe it's just a distribution thing, not an actual insurance paper thing private, but maybe I could be mistaken, you would know better than I.

Yes, that's just around for claims management and everything else. But the actual technology and everything else in the paper, et cetera, is not on Wright Flood.

Yes. I appreciate the clarification. One follow-up on employee benefits is there's -- I feel like there's a number of cross currents affecting the business. And so I'd just be curious on your perspective, right? On one hand, it feels like you've got the dynamics of cost push, which drive a rate need. But on the flip side, you've got what feels like a labor market that's growing less quickly than it had been. You also have just that cost push naturally results in companies wanting to manage costs to some extent. So I'm curious from a subject premium standpoint or what have you, what -- how those dynamics all intersect.

All right. So Matt, a couple of things just to reiterate. Remember that smaller group, so let's call it under 100 lives, just roughly, it might be under 50. In many states, you are paid a per head per month compensation. So if you don't add heads, you don't make any more commission dollars. So if people are holding the line on their employment, regardless of increase in cost of health insurance, that's the first thing.

The second thing is as people are -- those groups that are not in that area, but even across the board, and Andy has talked about this and I have, too, in the past, people are very focused on trying to contain the spend. And so what that means is they actually are modifying the plans that they offer. So let me give you an example. An example might be a -- let's just say you have a regional manufacturing company, and they have several hundred lives anywhere in the United States.

And historically, meaning the last year or 2, they have paid for GLP-1s. So weight loss drugs. I'm not talking about the deal with diabetes. I'm talking about actually for the cause of weight drop. And that has spiked their spend in that particular area. And they make the determination in order to keep the program in a similar structure, they have to basically either place limitations on that or eliminate that for the sole use of weight loss. That would be an example of somebody making a change because of the projected spend because that in and of itself in a self-insured program can drive the cost through the roof.

So it very much depends, but I think the important thing is people are trying to maintain quality coverage for their employees. That said, they can only bear a certain amount of increase. And so we are constantly and consistently talking with our customers and prospects about creative ways to deliver value to their employees, but to help manage their cost. And it's not a 1-year plan.

If somebody thinks about health care in 1 year, that's transactional. If you're thinking about it multiyear, that's a strategic thought about managing cost over a long period of time, that's different. And I would tell you, it's very important and something that we obviously try to convey to our customers.

Matt, these trends -- yes, as these trends here that we started talking about on the back end of ACA that we believe that were going to happen for an extended period of time, and there's even new things that have occurred. That's why we've made significant investments in our employee benefits business. We can handle customers if they have 5 employees, if they have 50,000 plus anywhere in that range, we have those capabilities. And so we do believe that it's a good market backdrop. Yes, there can be some cross wins here and there on things. But we think we're in a really, really good place to help customers of any size, how they manage their health care pharmacy and also their workforce.

Our next question comes from the line of Elyse Greenspan from Wells Fargo.

My first question is on the risk [ exception ] deal. I just wanted to confirm since the deal is closed, just relative to just the revenue and synergies and just accretion that you guys had outlined that it's all in line with prior expectations. And then I think the plan was to start to see the synergies come online, I think, starting next year. Is that all still the base case expectations?

Yes. Elyse, Andy here. Yes, I think everything right now is still in line with what we had communicated back at the time of the announcements. The revenues are right in line. The margins are in line with our expectations, again, knowing there's some seasonality in the business generally has a higher margin in the first half of the year versus second half, not unlike our legacy Brown & Brown business that's there.

Teams are working through all the integration plans right now and getting all of those in place. As we communicated on the call, we're going to recognize and realize the synergies over a 3-year period. So our goal is to be done by the end of '28. We still feel like we're on track for all of that process and all the hard work that's got to get done in there, but all the teams are leaning in and working through.

And then just a clarification. On the retail guide for the fourth quarter, you said that, that would be stable with the Q3. Is that stable with the reported 2.7% or the adjusted 3.7% adjusting for the incentive comp impact?

No. On the as reported, just -- so as reported, will probably be pretty similar or at least in the same ballpark in Q4 also, knowing that we've got the headwinds on carryover effect of accruing at a higher rate for the incentives and EV that still impacts part of Q4 and then the multiyear policies that were written last year. As of right now, we don't see that same volume of activity in the fourth quarter. And again, things could always change that's out there.

Our next question comes from the line of Gregory Peters from Raymond James.

This is Mitch on behalf of Greg. I wanted to ask about your investments in technology during the quarter. And I was hoping you could touch on the areas of focus and the run rate directionally in '26.

Mitch, this must be the morning for everybody else stepping in than the original. So I think we've talked about technology for a number of years, and this started all the way back in 2016 when we made our large investment in infrastructure, and we've kind of got all behind us. And we said our next 2 horizons we're looking at how do we leverage our data analytics and improve the overall experience for our customers and our teammates. We're on that journey right now. We feel really good about the amount of capital that we're investing in, in that area. It's probably a journey, not sure that we ever "arrive" at a destination because you're always evolving in there.

We've got a lot of really good things going on across the organization in Specialty Distribution and Retail at the enterprise level, everything from how we ingest data, how we analyze it, underwriting capabilities. We're focused on administrative tasks. So making some really good progress. But probably like most companies, it's still early days of really getting all of the benefits. But we feel good. We've got an innovation council that's set up across the organization, making sure that we're sharing best practices in each of the areas. So we'll continue to work on it, but we're seeing some early benefits from it.

Great. That's helpful. And for my follow-up, I just wanted to ask on your outlook for your debt leverage target range going forward after the close of the Accession deal.

Sure. Yes. Our -- as we've stated publicly, our gross debt leverage to EBITDA is 0 to 3x. And on a net basis, it is 0 to 2.5. We have every intention of being right back down in those ranges in about 12 to 18 months with scheduled paydowns that we're committed to. If you look at our 10-year average, we're right at about 2.2, 2.3 on a gross leverage ratio. The organization delevers about 1/4 to half a turn each year just naturally. And then with some incremental payments that we're anticipating, that will pull that down even quicker. Again, we're not overly levered right now anyway, but that's kind of the trajectory of what we're looking at, and that's consistent with what we've done over multiple cycles.

Our next question comes from the line of Brian Meredith from UBS.

This is actually Leandro on behalf of Brian. So on the Retail businesses, did new businesses in Retail return to normalized levels after issues in the second quarter? Or is there still room to rebound?

Hey, Andrew, you were kind of hard for us to hear. Would you mind repeating that one more time, please?

Sorry, sure. Did new businesses in Retail return to normalized levels already after the issues in the second quarter? Or is there still room to rebound?

When you -- I guess -- so when you say rebound, I guess, what do you -- what's your expectation when you say rebound? Are you thinking -- I'm trying to acclimate. Are you thinking rebounding back up to Retail business is growing 6%, 7%, 8% organically? Or how are you thinking about it?

Accelerating from the second Q levels, I would say.

In the second quarter or third quarter?

If in the 4Q, we can see an acceleration of new businesses from the bottom of the second quarter, I would say.

Yes, I don't think we called out any issues regarding new business in the third quarter. We know we had some of that in the second quarter, but didn't see any issues there in the third quarter. What we highlighted for the fourth quarter is just based upon what we can see today in inventory regard multiyear policies and the volume that we wrote in Q4 of last year. We don't see the same volume in Q4 of this year. But again, that can kind of just move around by quarters. But underlying activity on everything else, we feel good with.

Our next question comes from the line of Rob Cox from Goldman Sachs.

This is indeed Rob. So I just wanted to ask and make sure I understand on the Retail segment. So there's 2 comments in the presentation on the margin that, one was leveraging the expense base; and two, quarterly profitability associated with recent acquisitions. Was there a benefit in the quarter from the seasonality of the Accession acquisition?

Rob, yes, there was. So we had a benefit from Accession and a headwind from Quintes, which again, we've kind of talked about Quintes for a few quarters just to help everybody out with that. So you kind of got 3 pieces to it. So a positive on Accession, a negative on Quintes and then a positive on just underlying management of the business.

Okay. Perfect. And then I just wanted to follow up on the international businesses and particularly the U.K. How is the performance there relative to the U.S.? And can you share any color on the market factors?

Yes. What I would tell you is the performance is not too dissimilar to the United States. Remember, the GDP over there is growing more slowly. That's number one. And they have actually rate decreased pressure as well. So at present, and I'm just talking about England, but since you asked about it, remember, the liability rates are not nearly as high because the [ plaintiffs ] bar has not gotten as active yet. They're starting. But the answer is they have some continued rate pressure there as well. So you have a slower economy and you have a slower -- and you have rate decreases as well. That's how I would describe it.

Our next question comes from the line of Mark Hughes from Truist.

Just wanted to make sure I understood the Specialty Distribution outlook for 4Q. I think you said looking for a decline in the mid-single digits, you got $28 million in nonrecurring, which looks like it's about 5 points. And I think you also mentioned lender-placed and then wind and quake programs under a little bit of pressure. Anything else we should think about for the Specialty Distribution? Does that kind of summarize what you've described?

Brian -- Mark, no, I think that is -- that's fine. Those are probably the 3 big pieces, Mark, that we also talk about. There's some other moving parts, but those are the main things.

Our next question comes from the line of Mike Zaremski from BMO.

I'm going to try to ask a lender-placed question to the extent you're able to add some color. I think over the years, it's been a fantastic business. It appears it's grown much faster -- your business much faster than the marketplace. And just given it's highlighted as being a tough comp in the near term, 4Q, is there just -- is there a trend we should just keep in the back of our heads as we think past 4Q about the lender-placed business just slowing or somehow maybe giving back some market share?

So Mike, you're right in saying it's a great business. And we have had a lot of very nice organic growth in the last couple of years. And so what we're saying carefully is we're still growing, but it's just not growing as quickly. And part of that is just because we have had a lot of good growth. And number two, we have competition on our customers. And so your sense of it is correct.

And then Mike, keep in mind with that business that -- and again, it's not that we're seeing the actual lender-placed ratio go up. That's not driving the growth, which again kind of is at least an indicator of the health of overall economy and everything. That business, we won a lot of accounts over the years. The sales cycle there is pretty long though. So you could be 12 to 36 months on a sales cycle. And then when the accounts come on, as we've talked about in the past is you will get a bunch of revenue all at once and it kind of works itself out, okay?

We'll take one more question, Deedee.

Our next question comes from the line of Josh Shanker from Bank of America.

Obviously, no one likes to see their share price going down. You have a $1.5 billion buyback authorization, and there's a decision to whether to put capital to work and buying back your own stock or to [indiscernible] obviously. And there's an arbitrage there. By authorizing the buyback, are you saying that you think that the value of Brown & Brown shares right now is more attractive than doing the tuck-ins? It seems like it should be one or the other, doing both may not be the best use of capital. How should we think about that?

The answer to the question is this, we constantly and consistently evaluate the intrinsic value of our stock, and we look at what we believe is the best value overall long term for all parties involved. So we will continue to evaluate that. And if we see or feel that there's an appropriate point at which we think we should buy shares, then we'll consider that. But the Board has given us the ability to invest as we see fit, and that's -- we feel good about that.

Is there a math that works that makes both buybacks and M&A equally attractive simultaneously? Or is there -- one is preferred over the other, depending on valuation?

Well, let me put it this way. I'm not trying to be evasive, Josh. But if we told you that, then that's where we would be releasing our secret. And so the answer is we will continue to evaluate both. And if we think both work at the time, we will do that or if one is better than the other, we will do that. But please, let's make sure that we don't lose sight of the fact that when we buy businesses, it's about cultural fit and making sense financially. And so having said that, we understand the math between share repurchases and businesses that are ongoing revenue streams with earnings. So we look at all of that.

Yes, Josh, as we talked about, we have a very, very rigorous and disciplined approach on how we allocate capital. So we don't share all the details when we do it, but it's -- we get into a lot of detail when we look at all of the deployment options.

We like to have options.

At this time, I would now like to turn the conference back over to Powell Brown for closing remarks.

Thanks, Deedee, and thanks for joining us today. A couple of final comments. I think that we had a really good quarter, albeit we had Retail in terms of with the modification that we outlined, where top line numbers, our contingents were good. Our margins were great. Our cash flow conversion was very good. And most importantly, in all of that, we -- the integration is going really well.

And so I can't stress enough the importance of the cultural fit with the teammates that have joined. We are excited with 23,000-plus teammates now globally and the capabilities and the resources that we can bring to our customers. Hope you all have a wonderful day, and we look forward to talking to you after the next quarter. Good day, and good luck. Goodbye.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.