Good morning and welcome to the Brown & Brown Incorporated Earnings Conference Call. Today's call is being recorded. Please note that certain information discussed during this call including answers given in response to your questions may relate to future results and events or otherwise be forward-looking in nature and reflect our current views with respect to future events including financial performance and that such events... excuse me at such statements are intended to fall within the Safe Harbor provisions are 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 including those risk and uncertainties that have been or will be 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 are contained in the company's filings with the Securities and Exchange Commission. Listeners are cautioned that any such forward-looking statements are not guarantees of future performance. And those actual results and events may differ from those indicated in this call. Such differences may be immaterial. With that said, Mr. Brown, I would like to turn the call over to you.

Thank you Bill and good morning everyone. The batting order is the same. Cory will go on first, me second, Powell third and Jim Henderson fourth and some including remarks and then questions. So, Cory, take it away.

Alright, thanks Hyatt. The challenges of the soft insurance market continued in the second quarter of '08. Additionally, when I am going to compare the 2008 results to those of 2007, please keep in mind that we had $9.8 million gain or $0.04 per share in the second quarter of 2007 on the sale of our remaining stock investment in the Rock-Tenn Company. Also in the first quarter of 2007, we realized an $8.8 million gain, which also rounded the $0.04 per share on the first group of the Rock-Tenn stock that we sold. Therefore, for the entire six month period of 2007, we realized a total gain from the sale of all of our investment in the Rock-Tenn Company of $18.6 million. Therefore, all of the following comparison that I'll make for 2008 against the 2007 results will be excluding those non-recurring gains from the sale of the Rock-Tenn investment. Our net income for the second quarter of 2008 was $40.4 million, and it was down 12.1% from last year's second quarter net income of $46 million. Correspondently, our net income per share for the quarter was $0.29, down from the $0.33 we earned in the second quarter of '07. From a revenue standpoint, commissions and fees for the quarter increased 3.6% to $238.8 million. That's up from the $230.5 million we earned in the second quarter of last year. Included in the press release is our table that summarizes the total growth rate and the internal growth rates from our core commissions and fees, which obviously excludes the contingent commissions. In the second quarter of '08, we received $5.4 million of profit sharing continued commissions compared to the $2.7 million that we received in the second quarter last year. For the rest of the year, we expect to…

Thanks Cory. Moving to Florida retail, this was a not very good quarter. Last quarter, we were a negative 7.2% growth and this quarter with a negative 15.5%. So what's happened in the last 90 days? Two things: greater impact from the economy, but also rates are still going south. So let's talk about the rates for a moment. Property rates in the last 90 days, since 90 days ago, property rates are generally down 10% to 15%. Much habitational property is moving out of Citizens except in the Tri-County area, and of course Tri-County is now... that's changing also. All markets are offering lower wind deductibles and broadened coverage, i.e. non-admitted paper is now offering agreed amount of endorsement, which effectively waives the coinsurance provision and in some cases even blanket covers, almost unbelievable. There are a substantial amount of cancellation and rewrites that are going on. And that's... and the reason is that as business was written in Citizens last year or in non-admitted carriers last year, now the rates are at a level where a cancellation, a short rate cancellation provision will be overcome by the savings. Let me give you a... the worst example that I was able to come up with. This is a North Florida account. It was written in November of last year. It was property wind [ph] included $151,000 in premium. We rewrote it in May of this year for $63,000 in premium and that's a 58% reduction. So that's just one of the things that's going on. Additionally, the Hartford, I might mention, is non-renewing all of their home owners in Florida, and that's starting as of August 1. In the West Coast of Florida, now the economy is having a greater impact from really Sarasota South and Palm Beach South.…

Thank you, Hyatt. Brokerage transactional property rates are down 15% to 20%. Standard markets continuing to put pressure on that business. We are seeing standard markets regularly put up to $25 million of wind limits in coastal communities. Casualty rates there seem to be down 25% or more with umbrellas down even more at 20% to 35%. Residential contractor rates are down 25% to 45% rate-only. And on top of that, their exposures are down 40% to 80%. Terms and conditions continue to broaden. Commercial contractors written in the E&S market currently are seeing lots and lots of standard market pressure. In the professional liability arena, the two areas we are seeing increased pricing would be public company financial institution business and anything, real estate errors and omissions or mortgage errors and omissions related. The remaining professional liability line, private company D&O, public company D&O, employment practices liability typically are seeing rate decreases of 5% to 20%. In the binding authority arena, in Florida, the standard market continues to have an impact on some of that business and rates are down 0% to 15% with expanding property capacity in those binding authorities. Personal lines, particularly in Florida, we are seeing more and more non-rated takeout companies as the biggest competitor. They are cheaper than Citizens right now, and Citizens continue to be very aggressive there. And the [ph] national binding authority rates are down 0% to 15%. In our services arena, we continue to be on plan there. As you may remember, we lost part of an account last August. So that will have run through our numbers by September of this year. Professional national programs, lawyers were down 8% to 20% in terms of rates. Dental rates are flat in all of our other national programs. Any account over $75,000 in premium typically face a rate pressure of 15% to 20%. In the special programs arena, public entity rates are down 0% to 20% with the professional liability in public entity arena down 20% to 30%. Two bright spots in special programs, FIU was up this quarter. The wind rates in that class of business seem to be stabilizing somewhat. Citizens multi-peril policies continue to be very inconsistent and somewhat all over the place. Let me give you an example. If you had an account, of an account that Citizens wrote the wind for $250,000 in premium and then another carrier wrote the other perils or the X wind [ph] coverage. And then Citizens quoted a multi-peril policy, which would include wind and all other lines, all other perils for $225,000. So is down, right [ph]. X wind continues to be very, very competitive and Proctor Financial was up again this quarter due to the countercyclical nature of their business. With that, I'll turn it over to Jim.

Thank you, Powell, and good morning everyone. The challenges with organic growth that face the industry is presenting opportunities for mergers and acquisitions. For the first half of 2008, we've closed 24 transactions with $77.8 million in annualized forward revenues. This represents an average of 4 transactions per month with $3.25 million average revenues per transaction. A very special thank you to our regional leaders and our M&A transaction teams for an outstanding job of enabling these fine agencies to be a part of Brown & Brown. Our M&A activity is unique in that it is led by our operating leaders that must buy into ownership the deal and assume responsibility for integration and for future performance. Given the soft market conditions, however, we are exercising special caution to ensure that we acquire and we get what we pay for in fact that the forward actual delivered revenues and earnings of what we anticipate. Seller pricing expectations are too often based upon prior year performance. We have had success in reconciling this issue with prospective sellers and in fact, we are experiencing some moderate improvement in terms... in pricing in 2008 compared to 2006 and 2007. The recent transactions is a multiple of earnings that moved back into more of the mid-6 range as compared to high-6 and sometimes slightly over 7 for the previous two years. There's much being written and said about the federal capital gains tax. The potential for an increase in this tax appears to be a motivating factor, increasing the amount of deal activity. Further, the pull back in agency purchases, acquisitions by banks and by venture capital firms, is a favorable environment for Brown & Brown to move forward with deals. We are encouraged by the increase in the quality and quantity of available agencies to acquire. With that, I will turn it back over to Hyatt for closing comments.

Thanks Jim. One thing before I make some conclusions. I'd like to sort of embellish what Cory said about the $1.3 million of additional payroll for new people. We view the current economy and circumstances as being beneficial for us. And so the pressure is on all of our profit centers to recruit high quality people. And of course, there are more high quality people that have been, let's say, working 4 or 5, 6, 7, 8 years who now are looking to see if maybe they would like to come into the insurance business because, let's say, the mortgage business or the contracting business or the furniture business or whatever it is, is not quite so good. So we're going to... and you can expect us to continue to increase that expenditure because that's an investment in the future. And the economy and the stock market that we are in today provides us an opportunity that won't come around again for a while in addition to the fact that we're looking very carefully at each nook and cranny of our existing operations. One other comment that I would make is, and it's very difficult to sort of get your arms around what all of these reductions mean in a very general. But let me give you something that might be helpful. In our top gun [ph], which is an organ which is published once a month, we are tracking the hits. Now these are retail, now it's $2,500 to be a hit. It has to be $2,500 of commissions to whatever. And so that average hit has shrunk from about 12.8 down to about 11.6 or something like that, and that's about a 13.2% reduction. However, if you take out the employee benefits hits, and employee benefits commissions have a tendency to be a little bigger on the average because we're talking about accounts where you have 25 or more employees. If you take those out, it's more like an average down through [ph] of about 18.5%. So that just something for you to sort of put in your pipe and smoke. Now, conclusion, employee benefit should grow slowly and Q3, Q4, depending on the county and the rest of '08 is going to be challenging. Q4 in Florida should be a more favorable comparative base. Number four, we are not going to give any organic growth projections until the market provides more stability. And last but not least, the joker in the deck is the economy. So having said that, Bill, would you like to open it up for questions? Question And Answer

Thank you, Mr. Brown. The question and answer session will be conducted electronically. [Operator Instructions]. And we will take our first question fromKeith Walsh at Citi.

Good morning everybody.

Hey Keith.

How are you?

Good.

First question for Jim. You made some commentary on deals, and I just... basically, are the deals in '06 and '07 not meeting your return on capital hurdles? And then also, have you changed the structure of these deals, maybe more earnouts involved in them? And then just a side follow up on that, any outlook on the NYAG amendment [ph] that's going to allow the global brokers to accept contingents for three years. Is that going to change the competitive dynamic in the market? And then I have a follow up for Hyatt. Thanks.

Okay, well several ones here. Back to... the deals are meeting our expectations. There is... we acquire deals with a ban of price amend to a max. And today, I think they're probably falling more in the lower half of that band, and they were probably maybe prior to the rate market change 2006-07 and this year. I was addressing the fact that we were able to go back in and get an offer on the tables... on the table on the purchase of multiple, we are back into to 6, 6.5 range. And probably last year, or year before, those deals would not go with that rate. So the fact that if you acquire a business and there may be let's say, 90%, 95% of revenue based there, so we are just being cautious to make sure that we... if that happens, we have an avenue there not to harm our... the performance of that deal. Now with respect to, I think your question dealing with the contingents. There is hearings going on in New York state on this subject. We're monitoring those. I guess really nothing out at this point. It seems to shaping up as a matter of disclosure, which we are there. We have been compliant with that. We had enquiry going back in last several years and feel that everything we've seen with respect to those hearings thus far, we do not see of an impact upon Brown & Brown.

I guess my question was more centering on the New York Attorney General amendment that now Aon, Marsh, Willis can accept contingents for three years on a transaction if that would maybe see them doing more deals in the mid market in the U.S. It may be more of a competitive situation for you guys.

Well, certainly, it looks like the case of the Willis deal with HRH, they have that and then maybe some assumptions that they can increase the commission base during that period of time. So that's the avenue there to deal with that component of it. So will their model allow this is going to be... I think the even greater issue with that is being an attractive model for the middle market agencies to migrate to, so.

But I guess, Keith, to piggy back on what Jim says, where you have fee business, where you are contractually obligated to take X number of dollars, contingents mean nothing because you can't take them anyway. So it's a little bit... there has always been confusion over contingents versus flat overrides. And still there's a lot of confusion about that. So we don't see the national brokers, and that would be Marsh and Aon doing too much in the middle market, although Willis has made a very deep dive with HRH.

And then just for Hyatt, getting back to the comp hearings going on in New York right now, how... I would agree I guess with Jim's statement. It seems like disclosure is really at the forefront here. How would that impact your company directly? Do you fully disclose right now what you're making to all your clients?

Yes what we do is we have... it's not just contingent commissions. We may... if we place insurance with one of our wholesale brokers, there will be a wholesale brokerage. If we place... if that wholesale broker is going through Dekket [ph], our office in London, there may be a commission in London. We may earn interest on money that's being held. For the insurance company, we may, if we negotiate a financial... financing arrangement for our customer, there may be a fee that goes to Brown & Brown. All of that is disclosed not in dollar terms, but in general terms on each new and renewal proposal. And then we also suggested if someone wants to know exactly the dollars, we will try to compute them. It's almost impossible to compute a contingent profit sharing arrangement. But the GSCs, the Guarantee Supplemental Commissions that are now being used by some of the national companies, of course, that is a percentage of the premium written. And so it's just another contingency. So it's just a little more determinable. So anybody who wants to know, we're ready, willing and able to give them specifics for their account.

Great. Thank you.

And our next question comes from Mike Grasher at Piper Jaffray.

Good morning gentlemen. Hyatt, follow-up question when you were going through the Louisiana, Texas market, and speaking to oil and gas. You were mentioning the workers' comp being soft within those markets. Can you provide a little bit further detail in terms of the type of workers' comp? Is it across the board or can you parse the classes of risk?

Well, yes, now I'm speaking about Texas, not so much Louisiana.

Okay.

And it does not include U.S. and L&H. But it is pretty much... apparently, Texas has been very profitable and the old state fund is now a separate privately-run company. And they are very competitive and very aggressive and the companies... almost everybody is coming in and just trying to scarf up workers' compensation. So I don't think it's lensid [ph] and at the moment, there doesn't seem to be much underwriting going on. It's just I want it.

Understood. And then do you have any feel for the U.S. L&H?

Well, I would guess that to be flat. Every place we know about, it is flat.

Okay.

That's the different kettle of fish there.

Got you. And then, Cory, just a follow up for you with regard to your commentary around the expenses in that. Basically, I think it sounds like you are saying on a same-store sales basis that the margins are not as they seems. Expenses lower. Do you actually have any more color, additional color? I think it was the last call, we spoke about how the fixed portion of the expenses because of less commission in fee and income that would actually drive the ratios higher. Do you have any color for us in that regard this quarter?

The basic ratios are the same, and the main point is to kind of show how much from each comp point. So when you look at it, we had $17 million internal growth coming out and essentially only $4 million of expenses being adjusted. So it just showed the same comp, only that there is a higher amount of fixed costs in our operation. And when you are as efficient as we have historical been, there is just not a lot of room to move as quickly as the rates go down. So the same... relative thought process is the same for use.

Okay. Thank you.

And we'll take our next question from Josh Pechter at Cacti.

Two questions. The first one is, if you could offer us your thought on other past soft environments, where the internal growth rate might have been to give some perspective, think a lot of us looked at the numbers and wondered as this extreme or not. And then second, thinking about the Willis' HRH, one of the rising portion of getting that premium way up was Joe's comment that they could extract better commissions from carriers as they push the volume up, not maybe a function of there very centralized system. But I wondered as one of the larger brokers why I can expect the same pressure from you guys on carriers and if the decentralized structure is hurting you in this environment.

Okay. Relative to the commissions, there are commission increases that are going on and it is being basically driven by companies who want to increase their revenue base. So we don't make a habit of going to companies and saying, by God, we're going to do this if you do that, because then we have to impose that upon our various offices. And we're just not going to do that. However, the various offices are dealing with their own companies and they are dealing pretty effectively. So I don't know exactly about how Willis is going to affect a substantial increase in the commissions that they are going to get from the HRH business. But if Joe said he would do it, then I'm sure he intends to do it. And what was the first question... first part of your question?

Before you move on, so do you think that that's hurting you, Hyatt, in this environment? I mean he is essentially saying that we are going take our big stick of volume out and say to people pay us more when rates are falling. And because where Willis kind of a guarantee number, what you are kind of saying to us is well, the Atlanta office versus the Charlotte office is all negotiating independently with State Farm. And I wonder does that... do you think that's hurting you? Do you...

Well one thing that you've got to understand is, in the case of Willis also, if I understood what Joe said, they are going to be moving commissions to fee. So therefore, the additional commissions, if they're getting them more than we would, wouldn't be affected... they couldn't affect them on contract business, on fee business. So that doesn't work. But we don't find that anyone is getting substantially more than we are. Now, on occasion where someone is going to move a book of business, which we don't do, then that's a different ballgame.

Okay.

Now when you move books of business, then you've got another problem you've got to deal with.

I was asking about other... I know I can look statistically at the numbers over the last like say 10 or 12 years, but I wondered internally when you guys looked at the growth numbers in this environment, can you give us some perspective on other soft markets and what we should see in internal growth rates?

Right. It's kind of interesting. Yesterday, we had the retired President of one of the federal reserve banks talking to us about the economy. And the point that he made, which I frankly had forgotten about was in the last downturn, which is '01, '02, you had a downturn in the economy. You had, however, an upswing in home building, which was kind of unusual. And at the time that was going on, we also had a start of rates being increased. So it's... that's sort of a strange set of circumstances. But if you go back to the most virulent downturn that I remember, it was '78 through '84. And during that period of time, frankly, we were only in Florida and we... I don't remember the economy being all that bad, to be frank with you, but I know prices were going down like crazy. Now what happened then and what's happening now is that in those downturns, companies are offering additional commissions. We're getting additional commissions on worker's comp, we're getting additional commissions on packages, not every company and it varies by state, it varies by the amount that... of new business that that particular risk bearer wants to write. And if it's a regional company, they may focus on just one or two stakes and increase 5% or 7% or 3% or whatever it is. So looking at that downturn, the pricing was just as relevant in terms of the downturn and it lasted from '78 to '84 and that turned precipitously and the price just went crazy. They went up by 50% to 75% in the first year and 50% to 75% in the second year and then starting in 86, they started to go down and so they went down and flattened and went down and flatted. And that went all the way to really about 2000. So it was 13 or 14 years, but it wasn't... it didn't go down precipitously like it going down today. And at that time, I don't remember the economy being all that bad. According to the gentlemen yesterday, we had really from, I guess, 1988 or maybe 2000, a pretty vibrant growth in GDP. So it's very hard to make comparisons. I will say this and on speaking that on floor, I have never seen the combination of $160 billion taken out of the economy and a downturn in economy because of gasoline prices and et cetera. And prices dropping as precipitously as they have with the stake getting in and leading the way out of 50% reduction in property pricing. So that never before happened, and we are weathering the storm pretty well. But I can tell you, it ain't fun.

Finally, and I will get out of the way. You have any problem raising capital to do more deals? Is there any worry given the credit environment that you have, much higher borrowing rates or you couldn't get access?

You want to comment on that?

Yes, Josh, no. We have... I have already told you what we have currently available, which is over the 3 to 5 year. And I have talked to our other borrowers and we feel like we can borrow another $1.5 million... $500 million with absolutely no problem at all at essentially the current market rate. When you get up above that, do you have to structure a little bit different deal? Possibly. But [indiscernible] no real problems.

To butt in, I believe our current debt is less than one-times our...

That's right. And our current debt equity is a 0.83 ratio, debt to EBITDA.

Thanks guys.

Okay.

Our next question comes from Chuck Hamilton, FTN Midwest.

Hi, good morning gentlemen.

Hi Chuck.

Three questions, I think Cory probably the first one probably is best for you. I think Hyatt mentioned in the call this morning that Florida retail had experienced a significant amount of cancel and rewrites, recognizing the fact that that pulls revenue into this quarter and subtracts it from future quarters. Have you been able to quantify that potential impact in future quarters, what decrease there might be for the upcoming quarters?

It appears to me that it has minimal impact. And I think the interesting aspect is that there was a spike if you go back to second quarter last year. There was more of the significant spike and... when we had canceled and rewrites. And that's because the Citizens was just getting hold there and a lot of the offices canceled and rewrote those policies. So I think the second quarter had kind of a unique amount too there. The rest... the third and fourth quarters, does not appear to be the same comparable situation.

But to sort of piggyback on that, don't forget you take the example I gave, we reduced the premium more than half. And so therefore, the impact in terms of the cancellation and the new revenue is about the same.

Sure. I've got that.

It's hard... we don't think that it really is inflated in anywhere our income this quarter.

Okay. Hyatt, a couple of questions for you then. Looking at the Willis deal, do you anticipate that there's going to be some opportunity on acquiring new producers from Hilb Rogal, the producers that may decide they don't want to work for a large broker?

We don't know. We don't really find very many people coming from other brokers. And it's just that the cultures are different and so from time to time, we'll find some. We think that probably there'll be a little dislocation, but I don't think much. I think probably, you may find more dislocation going to local privately owned brokerages than you would to let's say us.

Okay. And I guess last question again back, looking at the Willis Hilb Rogal transaction. Since Hilb was really in the market doing some acquisitions, do you see the fact that they are now part of Willis and Willis has indicated that they're going to really focus on integration and certainly less so then on new acquisitions. Do you see more opportunities by having perhaps one of their competitors in the M&A environment out there?

Well, maybe, but things like when one goes away, then another will come about. So it is what it is and we don't really see much difference we did... and we have, competed some with HRH, but not a lot.

Okay, great. Thanks for your answers this morning.

Our next question comes from Dan Farrell, FPK.

Good morning.

Hey Dan.

Hey. Just some questions actually focused on national retail and western retail. I realize these are obviously being impacted by both rates in the economy. But is there anything specific related to your operations that might be causing some of the drop as well? Have there been any departures, any operational things that you guys might be trying to address given the sharp slide?

No, not really. We have had some offices that have had some turmoil, Las Vegas being one. But generously speaking, we really haven't. The reality is that our model kind of chugs along at about the same speed throughout market cycles. So there is not a lot of change. So other than a few aberrations, we really don't see that.

Okay. And then just general thoughts on 2009. I know you mentioned that you thought '09 might get better versus '08. Are there assumptions underlying that? I mean I know you've alluded to the comps improving. But if we were in a scenario where say, the economic environment stayed where it was over the next 12 months and pricing continued to drop at the same level, are there other levers that you can pull or is it not unreasonable to think that there is another continued negative trend in organic if contingents stayed the way they were?

Well, it's very difficult to determine what's on the horizon. The reality is that Florida is a resilient economy. And one of the things that a lot of people don't realize is that there are a huge number of people who are retired who have incomes that are not dependent upon the economy. They are guaranteed incomes because of retirement plans and they are... they spend their money. And so there is this underpinning. Now what has been jerked out from under the economy in Florida is the 100... the 40 billion plus whatever multiplier it is of the hurricane claims. So my expectation is that the economy is going to soften out and the comparables will be much better for next year because we have this huge downdraft this year. You have already seen a situation where FIU now is starting to grow again, and I think that next year, we might have a little more favorable situation. So is that something that we can, make any category for stake in the call? No. And so, we're taking at a quarter at a time. Our push on new business is same or maybe even more, fresher than ever before, and we're looking at new programs and our program division which we'd always done. So, all of these things take a little bit of time but because this year has been... and I have really been in the insurance industry for 49 years, this has been the most unusual year and surprising that I have ever seen. So therefore, we're very reticent about making some statesman like statement for '09 that we have no basis for backing it up.

Sure, understandable. That's helpful. Thank you very much.

And our next question comes from Doug McGregor [ph], RBC Capital Markets.

Hey Doug?

Hi. Just had one question. My other one was answered. Regarding you're, I guess, the dynamics with the Florida takeout companies and Citizens. I know a couple of quarters ago, you described that working with Citizens was a little maybe higher maintenance and they paid a little bit less. How does it work with when the Florida takeout companies, first of all, I guess take out the policies from Citizens? Do you get in the middle of that transaction. And if you don't, how are you treated upon, I guess renewal? Do you get paid more, less, or the same by these smaller takeout companies?

Well, first of all, we're not dealing with takeout companies except in the homeowners' area. And if there are some of the takeout companies that have been approved by our security committee and others are not, if it's one that is not approved, then we obviously notify in writing the customer that this is not approved and that we will handle the insurance for them. But we cannot certify in any way, shape or form that our security committee has approved this. And so... and we don't write new business with that takeout company. As regards the commercial property, those really aren't takeout companies. Those are companies that are not admitted and have alacrity for rate and form. And they are coming in and writing the business. And it's generally coming through either a wholesaler that we don't own or a wholesaler that we do own. And so what's happening is is that the amount of commission dollars on this reduced premium is probably a little less. But we keep the business and if we don't do this, then we lose the business, which is a 100% loss of commission. So there is a reduction as this continual down trend... downturn is in the marketplace. But it will stabilize and in fact it stabilizes our relationship with our customers because they are looking for us to do the best for them, which is what we are going to do. Otherwise, we lose the business.

Okay. Thank you very much. That's all my questions.

Okay.

Next question comes from Mark Hughes, SunTrust.

Actually, this morning it's Jack in for Mark. Good morning.

Okay, Jack.

Most of my questions have been answered also. I just had a quick question for Cory. On the other operating expenses, they are up about $3 million sequentially. I was just wondering if the acquisition pace kind of continues at the same rate, are you going to see same kind of gain in the back half of the year?

You were breaking up. I didn't hear the full question, Mark. Can you say it again? Jack, sorry.

Sure. Cory, your other operating expenses were up about $3 million sequentially and you pointed to acquisitions driving that.

Right.

If the acquisition pace kind of continues at the same rate for the back half of the year, are you going to expect that kind of similar gain or was there something unusual?

No, no. There was nothing unusual. I mean essentially, we do have the same pace for the quarter. There was other operating expenses, like you said, about $3 million, which should stay about same.

Okay, great. Thank you very much.

Okay.

We'll take our next question from Matthew Heimermann, JPMorgan.

Hey, good morning everyone.

Hey Matthew.

Hi. I just have one question. You made the comment in the press release, and I guess this isn't too surprising given your economic comments. But you just... effectively clients are pocketing whatever rate savings they're seeing and you are not really seeing any increment purchase of coverage I guess. Is that true universally across the board? And I guess when I see universally, I'm thinking geographically, is that pretty consistent? And also, are there any differences from the smallest accounts to the largest accounts you handle?

Well, the smallest accounts are less impacted by rate decreases. And there is some geographic difference, but the difference may be more a slice of business. For instance, apartment owners are under tremendous pressure, profit pressure and so if their price was $500,000 last year or their approximate physical damage coverage and is now $300,000 they are not buying any other insurance. They're kind to take that money and either pocket it or put it in the bank or use it for something else. So there are some geographic differences. We are... where you have businesses are growing debts and there we do have those and also where we are having folks that two years ago the umbrella was $5 million and then they reduced it to $1 million and now the prices are going down, we're trying to sell them back for $5 million. So all of that's going on. It's hard to quantify that now.

Okay. And then just may be just specifically on where comp, do you have a sense given that the economy does appear to be weakening some. How much, if any, well I guess to what extent you're seeing payrolls slowing down in terms of your pace of expansion or maybe staying flat or even declining?

They are eroding very rapidly in terms of all construction. If you look at manufacturing, as you know manufacturing is the bright spot in our economy. So some of those are going up. Here is the one thing that's also no one's discussed is as the economy slows down you don't have more workers compliance. And because people here get back to get laid off ever since you get injured. And they get serious injuries which lasts for a month. And so the bottom line is that the loss ratios in a down economy will rise more rapidly than they would which forces them higher prices.

Great. I appreciate. Thank you. Have a great weekend guys.

Thanks Matthew.

Our next question comes from Meyer Shields, Stifel Nicolaus.

Thanks. Good morning all.

Hi Meyer.

I guess one quick question for Cory. You mentioned that same-store compensation was down $3.8 million. Can you break that down between fewer people and paying people less?

You know what, I did not break that down specifically. And I only have the number of people down. So I think it's similar to last quarter where we actually do have some normal attrition. And probably the biggest drop did come from probably commission producers where their salary is tide directly to reduction of the revenues. And then that was probably about $2.5 million, I think I recall off the top of my head. I don't have the sheet in front of me here in Huston, but like $2.5 million. And I think there was another $1 million that was primarily from just management and staff salaries.

Okay. But you're not worried about attrition itself being a specific challenge now?

No.

Okay. Can you talk a little bit about your own, I guess, utility or transportation costs? Is that a significant factor on year-over-year expenses?

Our transportation and utility costs?

Right. In other words, the rising price of energy. How much of...

I can make one comment about that, Meyer. One of the things that... and the cost of air travel is going up and the cost of moving around generally is going up. One of the things that we've done in the past and we're probably going to do it in the future is we are... we have quarterly meetings of our leadership counsel. It's a couple of hundred people. That's our senior leaders from all of our offices. As a matter of fact, we're in a meeting, that meeting is today and yesterday and it's in Houston, and we're in Houston as we speak. And so we're getting ready to go down to continue the meeting, which has started at 8 O'clock this morning this time. We are... in the October meeting, we're going to do it regionally. And one of the reason is there will probably be six regional meetings and we can get people into regional meetings for less money than we can, bringing everybody to one location. So, yes, it is... the cost is impacting us in terms of those people who are traveling a lot. And those are generally our regional people. The local agencies of course are... we do have some reimbursement for gas for some of our folks. But that hasn't been a significant amount.

I mean, Meyer, on T&E it's essentially flat. I think it may be up like $200,000 when you exclude the impact of the acquisitions. So it's not very significant at all for the quarter.

Very helpful, I appreciate it. And last question I guess. Given the specific challenge in the wholesale market now, I guess they are being disintermediated as standard companies increase their appetites. Is there a difference in pricing between the wholesale brokers and retail?

Yes, there are and usually, you would think that the standard markets are less expensive and broader coverage. And what you're finding is some of the wholesale markets on certain classes of business are below the standard markets, not exclusively. And Meyer the other thing I would say is this. There are really we think three types of accounts. And what I mean by that is there are accounts who are always in the standard market and there are accounts that are always in the excess and surplus lines market. And then there are some accounts that typically look like excess and surplus lines markets, but they are kind of in between. And as the market changes, as we are seeing now, those in between accounts, some of those flip towards the standard market. And so that's typically the breakdown on accounts. So you are going to see a change like we are seeing now. You are going to see more business move into the standard market from the EES market. And then when the market goes up in the future, you will have some of those accounts that are in between go out of the standard market and back into the excess and surplus lines market.

Okay. Is that having any impact on... when you look at wholesale... agencies that you're considering acquiring, is that changing their price demands?

Well, Meyer, just to tag on that is that on the wholesale side, we're... I mentioned our caution about forward revenues being delivered. And as a matter of fact, we have had to step aside from several wholesale opportunities to acquire because of that issue you are addressing. That is that we really could not assure that the revenue base that was there would be there tomorrow and reaching conclusion that the seller will be willing to take risk at that on it. So the drag there is significant. I think maybe one tack on that is that we have a significant amount of our wholesale business is binding authority, which is being perhaps a little bit less impacted in the transactional side which is vacation over to the standard market. So the... our wholesale teams are doing some great jobs in terms of remodeling, restructuring their offices, dealing with the flow of business and looking at new product line. One last item on that is that some of our trading partners in the E&S world are buying NGUs right now to sustain their volume which is rather... there is another approach to it. We... assuming they're going to get both the underwriting profit and the operating profit from that entity.

Very helpful. Thank you so much.

We'll take our next question from John Fox, Fenimore Asset Management.

Yes hi, good morning everybody. I guess three questions left. One, can you tell us what was the FIU revenue?

How are you, John?

I'm doing good, Hyatt. How are you?

Good. It's about 8, I think. No, FIU for the quarter...

Yes, just for quarter two.

It was roughly $4.4 million.

Okay, great. And then Cory, you mentioned a figure earlier in a call that you've spent $110 million on acquisition activities. Is that just for purchasing agencies this year or did that include any earnouts from previous years?

No, no. That's everything. That would be kind of the number that would show up on the cash flow statement.

Okay.

That's everything including earnouts.

Okay, great. And then, Hyatt, in your kind of closing remarks before the Q&A, I thought I heard you say Q4 kind of Florida gets better and I wonder if you could discuss the reasons for that.

Hey John, you're trying to put words on my mouth.

Okay. Well I'm asking you to clarify

Okay, John. Listen, it's a good thing I know you. Here is the bottom line. What I said was that the downturn [ph] last year created a plateau that was lower than previous before the fourth quarter. Therefore, assuming that to be the case, which I think is the case, then maybe the downturn might not be quite as virulent. But who knows? So we'll see.

So it's basically the comparison.

Yes.

Okay. Thank you.

Okay.

Our next question comes from Nik Fisken at Stephens.

Good morning.

Hey Nick, how are you?

I'm great. Hyatt, did the minus 8 surprise you?

Say again, I can't...

Did the minus 8 or...

You mean the 7.9? Yes, we were a little surprised at that. And primarily, again Florida. The economy is having a bigger impact in Florida that we had expected.

So if you had a crystal ball, the breakout of the economy versus pricing, would you say it's half-half or more economy related?

Nik, that would be simply a guess, and I don't know. Probably, if you go office by office and you go from Sarasota South to Naples, then the economy is substantial. We are writing new business, but when you renew a contractor's account and the payrolls are down 50%, that a 50% reduction plus whatever the price reduction is. And so from Sarasota South, it's much more than 50% of the downdraft. If you get into Broward and Dade counties, we do have in the Fort Lauderdale office a very substantial amount of condo business. Now the condo business is just wild and crazy and it's moving... constantly moving. So is that the economy? No, it's the price. It's just the market. So how do you weigh and measure all that stuff? We'll find out [ph].

But it sound like Q3, it's got to be worse than Q2.

In terms of the economy.

And internal growth.

Well, I don't know that either. I mean, I'd hate to prognosticate. You have to figure it out. See, you're over there at Little Rock and you are away from the maddening cry and therefore you all will be able to figure it out.

You all have a good day. Thank you.

Okay.

Our next question comes from Steven Labbe at Langen McAlenney.

Hi, good morning.

Hi Steve. How are you?

I'm okay.

Good.

Is there a big difference between the internal growth at seasoned Brown & Brown offices versus those that you've acquired, say, in the last year, two years, three years?

Well the most seasoned offices are Florida and ex-economy, ex the economy maybe. But I'm not really sure because we have some offices that are brand new that are growing nicely. So it just depends on the circumstances.

It's the mix of business, some are the offices, Steve, our benefits offices and they are a little different scenario at this time.

Okay. So you don't believe that any part of the surprise in the decline in internal growth is a function of the newer offices doing materially worse than those that were not recently acquired?

Certainly not in Florida. And if you look at the Northeast, which is where we have had a lot of acquisitions, those new acquisitions are doing pretty well. So I don't think there is really much difference there.

Okay. Just a quick second question. Cory, do you have what GSEs were this quarter versus last year's second quarter?

Yes, we essentially on this quarter, they are about the same. This quarter, for '08, it was about 3.2. So year-to-date, we are at 6.3, 6.4, or something like that. And as you recall in '07, we booked both the first quarter and the second quarter in the second quarter, which was also 3.2, but it was for the two quarters. So we do have run basically double the amount because this year in '08, we have now Hartford, Safeco and Fireman's Fund that have reserved that have gone to the GSEs from last year, and that's why it's up.

Okay. So it was $3.2 million.

Compared to $3.2 million.

Compared to $3.2 million.

Right. And if you look at just the quarter.

But you actually have... okay, but it's a little different because last year's $3.2 million included some first quarter.

They included the first quarter.

Okay, right. All right, great. Thanks guys.

Okay.

Our next question comes from Dick Cagny, Cagny Network Incorporated [ph].

Good morning.

Hey Dick. How are you?

Fine. How are you?

Good.

Just two questions. One is could you discuss the impact that the Bermuda and London markets might be having on the U.S. business and their entries? And secondly, can you talk about the impact that the regional acquisition people that you have out in the field are making on your acquisitions versus a centralized approach?

Dick, I'll field the Bermuda and London question. We have written a lot of business over the last several years in London and continue to do so. And in the past, our system has been predominantly a property-related market; not exclusively, but predominantly. And so the prices there have come down substantially both from Bermuda and London, not any different than the domestic excess and surplus lines market. We do do some casualty and professional liability as well there. But I would tell you that pricing pressure for classes of business that are written in Bermuda and London are similar, if not more, because of their desire to retain it. So I hope that answers your question.

Dick, on the acquisition question, I mean could you maybe represent that, the impact you said on our regional leadership?

In the past, did you... the majority of your acquisitions, did you do from a centralized basis, because I know that...

No, we have not. We have never done that.

Okay.

And it's one of the features of our company you hear about the AOL, which is the cross area on the line. And that goes back to a longstanding more 20, 25 years of it requires one of our regional operating leaders to buy and support and take forward an acquisition including the impact upon their compensation. So it becomes a validation that here is an entity we really think we can integrate and operate forward. And it's very, very important to us. What we have done is we have strengthened our support teams for those leaders to do more transactions in the case of signing and telling the story and completion the transaction and integrating the transaction.

Just going back to the first question about the Bermuda market and London markets, I'm curious what the impact of Bermuda and London companies coming into the States is and what you see their impact on the States in terms of...

Well, I would say that historically, they have been... let's talk about Bermuda more so than London... but focused on larger accounts, Fortune 1000 accounts, or very high excess layers and D&O and E&O and things of that sort, which is not the vast majority of our business. However, as you know, there is a number of syndicates in the Bermuda carriers that are trying to get really significant onshore presence. And quite honestly, some of them are trying to circumvent the traditional London broker market to develop direct relationships with retail agent and the state. We view that as another market opportunity and we have significant relationships with them from trading with them overseas already. So we view that as positive. But I can't tell you that one or two markets stand out as making such a significant impact on the market over and above some other domestic E&S market.

Thank you.

Bill, I think we can take one more question because we've got an 8:30 presentation to make downstairs.

And a follow up... it is a follow-up question from Chuck Hamilton, FTN Midwest.

Thanksguys. My follow up has already been answered. So that makes it quick for you. Thanks so much.

All right. Thanks Chuck.

And Mr. Brown, we have no other questions standing by at this time. I'll turn the conference back over to you for any additional or closing remarks.

Okay, and thank you all very much and we'll see you in October. Good bye. Thanks Bill.

Thank you. That does conclude today's conference call. We do thank you for your participation. You may disconnect at this time.