Brown & Brown, Inc. (BRO) Q2 2026 Earnings Report, Transcript and Summary

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.

The 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.