Brown & Brown (NYSE:BRO) is the world's sixth largest insurance broker by revenue.  BRO has offices that sell property and casualty insurance in 38 states, with the most locations in Florida. BRO does not take on any underwriting risks itself, profiting predominantly from commissions paid to them by the insurance companies that they sell insurance for. BRO also sells professional insurance to dentists, lawyers, and opticians, and provides third party administration for companies who choose to self-insure.
In 2007, BRO's internal revenue growth rate was negative for the first time since BRO began tracking that number in 1997.  Commissions and fees also decreased by 3.4% or $27.9 million in 2007 due to lower industry-wide commisions and the slowing home building market. In 2007, the government of Florida started an insurance company offering below-market rates so that homeowners can afford hurricane insurance, which hurts private insurers like Brown & Brown.
To combat the reduced internal growth, BRO made 41 acquisitions with estimated annual revenues of $108.3 million in 2007. In January and February of 2008, BRO purchased seven insurance intermediaries, two customer accounts, and one general insurance agency for $71.08 million.
From 2005 to 2007, BRO's total revenues have increased 22.13% and net income has increased 26.84%. 
On October 20, 2008, BRO announced 3rd Quarter 2008 net income per share of $0.29 down from $0.33 per share the same quarter of 2007.  The Chairman and CEO, J. Hyatt Brown, named falling property and casualty insurance rates as the main contributor to the decrease.  In that same press release, BRO announced that in the first 3 quarters of 2008 BRO has made 44 transactions with estimated annualized revenues of $100.2 million. Jim W. Henderson, the Vice Chairman and Chief Operating Officer, said that the acquisitions would continue as soft market conditions and a weak economy are making mergers and acquisitions more attractive. BRO also announced on October 22, 2008 that it would be increasing its quarterly dividend to 7.5 cents per share, a 7.1% increase.
|Net Income (Thousands)||110,322||128,843||150,551||172,350||190,959|
|Revenue per Employee||159,699||173,046||184,896||189,368||196,251|
The current downturn in housing prices has led to reduced home building and lower house prices. Brown's retail segment specializes in insuring the home building segment and professional liability coverage for title agents. The rate of home building has decreased and insurance sales have also been hit by the slump. This segment also operates primarily in Florida, which was one of the hardest areas in the housing slump. Moreover, the reduced housing prices will lower the amount people insure through their property insurance. Since people will be paying less is premiums, BRO will receive less in commissions.
Brown & Brown has been hurt by government regulation in Florida. After devastating natural disasters, it is common for the government to create an organization which will provide insurance to homeowners. This results from an inability for people to purchase insurance from private insurers, who have also been hurt form paying out claims. An example of this type of government organization, Citizens' Property Insurance Corporation, which establishes a residual market for property insurance in Florida, has reduced rates and become the most competitive insurance broker in the Florida market. This puts private insurers at a significant disadvantage because the government program, which was initially designed to be a short term insurer of last resort, has become the cheapest option.
After two consecutive years of lower-than-average hurricane losses, insurance carriers are cutting prices to win new business.  According to the Council of Insurance Agents & Brokers in Washington, premiums for commercial property/casualty insurance decreased 11% in the 3rd Q of 2008 from a year before.  As the price of insurance decreases, the commissions BRO earns for selling the insurance also go down. Continued softness in the insurance markets means reduced commission revenue for BRO.
Thus far, BRO has solely operated in the U.S., but has announced plans to expand to the U.K. Challenges of the expansion include adapting to different government regulation and insurance markets, and establishing the infrastructure to support a U.K. insurance brokerage operation. The U.K. insurance brokerage market is already very established, as large competitors such as Arthur J. Gallagher are active there. 
The insurance brokerage is a highly competitive business where companies compete mainly on the basis of prices as well as the services that the company can provide. The six largest brokers of business in the world and the U.S. are BRO, Marsh & McLennan, Aon, Willis, Arthur J. Gallagher, and Wells Fargo (WFC).  BRO is the world's 6th largest 3rd party property/casualty claims administrator and the 6th largest insurance broker based on revenues.   These five companies are the five largest competitors of BRO however competition comes from all over in this industry. The top 50 companies in size control only 20% of the market, showing how many players there are.  Moreover, BRO faces competition from government entities such as the Citizens Property Insurance Corporation, which are created by the government to provide people who live in areas often hit by natural disasters to receive affordable insurance. The competition which BRO faces will only increase as they enter into the new U.K. market.
|Description||Mkt. Cap||P/e||Return on Equity (ROE) %||Dividend Yield %||Debt to Equity||Price-to-book||Profit Margins||Qrtrly Rev Growth YoY %||Qrtrly Earnings Growth YoY % |
|Brown & Brown Inc.||2.54B||14.9||15.6||1.4||0.2||2.2||16.8||(-1.1)||(-22.4)|
|Marsh & McLennan Companies, In||13.91B||7.5||0.2||2.8||0.5||1.8||2.1||9.4||(-60.0)|
|Willis Group Holdings Ltd.||3.42B||9.4||27.5||3.8||1.0||2.4||5.9||6.1||(-48.9)|
|Arthur J Gallagher & Co.||2.22B||20.3||19.3||5.2||0.7||3.1||9.5||0.3||(-1.7)|