Brown & Brown (BRO) 10-K risk factor changes: FY2015 vs FY2014

[removed: OUR] [added: OUR] BUSINESS, AND THEREFORE OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION, MAY BE ADVERSELY AFFECTED BY ECONOMIC CONDITIONS THAT RESULT IN REDUCED INSURER [removed: CAPACITY.][added: CAPACITY.]

[removed: OUR] [added: OUR] GROWTH STRATEGY [added: PARTIALLY] DEPENDS [removed: IN PART] ON THE ACQUISITION OF OTHER INSURANCE INTERMEDIARIES, WHICH MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS IN THE FUTURE AND WHICH, IF CONSUMMATED, MAY NOT BE ADVANTAGEOUS TO [removed: US.][added: US.]

Our growth strategy [added: partially] includes the acquisition of other insurance intermediaries.

[removed: INFLATION] [added: INFLATION] MAY ADVERSELY AFFECT OUR BUSINESS OPERATIONS IN THE [removed: FUTURE.][added: FUTURE.]

[removed: BECAUSE] [added: BECAUSE] OUR BUSINESS IS HIGHLY CONCENTRATED IN CALIFORNIA, FLORIDA, GEORGIA, ILLINOIS, INDIANA, KANSAS, [added: KENTUCKY,] MASSACHUSETTS, MICHIGAN, NEW JERSEY, NEW YORK, NORTH CAROLINA, OREGON, PENNSYLVANIA, TEXAS, VIRGINIA AND WASHINGTON, ADVERSE ECONOMIC CONDITIONS, NATURAL DISASTERS, OR REGULATORY CHANGES IN THESE STATES COULD ADVERSELY AFFECT OUR FINANCIAL [removed: CONDITION.][added: CONDITION.]

A significant portion of our business is concentrated in California, Florida, Georgia, Illinois, Indiana, Kansas, [added: Kentucky] Massachusetts, Michigan, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Texas, Virginia and Washington.

For the years ended December 31, [removed: 2014, 2013] [added: 2015, 2014] and [removed: 2012,] [added: 2013,] we derived [removed: $1,361.5] [added: $1,468.7] million or [removed: 86.4%, $1,163.8] [added: 88.4%, $1,386.2] million or [removed: 85.4%] [added: 88.0%] and [removed: $1,016.5] [added: $1,182.2] million or [removed: 84.8%,] [added: 86.7%,] of our revenues, respectively, from our operations located in these states.

We are susceptible to losses and interruptions caused by hurricanes (particularly in Florida, where our headquarters [removed: are located] and [removed: we maintain] several [removed: offices),] [added: offices are located),] earthquakes (including California, where we maintain a [removed: relatively large] number of offices), power shortages, telecommunications failures, water shortages, floods, fire, extreme weather conditions, geopolitical events such as terrorist acts and other natural or [removed: manmade] [added: man-made] disasters.

[removed: WE] [added: WE] DERIVE A SIGNIFICANT PORTION OF OUR COMMISSION REVENUES FROM A LIMITED NUMBER OF INSURANCE COMPANIES, THE LOSS OF WHICH COULD RESULT IN ADDITIONAL EXPENSE AND LOSS OF MARKET [removed: SHARE.][added: SHARE.]

For the year ended December 31, [removed: 2014,] [added: 2015,] no insurance company accounted for more than [removed: 7.0%] [added: 7.3%] of our total core commissions.

For the [removed: year] [added: years] ended December 31, [removed: 2013] [added: 2014] and [removed: 2012,] [added: 2013,] approximately [removed: 8.0%] [added: 7.0%] and [removed: 5.0%] [added: 8.0%] respectively, of our total core commissions [removed: were] [added: was] derived from insurance policies underwritten by one insurance company.

Should this insurance company seek to terminate [removed: their] [added: its] arrangements with us, we believe that other insurance companies are available to underwrite the business, and we could likely move our business to one of these other insurance companies, although some additional expense and loss of market share could possibly result.

[removed: OUR] [added: OUR] CURRENT MARKET SHARE MAY DECREASE AS A RESULT OF INCREASED COMPETITION FROM INSURANCE [added: COMPANIES, TECHNOLOGY] COMPANIES AND THE FINANCIAL SERVICES [removed: INDUSTRY.][added: INDUSTRY.]

Other competitive concerns may include the quality of our products and services, our pricing and the ability of some of our customers to [removed: self-insure.][added: self-insure and the entrance of technology companies into the insurance intermediary business.]

[removed: QUARTERLY] [added: QUARTERLY] AND ANNUAL VARIATIONS IN OUR COMMISSIONS THAT RESULT FROM THE TIMING OF POLICY RENEWALS AND THE NET EFFECT OF NEW AND LOST BUSINESS PRODUCTION MAY HAVE UNEXPECTED EFFECTS ON OUR RESULTS OF [removed: OPERATIONS.][added: OPERATIONS.]

These commissions generally have [removed: accounted for 4.3%] [added: been in the range of 3.0%] to [removed: 4.4%] [added: 5.0%] of our previous year’s total annual revenues over the last three years.

Because profit-sharing contingent commissions and override commissions materially affect our revenues, any decrease in their payment to us could adversely affect the results of our [removed: operations] [added: operations, profitability] and our financial condition.

[removed: CONSOLIDATION] [added: CONSOLIDATION] IN THE INDUSTRIES THAT WE SERVE COULD ADVERSELY AFFECT OUR [removed: BUSINESS.][added: BUSINESS.]

[removed: WE] [added: WE] COULD INCUR SUBSTANTIAL LOSSES FROM OUR CASH AND INVESTMENT ACCOUNTS IF ONE OF THE FINANCIAL INSTITUTIONS THAT WE USE FAILS OR IS TAKEN OVER BY THE U.S. FEDERAL DEPOSIT INSURANCE CORPORATION [removed: (“FDIC”).][added: (“FDIC”).]

[removed: OUR] [added: OUR] BUSINESS PRACTICES AND COMPENSATION ARRANGEMENTS ARE SUBJECT TO UNCERTAINTY DUE TO INVESTIGATIONS BY GOVERNMENTAL AUTHORITIES AND POTENTIAL RELATED PRIVATE [removed: LITIGATION.][added: LITIGATION.]

[removed: WE] [added: WE] COMPETE IN A HIGHLY-REGULATED INDUSTRY, WHICH MAY RESULT IN INCREASED EXPENSES OR RESTRICTIONS ON OUR [removed: OPERATIONS.][added: OPERATIONS.]

We conduct business in [removed: most] [added: all] states and are subject to comprehensive regulation and supervision by government agencies in the states in which we do business.

We act as agents and brokers for such state insurance funds and assigned risk pools in California and [added: New York as well as] certain other states.

Any such reductions, in a state in which we have substantial [removed: operations, such as Florida, California or New York,] [added: operations] could [removed: substantially] affect the profitability of our operations in such state, or cause us to change our marketing focus.

Although we believe that we are in compliance in all material respects with applicable local, state and federal laws, rules and regulations, there can be no assurance that more restrictive laws, [removed: rules or] [added: rules,] regulations [added: or interpretations thereof,] will not be adopted in the future that could make compliance more difficult or expensive.

[removed: PROPOSED] [added: PROPOSED] TORT REFORM LEGISLATION, IF ENACTED, COULD DECREASE DEMAND FOR LIABILITY INSURANCE, THEREBY REDUCING OUR COMMISSION [removed: REVENUES.][added: REVENUES.]

[removed: CHANGES] [added: CHANGES] IN LAWS AND REGULATIONS MAY INCREASE OUR [removed: COSTS.][added: COSTS.]

Legislative developments that could adversely affect us include: changes in our business compensation model as a result of regulatory developments (for example, the 2010 [removed: Health] [added: Affordable] Care [removed: Reform Legislation);] [added: Act);] and federal and state governments establishing programs to provide health insurance or, in certain cases, property insurance in catastrophe-prone areas or other alternative market types of coverage, that compete with, or completely replace, insurance products offered by insurance carriers.

[removed: HEALTHCARE] [added: HEALTHCARE] REFORM AND INCREASED COSTS OF CURRENT EMPLOYEES’ MEDICAL AND OTHER BENEFITS COULD HAVE A [removed: MATERIALLY] [added: MATERIAL] ADVERSE EFFECT ON OUR [removed: BUSINESS.][added: BUSINESS.]

In addition, we believe that increased [removed: health care] [added: healthcare] costs resulting from the 2010 [removed: health care reform bill] [added: Affordable Care Act] could have a material adverse impact on our business, cash flows, financial condition or results of operations.

[removed: WE] [added: WE] ARE SUBJECT TO LITIGATION WHICH, IF DETERMINED UNFAVORABLY TO US, COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL [removed: CONDITION.][added: CONDITION.]

[removed: OUR] [added: OUR] BUSINESS, AND THEREFORE OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION, MAY BE ADVERSELY AFFECTED BY FURTHER CHANGES IN THE U.S.-BASED CREDIT [removed: MARKETS.][added: MARKETS.]

[removed: IF] [added: IF] WE FAIL TO COMPLY WITH THE COVENANTS CONTAINED IN CERTAIN OF OUR AGREEMENTS, OUR LIQUIDITY, RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE ADVERSELY [removed: AFFECTED.][added: AFFECTED.]

At December 31, [removed: 2014,] [added: 2015,] we were in compliance with the financial covenants and other limitations contained in each of these agreements.

If the indebtedness under these agreements or our other indebtedness, [removed: including the notes,] were to be accelerated, there can be no assurance that our assets would be sufficient to repay such indebtedness in full.

[removed: CERTAIN] [added: CERTAIN] OF OUR AGREEMENTS CONTAIN VARIOUS COVENANTS THAT LIMIT THE DISCRETION OF OUR MANAGEMENT IN OPERATING OUR BUSINESS AND COULD PREVENT US FROM ENGAGING IN CERTAIN POTENTIALLY BENEFICIAL [removed: ACTIVITIES.][added: ACTIVITIES.]

In particular, among other covenants, [removed: the Credit Facility requires] [added: our debt agreements require] us to maintain a minimum ratio of [removed: consolidated] [added: Consolidated] EBITDA (earnings before interest, taxes, depreciation and amortization), adjusted for certain transaction-related items (“Consolidated EBITDA”), to consolidated interest expense and a maximum ratio of consolidated net indebtedness to Consolidated EBITDA.

Our compliance with these covenants [removed: limits our] [added: could limit] management’s discretion in operating our business and could prevent us from engaging in certain potentially beneficial activities.

[removed: OUR] [added: OUR] CREDIT RATINGS ARE SUBJECT TO [removed: CHANGE.][added: CHANGE.]

[removed: OUR] [added: OUR] BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION OR LIQUIDITY MAY BE MATERIALLY ADVERSELY AFFECTED BY ERRORS AND OMISSIONS AND THE OUTCOME OF CERTAIN ACTUAL AND POTENTIAL CLAIMS, LAWSUITS AND [removed: PROCEEDINGS.][added: PROCEEDINGS.]

Our business, financial condition, results of operations and cash flows are subject to, and could be materially adversely affected by, various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause our actual results to vary materially from recent results or our anticipated future results.

Likewise, larger companies may establish internal risk management functions lessening the services they seek from us.

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group.

Over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

relating to us or our competitors.

##### [Table of Contents](#toc)

We believe that these revenues are attributable predominately to customers in these states.

We primarily receive these commissions in the first and second quarters of each year.

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From late 2007 through 2011, global consumer confidence had eroded amidst concerns over declining asset values, volatility in energy costs, geopolitical issues, the availability and cost of credit, high unemployment, and the stability and solvency of financial institutions, financial markets, businesses, and sovereign nations.

Those concerns slowed economic growth and resulted in a recession in the United States.

Economic conditions had a negative impact on our results of operations during the years 2008 through 2011 due to reduced customer demand.

In 2012, the economic conditions in the middle-market economy appeared to stabilize, and a gradual improvement continued through 2013 and 2014.

Barrett Brown, one of our Senior Vice Presidents, beneficially owned approximately 16.0%.

[removed: General][added: General]

The following discussion should be read in conjunction with our Consolidated Financial Statements and the related Notes to those [removed: Consolidated] Financial Statements included elsewhere in this Annual [removed: Report.][added: Report on Form 10-K.]

Commission revenues generally represent a percentage of the premium paid by an insured and are [removed: materially] affected by fluctuations in both premium rate levels charged by insurance companies and the insureds’ underlying “insurable exposure units,” which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, or sales and payroll levels) to determine what premium to charge the insured.

Insurance companies establish these premium rates based upon many factors, including [added: loss experience, risk profile, and] reinsurance rates paid by such insurance companies, none of which we control.

The volume of business from new and existing customers, fluctuations in insurable exposure [removed: units] [added: units, changes in premium rate levels,] and changes in general economic and competitive conditions all affect our revenues.

We foster a strong, decentralized sales [added: and service] culture with [removed: a] [added: the] goal of consistent, sustained growth over the [removed: long term.][added: long-term.]

We [added: have] increased revenues every year from 1993 to [removed: 2014,] [added: 2015,] with the exception of 2009, when our revenues dropped 1.0%.

Our revenues grew from $95.6 million in 1993 to [removed: $1.6] [added: $1.7] billion in [removed: 2014,] [added: 2015,] reflecting a compound annual growth rate of [removed: 14.2%.][added: 13.9%.]

In the same [removed: 21 year] [added: 22-year] period, we increased net income from $8.1 million to [removed: $206.9] [added: $243.3] million in [removed: 2014,] [added: 2015,] a compound annual growth rate of 16.7%.

Additionally, each of our four segments recorded positive internal revenue growth for [removed: each quarter in 2014 except for] the [removed: Services Segment in the first quarter.][added: year ended December 31, 2015.]

Over the last three years, profit-sharing contingent commissions have averaged approximately [removed: 4.3%] [added: 4.0%] of the previous year’s total commissions and fees revenue.

Profit-sharing contingent commissions are included in our total commissions and fees in the Consolidated [removed: Statements] [added: Statement] of Income in the year received.

[removed: In contrast, the] [added: The] term “core organic commissions and fees” is our core commissions and fees less (i) the core commissions and fees earned for the first twelve months by newly-acquired operations and (ii) divested business (core commissions and fees generated from offices, books of business or niches sold or terminated during the comparable period).

“Core organic commissions and [removed: fees”] [added: fees”, a non-GAAP measure,] are reported in this manner in order to express the current year’s core commissions and fees on a comparable basis with the prior year’s core commissions and fees.

The resulting net change reflects the aggregate changes attributable to (i) net new and lost accounts, (ii) net changes in our clients’ exposure units, and (iii) net changes in insurance premium [removed: rates.][added: rates or the commission rate paid to us by our carrier partners.]

Certain insurance companies offer guaranteed fixed-base agreements, referred to as “Guaranteed Supplemental Commissions” (“GSCs”) in lieu of [removed: profit –sharing] [added: profit-sharing] contingent commissions.

[removed: As of] [added: For the twelve-month period ending] December 31, [removed: 2014,] [added: 2015,] we had [removed: $7.6 million of GSC revenue accrued and had] earned [removed: $9.9] [added: $10.0] million of [removed: GSCs during 2014, most] [added: GSCs,] of which [added: $7.6 million remained accrued at December 31, 2015 as most of this] will be collected in the first quarter of [removed: 2015.][added: 2016.]

For the [removed: twelve-month] [added: twelve\-month] periods ended December 31, [added: 2015,] 2014, [removed: 2013] and [removed: 2012,] [added: 2013,] we earned [removed: GSCs of $9.9] [added: $10.0] million, [removed: $8.3] [added: $9.9] million and [removed: $9.1] [added: $8.3] million, [removed: respectively.][added: respectively, from GSCs.]

Fee revenues have historically been generated primarily by: (1) our Services Segment, which provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare [removed: set-aside] [added: Set-aside] services, Social Security disability and Medicare benefits advocacy services, and [removed: catastrophe] claims adjusting services, [removed: and] (2) our National Programs and Wholesale Brokerage Segments, which earn fees primarily for the issuance of insurance policies on behalf of insurance [removed: companies.][added: companies, and to a lesser extent (3) our Retail Segment in our large-account customer base.]

Fee revenues, on a consolidated basis, as a percentage of our total commissions and fees, represented 30.6% in [removed: 2014, 26.6%] [added: 2015, 30.6%] in [removed: 2013] [added: 2014] and [removed: 21.7%] [added: 26.6%] in [removed: 2012.][added: 2013.]

[removed: Other] [added: Likewise, other] income [removed: primarily] [added: in each segment] reflects net gains [removed: on sales of customer accounts and fixed assets, but will also include sub-rental income,] [added: primarily from] legal settlements and [removed: other] miscellaneous income.

[removed: Information] [added: Information] Regarding Non-GAAP [removed: Measures][added: Measures]

In the discussion and analysis of our results of [removed: operations that follows,] [added: operations,] in addition to reporting financial results in accordance with GAAP, [removed: as noted above,] we provide information regarding core commissions and fees, core organic commissions and fees, and our internal growth rate, which is the growth rate of our core organic commissions and [removed: fees.][added: fees, and adjusted calculations of core commissions and fees, core organic commissions and fees and our internal growth rate after adjusting for the significant revenue recorded at our Colonial Claims operation in the first half of 2013 attributable to Superstorm Sandy.]

These measures are not in accordance with, or an alternative to (including any adjusted internal growth [removed: rate),] [added: rate)] the GAAP information provided in this [removed: annual report] [added: Annual Report] on Form 10-K.

Tabular reconciliations of this supplemental non-GAAP financial information to our most comparable GAAP information [removed: is] [added: are] contained in this [added: Annual Report on] Form 10-K.

This supplemental financial information should be considered in addition to, not in lieu of, our [removed: condensed consolidated financial statements.][added: Consolidated Financial Statements.]

Income before income taxes [removed: in 2014] [added: for 2014,] decreased [removed: over 2013 by 5.0%,] [added: 82.6%,] or [removed: $17.9] [added: $39.2] million, [added: over 2013,] to [removed: $339.7] [added: $8.3] million.

[removed: However, that net] [added: This] decrease [removed: includes] [added: included] a $47.4 million [removed: pretax] [added: net] loss on [added: the] disposal of [removed: certain assets of] [added: the] Axiom [removed: Re, LP (“Axiom Re”).][added: Re business.]

[removed: Income before income taxes related to new acquisitions was $37.5 million,] [added: Therefore, employee compensation] and [removed: therefore, income before income taxes] [added: benefits] from [added: those] offices that existed in the same time periods of 2014 and 2013 [removed: (including the new acquisitions that “folded in” to those offices) decreased] [added: increased] by [removed: $55.4] [added: $27.7] million.

[removed: Acquisitions][added: Acquisitions]

From 1993 through [removed: 2014,] [added: the fourth quarter of 2015,] we acquired [removed: 459] [added: 472] insurance intermediary operations, excluding acquired books of business (customer accounts).

[removed: Critical] [added: Critical] Accounting [removed: Policies][added: Policies]

These estimates form the basis for our judgments about the carrying values of our assets and liabilities, [added: of] which values are not readily apparent from other sources.

In particular, the accounting for these areas requires significant [removed: judgments] [added: use of judgment] to be made by management.

[removed: Revenue Recognition][added: Revenue Recognition]

Profit-sharing contingent commissions are recognized when determinable, which is [added: generally] when such commissions are received from insurance companies, or [added: periodically] when we receive formal notification of the amount of such payments.

Fee revenues, and commissions for [added: employee benefits coverages and] workers’ compensation programs, are recognized as services are rendered.

[removed: Business] [added: Business] Combinations and Purchase Price [removed: Allocations][added: Allocations]

Non-compete agreements are valued based on their duration and any unique features of [added: the] particular agreements.

Purchased customer accounts and non-compete agreements are amortized on a straight-line basis over the related estimated lives and contract periods, which range from [removed: five] [added: 5] to 15 years.

In addition, please see “Information Regarding Non-GAAP Measures” below, regarding important information on non-GAAP financial measures contained in our discussion and analysis.

Additionally, our profit-sharing contingent commissions and GSCs for the year ended December 31, 2015 decreased by $5.8 million over 2014 primarily as a result of increased loss ratios in our National Programs and Wholesale Brokerage Segment.

Other income decreased by $5.0 million primarily as a result of a reduction in the gains on the sale of books of business when compared to 2014 and the change in where this activity is presented in the financial statements as described in the results of operations section below.

For the years ended December 31, 2015 and 2014, our consolidated internal revenue growth rate was 2.6% and 2.0% respectively.

In the event that the gradual increases in insurable exposure units that occurred in the past few years continues through 2016 and premium rate changes are similar with 2015, we believe we will continue to see positive quarterly internal revenue growth rates in 2016.

Other income primarily reflects legal settlements and other miscellaneous income.

Income before income taxes for the year ended December 31, 2015 increased over 2014 by $62.8 million, primarily as a result of acquisitions completed in the past twelve months and net new business, partially offset by the incremental interest expense associated with our inaugural public debt offering completed in 2014 along with incremental investments in revenue producing teammates.

During the first quarter of 2016, the performance conditions for approximately 1.4 million shares of the Company’s common stock granted under the Company’s Stock Incentive Plan are expected to be determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in 2011.

These grants had a performance measurement period that concluded on December 31, 2015.

The vesting condition for these grants requires continuous employment for a period of up to ten years from the January 2011 grant date in order for the awarded shares to become fully vested and nonforfeitable.

The shares are expected to be awarded during the first quarter of 2016, pursuant to review and certification of the performance measurements against the stated grant targets by the Compensation Committee in accordance with the Stock Incentive Plan.

As a result of the awarding of these shares, the grantees will be eligible to receive payments of dividends and exercise voting privileges after the awarding date, and the awarded shares will be included as issued and outstanding common stock shares and included in the calculation of basic and diluted EPS.

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| (in thousands, except percentages) | 2015 | | | | % Change | | | 2014 | | | | % Change | | | 2013 | | |

| Guaranteed supplemental commissions | 10,026 | | | | 1.8 | % | | 9,851 | | | | 19.0 | % | | 8,275 | | |

| Income taxes | 159,241 | | | | 19.9 | % | | 132,853 | | | | (5.4 | )% | | 140,497 | | |

| NET INCOME | $ | 243,318 | | | 17.6 | % | | $ | 206,896 | | | (4.7 | )% | | $ | 217,112 | |

Profit-sharing contingent commissions and GSCs for 2015 decreased by $5.8 million, or 8.6%, compared to the same period in 2014.

The net decrease of $5.8 million was mainly driven by a decrease in profit-sharing contingent commissions in the National Programs Segment as a result of increased loss ratios.

13.5%, compared to the same period in 2013.

Investment income increased to $1.0 million in 2015, compared with $0.7 million in 2014 due to additional interest income driven by cash management activities to earn a higher yield.

Other income in 2015 consisted primarily of legal settlements and also gains and loss on the sale and disposition of fixed assets.

In 2014 and 2013, other income included legal settlements and gains and loss on the sale and disposition of fixed assets as well as gains and losses from the sale on books of business (customer accounts).

Prior to the adoption of ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”) in the fourth quarter of 2014, net gains and losses on the sale of businesses or customer accounts were reflected in other income.

Any such gains or losses are now reflected on a net basis in the expense section since the adoption of ASU 2014-08.

The $5.0 million change in 2015 other income from the comparable period in 2014 was primarily due to prior year book of business sales and to a lesser extent, the change to the presentation of this activity in the financial statements.

This underlying employee compensation and benefits expense increase was primarily related to (i) an increase in producer and staff salaries as we made targeted investments in our business; (ii) increased profit center bonuses and commissions due to increased revenue and operating profit; and (iii) the increased cost of health insurance.

Employee compensation and benefits expense as a percentage of total revenues was 50.7% for 2015 as compared to 50.2% for the year ended December 31, 2014.

Non-cash stock-based compensation expense decreased $3.9 million, or 19.9% in 2015 over 2014.

The decrease was the result of: (i) older grants attaining the vesting requirements and therefore being fully expensed in prior periods; (ii) some forfeitures driven by certain grants not achieving all vesting requirements; and (iii) underlying participation levels; all of which were partially offset by the additional expense attributable to the new grants issued in 2015.

Other operating expenses in 2015 increased $15.7 million, or 6.7%, over 2014, of which $12.6 million was related to acquisitions that had no comparable costs in the same period of 2014.

The other operating expenses for those offices that existed in the same periods in both 2015 and 2014, increased by $3.1 million or 1.3%, which was primarily attributable to increased sales meetings, legal and consulting expenses, partially offset by decreases in expenses associated with office rent, telecommunications and bank fees.

Prior to the adoption of ASU 2014-08 in the fourth quarter of 2014 as noted above, net gains and losses on the sale of businesses or customer accounts were reflected in other income.

We recognized gains of $0.6 million, $5.3 million and $3.1 million from sales on books of business (customer accounts) in 2015, 2014 and 2013, respectively.

Depreciation expense remained flat in 2015, and increased $3.4 million, or 19.5%, in 2014.

The increase in 2014 was due primarily to the addition of fixed assets resulting from acquisitions completed since 2013, while the stable level of expense in 2015 versus 2014 reflected capital additions approximately equal to the value of prior additions that became fully depreciated.

These increases were primarily due to the increased debt borrowings and an increase in our effective rate of interest for the years ended 2015 and 2014.

The Credit Facility term loan proceeds replaced pre-existing debt of $230.0 million with similar rates of interest.

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The years 2007 through 2011 posed significant challenges for us and for our industry in the form of a prevailing decline in insurance premium rates, commonly referred to as a “soft market” and increased significant governmental involvement in the Florida insurance marketplace which resulted in a substantial loss of revenues for us.

Additionally, beginning in the second half of 2008 and throughout 2011, there was a general decline in insurable exposure units as the consequence of the general weakening of the economy in the United States.

As a result, from the first quarter of 2007 through the fourth quarter of 2011 we experienced negative internal revenue growth each quarter.

The continued declining exposure units during 2010 and 2011 had a greater negative impact on our commissions and fees revenues than declining insurance premium rates.

Beginning in the first quarter of 2012, many insurance premium rates began to slightly increase.

Additionally, in the second quarter of 2012, the general declines in insurable exposure units started to flatten and these exposures units subsequently began to gradually increase during the year.

As a result, we recorded positive internal revenue growth for each quarter of 2012 for each of our four segments with two exceptions; the first quarter for the Retail Segment and the third quarter for the National Programs Segment, in which declines of only 0.7% and 3.3%, respectively, were experienced.

This growth trend has continued into 2014 with our consolidated internal revenue growth rate of 2.0%.

The decline in the core organic commissions and fees revenues in the first quarter of 2014 for the Services Segment was the result of the significant revenue recorded at our Colonial Claims operation in the first quarter of 2013 attributable to Superstorm Sandy, for which no comparable revenues occurred in the first quarter of 2014.

In the first quarter of 2013, Colonial Claims earned claims fees of $16.2 million as a direct result of the continued significant claims activity from Superstorm Sandy.

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However, in conjunction with our July 1, 2013 acquisition of Beecher Carlson, which has a primary focus on large retail customers that generally pay us fees directly, the fee revenues in our Retail Segment for 2014 have increased by $44.8 million to $117.8 million.

Also, with the acquisition of Wright, which primarily receives income in the form of fees, fee revenue in our National Programs Segment increased $81.9 million to $152.8 million.

As a result of the bank liquidity and solvency issues in the United States in the last quarter of 2008, we moved substantial amounts of our cash into non-interest bearing checking accounts so that they would be fully insured by the Federal Deposit Insurance Corporation (“FDIC”) or into money-market investment funds (a portion of which is FDIC insured) of SunTrust and Wells Fargo, two large national banks.

Effective January 1, 2013, the FDIC ceased providing insurance guarantees on non-interest bearing checking accounts and since that time we have invested in both interest bearing and non-interest bearing checking accounts.

Current Year Company Overview

2014 was a strong year for revenue growth and continued the positive trends that began in 2012.

After the five-year period extending from 2007 to 2011, in which we experienced negative internal growth in our core organic commissions and fees revenue which we believe was a direct result of the general weakness of the economy, we achieved a positive internal revenue growth of 6.7% in 2013, and 2.0% in 2014.

The net growth in core organic commissions and fees in 2014 of $25.6 million is significantly less than the comparable growth in 2013 of $75.6 million, similar to the core organic commissions and fees in 2012 of $24.9 million and significantly better than the net lost revenues of $21.5 million in 2011.

However, it should be noted that of the $75.6 million growth in the 2013 core organic commissions and fees, $38.1 million was generated by two new programs at our Arrowhead operation, the automobile aftermarket program and the non-standard auto program, and from our Colonial Claims operation as a result of the significant claims activity attributable to Superstorm Sandy.

The growth in the core organic commissions and fees revenue for 2014 is principally attributable to new business and increasing insurance exposure units as a result of a gradually improving U.S. economy.

This office sale was effective December 31, 2014 and represents part of our strategic plan to exit the reinsurance business.

The loss associated with this sale resulted in a $0.21 reduction to earnings per share.

The net decrease of $55.4 million related primarily to net new business off-set by the $47.4 million loss on the sale of Axiom Re, along with the decrease in revenue associated with claims from Superstorm Sandy received in 2013 with no comparable revenues in 2014, $27.7 million of higher compensation and benefits costs, increased interest costs of $12.0 million relating to additional debt used to fund acquisition activity in 2014, and $7.5 million from the change in estimated earn-out payables.

Approximately 37,500 independent insurance agencies are estimated to be operating currently in the United States.

We continue to acquire insurance operations that we believe are strategic in growing our business Segments.

In each of the last two years, we completed ten acquisitions in 2014 with estimated revenues of $159.5 million, and nine acquisitions in 2013 with estimated revenues of $142.8 million.

A summary of our acquisitions over the last three years is as follows (in millions, except for number of acquisitions):

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | Number of Acquisitions | | | | | | | | Estimated Annual Revenues | | | | Net Cash Paid | | | | Notes Issued | | | | Other Payable | | | | Recorded Earn-out Payable | | | | Net Assets Acquired | | |

| | | Asset | | | | Stock | | | | | | | | | | | | | | | | | | | | | | | | | | |

| 2014 | | | 9 | | | | 1 | | | $ | 159.5 | | | $ | 721.9 | | | $ | — | | | $ | 1.9 | | | $ | 33.2 | | | $ | 757.0 | |

| 2013 | | | 8 | | | | 1 | | | $ | 142.8 | | | $ | 408.1 | | | $ | — | | | $ | 0.5 | | | $ | 5.1 | | | $ | 413.7 | |

| 2012 | | | 19 | | | | 1 | | | $ | 149.6 | | | $ | 483.9 | | | $ | 0.1 | | | $ | 25.4 | | | $ | 21.5 | | | $ | 530.9 | |

On May 1, 2014, we completed the acquisition of Wright which was previously announced January 15, 2014.

Wright has estimated annualized revenues of $120.0 million.

The total cash paid for Wright was $609.2 million.

Wright’s operations include a national flood insurance program, government-sponsored insurance programs and proprietary national and regional programs.

Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest [added: rates, foreign exchange] rates and equity prices.

We are exposed to market risk through our investments, revolving credit [removed: line and] [added: line,] term loan [removed: agreements.][added: agreements and international operations.]

Our invested assets are held [added: primarily] as cash and cash equivalents, restricted [removed: cash and investments,] [added: cash,] available-for-sale [removed: equity] [added: marketable debt] securities, [removed: equity securities and] [added: non-marketable debt securities,] certificates of [removed: deposit.][added: deposit, U.S. treasury securities, and professionally managed short duration fixed income funds.]

These investments are subject to interest rate [removed: risk and equity price] risk.

The fair values of our [removed: cash and cash equivalents, restricted cash and investments, and certificates of deposit] [added: invested assets] at December 31, [removed: 2014] [added: 2015] and [removed: 2013] [added: December 31, 2014,] approximated their respective carrying values due to their short-term duration [removed: and,] [added: and] therefore, such market risk is not considered to be material.

In addition, we generally dispose of any significant equity securities received in conjunction with an acquisition shortly after the acquisition date.

As of December 31, 2015 we had $529.4 million of borrowings outstanding under our term loan which bears interest on a floating basis tied to the London Interbank Offered Rate (LIBOR) and therefore subject to changes in the associated interest expense.

The effect of an immediate hypothetical 10% change in interest rates would not have a material effect on our Consolidated Financial Statements.

We are subject to exchange rate risk primarily in our U.K based wholesale brokerage business that has a cost base principally denominated in British pounds and a revenue base in several other currencies, but principally in U.S. dollars.

Based on our foreign currency rate exposure as of December 31, 2015, an immediate 10% hypothetical changes of foreign currency exchange rates would not have a material effect on our Consolidated Financial Statements.

| --- | --- |

##### [Table of Contents](#toc)

[removed: General][added: General]

Brown & Brown is a diversified insurance agency, wholesale brokerage, insurance programs and service organization with origins dating from [removed: 1939,] [added: 1939 and is] headquartered in Daytona Beach, Florida.

As an agent and broker, we do not assume underwriting risks with the exception of the activity in [removed: Wright,] [added: The Wright Insurance Group, LLC (“Wright”),] which was acquired in May 2014.

WNFIC’s entire business consists of policies written pursuant to the National Flood Insurance Program (“NFIP”), the program administered by the Federal Emergency Management Agency (“FEMA”) and excess flood insurance policies which are fully [removed: reinsured] [added: reinsured, thereby] substantially eliminating WNFIC’s exposure to underwriting risk, [removed: given that] [added: as] these policies are backed by either FEMA or a reinsurance carrier with an AM Best Company rating of “A” or better.

In some [added: limited] cases, we share commissions with other agents or brokers who have acted jointly with us in a transaction.

We may also receive from an insurance [removed: company] [added: company,] a “profit-sharing contingent commission,” which is a profit-sharing commission based primarily on underwriting results, but may also contain considerations for volume, growth and/or retention.

Fee revenues are generated primarily by: (1) our Services Segment, which provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare [removed: set-aside] [added: Set-aside] services, Social Security disability and Medicare benefits advocacy services, and [removed: catastrophe] [added: other] claims adjusting services, (2) our National Programs and Wholesale Brokerage Segments, which earn fees primarily for the issuing of insurance policies on behalf of insurance carriers, and (3) our Retail Segment for fees received in lieu of [removed: commissions, primarily since our July 1, 2013 acquisition of Beecher Carlson Holdings, Inc. (“Beecher Carlson”) which services many larger fee-based accounts.][added: commissions.]

Insurance companies establish these premium rates based upon many factors, including [added: loss experience, risk profile and] reinsurance rates paid by such insurance companies, none of which we control.

As of December 31, [removed: 2014,] [added: 2015,] our activities were conducted in [removed: 232] [added: 236] locations in 41 states as follows, as well as in [removed: London,] England, [removed: Hamilton,] Bermuda, and [removed: George Town,] [added: the] Cayman Islands:

| Florida | [removed: |] 41 | | [removed: Oklahoma] | [added: Oklahoma] | 5 | | Missouri | [removed: | |] 2 | [removed: |]

| California | [removed: |] 24 | | [removed: Connecticut] | [added: Arizona] | 4 | | New Hampshire | [removed: | |] 2 | [removed: |]

| New [removed: York] [added: Jersey] | [added: 13] | [removed: 17] | | Minnesota | [removed: |] 4 | | Delaware | [removed: | |] 1 | [removed: |]

| [removed: Texas |] [added: Washington] | 13 | | [removed: Virginia] | [added: Virginia] | 4 | | Maryland | [removed: | |] 1 | [removed: |]

| Georgia | [removed: |] 11 | | [removed: Arkansas] | [added: Arkansas] | 3 | | [removed: Montana | |] [added: Mississippi] | 1 | [removed: |]

| [removed: Pennsylvania |] [added: New York] | [removed: 7] [added: 18] | | [removed: New Mexico] | [added: Michigan] | [removed: 3] [added: 4] | | Rhode Island | [removed: | | 1 |] [added: 2] |

| Colorado | [removed: |] 6 | | [removed: South Carolina] | [added: Tennessee] | 3 | | Vermont | [removed: | |] 1 | [removed: |]

| Oregon | [removed: |] 6 | | [removed: Hawaii] | [added: Kansas] | 2 | | Wisconsin | [removed: | |] 1 | [removed: |]

[removed: Industry Overview][added: Industry Overview]

Premium pricing within the property and casualty insurance underwriting (risk-bearing) industry has historically been cyclical in nature, and has varied widely based on market [removed: conditions.][added: conditions with a “hard” market in which premium rates are stable or increasing or a “soft” market, characterized by stable or declining premium rates in many lines and geographic areas.]

[removed: SEGMENT INFORMATION][added: Segment Information]

The National Programs [removed: Segment] [added: Segment, which acts as a managing general agent (“MGA”),] provides professional liability and related package products for certain [removed: professionals delivered through nationwide networks] [added: professionals, a range] of [removed: independent agents] [added: insurance products for individuals, flood coverage,] and [removed: also through our Brown & Brown retail offices, markets] targeted products and services [removed: designed] [added: designated] for specific industries, trade groups, [removed: public and quasi-public entities,] [added: governmental entities] and market [removed: niches and provides flood coverage.][added: niches, all of which are delivered through nationwide networks of independent agents, including Brown & Brown retail agents.]

The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and [removed: brokers.][added: brokers, as well as Brown & Brown retail agents.]

The Services Segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare [removed: set-aside] [added: Set-aside] services, Social Security disability and Medicare benefits advocacy services and [removed: catastrophe] claims adjusting services.

The following table summarizes (1) the commissions and fees revenue generated by each of our reportable operating segments for [removed: 2014, 2013] [added: 2015, 2014] and, [removed: 2012,] [added: 2013,] and (2) the percentage of our total commissions and fees revenue represented by each segment for each such period:

| [removed: _(in] [added: (in] thousands, except [removed: percentages)_ | | 2014 | |] [added: percentages)] | [added: 2015] | [removed: %] | | | [added: %] | [removed: 2013] | | [added: 2014] | | [removed: %] | | [added: %] | | [removed: 2012] | [added: 2013] | | | [removed: %] | [added: %] | |

| Services Segment | [removed: | | 136,482] [added: 145,375] | | | | [removed: 8.7] [added: 8.8] | % | | [removed: | 131,033] [added: 136,482] | | | | [removed: 9.7] [added: 8.7] | % | | [removed: | 116,247] [added: 131,032] | | | | [removed: 9.8] [added: 9.7] | % |

| Total | [removed: |] $ | [removed: 1,567,460 |] [added: 1,656,951] | | | [removed: 100.0] [added: 100] | % | | $ | [removed: 1,355,503 |] [added: 1,567,460] | | | [removed: 100.0] [added: 100] | % | | $ | [removed: 1,189,081 |] [added: 1,355,503] | | | [removed: 100.0] [added: 100] | % |

We conduct all of our operations within the United States of America, except for one wholesale brokerage operation based in [removed: London,] England, and retail operations based in [removed: Hamilton,] Bermuda and [removed: George Town,] [added: The] Cayman Islands.

These operations generated [removed: $13.3] [added: $13.4] million, [removed: $12.2] [added: $13.3] million and [removed: $9.7] [added: $12.2] million of revenues for the years ended December 31, [removed: 2014, 2013] [added: 2015, 2014] and [removed: 2012,] [added: 2013,] respectively.

[removed: Retail Segment][added: Retail Segment]

As of December 31, [removed: 2014,] [added: 2015,] our Retail Segment employed [removed: 3,684] [added: 3,963] people.

The categories of insurance we principally sell include: property insurance relating to physical damage to property and resultant interruption of business or extra expense caused by fire, windstorm or other perils; casualty insurance relating to legal liabilities, [added: cyber-liability,] workers’ compensation, commercial and private passenger automobile coverages; and fidelity and surety bonds.

We also sell and service group and individual life, accident, disability, health, hospitalization, [removed: medical and] [added: medical,] dental [removed: insurance.][added: and other ancillary insurance products.]

During [removed: 2014,] [added: 2015,] commissions and fees from our largest single Retail Segment customer represented less than four tenths of one percent (0.4%) of the Retail Segment’s total commissions and fees revenue.

[removed: National] [added: National] Programs [removed: Segment][added: Segment]

As of December 31, [removed: 2014,] [added: 2015,] our National Programs Segment employed [removed: 1,750] [added: 1,822] people.

Our National Programs Segment [added: works with over 40 well-capitalized carrier partners, offering more than 50 programs, which] can be grouped into five broad categories; (1) Professional Programs; (2) Arrowhead Insurance Programs; (3) Commercial Programs; (4) Public Entity-Related Programs; and (5) the National Flood Program:

[removed: _Professional Programs._] Professional Programs provide professional liability and related package insurance products tailored to the needs of specific professional groups.

Below are brief descriptions of the Professional [removed: programs.][added: Programs:]

| | [removed: • | | _Allied Protector Plan®:_] [added: Healthcare Professionals:] Allied Protector Plan® (“APP®”) specializes in customized professional liability and business insurance programs for individual practitioners and businesses in the healthcare industry. The APP program offers liability insurance coverage for, among others, dental hygienists and dental assistants, home health agencies, physical therapy clinics, and medical directors. Also available through the APP program is cyber/data breach insurance offering a solution to privacy breaches and information security exposures tailored to the needs of healthcare organizations. |

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | |

| Texas | 11 | | | Indiana | 3 | | Montana | 1 |

| Louisiana | 7 | | | New Mexico | 3 | | Nevada | 1 |

| Massachusetts | 7 | | | Ohio | 3 | | North Carolina | 1 |

| Pennsylvania | 7 | | | South Carolina | 3 | | Utah | 1 |

| Illinois | 6 | | | Hawaii | 2 | | West Virginia | 1 |

| Connecticut | 5 | | | Kentucky | 2 | | | |

Premium pricing is influenced by many factors including loss experience, interest rates and the availability of capital being deployed into the market in search of returns.

| | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | |

| Retail Segment | $ | 867,762 | | | 52.4 | % | | $ | 823,211 | | | 52.5 | % | | $ | 732,114 | | | 53.9 | % |

| National Programs Segment | 428,473 | | | | 25.9 | % | | 397,326 | | | | 25.3 | % | | 300,262 | | | | 22.2 | % |

| Wholesale Brokerage Segment | 216,638 | | | | 13.1 | % | | 211,512 | | | | 13.5 | % | | 193,291 | | | | 14.3 | % |

| Other | (1,297 | | ) | | (0.2 | )% | | (1,071 | | ) | | — | % | | (1,196 | | ) | | (0.1 | )% |

Professional Programs.

| | |

Optional coverage enhancements include: Employment Practices Liability, Employee Dishonesty, Non-Profit Directors and Officers, as well as Network Security and Privacy Protection Coverage.

Dentists: First initiated in 1969, the Professional Protector Plan® (“PPP®”) for Dentists provides dental professionals insurance products including professional and general liability, property, employment practices liability, workers’ compensation, claims and risk management.

The PPP recognized the importance of policyholder and customer service and developed a customized, proprietary, web-based rating and policy issuance system which in turn provides a seamless policy delivery resource and access to policy information on a real time basis.

Obtaining endorsements from state and local dental societies and associations plays an integral role in the PPP partnership.

The PPP is offered in all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands.

A component of CalSurance is Lancer Claims Services, which provides specialty claims administration for insurance companies underwriting CalSurance product lines.

The LPP program handles all aspects of insurance operations including underwriting, distribution management, policy issuance and claims.

The LPP is offered in 44 states and the District of Columbia.

Our carrier partners offer specialty insurance products tailored to the eye care profession, and our agents and brokers are chosen for their expertise.

The OPP is offered in all 50 states and the District of Columbia.

Through our strategic carrier partnerships, we also offer professional liability coverage to chiropractors, podiatrists and physicians nationwide.

| | |

| --- | --- |

| | |

| --- | --- |

| | |

| --- | --- |

Arrowhead Programs.

ADI is a national program writing in all 50 states and the District of Columbia.

| | |

| --- | --- |

| | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Washington | | 12 | | Arizona | | 3 | | Mississippi | | | 1 | |

| New Jersey | | 10 | | Kentucky | | 3 | | Nevada | | | 1 | |

| Louisiana | | 7 | | Indiana | | 3 | | North Carolina | | | 1 | |

| Illinois | | 7 | | Ohio | | 3 | | Utah | | | 1 | |

| Massachusetts | | 6 | | Tennessee | | 3 | | West Virginia | | | 1 | |

| Michigan | | 5 | | Kansas | | 2 | | | | | | |

##### [Table of Contents](#toc)

For example, in late 2003, after three years of a “hard” market in which premium rates were stable or increasing, the insurance industry experienced the return of a “soft” market, characterized by flat or reduced premium rates in many lines and geographic areas.

In 2004, as general premium rates continued to moderate, the southeastern United States experienced the worst hurricane season since 1992 (when Hurricane Andrew hit south Florida), and the following year brought that region the worst hurricane season ever recorded.

As a result of the significant losses incurred by insurance companies due to these hurricanes, property and casualty insurance premium rates increased on coastal property, primarily in the southeastern United States, in 2006, while otherwise generally declining during 2006 and 2007.

To counter the higher property insurance rates in Florida, the State of Florida directed its property “insurer of last resort,” “Citizens Property Insurance Corporation” (“Citizens”), to significantly reduce its rates beginning in January 2007 and extending through January 1, 2010.

As a result, several of our Florida-based operations lost significant amounts of revenue to Citizens in this period.

Since that time, Citizens’ impact on our operations has declined each year as Citizens has slowly increased its rates in an effort to reduce its insured exposures.

Our commission revenues from Citizens for 2014, 2013 and 2012 were approximately $3.8 million, $5.7 million, and $6.4 million, respectively.

Although property and casualty insurance premium rates generally continued to decline from 2008 through 2011 in most lines of coverage, the rates of decline were slowing.

However, from the second half of 2008 through 2011, insurable exposure units, such as sales and payroll expenditures, decreased significantly, primarily in the southeastern and western regions of the United States, due to the economic recession, and this decrease had a greater adverse impact on our commissions and fees revenue than did declining insurance premium rates in this period.

From the first quarter of 2012 through 2013, insurance premium rates gradually increased for most lines of coverage, and insurable exposure units began to flatten and in certain cases, increase.

As a result, in 2012, the Company achieved positive internal organic core commissions and fees revenue growth for the first time since 2006.

In 2013, these rate and exposure unit increases, along with new business growth, generated positive internal organic revenue growth for each of our four reportable business segments in each quarter, with the single exception of the fourth quarter for our Services Segment, which experienced a record fourth quarter in 2012 as a result of the significant flood claims activity from Superstorm Sandy that was not replicated in 2013.

During 2014, changes in rates and exposure units varied by geography and line of business with rates and units for employee benefits increasing as a result of general improvements in the economy.

We have experienced a downward trend in coverage for employers with less than 50 employees, due to the implementation of the Affordable Care Act that has driven more employees to state healthcare exchanges.

Rates for property and casualty coverage were under pressure, especially in the coastal areas, as a long period without significant storm activity and low interest rates have driven significant loss reserves and alternative capital sources.

| | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Retail Segment | | $ | 809,880 | | | | 51.7 | % | | $ | 725,159 | | | | 53.5 | % | | $ | 639,708 | | | | 53.7 | % |

| National Programs Segment | | | 387,858 | | | | 24.7 | % | | | 291,014 | | | | 21.5 | % | | | 251,929 | | | | 21.2 | % |

| Wholesale Brokerage Segment | | | 234,294 | | | | 14.9 | % | | | 209,493 | | | | 15.4 | % | | | 182,822 | | | | 15.4 | % |

| Other | | | (1,054 | ) | | | (0.0 | )% | | | (1,196 | ) | | | (0.1 | )% | | | (1,625 | ) | | | (0.1 | )% |

| --- | --- | --- | --- |

| | • | | _Dentists_: First initiated in 1969, the Professional Protector Plan® (“PPP®”) for Dentists provides dental professionals insurance products including professional and general liability, property, employment practices liability, workers’ compensation, claims and risk management. The PPP recognized the importance of policyholder and customer service and developed a customized, proprietary, web-based rating and policy issuance system which in turn provides a seamless policy delivery resource and access to policy information on a real time basis. Obtaining endorsements from state and local dental societies and associations plays an integral role in the PPP partnership. The PPP is offered in all 50 states, the District of Columbia, Puerto Rico and the Virgin Islands. |

_Arrowhead Programs_.

_Commercial Programs_.

| | • | | _Acumen RE Management Corporation_ (“Acumen RE”) has been active in the facultative reinsurance casualty market since 1993, providing outsourced technical expertise in workers’ compensation, general liability and professional liability (directors and officers along with errors and omissions) reinsurance accounts. Acumen RE’s territory encompasses the entire United States, and this entity accesses insureds via approved reinsurance intermediaries strategically located throughout the country. |

| | • | | _Industry Consulting Group, Inc._ (“ICG”) is a complete property tax service provider, and works with Proctor Financial, Inc., one of our subsidiaries, in providing solutions to the financial institutions industry. ICG provides a full range of property tax processing solutions, property valuations and appeals, and other services to the real estate, oil and gas, and financial institution industries. ICG features full electronic interfaces, sophisticated and flexible reporting and systems that are customized to individual specifications. This business was sold effective November 30, 2014. |

| | • | | _Proctor Financial, Inc_. (“Proctor”) provides insurance programs and compliance solutions for financial institutions that service mortgage loans. Proctor’s products include lender-placed hazard and flood insurance, full insurance outsourcing, mortgage impairment, and blanket equity insurance. Proctor acts as a wholesaler and writes surplus lines property business for its financial institution customers. Proctor receives payments for insurance compliance tracking as well as commissions on lender-placed insurance. |

| | • | | _USIS_ provides TPA services for insurance entities and self-funded or fully-insured workers’ compensation and liability plans. USIS’ services include claims administration, access to major reinsurance markets, cost containment consulting, services for secondary disability, and subrogation recoveries and risk management services such as loss control. USIS’ services also include managed care services, including medical networks, case management and utilization review services certified by the American Accreditation Health Care Commission. |

To date, such direct sales efforts have had little effect on our operations, primarily because our Retail Segment is mostly commercially oriented rather than individually oriented.

In addition, the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 and regulations enacted thereunder permit banks, securities firms and insurance companies to affiliate.

| --- | --- |

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: FORM 10-K][added: FORM 10-K]

| [removed: x] [added: ý] | [removed: ANNUAL] [added: ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: For] [added: For] the fiscal year ended December 31, [removed: 2014][added: 2015]

| ¨ | [removed: TRANSITION] [added: TRANSITION] REPORT PURSUANT TO SECTION 13 OR [removed: 15 (d)] [added: 15(d)] OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: For] [added: For] the transition period from [removed: to][added: to]

[removed: Commission] [added: Commission] file number [removed: 001-13619][added: 001-13619]

[removed: BROWN] [added: BROWN] & BROWN, [removed: INC.][added: INC.]

[removed: (Exact] [added: (Exact] name of [removed: registrant] [added: Registrant] as specified in its [removed: charter)][added: charter)]

| [removed: Florida (State] [added: (State] or other jurisdiction [removed: of incorporation] [added: of incorporation] or [removed: organization)] [added: organization)] | | [removed: ] | [added: (I.R.S. Employer Identification Number)] | [removed: 59-0864469 (I.R.S. Employer Identification Number)] |

| [removed: 220] [added: 220] South Ridgewood Avenue, [removed: Daytona Beach, FL] [added: Daytona Beach, FL] | | [removed: 32114] | [added: 32114 | |]

| [removed: (Address] [added: (Address] of principal executive [removed: offices)] [added: offices)] | | [removed: (Zip Code)] | [added: (Zip Code) | |]

[removed: Registrant’s] [added: Registrant’s] telephone number, including area code: (386) [removed: 252-9601][added: 252-9601]

[removed: Registrant’s] [added: Registrant’s] Website: [removed: www.bbinsurance.com][added: www.bbinsurance.com]

[removed: Securities] [added: Securities] registered pursuant to Section 12(b) of the [removed: Act:][added: Act:]

| [removed: Title] [added: Title] of each [removed: class |] [added: class] | [removed: Name] [added: Name] of each exchange on which [removed: registered] [added: registered] |

| [removed: COMMON] [added: COMMON] STOCK, $0.10 PAR [removed: VALUE |] [added: VALUE] | [removed: NEW] [added: NEW] YORK STOCK [removed: EXCHANGE] [added: EXCHANGE] |

[removed: Securities] [added: Securities] registered pursuant to Section 12(g) of the [removed: Act:][added: Act:]

[removed: None][added: None]

Yes [removed: x] [added: ý] No ¨

Yes ¨ No [removed: x][added: ý]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such [removed: files).][added: files)..]

| Large accelerated filer | | [removed: x] [added: ý] | | Accelerated filer | | ¨ |

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No [removed: x][added: ý]

The aggregate market value of the voting common stock held by non-affiliates of the registrant, computed by reference to the price at which the stock was last sold on June 30, [removed: 2014] [added: 2015] (the last business day of the registrant’s most recently completed second fiscal quarter) was [removed: $3,374,535,891.][added: $3,818,857,004.]

The number of [removed: outstanding] shares of the [removed: registrant’s Common Stock,] [added: Registrant’s common stock,] $0.10 par value, [added: outstanding] as of February [removed: 19, 2015] [added: 22, 2016] was [removed: 143,520,097.][added: 138,616,818.]

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

Portions of Brown & Brown, Inc.’s Proxy Statement for the [removed: 2015] [added: 2016] Annual Meeting of Shareholders are incorporated by reference into Part III of this Report.

[removed: ANNUAL] [added: ANNUAL] REPORT ON FORM [removed: 10-K][added: 10-K]

[removed: INDEX][added: INDEX]

| | | [removed: | | Page No. | |] [added: PAGE NO.] |

[removed: | [Part I](#toc847767_1) | | | | | | |][added: PART I]

| Item 1. | [removed: | [Business](#toc847767_2) | | | 3] [added: [Business](#s47a0655e30394155b19f0ba736ac6a3e)] | [added: [4](#s47a0655e30394155b19f0ba736ac6a3e)] |

| Item 1A. | [removed: |] [Risk [removed: Factors](#toc847767_3) | | | 11] [added: Factors](#s13d5c11c04194a0da86c0b7ddc85e9e9)] | [added: [10](#s13d5c11c04194a0da86c0b7ddc85e9e9)] |

| Item 1B. | [removed: |] [Unresolved Staff [removed: Comments](#toc847767_4) | | | 20] [added: Comments](#s0099e651503f4cf3aad6a85c6e6d95c6)] | [added: [19](#s0099e651503f4cf3aad6a85c6e6d95c6)] |

| Item 2. | [removed: | [Properties](#toc847767_5) | | | 21] [added: [Properties](#s77630d2e46bd41b3a4aab9d5f89a28ac)] | [added: [19](#s77630d2e46bd41b3a4aab9d5f89a28ac)] |

| Item 3. | [removed: |] [Legal [removed: Proceedings](#toc847767_6) | | | 21] [added: Proceedings](#sdaefb808eaaf4162a2436c41b241f554)] | [added: [19](#sdaefb808eaaf4162a2436c41b241f554)] |

| Item 4. | [removed: |] [Mine Safety [removed: Disclosures](#toc847767_7) | | | 21] [added: Disclosures](#s4f592fe3c3fa490fb2d5c60a3bc0a020)] | [added: [19](#s4f592fe3c3fa490fb2d5c60a3bc0a020)] |

10-K 1 bro-20151231x10k.htm 10-K

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Yes ý No ¨

Yes ý No ¨

BROWN & BROWN, INC.

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015

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| [Part II](#s14a725dd01a04cf882fbfb1eae4a8548) | | |

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| [Part IV](#s21d2c84be043442b8d887ca5493adf59) | | |

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| [Signatures](#s4C44C016487455E9BCD648079815023C) | | [81](#s4C44C016487455E9BCD648079815023C) |

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10-K 1 d847767d10k.htm 10-K

##### [Table of Contents](#toc)

OR

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| [Part II](#toc847767_8) | | | | | | |

| [Part IV](#toc847767_23) | | | | | | |

| [Signatures](#toc847767_25) | | | | | 87 | |

| --- | --- | --- | --- |

| | • | | The integration of our operations with those of businesses or assets we have acquired, including our May 2014 acquisition of The Wright Insurance Group, LLC (“Wright”), or may acquire in the future, and the failure to realize the expected benefits of such acquisitions and integration; |

| --- | --- |

##### [Table of Contents](#toc)

We [removed: also] own an airplane hangar in Daytona Beach, Florida, which sits upon land leased from Volusia [removed: Country,] [added: County,] Florida.

There are no outstanding mortgages on [removed: our] [added: this] owned [removed: properties.][added: property.]

We lease offices at each of our 239 locations.

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We lease offices at each of our 235 locations, with the exception of Jamestown, New York, where we own the building in which our office is located.

[removed: PART II][added: PART II]

| --- | --- |

| | [removed: | High | | | | Low] [added: High] | | [added: Low] | | [removed: Cash] [added: Cash] Dividends Per Common [removed: Share | |] [added: Share] |

| [removed: 2014 | | | | | | |] [added: 2014] | | | | | |

On February [removed: 19, 2015,] [added: 22, 2016,] there were [removed: 143,520,097] [added: 138,616,818] shares of our common stock outstanding, held by approximately [removed: 1,178] [added: 1,119] shareholders of record.

[removed: Our dividend policy may be affected by, among other items, our] views on potential future capital requirements, including those relating to the creation and expansion of sales distribution channels and investments and acquisitions, legal risks, stock repurchase programs and challenges to our business model.

[removed: Equity] [added: Equity] Compensation Plan [removed: Information][added: Information]

The following table sets forth information as of December 31, [removed: 2014,] [added: 2015,] with respect to compensation plans under which the Company’s equity securities are authorized for issuance:

| [removed: Plan Category |] [added: Plan Category] | [removed: Number] [added: Number] of securities to be issued upon exercise of outstanding options, warrants and [removed: rights(a)(1) |] [added: rights(a)(1)] | | | [removed: Weighted-average] [added: Weighted-average] exercise price of outstanding options, warrants and [removed: rights(b)(2)] [added: rights(b)(2)] | | | | [removed: Number] [added: Number] of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column [removed: (a))(c)(3) |] [added: (a))(c)(3)] | |

| Equity compensation plans approved by shareholders: | | | | | | | | | | [removed: | | |]

| Brown & Brown, Inc. 2000 Incentive Stock Option Plan | [removed: | | 470,356] [added: 269,589] | | | $ | [removed: 18.57 |] [added: 18.48] | | | — | |

| Brown & Brown, Inc. 2010 Stock Incentive Plan | [removed: | |] N/A | | | [removed: |] N/A | | | | [removed: 2,309,929] [added: 2,793,832] | |

| Brown & Brown, Inc. 1990 Employee Stock Purchase Plan | [removed: | |] N/A | | | [removed: |] N/A | | | | [removed: 734,317] [added: 5,194,928] | |

| Brown & Brown, Inc. Performance Stock Plan | [removed: | |] N/A | | | [removed: |] N/A | | | | — | |

| Equity compensation plans not approved by shareholders | [removed: | |] — | | | [removed: |] — | | | | — | |

| (1) | In addition to the number of securities listed in this column, [removed: 2,964,103] [added: 2,724,208] shares are issuable upon the vesting of restricted stock granted under the Brown & Brown, Inc. Performance Stock Plan and the Brown & Brown, Inc. 2010 Stock Incentive Plan, which represents the maximum number of shares that can vest based on the achievement of certain performance criteria. |

[removed: Sales] [added: Sales] of Unregistered [removed: Securities][added: Securities]

We did not sell any unregistered securities during [removed: 2014.][added: 2015.]

[removed: Issuer] [added: Issuer] Purchases of Equity [removed: Securities][added: Securities]

On July 18, 2014, [removed: our] [added: the Company’s] Board of Directors approved a common stock repurchase plan to authorize the repurchase of up to $200.0 million worth of shares of the Company’s common stock during the period running from the July 18, 2014 approval date to December 31, 2015.

As of December 31, 2014, we [removed: have] [added: had] repurchased $50.0 million worth of shares of our common stock under the repurchase [removed: plan.][added: authorization.]

The following table presents information with respect to our purchases of our common stock during the three months ended December 31, [removed: 2014.][added: 2015.]

| [removed: Period] [added: Period] | | [removed: Total] [added: Total] Number of Shares [removed: Purchased(1) |] [added: Purchased(1)] | | | [removed: Average] [added: Average] Price Paid per [removed: Share] [added: Share] | | | | [removed: Total] [added: Total] Number of Shares Purchased as Part of Publicly Announced Plans or [removed: Programs |] [added: Programs] | | | [removed: Approximate] [added: Approximate] Dollar Value of Shares that May Yet Be Purchased Under the Plans or [removed: Programs] [added: Programs] | | |

| (1) | With the exception of the [removed: 246,000] [added: 1,985,981] shares purchased in [removed: October 2014] [added: November 2015] as part of the [removed: final settlement] [added: initial share delivery] of an accelerated share repurchase [removed: program initiated in September 2014,] [added: program,] all of the shares reported above [removed: as purchased] are attributable to shares withheld for employees’ payroll taxes and withholding taxes pertaining to the vesting of restricted shares awarded under our Performance Stock Plan and Incentive Stock Option Plan. |

[removed: PERFORMANCE GRAPH][added: Performance Graph]

Gallagher & Co, Marsh & McLennan Companies, and Willis [removed: Group Holdings plc).][added: Towers Watson Public Limited Company).]

The returns of each company have been weighted according to such companies’ respective stock market capitalizations as of December 31, [removed: 2009] [added: 2010] for the purposes of arriving at a peer group average.

The total return calculations are based upon an assumed $100 investment on December 31, [removed: 2009,] [added: 2010,] with all dividends reinvested.

[removed: ][added: ]

| | | | | | |

| --- | --- | --- | --- | --- | --- |

| | | | | | |

| First Quarter | $32.88 | | $27.77 | | $0.10 |

| Second Quarter | $31.29 | | $28.27 | | $0.10 |

| Third Quarter | $33.46 | | $30.02 | | $0.10 |

| Fourth Quarter | $33.40 | | $30.96 | | $0.11 |

| 2015 | | | | | |

| First Quarter | $33.34 | | $30.47 | | $0.11 |

| Second Quarter | $33.81 | | $31.50 | | $0.11 |

| Third Quarter | $34.59 | | $29.67 | | $0.11 |

| Fourth Quarter | $33.09 | | $30.39 | | $0.12 |

Our dividend policy may be affected by, among other items, our

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | |

| Total | 269,589 | | | $ | 18.48 | | | 7,988,760 | |

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| | |

On March 5, 2015, the Company entered into an ASR with an investment bank to purchase an aggregate $100.0 million of the Company’s common stock.

As part of the ASR, the Company received an initial delivery of 2,667,992 shares of the Company’s common stock with a fair market value of approximately $85.0 million.

On August 6, 2015, the Company was notified by its investment bank that the March 5, 2015 ASR agreement between the Company and the investment bank had been completed in accordance with the terms of the agreement.

The investment bank delivered to the Company an additional 391,637 shares of the Company’s common stock for a total of 3,059,629 shares repurchased under the agreement.

The delivery of the remaining 391,637 shares occurred on August 11, 2015.

At the conclusion of this contract the Company had authorization for $50.0 million of share repurchases under the original Board authorization.

On July 20, 2015, the Company’s Board of Directors authorized the repurchase of up to an additional $400.0 million of the Company’s outstanding common stock, bringing the total available authorization to $450.0 million.

On November 11, 2015, the Company entered into a another ASR with an investment bank to purchase an aggregate $75 million of the Company’s common stock.

The Company received an initial delivery of 1,985,981 shares of the Company’s common stock with a fair market

value of approximately $63.75 million.

On January 6, 2016 this agreement was completed by the investment bank with the delivery of 363,209 shares of the Company’s common stock.

After completion of this third ASR, and as of December 31, 2015, the Company has approval to repurchase up to $375.0 million, in the aggregate, of the Company’s outstanding common stock.

| | | | | | | | | | | | | | | |

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| | | | | | | | | | | | | | | |

| October 1, 2015 to October 31, 2015 | | 2,711 | | | $ | 30.74 | | | — | | | $ | 450,000,000 | |

| November 1, 2015 to November 30, 2015 | | 2,028,950 | | | 32.10 | | | | 1,985,981 | | | 375,000,000 | | |

| December 1, 2015 to December 31, 2015 | | 3,496 | | | 31.79 | | | | — | | | 375,000,000 | | |

| Total | | 2,035,157 | | | $ | 32.10 | | | 1,985,981 | | | $ | 375,000,000 | |

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| 2013 | | | | | | | | | | | | |

| First Quarter | | $ | 32.08 | | | $ | 25.31 | | | $ | 0.09 | |

| Second Quarter | | $ | 33.24 | | | $ | 30.00 | | | $ | 0.09 | |

| Third Quarter | | $ | 35.13 | | | $ | 30.55 | | | $ | 0.09 | |

| Fourth Quarter | | $ | 33.69 | | | $ | 27.76 | | | $ | 0.10 | |

| First Quarter | | $ | 32.88 | | | $ | 27.77 | | | $ | 0.10 | |

| Second Quarter | | $ | 31.29 | | | $ | 28.27 | | | $ | 0.10 | |

| Third Quarter | | $ | 33.46 | | | $ | 30.02 | | | $ | 0.10 | |

| Fourth Quarter | | $ | 33.40 | | | $ | 30.96 | | | $ | 0.11 | |

##### [Table of Contents](#toc)

| Total | | | 470,356 | | | $ | 18.57 | | | | 3,044,246 | |

| | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| October 1, 2014 to October 31, 2014 | | | 246,740 | | | $ | 30.49 | | | | 246,000 | | | $ | 150,000,000 | |

| November 1, 2014 to November 30, 2014 | | | — | | | | — | | | | — | | | $ | — | |

| December 1, 2014 to December 31, 2014 | | | 4,701 | | | $ | 32.50 | | | | — | | | $ | — | |

| Total | | | 251,441 | | | $ | 30.53 | | | | 246,000 | | | $ | 150,000,000 | |

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| | | 12/09 | | | | 12/10 | | | | 12/11 | | | | 12/12 | | | | 12/13 | | | | 12/14 | | |

| Brown & Brown, Inc. | | | 100.00 | | | | 135.33 | | | | 129.79 | | | | 148.04 | | | | 184.72 | | | | 196.27 | |

| NYSE Composite | | | 100.00 | | | | 113.76 | | | | 109.70 | | | | 127.54 | | | | 161.21 | | | | 172.27 | |

| Peer Group | | | 100.00 | | | | 127.85 | | | | 143.75 | | | | 159.43 | | | | 232.33 | | | | 265.77 | |

The following selected Consolidated Financial Data for each of the five fiscal years in the period ended December 31, [removed: 2014] have been derived from our Consolidated Financial Statements.

| [removed: _(in] [added: (in] thousands, except per share data, number of employees [removed: and_ _percentages_] [added: and percentages] | | [removed: 2014] [added: Year Ended December 31] | | | | [removed: 2013] | | | | [removed: 2012] | | | | [removed: 2011] | | | | [removed: 2010] | | |

| [removed: REVENUES] [added: REVENUES] | | | | | | | | | | | | | | | | | | | | |

| Commissions and fees | | $ | [removed: 1,567,460] [added: 1,656,951] | | | $ | [removed: 1,355,503] [added: 1,567,460] | | | $ | [removed: 1,189,081] [added: 1,355,503] | | | $ | [removed: 1,005,962] [added: 1,189,081] | | | $ | [removed: 966,917] [added: 1,005,962] | |

| Investment income | | [added: 1,004] | [added: | | |] 747 | | | | 638 | | | | 797 | | | | 1,267 | | | [removed: | 1,326 | |]

| Other income, net | | [added: 2,554] | [added: | | |] 7,589 | | | | 7,138 | | | | 10,154 | | | | 6,313 | | | [removed: | 5,249 | |]

| Total revenues | | [added: 1,660,509] | [added: | | |] 1,575,796 | | | | 1,363,279 | | | | 1,200,032 | | | | 1,013,542 | | | [removed: | 973,492 | |]

| [removed: EXPENSES] [added: EXPENSES] | | | | | | | | | | | | | | | | | | | | |

| Employee compensation and benefits | | [added: 841,439] | [added: | | |] 791,749 | | | | 683,000 | | | | 608,506 | | | | 508,675 | | | [removed: | 487,820 | |]

| Non-cash stock-based compensation | | [added: 15,513] | [added: | | |] 19,363 | | | | 22,603 | | | | 15,865 | | | | 11,194 | | | [removed: | 6,845 | |]

| Other operating expenses | | [added: 251,055] | [added: | | |] 235,328 | | | | 195,677 | | | | 174,389 | | | | 144,079 | | | [removed: | 135,851 | |]

| [removed: Loss] [added: Loss/(gain)] on disposal | | [removed: | 47,425] [added: (619] | | [added: )] | | [removed: —] [added: 47,425] | | | | — | | | | — | | | | — | | [added: |]

| Amortization | | [added: 87,421] | [added: | | |] 82,941 | | | | 67,932 | | | | 63,573 | | | | 54,755 | | | [removed: | 51,442 | |]

| Depreciation | | [added: 20,890] | [added: | | |] 20,895 | | | | 17,485 | | | | 15,373 | | | | 12,392 | | | [removed: | 12,639 | |]

| Interest | | [added: 39,248] | [added: | | |] 28,408 | | | | 16,440 | | | | 16,097 | | | | 14,132 | | | [removed: | 14,471 | |]

| Change in estimated acquisition earn-out payables | | [added: 3,003] | [added: | | |] 9,938 | | | | 2,533 | | | | 1,418 | | | | (2,206 | [removed: )] | [removed: | | (1,674 |] ) |

| Total expenses | | [added: 1,257,950] | [added: | | |] 1,236,047 | | | | 1,005,670 | | | | 895,221 | | | | 743,021 | | | [removed: | 707,394 | |]

| Income before income taxes | | [added: 402,559] | [added: | | |] 339,749 | | | | 357,609 | | | | 304,811 | | | | 270,521 | | | [removed: | 266,098 | |]

| Income taxes | | [added: 159,241] | [added: | | |] 132,853 | | | | 140,497 | | | | 120,766 | | | | 106,526 | | | [removed: | 104,346 | |]

| Net income | | $ | [removed: 206,896] [added: 243,318] | | | $ | [removed: 217,112] [added: 206,896] | | | $ | [removed: 184,045] [added: 217,112] | | | $ | [removed: 163,995] [added: 184,045] | | | $ | [removed: 161,752] [added: 163,995] | |

| [removed: EARNINGS] [added: EARNINGS] PER SHARE [removed: INFORMATION] [added: INFORMATION] | | | | | | | | | | | | | | | | | | | | |

| Net income per share [removed: —] [added: -] diluted | | $ | [removed: 1.41] [added: 1.70] | | | $ | [removed: 1.48] [added: 1.41] | | | $ | [removed: 1.26] [added: 1.48] | | | $ | [removed: 1.13] [added: 1.26] | | | $ | [removed: 1.12] [added: 1.13] | |

| Weighted average number of shares outstanding [removed: —] [added: -] diluted | | [added: 140,112] | [added: | | |] 142,891 | | | | 142,624 | | | | 142,010 | | | | 140,264 | | | [removed: | 139,318 | |]

| Dividends declared per share | | $ | [removed: 0.41] [added: 0.45] | | | $ | [removed: 0.37] [added: 0.41] | | | $ | [removed: 0.35] [added: 0.37] | | | $ | [removed: 0.33] [added: 0.35] | | | $ | [removed: 0.31] [added: 0.33] | |

| [removed: YEAR-END] [added: YEAR-END] FINANCIAL [removed: POSITION] [added: POSITION] | | | | | | | | | | | | | | | | | | | | |

| Total assets | | $ | [removed: 4,956,458] [added: 5,012,739] | | | $ | [removed: 3,649,508] [added: 4,956,458] | | | $ | [removed: 3,128,058] [added: 3,649,508] | | | $ | [removed: 2,607,011] [added: 3,128,058] | | | $ | [removed: 2,400,814] [added: 2,607,011] | |

| Long-term debt(1) | | $ | [removed: 1,152,846] [added: 1,079,878] | | | $ | [removed: 380,000] [added: 1,152,846] | | | $ | [removed: 450,000] [added: 380,000] | | | $ | [removed: 250,033] [added: 450,000] | | | $ | [removed: 250,067] [added: 250,033] | |

| Total shareholders’ equity | | $ | [removed: 2,113,745] [added: 2,149,776] | | | $ | [removed: 2,007,141] [added: 2,113,745] | | | $ | [removed: 1,807,333] [added: 2,007,141] | | | $ | [removed: 1,643,963] [added: 1,807,333] | | | $ | [removed: 1,506,344] [added: 1,643,963] | |

| Total shares outstanding at year-end | | [added: 138,985] | [added: | | |] 143,486 | | | | 145,419 | | | | 143,878 | | | | 143,352 | | | [removed: | 142,795 | |]

| [removed: OTHER INFORMATION] [added: OTHER INFORMATION] | | | | | | | | | | | | | | | | | | | | |

| Number of full-time equivalent employees at year-end | | [added: 7,807] | [added: | | |] 7,591 | | | | 6,992 | | | | 6,438 | | | | 5,557 | | | [removed: | 5,286 | |]

| Total revenues per average number of employees(2) | | $ | [removed: 216,114] [added: 215,679] | | | $ | [removed: 203,020] [added: 216,114] | | | $ | [removed: 191,729] [added: 203,020] | [removed: (3)] | | $ | [removed: 186,949] [added: 191,729] | | [added: (3)] | $ | [removed: 185,568] [added: 186,949] | |

| Stock price at year-end | | $ | [removed: 32.91] [added: 32.10] | | | $ | [removed: 31.39] [added: 32.91] | | | $ | [removed: 25.46] [added: 31.39] | | | $ | [removed: 22.63] [added: 25.46] | | | $ | [removed: 23.94] [added: 22.63] | |

| Stock price earnings multiple at year-end(4) | | [added: 18.9] | [added: | | |] 23.3 | | | | 21.2 | | | | 20.2 | | | | 20.0 | | | [removed: | 21.4 | |]

| Return on beginning shareholders’ equity(5) | | [added: 12] | [removed: 10] | % | | [added: 10] | [removed: 12] | % | | [added: 12] | [removed: 11] | % | | [removed: |] 11 | [added: |] % | | [added: 11] | [removed: 12] | % |

| (1) | [removed: Represents the incremental new debt associated with the acquisition of Wright and evolution of our capital structure.] Please refer to Part I, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 8 “Long-Term Debt” for more details. |

| (4) | Stock price at year-end divided by net income per [removed: share-diluted.] [added: share diluted.] |

| | 2015 | | | | 2014 | | | | 2013 | | | | 2012 | | | | 2011 | | | |

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| | | Year Ended December 31 | | | | | | | | | | | | | | | | | | |

##### [Table of Contents](#toc)

[removed: Index] [added: Index] to Consolidated Financial [removed: Statements][added: Statements]

| | [removed: | Page No. | |] [added: Page No.] |

| [removed: [Consolidated] [added: Consolidated] Statements of Income for the years ended December 31, [removed: 2014, 2013] [added: 2015, 2014] and [removed: 2012](#tx847767_27) | | | 47] [added: 2013] | [added: [42](#s41C4BB692BCC5E218E70F0BBE8D057F9)] |

| [removed: [Consolidated] [added: Consolidated] Balance Sheets as of December 31, [removed: 2014] [added: 2015] and [removed: 2013](#tx847767_28) | | | 48] [added: 2014] | [added: [44](#s8569628FF29C5909A5B79428164E9B2B)] |

| [removed: [Consolidated] [added: Consolidated] Statements of Shareholders’ Equity for the years ended December 31, [removed: 2014, 2013] [added: 2015, 2014] and [removed: 2012](#tx847767_29) | | | 49] [added: 2013] | [added: [45](#s297cabb04d1a439cb1e4addb3a4a093a)] |

| [removed: [Consolidated] [added: Consolidated] Statements of Cash Flows for the years ended December 31, [removed: 2014, 2013] [added: 2015, 2014] and [removed: 2012](#tx847767_30) | | | 50] [added: 2013] | [added: [45](#sB024AE70EE575FF2BA846628D6674124)] |

| [removed: [Notes] [added: Notes] to Consolidated Financial Statements for the years ended December 31, [removed: 2014, 2013] [added: 2015, 2014] and [removed: 2012](#tx847767_31) | | | 51] [added: 2013] | [added: [47](#sD41E7B41E31A58DE880456D97486C62A)] |

[removed: | [Note 1:] [added: NOTE 1·] Summary of Significant Accounting [removed: Policies](#tx847767_32) | | | 51 | |][added: Policies]

[removed: | [Note 2:] [added: NOTE 2·] Business [removed: Combinations](#tx847767_33) | | | 55 | |][added: Combinations]

[removed: | [Note 3: Goodwill](#tx847767_34) | | | 63 | |][added: NOTE 3· Goodwill]

[removed: | [Note 4:] [added: NOTE 4·] Amortizable Intangible [removed: Assets](#tx847767_35) | | | 63 | |][added: Assets]

[removed: | [Note 5: Investments](#tx847767_36) | | | 63 | |][added: NOTE 5· Investments]

[removed: | [Note 6:] [added: NOTE 6·] Fixed [removed: Assets](#tx847767_37) | | | 64 | |][added: Assets]

[removed: | [Note 7:] [added: NOTE 7·] Accrued Expenses and Other [removed: Liabilities](#tx847767_38) | | | 65 | |][added: Liabilities]

[removed: | [Note 8:] [added: NOTE 8·] Long-Term [removed: Debt](#tx847767_39) | | | 65 | |][added: Debt]

[removed: | [Note 9:] [added: NOTE 9·] Income [removed: Taxes](#tx847767_40) | | | 67 | |][added: Taxes]

[removed: | [Note 10:] [added: NOTE 10·] Employee Savings [removed: Plan](#tx847767_41) | | | 69 | |][added: Plan]

[removed: | [Note 11:] [added: NOTE 11·] Stock-Based [removed: Compensation](#tx847767_42) | | | 69 | |][added: Compensation]

| [removed: [Note] [added: Note] 12: Supplemental Disclosures of Cash Flow [removed: Information](#tx847767_43) | | | 74] [added: Information] | [added: [68](#s36CB759680985B76A60AF65F89B08501)] |

| [removed: [Note 13:] Commitments and [removed: Contingencies](#tx847767_44)] [added: contingencies (Note 13)] | | | [removed: 74] | | [added: | | |]

[removed: | [Note 14:] [added: NOTE 14·] Quarterly Operating Results [removed: (Unaudited)](#tx847767_45) | | | 75 | |][added: (Unaudited)]

[removed: | [Note 15:] [added: NOTE 15·] Segment [removed: Information](#tx847767_46) | | | 76 | |][added: Information]

[removed: | [Note 16:] [added: NOTE 16·] Losses and Loss Adjustment [removed: Reserve](#tx847767_47) | | | 77 | |][added: Reserve]

[removed: | [Note 17:] [added: NOTE 17·] Statutory Financial [removed: Information](#tx847767_48) | | | 77 | |][added: Information]

[removed: | [Note 18:] [added: NOTE 18·] Subsidiary Dividend [removed: Restrictions](#tx847767_49) | | | 77 | |][added: Restrictions]

[removed: | [Note 19:] [added: NOTE 19·] Shareholders’ [removed: Equity](#tx847767_50) | | | 78 | |][added: Equity]

[removed: | [Report of Independent Registered Public Accounting Firm](#tx847767_51) | | | 79 | |][added: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM]

[removed: BROWN] [added: BROWN] & BROWN, [removed: INC.][added: INC.]

[removed: CONSOLIDATED] [added: CONSOLIDATED] STATEMENTS OF [removed: INCOME][added: INCOME]

| | [removed: | Year] [added: Year] Ended December [removed: 31,] [added: 31,] | | | | | | | | | | |

| [removed: _(in] [added: (in] thousands, except per share [removed: data)_ | | 2014 | | |] [added: data)] | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | |

| [removed: REVENUES |] [added: REVENUES] | | | | | | | | | | | |

| Commissions and fees | [removed: |] $ | [removed: 1,567,460] [added: 1,656,951] | | | $ | [removed: 1,355,503] [added: 1,567,460] | | | $ | [removed: 1,189,081] [added: 1,355,503] | |

| Investment income | [removed: |] [added: 1,004] | [removed: 747] | | | [added: 747] | [removed: 638] | | | [added: 638] | [removed: 797] | |

| Other income, net | [removed: |] [added: 2,554] | [removed: 7,589] | | | [added: 7,589] | [removed: 7,138] | | | [added: 7,138] | [removed: 10,154] | |

| Total revenues | [removed: |] [added: 1,660,509] | [removed: 1,575,796] | | | [added: 1,575,796] | [removed: 1,363,279] | | | [added: 1,363,279] | [removed: 1,200,032] | |

| [removed: EXPENSES |] [added: EXPENSES] | | | | | | | | | | | |

| Employee compensation and benefits | [removed: |] [added: 841,439] | [removed: 791,749] | | | [added: 791,749] | [removed: 683,000] | | | [added: 683,000] | [removed: 608,506] | |

| Non-cash stock-based compensation | [removed: |] [added: 15,513] | [removed: 19,363] | | | [added: 19,363] | [removed: 22,603] | | | [added: 22,603] | [removed: 15,865] | |

| Other operating expenses | [removed: |] [added: 251,055] | [removed: 235,328] | | | [added: 235,328] | [removed: 195,677] | | | [added: 195,677] | [removed: 174,389] | |

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| (in thousands, except per share data) | For the Year Ended December 31, | | | | | | | | | | |

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| (in thousands, except per share data) | December 31, 2015 | | | | December 31, 2014 | | |

| Cash and cash equivalents | $ | 443,420 | | | $ | 470,048 | |

See accompanying notes to Consolidated Financial Statements.

BROWN & BROWN, INC.

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| | Common Stock | | | | | | | | | | | | | | | | | | | | |

| Net income | | | | | | | | | | | | | | | 243,318 | | | | 243,318 | | |

| Purchase of treasury stock | | | | | | | (11,250 | | ) | | (163,750 | | ) | | | | | | (175,000 | | ) |

| Balance at December 31, 2015 | 146,415 | | $ | 14,642 | | | $ | 426,498 | | | $ | (238,775 | ) | | $ | 1,947,411 | | | $ | 2,149,776 | |

See accompanying notes to Consolidated Financial Statements.

BROWN & BROWN, INC.

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| Net income | $ | 243,318 | | | $ | 206,896 | | | $ | 217,112 | |

| Amortization | 87,421 | | | | 82,941 | | | | 67,932 | | |

| Depreciation | 20,890 | | | | 20,895 | | | | 17,485 | | |

| Non-cash stock-based compensation | 15,513 | | | | 19,363 | | | | 22,603 | | |

| Change in estimated acquisition earn-out payables | 3,003 | | | | 9,938 | | | | 2,533 | | |

| Prepayment of accelerated share repurchase program | (11,250 | | ) | | — | | | | — | | |

See accompanying notes to Consolidated Financial Statements.

BROWN & BROWN, INC.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which provides guidance for accounting for leases.

Under ASU 2016-02, the Company will be required to recognize the assets and liabilities for the rights and obligations created by leased assets.

ASU 2016-02 will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

The Company is currently evaluating its leases against the requirements of this pronouncement.

In November 2015, FASB issued ASU No. 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”), which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as a single non-current item on the balance sheet.

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##### [Table of Contents](#toc)

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| | | At December 31, | | | | | | |

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| | | Common Stock | | | | | | | | Additional Paid-In Capital | | | | Treasury Stock | | | | Retained Earnings | | | | Accumulated Other Comprehensive Income | | | | Total | | |

| Balance at January 1, 2012 | | | 143,352 | | | $ | 14,335 | | | $ | 307,059 | | | $ | — | | | $ | 1,322,562 | | | $ | 7 | | | $ | 1,643,963 | |

| Net income and comprehensive income | | | | | | | | | | | | | | | | | | | 184,045 | | | | | | | | 184,045 | |

| Cash and cash equivalents at beginning of year | | | 202,952 | | | | 219,821 | | | | 286,305 | |

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”) which changes the criteria for reporting discontinued operations and enhances disclosures in this area.

Under the new guidance, the disposal of a component or group of components of an entity should be reported as a discontinued operation if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.

Disposals of equity method investments, or those reported as held-for-sale, must be presented as a discontinued operation if they meet the new definition.

The standard is effective prospectively for all disposals of components (or classification of components as held-for-sale) of an entity that occur within interim and annual periods beginning on or after December 15, 2014.

Early adoption is permitted, but only for disposals (or classifications of components as held-for-sale) that have not been reported in financial statements previously issued.

Brown & Brown has elected to early adopt this pronouncement and has reported a loss on disposal of $47.4 as a result of the sale of Axiom Re, effective December 31, 2014, in accordance with this pronouncement.

Early adoption is not permitted.

The Company does not expect to early adopt this guidance and it believes the adoption of this guidance will not have a material impact on the Consolidated Financial Statements.

During 2014 additional investments were included with the acquisition of Wright.

Gains or losses recognized in earnings from the investments are included in investment income in the consolidated statements of income.

The expected future payments are estimated on the basis of the earn-out formula and performance targets specified in each purchase agreement compared to the associated financial projections.

Effective in 2009, the Company adopted the FASB authoritative guidance that states that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share (“EPS”) pursuant to the two-class method.

The two-class method determines EPS for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings.

Performance stock shares granted to employees under the Company’s Performance Stock Plan and under the Company’s Stock Incentive Plan are considered participating securities as they receive non-forfeitable dividend equivalents at the same rate as common stock.

_Financial Reporting Related to Insurance Company Operations_

The recorded purchase price for all acquisitions consummated after January 1, 2009 included an estimation of the fair value of liabilities associated with any potential earn-out provisions.

Subsequent changes in the fair value of earn-out obligations will be recorded in the Consolidated Statement of Income when incurred.

The fair value of earn-out obligations is based on the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements.

In determining fair value, the acquired business’s future performance is estimated using financial projections developed by management for the acquired business and reflects market participant assumptions regarding revenue growth and/or profitability.

These payments are then discounted to present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments will be made.

Based on the acquisition date and the complexity of the underlying valuation work, certain amounts included in the Company’s Consolidated Financial Statements may be provisional and thus subject to further adjustments within the permitted measurement period, as defined in ASC 805.

We completed 10 acquisitions (excluding book of business purchases) in the year ended December 31, 2014, with the largest being Wright, which was effective May 1, 2014 and cash paid totaled $609.2 million.

We completed 9 acquisitions (excluding book of business purchases) in the twelve-month period ended December 31, 2013, with the largest being Beecher Carlson Holdings, Inc. which was effective July 1, 2013 and cash paid totaled to $364.2 million.

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The aggregate purchase price of these acquisitions was $519,794,000, including $408,072,000 of cash payments, the issuance of $552,000 in other payables, the assumption of $106,079,000 of liabilities and $5,091,000 of recorded earn-out payables.

There were no changes in or disagreements with accountants on accounting and financial disclosure in [removed: 2014.][added: 2015.]