filings.toolsItem 8. Financial Statements and Supplementary Data.
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Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
BROWN & BROWN, INC.
CONSOLIDATED STAT****EMENTS OF INCOME
| For the Year Ended December 31, | ||||||||||||
| (in millions, except per share data) | 2024 | 2023 | 2022 | |||||||||
| REVENUES | ||||||||||||
| Commissions and fees | $ | 4,705 | $ | 4,199 | $ | 3,563 | ||||||
| Investment income | 93 | 52 | 7 | |||||||||
| Other income, net | 7 | 6 | 3 | |||||||||
| Total revenues | 4,805 | 4,257 | 3,573 | |||||||||
| EXPENSES | ||||||||||||
| Employee compensation and benefits | 2,406 | 2,187 | 1,817 | |||||||||
| Other operating expenses | 710 | 650 | 597 | |||||||||
| Gain on disposal | (31 | ) | (143 | ) | (5 | ) | ||||||
| Amortization | 178 | 166 | 147 | |||||||||
| Depreciation | 44 | 40 | 39 | |||||||||
| Interest | 193 | 190 | 141 | |||||||||
| Change in estimated acquisition earn-out payables | 2 | 21 | (39 | ) | ||||||||
| Total expenses | 3,502 | 3,111 | 2,697 | |||||||||
| Income before income taxes | 1,303 | 1,146 | 876 | |||||||||
| Income taxes | 301 | 275 | 204 | |||||||||
| Net income before non-controlling interests | 1,002 | 871 | 672 | |||||||||
| Less: Net income attributable to non-controlling interests | 9 | — | — | |||||||||
| Net income attributable to the Company | $ | 993 | $ | 871 | $ | 672 | ||||||
| Net income per share: | ||||||||||||
| Basic | $ | 3.48 | $ | 3.07 | $ | 2.38 | ||||||
| Diluted | $ | 3.46 | $ | 3.05 | $ | 2.37 |
See accompanying notes to Consolidated Financial Statements.
BROWN & BROWN, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Year Ended December 31, | ||||||||||||
| (in millions) | 2024 | 2023 | 2022 | |||||||||
| Net income attributable to the Company | $ | 993 | $ | 871 | $ | 672 | ||||||
| Foreign currency translation (loss)/gain | (91 | ) | 128 | (138 | ) | |||||||
| Unrealized gain/(loss) on available-for-sale debt securities, net of tax | 1 | 1 | (1 | ) | ||||||||
| Comprehensive income attributable to the Company | $ | 903 | $ | 1,000 | $ | 533 |
See accompanying notes to Consolidated Financial Statements.
BROWN & BROWN, INC.
CONSOLIDATED B****ALANCE SHEETS
| (in millions, except per share data) | December 31, 2024 | December 31, 2023 | ||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 675 | $ | 700 | ||||
| Fiduciary cash | 1,827 | 1,603 | ||||||
| Short-term investments | 10 | 11 | ||||||
| Commission, fees and other receivables | 895 | 790 | ||||||
| Fiduciary receivables | 1,116 | 1,125 | ||||||
| Reinsurance recoverable | 1,527 | 125 | ||||||
| Prepaid reinsurance premiums | 520 | 462 | ||||||
| Other current assets | 354 | 314 | ||||||
| Total current assets | 6,924 | 5,130 | ||||||
| Fixed assets, net | 319 | 270 | ||||||
| Operating lease assets | 200 | 199 | ||||||
| Goodwill | 7,970 | 7,341 | ||||||
| Amortizable intangible assets, net | 1,814 | 1,621 | ||||||
| Investments | 19 | 21 | ||||||
| Other assets | 366 | 301 | ||||||
| Total assets | $ | 17,612 | $ | 14,883 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Fiduciary liabilities | $ | 2,943 | $ | 2,727 | ||||
| Losses and loss adjustment reserve | 1,543 | 131 | ||||||
| Unearned premiums | 577 | 462 | ||||||
| Accounts payable | 373 | 459 | ||||||
| Accrued expenses and other liabilities | 653 | 608 | ||||||
| Current portion of long-term debt | 225 | 569 | ||||||
| Total current liabilities | 6,314 | 4,956 | ||||||
| Long-term debt less unamortized discount and debt issuance costs | 3,599 | 3,227 | ||||||
| Operating lease liabilities | 189 | 179 | ||||||
| Deferred income taxes, net | 711 | 616 | ||||||
| Other liabilities | 362 | 326 | ||||||
| Shareholders’ Equity: | ||||||||
| Common stock, par value $0.10 per share; authorized 560 shares; issued 306 shares and outstanding 286 shares at 2024, issued 304shares and outstanding 285 shares at 2023, respectively | 31 | 30 | ||||||
| Additional paid-in capital | 1,118 | 1,027 | ||||||
| Treasury stock, at cost 20 shares at 2024 and 2023 | (748 | ) | (748 | ) | ||||
| Accumulated other comprehensive loss | (109 | ) | (19 | ) | ||||
| Non-controlling interests | 17 | — | ||||||
| Retained earnings | 6,128 | 5,289 | ||||||
| Total shareholders’ equity | 6,437 | 5,579 | ||||||
| Total liabilities and shareholders’ equity | $ | 17,612 | $ | 14,883 |
See accompanying notes to Consolidated Financial Statements.
BROWN & BROWN, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Common Stock | ||||||||||||||||||||||||||||||||
| (in millions, except per share data) | Shares Outstanding | Par Value | Additional Paid-In Capital | Treasury Stock | Accumulated Other Comprehensive Loss | Retained Earnings | Non-Controlling Interest | Total | ||||||||||||||||||||||||
| Balance at January 1, 2022 | 282 | $ | 30 | $ | 849 | $ | (674 | ) | $ | (9 | ) | $ | 4,001 | $ | — | $ | 4,197 | |||||||||||||||
| Net Income | 672 | 672 | ||||||||||||||||||||||||||||||
| Net unrealized holding loss on available-for-sale securities | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation | 1 | (138 | ) | (137 | ) | |||||||||||||||||||||||||||
| Shares issued - employee stock compensation plans | ||||||||||||||||||||||||||||||||
| Employee stock purchase plan | 1 | 47 | 47 | |||||||||||||||||||||||||||||
| Stock incentive plans | 2 | 56 | 56 | |||||||||||||||||||||||||||||
| Agency acquisition | 15 | 15 | ||||||||||||||||||||||||||||||
| Directors | 1 | 1 | ||||||||||||||||||||||||||||||
| Repurchase shares to fund tax withholdings for non-cash stock-based compensation | (1 | ) | (49 | ) | (49 | ) | ||||||||||||||||||||||||||
| Purchase of treasury stock | (1 | ) | (74 | ) | (74 | ) | ||||||||||||||||||||||||||
| Cash dividends paid ($0.42 per share) | (120 | ) | (120 | ) | ||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 283 | 30 | 920 | (748 | ) | (149 | ) | 4,553 | — | 4,606 | ||||||||||||||||||||||
| Net Income | 871 | 871 | ||||||||||||||||||||||||||||||
| Net unrealized holding gain on available-for-sale securities | 1 | 1 | ||||||||||||||||||||||||||||||
| Foreign currency translation | 129 | 129 | ||||||||||||||||||||||||||||||
| Shares issued - employee stock compensation plans | ||||||||||||||||||||||||||||||||
| Employee stock purchase plan | 1 | 52 | 52 | |||||||||||||||||||||||||||||
| Stock incentive plans | 1 | 76 | 76 | |||||||||||||||||||||||||||||
| Agency acquisition | 18 | 18 | ||||||||||||||||||||||||||||||
| Directors | 1 | 1 | ||||||||||||||||||||||||||||||
| Repurchase shares to fund tax withholdings for non-cash stock-based compensation | (40 | ) | (40 | ) | ||||||||||||||||||||||||||||
| Cash dividends paid ($0.48 per share) | (135 | ) | (135 | ) | ||||||||||||||||||||||||||||
| Balance at December 31, 2023 | 285 | 30 | 1,027 | (748 | ) | (19 | ) | 5,289 | — | 5,579 | ||||||||||||||||||||||
| Net Income | 993 | 9 | 1,002 | |||||||||||||||||||||||||||||
| Net unrealized holding gain on available-for-sale securities | 1 | 1 | ||||||||||||||||||||||||||||||
| Foreign currency translation | (91 | ) | (91 | ) | ||||||||||||||||||||||||||||
| Shares issued - employee stock compensation plans | ||||||||||||||||||||||||||||||||
| Employee stock purchase plan | 1 | 1 | 57 | 58 | ||||||||||||||||||||||||||||
| Stock incentive plans | 1 | 86 | 86 | |||||||||||||||||||||||||||||
| Directors | 1 | 1 | ||||||||||||||||||||||||||||||
| Net non-controlling interest acquired (disposed) | 2 | 8 | 10 | |||||||||||||||||||||||||||||
| Repurchase shares to fund tax withholdings for non-cash stock-based compensation | (1 | ) | (55 | ) | (55 | ) | ||||||||||||||||||||||||||
| Cash dividends paid ($0.54 per share) | (154 | ) | (154 | ) | ||||||||||||||||||||||||||||
| Balance at December 31, 2024 | 286 | $ | 31 | $ | 1,118 | $ | (748 | ) | $ | (109 | ) | $ | 6,128 | $ | 17 | $ | 6,437 |
See accompanying notes to Consolidated Financial Statements.
BROWN & BROWN, INC.
CONSOLIDATED STATEM****ENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||||||
| (in millions) | 2024 | 2023 | 2022 | |||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income before non-controlling interests | $ | 1,002 | $ | 871 | $ | 672 | ||||||
| Adjustments to reconcile net income before non-controlling interests to net cash provided by operating activities: | ||||||||||||
| Amortization | 178 | 166 | 147 | |||||||||
| Depreciation | 44 | 40 | 39 | |||||||||
| Non-cash stock-based compensation | 101 | 89 | 66 | |||||||||
| Change in estimated acquisition earn-out payables | 2 | 21 | (39 | ) | ||||||||
| Deferred income taxes | 13 | 12 | 43 | |||||||||
| Net gain on sales/disposals of investments, businesses, fixed assets and customer accounts | (29 | ) | (140 | ) | (4 | ) | ||||||
| Payments on acquisition earn-outs in excess of original estimated payables | (37 | ) | (29 | ) | (30 | ) | ||||||
| Other | 5 | 5 | 3 | |||||||||
| Changes in operating assets and liabilities, net of effect from acquisitions and divestitures: | ||||||||||||
| Commissions, fees and other receivables (increase) decrease | (94 | ) | (106 | ) | (61 | ) | ||||||
| Reinsurance recoverable (increase) decrease | (1,402 | ) | 706 | (768 | ) | |||||||
| Prepaid reinsurance premiums (increase) decrease | (58 | ) | (68 | ) | (1 | ) | ||||||
| Other assets (increase) decrease | (98 | ) | (117 | ) | (18 | ) | ||||||
| Losses and loss adjustment reserve increase (decrease) | 1,411 | (710 | ) | 778 | ||||||||
| Unearned premiums increase (decrease) | 115 | 50 | 20 | |||||||||
| Accounts payable increase (decrease) | (47 | ) | 260 | 124 | ||||||||
| Accrued expenses and other liabilities increase (decrease) | 35 | 43 | 37 | |||||||||
| Other liabilities increase (decrease) | 33 | (83 | ) | (127 | ) | |||||||
| Net cash provided by operating activities | 1,174 | 1,010 | 881 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Additions to fixed assets | (82 | ) | (69 | ) | (52 | ) | ||||||
| Payments for businesses acquired, net of cash acquired | (890 | ) | (631 | ) | (1,928 | ) | ||||||
| Proceeds from sales of businesses, fixed assets and customer accounts | 70 | 107 | 60 | |||||||||
| Purchases of investments | (7 | ) | (7 | ) | — | |||||||
| Proceeds from sales of investments | 11 | 13 | 7 | |||||||||
| Net cash used in investing activities | (898 | ) | (587 | ) | (1,913 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Fiduciary receivables and liabilities, net | 191 | 189 | 96 | |||||||||
| Payments on acquisition earn-outs | (117 | ) | (90 | ) | (76 | ) | ||||||
| Proceeds from long-term debt | 599 | — | 2,000 | |||||||||
| Payments on long-term debt | (719 | ) | (251 | ) | (61 | ) | ||||||
| Deferred debt issuance costs | (5 | ) | — | (23 | ) | |||||||
| Borrowings on revolving credit facility | 500 | 420 | 350 | |||||||||
| Payments on revolving credit facility | (350 | ) | (320 | ) | (350 | ) | ||||||
| Issuances of common stock for employee stock benefit plans | 44 | 40 | 38 | |||||||||
| Repurchase shares to fund tax withholdings for non-cash stock-based compensation | (55 | ) | (40 | ) | (49 | ) | ||||||
| Purchase of treasury stock | — | — | (74 | ) | ||||||||
| Cash dividends paid | (154 | ) | (135 | ) | (120 | ) | ||||||
| Other financing activities | 2 | — | (5 | ) | ||||||||
| Net cash (used in) provided by financing activities | (64 | ) | (187 | ) | 1,726 | |||||||
| Effect of foreign exchange rate changes on cash and cash equivalents inclusive of fiduciary cash | (13 | ) | 34 | (131 | ) | |||||||
| Net increase in cash and cash equivalents inclusive of fiduciary cash | 199 | 270 | 563 | |||||||||
| Cash and cash equivalents inclusive of fiduciary cash at beginning of period | 2,303 | 2,033 | 1,470 | |||||||||
| Cash and cash equivalents inclusive of fiduciary cash at end of period | $ | 2,502 | $ | 2,303 | $ | 2,033 |
See accompanying notes to Consolidated Financial Statements. Refer to Note 12 for reconciliations of cash and cash equivalents inclusive of fiduciary cash.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 Summary of Signif****icant Accounting Policies
Nature of Operations
Brown & Brown, Inc., a Florida corporation, and its subsidiaries (collectively, “Brown & Brown” or the “Company”) is a diversified insurance agency, wholesale brokerage, insurance programs and service organization that markets and sells insurance products and services, primarily in the property, casualty and employee benefits areas. Brown & Brown’s business is divided into three reportable segments. The Retail segment provides a broad range of insurance products and services to commercial, public and quasi-public entities, professional and individual insured customers, and non-insurance risk-mitigating products through our automobile and recreational vehicle dealer services (“F&I”) businesses. The Programs segment, which acts as a managing general underwriter (“MGU”), provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches, all of which are delivered through a nationwide network 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 brokers, as well as Brown & Brown retail agents.
The Company primarily operates as an agent or broker not assuming underwriting risks. However, we operate a write-your-own flood insurance carrier, Wright National Flood Insurance Company (“WNFIC”). WNFIC’s underwriting business consists of policies written pursuant to the National Flood Insurance Program (“NFIP”), the program administered by the Federal Emergency Management Agency (“FEMA”) to which premiums and underwriting exposure are ceded and excess flood policies which are fully reinsured in the private market. The Company also participates in two capitalized captive insurance facilities (the "Captives") for the purpose of facilitating additional underwriting capacity, generating incremental revenues and participating in underwriting results.
Business Realignment
In conjunction with the divestiture of certain businesses within the Company’s former Services segment in the fourth quarter of 2023, the Company aligned its business from four to three segments beginning in fiscal year 2024. As a result of the segment realignment, the Services segment was eliminated as a business segment. The Company now reports its financial results in the following three reportable segments: Retail, Programs and Wholesale Brokerage. The historical results, discussion and presentation of our business segments as set forth in the accompanying Consolidated Financial Statements and these Notes reflect the impact of these changes for all periods presented in order to present segment information on a comparable basis. The results of the third-party claims administration and adjusting services businesses sold in the fourth quarter of 2023 are presented within the Programs segment. The results of the businesses from the former Services segment that were not sold are presented within the Retail segment. There is no impact on our previously reported consolidated statements of income, balance sheets, statements of cash flows, statements of comprehensive income or statements of equity resulting from these changes. See Note 15 of these Notes to Consolidated Financial Statements for further information.
Recently Issued Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, "Improvements to Income Tax Disclosures." This ASU improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating these new disclosure requirements.
In November 2024, the FASB issued ASU 2024-03, "Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40)" which requires disclosure of specific information about certain costs and expenses in the notes to the financial statements. This ASU is effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating these new disclosure requirements.
Recently Adopted Accounting Standards
In November 2023, the FASB issued ASU 2023-07, "Improvements to Reportable Segment Disclosures." This ASU requires additional reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. In addition, the ASU enhances interim disclosure requirements effectively making the current annual requirements a requirement for interim reporting. The Company adopted ASU 2023-07 for fiscal year ending December 31, 2024 and has included the required disclosures within Note 15 of these Notes to Consolidated Financial Statements.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of Brown & Brown, Inc. and its subsidiaries. All significant intercompany account balances and transactions have been eliminated in the Consolidated Financial Statements.
Revenue Recognition
The Company earns commissions paid by insurance carriers for the binding of insurance coverage. Commissions are earned at a point in time upon the effective date of bound insurance coverage, as no performance obligation exists after coverage is bound. If there are other services within the contract, the Company estimates the stand-alone selling price for each separate performance obligation, and the corresponding apportioned revenue is recognized over a period of time as the performance obligations are fulfilled. The Company earns fee revenue by receiving negotiated fees in lieu of a commission and from services other than securing insurance coverage. Fee revenues from certain agreements are recognized depending on when the services within the contract are satisfied and when control of the related services has transferred to the customer. In situations where multiple performance obligations exist within a fee contract, in some instances the use of estimates is required to allocate the transaction price on a relative stand-alone selling price basis to each separate performance obligation. Other supplemental commissions represent a form of variable consideration, which includes additional commissions over base commissions received from insurance carriers based on predetermined production levels mutually agreed upon by both parties. Profit-sharing contingent commissions represent a form of variable consideration associated with the placement of coverage, for which we earn commissions. Profit-sharing contingent commissions and other supplemental commissions are estimated and accrued relative to the recognition of the corresponding core commissions and are based on the amount of estimated consideration that will be received in the coming year. Since there are variables unknown to the Company, there can be adjustments to profit-sharing contingent commissions and other supplemental commissions in the year of receiving the commissions versus what was accrued in the prior year. Guaranteed supplemental commissions, a form of variable consideration within other supplemental commissions, represent guaranteed fixed-based agreements in lieu of profit-sharing contingent commissions.
Management estimates the policy cancellation reserve based upon historical cancellation experience adjusted for any known circumstances.
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosures of contingent assets and liabilities, at the date of the Consolidated Financial Statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents principally consist of demand deposits with financial institutions and highly liquid investments with quoted market prices having maturities of three months or less when purchased.
Fiduciary Cash, Fiduciary Receivables, and Fiduciary Liabilities
The Company presents certain assets and liabilities that arise from activities in which the Company engages as an intermediary, where we collect premiums from insureds to remit to insurance companies, hold funds from insurance companies to distribute to insureds for claims on covered losses, and hold refunds due to customers as fiduciary assets and fiduciary liabilities.
Uncollected premiums are presented as fiduciary receivables. Likewise, payables to insurance companies and premium deposits due customers are presented as fiduciary liabilities.
Fiduciary cash represents funds in the Company's possession collected from customers to be remitted to insurance companies and funds from insurance companies to be distributed to insureds for the settlement of claims or refunds. The net change in fiduciary cash is represented by the net change in fiduciary liabilities and fiduciary receivables and is presented as cash flows from financing activities in the statement of cash flows.
Unremitted net insurance premiums are held in a fiduciary capacity until the Company disburses them, and the use of such funds is restricted by laws in certain jurisdictions in which we operate, or are restricted due to our contracts with certain insurance companies in which we hold premiums in a fiduciary capacity. Where permitted by law, the Company invests these unremitted funds only in cash, money market accounts, tax-free variable-rate demand bonds and commercial paper held for a short-term. In certain jurisdictions in which the Company operates, the use and investment alternatives for these funds are regulated and restricted by various state laws and governmental agencies. The interest income earned on these unremitted funds, where allowed by state law, is reported as investment income in the Consolidated Statement of Income.
Investments
Certificates of deposit, and other securities, having maturities of more than three months when purchased are reported at cost and are adjusted for other-than-temporary market value declines. The Company’s investment holdings include U.S. Government securities, municipal bonds, domestic corporate and international corporate bonds as well as short-duration fixed income funds. Investments within the portfolio or funds are held as available-for-sale and are carried at their fair value. Any gain/loss applicable from the fair value change is recorded, net of
tax, as other comprehensive income within the equity section of the Consolidated Balance Sheets. Realized gains and losses are reported as investment income on the Consolidated Statements of Income, with the cost of securities sold determined on a specific identification basis.
Fixed Assets
Fixed assets, including leasehold improvements, are carried at cost, less accumulated depreciation and amortization. Expenditures for improvements are capitalized, and expenditures for maintenance and repairs are expensed to operations as incurred. Upon sale or retirement, the cost and related accumulated depreciation and amortization are removed from the accounts. Depreciation has been determined using the straight-line method over the estimated useful lives of the related assets, which range from 3 to 40 years. Leasehold improvements are amortized on the straight-line method over the shorter of the useful life of the improvement or the term of the related lease.
Goodwill and Amortizable Intangible Assets
All of our business combinations are accounted for using the acquisition method. Acquisition purchase prices are typically calculated based upon a multiple of average annual earnings, and/or revenue earned over a period of three years within a minimum and maximum price range ("earn-out"). The recorded purchase prices for acquisitions include 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 are recorded in the Consolidated Statements of Income when incurred.
The fair value of earn-out obligations is based upon the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions contained in the respective purchase agreements. In determining fair value, the acquired business’ future performance is estimated using financial projections developed by management for the acquired business and this estimate reflects market participant assumptions regarding revenue growth and/or profitability. 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. These estimates are then discounted to present value using a risk-adjusted rate that takes into consideration the likelihood that the forecast earn-out payments will be made.
Amortizable intangible assets are stated at cost, less accumulated amortization, and consist primarily of purchased customer accounts. Purchased customer accounts are amortized on a straight-line basis over the related estimated lives, generally 15 years. Purchased customer accounts represent the value of the customer relationship, but also consist of records and files that contain information about insurance policies and the related insured parties that are essential to policy renewals.
The excess of the purchase price of an acquisition over the fair value of the identifiable tangible and amortizable intangible assets is assigned to goodwill. While goodwill is not amortizable under GAAP, it is subject to assessment at least annually, and more frequently in the presence of certain circumstances, for impairment by application of a fair value-based test. The Company compares the fair value of each reporting unit with its carrying amount to determine if there is potential impairment of goodwill. The Company may elect to first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If the Company does not perform a qualitative assessment, or as a result of the qualitative assessment, it is not determined that the fair value of the reporting unit more likely than not exceeds the carrying amount, the Company will calculate the fair value of the reporting unit for comparison against the carrying value. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value. Fair value is estimated based upon multiples of earnings, or on a discounted cash flow basis. The Company completed its most recent annual impairment assessment as of November 30, 2024 and determined that the fair value of goodwill exceeded the carrying value of such assets. As of December 31, 2024, there are no accumulated impairment losses.
The carrying value of amortizable intangible assets attributable to each business or asset group comprising the Company is periodically reviewed by management to determine if there are events or changes in circumstances that would indicate that its carrying amount may not be recoverable. Accordingly, if there are any such changes in circumstances during the year, the Company assesses the carrying value of its amortizable intangible assets by considering the estimated future undiscounted cash flows generated by the corresponding business or asset group. Any impairment identified through this assessment may require that the carrying value of related amortizable intangible assets be adjusted after determining the fair value of the amortizable intangible assets. There were no impairments recorded for the years ended December 31, 2024, 2023 and 2022.
Gain or Loss on Disposal
From time to time the Company will sell individual books of business or entire businesses when it aligns with our strategic priorities. When a business is sold, goodwill along with identified tangible and intangible assets and liabilities are netted against the agreed transaction price net of transaction costs to determine the associated gain or loss on disposal. Goodwill is apportioned to the disposed business using the relative fair value of the disposed business to the associated reporting unit to which it was a member.
In the fourth quarter of 2023, the Company completed the sale of certain third-party claims administration and adjusting services businesses from its Services segment and recognized a pre-tax gain on the sale of businesses totaling $135 million. The Company is entitled to future consideration payments upon achievement of certain conditions in accordance with the terms of the sale agreement. During 2024, the Company recorded an additional gain of $29 million from the settlement of two of the contingent payments. Any future consideration payments will be recognized as the condition for achievement is satisfied.
For the years ending December 31, 2024, 2023 and 2022, total gains recognized on sales of businesses and books of business totaled $31 million, $143 million, and $5 million, respectively.
Income Taxes
The Company records income tax expense using the asset-and-liability method of accounting for deferred income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and the income tax bases of the Company’s assets and liabilities.
The Company files a consolidated federal income tax return and has elected to file consolidated returns in certain states. Deferred income taxes are provided for in the Consolidated Financial Statements and relate principally to expenses charged to income for financial reporting purposes in one period and deducted for income tax purposes in other periods.
Net Income Per Share
Basic net income per share is computed based on the weighted average number of common shares (including participating securities) issued and outstanding during the period. Diluted net income per share is computed based on the weighted average number of common shares issued and outstanding plus equivalent shares, assuming the issuance of all potentially issuable common shares. The dilutive effect of potentially issuable common shares is computed by application of the treasury stock method.
The following is a reconciliation between basic and diluted weighted average shares outstanding for the years ended December 31:
| (in millions, except per share data) | 2024 | 2023 | 2022 | |||||||||
| Net income attributable to the Company | $ | 993 | $ | 871 | $ | 672 | ||||||
| Net income attributable to unvested awarded performance stock | (12 | ) | (13 | ) | (13 | ) | ||||||
| Net income attributable to common shares | $ | 981 | $ | 858 | $ | 659 | ||||||
| Weighted average number of common shares outstanding – basic | 285 | 284 | 283 | |||||||||
| Less unvested awarded performance stock included in weighted average number of common shares outstanding – basic | (3 | ) | (4 | ) | (5 | ) | ||||||
| Weighted average number of common shares outstanding for basic earnings per common share | 282 | 280 | 278 | |||||||||
| Dilutive effect of equity instruments | 2 | 1 | 1 | |||||||||
| Weighted average number of shares outstanding – diluted | 284 | 281 | 279 | |||||||||
| Net income per share: | ||||||||||||
| Basic | $ | 3.48 | $ | 3.07 | $ | 2.38 | ||||||
| Diluted | $ | 3.46 | $ | 3.05 | $ | 2.37 |
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial assets and liabilities, including cash and cash equivalents; fiduciary cash; fiduciary receivables, commissions, fees and other receivables; fiduciary liabilities; accounts payable and accrued expenses and other liabilities, at December 31, 2024 and 2023, approximate fair value, because of the short-term maturity of these instruments. As of December 31, 2024 the carrying value of our fixed-rate borrowings was $2,839 million and we approximate their values using market quotes of notes with the similar terms as ours and calculate a fair value of $2,602 million. As of December 31, 2023 the carrying value of our fixed-rate borrowings was $2,740 million and we approximate their values using market quotes of notes with similar terms as ours and calculate a fair value of $2,488 million. The estimated fair value of our variable floating rate debt agreements is $1,006 million, which approximates the carrying value due to the variable interest rate based upon adjusted Secured Overnight Financing Rate (“SOFR”). See Note 3 to our Consolidated Financial Statements for the fair values related to acquired intangible assets and the establishment and adjustment of earn-out payables. See Note 8 to our Consolidated Financial Statements for information on the fair value of long-term debt.
Non-Cash Stock-Based Compensation
The Company has stock-based compensation plans that provide for grants of restricted stock, restricted stock units, stock options and other stock-based awards to employees and non-employee directors of the Company. In addition, the Company has an Employee Stock Purchase Plan which allows employees to purchase shares in the Company. The Company expenses stock-based compensation, which is included in Employee compensation and benefits in the Consolidated Statements of Income over the requisite service period. The significant assumptions underlying our expense calculations include the fair value of the award on the date of grant, the estimated achievement of any performance targets and estimated forfeiture rates.
The Company uses the Black-Scholes valuation model for valuing all stock options and shares purchased under the Employee Stock Purchase Plan (the “ESPP”). Compensation for non-vested stock awards is measured at fair value on the grant date based upon the number of shares expected to vest. Compensation cost for all awards is recognized in earnings, net of estimated forfeitures, on a straight-line basis over the requisite service period. See Note 11 to our Consolidated Financial Statements for information on stock-based compensation.
Insurance Company Operations
The Company acts in a risk-bearing capacity for flood insurance associated with WNFIC, which is part of our Programs segment. The Company protects itself from claims-related losses by reinsuring all claims risk exposure. For basic admitted policies conforming to the National Flood Insurance Program all exposure is reinsured with FEMA. For excess flood, all exposure is reinsured with a reinsurance carrier with an AM Best Company rating of “A” or better. Reinsurance does not legally discharge WNFIC or any ceding insurer from the primary liability for the full amount due under the reinsured policies. Reinsurance premiums, commissions, expense reimbursement and reserves related to ceded business are accounted for on a basis consistent with the accounting for the original policies issued and the terms of reinsurance contracts. Premiums earned and losses and loss adjustment expenses incurred are reported net of reinsurance amounts. Other underwriting expenses are shown net of earned ceding commission income. The liabilities for unpaid losses and loss adjustment expenses and unearned premiums are reported gross of ceded reinsurance recoverable.
Balances due from reinsurers on unpaid losses and loss adjustment expenses, including an estimate of such that is recoverable related to reserves for incurred but not reported (“IBNR”) losses, are reported as assets and are included in reinsurance recoverable even though amounts due on unpaid loss and loss adjustment expense are not recoverable from the reinsurer until such losses are paid. The Company does not believe it is exposed to any material credit risk through its reinsurance as the reinsurer is FEMA for basic admitted flood policies and national reinsurance carriers for excess flood policies, which has an AM Best Company rating of “A” or better. Historically, no amounts due from reinsurance carriers have been written off as uncollectible.
The Company also participates in two Captives for the purpose of facilitating additional underwriting capacity, generating additional revenues and participating in underwriting results. One Captive operates on a quota share basis, currently focused on property insurance for earthquake and wind exposed properties for policies placed by certain of our MGU businesses. This Captive buys reinsurance, limiting, but not fully eliminating the Company's exposure to claims expenses. The other Captive operates through an-excess of loss or reinsurance layers associated with placements made by one of our MGU businesses focused on residential property primarily in the southeastern United States. This Captive has capped exposure through contractual aggregate limits on the reinsurance participations it assumes with one layer of per risk excess reinsurance and three layers of catastrophe per occurrence reinsurance. All four layers have limited reinstatements and therefore have capped, maximum aggregate limits.
Unpaid Losses and Loss Adjustment Reserve
Unpaid losses and loss adjustment reserve includes amounts determined on individual claims and other estimates based upon the past experience and the policyholders for IBNR claims, less anticipated salvage and subrogation recoverable. The methods of making such estimates and for establishing the resulting reserves include a combination of an analysis of large discrete events, typically named-storm activity, and also routine losses in the ordinary course from non-named-storm activity. These methodologies are continually reviewed and updated, and any adjustments resulting therefrom are reflected in operations currently.
The Company engages the services of outside actuarial consulting firms (the “Actuaries”) to assist on an annual basis to render an opinion on the sufficiency of the Company’s estimates for unpaid losses and related loss adjustment reserve. The Actuaries utilize both industry experience and the Company’s own experience to develop estimates of those amounts as of year-end. These estimated liabilities are subject to the impact of future changes in claim severity, frequency and other factors. In spite of the variability inherent in such estimates, management believes that the liabilities for unpaid losses and related loss adjustment reserve are adequate.
Premiums are recognized as income over the coverage period of the related policies. Unearned premiums represent the portion of premiums written that relate to the unexpired terms of the policies in force and are determined on a daily pro rata basis. The income is recorded to the commissions and fees line of the Consolidated Statements of Income.
NOTE 2 Revenues
The following tables present the revenues disaggregated by revenue source:
| For the year ended December 31, 2024 | ||||||||||||||||||||
| (in millions) | Retail | Programs | Wholesale Brokerage | Other**(8)** | Total | |||||||||||||||
| Base commissions(1) | $ | 1,874 | $ | 924 | $ | 483 | $ | 1 | $ | 3,282 | ||||||||||
| Fees(2) | 631 | 270 | 92 | (1 | ) | 992 | ||||||||||||||
| Other supplemental commissions(3) | 171 | 9 | 8 | — | 188 | |||||||||||||||
| Profit-sharing contingent commissions(4) | 44 | 95 | 27 | — | 166 | |||||||||||||||
| Earned premium(5) | — | 77 | — | — | 77 | |||||||||||||||
| Investment income(6) | 6 | 23 | 6 | 58 | 93 | |||||||||||||||
| Other income, net(7) | 3 | 2 | — | 2 | 7 | |||||||||||||||
| Total Revenues | $ | 2,729 | $ | 1,400 | $ | 616 | $ | 60 | $ | 4,805 |
| For the year ended December 31, 2023 | ||||||||||||||||||||
| (in millions) | Retail | Programs | Wholesale Brokerage | Other**(8)** | Total | |||||||||||||||
| Base commissions(1) | $ | 1,692 | $ | 736 | $ | 440 | $ | — | $ | 2,868 | ||||||||||
| Fees(2) | 597 | 322 | 78 | (2 | ) | 995 | ||||||||||||||
| Other supplemental commissions(3) | 164 | 9 | 6 | (1 | ) | 178 | ||||||||||||||
| Profit-sharing contingent commissions(4) | 50 | 65 | 15 | — | 130 | |||||||||||||||
| Earned premium(5) | — | 28 | — | — | 28 | |||||||||||||||
| Investment income(6) | 1 | 12 | 2 | 37 | 52 | |||||||||||||||
| Other income, net(7) | 4 | 1 | — | 1 | 6 | |||||||||||||||
| Total Revenues | $ | 2,508 | $ | 1,173 | $ | 541 | $ | 35 | $ | 4,257 |
| For the year ended December 31, 2022 | ||||||||||||||||||||
| (in millions) | Retail | Programs | Wholesale Brokerage | Other**(8)** | Total | |||||||||||||||
| Base commissions(1) | $ | 1,421 | $ | 589 | $ | 367 | $ | — | $ | 2,377 | ||||||||||
| Fees(2) | 546 | 298 | 69 | (1 | ) | 912 | ||||||||||||||
| Other supplemental commissions(3) | 138 | 16 | 5 | — | 159 | |||||||||||||||
| Profit-sharing contingent commissions(4) | 49 | 28 | 12 | — | 89 | |||||||||||||||
| Earned premium(5) | — | 26 | — | — | 26 | |||||||||||||||
| Investment income(6) | — | 1 | — | 6 | 7 | |||||||||||||||
| Other income, net(7) | 3 | — | — | — | 3 | |||||||||||||||
| Total Revenues | $ | 2,157 | $ | 958 | $ | 453 | $ | 5 | $ | 3,573 |
(1)
Base commissions generally represent a percentage of the premium paid by an insured and are 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 loss experience, risk profile and reinsurance rates paid by such insurance companies, none of which we control.
(2)
Fee revenues relate to fees for services other than securing coverage for our customers, fees negotiated in lieu of commissions, and F&I products and services.
(3)
Other supplemental commissions include additional commissions over base commissions received from insurance carriers based on predetermined growth or production measures. This includes incentive commissions and guaranteed supplemental commissions.
(4)
Profit-sharing contingent commissions are based primarily on underwriting results, but may also reflect considerations for volume, growth and/or retention.
(5)
Earned premium relates to the premiums earned in the Captives.
(6)
Investment income consists primarily of interest on cash and investments.
(7)
Other income consists primarily of other miscellaneous income.
(8)
Fees within Other reflects the elimination of intercompany revenues.
Revenues Disaggregated by Geography
The following table presents the revenues disaggregated by geographic area where our services are being performed:
| For the year ended December 31, | ||||||||||||
| (in millions) | 2024 | 2023 | 2022 | |||||||||
| U.S. | $ | 4,140 | $ | 3,730 | $ | 3,333 | ||||||
| U.K. | 545 | 433 | 170 | |||||||||
| Republic of Ireland | 48 | 45 | 38 | |||||||||
| Canada | 40 | 35 | 23 | |||||||||
| Other | 32 | 14 | 9 | |||||||||
| Total Revenues | $ | 4,805 | $ | 4,257 | $ | 3,573 |
Contract Assets and Liabilities
The balances of contract assets and contract liabilities arising from contracts with customers as of December 31, 2024 and 2023 were as follows:
| (in millions) | December 31, 2024 | December 31, 2023 | ||||||
| Contract assets | $ | 575 | $ | 473 | ||||
| Contract liabilities | $ | 119 | $ | 113 |
Unbilled receivables (contract assets) arise when the Company recognizes revenue for amounts which have not yet been billed in our systems and are reflected in commissions, fees and other receivables in the Company's Consolidated Balance Sheets. The increase in contract assets over the balance as of December 31, 2023 is due to growth in our business and from businesses acquired in the current year.
Deferred revenue (contract liabilities) relates to payments received in advance of performance under the contract before the transfer of a good or service to the customer. Deferred revenue is reflected within accrued expenses and other liabilities for those to be recognized in less than 12 months and in other liabilities for those to be recognized more than 12 months from the date presented in the Company's Consolidated Balance Sheets.
As of December 31, 2024, deferred revenue consisted of $80 million as the current portion to be recognized within one year and $39 million in long term to be recognized beyond one year. As of December 31, 2023, deferred revenue consisted of $78 million as the current portion to be recognized within one year and $35 million in long-term deferred revenue to be recognized beyond one year.
During the 12 months ended December 31, 2024, 2023, and 2022, the amount of revenue recognized related to performance obligations satisfied in a previous period, inclusive of changes due to estimates, was approximately $39 million, $28 million, and $26 million, respectively. This consists of additional variable consideration received on our incentive and profit-sharing contingent commissions that required refinements in our estimates and variable consideration true-ups.
Other Assets and Deferred Cost
Incremental cost to obtain – The Company defers certain costs to obtain customer contracts primarily as they relate to commission-based compensation plans in the Retail segment, whereby the Company pays an incremental amount of compensation on new business. These incremental costs are deferred and amortized over a 15-year period. The cost to obtain balance within the Other assets caption in the Company’s Consolidated Balance Sheets was $119 million and $96 million as of December 31, 2024 and 2023, respectively. For the 12
months ended December 31, 2024 and December 31, 2023, the Company deferred $33 million and $27 million of incremental cost to obtain customer contracts, respectively and recorded an expense of $10 million and $7 million, respectively.
Cost to fulfill - The Company defers certain costs to fulfill contracts and recognizes these costs as the associated performance obligations are fulfilled. The cost to fulfill balance within the other current assets caption in the Company's Consolidated Balance Sheets was $145 million and $123 million as of December 31, 2024 and 2023, respectively. For the 12 months ended December 31, 2024 and December 31, 2023, the Company had net deferrals of $13 million and $7 million related to current year deferrals for costs incurred that relate to performance obligations yet to be fulfilled, net of the expense of previously deferred contract fulfillment costs associated with performance obligations that were satisfied in the period, respectively.
NOTE 3 Busines****s Combinations
During the year ended December 31, 2024, the Company acquired the assets and assumed certain liabilities of 14 insurance intermediaries, all of the stock of 14 insurance intermediaries, and purchased 4 books of businesses (customer accounts) for a total of 32 acquisitions. Additionally, adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last 12 months as permitted by Accounting Standards Codification (“ASC”) 805 - Business Combinations (“ASC 805”).
The recorded purchase price for all acquisitions includes 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 Statements of Income when incurred. The initial 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 profitability. 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. 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. Management often uses independent third-party valuation specialists to assist in finalizing the fair value of assets acquired and liabilities assumed. Fair value adjustments, if any, are most common to the values established for amortizable intangible assets and earnout liabilities, with the offset to goodwill, net of any income tax effect. Provisional estimates were used to initially record the acquisitions of The Canopy Group and Quintes Holding B.V., including for intangible assets, goodwill, customer contract related balances, tax related balances and other asset and liability accounts.
For the year ended December 31, 2024, adjustments to prior year acquisitions were made within the permitted measurement period for the following: increase to consideration of $11 million, increase to fiduciary assets and fiduciary liabilities of $20 million, increase in amortizable intangible assets of $11 million, decrease to other net assets of $9 million and net increase to goodwill of $9 million. These measurement period adjustments have been reflected as current period adjustments in the year ended December 31, 2024. The measurement period adjustments had no material effect on earnings or cash in the current period.
Gross cash paid for acquisitions was $934 million and $695 million in the years ended December 31, 2024 and 2023, respectively. We completed 32 acquisitions (including book of business purchases) during the year ended December 31, 2024 and 33 acquisitions (including book of business purchases) during the year ended December 31, 2023.
The following table summarizes the purchase price allocations and estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition for current year acquisitions and adjustments made during the measurement period for prior year acquisitions. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. These adjustments are made in the period in which the amounts are determined and the current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date.
| (in millions) | The Canopy Group | Quintes Holding B.V. | Other (1) | Total | ||||||||||||
| Business Segment | Retail | Retail | Various | |||||||||||||
| Effective date of acquisition | October 1, 2024 | November 1, 2024 | Various | |||||||||||||
| Cash paid | $ | 51 | $ | 695 | $ | 188 | $ | 934 | ||||||||
| Other payable | — | — | 27 | 27 | ||||||||||||
| Recorded earn-out payable | 11 | — | 62 | 73 | ||||||||||||
| Total consideration | 62 | 695 | 277 | 1,034 | ||||||||||||
| Maximum potential earn-out payable | 74 | — | 113 | 187 | ||||||||||||
| Allocation of purchase price: | ||||||||||||||||
| Cash and equivalents | — | — | 10 | 10 | ||||||||||||
| Fiduciary cash | — | 11 | 23 | 34 | ||||||||||||
| Fiduciary receivables | — | 10 | 5 | 15 | ||||||||||||
| Other current assets | — | 25 | 9 | 34 | ||||||||||||
| Goodwill | 39 | 468 | 200 | 707 | ||||||||||||
| Purchased customer accounts and other intangibles (2) | 23 | 302 | 74 | 399 | ||||||||||||
| Other assets | — | 17 | 3 | 20 | ||||||||||||
| Total assets acquired | 62 | 833 | 324 | 1,219 | ||||||||||||
| Fiduciary liabilities | — | (34 | ) | (28 | ) | (62 | ) | |||||||||
| Other current liabilities | — | (15 | ) | (3 | ) | (18 | ) | |||||||||
| Deferred income tax, net | — | (78 | ) | (9 | ) | (87 | ) | |||||||||
| Other long-term liabilities | — | (11 | ) | (1 | ) | (12 | ) | |||||||||
| Total liabilities assumed | — | (138 | ) | (41 | ) | (179 | ) | |||||||||
| Acquired non-controlling interest | — | — | (6 | ) | (6 | ) | ||||||||||
| Net assets acquired | $ | 62 | $ | 695 | $ | 277 | $ | 1,034 |
(1) The other column represents current year acquisitions with total net assets acquired of less than $50 million and adjustments from prior year acquisitions that were made within the permitted measurement period.
(2) The weighted average useful life of purchased customer accounts is 15 years.
Goodwill of $707 million, net of any opening balance sheet adjustments within the allowable measurement period, was allocated to the Retail, Programs, and Wholesale Brokerage segments in the amounts of $634 million, $40 million, and $33 million, respectively. Of the total goodwill, the amount currently deductible for income tax purposes is $121 million. Of the remaining $586 million of goodwill, $551 million relates to goodwill that will not be deductible for income tax purposes and $35 million relates to recorded earn-out payables which will not be deductible for income tax purposes until it is earned and paid.
For the acquisitions completed during 2024, the results of operations since the acquisition dates have been combined with those of the Company. The total revenues from the acquisitions completed through December 31, 2024 included in the Consolidated Statement of Income for the year ended December 31, 2024 were $40 million. The loss before income taxes from the acquisitions completed through December 31, 2024, included in the Consolidated Statement of Income for the year ended December 31, 2024, was $1 million.
If the Company's 2024 acquisitions had occurred as of the beginning of 2023, the estimated results of operations would be as shown in the following table. These unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the acquisitions actually been made at the beginning of the respective periods.
| (UNAUDITED) | Year Ended December 31, | |||||||
| (in millions, except per share data) | 2024 | 2023 | ||||||
| Total revenues | $ | 4,929 | $ | 4,428 | ||||
| Net income attributable to the Company | $ | 1,012 | $ | 899 | ||||
| Net income per share: | ||||||||
| Basic | $ | 3.59 | $ | 3.22 | ||||
| Diluted | $ | 3.57 | $ | 3.20 |
Acquisition Earn-Out Payables
ASC 805 is the authoritative guidance requiring an acquirer to recognize 100% of the fair value of acquired assets, including goodwill, and assumed liabilities (with only limited exceptions) upon initially obtaining control of an acquired entity. Additionally, the fair value of contingent consideration arrangements (such as earn-out purchase arrangements) at the acquisition date must be included in the purchase price consideration. The recorded purchase prices for acquisitions include an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in these earn-out obligations will be recorded in the Consolidated Statements of Income when incurred or reasonably estimated. Estimations of potential earn-out obligations are typically based upon future earnings of the acquired operations or entities, usually for periods ranging from one to three years.
As of December 31, 2024, the fair values of the estimated acquisition earn-out payables were re-evaluated and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820 - Fair Value Measurement. The resulting additions, payments and net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the years ended December 31, 2024, 2023 and 2022 were as follows:
| Year Ended December 31, | ||||||||||||
| (in millions) | 2024 | 2023 | 2022 | |||||||||
| Balance as of the beginning of the period | $ | 249 | $ | 252 | $ | 291 | ||||||
| Additions to estimated acquisition earn-out payables from new acquisitions | 73 | 67 | 73 | |||||||||
| Assumed estimated acquisition earn-out payables | 3 | 21 | 35 | |||||||||
| Payments for estimated acquisition earn-out payables | (154 | ) | (119 | ) | (106 | ) | ||||||
| Subtotal | 171 | 221 | 293 | |||||||||
| Net change in earnings from estimated acquisition earn-out payables: | ||||||||||||
| Change in fair value on estimated acquisition earn-out payables | (6 | ) | 14 | (46 | ) | |||||||
| Interest expense accretion | 8 | 7 | 7 | |||||||||
| Net change in earnings from estimated acquisition earn out payables | 2 | 21 | (39 | ) | ||||||||
| Foreign currency translation adjustments during the year | (6 | ) | 7 | (2 | ) | |||||||
| Balance as of December 31, | $ | 167 | $ | 249 | $ | 252 |
Of the $167 million of estimated acquisition earn-out payables as of December 31, 2024, $75 million was recorded as current liabilities within the accounts payable caption in the Company's Consolidated Balance Sheets and $92 million was recorded as non-current liabilities within the other liabilities caption in the Company's Consolidated Balance Sheets. Included within additions to estimated acquisition earn-out payables are any adjustments to opening balance sheet items within the allowable measurement period, which may therefore differ from previously reported amounts. Of the $249 million of estimated acquisition earn-out payables as of December 31, 2023, $146 million was recorded as accounts payable, and $103 million was recorded as other liabilities.
As of December 31, 2024, the maximum future contingency payments related to all acquisitions totaled $497 million. Five of the estimated acquisition earn-out payables include provisions with no maximum potential earn-out amount. The amount recorded for these acquisitions as of December 31, 2024, is $4 million. The Company deems a significant increase to this amount to be unlikely.
NOTE 4 Goodwill
The changes in the carrying value of goodwill by reportable segment for the years ended December 31, are as follows:
| (in millions) | Retail (1) | Programs (1) | Wholesale Brokerage | Total | ||||||||||||
| Balance as of January 1, 2023 | $ | 4,436 | $ | 1,646 | $ | 592 | $ | 6,674 | ||||||||
| Goodwill of acquired businesses | 335 | 263 | 23 | 621 | ||||||||||||
| Goodwill adjustment during measurement period (2) | 13 | (23 | ) | (2 | ) | (12 | ) | |||||||||
| Goodwill disposed of relating to sales of businesses | — | (47 | ) | — | (47 | ) | ||||||||||
| Foreign currency translation adjustments during the year | 86 | 14 | 5 | 105 | ||||||||||||
| Balance as of December 31, 2023 | $ | 4,870 | $ | 1,853 | $ | 618 | $ | 7,341 | ||||||||
| Goodwill of acquired businesses | 671 | — | 27 | 698 | ||||||||||||
| Goodwill adjustment during measurement period (2) | (37 | ) | 40 | 6 | 9 | |||||||||||
| Goodwill disposed of relating to sales of businesses | (13 | ) | — | — | (13 | ) | ||||||||||
| Foreign currency translation adjustments during the year | (55 | ) | (9 | ) | (1 | ) | (65 | ) | ||||||||
| Balance as of December 31, 2024 | $ | 5,436 | $ | 1,884 | $ | 650 | $ | 7,970 |
(1)
2023 balances and activity reflect reclassifications from the former Services segment as a result of our segment realignment in 2024.
(2)
Provisional estimates of fair value are established at the time of each acquisition and are subsequently reviewed and finalized within the first year of operations subsequent to the acquisition dates. As of December 31, 2024, adjustments were made to the amounts initially recorded. See also Note 3.
NOTE 5 Amortizable Intangible Assets
Amortizable intangible assets at December 31, 2024 and 2023 consisted of the following:
| December 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||
| (in millions) | Gross carrying value | Accumulated amortization | Net carrying value | Weighted average life in years**(1)** | Gross carrying value | Accumulated amortization | Net carrying value | Weighted average life in years**(1)** | ||||||||||||||||||||||||
| Purchased customer accounts and other | $ | 3,557 | $ | (1,718 | ) | $ | 1,839 | 15 | $ | 3,138 | $ | (1,549 | ) | $ | 1,589 | 15 | ||||||||||||||||
| Foreign currency translation adjustments during the year | (28 | ) | 3 | (25 | ) | 34 | (2 | ) | 32 | |||||||||||||||||||||||
| Total | $ | 3,529 | $ | (1,715 | ) | $ | 1,814 | $ | 3,172 | $ | (1,551 | ) | $ | 1,621 |
(1)
Weighted average life calculated as of the date of acquisition.
Amortization expense for amortizable intangible assets for the years ending December 31, 2025, 2026, 2027, 2028 and 2029 is estimated to be $193 million, $187 million, $176 million, $169 million and $152 million, respectively.
NOTE 6 Fi****xed Assets
Fixed assets at December 31 consisted of the following:
| (in millions) | 2024 | 2023 | ||||||
| Furniture, fixtures, equipment and software | $ | 382 | $ | 345 | ||||
| Leasehold improvements | 73 | 62 | ||||||
| Land, buildings and improvements | 136 | 117 | ||||||
| Total cost | 591 | 524 | ||||||
| Less accumulated depreciation and amortization | (272 | ) | (254 | ) | ||||
| Total | $ | 319 | $ | 270 |
Depreciation expense for fixed assets amounted to $44 million in 2024, $40 million in 2023 and $39 million in 2022.
NOTE 7 Accrued Expenses an****d Other Liabilities
Accrued expenses and other current liabilities at December 31 consisted of the following:
| (in millions) | 2024 | 2023 | ||||||
| Accrued incentive compensation | $ | 298 | $ | 268 | ||||
| Accrued compensation and benefits | 77 | 64 | ||||||
| Lease liability (1) | 47 | 45 | ||||||
| Deferred revenue | 80 | 78 | ||||||
| Reserve for policy cancellations | 73 | 53 | ||||||
| Accrued interest | 27 | 33 | ||||||
| Accrued rent and vendor expenses | 19 | 21 | ||||||
| Other | 32 | 46 | ||||||
| Total | $ | 653 | $ | 608 |
(1)
The Lease liability is the current portion of the Operating lease liabilities as reflected in the Consolidated Balance Sheets as of December 31, 2024 and 2023.
NOTE 8 Lon****g-Term Debt
Long-term debt at December 31, 2024 and 2023 consisted of the following:
| (in millions) | December 31, 2024 | December 31, 2023 | ||||||
| Current portion of long-term debt: | ||||||||
| Current portion of 5-year term loan facility expires 2026 | $ | 25 | $ | 25 | ||||
| Current portion of 3-year term loan expires 2025 | 150 | — | ||||||
| Current portion of 5-year term loan credit agreement expires 2027 | 50 | 44 | ||||||
| Current portion of 4.200% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2024 | — | 500 | ||||||
| Total current portion of long-term debt | 225 | 569 | ||||||
| Long-term debt: | ||||||||
| Note agreements: | ||||||||
| 4.500% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2029 | 350 | 350 | ||||||
| 2.375% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2031 | 700 | 700 | ||||||
| 4.200% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2032 | 598 | 598 | ||||||
| 5.650% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2034 | 599 | — | ||||||
| 4.950% senior notes, semi-annual interest payments, net of the unamortized discount, balloon due 2052 | 592 | 592 | ||||||
| Total notes | 2,839 | 2,240 | ||||||
| Credit agreements: | ||||||||
| 5-year term loan facility, periodic interest and principal payments, SOFR plus up to 1.750%, expires October 27, 2026 | 169 | 194 | ||||||
| 5-year revolving loan facility, periodic interest payments, SOFR plus up to 1.525%, plus commitment fees up to 0.225%, expires October 27, 2026 | 250 | 100 | ||||||
| 3-year term loan facility, periodic interest and principal payments, SOFR plus up to 1.625%, expires March 31, 2025 | — | 300 | ||||||
| 5-year term loan facility, periodic interest and principal payments, SOFR plus up to 1.750%, expires March 31, 2027 | 362 | 412 | ||||||
| Total credit agreements | 781 | 1,006 | ||||||
| Debt issuance costs (contra) | (21 | ) | (19 | ) | ||||
| Total long-term debt less unamortized discount and debt issuance costs | 3,599 | 3,227 | ||||||
| Current portion of long-term debt | 225 | 569 | ||||||
| Total debt | $ | 3,824 | $ | 3,796 |
Note agreements: On June 11, 2024, the Company completed the issuance of $600 million aggregate principal amount of 5.650% senior notes due 2034 (the “2034 Senior Notes”). The net proceeds to the Company from the issuance of the 2034 Senior Notes, after deducting underwriting discounts and estimated offering expenses, were approximately $593 million. The 2034 Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 positive outlook. The 2034 Senior Notes will mature in June 2034. Interest on the 2034 Senior Notes will be payable semi-annually in arrears. The 2034 Senior Notes are senior unsecured obligations of the Company and rank equal in right of payment to all of the Company’s existing and future senior unsecured indebtedness. The Company may redeem the 2034 Senior Notes in whole or in part at any time and from time to time, at the “make whole” redemption prices specified in the prospectus supplement for the 2034 Senior Notes being redeemed, plus accrued and unpaid interest thereon. In September 2024, the Company used a portion of the proceeds from the 2034 Senior Notes to repay $500 million of the 4.200% senior notes due September 2024. In June 2024, the Company also used $100 million of the proceeds to repay a portion of an outstanding term loan balance. As of December 31, 2024 there was a total outstanding debt balance of $600 million exclusive of the associated discount balance on the 2034 Senior Notes.
The Company also maintains other notes from other issuances aggregating to a total outstanding debt balance of $2,250 million and $2,750 million exclusive of the associated discount balance as of December 31, 2024 and 2023, respectively.
Credit agreements: On May 31, 2023, the Company repaid the outstanding balance of $203 million on the term loan (the “Term Loan”) associated with the Term Loan Credit Agreement (the “Term Loan Credit Agreement”) which was entered into on December 21, 2018 with cash of $33 million and $170 million with proceeds from the Revolving Credit Facility. The Term Loan was terminated early due to the agreement's benchmark reference rate to the London Interbank Offered Rate (“LIBOR”) which was due to cease on June 30, 2023.
On October 27, 2021, the Company entered into an amended and restated credit agreement (the “Second Amended and Restated Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent, Bank of America, N.A., Truist Bank and BMO Harris Bank N.A. as co-syndication agents, and U.S. Bank National Association, Fifth Third Bank, National Association, Wells Fargo Bank, National Association, PNC Bank, National Association, Morgan Stanley Senior Funding, Inc. and Citizens Bank, N.A. as co-documentation agents. The Second Amended and Restated Credit Agreement amended and restated the credit agreement dated April 17, 2014, among certain of such parties, as amended by that certain amended and restated credit agreement dated June 28, 2017 (the “Original Credit Agreement”). The Second Amended and Restated Credit Agreement, among other certain terms, extended the maturity of the Revolving Credit Facility of $800 million and unsecured term loans associated with the agreement of $250 million to October 27, 2026. At the time of the renewal, the Company added an additional $3 million in debt issuance costs related to the transaction. The Company carried forward $1 million of existing debt issuance costs related to the previous credit facility agreements while expensing a minimal amount in debt issuance costs due to certain lenders exiting the renewed facility agreement. On February 10, 2023, the Company entered into Amendment No.1 ("Amendment") of the Second Amended and Restated Credit Agreement which provided that the overnight LIBOR should be replaced with a successor rate. The amendment also included additional terms and conditions for the Secured Overnight Financing Rate (“SOFR”) loans and Risk-free Reference Rate ("RFR") loans.
The Company also maintains other credit agreements that include term loans and a Revolving Credit Facility, all having similar terms and covenants. The outstanding balances on the other term loans was $756 million and $975 million as of December 31, 2024 and 2023, respectively. The outstanding balance on the Revolving Credit Facility was $250 million and $100 million as of December 31, 2024 and 2023, respectively.
The Second Amended and Restated Credit Agreement and Loan Agreement require the Company to maintain certain financial ratios and comply with certain other covenants. The Company was in compliance with all such covenants as of December 31, 2024 and December 31, 2023.
The 1-month Term SOFR Rate for the term loan and Revolving Credit Facility of the Second Amended and Restated Credit Agreement as of December 31, 2024 was 4.457% and 4.439% respectively. The 1-month Term SOFR Rate for our other term loan agreements is 4.457% as of December 31, 2024. These SOFR rates are inclusive of a 0.100% credit-spread adjustment per the terms of the relevant agreements.
Interest paid in 2024, 2023 and 2022 was $195 million, $186 million, and $120 million, respectively.
At December 31, 2024, maturities of long-term debt were $225 million in 2025, $469 million in 2026, $312 million in 2027, $350 million in 2029, $700 million in 2031, $600 million in 2032, $600 million in 2034, $600 million in 2052.
Fair value information about financial instruments not measured at fair value
The following tables presents liabilities that are not measured at fair value on a recurring basis:
| December 31, 2024 | December 31, 2023 | |||||||||||||||
| (in millions) | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||
| Liabilities: | ||||||||||||||||
| Current portion of long-term debt | $ | — | $ | — | $ | 500 | $ | 495 | ||||||||
| Long-term debt | $ | 2,839 | $ | 2,602 | $ | 2,240 | $ | 1,993 |
The carrying value of the Company's borrowings under various credit agreements approximates its fair value due to the variable interest rate based upon adjusted SOFR. The fair values above, which exclude accrued interest, are not necessarily indicative of the amounts that the Company would realize upon disposition, nor do they indicate the Company’s intent or ability to dispose of the financial instruments. The fair values of our respective senior notes are considered Level 2 financial instruments as they are corroborated by observable market data.
NOTE 9 I****ncome Taxes
Significant components of the provision for income taxes for the years ended December 31 are as follows:
| (in millions) | 2024 | 2023 | 2022 | |||||||||
| Current: | ||||||||||||
| Federal | $ | 198 | $ | 180 | $ | 124 | ||||||
| State | 70 | 57 | 35 | |||||||||
| Foreign | 19 | 23 | 2 | |||||||||
| Total current provision | 287 | 260 | 161 | |||||||||
| Deferred: | ||||||||||||
| Federal | 14 | 26 | 39 | |||||||||
| State | 4 | 6 | 8 | |||||||||
| Foreign | (4 | ) | (17 | ) | (4 | ) | ||||||
| Total deferred provision | 14 | 15 | 43 | |||||||||
| Total tax provision | $ | 301 | $ | 275 | $ | 204 |
A reconciliation of the differences between the effective tax rate and the federal statutory tax rate for the years ended December 31 is as follows:
| 2024 | 2023 | 2022 | ||||||||||
| Federal statutory tax rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||
| State income taxes, net of federal income tax benefit | 4.6 | 4.5 | 4.7 | |||||||||
| Non-deductible employee stock purchase plan expense | 0.2 | 0.2 | 0.2 | |||||||||
| Non-deductible meals and entertainment | 0.2 | 0.2 | 0.1 | |||||||||
| Non-deductible officers’ compensation | 0.4 | 0.4 | 0.6 | |||||||||
| Tax benefit from stock-based compensation | (1.9 | ) | (1.6 | ) | (3.1 | ) | ||||||
| Effect of rates different than statutory | (1.1 | ) | — | — | ||||||||
| Other, net | (0.3 | ) | (0.6 | ) | (0.2 | ) | ||||||
| Effective tax rate | 23.1 | % | 24.1 | % | 23.3 | % |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for income tax reporting purposes.
Significant components of the Company’s net deferred tax liabilities as of December 31 are as follows:
| (in millions) | 2024 | 2023 | ||||||
| Non-current deferred tax liabilities: | ||||||||
| Intangible assets | $ | 808 | $ | 701 | ||||
| Fixed assets | 22 | 23 | ||||||
| Right-of-use assets | 41 | 43 | ||||||
| Impact of adoption of ASC 606 revenue recognition | 31 | 25 | ||||||
| Total non-current deferred tax liabilities | 902 | 792 | ||||||
| Non-current deferred tax assets: | ||||||||
| Deferred compensation | 100 | 85 | ||||||
| Accruals and reserves | 34 | 19 | ||||||
| Lease liabilities | 49 | 50 | ||||||
| Net operating loss carryforwards and other carryforwards | 9 | 23 | ||||||
| Valuation allowance for deferred tax assets | (1 | ) | (1 | ) | ||||
| Total non-current deferred tax assets | 191 | 176 | ||||||
| Net non-current deferred tax liability | $ | 711 | $ | 616 |
Income taxes paid in 2024, 2023 and 2022 were $304 million, $219 million and $125 million, respectively.
At December 31, 2024, for income tax reporting purposes, the Company had net operating loss carryforwards of $16 million for federal, no net operating loss carryforwards for international jurisdiction and $78 million net operating loss carryforwards for state, portions of which expire in the years 2025 and thereafter. The state carryforward amount is derived from the operating results of certain subsidiaries.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| (in millions) | 2024 | 2023 | 2022 | |||||||||
| Unrecognized tax benefits balance at January 1 | $ | 5 | $ | 3 | $ | 1 | ||||||
| Gross increases for tax positions of prior years | 3 | 3 | 2 | |||||||||
| Gross decreases for tax positions of prior years | — | — | — | |||||||||
| Settlements | (4 | ) | (1 | ) | — | |||||||
| Unrecognized tax benefits balance at December 31 | $ | 4 | $ | 5 | $ | 3 |
The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Accrued interest and penalties related to uncertain tax positions were minimal.
The Company is subject to taxation in the United States and various state jurisdictions. The Company is also subject to taxation in various international jurisdictions throughout Europe and Asia. In the United States, federal returns for fiscal years 2021 through 2024 remain open and subject to examination by the Internal Revenue Service. The Company files and remits state income taxes in various states where the Company has determined it is required to file state income taxes. The Company’s filings with those states remain open for audit for the fiscal years 2021 through 2024. The Company files and remits income taxes in various international jurisdictions where the Company has determined it is required to file income taxes. The Company's filings with those countries remain open for audit for the fiscal years 2020 through 2024. The Company also operates in Bermuda and the Cayman Islands. The Company is not subject to any income taxes in these countries.
During 2023, the Company settled the previously disclosed State of Massachusetts income tax audit for the fiscal years 2015-2017, settled the previously disclosed State of Wisconsin audit for the fiscal years 2017-2020 and settled the previously disclosed State of Missouri audit for the fiscal years 2019-2021. There were no material adjustments as a result of the finalization of these audits. During 2023, the State of Michigan initiated an audit on the Company for the fiscal years 2018-2021, and the State of California initiated an audit for the fiscal years 2020-2021.
During 2024, the Company settled the State of Michigan income tax audit for the fiscal years 2018-2021, there was no material adjustments as a result of the finalization of the audit. Additionally, the State of Massachusetts proposed an adjustment on the previously disclosed State audit for the fiscal years 2018-2020. The Company is in the process of appealing the proposed adjustment, and no additional tax expense or liability is expected for this audit.
In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. The Company has determined it is not practical to determine the unrecognized deferred tax liabilities on the undistributed earnings from the Company’s international subsidiaries as such earnings are considered to be indefinitely reinvested.
NOTE 10 Employ****ee Savings Plan
The Company has an Employee Savings Plan (401(k)) in which substantially all employees with more than 30 days of service are eligible to participate. Under this plan, the Company makes matching contributions of up to 4.0% of each participant’s annual compensation. The Company’s contribution expense to the plan totaled $56 million in 2024 and $52 million in 2023.
NOTE 11 Stock-Ba****sed Compensation
Performance Stock Plan
In 1996, the Company adopted and the shareholders approved a performance stock plan, under which until the suspension of the plan in 2010, up to 28,800,000 Performance Stock Plan (“PSP”) shares could be granted to key employees contingent on the employees’ future years of service with the Company and other performance-based criteria established by the Compensation Committee of the Company’s board of directors. Before participants may take full title to Performance Stock, two vesting conditions must be met. Of the grants currently outstanding, specified portions satisfied the first condition for vesting based upon 20% incremental increases in the 20-trading-day average stock price of Brown & Brown’s common stock from the price on the last business day before date of grant. Performance Stock that has satisfied the first vesting condition is considered “awarded shares.” Awarded shares are included as issued and outstanding common stock shares and are included in the calculation of basic and diluted net income per share. Dividends are paid on awarded shares and participants may exercise voting privileges on such shares. Awarded shares satisfy the second condition for vesting on the earlier of a participant’s: (i) 15 years of continuous employment with Brown & Brown from the date shares are granted to the participants (or, in the case of the July 2009 grant to Powell Brown, 20 years), (ii) attainment of age 64 (on a prorated basis corresponding to the number of years since the date of grant), or (iii) death or disability. On April 28, 2010, the PSP was suspended and any remaining authorized, but unissued shares, as well as any shares forfeited in the future, were reserved for issuance under the 2010 Stock Incentive Plan (the “2010 SIP”).
At December 31, 2024, 10,154,854 shares had been granted, net of forfeitures, under the PSP. As of December 31, 2024, 97,738 shares had met the first condition of vesting and had been awarded, and 10,057,116 shares had satisfied both conditions of vesting and had been distributed to participants. Of the shares that have not vested as of December 31, 2024, the initial stock prices ranged from $8.89 to $9.66.
The Company uses a path-dependent lattice model to estimate the fair value of PSP grants on the grant date.
A summary of PSP activity for the years ended December 31, 2024, 2023 and 2022 is as follows:
| Weighted- average grant date fair value | Granted shares | Awarded shares | Shares not yet awarded | |||||||||||||
| Outstanding at January 1, 2022 | $ | 4.87 | 839,842 | 839,842 | — | |||||||||||
| Granted | $ | — | — | — | — | |||||||||||
| Awarded | $ | — | — | — | — | |||||||||||
| Vested | $ | 4.81 | (101,900 | ) | (101,900 | ) | — | |||||||||
| Forfeited | $ | 4.80 | (29,562 | ) | (29,562 | ) | — | |||||||||
| Outstanding at December 31, 2022 | $ | 4.88 | 708,380 | 708,380 | — | |||||||||||
| Granted | $ | — | — | — | — | |||||||||||
| Awarded | $ | — | — | — | — | |||||||||||
| Vested | $ | 4.69 | (532,282 | ) | (532,282 | ) | — | |||||||||
| Forfeited | $ | 5.25 | (8,326 | ) | (8,326 | ) | — | |||||||||
| Outstanding at December 31, 2023 | $ | 5.47 | 167,772 | 167,772 | — | |||||||||||
| Granted | $ | — | — | — | — | |||||||||||
| Awarded | $ | — | — | — | — | |||||||||||
| Vested | $ | 5.43 | (69,794 | ) | (69,794 | ) | — | |||||||||
| Forfeited | $ | 5.09 | (240 | ) | (240 | ) | — | |||||||||
| Outstanding at December 31, 2024 | $ | 5.49 | 97,738 | 97,738 | — |
The total fair value of PSP grants that vested during each of the years ended December 31, 2024, 2023 and 2022 was $6 million, $31 million and $6 million, respectively.
Stock Incentive Plans
On April 28, 2010, the shareholders of the Company approved the 2010 Stock Incentive Plan (“2010 SIP”), which was suspended May 1, 2019. On May 1, 2019, the shareholders of the Company approved the 2019 Stock Incentive Plan (“2019 SIP”) that provides for the granting of restricted stock, restricted stock units, stock options, stock appreciation rights and other stock-based awards to employees and directors contingent on performance-based and/or time-based criteria established by the Compensation Committee of the Company’s board of directors. In addition, the 2019 SIP provides for a limited delegation of authority of the Company’s chief executive officer to grant awards to individuals
who are not subject to Section 16 of the Securities Exchange Act of 1934. The principal purpose of the 2019 SIP is to attract, incentivize and retain key employees by offering those persons an opportunity to acquire or increase a direct proprietary interest in the Company’s operations and future success. The number of shares of stock reserved for issuance under the 2019 SIP is 2,283,475 shares, plus any shares that are authorized for issuance under the 2010 SIP (described below), and not already subject to grants under the 2010 SIP, and that were outstanding as of May 1, 2019, the date of suspension of the 2010 SIP, together with PSP shares, 2010 SIP shares and 2019 SIP shares forfeited after that date. As of May 1, 2019, 6,957,897 shares were available for issuance under the 2010 SIP, which were then transferred to the 2019 SIP.
The Company has granted restricted share awards (including both restricted stock and restricted stock units) to our employees in the form of time-based grants and performance-based grants under the 2010 SIP and 2019 SIP. To date, a substantial majority of restricted share grants to employees under these plans vest in 5 years. The performance-based grants are subject to the achievement of certain performance criteria by grantees, which may include growth in a defined book of business, Organic Revenue growth of the Company and consolidated diluted net income per share growth at certain levels of the Company. The performance measurement period ranges from 3 to 5 years. Beginning in 2016, certain performance-based grants have a payout range between 0% to 200% depending on the achievement against the stated performance target. Prior to 2016, the majority of the grants had a binary performance measurement criteria that only allowed for 0% or 100% payout.
Non-employee members of the board of directors received shares annually issued pursuant to the 2019 SIP as part of their annual compensation. A total of 15,003 shares were issued in May 2022, 16,632 shares were issued in May 2023 and 16,884 shares were issued in May 2024.
The Company uses the closing stock price on the day before the grant date to determine the fair value of grants under the 2010 SIP and 2019 SIP and then applies an estimated forfeiture factor to estimate the annual expense. Additionally, the Company uses the path-dependent lattice model to estimate the fair value of grants with PSP-type vesting conditions as of the grant date. SIP shares that satisfied the first vesting condition for PSP-type grants or the established performance criteria are considered awarded shares. Awarded shares under restricted stock awards are included as issued and outstanding common stock shares and are included in the calculation of basic and diluted net income per share.
A summary of 2010 SIP and 2019 SIP activity for the years ended December 31, 2024, 2023 and 2022 is as follows:
| Weighted- average grant date fair value | Granted shares | Awarded shares | Shares not yet awarded | ||||||||||||||
| Outstanding at January 1, 2022 | $ | 21.59 | 7,608,446 | 5,025,561 | 2,582,885 | ||||||||||||
| Granted | $ | 65.22 | 1,478,613 | 693,802 | 784,811 | (1) | |||||||||||
| Awarded | $ | 28.73 | 470,793 | 1,383,216 | (912,423 | ) | |||||||||||
| Vested | $ | 20.09 | (2,179,476 | ) | (2,179,476 | ) | — | ||||||||||
| Forfeited | $ | 37.78 | (313,428 | ) | (168,454 | ) | (144,974 | ) | |||||||||
| Outstanding at December 31, 2022 | $ | 25.01 | 7,064,948 | 4,754,649 | 2,310,299 | ||||||||||||
| Granted | $ | 56.39 | 1,558,826 | 235,738 | 1,323,088 | (2) | |||||||||||
| Awarded | $ | 47.60 | 330,310 | 977,447 | (647,137 | ) | |||||||||||
| Vested | $ | 25.46 | (1,561,615 | ) | (1,561,615 | ) | — | ||||||||||
| Forfeited | $ | 49.37 | (271,154 | ) | (129,889 | ) | (141,265 | ) | |||||||||
| Outstanding at December 31, 2023 | $ | 27.50 | 7,121,315 | 4,276,330 | 2,844,985 | ||||||||||||
| Granted | $ | 81.53 | 1,404,586 | 249,952 | 1,154,634 | (3) | |||||||||||
| Awarded | $ | 45.99 | 437,891 | 1,228,675 | (790,784 | ) | |||||||||||
| Vested | $ | 29.23 | (1,903,832 | ) | (1,903,832 | ) | — | ||||||||||
| Forfeited | $ | 62.43 | (261,423 | ) | (114,053 | ) | (147,370 | ) | |||||||||
| Outstanding at December 31, 2024 | $ | 30.98 | 6,798,537 | 3,737,072 | 3,061,465 |
(1)
Of the 784,811 performance-based shares granted in 2022, the payout for 378,836 shares may be increased up to 200% of the target or decreased to zero, 15,114 shares may be increased up to 120% of the target or decreased to zero. The amount reflected in the table includes all time-based share grants at a target payout of 100%.
(2)
Of the 1,323,088 performance-based shares granted in 2023, the payout for 615,575 shares may be increased up to 200% of the target or decreased to zero and 17,338 shares may be increased up to 120% of the target or decreased to zero. The amount reflected in the table includes all time-based share grants at a target payout of 100%.
(3)
Of the 1,154,634 performance-based shares granted in 2024, the payout for 587,205 shares may be increased up to 200% of the target or decreased to zero. The amount reflected in the table includes all time-based share grants at a target payout of 100%.
The following table sets forth information as of December 31, 2024, 2023 and 2022, with respect to the number of time-based restricted shares granted and awarded, the number of performance-based restricted shares granted, and the number of performance-based restricted shares awarded under our Performance Stock Plan and 2010 and 2019 Stock Incentive Plans:
| Year | Time-based restricted stock granted and awarded | Performance-based restricted stock granted | Performance-based restricted stock awarded | |||||||||
| 2024 | 249,952 | 1,154,634 | (1) | 1,228,675 | ||||||||
| 2023 | 235,738 | 1,323,088 | (2) | 977,447 | ||||||||
| 2022 | 693,802 | 784,811 | (3) | 1,383,216 |
(1)
Of the 1,154,634 performance-based shares granted in 2024, the payout for 587,205 shares may be increased up to 200% of the target or decreased to zero. The amount reflected in the table includes all time-based share grants at a target payout of 100%.
(2)
Of the 1,323,088 performance-based shares granted in 2023, the payout for 615,575 shares may be increased up to 200% of the target or decreased to zero and 17,338 shares may be increased up to 120% of the target or decreased to zero. The amount reflected in the table includes all time-based share grants at a target payout of 100%.
(3)
Of the 784,811 performance-based shares granted in 2022, the payout for 378,836 shares may be increased up to 200% of the target or decreased to zero, 15,114 shares may be increased up to 120% of the target or decreased to zero. The amount reflected in the table includes all time-based share grants at a target payout of 100%.
At December 31, 2024, 2,582,143 shares were available for future grants under the 2019 SIP. This amount is calculated assuming the maximum payout for all grants.
Employee Stock Purchase Plan
The Company has a shareholder-approved Employee Stock Purchase Plan (“ESPP”) with a total of 34,000,000 authorized shares of which 2,273,356 were available for future subscriptions as of December 31, 2024. Employees of the Company who regularly work 20 hours or more per week are generally eligible to participate in the ESPP. Participants, through payroll deductions, may allot up to 10% of their compensation towards the purchase of a maximum of $25,000 worth of Company stock between August 1st of each year and the following July 31st (the “Subscription Period”) at a cost of 85% of the lower of the stock price as of the beginning or end of the Subscription Period.
The Company estimates the fair value of an ESPP share option as of the beginning of the Subscription Period as the sum of: (i) 15% of the quoted market price of the Company’s stock on the day prior to the beginning of the Subscription Period, and (ii) 85% of the value of a one-year stock option on the Company stock using the Black-Scholes option-pricing model. The estimated fair value of an ESPP share option as of the Subscription Period beginning in August 2024 was $23.10. The fair values of an ESPP share option as of the Subscription Periods beginning in August 2023 and 2022, were $18.13 and $15.81, respectively.
For the ESPP plan years ended July 31, 2024, 2023 and 2022, the Company issued 718,457, 743,856 and 791,842 shares of common stock, respectively. These shares were issued at an aggregate purchase price of $43 million, or $59.50 per share, in 2024, $40 million, or $53.70 per share, in 2023 and $37 million, or $46.10 per share, in 2022.
For the five months ended December 31, 2024, 2023 and 2022 (portions of the 2024-2025, 2023-2024 and 2022-2023 plan years), 255,015, 330,599 and 338,498 shares of common stock (from authorized but unissued shares), respectively, were subscribed to by ESPP participants for proceeds of approximately $22 million, $20 million and $18 million, respectively.
Summary of Non-Cash Stock-Based Compensation Expense
The non-cash stock-based compensation expense for the years ended December 31 is as follows:
| (in millions) | 2024 | 2023 | 2022 | |||||||||
| Stock incentive plan | $ | 87 | $ | 75 | $ | 56 | ||||||
| Employee stock purchase plan | 13 | 12 | 10 | |||||||||
| Performance stock plan | — | 1 | — | |||||||||
| Sharesave plan | 1 | 1 | — | |||||||||
| Total | $ | 101 | $ | 89 | $ | 66 |
Summary of Unamortized Compensation Expense
As of December 31, 2024, the Company estimates there to be $251 million of unamortized compensation expense related to all non-vested stock-based compensation arrangements granted under the Company’s stock-based compensation plans, based upon current projections of grant measurement against performance criteria. That expense is expected to be recognized over a weighted average period of 3.43 years.
NOTE 12 Supplemental Disclosures of Cash Flow Inform****ation and Non-Cash Financing and Investing Activities
During 2024, the Company had an impact of $13 million of foreign exchange rate changes on cash and cash equivalents inclusive of fiduciary cash reported on its Consolidated Statements of Cash Flows which is primarily due to the change currency exchange rates primarily for British pounds.
Pursuant to the sale of certain third-party claims administration and adjusting services businesses in the fourth quarter of 2023, the Company is entitled to future consideration payments upon achievement of certain conditions in accordance with the terms of the sale agreement. During the second quarter of 2024, the Company received cash of $57 million from the settlement of two of the contingent payments.
During 2024, the Company accrued for and deferred approximately $90 million related to certain federal income tax payments due to Hurricane Debby and Milton tax relief, which were announced by the Internal Revenue Service in August and October 2024, respectively. The deadline to pay these deferred tax payments is May 1, 2025.
During 2023, the Company accrued for and deferred $121 million related to certain federal income tax payments due to Hurricane Idalia tax relief, which was announced by the Internal Revenue Service on August 30, 2023. Included in the 2023 deferred payments was $30 million associated with the gain on disposal associated with certain third-party claims administration and adjusting services businesses sold in the fourth quarter of 2023. These deferred income tax payments were paid by the deadline of February 15, 2024. On March 15, 2023, the Company paid $31 million of accrued federal income tax payments deferred from the fourth quarter of 2022 related to similar tax relief announced by the Internal Revenue Service on September 29, 2022 and associated with Hurricane Ian.
The Company’s cash paid during the period for interest and income taxes are summarized as follows:
| Year Ended December 31, | ||||||||||||
| (in millions) | 2024 | 2023 | 2022 | |||||||||
| Cash paid during the period for: | ||||||||||||
| Interest | $ | 195 | $ | 186 | $ | 120 | ||||||
| Income taxes, net of refunds | 302 | 218 | 122 |
The Company’s significant non-cash investing and financing activities are summarized as follows:
| Year Ended December 31, | ||||||||||||
| (in millions) | 2024 | 2023 | 2022 | |||||||||
| Other payables issued for agency acquisitions and purchased customer accounts | $ | 27 | $ | 12 | $ | 6 | ||||||
| Estimated acquisition earn-out payables and related charges | 73 | 67 | 73 | |||||||||
| Assumed acquisition earn-out payables | 3 | 21 | 35 | |||||||||
| Common stock issued for agency acquisition | — | 18 | 15 |
Our fiduciary cash balance is composed of funds held in separate premium trust accounts as required by state law or, in some cases, per agreement with our carrier partners. The following is a reconciliation of fiduciary cash as of December 31, 2024, 2023 and 2022.
| Balance as of December 31, | ||||||||||||
| (in millions) | 2024 | 2023 | 2022 | |||||||||
| Table to reconcile restricted and non-restricted fiduciary cash | ||||||||||||
| Restricted fiduciary cash | $ | 1,570 | $ | 1,412 | $ | 1,232 | ||||||
| Non-restricted fiduciary cash | 257 | 191 | 151 | |||||||||
| Total restricted and non-restricted fiduciary cash at the end of the period | $ | 1,827 | $ | 1,603 | $ | 1,383 |
The following is a reconciliation of cash and cash equivalents inclusive of restricted cash as of December 31, 2024, 2023 and 2022.
| Balance as of December 31, | ||||||||||||
| (in millions) | 2024 | 2023 | 2022 | |||||||||
| Table to reconcile cash and cash equivalents inclusive of fiduciary cash | ||||||||||||
| Cash and cash equivalents | $ | 675 | $ | 700 | $ | 650 | ||||||
| Fiduciary cash | 1,827 | 1,603 | 1,383 | |||||||||
| Total cash and cash equivalents inclusive of fiduciary cash at the end of the period | $ | 2,502 | $ | 2,303 | $ | 2,033 |
NOTE 13 Commitment****s and Contingencies
Legal Proceedings
The Company records losses for claims in excess of the limits of, or outside the coverage of, applicable insurance at the time and to the extent they are probable and estimable. In accordance with ASC 450 - Contingencies, the Company accrues anticipated costs of settlement, damages, losses for liability claims and, under certain conditions, costs of defense, based upon historical experience or to the extent specific losses are probable and estimable. Otherwise, the Company expenses these costs as incurred. If the best estimate of a probable loss is a range rather than a specific amount, the Company accrues the amount at the lower end of the range.
The Company’s accruals for legal matters that were probable and estimable were not material at December 31, 2024 and 2023. We continue to assess certain litigation and claims to determine the amounts, if any, that management believes will be paid as a result of such claims and litigation and, therefore, additional losses may be accrued and paid in the future, which could adversely impact the Company’s operating results, cash flows and overall liquidity. The Company maintains third-party insurance policies to provide coverage for certain legal claims, in an effort to mitigate its overall exposure to unanticipated claims or adverse decisions. However, as (i) one or more of the Company’s insurance carriers could take the position that portions of these claims are not covered by the Company’s insurance, (ii) to the extent that payments are made to resolve claims and lawsuits, applicable insurance policy limits are eroded and (iii) the claims and lawsuits relating to these matters are continuing to develop, it is possible that future results of operations or cash flows for any particular quarterly or annual period could be materially affected by unfavorable resolutions of these matters. Based upon the AM Best Company ratings of these third-party insurers, management does not believe there is a substantial risk of an insurer’s material non-performance related to any current insured claims.
On the basis of current information, the availability of insurance and legal advice, in management’s opinion, the Company is not currently involved in any legal proceedings which, individually or in the aggregate, would have a material adverse effect on its financial condition, operations and/or cash flows.
NOTE 14 Leases
Substantially all of the Company's leases are classified as operating leases and primarily represent real estate leases for office space used to conduct the Company's business that expire on various dates through 2041. Leases generally contain renewal options and escalation clauses based upon increases in the lessors’ operating expenses and other charges. The Company anticipates that most of these leases will be renewed or replaced upon expiration.
The Company assesses at inception of a contract if it contains a lease. This assessment is based on: (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset.
The right-of-use asset is initially measured at cost, which is primarily composed of the initial lease liability, plus any initial direct costs incurred, less any lease incentives received. The lease liability is initially measured at the present value of the minimum lease payments through the term of the lease. Minimum lease payments are discounted to present value using the incremental borrowing rate at the lease commencement date, which approximates the rate of interest the Company expects to pay on a secured borrowing in an amount equal to the lease payments for the underlying asset under similar terms and economic conditions. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a total term of 12 months or less. The effect of short-term leases on the Company’s
right-of-use asset and lease liability would not be significant. The balances and classification of operating lease right-of-use assets and operating lease liabilities within the Consolidated Balance Sheets as of December 31, 2024 and 2023 is as follows:
| (in millions) | December 31, 2024 | December 31, 2023 | ||||||||
| Balance Sheet | ||||||||||
| Assets: | ||||||||||
| Operating lease right-of-use assets | Operating lease assets | $ | 200 | $ | 199 | |||||
| Total assets | 200 | 199 | ||||||||
| Liabilities: | ||||||||||
| Current operating lease liabilities | Accrued expenses and other liabilities | 47 | 45 | |||||||
| Non-current operating lease liabilities | Operating lease liabilities | 189 | 179 | |||||||
| Total liabilities | $ | 236 | $ | 224 |
As of December 31, 2024, the Company has entered into future lease agreements expected to commence in 2025 consisting of undiscounted lease liabilities of $14 million.
Variable lease cost represents lease payments that are based on an index or similar rate. They are initially measured using the index or rate in effect at lease commencement and are based on the minimum payments stated in the lease. Additional payments based on the change in an index or rate, or payments based on a change in the Company's portion of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred.
Lease expense for operating leases consists of the lease payments, inclusive of lease incentives, plus any initial direct costs, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability.
The components of lease cost for operating leases for the 12 months ended December 31, 2024 and 2023 were:
| (in millions) | For the year ended December 31, 2024 | For the year ended December 31, 2023 | ||||||||
| Operating leases: | ||||||||||
| Lease cost | $ | 59 | $ | 58 | ||||||
| Variable lease cost | 5 | 4 | ||||||||
| Short-term lease cost | 1 | — | ||||||||
| Operating lease cost | 65 | 62 | ||||||||
| Sublease income | (1 | ) | (1 | ) | ||||||
| Total lease cost net | $ | 64 | $ | 61 |
The weighted average remaining lease term and the weighted average discount rate for operating leases as of December 31, 2024 were:
| Weighted average remaining lease term | 6.1 | |||
| Weighted average discount rate | 3.90 | % |
Maturities of the operating lease liabilities by fiscal year at December 31, 2024 for the Company's operating leases are as follows:
| (in millions) | Operating Leases | |||
| 2025 | $ | 53 | ||
| 2026 | 49 | |||
| 2027 | 41 | |||
| 2028 | 33 | |||
| 2029 | 26 | |||
| Thereafter | 62 | |||
| Total undiscounted lease payments | 264 | |||
| Less: Imputed interest | 28 | |||
| Present value of future lease payments | $ | 236 |
Supplemental cash flow information for operating leases:
| (in millions) | For the year ended December 31, 2024 | For the year ended December 31, 2023 | |||||
| Cash paid for amounts included in measurement of liabilities | |||||||
| Operating cash flows from operating leases | $ | 62 | $ | 61 | |||
| Right-of-use assets obtained in exchange for new operating liabilities | $ | 44 | $ | 22 |
NOTE 15 Segme****nt Information
Brown & Brown’s business is divided into three reportable segments: (i) the Retail segment, which provides a broad range of insurance products and services to commercial, public and quasi-public entities, and to professional and individual customers, and non-insurance risk-mitigating products through our F&I businesses, (ii) the Programs segment, which primarily acts as MGUs, provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches, all of which are delivered through nationwide networks of independent agents, and Brown & Brown retail agents and (iii) the Wholesale Brokerage segment, which markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, as well as Brown & Brown retail agents.
Brown & Brown conducts most of its operations within the United States of America. International operations include Retail operations in Bermuda, Canada, Cayman Islands, the Netherlands, Republic of Ireland and the United Kingdom; Programs operations in Canada, France, Germany, Hong Kong, Italy, Malaysia, the Netherlands, Singapore, United Arab Emirates and the United Kingdom; and Wholesale Brokerage operations based in Belgium, Hong Kong, Italy and the United Kingdom. These operations earned $665 million, $527 million and $240 million of total revenues for the years ended December 31, 2024, 2023 and 2022, respectively.
The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates the performance of its segments based upon revenues and income before income taxes. Intersegment revenues are eliminated.
The Company's chief operating decision maker ("CODM"), the president and chief executive officer, regularly receives total revenue, income before income taxes and earnings before interest, income taxes, depreciation, amortization and change in estimated acquisition earn-out payables ("EBITDAC"). The metrics are used to review operating trends, to perform analytical comparisons between periods and to monitor budget to actual variances. The Company's CODM does not use segment assets to make resource allocation decisions, therefore it has not been presented.
In the fourth quarter of 2023, the Company sold certain third-party claims administration and adjusting services businesses representing approximately 50% of the total revenues of the Services segment. As a result, beginning in fiscal year 2024, the Company operates three segments. Balances presented for the years ended December 31, 2023 and 2022 have been recast to align with the three-segment structure.
Summarized financial information concerning the Company’s reportable segments is shown in the following table.
| Year Ended December 31, 2024 | ||||||||||||||||
| (in millions) | Retail | Programs | Wholesale Brokerage | Total | ||||||||||||
| Total segment revenues | $ | 2,729 | $ | 1,400 | $ | 616 | $ | 4,745 | ||||||||
| Reconciliation of revenues | ||||||||||||||||
| Other (1) | 60 | |||||||||||||||
| Total consolidated revenues | $ | 4,805 | ||||||||||||||
| Less: (2) | ||||||||||||||||
| Employee compensation and benefits | 1,462 | 450 | 322 | |||||||||||||
| Other operating expenses | 449 | 290 | 92 | |||||||||||||
| (Gain)/loss on disposal | (3 | ) | (28 | ) | — | |||||||||||
| Depreciation and amortization | 140 | 62 | 15 | |||||||||||||
| Interest | 71 | 30 | 11 | |||||||||||||
| Change in estimated acquisition earn-out payables | 8 | (7 | ) | 1 | ||||||||||||
| Segment Income before income taxes | $ | 602 | $ | 603 | $ | 175 | $ | 1,380 | ||||||||
| Reconciliation of income before income taxes | ||||||||||||||||
| Other (1) | (77 | ) | ||||||||||||||
| Consolidated Income before income taxes | $ | 1,303 |
| Year Ended December 31, 2023 | ||||||||||||||||
| (in millions) | Retail | Programs | Wholesale Brokerage | Total | ||||||||||||
| Total segment revenues | $ | 2,508 | $ | 1,173 | $ | 541 | $ | 4,222 | ||||||||
| Reconciliation of revenues | ||||||||||||||||
| Other (1) | 35 | |||||||||||||||
| Total consolidated revenues | $ | 4,257 | ||||||||||||||
| Less: (2) | ||||||||||||||||
| Employee compensation and benefits | 1,336 | 425 | 284 | |||||||||||||
| Other operating expenses | 421 | 247 | 85 | |||||||||||||
| (Gain)/loss on disposal | (3 | ) | (141 | ) | — | |||||||||||
| Depreciation and amortization | 131 | 55 | 14 | |||||||||||||
| Interest | 85 | 36 | 12 | |||||||||||||
| Change in estimated acquisition earn-out payables | 1 | — | 20 | |||||||||||||
| Segment Income before income taxes | $ | 537 | $ | 551 | $ | 126 | $ | 1,214 | ||||||||
| Reconciliation of income before income taxes | ||||||||||||||||
| Other (1) | (68 | ) | ||||||||||||||
| Consolidated Income before income taxes | $ | 1,146 |
| Year Ended December 31, 2022 | ||||||||||||||||
| (in millions) | Retail | Programs | Wholesale Brokerage | Total | ||||||||||||
| Total segment revenues | $ | 2,157 | $ | 958 | $ | 453 | $ | 3,568 | ||||||||
| Reconciliation of revenues | ||||||||||||||||
| Other (1) | 5 | |||||||||||||||
| Total consolidated revenues | $ | 3,573 | ||||||||||||||
| Less: (2) | ||||||||||||||||
| Employee compensation and benefits | 1,126 | 376 | 239 | |||||||||||||
| Other operating expenses | 377 | 223 | 70 | |||||||||||||
| (Gain)/loss on disposal | (8 | ) | 1 | 3 | ||||||||||||
| Depreciation and amortization | 115 | 53 | 12 | |||||||||||||
| Interest | 96 | 33 | 13 | |||||||||||||
| Change in estimated acquisition earn-out payables | (26 | ) | (11 | ) | (2 | ) | ||||||||||
| Segment Income before income taxes | $ | 477 | $ | 283 | $ | 118 | $ | 878 | ||||||||
| Reconciliation of income before income taxes | ||||||||||||||||
| Other (1) | (2 | ) | ||||||||||||||
| Consolidated Income before income taxes | $ | 876 |
(1) "Other" includes any income and expenses not allocated to reportable segments and corporate-related items.
(2) Significant expense categories and amounts align with the segment-level information that is regularly provided to the CODM.
NOTE 16 Insurance Company S****ubsidiary Operations
The National Flood Insurance Program is a program administered by the Federal Emergency Management Agency whereby the Company sells and services NFIP flood insurance policies on behalf of FEMA and receives fees for its services. Congressional authorization for the NFIP is periodically evaluated and may be subject to potential government shutdowns. The Company sells excess flood policies which are 100% ceded to a highly rated reinsurance carrier. The Company also participates in two Captives for the purpose of facilitating additional underwriting capacity and to participate in a portion of the Company's underwriting results. One Captive participates on a quota share basis for policies placed by certain of our MGU businesses that are currently focused on property insurance for earthquake and wind exposed properties with a portion of premiums ceded to reinsurance companies, limiting, but not fully eliminating the Company's exposure to underwriting losses. The other Captive participates through excess of loss reinsurance layers associated with one of our MGU businesses focused on placements of personal property, excluding flood, primarily in the southeastern United States with one layer of per risk excess reinsurance and three layers of catastrophe ("CAT") per occurrence reinsurance. All four layers have limited reinstatements and therefore, the Captive has capped, maximum aggregate limits. The effects of reinsurance on premiums written and earned are as follows:
| 2024 | 2023 | |||||||||||||||
| (in millions) | Written | Earned | Written | Earned | ||||||||||||
| Direct premiums - WNFIC | $ | 1,005 | $ | 946 | $ | 887 | $ | 807 | ||||||||
| Assumed premiums - WNFIC | — | — | — | — | ||||||||||||
| Ceded premiums - WNFIC | 1,005 | 946 | 887 | 807 | ||||||||||||
| Net premiums - WNFIC | — | — | — | — | ||||||||||||
| Assumed premiums - Quota share captive and excess of loss layer captive | 153 | 151 | 113 | 90 | ||||||||||||
| Ceded premiums - Quota share captive | (74 | ) | (74 | ) | (52 | ) | (62 | ) | ||||||||
| Net premiums - Quota share captive and excess loss layer captive | 79 | 77 | 61 | 28 | ||||||||||||
| Net premiums - Total | $ | 79 | $ | 77 | $ | 61 | $ | 28 |
All premiums written by the Company under the NFIP are 100.0% ceded to FEMA, for which WNFIC received a 29.5% gross expense allowance from January 1, 2024 through September 30, 2024 and a 29.1% gross expense allowance from October 1, 2024 through December 31, 2024. As of December 31, 2024 and 2023, the Company ceded $1,001 million and $883 million, respectively, of written premiums to FEMA, and $4 million and $4 million, respectively, ceded to highly rated carriers, for excess flood policies which are not within the NFIP.
As of December 31, 2024, the Consolidated Balance Sheets contained Reinsurance recoverable of $1,525 million and Prepaid reinsurance premiums of $520 million which are related to the WNFIC business. As of December 31, 2023, the Consolidated Balance Sheets contained reinsurance recoverable of $125 million and prepaid reinsurance premiums of $461 million. There was no net activity in the reserve for losses and loss adjustment expense for the years ended December 31, 2024 and 2023, as WNFIC’s direct premiums written were 100.0% ceded to two reinsurers. The balance of the reserve for losses and loss adjustment expense for the WNFIC, excluding related reinsurance recoverable, was $1,525 million as of December 31, 2024 and $125 million as of December 31, 2023.
WNFIC maintains capital in excess of minimum statutory amount of $8 million as required by regulatory authorities. The statutory capital and surplus of WNFIC was $44 million as of December 31, 2024 and $39 million as of December 31, 2023. As of December 31, 2024 and 2023, WNFIC generated statutory net income of $9 million and $8 million, respectively. The maximum amount of ordinary dividends that WNFIC can pay to shareholders in a rolling 12 month period is limited to the greater of 10.0% of statutory adjusted capital and surplus or 100.0% of adjusted net income. On June 10, 2024, WNFIC paid an ordinary dividend of $7 million. The dividend was declared and approved by the WNFIC Board of Directors on May 28, 2024. On April 28, 2023, WNFIC paid an ordinary dividend of $3 million. The dividend was declared and approved by the WNFIC Board of Directors on March 17, 2023. The maximum dividend payout that may be made in 2024 and 2025 without prior approval is $8 million and $9 million, respectively.
In December 2021, the initial funding to capitalize the quota share Captive was $6 million. The prior year equity in addition to the current earnings of $18 million through December 31, 2024 is considered at risk for loss. Assumed net written and net earned premiums for the quota share Captive for the 12 months ended December 31, 2024 were $75 million and $73 million, respectively. For the 12 months ended December 31, 2024, the ultimate loss expense inclusive of incurred but not reported claims was $21 million. As of December 31, 2024 the Consolidated Balance Sheets contained reinsurance recoverable of $2 million, deferred acquisition costs of $53 million, presented within the unearned premiums line item, reinsurance payable of $5 million, and the reserve for losses and loss adjustment expense, excluding related reinsurance recoverable of $14 million. The first collateral release was received in March 2024 and is based on an IBNR factor times earned premium compared to the current collateral balance.
The excess of loss layer Captive was renewed in June 2024 with underlying reinsurance treaties effective from June 1 through May 31, 2025. This Captive’s maximum underwriting exposure is $2 million. Assumed net earned premiums for the captive for the years ended December 31, 2024 and December 31, 2023 were $4 million. As of December 31, 2024 and December 31, 2023, the Consolidated Balance Sheets contained the reserve for losses and loss adjustment expense of $3 million and $2 million, respectively.
NOTE 17 Shareh****olders’ Equity
Under the authorization from the Company’s board of directors, shares may be purchased from time to time, at the Company’s discretion and subject to the availability of stock, market conditions, the trading price of the stock, alternative uses for capital, the Company’s financial performance and other potential factors. These purchases may be carried out through open market purchases, block trades, accelerated share repurchase plans of up to $100 million each (unless otherwise approved by the board of directors), negotiated private transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. On May 1, 2019, the Company's board of directors authorized the purchasing of up to an additional $372 million of the Company's outstanding common stock.
During 2024, the Company did not repurchase shares. During 2023, the Company repurchased 2,100 shares at an average price of $53.84 for a minimal amount under the current share repurchase authorization. At December 31, 2024, the remaining amount authorized by our board of directors for share repurchases was approximately $249 million. Under the authorized repurchase programs, the Company has repurchased approximately 19.7 million shares for an aggregate cost of approximately $748 million between 2014 and 2024.
During 2024, the Company paid a cumulative dividend of $0.54 per share for a total of $154 million. During 2023, the Company paid a cumulative dividend of $0.48 per share for a total of $135 million. On January 22, 2025 the board of directors approved a dividend of $0.15 per share payable on February 12, 2025 to shareholders of record on February 5, 2025.
During 2024, the Company did not issue any shares as part of any business combinations. During 2023, the Company issued 261,614 shares valued at $18 million associated with business combinations.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Brown & Brown, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Brown & Brown, Inc. and subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 12, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Business Combinations — Purchased Customer Accounts — Refer to Note 3 to the consolidated financial statements
Critical Audit Matter Description
The Company acquired the assets and liabilities of 14 insurance intermediaries, the stock of 14 insurance intermediaries, and 4 books of businesses (customer accounts) during the year ended December 31, 2024. The Company accounted for these acquisitions under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including purchased customer accounts of $391 million. Purchased customer accounts are recorded at fair value which is determined by calculating the present value of the underlying cash flows expected to be received over the estimated future duration of the acquired customer accounts. The fair value determination of the purchased customer accounts required management to make significant estimates and assumptions related to revenue projections and the selection of the discount rate.
Given the high degree of auditor judgment required to evaluate certain assumptions used to estimate the acquisition-date fair value of purchased customer account intangible assets, we identified the evaluation of the revenue projections and discount rate used in the valuation as a critical audit matter. The estimated fair value is sensitive to changes to these assumptions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the revenue projections and selection of the discount rate for the purchased customer accounts included the following, among others:
We tested the effectiveness of controls over the valuation of the purchased customer accounts, including management’s controls over revenue projections and selection of the discount rate.
We performed risk assessment procedures on the acquisitions completed during the year. For those acquisitions that exhibited characteristics of increased audit risk, we:
assessed the reasonableness of management’s revenue projections by comparing the projections to historical results of the acquired businesses and historical performance of the Company as well as industry and macroeconomic conditions. We also evaluated whether the assumptions used to develop projected revenue estimates were consistent with evidence obtained in other areas of the audit.
involved valuation specialists with specialized skills and knowledge, to assist in the evaluation of the reasonableness of the (1) valuation methodology and (2) discount rate by; (1) testing the source information underlying the determination of the discount rate and developing a range of independent estimates and comparing those to the discount rate selected by management and (2) comparing the WACC, internal rate of return (IRR), and weighted average return on assets (WARA) to each other to determine if the total consideration paid, cash flow projections, and discount rates, and other inputs/assumptions in the valuation models were consistent with each other and testing the mathematical accuracy of the calculation.
/s/ Deloitte & Touche LLP
Tampa, Florida February 12, 2025
We have served as the Company's auditor since 2002.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Brown & Brown, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Brown & Brown, Inc. and subsidiaries (the “Company”) as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2024, of the Company and our report dated February 12, 2025 expressed an unqualified opinion on those financial statements.
As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at the Canopy Group, Inc., Quintes Holdings B.V., and 9 of the 30 entities acquired with total consideration of less than $50 million per acquisition during 2024 as described in Note 3 to the consolidated financial statements, and whose financial statements constitute less than 1% of total assets, revenues, and net income of the consolidated financial statement amounts as of and for the year ended December 31, 2024. Accordingly, our audit did not include the internal control over financial reporting of these acquired entities.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Tampa, Florida February 12, 2025
Management’s Report on Internal Control over Financial Reporting
The management of Brown & Brown, Inc. and its subsidiaries (“Brown & Brown”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including Brown & Brown’s principal executive officer and principal financial officer, Brown & Brown conducted an evaluation of the effectiveness of internal control over financial reporting based upon the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In conducting Brown & Brown’s evaluation of the effectiveness of its internal control over financial reporting, Brown & Brown has excluded the following acquisitions completed by Brown & Brown during 2024: The Canopy Group, Quintes Holding B.V. and 9 of the 30 entities acquired with total consideration of less than $50 million each during 2024 (collectively the “2024 Excluded Acquisitions”), whose financial statements constitute less than 1% of total assets, revenues and net income of the consolidated financial statement amounts as of and for the year ended December 31, 2024. Refer to Note 3 to the Consolidated Financial Statements for further discussion of these acquisitions and their impact on Brown & Brown’s Consolidated Financial Statements.
Based upon Brown & Brown’s evaluation under the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission*,* management concluded that internal control over financial reporting was effective as of December 31, 2024. Management’s internal control over financial reporting as of December 31, 2024 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Brown & Brown, Inc.
Daytona Beach, Florida
February 12, 2025
| /s/ J. Powell Brown | /s/ R. Andrew Watts | |
| J. Powell Brown Chief executive officer | R. Andrew Watts Executive vice president, chief financial officer and treasurer |
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