Brown & Brown Inc (BRO) — Q1 2025 Earnings Call Transcript

Thanks, Kevin. Good morning, everyone, and welcome to our first quarter earnings call. Once again, our team delivered strong top and bottom line results. I'll provide some high-level comments regarding this performance, along with updates on the insurance market and the M&A landscape. Andy will then discuss our financial performance in more detail. And lastly, I'll wrap up with some closing thoughts before we open it up to Q&A. So now let's get into the results. For the first quarter, we delivered revenues of $1.4 billion, growing 11.6% in total and 6.5% organically as compared to the same period in the prior year. Our adjusted EBITDAC margin improved over 100 basis points to 38.1%, and our adjusted earnings per share grew over 13% to $1.29. On the M&A front, we completed 13 acquisitions with estimated annual revenues of $36 million. This consistently strong performance is a direct result of the dedication of our team of nearly 18,000 teammates. The main topic for the quarter was uncertainty related to tariffs, inflation, and interest rates and how they might impact economic expansion. Overall, we did not see buyers of insurance materially change their outlook, but we did see some business leaders shift to being more cautious. Generally, companies are still hiring and investing in their businesses. However, in certain cases, you're seeing some new projects put on hold for a few months due to these uncertainties. Presently, we would say the levels of investment in people and assets are fairly consistent with the past few quarters. We view this as a positive. Overall, the economies in which we operate are relatively stable and business owners remain optimistic, but have a tempered view regarding the level of growth over the coming quarters. From an insurance pricing standpoint, rate increases from most lines continued and were fairly consistent with the prior few quarters. However, they're moderating downwards slightly as compared to last year. The outliers continue to be auto and casualty that are increasing, and CAT property continued to soften during the quarter. Pricing for U.S. employee benefits in the first quarter was similar to prior quarters as medical and pharmacy costs remain up 7% to 9%. The outlier continues to be pharmacy, which is growing faster than medical. This ongoing upward pressure and the complexity of health care continue to drive strong demand for our employee benefits consulting businesses. Rates in the admitted P&C market moderated slightly as compared to last quarter and were up 2% to 7% from most lines versus the prior year. The downward trend for workers' compensation remains in most states, and they were flat to down 5%. For the first quarter, rate increases for non-CAT property were in the range of flat to up 5%, which is similar to the prior few quarters. For casualty, we continue to see rate increases for primary and excess layers. Consistent with the last few quarters, rates for excess casualty increased in the range of 5% to 10%. Placing higher limits or layers continues to be very challenging, both from a pricing perspective and the availability of limits. For professional liability, rates were flat to up 5% as compared to last year. Shifting to the E&S property market. As we entered the first quarter, we anticipated rates for CAT property would decline 10% to 20%. With the availability of capital, rates during the quarter declined a bit faster and were down 10% to 25%, and we saw outliers based on the quality of construction, claims experience, and new versus renewal business. In some cases, rates were down in excess of 25%. With the decline in rates, some buyers chose to increase their limits or modify deductibles, while others realized the savings. These savings also enabled some companies to increase their limits on other lines of coverage. As we've mentioned in the past, buyers will manage their overall insurance spend and focus on the combination of rates, limits and deductibles. On the M&A front, we had another good quarter and acquired 13 great companies with $36 million of annual revenue. From an overall market perspective, competition for high-quality businesses remains. Retail delivered 4.1% organic growth, which was in line with our expectations and was driven by good performance in all lines of business. As a reminder, we expected the first quarter to be lower than the others this year due to the shifting of renewal dates and timing of certain nonrecurring businesses. Programs delivered another good quarter with organic growth of 13.6%. This performance was driven by a number of our Programs with good new business, retention and exposure unit expansion, as well as claims revenue associated with the '24 hurricanes. Our CAT Programs, our CAT Property Programs grew for the quarter slightly even with the impact from rate decreases. Wholesale brokerage had a strong quarter with organic revenue growth of 6.7%. This performance was driven by growth across all lines through a combination of net new business and exposure unit increases, with the growth partially offset by the continued downward pressure on open brokerage CAT property rates.

Thanks, Powell. Good morning, everybody. I'm going to review our financial results in additional detail. When we refer to EBITDAC, EBITDAC margin, income before income taxes, or diluted net income per share, we're referring to those measures on an adjusted basis. The reconciliations of our GAAP to non-GAAP financial measures can be found either in the appendix of this presentation or in the press release we issued yesterday. We delivered total revenues of $1.404 billion, growing 11.6% as compared to the first quarter of 2024. Income before income taxes increased by 17.4%, and EBITDAC grew by 14.8%. Our EBITDAC margin was 38.1%, expanding by 110 basis points over the first quarter of the prior year. The higher growth in income before income taxes was due to lower interest expense associated with debt repayments. Our effective tax rate for the quarter increased slightly to 21.8% versus 19.5% in the first quarter of the prior year. The increased tax rate was driven by having less benefit associated with vesting of restricted stock awards as compared to the first quarter of last year. Diluted net income per share increased 13.2% to $1.29. Our weighted average shares outstanding increased slightly compared to last year, and we continue to prioritize paying down our floating rate debt as this has a higher impact on the growth of earnings per share. Lastly, our dividends paid per share increased by 15.4% as compared to the first quarter of 2024. Overall, we are very pleased with the performance for the first quarter. The Retail segment grew total revenues 12.5% with organic growth of 4.1%. The difference between total revenues and organic revenue were driven substantially by acquisition activity over the past year. Our EBITDAC margin expanded by 120 basis points to 37.3% due to managing our expenses and the positive impact of the seasonality of revenue and profit for the Quintes acquisition, both of which were partially offset by higher noncash stock-based compensation. As we mentioned previously, approximately 60% of the revenues for Quintes are recognized in the first quarter. Therefore, we have higher margins in the first quarter and lower margins for the others. From a full-year perspective, we continue to anticipate Quintes to perform within the revenue and EBITDAC ranges that we previously communicated. Programs had another strong quarter with total revenues increasing 10.1% and organic growth of 13.6%. In comparison to the prior year, our profit-sharing contingent commissions decreased about $6 million due to positive adjustments recorded in Q1 of '24. Lastly, we recognized approximately $12 million of hurricane claims processing revenue, which is in line with our expectations. Our EBITDAC margin expanded by 220 basis points to 44.5%, primarily driven by strong organic revenue growth and managing our expenses. Our Wholesale Brokerage segment had another strong quarter with total revenues increasing 12% and organic growth of 6.7%. The incremental expansion in total revenues in excess of organic was driven by acquisitions completed in the last 12 months and higher contingent commissions. Our EBITDAC margin decreased by 30 basis points to 32.1% due to higher noncash stock-based compensation and the impact of foreign exchange. Isolating these changes, the underlying margin increased year-over-year due to managing our expenses and higher profit-sharing contingent commissions. Lastly, from a cash perspective, we generated approximately $215 million of cash flow from operations, which was an increase of $200 million over the first quarter of 2024. This improvement was due to incremental taxes of approximately $120 million paid in the first quarter of 2024, which were deferred from 2023. In addition, we continue to manage our working capital and expand our margins during the quarter. As previously noted, we deferred the payment of approximately $90 million of federal income taxes for the third and fourth quarters of '24 related to IRS tax relief associated with the prior year hurricanes. These taxes will be paid in the second quarter of this year and will impact our cash flow conversion.

Thanks, Andy. Great report. From an economic standpoint, we believe the main driver of expansion over the coming quarters will be the outcome of inflation, tariffs, and changes in interest rates. Leaders, as you know, can generally deal with most changes. But until there's a resolution regarding the extent and breadth of tariffs and inflation, companies will more than likely have a cautious bias. This does not mean that we think leaders have a negative outlook. Rather, they may change the level of investment over the coming quarters with some quarters higher or lower than prior quarters. We continue to believe there's a positive backdrop for economic expansion, and growth is moderating back to more traditional levels. From a pricing standpoint, other than CAT property, we do not expect any material changes in rates for admitted and non-admitted lines. For CAT property, we believe rates will continue to decrease in the second quarter and could be down in the range of 10% to 30% due to the availability of capital. One of the topics that still needs to be resolved is the impact of the wildfires on the standard market for property coverage in California. On the M&A front, we continue to feel good. We have a strong pipeline, both domestically and internationally, and are building relationships with many firms. As we've spoken about, cultural alignment is the most critical factor to the success of acquisitions at Brown & Brown. We have a strong balance sheet, outstanding cash flow conversion, and access to additional capital when we need it. We're in a great position as a company. Our team continues to execute at a high level. Each of our divisions is performing well and has good momentum heading into the second quarter. There will probably be some ups and downs in the economic outlook, but with our broad diversification across geographies, customer size, lines of coverage and capabilities, we're well positioned to capture the opportunities that are on the horizon. As we've said before, we are a solutions provider, and during times of volatility, being a great partner for our customers is critical to helping them manage uncertainty. We believe the second quarter will be a good one for the Brown & Brown team. With that, let's turn it back to Kevin and open it up for Q&A.

Andy, the Quintes impact on the Retail margin and this timing shift on organic also in Retail, any specific numbers you might be able to share with us about what the effect was in the first quarter and then kind of what that means for the balance of the year?

Mark, if you utilize the guidance that we provided before on Quintes, about 60% of those revenues came in the first quarter. So again, think about the margin again having a pretty similar profile of what employee benefits does in the first quarter. So it's just naturally going to be higher. So that will serve as a bit of a drag in the out quarters for Retail. But on a full-year basis, it will work out. It should be right in line with where we were thinking originally on the Quintes acquisition that's in there. And then the other piece you had asked about was just kind of the shifting in renewals and some of the one-time business. As we mentioned before, we anticipated that the first quarter would be about 1% below the other quarters. The first quarter for Retail was pretty much right on exactly what we thought it was going to be. So we continue to have good confidence in the out quarters for the year tied back to the comments that we made earlier about just economic backdrop and where buyers are right now. So we feel really good about the business.

Very good. And then, what do you anticipate for earned premium in the captives this year?

It will probably be up a little bit over last year on it, Mark. The piece is, I think you picked up on it in your research notes, and we talked about this in a couple of previous calls, we’re writing up to a specific amount of premium and that's our way of capitating the risk profile inside of them. And we pretty much hit that in the first quarter. We've been climbing that over the past few years. So we would not anticipate much incremental organic growth in the following quarters in the captives. Now that might move around a little bit depending upon what happens with CAT property pricing back and forth. But we wouldn't anticipate anything material plus or minus versus last year, second through the fourth quarter.

Thank you for the insights on property rates, particularly those related to CAT exposure, and it's clear there is ample capacity available. As we break down some of the programs, it appears there may be a negative effect from a decrease in CAT property pricing impacting organic growth. Are we looking at a potential headwind from falling property prices for the remainder of the year? I also notice that Brown has a heavier presence in Florida compared to its competitors.

Mike, it's Andy here. Let's see if we can kind of put this into a few buckets because we wouldn't want anybody to think that the downward trend is all associated with CAT property. That would not be a good or a proper conclusion. Remember the things that we've talked about over the past year that's helped fuel the growth in Programs. We've talked about our lender-placed business has been performing really well with winning new business as well as we've had customers acquiring portfolios. And we've had outstanding growth over the past few years, still expecting good growth this year, but not probably at the same level. Mark asked earlier about the captives, and so I think we've mentioned there, again, that has helped fuel organic growth that will start to level itself out in '25 for the business. And then CAT property is a component. It did grow during the quarter for us, not at the same levels as we've seen over the past few years, but we did still have good growth in there through the submission and everything that we've received in the business. And then the other piece to keep in mind in the back end of the year is, we're not sure what's going to happen with the hurricane season. So remember we had a significant amount of claims revenue in the fourth quarter. We do not budget for known storms. We just use kind of a 10-year average. So depending upon what happens, and if it's a relatively calm season in the back end of the year, I think it's probably realistic that the organic growth in the fourth quarter Programs could be around 0 because of the very tough comp with all the flood claim revenue.

Thank you, Andy, for explaining that. I have a follow-up question regarding the Retail segment. Considering the discussion about employee benefits and the upward pressure from inflation, did that have an impact on the Retail organic growth this quarter? Also, could you clarify the seasonality in the first quarter compared to the rest of the year, particularly regarding the mix of benefits, which I believe is higher in the first quarter?

So remember, that's a revenue recognition issue. It's sort of front-loaded, as Andy mentioned. This suggests that all those accounts are typically on commission rather than a per head per month or a fee structure. Most of our business operates on a commission basis, but I want to clarify that in some smaller businesses or fully insured cases, payment will be based on a per head per month model. In our larger businesses, payments are often made through fees. Regarding the organic growth in Retail, we were very pleased with our performance, especially considering the comments we made at the end of Q4 about some shifts and nonrecurring revenue. We expect the growth to be a bit higher later in the year, and we feel positive about it.

Powell, in your closing comments, you mentioned that growth is returning to a more normal level. I'm reminded of a comment you used to make regarding the importance of economic growth compared to the impact of rate increases. Recently, it seems you've indicated that you're placing more emphasis on the effects of rate increases than on economic growth compared to traditional averages. Could you provide us with an updated perspective on this? In the slide presentation, there are a few slides where you discuss the decline in property CAT affecting organic growth, as well as the current rate environment.

Sure. To clarify, Greg is referring to the historical structure of our business, which typically sees two-thirds to three-quarters of our exposure coming from unit growth, with the remaining portion driven by rate changes. We've mentioned that the transition in CAT property and certain heavy casualty lines is influencing rate increases. It's worth noting that CAT property tends to rise and fall more quickly than anticipated, largely based on the availability of coverage from traditional insurers or MGAs. In our Retail business, which affects the entire company, we're actively pursuing new business. Our objective is to offer the most competitive programs with comprehensive coverage for our clients. I believe that, over time, the split between exposure and rates will revert to a more balanced ratio, closer to two-thirds, one-third. It's also important to recognize that public sentiment about the economy can differ significantly from that of business owners, with the latter often holding a more nuanced view based on their industries and supply chains. Overall, we are optimistic about our Retail performance.

Greg, the other thing to keep in mind, and we've mentioned this a bunch over the past few years is our diversification. And again, if you go way back in history, yes, we were probably more weighted to Florida and potential CAT property. But with the industries that we serve, the lines of coverage, and geographies across the business, the CAT property can have a movement maybe on offices in certain locations. But the ability to have a material impact on our numbers across the board is much less than what it was years ago. And that's all been done with purpose for the strategy on how we diversify the organization.

Great. The moderator mentioned one question, but it seems everyone is asking follow-ups. So I'll slip in my follow-up, which is about the outlook for the flood business and the federal government's program, including FEMA. It's uncertain what will happen with the flood program, and I’m interested in your thoughts considering all the changes occurring in Washington, D.C.

So Greg, let's look at the historical perspective of flood and then put that kind of overlay in the current environment. So as you probably know, the flood program has not been reauthorized for an extended period of time, meaning something like a five-year traditional reauthorization or something long. They have been reauthorizing for shorter periods of time because they can't get the full reauthorization through. I believe the flood program is a critical program in the United States for homeowners, and I believe the government and everything we hear would lead us to feel that way. That said, I think the likelihood of having a longer-term reauthorization in the next year to several years is probably lower because it just seems to be getting kicked down the road. So as you know, we write about one-third of all the write-run flood premiums in the United States. And so that's kind of how we feel about it.

I do want to focus on CAT, and I just have a more general question about the state of Florida. It seems like after 837, a lot of the lawyers lost a lot of revenue and a lot of different kinds of risk. Is the cost of risk going down in the state of Florida broadly? And what impact should we have on Florida pricing broadly compared to the national economy over the next couple of years? Should Florida growth be lower than the rest of the country?

Okay. So interesting question, Josh. First of all, is the cost of risk going down in the state of Florida? I have to temper this statement. If you are on CAT property, and it went really high, your cost of risk is coming down, okay? I'm talking about the rate on that. However, the overall cost of risk in the sense that what a person is paying to ensure the similar property, i.e., let's say, their home, is actually going up still because you have increased cost of construction. So you have insurance to value and increased cost of construction issues. So somebody's home might have been, let's say, on a replacement cost at $200 a square foot. In the event that there is a loss, it will cost them $300 a square foot to replace that house in like kind or quality. So that's number one. Number two, particularly in certain areas of the state is more pronounced. If you go to Southeast Florida, there are a number of uninsured motorists on the highways. The cost of liability insurance and physical damage for the auto, whether it's personal or commercial, continues to go up, and it is highlighted by these very large awards that the plaintiffs' bar usually highlights, but there are a lot of fairly large awards. So you have to keep that in mind. As it relates to growth in the state of Florida, what's happening, in my opinion, is this. Florida used to be a very inexpensive place to live relatively speaking, other than barring South Florida, meaning Southwest and Southeast Florida. Today, there has been an escalation in home prices and land values. So it's not as inexpensive as it once was. And so it's a transitionary market, and more and more people are coming here, fleeing high tax states. We believe continued growth in the economy in Florida in the near, intermediate, and long term.

And what about the price of liability, court costs, legal fees on the casualty side of the coin? Is there any change going on there?

The answer to the question is that even with the recent tort reform that seems positive, it is being overshadowed by the size and frequency of larger settlements. Therefore, it's a challenging environment. I would say that there is more upward pressure on rates than downward pressure due to the reform.

I was hoping you could clarify. Andy, you mentioned that without flood revenues in the fourth quarter, organic growth would be zero. Is that the case if there are no flood revenues, or is that based on the 10-year average?

No, let's clarify that. If there is minimal flood claim revenue in the fourth quarter, then the organic growth is likely closer to 0.

Okay. But that's worse than what you're budgeting using the average?

If you use a 10-year average, it will be too far off if you pull it down on the average.

This is Charlie, standing in for Andrew. I have a question regarding the lender-placed business, which was mentioned earlier in the call. Was there any additional benefit or challenge from lender-placed insurance in the first quarter of 2025 within programs? Previously, it seemed like you mentioned a potential return to a more typical seasonal pattern. Any clarification would be appreciated.

Charlie, it's Andy here. No, there's no headwinds year-over-year to the business. It just didn't grow at the same pace that it did a year ago. I want to make sure we clarify that the growth we're seeing in the business is due to us winning new accounts or customers buying portfolios. The actual lender-placed ratio is not materially changing, which is always, to us, a good indicator of the health of the economy. That means people are still in a good financial position that they're able to pay their insurance. So just want to make sure we clarify that.

Okay. Yes. And then I guess, just on the seasonality there, just no material changes, I guess, it sounds like.

That business doesn't really have a seasonality to it, Charlie, because it primarily involves placing coverage on homeowners throughout the entire year. The only time you'll see some variation is when we bring on a new account, which results in a temporary increase in revenue over several months during the transition as we send letters back to the homeowners. That isn’t really seasonality; it’s just the process of onboarding a new account, leading to an additional two or three months of revenue. However, once that period ends, you might see a decrease in comparability, but that's just how the business operates.

A couple here for you. First one, I know there's some legislation actually in Florida trying to turn back some of the reforms that happened. I'm not sure if you got any updates on where that is. And do you think that may reverse the course of kind of the pricing pressure that we're seeing right now?

The answer to the question is we know that there is not a lot of interest in the state Senate or in the governor's office to have proposed legislation as written implemented.

Good. That's helpful. And then second question, I was just wondering, MGA business. I'm just curious, right now, it appears that carriers have a lot of demand and appetite for MGA-type business. I'm curious what your outlook is for the MGA business. Do you think that is continuing here for a while? Or do you think maybe we start to see some of that slow down at some point from a carrier appetite perspective, particularly with some of the big rate reductions you're seeing in, call it, E&S property and stuff.

Yes, let's take a step back and discuss the interest in the MGA business. There are several factors at play. First, carriers see this as an opportunity to capture significant premiums if a program shifts to them, which is appealing for business growth. Second, the underwriting quality among several MGAs is quite strong now. Fifteen years ago, carriers perceived the MGA space as somewhat chaotic, with less reliable data and practices. Nowadays, carriers have moved away from those less reliable entities and expect a solid system and process that demonstrates consistent results. This has evolved into a genuine partnership. I don't anticipate a decline in carrier interest in MGAs in the near to medium term; rather, I believe the opposite will occur. Regarding rate pressures, these will vary based on the specific line of business and may sometimes be more pronounced than the overall market. Each program has its unique characteristics. We are confident in our diverse MGA and MGU business. People recognize that.

My first question is about the margin outlook. Last quarter, you mentioned you were expecting margins to be roughly flat in '25 compared to '24. Can you comment on how Q1 performed in relation to your expectations? I understand there were some fluctuations with the segments due to Quintes seasonality, among other factors. What is your current view on your full-year margin and how has that changed in the past three months?

Elyse, it hasn't changed. It's exactly what we described in the Q4 call. It would be a little bit higher in Q1, which met our expectations, and you have the expense more loaded in Q2, 3, and 4 in Quintes, as an example. But we don't have a modification. Quite honestly, we are very pleased with our margin. And so yes, we feel good about it. I hope you do, actually.

Yes. And then my second question is on just Retail, right? You guys had guided to the Q1 being about 1% lower than the full year, which based on the prepared commentary, it sounds like it was in line with expectations. Obviously, as you pointed out, there's just some uncertainty with tariffs, et cetera, right now. Just based on how you see everything developing, it sounds like you guys still think, right, the full year could be around 5%, maybe a little bit above, given what you had highlighted with the Q1. I was hoping you could just expand upon that as well, Powell.

Okay, Elyse. So let's go back to we're very consistent at Brown & Brown. You may not like the consistency, but we're consistent, and we say it's a low to mid-single-digit organic growth business. And so we have not changed our position on the growth guidance, even though we really don't give growth guidance. We had to give you that in Q1. We are very pleased with the way Retail is performing because of the breadth of our capabilities and our market relationships. I find it interesting, Elyse, if I may take a moment that there are some people out there that thought 6.5% organic growth was not that good a quarter. I'm surprised because we think it's a good quarter. If you think about historically, which what people are saying is there is a movement back to more traditional organic growth levels. It seems to be occurring. I think it's an interesting perspective. So depending on who you are, in your case, you didn't see it exactly the way we did this quarter, but we feel good not only about Retail, but about Wholesale and Programs, and we also feel good about the rest of the year.

Yes, it's Andy here. If you refer back to our prepared comments, we mentioned that we are not seeing a significant change in the level of investments from insurance buyers at this stage. This doesn’t rule out potential positive or negative shifts. However, we remain confident in the current backdrop and, honestly, compared to three months ago, our outlook remains unchanged.

Just a couple of quick ones on property. I think your non-CAT property pricing description was flat to up 5%. I think that's pretty consistent with 4Q. Do you think is non-CAT property at a pretty good equilibrium? Do you think it stays at this level?

I think it's difficult to determine that at the moment. While there isn’t much disorder in that segment currently, this is based on the assumption of a light hurricane season. If the hurricane season turns out to be active with landfall and significant damage, it will definitely influence standard market pricing. Additionally, we should remember that other areas are facing challenges that might not be as frequently mentioned, such as hail storms and tornadoes, where deductibles are changing considerably. Moreover, wildfire exposure is another concern with fires in general. All these factors are happening simultaneously. In summary, it's tough to say. Overall, things seem pretty good at this point, but we need to wait and see how the storms play out this year, which affects all segments, including wind, hail, tornadoes, and fire.

Very good. And then on the CAT property, in your experience, you talked about how it runs up and then it runs back down. Would it usually be kind of one and done, you get that down 30% or what have you, and that tends to stabilize? Do you think that's a multi-year process? You get a decrease this year and then maybe decreases next year as well? What would your experience say?

So let's back up and say that this particular period of time has been different than in the past. Historically, I would think that it would go up for one or two years and then come down for one or two years or a little more, and then it would sort of kind of do its thing. In this case, we went up for an extended period of time, let's say it was five years. The pricing, as you know, typically is never exactly perfect. CAT prices, if you looked at them, actuarially, are probably a little higher in some cases than they should be. As a result, there's going to be downward pressure this year. The question is, what happens if there's a storm or not. If there is not an active storm season, we will see additional pressure next year. If there is a storm, then that changes that statement. I don't believe that it will go down as rapidly for as many years as it has gone up. That is an important distinction because there is some level of discipline. I just don't know where that floor is. It's a very interesting time, and it's opportunistic. It depends on the hurricane season, which, by the way, starts in just over a month. We're going to have two more questions if we can.

Question I had for you is on this dynamic between some of the large, large end of the market pricing trends we're seeing versus, I'd say, more stable or still increasing the small to medium end of the market. I'm interested in your perspective on that from your viewpoint, what's driving, I'd say, what's seemingly one of the bigger divergences that we've seen there? And how would you characterize Brown's sort of exposure to those trends over the next couple of years if they persist?

We are a truly middle and upper middle market business. That's the vast majority. We have a good SME book, and we do have some very large accounts, too. We're very strategic about how we work with those customers. What I think you're referring to is this, let's paint the backdrop. Number one, the most competitive environment on a rate standpoint, per unit typically is in the largest accounts. As a result, the large account space historically has not made much money for the insurance carriers. These are broad generalizations. Conversely, on the lower end, the SME and the middle market have been more profitable because the rates, if you look at a similar business in the large account space and one in a smaller unit or smaller business, that rate is going to be a little bit higher. The performance on those accounts historically has been substantially better. The carriers write and want to write that very profitable business. Remember, the very large accounts are in many instances on fees. So it's not driven by commissions where small, medium and upper middle market accounts are typically on commissions. If you were painting that picture, and we'll just compare it to CAT property, if you get paid a commission on something that pays $100,000, and this year, it's $70,000, then your revenue goes down. Conversely, if they pay $7 million and it goes from $7 million to $6 million, your fee, in many instances, stays the same, so your revenue is generally the same. Did that answer your question, Alex?

Yes. That's very helpful. My other questions were answered.

Thank you, Alex. We'll take one more.

I just want to check in, now that this is becoming more relevant, whether you're seeing a difference in economic growth expectations from clients outside of the U.S. as you are domestically?

I think there's more questions about growth overseas than we find here in the United States. That's a very broad statement, but I think it would be moderated slightly. It depends on where you are.

Meyer, we are not observing any significant changes in our outlook. Reflecting on Elyse's earlier comment, in the markets where we operate—primarily England, the Netherlands, and Ireland in Europe—the overall situation remains positive. While there may be some localized issues, such inconsistencies exist everywhere. However, there are no substantial changes in that regard.

Thank you all very much. We feel we had a really good quarter and are excited about Q2 and beyond. Hope you all have a wonderful day, and thank you for your time. Bye.