Brown & Brown Inc (BRO) — Q3 2025 Earnings Call Transcript

Thanks, Deedee. Good morning, everyone, and welcome to our third quarter earnings call. We'd like to first welcome our 5,000-plus new teammates from a session that joined us on August 1. We're excited to be working together to grow our company as these talented teammates bring new capabilities for our customers. I also wanted to talk about leadership changes we announced last Monday. Based on the evolving global breadth of our Retail segment and the importance of continuing our forward momentum, I've appointed Steve Hearn as the new retail President on a go-forward basis. I've known Steve for over 20 years and have admired his leadership style. He brings more than 35 years of deep industry experience, acquisition, integration and a proven record of driving growth and innovation, both in the U.S. and internationally. With his leadership, we will further enhance our world-class solutions and value to our customers, carrier partners, shareholders and teammates. Regarding my brother, Barrett, I have a ton of respect for him as a leader and also I love him dearly. He's taking a personal leave of absence. I ask that everyone respects his privacy. When he's ready to return to the company, I look forward to welcoming him back. Last week, our Board of Directors raised our dividend by 10%, which represents an increase for the 32nd year in a row. In addition, our Board expanded our authorization to repurchase shares up to $1.5 billion. As we've done in the past, we will purchase shares when we believe the company is undervalued and to help manage dilution associated with our equity plans. Our goal is to help drive earnings per share growth and meaningful shareholder value. Now let's transition to the results. I'll provide some high-level comments regarding our performance along with updates on the insurance market and the M&A landscape. Then Andy will discuss our financial performance in more detail. Lastly, I'll wrap up with some closing thoughts before we open it up for Q&A. I'm on Slide #4. As you know, we focus on growth, both overall and organic, margins, earnings per share and cash flow as key metrics that should drive shareholder value creation. For the third quarter, we delivered revenues of $1.6 billion, growing 35.4% in total and 3.5% organically as compared to the same period in the prior year. Our adjusted EBITDAC margin improved by 170 basis points to 36.6%. And our adjusted earnings per share grew over 15% to $1.05. On the M&A front, we completed 7 acquisitions with estimated annual revenues of $1.7 billion, with the largest being Accession. I'm on Slide 5. From an economic standpoint, growth remained relatively stable with the second quarter. We view this as positive since we continue to see businesses growing as consumers are still spending. From a hiring and capital investment perspective, it remained relatively modest for most companies. Depending on the industry, some companies are looking to hire while others are relatively flat. This concept applies to capital investments as well. Generally, concerns over the impact from tariffs seem to have dissipated for many industries, while business leaders continue to have a cautious bias. From a commercial insurance pricing standpoint, rates for most lines were similar to the second quarter. We continue to see CAT property and casualty as the outliers on both ends of the spectrum. Pricing for employee benefits was similar to prior quarters with medical costs up 6% to 8% and pharmacy costs generally up over 10%. We do not see any signs that this trend will slow over the coming quarters; almost all companies are challenged to balance rising health care costs and the impact on their employees and their P&Ls. Management of high-cost claimants, specialty pharmacy and population health continues to be key areas of our focus, which are driving more demand for our health care consulting businesses. Rates in the admitted P&C markets were substantially similar to last quarter and were flat to up 5% versus the prior year. Workers' compensation rates remained similar to prior quarters in most states and were flat to down 3%. For non-CAT property, overall rates were down 5% to up 5% depending on the loss experience. For casualty, we're seeing rate increases of 5% to 10% for primary layers and excess layers increasing even more. We believe this trend will continue over the coming quarters. For Professional Liability, rates remained similar to Q2 and were down 5% to up 5%. Shifting to the E&S property market. Rate changes for the third quarter were similar to the second quarter and were generally down 15% to 30%. Keep in mind that we placed the largest amount of CAT property in the second quarter and the least amount in the third quarter of each year. From a customer perspective, they're managing their total insurance spend, both commercial as well as employee benefits. As rates move up and down for certain lines, this will influence customers' buying behavior and corresponding premiums paid.

Great. Thank you, Powell. Good morning, everybody. Before we get into the details, we want to talk about the impact on our earnings related to the acquisition of Accession and our related debt and equity issuances. As previously discussed, transaction and integration costs related to our acquisition of Accession are excluded from our calculation of adjusted EBITDAC and adjusted earnings per share. For this quarter, acquisition and integration costs were approximately $50 million. Additionally, beginning this quarter, we have a legal line on the income statement called mark-to-market of escrow liability related to the acquisition of Accession. This account is also excluded from our calculation of adjusted EBITDAC and adjusted EPS. For the third quarter, we recorded approximately $8 million of a noncash charge related to the change in the fair value of our common stock held in escrow. As our stock price changes over the coming quarters, we will have additional noncash movements. For the stub period of August and September, Accession's total revenue was approximately $285 million. The margins were in line with our expectations and were slightly below the full-year margin discussed during our announcement call. Due to the seasonality of revenue and profit for certain businesses, the margin will fluctuate by quarter. In addition, we recorded approximately $29 million of incremental investment income for the quarter as a result of the proceeds of our follow-on common stock offering and senior notes issued in June. Now transitioning to our consolidated results. As a reminder, when we refer to EBITDAC, EBITDAC margin, income before income taxes or diluted net income per share, we are 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. Now let's get into more detail regarding our financial performance for the quarter. On a consolidated basis, we delivered total revenues of $1.606 billion, growing 35.4% as compared to the third quarter of 2024. Contingent commissions grew by an impressive $46 million in total with $12 million coming from Accession. Income before income taxes increased by 34% and EBITDAC grew by 41.8%. Our EBITDAC margin was 36.6%, expanding by 170 basis points over the third quarter of the prior year, driven by good underlying margin expansion together with increased contingents and investment income. For the quarter, our margin expansion was partially offset by the seasonality of revenue and profit associated with the acquisitions of Accession and Quintes. Our effective tax rate for the quarter was 24.7%, substantially flat versus the prior year. Diluted net income per share increased 15.4% to $1.05. Our weighted average shares outstanding increased by approximately 48 million to 332 million, primarily due to the shares issued to Accession's equity holders. Lastly, our dividends paid per share increased by 15.4% as compared to the third quarter of 2024. Overall, we are very pleased with our performance for the quarter as well as our year-to-date results. We're on Slide #8. The Retail segment grew total revenues by 37.8% with organic growth of 2.7%. The difference between total revenues and organic revenue were driven substantially by acquisition activity over the past year. As it relates to the fourth quarter, we anticipate our organic growth will be similar to the third quarter. This is due to the previously mentioned employee benefits incentive adjustments and the relative impact of multiyear policies written in 2024 in the fourth quarter. At this point, we do not see the same potential revenue associated with multiyear policies in the fourth quarter of this year. Our EBITDAC margin increased by 150 basis points to 28%, driven by the management of our expense base, along with the positive impact of Accession. This was partially offset by revenue seasonality for Quintes, which we acquired in the fourth quarter of 2022. We're on Slide #9. Specialty Distribution grew total revenues by 30%, driven by the acquisition of Accession, contingent commissions and organic revenue growth. Our organic growth was 4.6%, which was a strong performance considering the very tough comparison to the prior year. Our EBITDAC margin decreased by 110 basis points to 43.9% due to the impact of Accession having a lower overall margin as compared to our existing Specialty Distribution segment. This impact more than offsets the increase driven by higher contingent commissions, organic growth and managing our expenses. Regarding the Q4 organic revenue growth outlook, recall that we reported approximately $28 million of nonrecurring flood claims processing revenue in the fourth quarter of last year. Presuming there are no hurricanes through the end of this year as well as the continued rate pressure on CAT property and we are expecting slower growth in our lender-placed business, we anticipate the organic growth rate for our Specialty Distribution segment could decline in the range of mid-single digits. Taking this organic growth into consideration, it will also impact the margin for the fourth quarter this year. As it relates to the fourth quarter outlook for contingents, we anticipate them to be in the range of $30 million to $40 million, depending on the outcome of storm season. This excludes any contingents that may be recognized by Accession. We had a few other comments. First, from a cash perspective in the first 9 months of 2025, we generated $1 billion of cash flow from operations. This was an increase of over $190 million or 24% growth for the first 9 months of 2025 versus the same period in 2024. From a cash flow conversion perspective, our discipline remains strong, and the ratio of cash flows from operations to total revenues was approximately 23.5% or 100 basis points higher than the prior year. For the full year, we estimate our ratio of cash flow from operations to total revenues will be in the range of 23% to 25%. While we wrap up, we want to provide guidance on a few items. As it relates to Accession, we anticipate Q4 revenues to be in the range of $430 million to $450 million and the adjusted EBITDAC margin to be slightly below the full year margin discussed in our announcement call due to the seasonality of revenue and profit for certain businesses. Regarding amortization expense, we anticipate this to be in the range of $110 million to $115 million for the fourth quarter. Interest expense, we anticipate it to be in the range of $95 million to $100 million, and investment in other income to be in the range of $20 million to $25 million for the fourth quarter. As it relates to our full year outlook for adjusted EBITDAC margin, you may remember during our earnings call in January of this year that we anticipated our margins to be flat compared to 2024. Based on our strong year-to-date performance and incorporating the slightly lower margins due to the seasonality of Accession, we are increasing our full year margin expectations modestly. With that, let me turn it back over to Powell for closing comments.

Thanks, Andy, and great report. As we enter the fourth quarter, we believe economic growth will be relatively similar to the last couple of quarters. The uncertainty regarding tariffs appears to be lessening as time passes. Interest rates are starting to decrease, and our customer base is continuing to grow and invest. This does not apply to all customers. With our broad diversification across geographies, industries, lines of coverage and customer segments, we will always have certain customer segments doing well and others working hard just to deliver growth. This diversification puts stability in our overall customer base and consequently in our key financial metrics. Overall, we feel the economies in which we operate are generally stable. From a pricing standpoint, we expect admitted rates to be fairly similar to what we experienced in the third quarter. As of now, we're not seeing any major disruptors that will cause admitted rates to materially change. We believe casualty and auto rates will continue to increase, which are the largest segments of the market and the admitted property, and that admitted property will continue to be very competitively priced. For the E&S space, we anticipate casualty lines will continue to be challenging to place. This includes both rate and available limits. Unless there is meaningful tort reform across the country, we expect continued upward pressure on rates on casualty lines. Presuming we don't have a meaningful late-season storm or storms, the capital deployment remains active, pricing for CAT property will more than likely look similar to what we experienced in the third quarter. Once we clear hurricane season, we could see certain markets or carriers get very aggressive at the end of the year utilizing the remaining capacity. This would not surprise us. On the M&A front, our pipeline looks good domestically and internationally. We continue to look to buy businesses that fit culturally and make sense financially. From an Accession integration standpoint, things are progressing well. We're focused on our customers and the solutions we can deliver for them. As we mentioned before, the strategic rationale for this acquisition is to bring together organizations to add new capabilities and enhance existing resources. Our balance sheet remains strong, and we have outstanding cash flow conversion to help fuel our growth. There will be periods when M&A is higher or lower weighting on our total growth. In the past 10 years, our growth has been well balanced between organic and inorganic. We'll remain disciplined in our capital deployment strategy so we can continue to drive long-term shareholder value. Our company is in a great place, and we feel good about the economic outlook. As I mentioned earlier, the third quarter was strong as we look at our key financial metrics, understanding that the actual organic growth of retail was lower due to the change in employee benefits incentives for the quarter. Our teams are collaborating well, and we're working hard to leverage our capabilities for our customers and win more new business. We're looking forward to delivering a solid fourth quarter that will be the capstone of a really good year for Brown & Brown. With that, we'll turn it back over to Deedee and open the lines for Q&A.

My first question is about the relationship between organic growth and EBITDAC margins over time. There seems to be a correlation where higher organic growth leads to improved margins and the opposite holds true as well. While I understand you won't provide guidance for 2026, if we consider a scenario of lower organic growth compared to recent years or towards the lower end of your historical range in the future, should we be thinking about that margin correlation? Or are there too many variables at play due to the acquisition and other structural changes in the company? Is the relationship different now compared to the past?

Mike, it's Andy. I think one of the things that is helpful when you look at, at least our numbers and you think about our company, the organic is just a component of how we drive our margins, how we drive our cash flows. It's important that you take into consideration contingent commissions inside of there. If you think about just this quarter, right, and you look at the amount of contingents that we grew. So we were approximately $46 million in contingent this quarter, $12 million of that came from Accession. Our organic growth was $40 million. So the contingents are a material portion of the value that we drive in the organization. So we wouldn't want you to do a direct correlation between organic and margins, it won't actually work that way, at least for our business, okay, so just kind of think about that as you work through calculations. But we still continue to think about our business in that 30% to 35% range, and it will move around back and forth over time. But we feel really, really good with the business, as we mentioned, on just how we're growing this year on an underlying basis and how Accession is performing.

Okay. That's helpful. For my follow-up, I am curious about some businesses you have that may be affected by the government shutdown. Should we be considering any implications of that for your Specialty segment in the fourth quarter?

Yes, we have a few businesses affected by the government shutdown, both in specialty and retail. Some of our operations related to Medicare and Social Security are impacted, but typically, that revenue accumulates over time and gets resolved eventually. Therefore, there might be some effects in the fourth quarter or even into the first quarter, depending on how long it takes to resolve the situation in Washington. Additionally, in our flood business, we can handle renewals, but no new policies can be written at this time for any participants in the right room program. Once the government reopens, we will be able to issue retroactive policies. Overall, we are managing to maintain our renewals for the fourth quarter effectively.

This is Justin on for Alex. The first question I wanted to ask was on Retail organic. I was wondering if you can provide a little bit more color as to the 1% impact that you had called out in your prepared remarks?

Sure. Justin. So the comment we made inside of there is we had an adjustment for incentive commissions in employee benefits. The way those work is, again, we're accruing throughout the year. And then ultimately, we have to do adjustments at the end of the calculations again, and we'll always have positive and negatives. When you look at 2024 for that time period, it was actually a positive adjustment. And then for this year, it was actually a negative adjustment. And normally, how those calculations work is depending upon kind of where you get in an applicable year, the targets are moved in the next year. So we overperformed in '24, and we just didn't get all the way to the targets, the increased targets in 2025. So you have kind of year-over-year and up and down is what causes the spread in there, and that's about 1% of the impact. That will continue. And the other thing I'd just mention is, and we highlighted in our commentary, that will have some impact in the fourth quarter because we are still improving at a higher rate in Q4 of last year.

Got it. I appreciate it. As you prepare for planning and budgeting for the upcoming year, I want to revisit a point you made earlier. A few quarters ago, you mentioned that you see this business growing in the low single digits over the long term. I'm curious if the results from recent quarters suggest that mean reversion is beginning to occur now, or how you foresee the trend for organic growth as you think about planning for next year.

So Justin, for the last 16 years, we’ve maintained that the Retail business experiences low to mid-single-digit organic growth in a steady state economy. We remain consistent in this stance. Over these 16 years, we have not provided organic guidance for 2026, but you have a sense of the current business performance, which includes some headwinds. While these are not mere one-off adjustments, we acknowledge the situation. The organic growth for Retail is at 2.7%. You might look at it and think it could adjust by 1 basis point, but we are clear that it stands at 2.7%. I hope that answers your question. Thank you.

This is Dean on for Meyer. My first question is a follow-up to just on the Retail segment's incentive commission. I know you mentioned there's some headwinds in Q2. I'm just wondering if that will continue in 2026? Or are we expecting moderating from there?

Yes. At least as everything that we can see right now, we think this is more isolated into the fourth quarter and doesn't carry over into 2026. Facts can always change, positive or negative, but at least what we can see right now appears to be isolated to the fourth quarter.

Got it. My second question is on the admitted E&S. Last quarter, you mentioned seeing signs of business going from E&S back to the admitted market. Just curious what are you seeing this quarter? And what do you expect going forward?

The short answer is there are admitted markets that are talking about it more and thinking about it as growth for admitted carriers becomes more challenging. I think that there will be a lot of talk about it, but I don't think that the movement from non-admitted to admitted will offset the increase in the size of the E&S market, if that makes sense. Yes, I think there will be some movement back across. But the E&S market is continuing to grow at a pace that I think that it will not offset that. So thank you.

Yes, Powell, you had suggested that with a clean CAT season, you might see extra capital being put to work, the carriers could be more aggressive at year-end. What do you think that means for rates if you do see that scenario?

I am not a reinsurance expert, so I want to clarify that at the outset. I believe reinsurance rates may decrease by 5% to 15%, which could similarly affect admitted primary business or potentially E&S. We might experience conditions next year that resemble what we are currently observing. I want to note that as we approach the end of Q4 and December, there may be some markets that become more aggressive due to unused capacity, which could lead to increased rate pressure as we close out the year. This won't apply to all markets, just selected ones. I’m not aware of any specific markets preparing for significant changes, but it's a possibility. Regarding next year, I don't think this will significantly affect pricing in the United States, although there are events happening in Jamaica that could attract media attention and may lead to damages, potentially impacting the market as well. Overall, capital markets in the United States don't seem focused on these events domestically; they are more concerned with international developments. That's my perspective.

And Mark, in our commentary, remember when we said it wouldn't surprise us if it happened at the end of the year. Remember our commentary at the end of the second quarter, and we said what happened in June, right, before storm season. So you can get really unusual pricing, right, at the end of a quarter or whatever. So that's why we said it wouldn't surprise us.

Understood. And Powell, anything on the construction front, particularly Florida construction? You gave us some good commentary about the overall business environment. How about the construction market?

Well, it's interesting. Construction costs continue to go up, but there's a lot of building going on in Florida. As a countermeasure, I would tell you that in real estate, houses are not selling as quickly. And so you see houses sitting on the market much longer today. And this is not a Florida-specific thing, but there are some indications as such. You hear a lot about the impact of cost of living, meaning, one, rents, so in apartments and condos; two, food; and three, the cost of insurance. You hear a lot of that as it relates to people that maybe own second homes here that are in more modest-sized homes that are thinking about the cost to operate and the cost to live. The overall expense is becoming more expensive. It's still relatively affordable. Don't get me wrong. But it's becoming more expensive in Florida for all the reasons I've just said.

This is Sid on for Bob. I wanted to ask about property renewal rates in the third quarter and kind of how you guys are thinking about that in the fourth quarter, if it should be at a similar level or potentially worsening?

As we said, Sid, it's similar going into it with the potential as we get into, let's say, December, where there might be some outliers where you get a couple of markets or a market that becomes a little more aggressive. I would say similar to what we saw with the caveat that in December, there might be some people that are getting a little aggressive. We haven't seen that yet.

Got it. And then are you seeing a similar trend in the admitted and E&S property markets? Or is there like any kind of divergence going on?

Well, the rate pressure, obviously, is much higher on E&S property. But I would tell you, there is continued interest in the admitted market for good property, and I believe that will increase.

I have a couple of questions. First, regarding Wright Flood, you mentioned that you began rolling out a private flood product on that platform. I'm interested in how the initial uptake has been. I assume it's beyond the development stage in terms of geographic coverage and could potentially address any unmet demand outside the Wright Flood program. Any insight you could share would be appreciated. Apologies for interrupting.

Yes, it's great to have you, Matthew. I have a couple of points to discuss. First, we have a history of writing private flood policies in our business. Recently, we announced the closing of Polten, a private flood business, effective November 1. We are excited to welcome them on board as they will add significant value. We believe private flood is a strong product option. However, I want to caution that it might not be suitable for every flood policy. Not every policy in every flood zone can or should be written under private flood, depending on the underwriting considerations. We see opportunities in this area, and as Andy mentioned, we are optimistic about our flood business prospects throughout most of the fourth quarter, particularly regarding our renewal streams. Of course, this will be influenced by the decisions made by the current administration and any compromises reached in Washington to reopen discussions. We anticipate that the pressure to resolve these issues will continue to increase, and we hope for a positive resolution in the near to intermediate future.

Matt, I want to clarify one thing that you had mentioned at the beginning of your question. You said that we write private flood on our Wright Flood platform. We do not write on the Wright Flood platform. That is part of the NFIP program. Our private flood business that we had before is written under the separate carriers in there. So separate technology, everything else.

Yes. I was aware you had 2 platforms, but I thought I saw a press release that Wright was rolling out, and maybe it's just a distribution thing, not an actual insurance paper thing private, but maybe I could be mistaken; you would know better than I.

Yes, that's just around for claims management and everything else. But the actual technology and everything else in the paper, etc., is not on Wright Flood.

I appreciate the clarification. I have a follow-up regarding employee benefits. There seem to be several factors influencing the business. I'm interested in your perspective. On one hand, it appears that cost pressures are driving a necessity for rate increases. On the other hand, the labor market seems to be slowing down compared to previous rates. Additionally, the cost push leads companies to seek ways to manage their expenses. I'm curious about how all these dynamics interact from a subject premium standpoint.

All right. So Matt, just to reiterate a couple of things. For smaller groups, let's say those with under 100 lives, it could even be under 50. In many states, you receive compensation per head each month. This means that if you don't add more members, your commission stays the same. If employees are not increasing due to rising health insurance costs, that's the first point. Secondly, even among those groups outside that size range, there is a strong focus on controlling expenses. This means they are modifying the plans they offer. For instance, consider a regional manufacturing company with several hundred employees across the United States. They have historically covered GLP-1s, or weight loss drugs, but this has increased their costs significantly. To maintain their program structure, they may need to impose limits or stop covering these drugs solely for weight loss. This illustrates how companies are making changes due to projected spending, especially since that can lead to soaring costs in self-insured programs. However, it’s crucial to note that these organizations are trying to provide quality coverage for their employees while managing allowable increases in costs. We are continuously discussing creative ways with our customers and prospects to deliver employee value while controlling expenses. Looking at healthcare as a one-year plan is more transactional, while considering it over multiple years reflects a strategic approach to managing costs over the long term, which is a key message we aim to share with our customers.

Matt, these trends that we started discussing toward the end of the ACA are expected to persist for a significant duration, and there are even new developments that have emerged. That’s why we have made considerable investments in our employee benefits business. We have the capability to support customers with anywhere from 5 employees to over 50,000. We believe the market environment is favorable. While there may be some challenges at times, we are confident that we are well-positioned to assist customers of all sizes in managing their healthcare, pharmacy needs, and their workforce.

My first question is on the risk exception deal. I just wanted to confirm since the deal is closed, just relative to just the revenue and synergies and just accretion that you guys had outlined that it's all in line with prior expectations. And then I think the plan was to start to see the synergies come online, I think, starting next year. Is that all still the base case expectations?

Yes, Elyse, Andy here. Yes, I think everything right now is still in line with what we had communicated back at the time of the announcements. The revenues are right in line. The margins are in line with our expectations, again, knowing there's some seasonality in the business generally has a higher margin in the first half of the year versus second half, not unlike our legacy Brown & Brown business that's there. Teams are working through all the integration plans right now and getting all of those in place. As we communicated on the call, we're going to recognize and realize the synergies over a 3-year period. Our goal is to be done by the end of '28. We still feel like we're on track for all of that process and all the hard work that's got to get done in there, but all the teams are leaning in and working through.

And then just a clarification. On the retail guide for the fourth quarter, you said that that would be stable with the Q3. Is that stable with the reported 2.7% or the adjusted 3.7% adjusting for the incentive comp impact?

No. Based on the reported figures, we expect Q4 to be quite similar or at least in the same range, understanding that we are facing headwinds due to the carryover effect of accruing at a higher rate for the incentives and EV, which still influences part of Q4 alongside the multiyear policies written last year. Currently, we do not anticipate the same level of activity in the fourth quarter, but of course, circumstances can change.

This is Mitch on behalf of Greg. I wanted to ask about your investments in technology during the quarter. And I was hoping you could touch on the areas of focus and the run rate directionally in '26.

Mitch, this must be the morning for everybody else stepping in than the original. We've talked about technology for a number of years, and this started all the way back in 2016 when we made our large investment in infrastructure, and we've kind of got all behind us. We said our next 2 horizons we're looking at how do we leverage our data analytics and improve the overall experience for our customers and our teammates. We're on that journey right now. We feel really good about the amount of capital that we're investing in that area. It's probably a journey; not sure that we ever 'arrive' at a destination because you're always evolving in there. We've got a lot of really good things going on across the organization in Specialty Distribution and Retail at the enterprise level, everything from how we ingest data, how we analyze it, underwriting capabilities. We're focused on administrative tasks. We're making some really good progress. But probably like most companies, it's still early days of really getting all of the benefits. We feel good. We've got an innovation council that's set up across the organization, making sure that we're sharing best practices in each of the areas. We'll continue to work on it, but we're seeing some early benefits from it.

Great. That's helpful. And for my follow-up, I just wanted to ask on your outlook for your debt leverage target range going forward after the close of the Accession deal.

Sure. Our gross debt leverage to EBITDA is between zero to three times, and on a net basis, it's between zero to two and a half times. We plan to return to those ranges within about 12 to 18 months through scheduled paydowns that we are committed to. Historically, our 10-year average stands at approximately 2.2 to 2.3 for gross leverage. The organization typically reduces leverage by about a quarter to half a turn each year just through natural operations. Additionally, we expect some incremental payments to expedite this process. While we are not excessively leveraged at this moment, this reflects our intended trajectory and is in line with what we've achieved over various cycles.

This is actually Leandro on behalf of Brian. So on the Retail businesses, did new businesses in Retail return to normalized levels after issues in the second quarter? Or is there still room to rebound?

Hey, Andrew, you were kind of hard for us to hear. Would you mind repeating that one more time, please?

Sorry, sure. Did new businesses in Retail return to normalized levels already after the issues in the second quarter? Or is there still room to rebound?

Yes, I don't think we called out any issues regarding new business in the third quarter. We know we had some of that in the second quarter, but didn't see any issues there in the third quarter. What we highlighted for the fourth quarter is just based upon what we can see today regarding multiyear policies and the volume that we wrote in Q4 of last year. We don't see the same volume in Q4 of this year. But again, that can kind of just move around by quarters. But underlying activity on everything else, we feel good with.

This is indeed Rob. So I just wanted to ask and make sure I understand on the Retail segment. So there's 2 comments in the presentation on the margin that, one was leveraging the expense base; and two, quarterly profitability associated with recent acquisitions. Was there a benefit in the quarter from the seasonality of the Accession acquisition?

Rob, yes, there was. So we had a benefit from Accession and a headwind from Quintes, which again, we've kind of talked about Quintes for a few quarters just to help everybody out with that. So you kind of got 3 pieces to it: a positive on Accession, a negative on Quintes, and then a positive on just underlying management of the business.

Okay. Perfect. And then I just wanted to follow up on the international businesses, particularly the U.K. How is the performance there relative to the U.S.? And can you share any color on the market factors?

The performance is somewhat similar to that of the United States. Keep in mind that the GDP in the U.K. is growing at a slower rate. Additionally, there is pressure for rate decreases. Specifically regarding England, the liability rates are not as high because the plaintiffs' bar has not become very active yet, although they are beginning to show some activity. Overall, there is ongoing rate pressure, along with a slower economy and decreasing rates as well. That's my assessment.

Just wanted to make sure I understood the Specialty Distribution outlook for 4Q. I think you said looking for a decline in the mid-single digits, you got $28 million in nonrecurring, which looks like it's about 5 points. I think you also mentioned lender-placed and then wind and quake programs under a little bit of pressure. Anything else we should think about for the Specialty Distribution? Does that kind of summarize what you've described?

Those are probably the three main points to discuss, Mark, along with some other details, but those are the key items.

I'm going to ask a question about lender-placed programs if you could provide some additional insights. It seems that your business has grown significantly faster than the overall market over the years. Considering the challenges expected in the near term for the fourth quarter, is there a trend we should be aware of regarding the lender-placed business possibly slowing down or losing some market share as we look beyond the fourth quarter?

So Mike, you're right in saying it's a great business. We have had a lot of very nice organic growth in the last couple of years. We're still growing, but it's just not growing as quickly. Part of that is just because we have had a lot of good growth. And number two, we have competition on our customers. Your sense of it is correct.

It's important to note that the lender-placed ratio isn't increasing, and it's not the factor behind growth, which suggests the overall economy's health. We've secured many accounts over the years, but the sales cycle can be lengthy, ranging from 12 to 36 months. When these accounts do come on board, we see a significant influx of revenue at once, which balances out over time.

We'll take one more question, Deedee.

No one likes to see their share price decline. You have a $1.5 billion buyback authorization, and there's a decision to make about whether to invest that capital in buying back your own stock or pursuing other opportunities. It seems there is an interesting choice there. By authorizing the buyback, are you indicating that you believe the current value of Brown & Brown shares is more attractive than pursuing acquisitions? It seems like you should choose one strategy. Doing both might not represent the best use of capital. How should we consider this?

We continuously assess the intrinsic value of our stock and focus on what we believe offers the best long-term value for everyone involved. We will keep evaluating this. If we determine there is a suitable moment to buy shares, we will consider that option. The Board has granted us the flexibility to invest as we deem appropriate, and we are confident in that approach.

Is there a way to make both buybacks and mergers and acquisitions equally appealing at the same time? Or is one generally preferred over the other based on valuation?

Let me put it this way: I'm not trying to be evasive, Josh. But if we told you that, then that's where we would be releasing our secret. The answer is we will continue to evaluate both. If we think both work at the time, we will do that, or if one is better than the other, we will do that. Please, let's make sure that we don't lose sight of the fact that when we buy businesses, it's about cultural fit and making sense financially. We understand the math between share repurchases and businesses that are ongoing revenue streams with earnings. So we look at all of that.

Yes, Josh, as we discussed, we have a very rigorous and disciplined approach to capital allocation. While we don't disclose all the specifics, we go into a lot of detail when examining all the deployment options.

We like to have options.

Thanks, Deedee, and thanks for joining us today. A couple of final comments. I think that we had a really good quarter, albeit we had Retail in terms of the modification that we outlined, where top line numbers, our contingents were good. Our margins were great. Our cash flow conversion was very good. Most importantly, in all of that, the integration is going really well. I can't stress enough the importance of the cultural fit with the teammates that have joined. We are excited with 23,000-plus teammates now globally and the capabilities and the resources that we can bring to our customers. Hope you all have a wonderful day, and we look forward to talking to you after the next quarter. Good day, and good luck. Goodbye.