brown & brown plants its flag in the united kingdom 1
TRANSCRIPT
Brown & Brown Plants Its Flag in the
United Kingdom
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Presentation Agenda• Industry Profile•Company Profile• Why Expand Internationally?–Bermuda
–Ireland
–United Kingdom
• Lloyd’s of London• UK Expansion• Mode of Entry• Finance• Impact Assessment
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Industry Profile
• Insurance Agency, Brokerage and Services (“Brokerage”) Industry
• Intermediary – Not the Risk-Bearer (Insurer)
• Paid Commissions (% of Premiums) and Fees
• Insert total industry revenue.
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Industry Profile
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Industry ProfileRank Company 2008
Brokerage Revenues
% Change 2008Employees
2008Offices
1 Marsh and Mclennan Co’s Inc.
11,516,000,000 3.80% 54,400 700
2 Aon Corp. 7,310,000,000 4.50% 37,700 397
3 Willis Group Holding’s Ltd.
3,362,000,000 36.50% 17,000 397
4 Wells Fargo Insurance Services
Inc.
1,743,062,000 35.95% 7,905 213
5 Arthur J. Gallagher and Co.
1,611,302,000 5.76% 9,863 200
6 Jardine Lloyd Thompson Group
P.L.C.
992,843,665 4.80% 5,488 76
7 Brown &Brown Inc. 965,982,617 5.61% 5,398 132
8 BB&T Insurance Services
962,134,200 9.66% 4,462 109
9 Gras Savoye & Cie 786,368,400 15.58% 3,650 102
10 Lockton Co’s LLC 778,345,000 6.89% 3,840 485
Company Profile
• Founded in 1939 in Daytona Beach, FL
• Brown & Brown is currently ranked as the 6th largest insurance broker in the U.S. and 7th largest in the world (based on the July 2009 ranking by Business Insurance magazine)
• 170+ Offices, in 40 States and (now) UK
• $977.6 Million in Revenues in 2008
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Company Profile
Brown & Owen
19391939 1980-19821980-1982
Changed name back to
Brown & Brown
19931993
AcquiredRiedman Insurance
agency with$54 millionin revenue
2004200419551955
Brown & Owen foundedin Daytona Beach, FL
19991999 20022002
Raised $150million of equity for
acquisitions
20012001 20082008
AcquiredHull & Co.
with$63 millionin revenue
20052005
Revenue - $45,821
OP $ - $6,511
OP % - 14.2%
“2nd Defining Moment”
Becoming a publiccompany.
Merger with Poe & Assoc. to form
Poe & Brown; revenue$86.1 million
2008 Revenue of 977.6M
Raised 200M for new
acquisitions
“1st Defining Moment”Focus on operating profits
not revenues1980 - $2mm @ 16% OP%1982 - $4mm @ 8% OP%
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Company Profile
• Intermediate Goal: “B-40”
–$1 Billion in Revenues
–40% Margin (about twice industry average)
–Should be reached in 2009-2010
• Next Goal: “DA” (Double Again)
–$2 Billion in Revenues
–Maintain 40% Margin
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Company Profile
Long-Term Strategy - FOUR PILLARS:• We’re in the Money-Making Business• We’re in the Recruiting and Enhancing of People
Business• We’re in the Selling and Servicing of Insurance
Business• We’re in the Make-No-BIG-Mistakes Business
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Company ProfileBusiness Segments
60.70%17.60%
18.40%
3.30%
Retail
Wholesale
Programs
Services
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Why Expand Internationally?4 GENERAL OBJECTIVES:
• Acquire Resources from foreign countries
• Minimize Competitive Risk – counter advantages competitors might gain in foreign markets that could hurt you domestically
• Expand Sales to foreign markets
• Diversify Sources of Sales and Supplies – take advantage of business cycle differences among countries
B&B OBJECTIVES:
• Key Consideration: access to global insurance market
• Secondary Consideration: establish presence in global brokerage industry, divert business from competitors
• Not an objective - US markets provide best laws, taxes, margins
• Not a consideration
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Why Expand Internationally?Premium Distribution
5% 10%5%
80%
Lloyd's Broker
Retail Agent
WholesaleBroker
Risk Bearer
Extra Piece of the PIE!
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Why Expand Internationally?
• Insurance Brokers place risks with insurers located inside and outside U.S.
– Difficult/unusual coverages– Reinsurance– Captive insurance companies
• Usually placed through local brokers
• UK, Bermuda, Ireland among top 3
Non-US markets
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Bermuda
ADVANTAGES: DISADVANTAGES:
• Proximity to US
• Politically Stable
• Educated Workforce
• Cooperative Regulatory Environment
• 1 of Top 3 Reinsurance Jurisdictions
• Efficient, Innovative
• No Income Tax
• US targeting “tax havens”
• Protective labor laws
• Current business inflow from B&B lower than to Lloyd’s
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Ireland
ADVANTAGES: DISADVANTAGES:
• EU Member
• Politically Stable
• Educated Workforce
• Tax Benefits for Brokers– 5% on Foreign Dividends
(vs. 30% for Bermuda)
– Tax Treaties with Other Countries
• Growing Insurance Center
• EU Member – More Pro-Employee Labor
Laws than US, UK
• Still relatively small market for US risks
• Current business inflow from B&B lower than to Lloyd’s
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United Kingdom
ADVANTAGES:
• Politically Stable
• Educated Workforce
• Lloyd’s of London
• Currently doing business in the market
DISADVANTAGES:
• EU Member
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Lloyd’s of London
One of World’s Largest Insurance & Reinsurance Markets
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Lloyd’s of London
•What is Lloyd's of London• An insurance Market • Reinsurance/Insurance for Large and Complex Risks• No Direct Link to Client
•Who does Business with Lloyd's• 93% of Dow Jones Companies• 86% of Top 50 European Companies• Top 20 Banks• 2008 Global Written Premiums: $24.7 B
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Lloyd’s of London
Society of Members Capital Providers
Syndicates Groups of Members Pools Capital & Risk
Managing Agents Oversee Syndicates Employ Underwriters
Brokers Gatekeepers Negotiate Terms
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Lloyd’s of London
Why Be a Lloyd’s Broker?
Already Placing Business in Lloyd's Market Vertical Integration Second bite at the apple
Direct access to Managing Agents Control the deal
Opportunity for new clients New business entering Lloyd's Market
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Lloyd’s of London
How to become a Lloyd's Broker Regulatory Approval from Appropriate body Support from at least one Managing Agent Terms of Business Agreement Adequate knowledge and systems Professional Indemnity Insurance
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Mode of Entry• Modes of Entry
– Acquisition
• No asset acquisitions in UK; only stock – taking the good, the bad and the ugly
• Tried – and (luckily) failed – in 2006; “winning” bidder took huge loss due to overpayment for business and employee benefit plan wind-down costs
• Will still (carefully) consider acquisition opportunities; more one-off hires
– Joint Venture
• JV = partnership between two entities
• Joint control
• Split profits
• Shared legal liability22
Mode of Entry– Foreign Subsidiary (Foreign Direct Investment) -
• Advantages =
– Control
– 100% ownership of Profits
• Challenges =
– Establishing UK subsidiary – process more complex than in US
– Regulatory approval from Financial Services Authority – more involved than State insurance departments in US
– Broker Appointment from Lloyd’s – greater scrutiny for foreign-owned brokers; local direct management required (in reading, a “multidomestic” or “locally responsive” company approach)
– Higher Operating Costs, Operating Complexity
» Rents, salaries, taxes higher than in US
» Establish, administer separate UK benefit plans
» Tax repatriation
» Labor laws more pro-employee (e.g., no at-will employment; restrictive covenants more difficult to enforce)
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UK Expansion
DECUS INSURANCE BROKERS, LTD.:• Organized as England & Wales company September
2007• Indirect Subsidiary of Brown & Brown, Inc.• Created to place specialty lines of insurance
business including Property, Professional Liability and Binding Authority programs
• Authorized with FSA February 2008• Appointed as Lloyd’s Broker February 2008
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UK Expansion
Syndicate (Risk-Bearers)(Underwriters Price, Issue Policies)
Lloyd’s Members(Capital Providers)
Managing Agent(Manages Syndicate for Lloyds Members)
LLOYDS BROKER(Keeps Commission %Remits Net Premium)
US Wholesale Broker(Keeps Commission %Remits Net Premium)
US Retail Insurance Agent(Keeps Commission %Remits Net Premium)
Insured(Pays Gross Premium)
Companies/Individuals
SyndicateNo. 6106
AmlinUnderwriting
Ltd.
DecusInsurance
Brokers, Ltd.
PeachtreeSpecial Risk
Brokers, LLC
Brown &Brown of
Florida, Inc.
CondominiumOwners
Association
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UK Expansion
Decus Market Strategy:
• Capture Commissions currently being retained by Lloyd’s brokers for little/no actual work (2 -3 bites at apple)
• Beachhead: Start with B&B-placed business
– E.g., Move Force-Placed Hazard Insurance Program previously placed with Lloyd’s Broker owned by US competitor Arthur J. Gallagher
• Extend to other agents/brokers placing business into Lloyd’s market
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UK Expansion
What does “Decus” mean anyway?• Latin inscription on British coins: “Decus Et
Tutamen” (“An Ornament and a Safeguard”)
– Refers to milling/lettering on coin, and to Monarch depicted on coin
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Finance
• Cost of acquisition/startup : $1 MM
• Funded internally via capital raised in 2004
• Profitable in first and second year following startup
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Finance
2009 Through Sep 30 Budget Actual Total
Revenues $19.5MM $20.4MM $26MM
Operating Profits $100K $900K $1.2MM
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Impact Assessment
2009 2010 2011 2012 2013
Revenues $27.2MM $33.4MM $41.8MM $46.1MM $54.3MM
Operating Profits $.75MM $.95MM $1.25MM $1.25MM $1.50MM
Incremental Revenues/Operating Profits Following Decus Expansion
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Questions? Comments?
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