Please stand by. We are about to begin. Good morning, and welcome to the Brown & Brown, Inc. Q1 earnings call. Today's call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call, and including answers given in response to your questions, may relate to future results and events or otherwise be forward-looking in nature. Such statements reflect our current views with respect to future events, including those relating to the company's anticipated financial results for the Q1 , and are intended to fall within the safe harbor provisions of the securities laws. Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or desired or referenced in any forward-looking statements made as a result of a number of factors.
Such factors include the company's determination as it finalizes its financial results for the Q1 that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday. Other factors that the company may not have currently identified or quantified, and those risks and uncertainties identified from time to time in the company's reports filed with the Securities and Exchange Commission. Additional discussion of these and other factors affecting the company's business and prospects, as well as additional information regarding forward-looking statements, is contained in the slide presentation posted in connection with this call and in the company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, there are certain non-GAAP financial measures used in this conference call.
All reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measures can be found in the company's earnings press release or in the investor presentation for this call on the company's website at www.bbinsurance.com by clicking on the Investor Relations and then Calendar Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.
Thank you, Jake. Good morning, everybody, and thanks for joining us for our Q1 2022 earnings call. We delivered another good quarter and are very pleased with our top and bottom line performance. Our consistently high level of performance is driven by our unique culture, whereby approximately 22% of our company is owned by teammates. Since our call on March 8, we've made good progress and are very excited about GRP, BdB, and Orchid becoming part of the Brown & Brown team. Their additional capabilities and talented teammates will enhance the solutions we deliver to our customers globally. After that call on the 8th, Barrett Brown, Scott Penny, and I spent two weeks traveling around the U.K. and Ireland and met with over 1,000 of our soon-to-be new teammates and visited over 20 locations.
After two weeks of engaging with the GRP and BdB teams, we are even more confident about the cultural alignment and are more optimistic about the future. As an update on closing the deals, we're very excited about the closing of Orchid at the end of March. For GRP and BdB, we continue to anticipate closing these acquisitions during the third quarter. Lastly, we completed the financing for these transactions in March. In addition, we published our annual report, ESG report, and proxy statement. We encourage everyone to review these documents as each report highlights our key aspects of our strategy, our commitment to our ESG initiatives, and our philosophies around executive compensation. Now let's transition to the results for the quarter. I'm on slide four.
We delivered $905 million in revenue, growing 11% in total and 7.8% organically, with good new business and solid retention. Our adjusted EBITDAC margin was strong and remained consistent with the Q1 of 2021. Our net income per share for the Q1 was $0.77 on an as-reported basis and $0.78 on an adjusted basis. Later in the presentation, Andy will discuss our financial results in more detail. We completed two acquisitions during the quarter with annual revenues of approximately $65 million, with Orchid being the majority of that amount. In summary, we're very pleased with our strong performance for the Q1 . I'm now on slide five. From a customer and market perspective, businesses continued to expand and the economy grew, albeit at a slower rate than last year.
We're seeing some customers beginning to realize initial relief in supply chain issues experienced over the last two years. The main challenges business leaders are managing today are the ability to find enough workers, inflation, and rising interest rates. These are putting pressure on margins for many companies across multiple industries and are influencing how leaders invest in their company. From a carrier standpoint, the themes remain fairly consistent as compared to Q1 of 2021 and previous quarters, which includes the availability of limits for certain classes, heightened pricing sensitivity, and increased underwriting rigor for cyber liability in customers with high losses. Consequently, customers continue to modify their deductibles and limits to best manage their premium increases.
Admitted market rate increases were similar to prior quarters and were up 3%-7% across most lines, with the outlier being workers' compensation rates, which continued to be down 1%-3%. From an E&S perspective, rate increases continue to be in the range of 10%-20%. CAT property, both wind and quake, were up 10%-30%, with some year-over-year moderation experienced in earthquake rates. A topic that's on the minds of many carriers is insurable values, as property prices and replacement costs have increased materially over the past couple years. Professional liability for most accounts remained very challenging, with rates up 10%-20%. Regarding cyber, rates and deductibles continue to increase, with carriers requiring effective security protocols in order to obtain coverage. For professional liability and excess umbrella, the themes are consistent with previous quarters.
California and Florida personal property placements are becoming even more challenging due to past losses and aggregate concentrations. We expect the appetite for personal lines in those cat-prone areas will continue to be constrained this year. With that said, we're well-positioned to help our customers find creative solutions. I'm now on page six. Let's transition to discuss the performance of our four segments. Our Retail, National Programs, and Wholesale segments delivered another strong quarter, with organic revenue growth of 8.9%, 6.1%, and 11.6%, respectively. The performance of these segments was fueled by a combination of new business, good retention, rate increases, and modest exposure unit improvement. The organic revenue for our Services segment decreased 6.2% for the quarter, with the main driver being fewer weather-related claims this year. Now let me turn it over to Andy to discuss our financial performance in more detail.
Great. Thank you, Powell. Good morning, everybody. We're over on slide seven. Like previous quarters, we're going to discuss our GAAP results and then certain non-GAAP financial highlights. For the Q1 , we delivered 11% total revenue growth and organic revenue growth of 7.8%. Our net income grew 10.3% or $20.6 million, and our diluted net income per share increased by 10% to $0.77. The effective tax rate increased to 16.9% for the Q1 of this year as compared to 16.5% in the Q1 of last year. The higher rate was primarily impacted by the change in the tax benefit associated with shares vesting from our stock incentive plans. We continue to anticipate our full year effective tax rate will be in the 24%-25% range.
Our weighted average number of shares increased slightly compared to the prior year, and our dividends per share increased to $0.103 or 10.8% compared to the Q1 of 2021. We're over on slide eight. This slide presents our results on an adjusted basis. Previously, our adjusted measures only excluded the change in earn-out payables. Beginning this quarter, we refined our adjusted measures to isolate the impact of movements in foreign currencies on both revenues and operating costs, as well as to remove the net gain or loss on disposals. In addition, we're removing the non-recurring acquisition and integration costs associated with GRP, BdB, and Orchid due to the materiality of these costs. We anticipate excluding the costs for these acquisitions for the next 18-24 months.
Please refer back to slides 15 and 16 for the reconciliation of these amounts to our most comparable GAAP measures. On an adjusted basis, income before income taxes increased by 11.7%. EBITDAC grew by 11.1% with consistently strong year-over-year margins, even with higher variable costs over the prior year, and our net income increased by 11.3%. From an expense standpoint, our first and second quarters are probably our toughest year-over-year comparisons as travel and entertainment were increasing in the second half of last year. Our adjusted diluted net income per share was $0.78, which grew by 11.4%. In summary, it was another great quarter on the top and bottom line. We're over on slide nine.
Our retail segment delivered adjusted total revenue growth of 14.2%, driven by acquisition activity over the last 12 months and organic revenue growth of 8.9% with solid growth across all lines of business. Adjusted EBITDAC grew 18.4% with the associated margin increasing by 130 basis points for the quarter, which was driven by leveraging organic revenue growth and managing our expenses even with increased variable operating costs. Moving over to slide number 10. Our national program segment delivered adjusted total revenue growth of 4.7% and organic revenue growth of 6.1%, with strong growth across many programs. The difference between adjusted total revenues and organic revenues was driven by slightly lower contingent commissions and the sale of a program in the prior year.
Adjusted EBITDAC was substantially in line with the prior year, with the associated margin declining by 170 basis points to 33.2% as a result of increased variable expenses, higher non-cash stock-based compensation, and the timing associated with recognizing revenues and costs related to new customers. We're over on slide 11. Our wholesale brokerage segment delivered adjusted total revenue growth of 13.2%, driven by acquisitions in the past 12 months and organic revenue growth of 11.6%. Adjusted EBITDAC increased by 23.2%, with the associated margin improving by 260 basis points as a result of strong organic revenue growth and higher contingent commissions despite increased variable cost. Over on to slide 12.
Adjusted total revenues in our services segment decreased by 7.2% and organic revenue declined by 6.2% due to fewer weather-related claims as compared to the prior year. For the quarter, adjusted EBITDA decreased by $3 million or 25.2% due to variability in the volume of weather-related claims. A few comments regarding liquidity and cash conversion. As discussed during our Q4 earnings call last year, we've transitioned to a fiduciary reporting model for cash, accounts receivable, and payables held or owed in a fiduciary capacity. The change is to more appropriately reflect the cash flow from operations and the nature of the accounts on our balance sheet. On the cash flow statement, changes in fiduciary receivables and liabilities are presented within financing activities. On the balance sheet, these accounts are labeled as fiduciary assets and liabilities.
After delivering another year of strong cash flow in 2021, we started 2022 with a solid performance and delivered cash flow from operations of $104 million. Our ratio of cash flow from operations as a percentage of total revenues was 11.5% for the Q1 of this year as compared to 16.9% in the prior year. The ratio of cash flow from operations as percentage of total revenues was lower than the prior year due to paying higher incentive bonuses to our teammates for their outstanding performance in 2021, and the payment of acquisition earn-outs as certain acquisitions have overperformed our original expectations. As a reminder, the Q1 is normally our lowest conversion ratio of the year due to payments of prior year bonuses.
Consistent with our comments at year-end, post our transition to the fiduciary model, a good estimate of full year cash flow from operations as a percentage of total revenues should be in the range of 27%-28%, barring anything unusual. As Powell mentioned earlier, we completed the financing for the acquisitions of GRP, BdB, and Orchid. The total deployed capital for these acquisitions will be approximately $2.5 billion. $2 billion of the purchase price will come from the $1.2 billion of new 10- and 30-year bonds we issued in mid-March, which carry interest rates of 4.2% and 4.95% respectively. Eight hundred million will be sourced for a new bank facility we finalized at the end of March.
The remainder of the purchase price will come from cash on hand as well as cash generated during the first half of this year. Incremental interest expense for the Q1 was approximately $2 million, and we expect interest expense to increase approximately $17 million per quarter going forward as a result of the bonds and bank facility. Our excellent capital position and strong cash flow support our strategy to acquire great companies, and also enables us to de-lever over the coming quarters as we've done in the past after larger acquisitions. With that, let me turn it back over to Powell for closing comments.
Thanks, Andy, for a great report. We finished 2021 with significant momentum, which continued into 2022, and enabled us to deliver another great quarter on top and bottom line performance. We believe economic growth will continue to return to more normal levels. However, there are a number of topics that will influence business confidence and economic expansion, which are the continued high levels of inflation and rising interest rates. We are also following topics as additional drivers of the economy as, one, availability of employees across all industries. Two, the resolution of supply chain constraints. And three, how current global geopolitical matters resolve themselves. How each of these areas play out over the coming quarters will drive the growth trajectory of the economy. This will then influence how leaders invest in their businesses and corresponding exposure unit expansion.
From a rate perspective, we anticipate premium increases for admitted markets will remain relatively constant for the next few quarters. From an E&S perspective, we expect premium rate increases for the second quarter to be consistent with levels experienced in the Q1 . Depending on weather-related and other losses incurred over the next few months, rates for certain lines may increase further or moderate slightly in the months that follow. In states like California and Florida, premiums are becoming very expensive for certain classes. As a result, customers are managing expenses by modifying deductibles or aggregate limits. On an M&A front, regulatory approval for the closing of GRP and BdB is progressing as expected, and we anticipate closing during the third quarter. More broadly, we expect competition and valuations to remain at peak levels until interest rates increase materially.
We have a good pipeline, we are actively seeking firms that fit culturally and make sense financially, and we're well-positioned to deliver value for our stakeholders. From an innovation standpoint, we're making good progress to leverage data in order to enhance the customer experience, streamline the placement of coverage, and create new products. We're also working to implement efficiency tools that will enhance the experience for our teammates, so they can spend more time delivering solutions for our customers. In closing, we feel great about our business as we continue to expand our capabilities, and most importantly about our 12,000+ teammates that will soon be nearly 15,000 teammates when GRP and BdB are closed. We're focused on delivering for our customers, writing more new business, and acquiring great companies as these will be the key drivers of our long-term growth.
With that, let me turn it back over to Jake for the Q&A.
Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. Do keep in mind if you're using a speakerphone, make sure your mute function is released so that signal can reach our equipment. Once again, star one for any questions. We will begin with Elyse Greenspan with Wells Fargo.
Hi. Thanks. Good morning. My first question is on the margin. You guys had pointed to flat margins for the year. I know, Andy, you guys pointed out that you had tougher year-over-year compares in the first and the second quarter as T&E started to increase in the back half of last year. Since the margins were flat to start the year, does that position you guys to see margins, you know, come in better than you originally expected?
Hi. Good morning, Elyse. I think since we're at the end of the Q1 , similar to the comments last year, we'll probably stick with our current guidance for the full year, and then we'll see how the next quarter or two, you know, round up for us. The fact that we said, you know, flat, that could be, you know, up slightly, down slightly for the full year still seems like a pretty good range at this stage, but we're very pleased with the Q1 .
Okay. Great. My second question, in terms of organic, you know, retail, you pointed to broad-based growth across the different, businesses. Can you give us a sense of how, you know, the core retail business is doing versus benefits in the Q1? I know last year you guys showed pretty strong growth in the second quarter in benefits. Should we think about the year-over-year compare being tough, or would you expect, you know, to show good growth in benefits, in the second quarter this year as well?
Elyse, we're very pleased with the performance of all segments of the business in retail. Although we don't break out those segments, we're very pleased with how commercial, P&C and benefits and personal lines performed in the Q1 , and we anticipate that they will perform well in the second quarter.
Okay. One last one. When you guys announced the GRP deal, you know, you were talking about, you know, potentially looking to use that platform to do, you know, some other bolt-on deals overseas. Since you announced the deals, do you have any kind of update just on the market that you guys are seeing in U.K. and Ireland, and how that could, you know, translate into additional M&A opportunities for Brown & Brown?
What I would say, Elyse, is this, obviously it's a smaller economy in the sense that there's 66 million people there, and I think there's 330 million people in the United States. There are lots of firms that are in the small and medium space. The key, GRP has been doing this, but is to continue to identify firms that fit culturally and make sense financially. They are actively looking for opportunities and are actually doing transactions at the present time, and we anticipate continuing to do that. From a standpoint of, we don't give guidance, as you know, in terms of what we're gonna buy or what's in the pipeline. We just don't believe that till it's actually done.
We do think there's gonna be some nice opportunities for us there, and we're very excited about it, and very excited to, you know, welcome our soon-to-be new teammates, once we get the approval by the FCA.
Okay. Thanks, Powell, for the color.
Yeah. Thanks, Elyse.
Next, we'll move to a question from Greg Peters, Raymond James.
Good morning, everyone.
Morning.
Powell, in your comments, you know, talked about inflation, supply constraints, and my phrase, you know, war on talent. There's definitely seems to be, within the insurance brokerage sector, you know, a lot of attention to the war on talent. You know, we see periodically teams going from one organization to another. Maybe you could speak to us for a moment about, you know, how your producer retention, teammate retention is holding up, and talk to us about the pressures you might be seeing from the wage inflation perspective as it relates to your teammates.
Sure. Good morning, Greg. I would tell you that several calls ago, I remember talking about the fact that our industry has done a pitiful job of recruiting and developing talent across the platform, not one firm or one segment of our industry, but just the industry as a whole has not done a very good job. That's number one. Number two, we're seeing, as you are, lots of people, particularly a lot of movement in the carrier side. In my, you know, years in the business, 30, you know, plus years in the insurance industry, 32, I haven't ever seen it this active on the carrier side. That said, yes, we are seeing people that are moving, and sometimes teams are moving to other firms in the brokerage space.
What I would tell you is this. We talk about cultural fit in terms of acquisitions. That's embedded in the kind of people that we hire and we look for. A fundamental core value at Brown & Brown is wealth creation for our teammates. As you know, all of our teammates have the opportunity to buy stock through an employee stock purchase plan or the equivalent plan at a discount. No one's required to do that. We have an ownership culture here, where 22%+ of the company is owned by Brown & Brown teammates, and we know at least 65% of our teammates own shares at Brown & Brown. We think it's higher, but we know that for a fact.
You have an ownership culture, which is very unusual, particularly in a larger public company. The way we think about it is, people like to be part of winning teams. You would like to be a part of a winning team. I would like to be part of a winning team. Andy wants to be part of a winning team. Ultimately, in a decentralized sales and service organization, we believe that we have tapped into something that appeals to a lot of very talented people, which is there's a lot of independence at a local level, and the kinds of business they go after, but there's a way for them to grow wealth through, one, if you're a producer and hitting certain revenue targets, and getting grants, and leaders are the same, and teammates through discounted S-share purchases.
Do we have turnover and have we had turnover? Yes, we have. Is that turnover more pronounced today than it was two years ago? No, it's not. That doesn't mean that we're diminishing the impact of it because we don't like to lose teammates. You know, there are talented teammates that sometimes leave Brown & Brown, and that's a bummer. We are always looking for people that wanna be part of a winning team at Brown & Brown, and we believe that we have the right mix of rewards and to drive desired behavior that are aligned with our overall company goals.
Got it. Just a point of clarification in your answer. You talked about the turnover churn of talent at the carrier level. I'm wondering, you know, are you seeing any disruptive consequence of that with renewals, you know, as you think about your total book of business?
Well, let me put it this way. There's two ways to answer that. The answer at a local office level is when you have change like that, if your underwriter leaves, there's a disruption. Doesn't mean you can't work through it. It just means that they, you know, somebody that may try to re-underwrite the account or something like that, or ask more questions than if the person that had put the account on the books, they know the account. That's an example. At a higher level, no, I would say we kinda work through it. At a desk level, the answer is, it depends. In some instances, it can be bumpy, and some instances it can be more of a smoother transition. It just depends.
Got it. Thanks for the color on that point. I know this is probably getting out a little bit in front of the process, but you know, you reported to us that you spent you know, a bunch of time meeting all the colleagues with GRP and BdB. I'm wondering if you can give us you know, you're also observing their results. Give us some perspective of how they performed in the Q1 based on what you've been able to see, you know. I guess what I'm zeroing in on, which isn't surprising, is you know, how their organic, how their margin profile, how their free cash flow conversion is gonna mesh with you. I know you've provided some big picture comments on it before, but maybe you could use this opportunity to give us another update.
Let me thank you for the question. I'm gonna try to touch on that in a very diplomatic way, and the reason I say that is, number one, we haven't closed the transaction. It's subject to approval by the FCA, and as we've said, we believe that would occur in the Q3 . They did have a nice Q1 , and I'm not gonna go into specifics 'cause I don't know all the specifics. I know enough. This is what I think is important and more important to you, but you can't put this in your model. When I go into the offices in these communities around England and Ireland, it reminds me of Brown & Brown 20 years ago.
For those people that are on the call that understood what we were like 20 years ago, we were a very effective sales and service organization, but we continued to just add to our capabilities and improve and grow more organically. We've done some cool things since in the last 20 years. I can tell you this. I went in a lot of offices and met a lot of teammates in England and Ireland, and they are pumped. You know, we have a different story than pretty much anybody else out there. Relative to a public company, there aren't many public companies, let alone in the brokerage space, but any public companies has got 23%, 22% insider ownership by teammates. Again, we talk about culture.
Part of our culture is an ownership culture where we put the interest of the customer first, and it's based on a foundation of honesty and integrity. When you do that, it'll always work out for Brown & Brown long term. You know, I could go on and on about Mike Bruce and his team in England and Silvestro and his team at BdB in London. I'm gonna tell you, we're very pleased with the teams and can't wait for them to become officially teammates sometime in the third quarter.
Greg, to your question about organic and margins, you know, we'll address the organic once the businesses have been in with us. But no change in our previous commentary regarding overall profitability and cash flow conversion for the businesses. As you know, we said back in the early part of March has a very similar profile, those businesses, and the divisions in which they're gonna be part of. Nothing has changed on that front. We're very excited about having them be a part of the team and adding their capabilities.
Andy, on that point, like cash bonuses and the expenses that go through your cash flow in the Q1 , that's similar to what's going on at GRP and BdB, correct?
For the most part, yeah. There's some different phasing, but nothing substantially different.
Got it. Thank you for the answers, guys.
Yep. Thank you.
We'll now move to Mark Hughes with Truist.
Yeah, thank you. Good morning.
Good morning.
Just curious your latest thoughts on the net impact of this volatility, let's say in California and Florida. You're getting these meaningful rate increases, but customers are shifting their deductibles, and you've got some moving over to, say, Citizens in Florida. Is this when we think about the organic growth impact of that kind of dislocation, is this a good organic growth environment? Are you getting faster growth in these markets because of that dynamic?
Let's back up and first say in California and Florida, and you kind of alluded to this, Mark, that there will continue to be pressure on the state funds or the state-backed alternatives. In the state of Florida, I believe the number as of today is there are four takeout companies that have been downgraded by Demotech and/or wiped out, one or the other. When I say downgraded, meaning they're saying in filings they don't believe they can continue on, so that means they're going down. What you've got is you've got a lot of turnover in certain size homes in the state of Florida. The governor had a special session and that they've got several items on the special session, but insurance was one of those topics.
What our governor is trying to do, and our CFO is to make Florida a very have choice for consumers and be consumer-friendly, understanding that there are some hurdles that the carriers have had to jump over or through, regarding past losses and/or development of losses and/or the future and aggregation of things here in the state of Florida. What I would say is, as it relates to our teammates that work in the personal lines area, which is very important, it's gonna create more work for them. That's number one. Number two, it becomes sometimes a little bit challenging because you have a very fine customer who's been with a carrier where they probably, in the case of the ones that went down, maybe underpriced the account a little bit.
They're experiencing that customer higher than expected increases on their insurance. Sometimes that leads to them potentially looking at other locations for insurance, but not exclusively. We think we can get to every market, so we try to bring all the options to those customers. Does that create some organic growth opportunities? Yes, with a caveat. I would basically say it's a neutral. I wouldn't want to give you a thing that it's negative, although it's harder on our team, but I also don't want to tell you it's like a bonanza either because it's not. It's a neutral to slight positive, but there's, you know, stuff that goes with that.
Yeah, Mark, you know, keep a couple other things in mind on this, and I know you just put out a big research report on the CAT properties and everything. There's a number of different factors that go into ultimately what comes out as our commission revenue. While the rate online in many cases is in fact going up, as we mentioned in our commentary, you've got customers that are looking at deductibles.
Taking those up, they're looking at their total limits that they're purchasing in order to adjust. In the case of Citizens, we're paid a different commission rate than what we are through the other carriers. There's a lot of factors that go into it. Just because the rate online might go up 15% doesn't mean that our commission revenue goes up 15% inside of there. Just trying to keep all those in consideration when thinking about the opportunity in the marketplace.
Yeah. Thanks for that, detail. You mentioned on the national programs, one of the EBITDA impacts was from timing of revenue. Does that become more favorable at some point in the near term here?
Yeah. I think over the year that works out, and one of the comments in there that we made, Mark, was just the onboarding of you know of customers, and we've talked about this in previous calls, is that generally when we bring on new customers, we're hiring teammates in advance to get them trained and start to prepare to get the account on board. Then as the revenues start to come into the P&L, then it catches up. Nothing unusual, but sometimes when you look at individual quarters, they can move around.
This was a more of a negative quarter likely to balance out and be more positive at some point in the future.
That's probably a fair comment, yeah.
Thank you very much.
Thank you, sir.
Moving on to Weston Bloomer with UBS.
Hi, good morning. One of the things you guys touched on in the prepared remarks was on the geopolitical matters and the impact that could have on growth. I was hoping you could provide additional context on that in context to your guidance around the March 2022 M&A. Maybe expand on any potential indirect or direct exposures and just help frame the conservatism that was maybe built into that. Understanding you can't get into specifics, but you know, have you noticed any slowdowns in the U.K. or Eurozone and related exposures? Thanks.
Right. To the best of our knowledge, we don't have any exposures in Ukraine or Russia, whether that be currently or anticipated with the announced acquisition, subject to approval by FCA. That's number one. Number two, what we would say is the impact that we've seen at least through the Q1 is what I would call general inflationary pressure, maybe even consumer pressure, not unlike what we see here west in the United States. That could be increases in food prices, increases in gas prices, things like that. From an exposure unit standpoint, we have not seen a slowdown in the Q1 . We believe that will continue, remember, there's a balance with what I call general inflationary pressure.
The negative is your cost of goods go up, gas, food, clothing, whatever the case may be. The flip side of that is your insureds, if their exposure units are based on payrolls or sales, if the sales price goes up, that could offset slightly the premium paid. If the payrolls go up, that could impact the premium paid when you have wage inflation. Based on what we've seen so far, we think that as I said, it would be similar to what we've seen here in the United States from an inflationary standpoint. That's how we would answer that question.
Great. That's super helpful. My follow-up is, I guess, on the broader pace of M&A across your portfolio. In the past, you've done around 20 deals per year. Just curious on the pipeline you're seeing from here, is that roughly around the same level that we should expect for 2022, or could it potentially be lighter given the recent large-scale M&A? Just curious on what you're seeing by, you know, size, multiple type of deal.
Yeah. Weston, I wouldn't get focused so much on the number of transactions. I think that might. I don't know if that's gonna yield the outcome you want. What I would tell you is, we generally, well, not generally, we focus on cultural fit and when and why people sell is different. What I would tell you can go back and look at our five-year average or 10-year average on revenue acquired. I think that number is somewhere around $135 million a year. There's gonna be certain years, this year would be one of them, that'll be higher than that, subject to the approval and closing of those transactions that we've talked about. I want you to understand that each deal stands on its own.
The fact that we have done or announced a large transaction, does that dramatically impact our ability or interest in acquiring a nice firm, sized firm here in the United States? The answer is no, it doesn't. Those are two totally separate decisions about how we invest in the business, and we like to think we can do both. I wouldn't wanna focus you on number of transactions. We don't know how much we're gonna do when we start the year. You know, obviously, what we've announced is much more than $135 million so far, subject to those being approved. We have, you know, lots of opportunities that we're talking with, but we don't know when and if those will close.
We don't talk about the pipeline because the pipeline isn't what we buy, the pipeline are the opportunities to buy. It's ultimately what we close, and you'll know about those when we close them.
Hey, Weston.
Great. Thank you.
It's Andy.
Yep.
Hey, Weston. I think maybe other side of the question that you might be asking is, hey, are we out of the M&A market?
Yes.
Can we just say definitively we're not out of the M&A market? We do have, and we had this in our prepared comments, we do have adequate capital to continue to buy really good businesses this year. We also anticipate that we'll be able to delever the organization after these transactions. We feel really good with where we are. The question is just when do the businesses kind of line up for the sale and they're not consistent by quarter for us because of that cultural alignment.
Great. Thank you. Really appreciate all the color.
Thank you, Weston.
As a reminder, star one if you have a question. We'll now move to Yaron Kinar. Kinar with Jefferies.
Thank you. Good morning. Maybe a continuation.
Yes
On this M&A front. If valuations remain elevated at this point, how are you thinking about team hires as another option to bring people in as opposed to outright M&A? Maybe you can help us think about the pros and cons of it and when you'd prefer a team hire over just purchasing a business.
Well, I think the way I would articulate that, Yaron, is any time that we find good people, we would consider hiring them. It doesn't have to be at this type of a cycle. We have not done a number of what you might call team lift outs. That is not how we've, you know, built our business. That doesn't mean that there aren't people that we would consider hiring, and if the right, you know, people wanted to do something, we would consider a way to structure it. But we don't want, you know, we have contracts, and we abide by the contracts, and we don't ask somebody to violate contracts when they come to Brown & Brown. We expect others to abide by those contracts.
If people wanna come or if people wanna leave, then they can. We're really mindful around that. We don't take the actions of, we go into it with a legal mindset where it's gonna be a legal battle. That's not the way we build our business. We try to do it on the up and up, and we basically, if somebody wants to come, honor the contract that you had with your prior employer, and let's go forth and write new business. If in fact you have covenants, then once those covenants expire, then if you wanna go back after that business, you can.
Okay. That's helpful. Then on a totally different topic or going back to Elyse's question in the beginning of the Q&A, you know, you had flat margins the Q1 . Sounds like you're saying second half of the year, you could see a little bit of alleviating pressure on the margin side, and yet you're maintaining the overall full year guidance as kind of flattish margins. What are the headwinds that you're seeing or that you are potentially seeing that could offset some of the margin expansion the second half of the year? Is it just slower growth?
Have you flown on an airplane lately?
Uh, I cannot-
Have you flown on an airplane lately?
support that. Yeah.
I know you have. The point is, did you see how much you had to pay for that ticket?
Yeah.
The cost of a hotel room, the cost of a rental car, the cost of an airline ticket, the cost of the gas to put in the rental car, particularly if you go to places like California where it's $5 and $6 a gallon. I'm not trying to be flippant. I'm basically trying to say that there's pressure on all these inputs. I think, quite honestly, that our margins are really good, and we're really pleased about where our margins are. If we deliver flat margins as we said at the end of the year, I think that'd be pretty darn good under the circumstances. There's a lot of variability in terms of costs that are beyond our control.
That does not mean, Yaron, that we're saying that we're gonna have everybody back traveling exactly like they do. If you took six people to see a client, and now you take two, but if it costs two or three times as much to get the two people there, that kinda offsets a little bit. That's what I would say relative to the margin profile. By the way, if we exceed, if we overperform the flat, that's great. If we underperform slightly, that's all right too. The thing is we are growing our business organically and profitably, and more importantly, we're converting that into cash and reinvesting it in our business.
Cash conversion, you know, we've talked about this for a long time, we think it is important. I know you do, but we think it's really important, particularly the amount that we convert relative to others convert and our ability to use that cash and invest in our company.
Got it. Thanks so much for the comments.
Yeah, thanks, Yaron.
We'll now move to Derek Han with KBW.
Good morning. Thanks. Just looking at the investment income, can you just talk about what interest rates matter the most? Well, I would have expected an increase, but it looks like it didn't change all that much, and that's why I'm asking.
Yeah. Hey, good morning, Derek. Andy here. Probably two ways maybe for you to think about that. Let's talk about on the interest income side. As you probably saw for the quarter, I mean, we generated about $100,000 of net interest income. So the movement in interest rates will probably not have a material upside on interest income 'cause there's a lot of factors that go into the net earning of that because of restricted accounts and bank fees, et cetera, inside of there. So I think maybe that's one way to park it. When you look at the debt side of things, we'll have in the range of about $1.2 billion-$1.25 billion of floating rate debt out there.
You can get a pretty good idea of kind of what every 1% increase does on there. We think we're well-positioned between fixed and floating in order to optimize the interest rates that are out there. As it relates to the guidance that we gave on the $17 million, we've incorporated our thoughts in there as to probably what will happen with rates over the coming year.
Got it. That was really helpful. I just had another question on contingents. It looks like the program's contingents were down a little bit, only modestly, but the wholesale contingents were actually up. Can you just talk about, you know, what's driving that, why the different directions year over year?
Yeah. Let's talk about programs first. Those are the ones that can be more volatile in nature, and I'll explain the reason why on that is because they're tied to individual programs and profitability and volumes. Those can just move up and down, and we've seen that over time. Again, nothing unusual inside of there or nothing that's changed, you know, from a fundamental standpoint in the business. Then on the wholesale side, it's good to see that they're up a little bit, but we don't think that we're quote out of the woods, and that contingents are gonna start going up. They've been down for quite a few years because overall profitability at the carriers.
Good to see up a little bit, but that's only one quarter, and some of that's just some true ups from the accruals that we made in the previous year. Nothing real unusual there at this stage.
Got it. Thank you for all the answers.
Thank you.
We have follow-up from Mark Hughes, Truist.
Yeah, thank you. Any update on the Social Security advocacy business?
The answer, yeah, Mark, what I would tell you is, there continues to be. It seems to be slowing down or continuing to be slow in the processing of those claims. We don't see in the near term, near term meaning the next quarter or two, that changing at all. As I like to say, there continues to be a backup of things and claims to be processed, but I don't see the way to clear the pipe efficiently in the near term. We don't have a significant update on that. Do you have anything else on that, Andy?
Yeah, maybe think about it in two ways, Mark. One is the inflow into the business, and we mentioned this on some previous calls.
We're very, very pleased with the volume of potential claims coming to us and the relationships that we have with all of our customers. Inbound is good. That's an important thing for us as to how we look at the business. The question is, you know, the number that ultimately get processed by the Social Security Administration, and that's kind of the other end of the funnel that just has a constraint on it with the number of employees that they have there at the administration. It's kind of at a, we'll call it somewhat level, as to where it was about a year ago. At least right now, we don't see anything that's gonna cause us to believe that they're gonna add, you know, more resources in the SSA in order to increase the volume.
We've seen this in the past, though. We really have, and it goes in a cycle, and then there's a backlog there, and then all of a sudden there'll be, you know, some sort of noise that will happen, and lo and behold, they'll put additional resources in, then it clears out. It does kinda come in waves, but the overall health of the business is very good. We just-
Yeah
Wait for it to come out on the back end, and
Yeah
It's a cycle.
Yeah. Thank you for that. One final question. I don't think you've addressed this directly on this call, but the duration of the P&C cycle, you describe your outlook for rates, to be largely steady, it sounds like, at least for the near term. Steady as in steady increases. And that may be a little more optimistic than some of these calls in the past. Any thoughts on the duration of the cycle, what you might have seen here recently that influences your view on the durability of the cycle?
Okay. Let me clarify ranges and what you just said so we're clear. If you say the rate increases range from 3%-7% and all of a sudden the majority of them are 6%, and then in the next quarter the majority of them are 5% or 4.5%, that's a slight moderation in rates. Okay. Do we anticipate the rates being in the similar range to what we said? Yes, we do, but I wanna make sure that you understand that there's a range there. I actually say in most classes of business we're seeing slight moderation in rates, but in the same range. That's number one. Number two, Mark, I've only been in the business 32 years, and so in my 32 years I've not seen anything like what we're in today.
You've read all the other reports on the carriers, and they start talking about loss costs are up, their profitability is up, but you have the involvement of significant claims awards outside the so-called normal, if you wanna call that. Whatever you wanna call those huge verdicts. You're also seeing just in terms of juries, particularly in certain areas of the country, being very sympathetic to claimants. The carriers are looking at all of that, and I think the carriers are also doing a better job in disciplined underwriting. That does not mean that's gonna go on forever, but there is at a certain point we're gonna get to what a friend of ours calls the cheating phase, and the cheating phase is where people start undercutting pricing.
I don't think that's gonna happen, you know, tomorrow, but that's coming. Now, there's one caveat that we touched on but I'd like to expand on for a moment. You put a big hurricane into Florida, that makes the market here in Florida significantly different, and it's not easy today. That's number one. Number two, you put a big earthquake into California, that changes the dynamic of earthquake insurance, and particularly not only the people that buy it, but the rates that are charged. What I would say is, in the event that there are no major natural disasters, I'm not talking about windstorms and tornadoes, which are tragic and things like that. I'm talking about a big hurricane coming into Texas, Florida, Louisiana, big earthquake. Without that, you will continue to see pricing moderation.
If you do see that in any one of those areas, it could go into a very chaotic insurance market. I don't know if that exactly helps you or hurts you, but I hope it clarifies our view on. By the way, if you asked me, which you didn't exactly, what's it look like for the rest of the year, I think it's slight moderations subject to any big natural losses.
Yeah, I appreciate the clarity. Thanks, Powell.
Thank you. All right, I think we have one. Do we have one more question? More than that? What do we have, Jake?
We have a couple in the queue. We have a question from Michael Phillips of Morgan Stanley.
Okay.
Hey, thanks for putting me on. Just one from me, guys. Specifically on the national program, you've been pretty clear that, you know, replicating the prior two years of, you know, 12%-13% organic is just not in the cards, obviously. But can you, without trying to give specific numbers, just help us or remind us of things to think about for how the rest of the year could play out as we compare the rest of the year to kind of the 6% that you did this quarter.
All right. Michael, it's Powell. Think about national programs as a couple buckets. One of those buckets is, let's say, catastrophic exposure, quake, wind, the like. Your ability to grow in that market is going to be dictated by the availability of capacity. If you don't get new capacity, you will have potentially slight increases on your existing book, but you will not write new business, and if some of that moves to another market, then that moderates your growth. What I want you to think about is a component of national programs is dependent on capacity, one. Two, think about what Andy said earlier in our loan tracking business. You have a business where you have several portfolios that were sold in a quarter.
We didn't know when the portfolios were gonna be sold, just like we don't know when the portfolios are being purchased. That can go both ways. It was a little bit of a negative this quarter. If one of our clients bought a bunch of portfolios in the second quarter or the third quarter, we could have a slight uptick. I want you to think about a big part of our national programs is flood, okay? Flood just went through a re-rating. It's Risk Rating 2.0. That's a nice way of saying certain flood zones were remapped. There were certain things that were charged that maybe weren't charged before, or they are charging less for them now.
In the event that nothing has changed and you, your flood insurance goes up significantly, some people might living in a flood zone, consciously decide not to buy flood. Now, I know that sounds hard to believe, but the answer is they might. The rest of our national programs would be those that are, let's say, casualty driven. We have a dental program as an example, and we write dentists through administrators around the country, and that's the professional liability on dentists. Is there a lot of rate pressure on dentists? Well, I'm not aware of that. I mean, you know, your professional liability exposure is did you pull the wrong tooth? Did someone get, you know, infection in their mouth, something of that.
Did somebody slip in the hallway on the way to the dental chair? The performance of that program has been pretty good over time, but there are lots of other people that want to write that class of business. That's a long-winded answer, Michael, on saying that the portfolio of businesses in national programs is very indicative of an insurance company that we don't bear risk in. That's how you think about it. Remember, we are underwriting on behalf of our carrier partners, and we have to make them money. Depending on whichever bucket you are referring to that I just outlined, they each have different pros and cons going into the year, the rest of the year. That's how I describe it.
Okay. No, thank you, Powell Brown. That's very helpful. I appreciate your time. That's all I had.
Yep. Have a nice day.
Bye.
This will be our last question.
Okay.
We have one final question in the queue. We'll hear from Elyse Greenspan for a follow-up from Wells Fargo.
Okay.
Go ahead.
Thank you. Andy, my question on when you guys announced the GRP deal, right, you gave us a low and a high case on the financials. The interest expense seems just modestly higher. I'm assuming everything else stays in place and that you guys will kind of update that, you know, when the deal's closed. Any kind of update you can give us now?
Not at this stage. I think you're spot on, Elyse. Once we get the deal closed, which again, we're anticipating for both GRP as well as BdB sometime during the third quarter, then what we'll do is applicable updates for projections. Once we just have more information, again, we can only get so far since we don't own the businesses yet. We'll adjust accordingly. The interest rate, it is up a little bit, but probably still within the overall ranges that we gave.
For the integration costs, I know, I think they were in corporate this quarter. Will they continue? I know you backed them out of adjusted in the margin, but will they remain within corporate even after the deal closed or some will they shift, you know, to the Retail Segment?
Yeah. If you look in the back of the earnings deck, we've actually got a schedule in there that breaks them down by each of the divisions. We did have costs in more than other or corporate. Going forward, they may be in different places, but the schedule will be able to break that right out for you nice and clearly.
Okay, great. Thanks for the color.
Yeah, thank you.
That'll be it. Thank you all very much. I wanna let you know that we're very excited about our performance in Q1 and look forward to another good performance in Q2. We're very pleased with the outlook on the business, the margin profile of the business, the M&A opportunities, and most importantly, all of our teammates. As I said, we have just over 12,000 teammates today, going to just under 15,000 when we close the BdB and the GRP deals. We look forward to talking to you at the end of next quarter. Y'all have a nice day, and thank you for your time.
With that, ladies and gentlemen, this does conclude your conference for today. We do thank you for your participation, and you may now disconnect.