Brown & Brown Plants Its Flag in the

United Kingdom

Presentation Agenda• Company Profile• Industry Profile• Why Expand Internationally?

–Bermuda

–Ireland

–United Kingdom

• Lloyd’s of London• UK Expansion• Mode of Entry• Finance• Impact Assessment

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

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

-2-

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%

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

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

Company Profile

4 Business Segments:

• Retail (60.4% of 2008 Revenues)

–Property/Casualty

–Employee Benefits

–Sold directly to firms, public entities and individuals

Company Profile

• Wholesale Brokerage

• (17.5% of 2008 Revenues)

– Property/Casualty mainly

• Unusual/Difficult to Place Coverages

• Direct “Client” is retail agent (inside and outside of B&B) or broker placing coverage for insured

– Reinsurance for Insurance Companies

Company Profile

• National Programs (23.2% of 2008 Revenues)

– Third-Party Administration (TPA) Services

– Medicare Secondary Payer Statute compliance services

– Fees rather than commissions

Company Profile

• Services (3.5% of 2008 Revenues)

– Administer/Manage more than 50 Programs

– Professional Programs: professional liability and related packages for professional groups

– Special Programs: packages for niche industries, public entities or risks

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 and 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 48

Industry Profile

Why Expand Internationally?

4 Major Objectives – • Expand Sales to other markets• Acquire Resources (products, services, capital, etc.)

produced or available in foreign countries• Diversify Sources of Sales and Supplies – take

advantage of business cycle differences among countries

• Minimize Competitive Risk – counter advantages competitors might gain in foreign markets

Why Expand Internationally?4 GENERAL OBJECTIVES:• Expand Sales to foreign

markets• Acquire Resources from

foreign countries• Diversify Sources of Sales

and Supplies – take advantage of business cycle differences among countries

• Minimize Competitive Risk – counter advantages competitors might gain in foreign markets that could hurt you domestically

B&B OBJECTIVES:

• Not an objective - US markets provide best laws, taxes, margins

• Key Consideration: access to global insurance market

• Not a consideration

• Secondary Consideration: establish presence in global brokerage industry, divert business from competitors

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 top 3 non-US markets

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

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

United Kingdom

ADVANTAGES:

• Politically Stable

• Educated Workforce

• Lloyd’s of London

• Currently doing business in the market

DISADVANTAGES:

• May Join EU

Lloyd's of London

One of World’s Largest Insurance & Reinsurance Markets

Lloyd’s of London

What is Lloyd's of London An insurance Market – not an insurance company Deals in Reinsurance and Insurance for large and

complex risks Spreads Risk to limit liability to single entity Increases capacity of direct insurer Contract between insurer and reinsurer

No direct link to client

Lloyd’s of London

• Who does Business with Lloyd's

– 93% of Dow Jones Industrial Average Companies

– 92% of FTSE 100 Companies

– 86% of Fortune Top 50 European Companies

– 81% of Fortune 500 US Companies

– Top 7 Pharmaceutical Companies

– Top 20 Banks

– Insurance/Reinsurance Solutions in over 200 Territories worldwide; US is largest market

– 2008 Global Written Premiums: £16.9BN (US$24.7BN)

Lloyd’s of London

• How Lloyd's is Organized– The Society of Lloyd’s

•Made up of Members

– Syndicates

– Managing Agents

– Brokers

Lloyd’s of London Society of Members

Capital Providers Not Owners/Shareholders of Lloyd's

Underwrite in Syndicates

Compete for business within Lloyd's market

Offers choice

Controls pricing

Professional Underwriters accept risk on behalf of Syndicates

Members are not responsible for each others losses

Lloyd’s of London Syndicates

Groups of Society Members Pools capital of members Assumes the risk of underwritting Spreads risk among members in group

Lloyd’s of London Managing Agents

Companies established specifically to oversee Syndicates Sponsor and Manage Syndicates on members behalf Determine Members capacity for commitments Employ Underwriters to write contracts Communicate directly with Brokers Can rapidly assume or decline contracts

Lloyd’s of London

• Brokers

– act as gatekeepers– Intermediary between clients and

Syndicates– Negotiate competitive terms– Get immediate access to decision

makers– Accredited by Lloyd's– Retain part of commissions for

placing business into Lloyd’s market

Lloyd’s of London

Why Be a Lloyd’s Broker?

Vertical Integration: Direct access to Managing Agents Obtain brokerage commissions paid to current (non-B&B)

Lloyd’s Brokers B&B currently does business with

(“Second (third?) bite at the apple”)

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 to conduct business at

Lloyd's Professional Indemnity Insurance

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

UK Expansion

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

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

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 liability

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)

Finance

Finance

Impact Assessment

Questions?

Comments?