Brown brown plants its flag in the united kingdom
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Brown & Brown Plants Its Flag in the United Kingdom. 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. Industry Profile.

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Brown brown plants its flag in the united kingdom

Brown & Brown Plants Its Flag in the United Kingdom


Presentation agenda

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


Brown brown plants its flag in the united kingdom

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.


Industry profile

Industry Profile


Industry profile1

Industry Profile


Company profile

Company Profile

  • Founded in 1939 in Daytona Beach, FL

  • Brown & Brown is currently ranked as the 6thlargest 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 profile1

Company Profile

Brown & Owen founded

in Daytona Beach, FL

Raised $150

million of equity for

acquisitions

Acquired

Hull & Co. with

$63 million

in revenue

“1st Defining Moment”

Focus on operating profits

not revenues

1980 - $2mm @ 16% OP%

1982 - $4mm @ 8% OP%

Changed name back to

Brown & Brown

1939

1980-1982

1999

2002

2005

1955

2001

2004

1993

2008

Acquired

Riedman Insurance agency with

$54 million

in revenue

Raised 200M for new acquisitions

2008 Revenue of 977.6M

“2nd Defining Moment”

Becoming a public

company.

Merger with Poe & Assoc. to form

Poe & Brown; revenue

$86.1 million

Brown & Owen


Company profile2

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 profile3

Company Profile

Long-Term Strategy - FOUR PILLARS:

  • We’re in the Money-Making Business

  • We’re in the Recruiting and Enhancing of PeopleBusiness

  • We’re in the Selling and Servicing of Insurance Business

  • We’re in the Make-No-BIG-Mistakes Business


Company profile4

Company Profile


Why expand internationally

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


Why expand internationally1

Why Expand Internationally?

Extra Piece of the PIE!


Why expand internationally2

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 localbrokers

  • UK, Bermuda, Ireland among top 3

    Non-US markets


  • Bermuda

    Bermuda

    ADVANTAGES:

    DISADVANTAGES:

    US targeting “tax havens”

    Protective labor laws

    Current business inflow from B&B lower than to Lloyd’s

    • Proximity to US

    • Politically Stable

    • Educated Workforce

    • Cooperative Regulatory Environment

    • 1 of Top 3 Reinsurance Jurisdictions

    • Efficient, Innovative

    • No Income Tax


    Ireland

    Ireland

    ADVANTAGES:

    DISADVANTAGES:

    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

    • 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


    Brown brown plants its flag in the united kingdom

    United Kingdom

    ADVANTAGES:

    • Politically Stable

    • Educated Workforce

    • Lloyd’s of London

    • Currently doing business in the market

    DISADVANTAGES:

    • EU Member


    Brown brown plants its flag in the united kingdom

    Lloyd’s of London

    One of World’s Largest Insurance & Reinsurance Markets


    Brown brown plants its flag in the united kingdom

    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


    Brown brown plants its flag in the united kingdom

    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


  • Brown brown plants its flag in the united kingdom

    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


  • Brown brown plants its flag in the united kingdom

    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


    Mode of entry

    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 entry1

    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)


    Uk expansion

    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 expansion1

    UK Expansion

    Lloyd’s Members

    (Capital Providers)

    Companies/

    Individuals

    Syndicate (Risk-Bearers)

    (Underwriters Price, Issue Policies)

    Syndicate

    No. 6106

    Managing Agent

    (Manages Syndicate for

    Lloyds Members)

    Amlin

    Underwriting

    Ltd.

    LLOYDS BROKER

    (Keeps Commission %

    Remits Net Premium)

    Decus

    Insurance

    Brokers, Ltd.

    US Wholesale Broker

    (Keeps Commission %

    Remits Net Premium)

    Peachtree

    Special Risk

    Brokers, LLC

    US Retail Insurance Agent

    (Keeps Commission %

    Remits Net Premium)

    Brown &

    Brown of

    Florida, Inc.

    Insured

    (Pays Gross Premium)

    Condominium

    Owners

    Association


    Uk expansion2

    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 expansion3

    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


    Finance

    Finance

    • Cost of acquisition/startup : $1 MM 

    • Funded internally via capital raised in 2004

    • Profitable in first and second year following startup


    Finance1

    Finance


    Impact assessment

    Impact Assessment

    Incremental Revenues/Operating Profits Following Decus Expansion


    Questions comments

    Questions? Comments?


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