Q2 2023 Brown & Brown Inc Earnings Call
Participants
J. Powell Brown; CEO, President & Director; Brown & Brown, Inc.
R. Andrew Watts; Executive VP, CFO & Treasurer; Brown & Brown, Inc.
Charles Gregory Peters; Equity Analyst; Raymond James & Associates, Inc., Research Division
Elyse Beth Greenspan; Director & Senior Analyst; Wells Fargo Securities, LLC, Research Division
Mark Douglas Hughes; MD; Truist Securities, Inc., Research Division
Meyer Shields; MD; Keefe, Bruyette, & Woods, Inc., Research Division
Michael Augustus Ward; Research Analyst; Citigroup Inc., Research Division
Michael David Zaremski; MD & Senior Equity Research Analyst; BMO Capital Markets Equity Research
Robert Cox; Research Analyst; Goldman Sachs Group, Inc., Research Division
Weston Clay Bloomer; Associate Analyst; UBS Investment Bank, Research Division
Yaron Joseph Kinar; Equity Analyst; Jefferies LLC, Research Division
Presentation
Operator
Good morning, and welcome to the Brown & Brown, Inc. Second Quarter Earnings Call. (Operator Instructions) After the speakers' presentation, there will be a question-and-answer session. (Operator Instructions) As a reminder, 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 in respect to future events, including those relating to the company's anticipated financial results for the second quarter, and are intended to fall within the safe harbor provisions of the security 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 determination as it finalizes its financial results for the second quarter 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 a result of new information, future events or otherwise.
In addition, there are certain non-GAAP financial measures used in this conference call. A 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 Investor Relations and then Calendar of Events.
With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin.
J. Powell Brown
Thank you. Good day, everyone, and welcome to our Q2 2023 earnings call. We had an outstanding second quarter and the first half of the year. We're very pleased with our strong top and bottom line results with a robust total revenue, organic revenue and earnings per share growth.
Today, Andy and I are in the London headquarters of GRP, where we've wrapped up our quarterly Board meeting and have had the opportunity to engage with our European businesses and review strategic plans for the coming years. After our discussions, we feel even better about our leaders and the growth opportunities for our business this year.
Now let's get to the results for the quarter. I'm on Slide #4. We delivered over $1 billion of revenue, growing 24.7% in total, and 11.2% organically as compared to the second quarter of 2022. As a reminder, our calculation of organic revenue does not include contingent commissions, investment income, other income or gains and losses on business sales.
Our adjusted EBITDAC margin expanded 150 basis points to 34.2% and our adjusted earnings per share grew 55% to $0.68. On the M&A front, we completed 6 acquisitions with estimated annual revenues of $24 million. This outstanding performance is a direct result of the relentless daily commitment by our 15,000-plus teammates to create innovative solutions for our customers.
Now on Slide 5. The insurance marketplace continues to be very challenging for customers. They remain focused on the overall spend for insurance and how to best manage their costs. Across most lines of coverage, rate increases were similar to recent quarters, with admitted markets up 4% to 10% and excess and surplus markets up 10% to 20%. However, there are exceptions.
Workers' compensation rates continue to decrease at a consistent rate, E&S professional liability rates, including public company D&O and cyber continue to moderate downward with flat -- rates being flat to down 10% or more. The area that remains the most challenging is CAT-exposed property. Carriers continue to evaluate their coastal property portfolios, and we're seeing more admitted carriers exiting the California and Florida personal lines space.
As a result, these placements are becoming even more difficult. Consequently, more properties are moved to state-sponsored plans and into the E&S space that might have otherwise been written by an admitted carrier. At the same time, we continue to see underwriters speaking to increase insured values per square foot due to inflation and higher replacement costs.
Thus, customers are seeing premiums rise significantly due to inflation and higher values. These factors are causing buyers to purchase loss limits, increased deductibles, decrease overall limits or even self-insure certain layers within a placement.
Regarding the Florida insurance market, it has not materially improved. We have more admitted carriers either reducing their appetite or stepping away from the market entirely. This is pushing more policies to citizens and the E&S market.
From a customer perspective, many businesses grew and hired employees during the quarter at levels similar to the first quarter. While the overall rate of inflation continued to slow, business leaders remain cautious regarding the level of investment in their business in the second quarter, but incrementally are feeling better than they did in Q1 and Q4 of last year.
As it relates to overall, the M&A, the level of deals primarily from financial backers continued to slow during the second quarter. As a result, we're seeing fewer bidders for businesses and valuations have come down slightly from their peak, but that doesn't mean that a good business won't trade at high multiples.
From our perspective, we remained active during the quarter, acquiring 6 great companies. We completed the acquisition of Highcourt Breckles, a retail agency based in Canada, 2 acquisitions in the United States and 3 here in the United Kingdom.
We announced in May the pending acquisition of Kentro Capital Limited, which we announced -- which we anticipate closing in the fourth quarter. Kentro is an MGA retail agency, headquartered in London with a team of over 350. Annual revenue is approximately of $90 million and with locations primarily in the U.K., the U.S. and Continental Europe. Kentro's MGA, Nexus, underwrites across a diversified portfolio of 20 risk classes, including trade credit, financial lines and aviation.
Xenia, its retail agency is one of the largest trade credit brokers in the United Kingdom. We're excited to have Colin Thompson and his team join Brown & Brown. Overall, we are very pleased with the success of our M&A efforts and are in a strong position to leverage our disciplined approach that remains centered on identifying high-quality companies that fit culturally and make sense financially.
I'm on Slide #6. Our Retail segment had a good quarter, delivering organic growth of 6.3%. This growth was driven by solid new business, continued rate increases and modest exposure unit expansion. Most lines of business performed well, while our dealer services business continued to face headwinds due to vehicle inventory levels and higher interest rates. To give some context around that, the impact to our organic growth was approximately 200 basis points for the quarter.
Our Program segment delivered a spectacular quarter with organic growth over 23%, driven by strong new business, good retention and continued rate increases, especially around CAT property. The majority of our programs grew nicely during the quarter.
Wholesale Brokerage delivered an excellent quarter with organic growth of 13%, driven by new business and retention as well as rate increases from most lines of business. Our open brokerage and delegated authority businesses had a great quarter.
Organic revenue for service -- the Services segment declined about 2% for the quarter due to external factors that continue to impact our advocacy businesses. This decline was partially offset by higher claims processing revenue for certain businesses.
In summary, we're very pleased with our first half results, delivering organic growth of nearly 12%, adjusted EBITDAC margin expansion of 70 basis points and adjusted earnings per share growth of nearly 19%.
Now I'll turn it over to Andy to discuss our financial results in more detail.
R. Andrew Watts
Great. Thanks, Powell. Good day, everybody. I'll review our consolidated financial results on an adjusted basis in more detail.
As a reminder, our adjusted measures for the second quarter exclude the change in estimated earn-out payables, onetime acquisition and integration costs associated with GRP, Orchid and BdB, and gains and losses on business divestitures.
We believe isolating the above items provides a better reflection of the performance of the business and enhanced comparability. The reconciliations of our non-GAAP financial measures, including these adjusted amounts to the most closely comparable GAAP amounts, can be found either in the appendix to the presentation or in the press release issued yesterday.
On an adjusted basis, total revenues were over $1 billion for the second quarter, growing 24.7% as compared to the second quarter of the prior year. Income before income taxes increased by 32.1% and EBITDAC grew by 30.5%. Our EBITDAC margin was 34.2%, increasing 150 basis points as compared to the second quarter of 2022.
The effective tax rate for the quarter was 25%, which is in line with our expectations and compares to 27% in the second quarter of last year. The lower tax rate was impacted by the change in the market value of assets associated with our deferred compensation plan in the current year as compared to the prior year. Our adjusted diluted net income per share increased by 33.3% from last year to $0.68.
Due to the changes in market value, our deferred compensation plan negatively impacted the ratio of salaries and related expenses to revenue by approximately 250 basis points year-over-year. Keep in mind, there's an offsetting benefit within other operating expenses.
Lastly, our weighted average share count remained relatively flat, and dividends paid increased by nearly 12%, both as compared to the second quarter of 2022. Overall the performance by our team for the quarter was outstanding.
We're on Slide #8. The Retail segment grew significantly, delivering adjusted total revenue growth of 25.5%, driven by acquisitions completed in the last year, higher profit share in contingent commissions and organic growth of 6.3%.
Adjusted EBITDAC grew slightly faster than revenues, and our adjusted EBITDAC margin expanded to 28.4%. This expansion was primarily driven by increased profit-sharing contingent commissions, which were substantially offset by higher noncash stock-based compensation and to a lesser extent, the hiring of incremental teammates to support our current and future growth.
We're moving over to Slide #9. National Programs had another outstanding quarter with adjusted total revenue growing of 25.7% and organic growth of 23.3%. Through the combination of revenue growth and leveraging our expense base, our adjusted EBITDAC margin expanded 510 basis points.
We're over on Slide #10. Our Wholesale segment delivered an excellent quarter, with adjusted total revenue growth of 23.8% and organic growth of 13.1%. Our adjusted EBITDAC margin contracted slightly due to some nonrecurring costs in the second quarter that impacted by approximately 200 basis points.
We're on Slide #11. The Services segment's organic revenue contracted by 1.8% for the quarter, and the adjusted EBITDAC margin decreased by 220 basis points. The primary driver of the margin decline was lower organic revenues and the impacts of inflation.
We've got a few comments regarding cash generation and capital allocation. We generated approximately $390 million of cash flow from operations for the first 6 months of this year, growing over $40 million or 12%. Our ratio of cash flow from operations as a percentage of total revenues was approximately 18% for the first 6 months of this year as compared to 20% in the first 6 months of last year.
As we discussed last quarter, the lower year-to-date ratio has been impacted by higher interest expense and paying taxes in the first quarter of this year related to the fourth quarter of last year that were deferred as a result of Hurricane Ian relief. With that being said, the second quarter was very strong for cash generation, and we ended the quarter with approximately $630 million of operating cash.
As we mentioned previously, post the acquisitions of GRP, BdB and Orchid last year, we are committed to delevering to our more traditional levels. In the second quarter, we reduced our outstanding debt by making incremental payments of approximately $130 million. We are in a strong capital position to continue to invest in our company, acquire great businesses and delever.
With that, let me turn it back over to Powell for closing comments.
J. Powell Brown
Thanks, Andy. Great report. We continue to monitor the impact of inflation and increases in interest rates on our customers and the economies in which we operate. We expect business leaders will remain cautious regarding the pace of their hiring and how much they will invest over the coming quarters.
With that said, consumers are still spending money, and most of our customers are prospering. We believe this trend will continue for at least the next few quarters.
From an insurance standpoint, buyers remain fatigue due to continued increases in insurance rates, especially for CAT properties, which we expect similar increases through the end of the year. With these market conditions, buyers will continue to either decrease limits, increase deductibles and, in certain cases, opt for loss limits.
In regard to our carrier partners, they remain focused on capacity as well as the flight to quality and diversification. Historically, we delivered good underwriting results and are uniquely positioned with the breadth of our MGAs and MGUs to provide an opportunity for carriers to allocate capacity across multiple programs. The combination of our diversification and strong underwriting results positions us well to retain and possibly increase our capacity, which will support incremental organic growth from our programs.
A few comments regarding our recent international acquisitions of GRP and BdB. We're extremely pleased with the performance of these businesses as they are ahead of our expectations for the first year. The leadership teams are focused on driving continued growth over the coming quarters and years both organically and through M&A.
GRP has been active over the past year acquiring over 20 high-quality businesses. Additionally, we'd like to welcome all teammates that have joined us over the past few months. Overall, we feel great about our business and how our team continues to execute and deliver. Our focus is on hiring and retaining the best teammates and leveraging the total capabilities of Brown & Brown to retain our existing customers and win more new business.
In summary, we had a great first half of the year and have great momentum heading into the second half of the year.
With that, we'll turn it back over to Michelle and open it up for Q&A.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from Weston Bloomer with UBS.
Weston Clay Bloomer
My first question is on the Retail segment organic growth. You had highlighted a 200 basis point headwind from dealer services in the quarter. I'm curious, if you can disclose what that impact was in 1Q or how you're thinking about that headwind for the remainder of the year? And given those headwinds there, is it fair to say retail organic may be lower in the second half, just given the property uplift that you typically see in the second quarter?
R. Andrew Watts
Yes. Weston. So we had a little bit of colors and context around this. Is -- we had mentioned this back during the Q1 as well as Q4 of last year, that we did anticipate some headwinds for dealer services in the first quarter. And we did see that. And it was probably a range of about 100 basis points in that range.
If you recall, when we released earnings for third quarter of last year, we had talked about the fact that we were starting to see the headwinds on the dealer services business in late 2Q of last year, and we saw those through the third quarter and fourth quarter and kind of now continuing through.
The impact in -- kind of the back end of last year was about 1% by the quarter. So it kind of gives you an idea when you look at the organic and what the impact is. As we now head into the second half of the year and similar or consistent with the commentary that we had in Q1, as we get on to a more comparable basis now in the second half of the year, we don't see the same level of headwinds for the dealer services business.
We're very, very proud of the businesses. They performed really well, just going through a little bit of a cycle right now. But they are great businesses, and we've made significant investments in there over time for our capabilities.
Weston Clay Bloomer
Got it. And I guess sticking on Retail, can you maybe quantify the uplift you saw from property in the second quarter? And just remind us how much of that business is 2Q weighted maybe relative to the third quarter or fourth quarter?
R. Andrew Watts
Yes. We don't disclose that level of granularity, Weston. But I think what we've talked about in the past is we do place significantly more CAT property in the second quarter than we do in the third quarter. And the third quarter is probably potentially almost 1/3 less than what we see in the same quarter. That's pretty consistent with what we talked about last year.
So it's why when we said that normally our organic is generally a little bit lower in the second half of the year versus the first half of the year because of the amount of CAT property as well as employee benefits that we see in the first quarter.
Weston Clay Bloomer
Great. And then just last one on professional lines. Are we close to the point where we're starting to lap the headwinds just given the lower pricing within that market? Maybe you could just expand on that, and what you're seeing in professional lines more broadly as we move into the second half?
J. Powell Brown
Yes. Weston, what I would say is we continue to see downward pressure on public D&O. That's really where it's pronounced. In other places, it's not nearly as pronounced. So do we still see pressure? Yes. But will that continue for an extended period of time, we don't know. But that's the one place where we really see real softening in the market. And so my instinct would tell me, in the near to intermediate term, we're going to continue to see that kind of pressure in that part of the space.
R. Andrew Watts
Yes, Weston, as you see it probably in the commentary in our deck. It's the one that we did call out that actually softened a little bit more the second quarter versus the first quarter. So could it go a little bit more, potentially.
Operator
(Operator Instructions) The next question comes from Michael Zaremski with BMO.
Michael David Zaremski
Great. Wanted to touch on a topic that you guys have brought up and was in the deck as well about challenging placements in certain parts of the marketplace. I know net-net, now that we're in July, is there any -- should we be thinking that there's the potential for some lack of capacity that could impact your revenue growth rate? Or net-net between just much higher pricing and maybe there isn't a lack of capacity, Brown is a big beneficiary? Just kind of curious, if there's any nuances we should be thinking about in the back half of the year on the challenging marketplace?
J. Powell Brown
Right. So Michael, the way I would look at it is this, let's set the stage for what the market is right now. And what's happening is insurers, in many instances, are getting back to us on renewal business and even new business with very limited time or very close to the expiration date. So there's a lot of activity around analyzing limits and quotations and things like that before we give it to a customer.
We've also said that you have this the key inside of the marketplace with buyers, which have had in particularly CATs on property, increases for 5 and 6 years in a row. So what I would tell you is, do we think that capacity is going to be dramatically constrained in Q3? There is a -- this is the hypothetical scenario. That depends if there's a storm. So if we don't have a hurricane hit Florida, that's a different answer than if we do have a hurricane hit Florida. So we can't answer that question right now.
Number two, there is also the uncertainty that any broker, not just Brown & Brown, faces which is at what point does a buyer of insurance basically say, "I can't take any more increase." So what might happen is they may be buying a lower limit or self-insuring certain layers in their property placement, but they've gotten to a point where they can't take any more increased cost. So our growth will be driven more by new business at that point than just increased growth on the renewal book.
So what I would tell you is this. It's a challenging market. We're writing a lot of new business. I'm very pleased with how Retail is performing. And I would say that the question really hinges upon things that are a little bit outside of our control, specifically weather. And so we don't think that something is going to happen relative to the state of Florida or hopefully not any other coastal areas between now and in the hurricane season. But if we did have that scenario, you're going to have a much different discussion around business flowing into state pools, i.e., Florida, with citizens and other places because the market will have to sort itself out.
Michael David Zaremski
That's a helpful commentary. I know it's not an easy question to parse out.
My follow-up is on, I guess, contingents and ultimately, margins. Should -- in the National Programs segment, we can see there was a higher share of contingents, which I'm assuming helped drive the margin higher. So any commentary on the sustainability?
And maybe just stepping back on the contingent commissions. If our -- for the overall company, are the contingents more weighted towards property or any specific business lines? And I guess I was just thinking, when we're looking at kind of outer year forecasts for the insurance carriers, we're all saying, "Hey, this is your 5 or 6 of a lot of meaningful rate increases," which you mentioned, and ROEs are expected to be much higher on a go-forward basis on the property side of the business than they have been historically. So I'm just curious maybe that could give Brown and other brokers kind of a lift in contingents as well in future years?
R. Andrew Watts
Okay. All right. Mike, you got a bunch in there. Let's see if we can unpack some of those.
Let's start first with contingent because there's kind of maybe 2 pieces to this. Let's first take the Retail. And you'll see that it's up about $5 million year-over-year. That is primarily driven by acquisition activity, and most of that out of GRP. As we've now kind of made the 1-year anniversary, we would expect to see that level of growth year-over-year in contingents should drop off quite a bit in the back end of the year. So that hopefully gives you a little color on the second quarter on Retail.
As it relates to National Programs, so there are a couple of things going on. If you recall in the third quarter of last year, remember, we called out about a $15 million adjustment in one of our programs associated with estimated claim costs or losses for Hurricane Ian, right? If you recall at that stage, we had said we didn't think we will record any contingents for the fourth quarter for that program.
When we released fourth quarter earnings, we actually -- we did earn some contingents there, which is a good thing. And now as we're getting through the year and we're seeing development on those claims, it is not as high as what was estimated at the time. So when you take the $5 million or so that we picked up in the second quarter in National Programs, that's split about in half related to an adjustment to last year's amount. And then we are accruing about the other half for higher estimated commissions this year, okay?
So I would not anticipate that you would see a $5 million increases in contingents in the third and fourth quarter for National Programs, okay? That was really primarily isolated to the second quarter. Now again, keep in mind, when we get to the third quarter, you are going to have comparability for the adjustment that we made last year, okay?
J. Powell Brown
I'd like to also make a comment there around property in general. And this is kind of our view on this. The rates in property today are at, what I would call, all-time high levels. And if you scope to a risk bearer and they would talk to you honestly about their view on property rates. I think that you might hear that if we don't have an event this season, that there would be a leveling or even possibly a slight moderation in pricing next year.
So I just want you to kind of keep that in the back of your mind and not every program or not every placement as qualified for contingents, but the contingents are driven on loss experience. So you've got a higher rate, obviously, you can sustain higher losses before you x out the qualification.
So just keep that in mind on the property thing because it is a thing that we talk to our clients about all the time. If there is one thing that comes up time after time after time, is what's going to happen to property rates, when are we going to see some relief, how -- that type of thought process.
R. Andrew Watts
And the other question you asked is around kind of which lines that you earn on it. As a general rule, this is not hard and vest, but just kind of give you a direction on it. Normally, you'll see that in the employee benefits business, we earn incentives, so the industry does, not just us, normally incentives. And then kind of all other lines are contingents in the guaranteed supplemental commissions, and it depends upon the individual lines that are inside there. But that's at least a reasonable rule of thumb to work by.
Operator
The next question comes from Gregory Peters with Raymond James.
Charles Gregory Peters
I guess you've been spending a fair amount of time so far talking about what's going on in the property market. And Powell, on Slide 5, you called out the personal lines business in Florida, Texas and California being challenging. And maybe you could step back and give us some perspective because I think Brown & Brown is a much bigger organization just personal lines in Florida, Texas and California. Can you give us some perspective of size up how that business fits inside the bigger Brown & Brown footprint?
J. Powell Brown
Yes, sure. Just to give you a context on that, personal lines inside of our organization, about $130 million of revenue -- in Retail, sorry, yes, yes. And so when we're talking about that, we do also have a program -- I mean, personal lines business in wholesale and we have it in programs.
Charles Gregory Peters
Is the -- so it's $130 million in Retail for personal lines across the country. In wholesale and programs, what's the mix? Or I guess, coming at it a different way because you talked about -- you're speculating about what may happen if there's an event or not an event to Florida or Texas. I'm just trying to understand the magnitude is -- what's the impact as I think about Brown & Brown. Maybe you could use that as an entree to talk about the captives. I think those weren't issued for you in the second half of last year related to Ian. Maybe you could give us an update on that?
R. Andrew Watts
Yes, Greg, let's see if we can maybe add a little context to the personal lines. If you recall, this is good 18 months ago or so, when we had all of the fires on the West Coast, and that was kind of the start of that process. So we've been facing the headwinds of declines in personal lines for a while, right? And that bled over from California then into Florida, Louisiana, north part of Texas. And so that's been inside of our numbers for a while. So don't read anything into this that we're actually saying we think that there are incrementally larger headwinds now in our business. We've been working our way through those.
The one where you probably see it or we would see it percentagewise, the biggest impact is actually in our wholesale business. And that's back to Powell's comment about properties in the past moving over into the state-sponsored plans. And back to our earlier discussion about the admitted carriers pulling out of certain markets, that is forcing some policies back into the E&S space. And so we are actually seeing uptick in our submissions and our buying rate in our wholesale business that's there.
So I don't know how long that continues on. Carriers change appetites and they decide to readjust their portfolios. But definitely, it was, for once, at least not a headwind in the wholesale business, which is a really good thing.
J. Powell Brown
Can I make a comment on that, Andy, before you talk about the captives. I also want you to understand that we have personal line business all over the country. So that could be in the Northeast, it can be in Long Island, it can be in Illinois, it can be in Colorado, it can be California, it can be in Florida.
What we're trying to say there, Greg, is it gives you kind of some color around the dynamics in the marketplace, not so much to say that all of our personal lines based in those 2 or 3 states. That's not what we're saying. What we're basically trying to say is the impact of the state-sponsored market or the potential impact when you see big, admitted carriers like State Farm and Farmers and Allstate pulling out of a state like California, that creates a lot of challenges for people that are writing homeowners there and getting owners. So you want to talk about captive and the captive impact?
R. Andrew Watts
Yes. And Greg, just to add one other piece. And we've talked about this on our calls before, we think diversification is extremely powerful. And so just as you know, we -- the discussion you here about potential headwinds, California, Florida, et cetera. Keep in mind, we bought an outstanding business at the end of the first quarter last year called Orchid, and they primarily focus on high-net-worth personal lines in the Southeast all the way of the Eastern Seaboard. That business is growing really well.
So just while there's headwinds, we also have things that are going well. That's what diversification is about inside of our business, and that's how we want to make sure that hopefully we continue to grow the organization. Because everything doesn't work perfect every day, but if we have a lot of businesses that can move back and forth, that balances everything else. So just a little bit of perspective for it.
On the captives another good quarter for us. So this was really kind of our last quarter of meaningful organic growth. Recall, we started writing policies in the first quarter of last year. We got up to basically full written premium at the end of the fourth quarter. As we said before, that will be -- we'll have minimal organic impact in the fourth quarter. We had about $6.5 million of organic benefit this quarter. We still think we're going to be in the upper range of the previous guidance that we gave. We said somewhere around 30% to 35%. We think we'll be on the high end of that. And then it will come down to what happens with storm activity in the back end of this year or if there happens to be an earthquake on the West Coast. But they're performing right in line with what we expected, which is a good thing.
Just keep in mind, when we get to the third quarter in National Programs is we did accelerate the recognition of premiums last year with the claim cost that we had. So that will actually be about a $5 million to $7 million our headwind on organic in the third quarter of this year as we get on to comparative, okay?
Charles Gregory Peters
Just to close the loop on your captive commentary, is there any change with the way the reinsurance structure, the way that's structured and what the loss profile of that business booked through the remainder of the year?
R. Andrew Watts
No, not substantial. I think a couple of pieces on that. One is we were pleased to see that the reinsurance market was a little bit more orderly this year than it was last year. So we actually got all of our reinsurance treaties put in place back before -- back in kind of the May time frame, which is good. And then with that, we were able to slightly reduce our maximum exposure. So we feel really good about kind of how the captives are performing, the organic growth that they've delivered as well as the profitability.
Operator
The next question comes from Rob Cox with Goldman Sachs.
Robert Cox
So some of the comments in the presentation were for the economy to continue moderating in the back half. Curious what you're seeing in your data that informs that view, aside from the headwind in dealer services and if you're seeing the economy moderate from 2Q levels so far in July?
J. Powell Brown
Yes. Rob, it's Powell. I would tell you this, it's interesting because when you go out in Florida or you're here in London or whatever, restaurants are packed, and people are spending money. And so what we're saying and lots of economists are dropping the probability of a recession in the second half of the year, I would just tell you that a lot of the customers that I've talked to and I hear about are just -- they're just are approaching it kind of cautiously.
That doesn't mean that everything they're dead set, we're going to a recession or anything. It's a little bit of a wait and see. So do I have any data, real-time data in July that would tell me? No, I don't. But I don't think that's really -- I think it's more of a -- an instinct rather than something that they're seeing every day in their businesses. That's how we interpret that.
Robert Cox
Okay. Got it. And maybe just a follow-up on wholesale. There's really a step change in the organic growth there accelerating. And I think you commented on it a little bit. But I'm just curious if you could give us a little more color on what drove that substantial growth quarter-over-quarter. Was it submission growth, market share gains, business mix?
J. Powell Brown
I think it's a little bit of everything actually. Remember, if you have -- there's a lot of property business that comes up in Q2, whether that's in our Retail business, but also in our wholesale business. And that doesn't necessarily mean it's with Brown & Brown retailers. It could be with independent retailers. So there's just a lot of property. That's number one.
Number two, I think that from a standpoint of submission count is very good. So we're getting a lot of opportunities. And some of those opportunities, we're having some higher hit ratios, I think. And it's not something so pronounced, but it's just a little uptick, I think, in certain areas. And by doing that, you put all that together with the increase in rates, and you get a 13% organic growth, which is a great quarter for wholesale.
R. Andrew Watts
Yes Rob. We would also -- our comment earlier about personal lines, it was a headwind in the second quarter of last year. We actually had a tailwind in second quarter of this year, which is -- so that also helped contribute to the strong 13-plus percent organic growth.
Operator
The next question comes from Mark Hughes with Truist Securities.
Mark Douglas Hughes
Powell, the higher submission count, higher hit rate, is that broad within wholesale? Or is that influenced most of that property?
J. Powell Brown
I think it's sort of across the entire platform. But not only you'll read too much into that. I mean, the point is that you can have an incremental uptick in your "the bound ratio", and that has a positive impact, but you got rate in there, you have a lot of new submissions.
Remember, one of the things in terms of providing color on the marketplace, let's just use -- Andy made the comment about personal lines, if you're in a state where all of a sudden, you're admitted carrier nonrenews you, you may be going, one, to the state plan; two, you made the state plan, depending on where they're in, may not even provide enough coverage for your coverage on your homeowners. And therefore, you may be going into the E&S market.
So a lot of those things, there's just unique dynamics because of the market being in sort of turmoil or disrupted that creates more opportunity in EMS, just plain and simple.
Mark Douglas Hughes
Understood. And then, Andy, you mentioned the $6.5 million benefit from this quarter from the captive and that is still going to have a positive impact in the third quarter. Can you quantify that perhaps?
R. Andrew Watts
Yes. Sure, Mark. So the $6.5 million was the benefit year-over-year to organic from the captives in the second quarter, okay? When we get to the third quarter, we'll actually have a $5 million to $7 million headwind, and that's because we accelerated the recognition of the revenue on the premiums in connection with the projected claims cost in the third quarter of last year.
Again, I have no idea what will happen if we have any sort of storm in the third quarter. We're just telling you kind of what we know right now. And then it will be -- there'll be minimal organic benefit in the fourth quarter because we're writing a specific amount of premium, which is what we're going to write in the fourth quarter of this year, which is the same amount that we wrote in the fourth quarter of last year.
Mark Douglas Hughes
Okay. And then any updated thoughts on margin for this year, Andy, for the full year, with the good 2Q results?
R. Andrew Watts
No, we're not, at this stage, changing our overall outlook. We adjusted that at the end of the first quarter and said, we would be up slightly for the full year. Very pleased with the second quarter results and things can always move around. But we feel really good about the business and the outlook for the year and everything.
But no, we're not going to have any major changes on that front right now. But we feel very good about the business and potential for profitable growth.
Operator
The next question comes from Elyse Greenspan with Wells Fargo.
Elyse Beth Greenspan
My first question is on the captive. I appreciate the disclosure on the expected revenue, Andy, by quarter. I just want to understand the loss dynamics. And I know you guys had provided some color with the Q4 deck in terms of the underwriting risk. So am I thinking about it correctly, if that -- if there's no losses this year, that's a 100% margin business? Or are you guys assuming some losses, I know you gave us $13 million per current or $25 million per year is your exposure?
R. Andrew Watts
Yes. So a couple of things on that front, Elyse, is one, is no, we're not 100% margin. We do have a running cost above the actual captive inside of there. Obviously, it will be higher margin if there's no storms that are there. But what we said is we retain $13 million on a per occurrence and up to a maximum of $25 million. We're capped at $25 million on this year, either through a combination of wind event or a quake event that's out there.
So it gives you -- at least gives you an idea if we're on the higher end of our revenue range. You get an idea if things really go completely sideways, the potential profit that we can still participate in on these captives. That's why we created them. That's why we're participating, because we're on -- we have put this over top of 2 very, very well-performing programs for a long period of time.
As we mentioned before, the captives, while they go underneath with that name, the actual outcome is identical to a contingent. We're participating in the underwriting profit. So it's -- you'll see some volatility back and forth, but no, they're working right as we designed.
Elyse Beth Greenspan
And then you went through, right, in the segments what drove the stronger contingents year-over-year. If -- my question related to the contingents was, if contingents had been flat, would you guys have still seen margin expansion in the quarter? I believe the answer is yes. I just wanted to confirm that.
R. Andrew Watts
That would be absolutely yes, we would have seen margin expansion in the quarter. And if you were to back out the incremental net investment income because that might be your other question, Elyse, the answer is yes, we still expanded margins in the quarter. So we feel really good about the performance.
Elyse Beth Greenspan
Great. And then last one. Within the Retail segment, you guys did call out the dealer services, right, the headwind there in the Q2. Related to the rest of -- the rest of the segment, so just core retail and benefits, can you give us a sense of the growth between the 2 pieces in the second quarter?
J. Powell Brown
Can you repeat that, please, Elyse?
Elyse Beth Greenspan
Sorry, I was saying away from dealer services, how did like the rest of retail versus benefits performed in the Q2 organically where they both pretty close to each other was -- benefiting the retail?
J. Powell Brown
Yes. No, the answer, just so you know is, first of all, we are very pleased with both the commercial and the employee benefits. Remember, employee benefits has a unique dynamic relative to revenue recognition in Q1. And sometimes that also impacts -- it can impact into Q2.
So I don't look at it on a quarter-by-quarter basis, although I have. I think about it over an extended period of time. So it could be either Q1 -- I mean, sorry, the first half or on a yearly basis. And so we're very pleased with how the commercial business and the employee benefits business is performing. Yes.
Operator
The next question comes from Mike Ward with Citi.
Michael Augustus Ward
Maybe just back on Florida. You mentioned it's not getting any better. Just curious, is that something that we just have to wait to get through wind season? Or does more need to be done around interpreting the law? Or do carriers see the need? Do they need to see more from lawmakers, I guess?
J. Powell Brown
No, I don't -- Mike, I don't think that -- I mean, that could always potentially help, but I don't think that's the case. I think what it is, is, remember, the players that have participated in CAT-prone areas, not just Florida, have been really popped in terms of losses in the last 5 or 6 years.
And so what we really need is -- and I know this will sound kind of interesting, but we need a little time and distance, so we've got to give them catch -- let them catch a break. And so as I said, we went through a period of time in the late '90s and early 2000s where we had some storms in the early 2000s, but then we went through a period where the property marked good.
And so you make money, the risk bearers over 5 or 6 years, then the market is very competitive. It just hasn't panned out like the risk bearers think, and that's partially being driven by their loss experience and also being driven by the reinsurance costs.
So what I want you to think about is watch the storm season. And in the event that we don't have any big event, which we think we won't. But if we don't have a big event then, do we see some stabilizing of rates? Do we see rates going up a little bit, but not in the early as month as they are now? Or do we see slight decreases? That's how I would phrase it.
Michael Augustus Ward
Super helpful. So -- and so it sounds like you're very happy with GRP and your other European acquisitions from last year. Just wondering, if you can sort of comment on how you see those impacting organic now that they'll be part of the calculation going forward?
J. Powell Brown
Yes. So remember, GRP lapped on 7/1 and BdB lapse on 8/1, okay? And so we don't break out specific performance by business. But the way I would address that is we believe that GRP, and BdB for that matter, is performing in line with the overall division, both via Retail or wholesale, from both on a organic growth basis and a margin basis. And we're very pleased with both.
Michael Augustus Ward
Okay. Super helpful. And then maybe just last one on interest income. You've already exceeded your guide for the full year. I'm just curious, any comments on the back half?
R. Andrew Watts
Mike, the -- I guess, one kind of depends upon what happens with interest rates from some of the Central Banks, primarily here in the U.K. and then in the U.S. But if you look at the second quarter on what we record, that's probably a decent run rate for right now. It may move around a little bit based upon what our cash balance is and interest rates, but probably wouldn't anticipate any major movements there.
Operator
The next question comes from Yaron Kinar with Jefferies.
Yaron Joseph Kinar
Just wanted to go back to the last question, if I could on GRP and BdB. I thought earlier, you had said that they're actually performing better than you expected. And in your last comments, you said that they're in line with the division's performance. I thought at the time of the acquisitions that you said that your expected those businesses to perform in line with the divisions or maybe I misremembering?
J. Powell Brown
Well, wait a minute, I just want to make sure -- yes. So we might be talking about 2 things. We are very pleased with the performance. And part of the performance that we're talking about is, remember, they acquired over 20 different unique businesses, which we think are very good going forward.
So let's -- but on the core basis, I believe when we announced that, that we talked about, we believe that it would perform in line, they would perform in line, possibly better, but in line with the divisional performance. And what I'm reiterating is they are performing in line with the divisional performance or a little bit better, but we're pleased with that.
R. Andrew Watts
Yes. And Yaron, when we announced the deals, the guidance, or the commentary we gave at the time was really around the margin not on organic growth. And so I didn't want to see maybe those 2 topics kind of intertwined on this. We're very, very pleased with the business and how they're performing versus our expectations on the top line and the bottom line, and the margins for the businesses related to the divisions that they're reported inside of are right in line with our expectations from a margin perspective. So we're really, really pleased with how the team is performing and I think both the businesses over here.
Yaron Joseph Kinar
I appreciate the clarification for that. And then on Kentro, can you maybe talk about is there any revenue seasonality you expect there, or margins expected to be relatively in line with the division in which it's housed? And where will it count?
R. Andrew Watts
Perfect. Yes. So overall, the business is relatively evenly weighted through the year. A meaningful portion of that business is around trade credit. So it's not like you kind of see it all lumps up into 1 quarter or anything. So we're relatively even.
And then the margins for the overall business -- and again, you have to kind of look at in the 2 pieces between Programs and Retail, which is the Nexus and the Xenia portion of it. The margins there look comparative for similar businesses in there.
Yaron Joseph Kinar
And do you have any idea of how the revenues will be distributed between the Retail and the Programs business?
R. Andrew Watts
Sure. Yes, it's about 75%, 80% Programs, Yaron, with the residual on the Retail side.
Operator
The next question comes from Meyer Shields with Keefe, Bruyette & Woods.
Meyer Shields
Two, I think, really quick questions. First, in the presentation, you talked about wholesale casualty rates up 10 to down 10, and it seems like a pretty significant shift. Does that downturn just like the professional liability? Or are there other lines that are moving to competitive pricing?
J. Powell Brown
I think it could be -- it's more broadly than just some of that. So yes, it's competitive.
Meyer Shields
Okay. (inaudible). A bigger picture question, I guess, you've added 2 tremendous heavyweights to the Board. I was wondering what we should expect from them.
J. Powell Brown
Well, first of all, we're very pleased that Bronek Masojada and Paul Krump have joined the Brown & Brown Board. They have both very deep industry expertise. They also have not only underwriting but understanding about exposures not just in the United States, but overseas and things like that.
And I think that I would want you to consider them just like any other Board member that joined Brown & Brown. We think very highly of them. We are very pleased to have their industry expertise. But I don't want you to take something out of context. These are people that we have known and worked with and think very highly of and they've already added to our Board in the first Board meeting, which was last week.
So we're really, really pleased with both of them joining the Board, and look forward to many years of really great contributions from both of them.
Meyer Shields
Okay. That's helpful. If I can throw in one quick last question. I know in Florida, pricing is technically file and used, but I think people treat it this prior approval just so they don't have to go back and change things. Is there any receptivity on the part of either the insurance department or the legislature to actually just make it more disciplined by competition and actually be sort of a truer file and use state to attract bigger insurance companies back to the market?
J. Powell Brown
Meyer, I'm not -- we're not aware of that right now. I will tell you that the Insurance Commissioner and that in the State of Florida is underneath the CFO. I know that the CFO of the State of Florida and the Insurance Commissioner and then ultimately into the governor's office, they are all thinking about ways to retain existing carriers and attract new carriers because they're very conscious of the exploding growth in citizens.
And so the answer to the question is, no, we're not aware of it. However, I can assure you that they are thinking about it in terms of ways, not that question specifically, but ways to actually get carriers to stay and bring more carriers to the State of Florida to create a more competitive environment.
Operator
Now I would like to turn the call back to Powell Brown for closing remarks.
J. Powell Brown
That's great. All right. Thank you all very much. We are very pleased, as we said, with the quarter and look forward to an exciting third and fourth quarter of the year. We've got a lot of cool things going at Brown & Brown, and we appreciate your time. And we look forward to talking to you next quarter. Good day.
Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.
