Q4 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.
Brian Robert Meredith; MD, Financials Research Sector Head & Global Insurance Strategist; UBS Investment Bank, Research Division
Charles Gregory Peters; MD; Raymond James & Associates, Inc., Research Division
Elyse Beth Greenspan; Director & Senior Analyst; Wells Fargo Securities, LLC, Research Division
Francis John Matten; VP & Associate; BMO Capital Markets Equity Research
Grace Helen Carter; Research Analyst; BofA Securities, 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
Robert Cox; Research Analyst; Goldman Sachs Group, Inc., Research Division
Scott Gregory Heleniak; Assistant VP; RBC Capital Markets, Research Division
Presentation
Operator
Good morning, and welcome to the Brown & Brown, Inc. Fourth Quarter 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 fourth quarter 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 fourth 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 as 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, Michelle. Good morning, everyone, and welcome to our earnings call. We delivered another outstanding performance in the fourth quarter, capping off an incredible year. We delivered over $4 billion of revenues, double-digit organic growth, strong margin expansion and generated operating cash in excess of $1 billion.
2023 was a great year for the Brown & Brown team as we continued to focus on how best to leverage the Power of WE. This topic was discussed at our September Investor Day. And our goal is to leverage our collective capabilities in order to create and deliver the best solutions for our customers. Our 2023 results were a reflection of these efforts as we meaningfully increased our new business and had strong retention. We continue to enhance existing capabilities and add new capabilities, both domestically and internationally.
On the M&A front, we were quite active acquiring over 30 companies across our largest 3 divisions, expanding our footprint in North America and Europe. From a capital allocation perspective, we continued our disciplined approach with the goal of optimizing shareholder returns with a balanced mix of M&A and internal investments, while also continuing to pay down our debt and maintain a conservative balance sheet. We also increased our dividends for the 30th consecutive year. At the end of the day, these results are only possible due to the hard work and dedication of our 16,000-plus teammates throughout the world. We thank all of them for their incredible efforts in 2023.
Now let's get into our results for the quarter, I'm on Slide 5. We delivered another quarter of revenues exceeding $1 billion, growing 13.8% in total and 7.7% organically over the fourth quarter of '22. Our adjusted EBITDAC margin remained strong at 31% and our adjusted earnings per share grew 16% to $0.58. On the M&A front, we were active and completed 13 acquisitions with estimated annual revenues of $109 million.
On Slide 6. In '23, we achieved our interim goal of exceeding $4 billion of revenue. We delivered nearly $4.3 billion, growing 19% in total and over 10% organically. Our adjusted EBITDAC margin was 33.9%, increasing 120 basis points. Over the past 4 years, we've grown total revenues by over 75% and have increased our industry-leading margins in excess of 400 basis points.
On an adjusted basis, our net income per share grew over 23% to $2.81. Lastly, we had a good year of M&A, completing acquisitions with approximately $162 million of annual revenue. We are very pleased with the quality of the organizations, the new capabilities and the teammates that were added during the year with the largest being Kentro.
I'm on Slide 7. Transitioning to the insurance marketplace, overall, it was relatively similar to last quarter. Rates in the admitted market were up 5% to 10% for most lines. And we continue to see rate decreases in workers' compensation in most states. Placement for cat property and excess liability continue to be difficult with rates for property up 10% to 30% and liability flat to up 10%.
In addition to rate increases, it's also challenging to find desired limits. Buyers are exhausted with the level of premium increases. Customers continue to either reduce limits or participate in certain layers in order to manage their premium increases. In December, we did see some moderation in the rate of increase for cat property, primarily in the London markets. We believe this was driven by low hurricane activity in 2023 and carriers' holding capacity for the end of the year. Do not take this comment that we believe rates are going to start decreasing in the first half of 2024.
Professional liability and cyber coverage continued to soften as compared to last year. Rate changes for professional liability were up slightly, maybe 5% to down 20%. The insurance marketplaces in California, Florida, Louisiana and Texas for personal lines remain challenging with policies continuing to move into state-sponsored plans or the E&S market. Even with these challenges, we're well positioned to help our customers navigate these difficult markets.
Our customers continue to invest in the business -- their businesses and hire employees. Although the level of investment is not as high as a year ago, we would summarize the overall economic sentiment for our customers as cautiously optimistic. We're very pleased with our M&A activity in the fourth quarter and the year. Although volumes across the industry were down materially as compared to 2022, we had a number of great businesses joining the Brown & Brown team. From our standpoint, we continue to be active and disciplined during the quarter.
We're extremely pleased with our full year results, delivering 10.2% organic revenue growth, over $4 billion in revenues and nearly $1.5 billion of adjusted EBITDAC. Our team did an incredible job of delivering for our customers and winning a bunch of new business along the way in a very difficult market.
I'm on Slide 8. Let's transition to discuss about the performance of our four segments. Our Retail segment had another great quarter, delivering organic growth of 8.2%. This performance was delivered by continued strong net new business and rate increases. It was also a very good year for Retail delivering nearly 8% organic growth.
The Programs segment grew 5.4% organically in Q4 even with materially higher flood claims revenue and incentives in the prior year. During the quarter, we recorded a one-time $19 million charge related to the changing of the reinsurance for one of our captives. This decreased our organic growth by approximately 9 percentage points in Programs. For the full year, the team delivered outstanding results with organic growth over 17%. This strong performance was driven by good new business, solid retention and rate increases across most of our programs.
Wholesale Brokerage had an outstanding quarter and year, growing organically 14.5% in the quarter and 12% for the year. We're seeing good growth in delegated authority, personal lines and open brokerage. Organic revenue in our Services segment declined 5.9% for the quarter, primarily due to continued external factors impacting our advocacy businesses. And our organic growth for the full year was substantially flat. During the quarter, we announced the completion -- the completed sale of certain assets in the Services business.
Now I'll turn it over to Andy to get into more details regarding our financial results.
R. Andrew Watts
Great. Thank you, Powell. Good morning, everyone. I'm going to review our consolidated financial results on an adjusted basis, which excludes: the change in estimated earn-out payables; one-time acquisition and integration costs associated with GRP, BdB and Orchid; gains and losses on business divestitures; the nonrecurring costs recorded in the first quarter of this year; and the impact of foreign currency translation. 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 of this presentation or in the press release we issued yesterday.
In conjunction with the sale of the Services businesses mentioned earlier, we recorded a gain on disposal of approximately $135 million in the fourth quarter, which equates to approximately $0.35 of as-reported earnings per share. On an adjusted basis, total revenues were over $1 billion for the quarter, growing 13.1% as compared to the fourth quarter in the prior year. Income before income taxes increased by 15% and EBITDAC grew by 11.7%. EBITDAC margin was 31%, a slight decrease as compared to the fourth quarter of 2022 due to the previously mentioned one-time change in a reinsurance policy.
The adjusted effective tax rate for the quarter was 23.9%, a decrease from the fourth quarter of last year, primarily driven by the change in market value for our company-owned life insurance. Our adjusted diluted net income per share increased by 16% from last year to $0.58. Lastly, our dividends paid increased by 13% as compared to the fourth quarter of 2022. Overall, it was an excellent quarter.
We're on Slide #10. The Retail segment grew adjusted total revenues by almost 12% with organic growth of 8.2%. The difference between total revenues and organic revenue was driven by acquisition activity over the past year. EBITDAC grew slightly faster than revenues and our EBITDAC margin expanded to 27%. This expansion was driven by leveraging our expense base but was partially offset by the impact of higher noncash stock-based compensation.
We're over on Slide #11. National Programs had another outstanding quarter with adjusted total revenues growing 18.7% and organic growth of 5.4%. The incremental growth in total revenues in excess of organic was driven by acquisition activity completed over the last 12 months, increased profit-sharing contingent commissions and higher interest income. The growth in contingent commissions was primarily driven by lower storm claim activity in 2023 as compared to the prior year and favorable loss development related to 2022.
Let's talk about the change in reinsurance for one of our captives. This change allows us to reduce our P&L exposure from a maximum of $25 million down to approximately $15 million to $20 million. In addition, we anticipate this change to drive incremental organic growth of $15 million to $20 million in 2024 as compared to 2023. Overall, the captives have been a huge success for our company as they've driven incremental organic growth, aligned us even better with our carrier partners and deliver great returns on our invested capital.
Adjusted EBITDAC grew slightly slower than revenues and our EBITDAC margin was 43.4%. The decrease in the EBITDAC margin was due to the one-time reinsurance change, along with lower flood claims, revenues and incentives. These items more than offset higher contingent commissions and leveraging our expense base. For the full year, we had strong margin expansion in Programs.
We're over on Slide #12. Our Wholesale segment delivered another strong quarter with adjusted total revenue growth of 14.7% and organic growth of 14.5%. Our EBITDAC margin decreased by 60 basis points to 27.3% due to lower contingent commissions as well as the impact of higher noncash stock-based compensation.
We're over on Slide #13. For the quarter, the decline in adjusted total revenues in the Services segment was primarily associated with the sale of certain businesses that we mentioned earlier. Organic revenue declined by approximately 6%, driven mainly by continued external factors impacting our advocacy businesses. Adjusted EBITDAC margin for the quarter was primarily driven by the decline in organic revenue as well as certain one-time items. We'll talk more about future reporting for the Services segment in a few moments.
We're over on Slide #14. This slide presents our results for both years on an adjusted basis. Our income before income taxes grew 24.3% and net income per share was $2.81, growing by 23.2% as compared to total revenue growth of 18.7%. EBITDAC margin remained strong at 33.9%, an increase of 120 basis points over the prior year. Overall, we are very pleased with the results for 2023.
A few comments regarding cash generation and capital allocation. From a cash perspective, we hit another major milestone, generating over $1 billion of cash flow from operations, growing 14.5% over the prior year. Our full year ratio of cash flow from operations as a percentage of total revenues remained strong at approximately 24%.
A few other comments regarding outlook for 2024 and some enhancements to our reporting. For contingent commissions, we anticipate them to be relatively flat to down year-over-year, but this will ultimately be driven by loss experience. For Programs, we would expect for them to be down as the higher level of contingent commissions were driven by lower cat event losses in 2023 and favorable loss development related to 2022. Keep in mind, this outlook is excluding the impact of future acquisitions. As it pertains to taxes, we expect our effective tax rate to be relatively consistent with 2023 and should be in the range of 24% to 25%. For adjusted EBITDAC margins in 2024, we anticipate them to be up slightly.
Finally, in conjunction with our earnings release for the first quarter of 2024, we'll be making a few changes to our reporting. First, with the expansion of our global MGA and MGU platforms, we'll refer to the National Programs segment as Programs. Second, in conjunction with the divestiture of certain businesses within our Services segment late in the fourth quarter of 2023, we will not report the remaining businesses as a stand-alone segment, moving from four to three segments, those being Retail, Programs and Wholesale Brokerage. Almost all of the remaining revenue and profit in the Services segment will now be reported in the Retail segment. For the prior periods, we'll move the sold businesses into Programs and the remaining businesses into Retail.
Third, we'll be modifying the definition of our non-GAAP adjusted measures to exclude the impact of noncash intangible asset amortization. With this adjustment, we'll be on a more consistent presentation with the majority of other public brokers. And lastly, for simplicity, we'll only be excluding the impact of changes in foreign exchange on the calculation of organic growth. For all other non-GAAP metrics, we may identify the impact of FX when it's meaningful to do so but will not restate the prior year to be on a constant currency basis.
With that, let me turn it back over to Powell for closing comments.
J. Powell Brown
Thanks, Andy. Great report. As we look at the economy and outlook for 2024, we anticipate that inflation will continue to moderate downwards in the markets in which we operate. As a result, we're expecting the consumer to further drive demand for products and services. And we anticipate most companies will continue to hire and invest, although at a potentially slower rate.
Regarding the admitted markets, we believe rate changes will be similar to 2023. We think cat property rates are nearing their peak. Therefore, we would expect cat property rate increases for the first half of '24 to be in the range of flat to up 10%, obviously subject to loss experience and construction type. On the M&A front, the overall market will remain competitive, and we don't expect any material changes in multiples. We have a very good pipeline and are talking with many companies. As we've mentioned, cultural alignment is the key to our long-term success.
Lastly and most importantly is our team. Our consistently strong, industry-leading results are only possible through the dedication and determination of our team to deliver for our customers. As we head into 2024 and on our way to our next intermediate goal of $8 billion in annual revenues, we have great momentum across the entire company and feel really good about our position.
With that, I'll turn it back over to Michelle and open the line for Q&A.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from Michael Zaremski with BMO.
Francis John Matten
This is Jack on for Mike. My question is about any intra-segment business mix shift changes and whether they're having an incremental impact on Brown & Brown's profit margin profile. And have there been any mix changes within the major segments we should keep in mind, such as more employee benefits or something else? And we're just asking in the context of Brown's profit margins being above historical average levels. And so we get asked if we should expect a downward mean reversion if and when organic growth eventually decelerates.
R. Andrew Watts
Okay. Jack, I think you've got a bunch of things inside there. Your first part of the question broke up a little bit, but I think you said is with the divestiture of the businesses, would we expect the margins to go up? Was that your question?
Francis John Matten
(inaudible) investors, just if any intra-segment business mix shift changes?
R. Andrew Watts
You've got to get closer to your phone or something. You're cracking up quite a bit coming through on the phone.
Francis John Matten
I'm sorry. That's correct. Just any intra-segment business mix shift changes.
R. Andrew Watts
No, just the ones that we mentioned. So if you look, our commentary was that the remaining businesses in Services will shift over into Retail. And then the historical will also restate for the businesses that move to Retail as well as sold moves into Programs. So the margin profile is not radically different on -- between all the sold and the retained businesses.
Francis John Matten
Got it, okay. And then second question is on Brown's exposure to different flavors of personal lines insurance. We appreciate that personal lines comes in different textures across the three main segments. The question, are Brown's personal lines exposed businesses having a positive impact on organic growth levels as compared to the nonpersonal exposures, which comprise most of Brown's revenues?
J. Powell Brown
So the answer, Jack, is, yes, they're having a positive impact. Remember, we have personal lines in all three of the major segments. And as you may remember in many years past, that was a headwind in Wholesale. And we've said that, that is now a growing segment, which we're positive about. It's growing in Retail and it's also growing in Programs. So we think it's a positive.
Operator
The next question comes from Elyse Greenspan with Wells Fargo.
Elyse Beth Greenspan
My first question is you guys, Andy, I think, said that the change in reinsurance cost you guys $19 million. But then it seems like your expected loss is going from $25 million to $15 million to $20 million. I'm just trying to tie together those figures. That seems like a large cost than I might have expected for the expected loss to go down by $5 million to $10 million.
R. Andrew Watts
Well, you've got to -- so there's two pieces to it, Elyse, is it does limit our P&L exposure. So we said in 2023, it was about $25 million. So going into '24, it will be somewhere between $15 million and $20 million. But then it will also drive an incremental organic growth of $15 million to $20 million. So you've got to put both of those pieces together, okay?
Elyse Beth Greenspan
Okay. And then my second question, I was hoping you can give us a sense of how those international deals that you guys completed in '22, how impactful were those to Retail just growth and margins for the full year 2023 versus expectations?
J. Powell Brown
So Elyse, thank you for the question. We, one, are very pleased with the businesses that have joined in England since the middle of 2022. And the businesses are performing at or above our expectations. And we have also said that just as we don't give guidance, but I would tell you that they perform in a very similar way to our domestic Retail business. So we're very pleased and continue to do acquisitions there. So Mike Bruce, who's the Head of our European Operations, and his team have continued to do small and medium acquisitions over there. And we're very pleased with the capabilities and the people that have joined, so very pleased.
Elyse Beth Greenspan
Okay. And then on the margin, Andy, is there any seasonality that we need to think about, I guess, maybe a little weaker in the third quarter, given a potential for a captive loss? But how should we think about the guide for improvement in margins in '24 and just quarterly seasonality?
R. Andrew Watts
I think, yes, if you go back, a good catch on third quarter, as we've talked about. We normally model in kind of 1.5 storms. You never know when -- what it's going to actually look like, I guess, a higher likelihood of being in the third quarter. But that's probably a reasonable approach. So if you do that, you would expect for the margins to be down a little bit in the third quarter.
And then just keep in mind the -- making the lap into the fourth quarter on the $19 million. But otherwise, those are kind of the bigger items. We did call out some adjustments to the contingents in second quarter on part of the loss development during the year. So those kind of would be, I think, the big ones to keep in mind. Otherwise, no major changes in the seasonality of the margins.
Operator
The next question comes from Gregory Peters with Raymond James.
Charles Gregory Peters
Just circling back on your last answer and what you said in your opening comments about contingent commissions being flat to down for next year. If we look at the segment results, the profit-sharing contingent commissions, you had a great year in '23 in National Programs, $65 million versus $27.6 million in '22. And you said you factor in at least one storm. What does that mean to contingent commissions if there's one storm, not only inside National Programs but for the full year, for the -- on a consolidated basis?
J. Powell Brown
So I know that you're not going to like this answer exactly. But it obviously depends on the magnitude of the storm and how that impacts admitted markets versus -- the non-admitted markets is different, but admitted markets, the Program business versus Wholesale business versus Retail business. And the answer is it's very hard to estimate.
So we can't run a model -- or we don't run, I shouldn't say that, we don't run a model where you put a big storm into Florida or into Texas or Louisiana and then it spits out the other side. The answer is we did have a great year in terms of profit-sharing this last year. But as Andy said, we understand that it may have been an -- I'm not going to say an overperformance but a very high performance.
R. Andrew Watts
Yes. And Greg, keep in mind that in 2022, remember, we backed out $15 million in contingents in the third quarter and then -- which some of those with loss development, not as significant as what was originally anticipated. Some of that got adjusted in the fourth quarter. And then we also had adjustments in '23. So it really -- it's difficult on these to determine where it's going to be, the magnitude and everything else. So we would anticipate probably some sort of impact. The question is don't know exactly what that would look like.
Charles Gregory Peters
Okay. That makes sense. I guess, I want to go back to a bigger question on organic. And I know, Powell, part of your answer is going to be that you don't tell us or forecast out what organic is going to be for '24. But inside organic, the organic result for your company for '23, there's clearly been a benefit from the rate increases that have happened in the market. You called that out in your comments.
The wholesale market, I think in your commentary in the slide deck, you called out cap pricing. And it seems like that might moderate. So if I add up all the different variables, if rate increases are going to be moderating in '24 versus '23, won't that naturally bleed over to a lower growth rate for organic across your footprint? Any comments on that would be helpful.
J. Powell Brown
Sure. So remember, Greg, if you go back over an extended period of time, we've always said 2/3 of our growth is exposure units and 1/3 would be rate. That's how we've always described it since I've been in this position. So that's number one. Number two, the impact of rate is going to be different on different segments of and locations in the business. If you're in a coastal community in Florida, the impact of property rate could be substantial in some of your growth. And that said, they could still be writing a ton of new business on top of that. Conversely, if you're in Denver, Colorado or Nashville, Tennessee, you may not have that big of an impact on rate.
So you already kind of called it, we don't give organic growth guidance. That's basically the answer. We have said historically that this is a low to mid-single-digit organic growth business in a steady-state economy. We have overperformed in organic growth the last couple of years, and we're really proud of it. And I know each of you are trying to anticipate what all that means. And basically, the way we look at it is we have to, first, deliver for our customers. So we want to keep the business that we've got. And based upon the capabilities and the good job that we do for our existing customer base, we go out and we write a lot of new business.
And so I think it's important to differentiate. I wouldn't want you to get so focused just on rate. I think it's more important that it is the activity which we do, i.e., the new business culture at Brown & Brown, whereby we are out always talking to prospects and to our existing customers. So we think that the organic growth profile for 2024 is good. We don't know what it's going to be and you don't know what it's going to be. And I know that's hard for you to model.
But the answer is, remember, we've been doing this for 85 years. And we have a pretty good understanding about how our business operates and the segments in the market that we serve and the capabilities that we have and that we're building. So I would tell you that we couldn't be more happy with the performance last year. If you notice our performance against our publicly traded peers in that particular environment, we are at or near the top of that list while we've been leading margins and cash flow for many years. And so we're just kind of generally pumped on where the business is.
R. Andrew Watts
Greg, also add to that, I think it's important to think about what happens in the marketplace due to the lens of the buyer of the insurance, right? And rate, while that's an important factor, that's not the only factor that drives the buyer, right? Quite often, they're focused on the absolute dollar, right? Because you've got to think about it, through their lens, they're managing a cost in their P&L. And so there's a lot of factors that they're going to take into consideration. We've talked about this over the past few years, right?
So if rates are going up, right, they're probably adjusting their limits, they're adjusting deductibles. And the same thing can happen. If rates soften a little bit, well, that may allow them to maybe increase some of their limits or back and forth. But think about it through the lens of premium, not just rate online. I know a lot of people are writing about this right now. But in some aspects, it's much more simple and much more complex than that.
Operator
The next question comes from Mark Hughes with Truist.
Mark Douglas Hughes
Andy, you say you're going to adjust the numbers for the noncash intangible amortization to be more in line with peers. If you had done that in 2023, how much would that have impacted adjusted earnings?
R. Andrew Watts
It would equate to about $0.45.
Mark Douglas Hughes
$0.45. Okay. And then the benefits business, how did that perform in the quarter? And any kind of early feel on Q1? I know that's the more important driver for organic in the first quarter.
J. Powell Brown
We're very pleased with how the business performed in Q4 and more importantly for the year. So we're very pleased with the way the benefits business is working.
Operator
The next question comes from Rob Cox with Goldman Sachs.
Robert Cox
Maybe firstly, on the reinsurance changes, did that have an equal $19 million impact to adjusted EBITDAC?
R. Andrew Watts
It's pretty close on it, Rob. So that's why when we said that the -- while we were down 40 basis points for the quarter, you can kind of run the math through. So isolating that, our margins would have been up quite well for the quarter, which we're very, very pleased about.
J. Powell Brown
Can I also input something here, Rob, that you haven't asked? You heard me say that the margins if, in fact, that didn't occur would have been up 900 basis points. The...
R. Andrew Watts
That's organic.
J. Powell Brown
Organic, sorry, not margins, organic would be up 900 basis points. The overall business, if you looked at it, would have grown 9.9%.
Robert Cox
Yes, that's great. Maybe just as a follow-up, so E&S casualty pricing accelerated in the quarter. And we've heard a lot of commentary around potential reserve issues in casualty. So wondering if you could provide any color on what's driving that pricing acceleration and if you think that could continue in 2024.
J. Powell Brown
Sure. So Rob, I've only been in the insurance business now for 34 years. So I don't have the scope and impact of knowledge that my father does at age 86. But I will tell you, since I started in the insurance business, the industry has been talking about the under -- the inadequate pricing of casualty that's since 1990. And the industry has not done a very good job of being able to increase the price on casualty. So I think we're going to continue to hear people on the risk-bearing side talk about the need for increased reserves, and what that means is we need to increase prices and all that other stuff.
But the simple fact is this, people are trying to balance their portfolios with the cap that they have in it. And as a result, casualty premiums are long tail in nature and they're appealing. So I don't think that they're going to be able to get the pricing that they want or think they need, which is a nice way of saying that I would be surprised if you see a significant upward pressure on casualty pricing. They may talk about it, but I'm just saying that's 34 years in.
Robert Cox
Got it. That's helpful. And if I could follow up one more, just on the employee benefit space, how are you thinking about the growth environment between pricing and employment growth and if you could remind us what percentage of the business is commission-based at Brown & Brown?
J. Powell Brown
Okay. So let's talk about employee benefits. Remember, from an employee benefit standpoint, you have a couple of things going on. You have -- obviously, you would think when you add a new employee onto a plan, that generally would increase the commission or potential fee or something to that effect.
There is a segment, a smaller segment of that book of business, where they're sort of -- it is an amount per employee. And it doesn't go up like a commission. So it's like a price per head. So I think of it in a weird way, it's like a capitated plan a little bit. So it's -- that's the first thing. The second thing is in our Retail business of roughly $2.5 billion, we have about...
R. Andrew Watts
About 35%.
J. Powell Brown
Yes, about 35% of the business is employee benefits. And that's a business that we have consciously invested in over the last, let's say, 10 years. And when I say consciously invested, not only in the middle market space but in the upper middle market and the very large space and are very pleased with the ability to serve customers in all of those segments. And we very much enjoy going out and trying to earn business and have been successful and think we can even be more successful going forward. So we think it's a great business for us.
Operator
The next question comes from Meyer Shields with KBW.
Meyer Shields
Andy, you mentioned company-owned life insurance. And I didn't catch what the impact was on the quarterly results.
R. Andrew Watts
Yes, it's -- so again, on the company-owned life insurance, this will have an impact on our numbers based upon how the market moves either up or down. So when you see the market going up, right, it will impact the S&R and the offset is down in other operating expense. The impact on margins is basically almost 0. So for the quarter itself, it was a drag on the S&R as a percentage of revenue of about 150 basis points. And last year, it was about 60 basis points.
So we kind of look at those both ways internally, kind of puts our S&R substantially flat year-over-year ex COLI, so -- and again, those are going to move around. That's not something that we're able to forecast because it all depends upon how the market moves and then it's the comparison to how the market moved the year before.
Meyer Shields
Okay. No, that's perfect. That's helpful. Second question, when you talk about the upside to organic growth in Programs, that's just because you're not going to see the same, what was it, $19 million hit in the fourth quarter of this year. If that is flat next year, then that's $19 million of organic revenue. Am I thinking about that right?
R. Andrew Watts
Correct. Yes, we expect that in '24. And we would not expect any sort of reversion though in '25, just in case you're wondering, Meyer.
Meyer Shields
Yes. No, that's exactly what I needed. And then final question because we've gotten different viewpoints from different people. But when you look at the shift of some catastrophe-exposed wholesale -- or sorry, the catastrophe-exposed property business to the wholesale channel in 2023, is that basically like a 1-year shift and now we're done? And if nothing changes, then that impact flows? Or should that persist in 2024 at more or less the same pace that we saw this year or, I guess, it's last year now?
J. Powell Brown
I want to make sure I heard that correctly, Meyer. Can you repeat the question because there was a word or two that cracked up in there?
Meyer Shields
Yes, absolutely. One of the themes of 2023 seems to be a lot of catastrophe-exposed property business moving to the wholesale channel from the retail channel, which is great news for companies with wholesale brokerage, and wondering basically whether that shift as you see it is mostly done. Or there are reasons to expect it to continue in 2024?
J. Powell Brown
Okay. So let's back up and say there's an enormous amount of business that's cat-exposed that was already in the E&S market. They're constantly and consistently in the traditional admitted market. Carriers by name that you may follow or know are evaluating their cat property exposure and are making decisions whereby should they renew that on an admitted basis or does that, in turn, get picked up by another admitted market or does it go into the E&S market.
So what I would tell you is that there's lots of business that flows in and out -- I shouldn't say lots. There is a good amount of business that goes into the E&S market in '23. And I think there will continue to be a flow of business out of the admitted market into the E&S market in '24. Is it an equal amount? I don't know. But I think, more importantly, inside the wholesale space, there's an enormous amount, an enormous number of opportunities for us to write business that's still and has been in the past in the E&S space.
So there's more than enough business for us to write in the existing space without one account coming over in the -- from the admitted market. I think that's going to continue. Because in my career and yours as well, you've seen more of a shift in the E&S market. And I think admitted carriers will continue to evaluate their position in particular cat-prone areas.
R. Andrew Watts
Meyer, on that, it's also probably always helpful is to bifurcate that between the commercial and the personal lines. Because there's different kind of profile and activity underneath there. Back to our comments, in the four states that we talked about is we are seeing more personal lines going into the E&S space. And we would expect to see that in 2024 until those markets calm down and then maybe see some of the admitted carriers come back in. But that doesn't appear to be anything in the near term.
Operator
The next question comes from Michael Ward with Citi.
Michael Augustus Ward
You mentioned the remaining portion of Services was moving to Retail. I was just curious if you anticipate holding on to those businesses or if there's any alternative plans.
J. Powell Brown
We anticipate holding on to those businesses.
Michael Augustus Ward
Great. And then maybe on the -- in the slide deck, the macro commentary kind of seemed a little bit less cautious to us. Just curious if you might agree with that. There's a lot in flux kind of with the Fed and rates and inflation. But just curious how your clients are feeling if there's, I guess, a little bit more positivity or uncertainty vice versa.
J. Powell Brown
Yes. So I think that we continue to, as we said in our comments, see inflationary pressure and things trending down. And we do -- it's very interesting, Michael, that there is a more, I believe, optimistic view in our consumer base even in light of some of the challenges that face us globally. So it's a unique dynamic and how ultimately people continue to think about investing in their business is yet to be determined. We have historically, over the past year, talked about -- we used the term this quarter cautiously optimistic.
I think that's a very, very good way to put it. But we've seen over the past year, people sort of pause on making major capital investments, i.e., buying the new machine versus doing some maintenance work. I'll be interested to see this year if our customers buy the new machine. And so that's yet to be determined. But there is definitely a feeling of optimism in our client base, not all of them. But I'm saying if you made a broad generalization, it is more optimistic, yes.
Michael Augustus Ward
Interesting. Maybe one last one just on free cash flow. I think cash flow conversion for you guys was a little below 24% in '23. Just curious if we should expect that similar level into next year if there's -- or this year, if there's any puts and takes there.
R. Andrew Watts
Yes, Mike, for '24, we're thinking at least on the ratio of cash flow from operations, we'll let you guys drop in kind of what you think on the CapEx and everything. But we're thinking 22% to 24% on cash flow from ops as a percentage of revenue. It feels like a pretty good range for us.
Operator
The next question comes from Grace Carter with Bank of America. Okay, it does appear that she did drop. Our next question comes from Scott Heleniak with RBC Capital Markets.
Scott Gregory Heleniak
Just interesting, the comments you made on the economy and how your customer base is feeling. But I'm wondering if you could follow up on the comment you made on the -- you mentioned that the buyers were exhausted. I know you mentioned that last quarter, increasing deductibles, lowering limits. Did you see that accelerate at all in the past few months? And where are you seeing that almost by customer type, the different behavior, where they're changing the terms and conditions?
J. Powell Brown
Well, let's back up for just a moment. I don't think that there's necessarily one customer type or one region. But I'm going to give you an example. But this is not only the capacity in this example. If you take a condo association in Florida, and for the last 5 years in a row, they've seen rate increases. They're exhausted and tired of it. And in some instances, the condo association will shoot the messenger even though we are delivering the best product in the market.
And so whether you apply that same philosophy to a manufacturer, a developer, an owner of nursing homes, a nonprofit, whatever the case may be, I believe, Scott, sometimes people in the analyst community believe it's all about rate increases. And as Andy said earlier, it can be about rate. But really, it's more about the absolute dollars that the insured has to pay. And so there is a lot of chafe when their exposure units are flat to down and their premium dollars are going up. That's the way I try to put it.
And so there's not one class of business. I will tell you this that our organization, if you make a broad statement, we can thrive in a market where the rates are going up, when the rates are sideways and when rates are going down. Generally speaking, in Retail, it works in all of those. In Wholesale, it works up or down, generally flat is kind of a little weird. And it works in Programs. So that's kind of a very broad statement around your question on rates.
Scott Gregory Heleniak
Okay. That's definitely helpful. And then I was just wondering, could you refresh us on the captive revenue, what you had in 2023 versus 2022 and kind of your long-term growth view on that business and where you kind of -- how you're viewing that over the next 5 to 10 years?
R. Andrew Watts
Let's see, I don't know, we probably won't go that far out. But if we look at the captives as we generated $25-plus million last year, generated about $30 million in 2023. And then we've kind of given an idea of guidance of what we think it looks like for 2024. We're really, really pleased with the captives. With the growth we've delivered on the top line, as we mentioned, the alignment with our carriers and the returns that they provided for the capital that we put into those, we're extremely, extremely pleased with them.
So don't take that, that means that we're going to do more of them or whatever, that's not the comment. But for the ones that we have, we're very, very pleased with the programs that they sit on top of. And again, they're sitting on programs that we think deliver some of the best underwriting results in the industry.
Operator
Our next question comes from Brian Meredith with UBS.
Brian Robert Meredith
Powell, I think you may have answered this, but I just want to clarify here. Is inflation -- how big of an impact is inflation on your organic revenue growth? So if I kind of look going forward, obviously, the economic outlook is still decent right now, but inflation clearly moderating. Is that a headwind to organic growth when we think about it from an exposure perspective?
J. Powell Brown
I think if you want to think of it in a textbook answer, the answer is yes. But in practical application, I think it's a neutral.
Brian Robert Meredith
Interesting. Is there certain types of inflation that are better or worse for you all's business?
J. Powell Brown
No, I don't want you to think about it that way. This is kind of how a lot of people -- well, I shouldn't say that. I think some people think about the brokerage space, one, it's a GDP plus or minus but plus growth business, whatever that is. And so then you have to think about what does inflation do to impact GDP? And if you think about that a little bit, it's sort of kind of baked into how our business operates.
But please don't lose sight of the impact of inflation and rate over a long period of time -- and when I say a long period of time, I'm not talking about a year, I'm talking 10 years, 20 years, 30 years in our business, we would say in a more steady-state economy, it's 2/3 exposure unit, 1/3 rate. And those exposure units, whether they go up or down because of economic impacts, inflation or all of the above, we just have to continue to execute and sell more new business and keep the business that we've got. That's how we think about it.
Brian Robert Meredith
That's really helpful. And then my second question, I'm just curious, what are you seeing with respect to the standard markets, just appetite for some of the E&S-type risk? I understand there's, as you mentioned, Texas and certain areas are still pretty challenging. But are you seeing any of the standard markets kind of trying to encroach back into the wholesale arenas?
J. Powell Brown
So the answer to that is no. What I would tell you is in the last probably half of the year but even in Q4 and ended this -- going into the first part of this year, I think there continues to be in a valuation by admitted markets of segments of their books of business. So let's just look at it in three segments kind of like our business. So in retail, they're basically looking at their cat exposure and their loss profile even on casualty and executive liability. And they're saying, "What do we need to get off? What do we want to write more of? That's good." That's sort of the impact there would be cat capacity.
If you go to wholesale, generally speaking, those admitted carriers with their wholesale markets, you would think that they're growing and they could be growing substantially as a percentage. But it's a small portion of their overall premium. And then third, in programs, regardless of if it's capped or casualty, they continue to look very closely at the profitability of those programs. And I have heard or seen a number of markets backing off programs that are not meeting their criteria for profitability. And so I believe that there's going to be a broad statement, there will be some more changes in the program space because markets will continue to review profitability of lines of business because their results are going up and they're trying to bulletproof those for long term.
Operator
Our last question comes from Grace Carter with Bank of America.
Grace Helen Carter
Sorry about my technical difficulties earlier. I just had one that I wanted to really touch on. I'm sorry if I missed this earlier, but I was curious if you all have shared an outlook for investment income next year and how that factors into your expectations for slight margin improvement.
R. Andrew Watts
Grace, it's Andy here. No, we didn't give an outlook on investment income. So we weren't going to try to hypothesize or predict what will happen to interest rates, at least for the -- all the governing banks and the markets that we operate in, inside of. We figured you guys are pretty well positioned to come up with your own determination that's there. Because some of it also is based upon just the amount of capital that flows through the organization and what we hold during the year. So those pieces can move up and down.
Operator
I show no further questions at this time. I would now like to turn the call back to Powell Brown for closing remarks.
J. Powell Brown
Thanks, Michelle. We appreciate everybody's time this morning. I was surprised we didn't get one question. So I will ask the question and then I will answer it.
You know at Brown & Brown, we're a very goal-oriented company. We set goals, we achieve those goals and then we set a new goal. 12 years ago, we were roughly $1 billion of revenue and we set a goal to get to $2 billion in revenue. And in 7 years, we took it from $1 billion to $2 billion. Then we set a new goal, which was bring $2 billion to $4 billion. And 5 years hence, we actually went from $2 billion to $4 billion. Now we're setting a new goal of $8 billion in revenue. Somebody would have asked, "When are you going to get there?" And the answer is we don't have a time frame.
And the reason I say that is if we wanted to be $8 billion of revenue, we could go out and do that. But it would not be in the best interest of our shareholders, which in turn, 22% of the company is owned by teammates. So there is incredible alignment in our organization in terms of our long-term goals and objectives.
As you heard in Andy's remarks and my remarks, we are very pleased with the performance in 2023. And we are equally excited about the prospects for '24. We also know that at some point, the economy will slow down, all right? So we acknowledge that. But it seems that, that probably will not happen in the near term. Is that the next 6 to 12 months? I think one of the things that's buoying that is the presidential election. But there's a lot more that goes into that. So you're not going to want to have changes, if you can help it, in the economy. It will be interesting to see what the Fed does with interest rates and how all that translates into the business environment.
With that said, I'd like to say thank you again. We are pumped about our business and the future of Brown & Brown on our way to $8 billion. And we look forward to talking to you next time. Good day and good luck.
Operator
This concludes today's conference call. Thank you for participating. Have a wonderful day. You may now disconnect.
