Brown & Brown Plants Its Flag in the

United Kingdom

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

–Ireland

–United Kingdom

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

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Industry Profile

• Insurance Agency, Brokerage and Services (“Brokerage”) Industry

• Intermediary – Not the Risk-Bearer (Insurer)

• Paid Commissions (% of Premiums) and Fees

• Insert total industry revenue.

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Industry Profile

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Industry ProfileRank Company 2008

Brokerage Revenues

% Change 2008Employees

2008Offices

1 Marsh and Mclennan Co’s Inc.

11,516,000,000 3.80% 54,400 700

2 Aon Corp. 7,310,000,000 4.50% 37,700 397

3 Willis Group Holding’s Ltd.

3,362,000,000 36.50% 17,000 397

4 Wells Fargo Insurance Services

Inc.

1,743,062,000 35.95% 7,905 213

5 Arthur J. Gallagher and Co.

1,611,302,000 5.76% 9,863 200

6 Jardine Lloyd Thompson Group

P.L.C.

992,843,665 4.80% 5,488 76

7 Brown &Brown Inc. 965,982,617 5.61% 5,398 132

8 BB&T Insurance Services

962,134,200 9.66% 4,462 109

9 Gras Savoye & Cie 786,368,400 15.58% 3,650 102

10 Lockton Co’s LLC 778,345,000 6.89% 3,840 485

Company Profile

• Founded in 1939 in Daytona Beach, FL

• Brown & Brown is currently ranked as the 6th largest insurance broker in the U.S.  and 7th largest in the world (based on the July 2009 ranking by Business Insurance magazine)

• 170+ Offices, in 40 States and (now) UK

• $977.6 Million in Revenues in 2008

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Company Profile

Brown & Owen

19391939 1980-19821980-1982

Changed name back to

Brown & Brown

19931993

AcquiredRiedman Insurance

agency with$54 millionin revenue

2004200419551955

Brown & Owen foundedin Daytona Beach, FL

19991999 20022002

Raised $150million of equity for

acquisitions

20012001 20082008

AcquiredHull & Co.

with$63 millionin revenue

20052005

Revenue - $45,821

OP $ - $6,511

OP % - 14.2%

“2nd Defining Moment”

Becoming a publiccompany.

Merger with Poe & Assoc. to form

Poe & Brown; revenue$86.1 million

2008 Revenue of 977.6M

Raised 200M for new

acquisitions

“1st Defining Moment”Focus on operating profits

not revenues1980 - $2mm @ 16% OP%1982 - $4mm @ 8% OP%

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Company Profile

• Intermediate Goal: “B-40”

–$1 Billion in Revenues

–40% Margin (about twice industry average)

–Should be reached in 2009-2010

• Next Goal: “DA” (Double Again)

–$2 Billion in Revenues

–Maintain 40% Margin

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Company Profile

Long-Term Strategy - FOUR PILLARS:• We’re in the Money-Making Business• We’re in the Recruiting and Enhancing of People

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

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

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Company ProfileBusiness Segments

60.70%17.60%

18.40%

3.30%

Retail

Wholesale

Programs

Services

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Why Expand Internationally?4 GENERAL OBJECTIVES:

• Acquire Resources from foreign countries

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

• Expand Sales to foreign markets

• Diversify Sources of Sales and Supplies – take advantage of business cycle differences among countries

B&B OBJECTIVES:

• Key Consideration: access to global insurance market

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

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

• Not a consideration

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Why Expand Internationally?Premium Distribution

5% 10%5%

80%

Lloyd's Broker

Retail Agent

WholesaleBroker

Risk Bearer

Extra Piece of the PIE!

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Why Expand Internationally?

• Insurance Brokers place risks with insurers located inside and outside U.S.

– Difficult/unusual coverages– Reinsurance– Captive insurance companies

• Usually placed through local brokers

• UK, Bermuda, Ireland among top 3

Non-US markets

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Bermuda

ADVANTAGES: DISADVANTAGES:

• Proximity to US

• Politically Stable

• Educated Workforce

• Cooperative Regulatory Environment

• 1 of Top 3 Reinsurance Jurisdictions

• Efficient, Innovative

• No Income Tax

• US targeting “tax havens”

• Protective labor laws

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

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Ireland

ADVANTAGES: DISADVANTAGES:

• EU Member

• Politically Stable

• Educated Workforce

• Tax Benefits for Brokers– 5% on Foreign Dividends

(vs. 30% for Bermuda)

– Tax Treaties with Other Countries

• Growing Insurance Center

• EU Member – More Pro-Employee Labor

Laws than US, UK

• Still relatively small market for US risks

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

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United Kingdom

ADVANTAGES:

• Politically Stable

• Educated Workforce

• Lloyd’s of London

• Currently doing business in the market

DISADVANTAGES:

• EU Member

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Lloyd’s of London

One of World’s Largest Insurance & Reinsurance Markets

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Lloyd’s of London

•What is Lloyd's of London• An insurance Market • Reinsurance/Insurance for Large and Complex Risks• No Direct Link to Client

•Who does Business with Lloyd's• 93% of Dow Jones Companies• 86% of Top 50 European Companies• Top 20 Banks• 2008 Global Written Premiums: $24.7 B

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Lloyd’s of London

Society of Members Capital Providers

Syndicates Groups of Members Pools Capital & Risk

Managing Agents Oversee Syndicates Employ Underwriters

Brokers Gatekeepers Negotiate Terms

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Lloyd’s of London

Why Be a Lloyd’s Broker?

Already Placing Business in Lloyd's Market Vertical Integration Second bite at the apple

Direct access to Managing Agents Control the deal

Opportunity for new clients New business entering Lloyd's Market

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Lloyd’s of London

How to become a Lloyd's Broker Regulatory Approval from Appropriate body Support from at least one Managing Agent Terms of Business Agreement Adequate knowledge and systems Professional Indemnity Insurance

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Mode of Entry• Modes of Entry

– Acquisition

• No asset acquisitions in UK; only stock – taking the good, the bad and the ugly

• Tried – and (luckily) failed – in 2006; “winning” bidder took huge loss due to overpayment for business and employee benefit plan wind-down costs

• Will still (carefully) consider acquisition opportunities; more one-off hires

– Joint Venture

• JV = partnership between two entities

• Joint control

• Split profits

• Shared legal liability22

Mode of Entry– Foreign Subsidiary (Foreign Direct Investment) -

• Advantages =

– Control

– 100% ownership of Profits

• Challenges =

– Establishing UK subsidiary – process more complex than in US

– Regulatory approval from Financial Services Authority – more involved than State insurance departments in US

– Broker Appointment from Lloyd’s – greater scrutiny for foreign-owned brokers; local direct management required (in reading, a “multidomestic” or “locally responsive” company approach)

– Higher Operating Costs, Operating Complexity

» Rents, salaries, taxes higher than in US

» Establish, administer separate UK benefit plans

» Tax repatriation

» Labor laws more pro-employee (e.g., no at-will employment; restrictive covenants more difficult to enforce)

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UK Expansion

DECUS INSURANCE BROKERS, LTD.:• Organized as England & Wales company September

2007• Indirect Subsidiary of Brown & Brown, Inc.• Created to place specialty lines of insurance

business including Property, Professional Liability and Binding Authority programs

• Authorized with FSA February 2008• Appointed as Lloyd’s Broker February 2008

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UK Expansion

Syndicate (Risk-Bearers)(Underwriters Price, Issue Policies)

Lloyd’s Members(Capital Providers)

Managing Agent(Manages Syndicate for Lloyds Members)

LLOYDS BROKER(Keeps Commission %Remits Net Premium)

US Wholesale Broker(Keeps Commission %Remits Net Premium)

US Retail Insurance Agent(Keeps Commission %Remits Net Premium)

Insured(Pays Gross Premium)

Companies/Individuals

SyndicateNo. 6106

AmlinUnderwriting

Ltd.

DecusInsurance

Brokers, Ltd.

PeachtreeSpecial Risk

Brokers, LLC

Brown &Brown of

Florida, Inc.

CondominiumOwners

Association

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UK Expansion

Decus Market Strategy:

• Capture Commissions currently being retained by Lloyd’s brokers for little/no actual work (2 -3 bites at apple)

• Beachhead: Start with B&B-placed business

– E.g., Move Force-Placed Hazard Insurance Program previously placed with Lloyd’s Broker owned by US competitor Arthur J. Gallagher

• Extend to other agents/brokers placing business into Lloyd’s market

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UK Expansion

What does “Decus” mean anyway?• Latin inscription on British coins: “Decus Et

Tutamen” (“An Ornament and a Safeguard”)

– Refers to milling/lettering on coin, and to Monarch depicted on coin

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Finance

• Cost of acquisition/startup : $1 MM 

• Funded internally via capital raised in 2004

• Profitable in first and second year following startup

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Finance

2009 Through Sep 30 Budget Actual Total

Revenues $19.5MM $20.4MM $26MM

Operating Profits $100K $900K $1.2MM

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Impact Assessment

2009 2010 2011 2012 2013

Revenues $27.2MM $33.4MM $41.8MM $46.1MM $54.3MM

Operating Profits $.75MM $.95MM $1.25MM $1.25MM $1.50MM

Incremental Revenues/Operating Profits Following Decus Expansion

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Questions? Comments?

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