Brown & Brown Plants Its Flag in the United Kingdom

1. Brown & Brown Plants Its Flag in the United Kingdom

2. Presentation Agenda • Company Profile • Industry Profile • Why Expand Internationally? • Bermuda • Ireland • United Kingdom • Lloyd’s of London • UK Expansion • Mode of Entry • Finance • Impact Assessment

3. Company Profile • Founded in 1939 in Daytona Beach, FL • Brown & Brown is currently ranked as the 6thlargest insurance broker in the U.S.  and 7th largest in the world (based on the July 2009 ranking by Business Insurance magazine) • 170+ Offices, in 40 States and (now) UK • $977.6 Million in Revenues in 2008

4. Company Profile Brown & Owen founded in Daytona Beach, FL Raised $150 million of equity for acquisitions Acquired Hull & Co. with $63 million in revenue “1st Defining Moment” Focus on operating profits not revenues 1980 - $2mm @ 16% OP% 1982 - $4mm @ 8% OP% Changed name back to Brown & Brown 1939 1980-1982 1999 2002 2005 1955 2001 2004 1993 2008 Acquired Riedman Insurance agency with $54 million in revenue Raised 200M for new acquisitions 2008 Revenue of 977.6M “2nd Defining Moment” Becoming a public company. Merger with Poe & Assoc. to form Poe & Brown; revenue $86.1 million Brown & Owen -2-

5. 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

6. Company Profile Long-Term Strategy - FOUR PILLARS: • We’re in the Money-Making Business • We’re in the Recruiting and Enhancing of PeopleBusiness • We’re in the Selling and Servicing of Insurance Business • We’re in the Make-No-BIG-Mistakes Business

7. Company Profile 4 Business Segments: • Retail (60.4% of 2008 Revenues) • Property/Casualty • Employee Benefits • Sold directly to firms, public entities and individuals

8. Company Profile • Wholesale Brokerage • (17.5% of 2008 Revenues) • Property/Casualty mainly • Unusual/Difficult to Place Coverages • Direct “Client” is retail agent (inside and outside of B&B) or broker placing coverage for insured • Reinsurance for Insurance Companies

9. Company Profile • National Programs (23.2% of 2008 Revenues) • Third-Party Administration (TPA) Services • Medicare Secondary Payer Statute compliance services • Fees rather than commissions

10. Company Profile • Services (3.5% of 2008 Revenues) • Administer/Manage more than 50 Programs • Professional Programs: professional liability and related packages for professional groups • Special Programs: packages for niche industries, public entities or risks

11. Industry Profile

12. Industry Profile

13. Why Expand Internationally? 4 Major Objectives – • Expand Sales to other markets • Acquire Resources (products, services, capital, etc.) produced or available in foreign countries • Diversify Sources of Sales and Supplies – take advantage of business cycle differences among countries • Minimize Competitive Risk – counter advantages competitors might gain in foreign markets

14. Why Expand Internationally? 4 GENERAL OBJECTIVES: • Expand Sales to foreign markets • Acquire Resources from foreign countries • Diversify Sources of Sales and Supplies – take advantage of business cycle differences among countries • Minimize Competitive Risk – counter advantages competitors might gain in foreign markets that could hurt you domestically B&B OBJECTIVES: • Not an objective - US markets provide best laws, taxes, margins • Key Consideration: access to global insurance market • Not a consideration • Secondary Consideration: establish presence in global brokerage industry, divert business from competitors

15. Why Expand Internationally? • Insurance Brokers place risks with insurers located inside and outside U.S. • Difficult/unusual coverages • Reinsurance • Captive insurance companies • Usually placed through localbrokers • UK, Bermuda, Ireland top 3 non-US markets

16. Bermuda ADVANTAGES: DISADVANTAGES: US targeting “tax havens” Protective labor laws Current business inflow from B&B lower than to Lloyd’s • Proximity to US • Politically Stable • Educated Workforce • Cooperative Regulatory Environment • 1 of Top 3 Reinsurance Jurisdictions • Efficient, Innovative • No Income Tax

17. Ireland ADVANTAGES: DISADVANTAGES: EU Member More Pro-Employee Labor Laws than US, UK Still relatively small market for US risks Current business inflow from B&B lower than to Lloyd’s • EU Member • Politically Stable • Educated Workforce • Tax Benefits for Brokers • 5% on Foreign Dividends (vs. 30% for Bermuda) • Tax Treaties with Other Countries • Growing Insurance Center

18. United Kingdom ADVANTAGES: • Politically Stable • Educated Workforce • Lloyd’s of London • Currently doing business in the market DISADVANTAGES: • May Join EU

19. Lloyd's of London One of World’s Largest Insurance & Reinsurance Markets

20. Lloyd’s of London • What is Lloyd's of London • An insurance Market – not an insurance company • Deals in Reinsurance and Insurance for large and complex risks • Spreads Risk to limit liability to single entity • Increases capacity of direct insurer • Contract between insurer and reinsurer • No direct link to client

21. Lloyd’s of London • Who does Business with Lloyd's • 93% of Dow Jones Industrial Average Companies • 92% of FTSE 100 Companies • 86% of Fortune Top 50 European Companies • 81% of Fortune 500 US Companies • Top 7 Pharmaceutical Companies • Top 20 Banks • Insurance/Reinsurance Solutions in over 200 Territories worldwide; US is largest market • 2008 Global Written Premiums: £16.9BN (US$24.7BN)

22. Lloyd’s of London • How Lloyd's is Organized • The Society of Lloyd’s • Made up of Members • Syndicates • Managing Agents • Brokers

23. Lloyd’s of London • Society of Members • Capital Providers • Not Owners/Shareholders of Lloyd's • Underwrite in Syndicates • Compete for business within Lloyd's market • Offers choice • Controls pricing • Professional Underwriters accept risk on behalf of Syndicates • Members are not responsible for each others losses

24. Lloyd’s of London • Syndicates • Groups of Society Members • Pools capital of members • Assumes the risk of underwritting • Spreads risk among members in group

25. Lloyd’s of London • Managing Agents • Companies established specifically to oversee Syndicates • Sponsor and Manage Syndicates on members behalf • Determine Members capacity for commitments • Employ Underwriters to write contracts • Communicate directly with Brokers • Can rapidly assume or decline contracts

26. Lloyd’s of London • Brokers • act as gatekeepers • Intermediary between clients and Syndicates • Negotiate competitive terms • Get immediate access to decision makers • Accredited by Lloyd's • Retain part of commissions for placing business into Lloyd’s market

27. Lloyd’s of London • Why Be a Lloyd’s Broker? • Vertical Integration: • Direct access to Managing Agents • Obtain brokerage commissions paid to current (non-B&B) Lloyd’s Brokers B&B currently does business with (“Second (third?) bite at the apple”)

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

29. 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

30. UK Expansion

31. 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

32. 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

33. Mode of Entry • Modes of Entry • Acquisition • No asset acquisitions in UK; only stock – taking the good, the bad and the ugly • Tried – and (luckily) failed – in 2006; “winning” bidder took huge loss due to overpayment for business and employee benefit plan wind-down costs • Will still (carefully) consider acquisition opportunities; more one-off hires • Joint Venture • JV = partnership between two entities • Joint control • Split profits • Shared legal liability

34. 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)

35. Finance

36. Finance

37. Impact Assessment

38. Questions?Comments?