Brown & Brown, Inc. Enters into Agreement to Acquire The Wright Insurance Group, LLC + JANUARY 15, 2014 1
Forward-Looking Statement Comments made during this presentation, including those made in the presentation pages, concerning the contemplated acquisition of The Wright Insurance Group and its subsidiaries (collectively, Wright ) by Brown & Brown, Inc. (the Company or Brown & Brown or we ) and any following question-and-answer session, and in materials made available in connection with this presentation, may include certain forwardlooking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. These forward-looking statements include information about possible or assumed future results of operations. All statements, other than statements of historical facts, included in this presentation that address activities, events or developments that we expect or anticipate may occur in the future, including, such things as estimated first 12 month GAAP EPS accretion, future revenues (including the expected 2014 revenues of Brown & Brown and Wright on a combined basis and on a stand-alone basis), EBITDA (including Wright on a stand-alone basis), capital expenditures, business strategies, competitive strengths, goals, growth of our business and operations, plans, and references to future successes may be considered forward-looking statements. Also, when we use words such as anticipate, believe, estimate, expect, intend, plan, probably, or similar expressions, we are making forward-looking statements. Many risks and uncertainties may impact the matters addressed in these forward-looking statements. These include those identified in the January 15, 2014 press release related to the contemplated transaction and those listed in our most recent Quarterly Report on Form 10-Q filed with the Security and Exchange Commission. Many possible events or factors could affect our future financial results and performance. These could cause our results or performance to differ materially from those we express in our forwardlooking statements. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and therefore also the forwardlooking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included in this presentation, our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved. Our forward-looking statements speak only as of the date made and we will not update these forward-looking statements unless the securities laws require us to do so. Table of Contents Transaction Overview...3-4 Key Transaction/Financial Terms...5-6 The Wright Insurance Group Overview...7-11 2
Transaction Overview + Strategic Rationale and Vision The Company has diversified fee revenue streams and high revenue retention rates as a result of: Long-standing leadership positions in several attractive niche markets The multi-year contractual nature of certain of its business lines Concentration on sustained underwriting profitability and proactive risk management Premier service provider to government-sponsored insurance programs Growth initiatives are concentrated on leveraging Brown & Brown and Wright s market expertise, tenured client relationships and infrastructure Recent changes to the National Flood Insurance Program ( NFIP ) associated with the Biggert-Waters Flood Insurance Reform Act of 2012 ( BW-12 ) should expand and strengthen the Company s market-leading position by driving increased penetration and greater rate adequacy Leverage broker and carrier relationships to capitalize on private market flood opportunities Broadens and enhances our existing public entity platform 3
Transaction Overview (continued) Founded in 1978, The Wright Insurance Group is a fee-based specialty insurance company that underwrites and administers complex property and casualty ( P&C ) risks through three distinct segments Wright Flood is the largest participant in the NFIP Program. Wright Flood owns and controls the origination and flood insurance servicing functions for approximately 676,000 policies in force ( PIF ), but does not assume any underwriting risk associated with NFIP flood policies Public Entity/Program Services is a full-service program administrator that generates contractually assured revenues serving prominent, state-wide reciprocals and self-insured groups in the education and municipal sectors, and drives other fee income as a program administrator and broker that aggregates homogenous risks and places them in the insurance marketplace Wright Specialty is a turnkey managing general agency ( MGA ) providing specialty P&C marketing, underwriting, claims, litigation management and loss control leveraging the niche market expertise of the Program Services segment The Company distributes its products nationally through active relationships with approximately 8,500 brokers and agents managed by approximately 30 sales professionals 4
Key Transaction Terms Transaction Acquisition of The Wright Insurance Group, LLC via reverse subsidiary merger Purchase Price The total consideration to be paid for the membership interests and stock of The Wright Insurance Group ( TWIG ) is $602.5 million. This amount is comprised of cash payments of $587.5 million for the Programs Business, $7.5 million for Wright National Flood Insurance Company ( WNFIC ) and $7.5 million for WNFIC statutory surplus. Buyer anticipates the transaction will yield future tax benefits in the amount of $108 million. Consideration 100% cash Cash Payment Expected Closing Required Approvals $587.5 million for Programs Business $7.5 million for Wright National Flood Insurance Company $7.5 million for WNFIC statutory surplus Spring 2014 Hart-Scott-Rodino and Insurance Company Transfer Regulatory Approvals 5
Key Financial Metrics Financing Current available cash and available debt Adjusted 2013 Net Revenue $113.7 million Adjusted 2013 EBITDA Projected First Twelve Month Revenue Projected First Twelve Month EBITDA Impact to Year One (GAAP) EPS $53.7 million $121.1 million $58.8 million Accretion of $0.09 to $0.10 6
Balanced Suite of Flood, Program Entity/Program Services & Specialty 2013 Revenue: 113.7mm Flood $601mm 2013 written premiums, $71.5mm net revenues 3 Largest writer of federal flood insurance administered by the Federal Emergency Management Agency ( FEMA ) 3 Approximately $601 million in 2013 written premiums and approximately 676,000 PIF 3 30-year operating history and relationships with over 8,200 active agents / brokers nationwide 3 Scalable, full-service platform 3 Multiple levers for sustained organic growth and opportunities for industry consolidation 3 Ideally positioned to capitalize on the emerging private flood insurance market Specialty $72mm 2013 written premiums, $9.7mm net revenues 3 Turnkey Managing General Agency developed from the successful underwriting and administration heritage of Program Services 3 Meaningful growth engine for Wright expanded from a green field effort four years ago to over $70 million of written premium across 27 states in 2013 3 Business plan envisions over $230 million of premiums across 48 states by 2018 Public Entity/ Program Services $381mm 2013 written premiums, $32.5mm net revenues 3 Full-service program administrator and broker serving state-wide reciprocals, self-insured groups and national risk purchasing groups ( RPGs ) 3 Niche expertise in the education and municipal markets as well as the food services industry 3 Services include marketing, underwriting, policyholder / IT services, claims, risk management and statutory accounting 3 20 + -year history as program manager for reciprocals and RPGs 3 Proven, scalable operating model 7
Wright s Employees & Office Locations Wright currently employs just over 500 people, approximately half at Wright Flood and half at Public Entities/Program Services, Wright Specialty and corporate activities Employees for Wright Flood are based mainly in St. Petersburg, Florida. Most of the remaining Wright employees are based in the Company s headquarters in Uniondale, New York (claims, underwriting, accounting, risk management, marketing information technology, legal, human resources and executive management) and Albany, New York (risk management, marketing, management of smaller programs) Employees by Location and Department: 8
Wright Flood Since 2004, Wright Flood has been the largest administrator and processor of flood insurance for the NFIP. Wright Flood owns and controls the origination and servicing function, but does not assume any underwriting risk on its NFIP flood policies In 2012, Wright Flood had 19% market share across all 50 states and D.C. The Company is #1 in five states, including Florida, Louisiana, New Hampshire and Texas, and is among the top three in 18 other states Wright Flood is comprised of two legal entities both of which are being acquired as part of the transaction Wright National Flood Insurance Services, LLC ( WNFIS ) MGA operation supporting all flood operations; importantly, management, staff and operational capabilities will remain unchanged post-closing Vertically-integrated service model includes: Marketing the program to independent brokers and agents Underwriting and processing policies Managing the claims process, including overseeing independent claims adjusters and making claims payments on behalf of FEMA Providing financial and statistical reporting to FEMA Wright National Flood Insurance Company currently rated A- Stable; required to support NFIP Flood business NFIP Flood is 100% reinsured by the Federal government Small amount of Excess Flood currently written on 20/80 quota share basis with Arch Re will be converted to 100% reinsured at closing Small amount of risk-sharing with WRMAI will be discontinued at closing Largest permanent in-house claims staff in the industry Significant trading relationship with leading FEMA certified claims adjusting firms 9
Public Entity / Program Services Public Entity Full-service program administrator delivering insurance expertise and infrastructure to the niche reciprocals and self-insured entities it serves Customized service proposition to meet the needs of each program Technical services include marketing, underwriting, claims, risk management and statutory accounting Operational services include policy administration and processing and IT support Revenues earned via management fees subject to multi-year contracts, which has and will continue to generate stable net revenues over many years NYSIR NYMIR Workers Comp New York Schools Insurance Reciprocal ( NYSIR ) is a reciprocal insurer formed in 1989 by Wright for K-12 public schools in the State of New York Wright has managed all insurance operations since formation 24 years ago New York Municipal Insurance Reciprocal ( NYMIR ) is a reciprocal insurer formed in 1993 by Wright for municipalities in the State of New York Wright has managed all insurance operations since formation 20 years ago Third-party administration ( TPA ) services for workers compensation group self-insured trust, cooperatives, self-insured plans and pools for municipalities and school districts in the State of New York Program Services Program administrator and broker that aggregates homogeneous risks and places them in the markets Revenue earned via commission income on premiums written Other Wright Programs Program Brokerage Ancillary services for Wright clients and others Programs that aggregate individual risks to alternative market vehicles, such as RPGs and other group insurance programs All lines program for the food industry in all 50 states plus Franchise First and McDonald s 10
Wright Specialty Wright Specialty is a full-service MGA serving select markets where it has market-leading underwriting and claims and risk management expertise Distinguishing feature is underwriting-led culture (rather than distribution-led) Significant concentration on managing loss ratios The full-service proposition includes a turnkey underwriting platform that offers an integrated approach to origination, underwriting, risk management / loss control and claims Wright Specialty s National Education product leverages the expertise managing NYSIR for 20+ years and is written on Catlin paper Distributed via 179 carefully selected producers In 2014, Wright Specialty will introduce its National Municipal product that leverages Wright s experience managing NYMIR for 20 years Will be distributed via National Education product s producers Established, Integrated Business Model Product features and underwriting results driven by cross-functional knowledge sharing 11
Questions? + www.bbinsurance.com www.wrightinsurance.com 12
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