Brown & Brown Inc

Insurance broker Brown & Brown’s (BRO) stock was also caught up in this trade, although they continue to report slowing organic revenue as the insurance industry pricing continues to soften. This trend indicates potential challenges for the company as it navigates a market where pricing pressures could impact future growth and profitability.

Brown & Brown shares were down due to concerns about AI potentially replacing brokers and allowing carriers to sell directly to customers. However, we believe the insurance brokerage model has several characteristics that make it difficult to disrupt, including a high value, low/no cost value proposition to commercial customers and tight relationships with insurance carriers who generally prefer the benefits of the non-direct distribution model. This resilience positions Brown & Brown well for the future.

While Brown & Brown remains a high-quality business, we saw rising near-term risks as the company navigates an industry downturn, integrates a large acquisition and works to close an AI capability gap versus larger peers. We reallocated capital to Vulcan Materials, which offers a more compelling risk/reward profile, supported by its irreplaceable geological assets and long-term public infrastructure demand.

Brown & Brown (BRO) reported strong Q3 2025 results, with total revenues increasing 35.4%, largely driven by the strategic acquisition of Assured Partners. However, these headline positives were tempered by declining margins due to integration costs, and a moderation in organic revenue growth to 3.5%. The P&C market commentary was mixed, highlighting softening in property rates (down 15–30% for E&S CAT) but hardening in casualty and auto (up 5–10% or more). This suggests potential challenges ahead for sustained growth and profitability.

Brown and Brown ('BRO') was a top contributor in Q1, with a +22% return, benefiting from multiple expansion as investors viewed its P&C brokerage business as a safe haven amid market turmoil. The stock's multiple increased from 18x EBITDA to 21x, reflecting strong fundamental results that were in line with expectations. While I anticipate continued strong performance from BRO due to pricing, volume, and M&A, the stock is currently trading at a peak multiple, which may limit future upside. Given its significant outperformance and elevated valuation, I reduced the position size to explore better opportunities elsewhere.

Brown and Brown has been a core holding in the HCM portfolio, but the stock is currently trading at an all-time high multiple, making it difficult to envision a stronger P&C pricing market than what has been experienced. While the company has shown strong results and benefited from a 'risk-off' trade, the elevated valuation and peak pricing environment suggest that future growth may be limited. The manager has reduced the position size, reallocating proceeds into other opportunities that may offer better potential for growth.

We see Brown and Brown (BRO) as a strong player in the P&C insurance brokerage space, particularly serving small and medium-sized businesses. The firm is benefiting from the consolidation of smaller brokers who cannot compete due to their inability to invest in necessary technology and product breadth. This positions BRO as a secular quality compounder, with a strong competitive advantage in the market. The leadership by founding family members further enhances our confidence in its long-term growth potential.

Brown & Brown operates in the high-margin, capital-light insurance brokerage market with little underwriting risk. The company’s relatively high margins and a strong record of mergers and acquisitions position it well for strong returns across economic cycles, including periods of high inflation and interest rates. We believe that its business model will continue to thrive in the current economic environment, making it a valuable addition to our portfolio.

We added the insurance broker Brown & Brown because it operates in the high-margin, capital-light mid-market insurance brokerage market while taking little underwriting risk. The company’s scale and a strong record of mergers and acquisitions position it well for strong returns across economic cycles, including periods of high inflation and interest rates.

Brown & Brown (BRO) was another top performer. The stock benefited from the company’s stable and predictable business model, seen as a desirable attribute in the current economic environment. In addition, Brown & Brown currently sees solid pricing trends, which should support near-term growth projections.