Brown & Brown Reports Weak 4Q

Insurance broker Brown & Brown BRO reported a significantly weaker top line as well as further margin contraction in the fourth quarter of 2009. Internal revenue (excluding contingent commissions and acquisition effects) declined 8% from a weak fourth quarter of 2008. Brown's year-over-year internal revenue comparisons have been getting worse in the past few quarters amid relative stability or modest improvement among its peers. The firm's pretax margin came in at 19%, well below the year-earlier 23% quarterly result, and the trend toward lower reported profitability accelerated as the pretax margin for 2009 came in at 26% compared with 28% in 2008. Weakness in the Florida and Southeast economies have certainly been partially responsible, but Brown's special programs and Western retail segments also reported larger internal revenue declines in the fourth quarter than the companywide total. Our fair value estimate is unchanged pending a review of the firm's 10-K filing.