What is the reason for the change in the specialty pharma revenue model, and is it shifting from commission to fee-based?

The business helps customers reduce pharmacy spend. The model is transitioning from a volume-based model to a PEPM (per employee per month) model over the next several quarters. “The business helps our customers and their employees reduce their pharmacy spend. And so the model is going from a volume-based model to a PEPM model over the next several quarters.”

Given the strong Q1 performance and prior guidance of $50 million less in Specialty Distribution contingents for FY26, what is the updated outlook for contingents?

Based on Q1 performance, the company anticipates total contingent commissions for the entire company will be up this year, flowing through from the outstanding Q1. Contingents are calculated on a program-by-program basis, not overall industry profitability, reflecting the company's underwriting discipline. “is based upon the performance in the first quarter, we are anticipating that our contingent commissions for the entire company will be up this year. We had an outstanding first quarter.”

With a 50-100 basis point negative impact from the pharmacy revenue model change, what offsets this to drive sequential improvement in Retail organic growth?

The company acknowledges the headwinds from the pharmacy business but expects improving organic growth due to the new sales model and increasing activity levels. The Q1 impact from the model change was similar in magnitude. “No. I think what we were trying to help everybody understand there is, one, we know we've got some headwinds from this business as it goes through the revenue model change. But as we said, improving organic growth by the quarters, and that is our expectation based upon the discussion on the change in our sales model and to Powell's comment earlier about starting to see some of the initial activity levels improving.”

BRO

Brown & Brown (BRO) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Financials· Apr 28, 2026

Source: earnings call transcript

Executive summary

Brown & Brown Q1 FY26 — Solid Growth and Margin Expansion Amidst Market Headwinds

Brown & Brown delivered solid Q1 FY26 results, driven by strong contingent commissions and disciplined expense management, despite flat organic growth ex-contingents. The company is navigating market headwinds, particularly in CAT property rates and a pharmacy consulting business model change, while actively integrating Accession and leveraging AI for future growth and efficiency. Management remains focused on deleveraging, strategic M&A, and capital returns.

Highlights

Total revenues grew 35.4% to $1.9 billion in Q1 FY26.
Adjusted EBITDAC margin increased 40 basis points to 38.5%.
Adjusted diluted EPS grew nearly 8% to $1.39.
Cash flow from operations increased approximately $50 million or 23% to over $260 million.
Contingent commissions grew by an impressive $54 million, with $22 million from Accession.

Concerns

Organic revenue growth (ex-contingents) was flat with the prior year, impacted by a negative 100 basis points from prior year flood claims processing revenue.
Retail segment organic growth (ex-contingents) was 1%, with a pharmacy consulting business revenue model change expected to negatively impact growth by 50-100 basis points over the next couple of quarters.
Specialty Distribution organic growth (ex-contingents) decreased 2%, negatively impacted by 300 basis points from prior year flood claims processing revenue.
E&S CAT property rates declined significantly, down 15% to 35%, with further declines later in the quarter.
Litigation with a start-up broker has resulted in $31 million of annualized lost revenue, with a $10 million impact in Q1.

Guidance & targets

Category	Target	Timeline	Confidence
Retail Organic Growth	modest organic growth improvement each quarter this year as compared to the first quarter medium materiality	Q2 FY26, Q3 FY26, Q4 FY26	Medium
Specialty Distribution Organic Growth (excl. contingents)	relatively flat medium materiality	Q2 · FY26	Medium
Specialty Distribution Organic Growth (excl. contingents)	improving growth medium materiality	H2 FY26	Medium
Accession Adjusted EBITDAC Margins	around 35% medium materiality	Full Year FY26	High
Contingent Commissions (Company-wide)	up this year high materiality	Full Year FY26	High
Overall Organic Growth Rate	upper bound of 2.5% high materiality	H2 FY26	Medium
EBITDA Synergies from Accession	$30 million to $40 million high materiality	Full Year FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Retail Growth driven primarily by acquisition activity. Organic growth impacted by a pharmacy consulting business revenue model change and lower net new business. EBITDAC margin decrease due to quarterly weighting of revenue and profit for legacy Brown & Brown vs. Risk Strategies, offset by underlying margin expansion and a net benefit from departed individuals. Organic growth (incl. contingents): 1.3%Organic growth (excl. contingents): 1%EBITDAC margin change: -130 bps	$1.4 billion	33.4%	—	36%
Specialty Distribution Growth driven by Accession acquisition and substantial increase in contingent commissions. Organic growth negatively impacted by $12 million of prior year flood claims processing revenue. Strong results despite CAT property rates declining 15-35%. EBITDAC margin increased due to higher contingents and expense management, partially offset by lower prior year flood claims processing revenue profit. Organic growth (incl. contingents): 3.9%Organic growth (excl. contingents): -2%Contingent commissions: $52 millionContingent commissions from Accession: $22 millionContingent commissions from favorable underwriting: $30 millionEBITDAC margin change: +30 bps	$500 million	40%	—	40.8%

Product announcements

Product	Type	Timeline
AI Agents for Submission Process	launch	—
AI Policy Checking Agents	launch	—
Proprietary Billing Data Platform	launch	—

Deals & partnerships

Accession Integration of Accession into Brown & Brown's operations, particularly impacting the Specialty Distribution segment.

The acquisition of Accession is a key driver of total revenue growth and is undergoing integration efforts, including a new sales model in Retail and contributing to Specialty Distribution's performance.

Risks & headwinds

Flood Claims Processing Revenue Impact Q1 FY26

Negative 100 bps impact on consolidated organic growth (ex-contingents); Negative 300 bps impact on Specialty Distribution organic growth (ex-contingents).

Mitigation:Diversified business model and focus on other growth areas.

Pharmacy Consulting Business Revenue Model Change Next couple of quarters (Q2 FY26, Q3 FY26)

Expected negative impact of 50 to 100 basis points on Retail organic growth.

Mitigation:Expectation for the business to start growing towards the end of the year after the transition.

Litigation with Start-up Broker Ongoing

$10 million impact on Q1 FY26 organic revenue growth; $31 million of annualized lost revenue (up from $23 million last quarter).

Mitigation:Expansive Temporary Restraining Order (TRO) in Massachusetts with tight restrictions, which is still in place.

Declining CAT Property Rates Q1 FY26 and expected to continue in Q2 FY26

E&S property rates declined 15% to 35% in Q1 FY26, with further declines later in the quarter.

Mitigation:Customers utilizing savings to decrease deductibles, increase limits, or buy other lines of coverage; company remains disciplined in underwriting.

Geopolitical Turmoil and Inflationary Pressures Ongoing

Cost of oil and gas influencing some customers to adopt a more cautious outlook and balance cost increases.

Mitigation:Customers are resilient, creative, and adaptive, expected to navigate challenges and capture growth opportunities.

Inability to Get Higher Limits in Casualty Ongoing, not expected to change materially over coming quarters

Extremely challenging to get higher limits; primary layers becoming more expensive, and carriers decreasing limits offered.

Mitigation:Not explicitly stated, but implies continued focus on advisory and risk management solutions.

What to watch in Q2 FY26

Retail Organic Growth Improvement

Q2 FY26

Current 1% (excl. contingents) in Q1 FY26

Target Modest sequential improvement

Why it matters

Indicates the effectiveness of the new sales model and the impact of the pharmacy consulting business transition.

Based on the rate environment, the changes in one of our pharmacy consulting businesses and the operating model enhancements, we're projecting modest organic growth improvement each quarter this year as compared to the first quarter.

Find out whether BRO delivers this. Inve re-checks your case every morning.

Q&A highlights

How does the new blended sales model (combining legacy Brown & Brown and Risk Strategies) operate, how does it affect producer incentives, and is it moving towards competitors' models?

The new model blends the best of both legacy regional and local sales models, creating a unique approach with industry and coverage specialization. It's designed to give producers access to more capabilities and has been positively received, not necessarily mirroring larger competitors.

“I think it's kind of unique onto ourselves. And I think it's actually been very positively received by our producers.”

asked by Robert Cox · answered by J. Powell Brown

2 min read 6 chapters

Detailed narrative

Market Conditions and Pricing Trends

Economic conditions remained stable in Q1 FY26, with customer hiring and investment consistent with prior periods. Commercial insurance rates were relatively stable, except for CAT property which saw further declines. Employee Benefits pricing was similar to prior quarters, with medical costs up 8-10% and pharmacy costs up over 10%.

Admitted P&C markets saw rates flat to up 5%, while E&S property rates declined 15-35%. Casualty lines continued to see price increases of 2-5% for primary layers, with higher increases for excess layers, and professional liability rates were flat to down 5%.

Technology and AI Strategy

Brown & Brown's technology and data journey began over 10 years ago with platform rationalization and data standardization, foundational for effective AI. The company views AI as an enabler and accelerator of its existing strategy, focusing on targeted use cases with measurable success metrics.

Investments are made in world-class data and AI teammates, enterprise-grade technologies, and a strong ecosystem of technology partners, combining out-of-the-box AI tools with proprietary products.

AI-Powered Solutions and Impact

The company has several AI-powered solutions live and delivering value. AI agents automate over 25% of the end-to-end submission process for programs and wholesale businesses, leading to material cost reductions and increased underwriting capacity. In retail, policy checking agents automate manual proposal comparisons and policy reviews, improving risk insight and reducing E&O exposure.

A proprietary platform electronically interfaces with carrier billing portals, saving over 50,000 hours annually by automating billing data extraction and validation.

AI and Market Disruption

Brown & Brown believes its business segments with the highest theoretical AI exposure are admitted aggregators and highly standardized small accounts, areas where the company has not invested significant capital. The specialty distribution model, built on niche specialization, is seen as resilient due to structural moats like regulation, capital intensity, underwriting complexity, and strong carrier relationships.

The company emphasizes that AI disintermediates 'how' but not 'trust,' which remains central to its advisory business model.

Accession Integration Progress

The integration of Accession is on track, with a focus on bringing teams together, enhancing collaboration, and leveraging combined capabilities. The company expects to deliver $30 million to $40 million in EBITDA synergies from the integration this year. The combined sales model in Retail, blending regional and local approaches with industry and coverage specialization, is showing increased activity and optimism for the second half of the year.

Small Account Strategy

The company defines small accounts as those paying under $25,000 in premium, which represent only 1% to 2% of total retail revenues. These accounts are often complex and customized, requiring specialized solutions. While some independent agents target smaller, highly standardized accounts, Brown & Brown's producers typically focus on accounts exceeding this threshold, emphasizing complex commercial risks and advisory relationships.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.