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I am 24 years old and my name is Hollis Fierro. I life in Bizzarone (Italia). Question and Answer SessionOperator Certainly and thank you. Ladies and gentlemen, if you would like to ask a question at this time, please press star, one. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star, one for any questions. Our first question will come from Adam Klauber with William Blair. Adam Klauber William Blair Thanks. Good morning, Hyatt, how are you? Hyatt Brown I'm fine, Adam, how are you? Adam Klauber William Blair Great, thank you. Great to see the wholesale business is turning around. Of the growth, how much of that is driven by higher rates versus more submissions with the standard carriers being pulled back? Hyatt Brown It'd be kind of an educated guess. I would say about two-thirds is higher rates, or maybe 75% higher rates and 25% movement. We think there's going to be more movement because underwriting is continuing to get front and center. Adam Klauber William Blair Okay, okay. And also in retail, obviously we're seeing good movement, and you talked about a lot of different factors helping that segment out. How about net new business trends are those improving also? Hyatt Brown Yes, they are, Adam. One thing I've been to this picture show before about five times, and there is something different about this time. What it is, is this the risk bearers have a lot more capital and therefore dry powder this time than in the past. Number two, there are fewer risk bearers and I'm talking about standard risk-bearers now  and therefore there is a lot more pressure to get the returns on capital up, which is pushing them. So whereas in the past when you have a market change, all of a sudden it's 20 and 30% or more, which is justyou know, it's awful. This time, it's not happening that way and is it going to continue? So all of that is kind of positive. Adam Klauber William Blair Great, thank you very much. Operator Our next question will come from Keith Walsh with Citi. Hyatt Brown Keith, are you there? Operator Hearing no response from Mr. Walsh, we'll move to Mark Hughes with SunTrust. Mark Hughes SunTrust Yeah, thank you. Hyatt Brown Hey Mark. Mark Hughes SunTrust Hey. The margin outlook when you take all those factors you discussed, Cory, and given the fact that contingents look like they'll be steady to probably up in Q3, what do you think the year-over-year margins are going to look like next couple of quarters? Any initial thoughts? Cory Walker Well, my gut reaction is the margins in general will improve. You know, the two things that we tried to highlight on this call does skew the absolute numbers a little bit, and the ICG operation has an unusual item and since we bought it in November, basically it will be three-quarters of that. And then like I said, that special program that we developed this year for retail commission producers is going to add some extra compensation expense for this year because this year is going to be a challenging year for them, and we wanted to incentivize them for this year to really grow the business. Remember, third quarter we talked about the fact that we hadPowell had mentioned that we were planning to give up margins on a temporary basis to have growth, and that was kind of the program that we were thinking of. So when you take those two things into consideration, I believe the margins will continue to improve for the rest of the year, with those two exceptions. Mark Hughes SunTrust Right. Is the 1.3 million, is that on a run rate to assume that everyone this their 5% target? Cory Walker No, I tell you, that's actually a little bit lower than kind of the average. You know, we probably have about, say, 220 to $230 million of business that's tied to a commissioned retail producer, and so theoretically you could haveif everybody exceeded that 5% growth, you could have 10 to $12 million worth of total cost. So if you take half of that, we're probably a run rate of more like $6 million, maybe, give or take. So that's probably what I'd plan on at this stage. Mark Hughes SunTrust Okay. Final question share buybacks, any updated thoughts there? Hyatt Brown You're probably focusing that on me, and the answer is no. Cory Walker You know, we've got a share buyback program. We have not bought any shares yet because as we had mentioned before, we primarily will buy shares back only at opportunistic prices. Mark Hughes SunTrust Thank you. Operator Our next question will come from Ray Iardella with Macquarie. Ray Iardella Macquarie Thanks and good morning. Can you guys maybe talk aboutI know you guys talked about property rates being up pretty nice, particularly on the coastal side, but how much of your business, I guess, in the first quarter, how much revenue do you get from property maybe versus casualty, relative to the rest of the year? Hyatt Brown Well, that's a good question, and it doesn't vary by quarter, particularly. Property in the past has been about, if I remember correctly, about 20% of our total, and so it's probably moving up a little now. Florida, of course, the property rates are higher than they are elsewhere, so I'd use maybe 20 to 22 or 23%, would be about what our property premiums are now. Ray Iardella Macquarie Okay, and I would think second quarter might be a big quarter in terms of, I guess, property exposure. Is that the right way to think about it, or am I reading too much into that? Ray Iardella Macquarie Okay, that's helpful. And then I guess a lot of insurance carriers have been reporting perhaps some decline in retention. Is that something that your clients are talking about and pushing for, given some of the rate pressure you're talking about? Hyatt Brown Well first of all, an insurance carrier feels that if they're in the 80 to 85% renewal retention percentage, that they're about in the right place; and of course in terms of us, we want at least 95% and hopefully more. So it's kind of hard to talk about that retention thing. So it's very difficult to make those kinds of assessments. Ray Iardella Macquarie Okay. And then one follow-up and I'll re-queue in terms of M&A, how many transactions did you guys close in the first quarter? Did the Arrowhead transaction kind of slow down that a little bit, or is it just sort of lumpy as you get through the year? Hyatt Brown It's kind of lumpy, and we had five transactions we closed. Total of how much was it, Cory? Cory Walker Right at $113 million aggregate annualized revenues, and 108 of that obviously is Arrowhead. Ray Iardella Macquarie Okay. What Hyatt Brown Whatokay, go ahead. Ray Iardella Macquarie No, sorry. Hyatt Brown Well, what I was going to say is that we are seeing some additional interest, and again inventory is about what it has been in the past, maybe a little better. But we're seeing some additional discussions and it might have something to do with the fact that people are looking at what's the tax rate going to be next year, and maybe I'll do something this year. Now, how much of that is out there, I don't know; but it just seems like there might be some of that thinking starting to accumulate. Ray Iardella Macquarie Okay, thanks for the color. Operator Our next question will come from Sarah Dewitt with Barclays Capital. Sarah Dewitt Barclays Capital Hi, good morning. On last quarter's call, you thought the first half '12 organic growth would be choppy. So what's changed since then, and to what extent do you think the positive organic growth is sustainable? Hyatt Brown Well you know, we have a tendency to be pretty conservative and we'd much rather over-perform and under-promise. And so we weren't really too sure that the underwriting regimen was going to continue to be front and center, and it seems to be that the risk-bearers are saying no, this is what it's going to be. The other thing that has been interesting is the impact of RMS11, and RMS11 is impacting all coastal areas, so we were surprised that risk-bearers are following that as assiduously as they seem to be that is, most of them. In some cases on some risks, RMS11 would suggest a PML double what the risk-bearers had in their files for last year. So all of that kind ofwe're thinking maybe a little better in terms of pricing. That's about as good an answer as I can give you. Cory Walker And Sarah, from our perspective when we were on the call, really the only thing that we really had to go on at the time is basically our detailed budgets by office, and at that time the first quarter was the more difficult quarter to get over and our budget basically had us at a negative internal growth. As Hyatt had mentioned, the pricingwe were pretty surprised at how the pricing did kind of hold up during the quarter, and that's what really kind of helped us. The economy, we thought, was going to be flatter, which it did and so therefore we didn't have the down-swoop that we've had historically and therefore the pricing in new business was able to grow it. Basically from a budget standpoint, the first quarter was the hurdle, and as Hyatt said, there's this gradual build that isat least going ahead, nothing to where it's a huge wave but at least it's a slow build, and we think that each quarter will incrementally hopefully be a little bit better. Sarah Dewitt Barclays Capital Great. And then if the organic growth stays at these levels, where do you see the margin heading longer term? I know historically you had that 40% goal is that something that's achievable again? Hyatt Brown Absolutely it's achievable, and so we think the cost structure and the leverage is still there, with the exception of those two highlights that I tried to explain in terms of the employee benefit compensation on the short-term basis here. Sarah Dewitt Barclays Capital Great. Thanks for the answers. Operator Our next question will come from Brett Huff with Stevens. Brett Huff Stevens  Good morning, Hyatt. Good morning, Cory. Hyatt Brown Good morning. Brett Huff Stevens One question  Hyatt, thanks for going through the detail, as usual, on the by geo and business line detail. But if we could step back, what I recall is that you all would say that about 25 to 30% of the organic growth headwind you were facing was rate, and the rest was exposure units. A Is that still true, and B similar to the last question, where did the improvement come rate or exposure units, or both? Can you give us some color on that. Hyatt Brown Yeah, it came both, and it varies with geographic area. I believe that if you looked at Florida, it's probably half and half. Elsewhere, it's probably maybe a little more and I'm thinking of the northeast now  a little more of the economy. The economy's better up there than it is elsewhere, at least that's what our people are telling us. So they are moving in tandem generally, except for contractors, and the contracting business now, some particular kinds of contractors are doing okay, but most of them, chiefly home building, it's just not there. So going forward, once we get beyond the doggone election, I think people are going to feel a lot better about the economy; but generally speaking, there is a little more uptick there and payrolls seem to be flat and up a little bit. There is this constant push to get a little more rate, and as businesses are feeling better about the fact that they can see a little growth themselves, then the pricing is a little more acceptable. But there is a lot of pushback I don't want to give you a feeling it's not tough out there. Brett Huff Stevens Sure. And the second question Cory, you had mentioned last quarter that you thought about 60 to 70% incremental margins as you guys start growing again. Given the two highlights that you talked about the comp structure at least for this year, which sounds like it's limited to this year, and then the ICG sort of longer rev-rec accounting  is that 60, 70% number still something you feel is the right way to think about it? Cory Walker Well, as long asyou know, you need to probably back off 5% on that one commission, and the ICG will be back on a normal flat level by the fourth quarter. So Brett Huff Stevens It really is a this year kind of Cory Walker So I would probably back it off a little bit. Brett Huff Stevens That's mostly this year thing, not a next-year thing? Cory Walker Absolutely. Brett Huff Stevens Okay. That's what I needed. Thanks for your help, guys. Operator Our next question will come from Meyer Shields with Stifel Nicolaus. Meyer Shields Stifel Nicolaus Thanks. Good morning everyone. Hyatt Brown Hey Meyer, how are you? Meyer Shields Stifel Nicolaus I am well. Hyatt Brown Good, good. Meyer Shields Stifel Nicolaus One quick modeling question for, I guess, either Hyatt or Cory  when we talk about the supplemental gravitating towards profit based contingents, do we have an idea what the revenue numbers were in the last three quarters of 2011 so that we can forecast that split? Cory Walker Yeah, let me just give you the numbers for the first quarter amounts. If you look atif we had left our GSC s in the first quarter of 2011, we reported a negative 2.3%, negative internal growth. Without GSC s, it would have been negative 2.4. If you go back to the first quarter of 2010, we reported a negative 8.6%, but without the GSC s it would have been lower at 8.2. So the numbers that you saw for the first quarter on the GSC s, you know, the GSC s are accrued on an actual basis so those numbers that I gave you are relatively consistent for each quarter, and so it's not a huge differential. The first quarter would be representative of it. Meyer Shields Stifel Nicolaus Okay, that's helpful. I think we can work with that. Second, in the internal growth table, you showed divestitures for, I guess, the amount of business from offices or books of business that were sold over the past 12 months, and that's been going up over the past couple of quarters. I was wondering if you could talk about whether there's anything unusual going on there. Cory Walker No. I mean, we typically don't like to sell a book of business, but if a producer leaves and it makes economic sense, we will. So in this particular quarter and in the second half of last year, we did have a couple of larger book sales that generates it and it kind of goes up and down. It is higher than it normally has. Normally it's probably in the million dollar mark, but that's just the nature of what's happened in the last couple quarters. Meyer Shields Stifel Nicolaus Okay. When you talk about a producer leaving, is that producer the one buying the book of business? Cory Walker Typically, yes, or whatever new agency he's going with. Meyer Shields Stifel Nicolaus Right. Thanks very much. Operator Our next question will come from Matthew Heimermann with JP Morgan. Matthew Heimermann JP Morgan Hi, good morning everybody. A couple questions one is justjust wanted to make sure there is no one-time kind of first quarter expenses associated with Arrowhead as we look at the G&A. Cory Walker No, there's not. I mean, Arrowhead is pretty much a standalone organization. There was no office combinations, so most everythingthe chain is really just part of the original purchase price allocation. Matthew Heimermann JP Morgan Okay, and then if you guys Hyatt Brown And then all Matthew Heimermann  JP Morgan  Sorry. Hyatt Brown Also one thing I would just towe actually didn't effectuate that acquisition until the 9th of January. Cory Walker Right, so technically there is nine days of revenue of January that are not included in our number, obviously. Matthew Heimermann JP Morgan Okay. Then I was also just curious, if you expand their platform to the wholesale division broadly, are there any incremental technology costs that would be associated with it, or is it as simple as kind of turnkey to start putting your own information through it? It will just be a gradual change as it makes sense for various offices and wholesale programs. Matthew Heimermann JP Morgan Okay. Hyatt Brown Well, we really don't know that via the competition. We really only know about us, from our standpoint. We're looking at it as just another change, and about half our business has some exposure to that and half doesn't. So probably the largest single change would be having admitted paper versus non-admitted paper. Matthew Heimermann JP Morgan But I was thinking more on the technology service side. It seems like that element, what Fannie Mae is asking people to do is going up, and so I just was curious whether or not you thought you were kind of were ahead of the curve in putting that service technology in place at your business. Hyatt Brown I don't know that we're ahead of the curve or behind the curve. I think we're about in the middle of the curve, as far as we can tell. The requirements that they are talking about, we already do for the most part; and the tweaks that they are talking about, they don't seem to be a great deal of difficulty. Matthew Heimermann JP Morgan  Okay. So with a partner inside, it does give us the ability to provide that service and be able to control it, so from that standpoint it is a positive. Matthew Heimermann JP Morgan Okay. And then just with respect to programs overall, I think the last half of 2011, it was really the special programs that were kind of driving improved growth. But can you just talk about maybe on the older reporting way, kind of what the mix of growth looked like between professional and special? Cory Walker Well, they both grew, and from an ongoing standpointI mean, there was overall less offices that had negative growth than there were before. But in both sides, they did have slight positive growth. Now, from a standpoint of overall, we had talked about Proctor, and Proctor starting with the fourth quarter of last year, we now were comparing them apples-to-apples. They've written a lot of new business, and so from an incremental growth standpoint, Proctor was for the next really four quarters was going to add a positive growth. For this quarter alone, they actually grew in excess of $800,000 of that total, so that will continue as they kind of work through the whole Fannie Mae issue. But you know, it's a good group of people, good business, and they do it the right way. Matthew Heimermann JP Morgan Okay, perfect. Thanks so much. Operator Our final question in queue is a follow-up question from Ray Iardella. Ray Iardella Macquarie Thanks for taking the follow-up. One quick numbers question and one broader question. First on the numbers one on contingent commissions, did Arrowhead receive any contingent commissions in the quarter? I think in the past, you guys had talked about Arrowhead moving towards more of a fixed sort of commission structure going forward. Cory Walker Well, I mean, I'm not sure about that last statement, but Arrowhead did have some very minorit was $300,000. We do expect them to have contingent commissions continue to be earned duringaccrued during the year, or earned during the year. But any contingencies that they may qualify for would primarily come in the third quarter, and that's partpart of that number, they historically have had somewhere in the 4 to $4.5 million per year come in. So could that come in in the third quarter? That was part of the number we gave you, and we'll just have to wait to see if it comes true. Ray Iardella Macquarie Okay. And then the last question I have as far asI think you had talked about some incremental compensation costs for some new hires. Is that something you guys plan on continuing, to look for new producers throughout 2012? Is there any particular target you guys have, or is it just finding good producers and trying to hire them when you can? Hyatt Brown Well actually, we really started about two years ago expanding our recruitment program, Ray, and it's not just for the retail. It's wholesale and it's in programs across our whole system. There are great opportunities out there from people who have been working three, four, five, six years in another business and that business is not doing well, or it's not there, and so we've been interviewing lots and lots of people. And when they meet our profile, then we try and bring them on board. So we probably will continue to increase the number of people that we are bringing on. I know one of the things that Powell has been pushing very aggressively is recruitment, and in order to grow and to replace people who are going to be retiring and that sort of thing, we have to have new folks coming in. So there's lots of opportunities for us, and we're very pleased with our new people that are coming on. They're doing very well for us. So when I had mentioned that there was $600,000 again this quarter in excess, it was just to highlight the increase on that. But we do expect that to continue. Ray Iardella Macquarie Okay, thanks for the answer on the follow-up, and best of luck, Hyatt. Hyatt Brown Thank you. Operator At this time, we have no further questions so I'd like to turn the call back over to our speakers for any additional or closing remarks. Hyatt Brown Okay, well that sounds good, Nicole, and thank you all and we'll look forward to having another quarter. We are in adjournment. Thank you very much. Operator Thank you. With that, we will conclude today's call. Thank you all for your participation. You may now disconnect. my web page: Suggested Site