The B&B culture continues to become even more inculcated in the minds of our team; and our systems and methods of doing business are driving increased amounts of new business while at the same time achieving even higher pre-tax margins. Our balance sheet is the strongest in our history and our leadership team has great depth and a fierce resolve to grow earnings at an even faster rate.

Viewing the insurance field and observing those companies that have survived to this point, the key seems no different than one finds in nature. It is truly a story of the survival of the fittest. And, we believe that we are the fittest of the fit.

Simply stated, B&B is “flat ready” for the opportunities of the 21st century. Although the accompanying financial statements show our results on a restated basis (to reflect the effect of certain 1999 acquisitions), we feel that our historical results illustrate the facts best, as restatements can be hard to follow. In 1999, our performance met our expectations – new record earnings of $1.98 per share, a 15.1% increase over the $1.72 achieved in 1998, which was also a record. Seven consecutive years of 15% earnings per share growth is unparalleled in our industry. Concurrently, we have again far surpassed our peers by continuing to attain a superior pre-tax margin, the highest in our industry… 25.1% for 1999.

Although our internal growth rate was below expectations, our mature profit centers, where no acquisitions or mergers occurred, grew in the 8% to 11% range. On the other side of the coin, external growth is no less a challenge. As regards mergers and acquisitions, we must be constantly vigilant to ensure that the new team members we select are truly compatible with our culture. During the year we completed the acquisition of 10 agencies and also purchased several books of business. Our mergers and acquisitions were beneficial to our overall growth and earnings per share, and this activity has brought us a group of very talented people. We welcome them all to the B&B team.

The long-term continuous downward pricing pressure in the insurance marketplace has intensified our regular review of business partner relationships. These reviews help us protect our clients and our Company. A key consideration in this process is to make sure we do business only with underwriting companies that demonstrate acceptable financial stability.

Like most companies, Brown & Brown survived the Y2K “crisis” without incident. A great deal of time, money and energy was expended to upgrade our computer systems. We have turned this into a positive, as the upgrades are allowing our business units to operate more efficiently.

Our Board of Directors continues to provide the leadership so necessary today. In August the Board adopted a Shareholder Rights Plan, which is intended to protect all shareholders by deterring possible coercive takeover tactics and to ensure that, in the unlikely event a takeover should occur, all shareholders would receive a fair price for their shares. Then, in October, in keeping with our belief that our shareholders must share in our success, the Board voted to again raise the regular per share quarterly cash dividend rate – this time to $.13 per share, an 18% increase from the previous $.11.

We believe that the financial and cultural circumstances currently surrounding the insurance brokerage industry place Brown & Brown in a most enviable position. Our Company’s focus on the middle-market and our attendant system of doing business therein is consistently generating pre-tax margins of 20% or more. Our competitors, on the other hand, generally average in the range of 12–15%. There are those who say that Brown & Brown’s margins are simply not sustainable. We have great faith that our current 25% margin is not only sustainable but may move even higher as our systems become more sophisticated, and “Project 28” (discussed below) is brought to fruition.

In fact, the relationships that we have formed over the years have been the basis for many of our acquisitions, as well as for the partnerships that have helped us to better serve our customers while advancing to new levels of attainment.During 1999 these relationships were invaluable as we moved major blocks of Professional Programs Division business to new carriers and introduced several new programs in the Commercial Programs Division.

Another area where relationships are proving strong is within the personal lines departments of our retail offices. While many pundits predict that this business will soon go to direct writers and e-commerce, we are growing our books of personal automobile and homeowners business at very profitable margins. Customer retention rates are also running in the mid-to-upper ninety percent range – another positive barometer of our success.

We have implemented a new program called “Project 28,” which is focused on achieving consistently higher levels of pre-tax margin, while sustaining top-line growth. This challenge is already being met by many of our operational units. Those units are being closely studied so that their success can be applied to comparable units. Compensation systems are being established to reward those who achieve higher growth and pre-tax margins. Project 28 subdivides our company into its individual components so that all like parts can be measured, quarterly, against each other and against a hurdle designed to be raised as results dictate. The component parts are both income-producing units (e.g., Personal Lines Departments, Employee Benefits Departments, Cost-Containment Departments) and internal services departments (placement, telemarketing and internal referral). The information derived from Project 28 is being used extensively and enthusiastically across our Company with positive results.

The benefits of this cutting-edge approach include specific individual recognition for achievement, extending very deep within our organization, as well as greater productivity and higher margins. At the same time, we have implemented Internet activities to improve after-sales service in select lines. Already, within the Professional Programs Division, an extranet has been established for our Dental program, which is allowing us to better respond to producing agents and thus the end customer. Our goal is to use all appropriate resources to expand the opportunities for our various business units.

Consistent with our game plan, the ongoing recruitment of the best possible “athletes” continues. Combined with this is our determination to fully recognize the contributions of all our employees, both those in sales and those non-sales leaders. Our management team is constantly seeking ways to ensure that we hire only the highest quality people and then give them the tools which enable them to grow to their fullest potential. This means that we must continue to grow and develop our Company in a manner that will ensure rapid upward mobility for our driven leaders.

A key factor in our success is that we have found that real “athletes” should not be constrained by rigid rules or bureaucratic interference. We are achieving success by bringing in individuals from numerous different industries and professional backgrounds. As long as the person has an entrepreneurial mind-set, a self-motivated attitude, and is turned on by challenge and reward, he or she can be a leader on the Brown & Brown team.

We have six highly motivated, aggressive leaders who are Regional Executive Vice Presidents. They are Roy Bridges, Linda Downs, Jim Henderson, Ken Kirk, Tom Riley and Dan Williamson. Each has multiple profit centers reporting to him or her – combined, they comprise about 90% of the earnings of the Company. The balance of the profit centers report directly to me. As a result of several very focused meetings during the last quarter of 1999, we developed a three-year game plan to lead us into the new millennium. The plan is very ambitious and, we believe, achievable.

The signs of increased pricing in certain insurance lines, in most states, is heartening. The B&B system brings substantial profits to the bottom line when revenues increase due to such pricing changes. Additionally, many risk bearers are withdrawing from smaller, less economically viable agencies. This presents new business opportunities as well as the potential for mergers and acquisitions with agencies that fit our model.

Through a steady application of forward-thinking, tough-minded sales management, ongoing accountable cost containment and dogged determination, our culture continues to prove its value. While ever mindful of the hazards, we embrace the new millennium and what it offers our industry and our Company.

I am very proud of the accomplishments of Brown & Brown. The year 2000 may very well be the best year in our history!!!

J. Hyatt Brown, CPCU, CLU
Chairman, President and Chief Executive Officer

Note regarding forward-looking statements