2018 2024 2018 2024 false--12-31 FY 2018 2018-12-31 10-K 0000079282 Yes Large Accelerated Filer BROWN & BROWN, INC.No No BRO 0.0025 0.0028 0.0031 0.10 0.10 560000000 560000000 286929229 293379702 276210910 279583006 0.015 0.0175 0.015 0.0175 0.045 0.04200 0.045 0.04200 2022-06-28 2022-06-28 2022-06-28 2022-06-28 P5Y P5Y P5Y P5Y 0.0025 0.0025 0 0 10718319 13796696 0000079282 2018-01-01 2018-12-31 0000079282 2018-12-31 0000079282 2019-02-21 0000079282 2016-01-01 2016-12-31 0000079282 2017-01-01 2017-12-31 0000079282 2017-12-31 0000079282 us-gaap:AccountingStandardsUpdate201409Member us-gaap:RetainedEarningsMember 2017-12-31 0000079282 us-gaap:TreasuryStockMember 2018-01-01 2018-12-31 0000079282 us-gaap:CommonStockMember 2018-01-01 2018-12-31 0000079282 us-gaap:CommonStockMember 2016-01-01 2016-12-31 0000079282 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0000079282 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000079282 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-12-31 0000079282 us-gaap:AdditionalPaidInCapitalMember 2016-01-01 2016-12-31 0000079282 us-gaap:TreasuryStockMember 2016-12-31 0000079282 us-gaap:AdditionalPaidInCapitalMember 2017-01-01 2017-12-31 0000079282 us-gaap:CommonStockMember 2017-01-01 2017-12-31 0000079282 us-gaap:RetainedEarningsMember 2017-01-01 2017-12-31 0000079282 2015-12-31 0000079282 us-gaap:TreasuryStockMember 2018-12-31 0000079282 us-gaap:RetainedEarningsMember 2016-01-01 2016-12-31 0000079282 us-gaap:RetainedEarningsMember 2017-12-31 0000079282 us-gaap:RetainedEarningsMember 2018-01-01 2018-12-31 0000079282 us-gaap:TreasuryStockMember 2015-12-31 0000079282 us-gaap:AdditionalPaidInCapitalMember 2016-12-31 0000079282 us-gaap:AccountingStandardsUpdate201409Member us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0000079282 us-gaap:CommonStockMember 2018-12-31 0000079282 us-gaap:AccountingStandardsUpdate201409Member 2017-12-31 0000079282 us-gaap:RetainedEarningsMember 2018-12-31 0000079282 us-gaap:AdditionalPaidInCapitalMember 2015-12-31 0000079282 us-gaap:RetainedEarningsMember 2016-12-31 0000079282 2016-12-31 0000079282 us-gaap:CommonStockMember 2015-12-31 0000079282 us-gaap:TreasuryStockMember 2017-01-01 2017-12-31 0000079282 us-gaap:CommonStockMember 2016-12-31 0000079282 us-gaap:TreasuryStockMember 2016-01-01 2016-12-31 0000079282 us-gaap:RetainedEarningsMember 2015-12-31 0000079282 us-gaap:AccountingStandardsUpdate201409Member us-gaap:TreasuryStockMember 2017-12-31 0000079282 us-gaap:TreasuryStockMember 2017-12-31 0000079282 us-gaap:AccountingStandardsUpdate201409Member us-gaap:CommonStockMember 2017-12-31 0000079282 us-gaap:CommonStockMember 2017-12-31 0000079282 us-gaap:AccountingStandardsUpdate201409Member us-gaap:CommonStockMember 2017-12-31 0000079282 2015-01-01 2015-12-31 0000079282 us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-01-01 2018-12-31 0000079282 bro:EmployeeCompensationandBenefitsMember 2018-01-01 2018-12-31 0000079282 bro:IncomeTaxExpenseMember 2018-01-01 2018-12-31 0000079282 us-gaap:OperatingExpenseMember 2018-01-01 2018-12-31 0000079282 us-gaap:MaximumMember 2018-01-01 2018-12-31 0000079282 bro:CosttoFulfillMember 2018-01-01 0000079282 bro:CosttoObtainMember 2018-12-31 0000079282 us-gaap:AccountingStandardsUpdate201409Member us-gaap:AccruedLiabilitiesMember 2017-12-31 0000079282 us-gaap:RetainedEarningsMember 2018-01-01 0000079282 us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member bro:VariousMember 2018-01-01 2018-12-31 0000079282 us-gaap:AccountingStandardsUpdate201618Member 2016-01-01 2016-12-31 0000079282 us-gaap:MinimumMember 2018-01-01 2018-12-31 0000079282 us-gaap:RegulatoryLiabilityDomain 2017-12-31 0000079282 us-gaap:OtherCurrentAssetsMember 2017-12-31 0000079282 us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member bro:ServicesMember 2018-01-01 2018-12-31 0000079282 us-gaap:AccountingStandardsUpdate201409Member us-gaap:AccountsPayableMember 2017-12-31 0000079282 us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-01-01 2018-12-31 0000079282 bro:CosttoObtainMember 2018-01-01 2018-12-31 0000079282 bro:CosttoFulfillMember 2018-01-01 2018-12-31 0000079282 us-gaap:AccountingStandardsUpdate201409Member us-gaap:RegulatoryLiabilityDomain 2017-12-31 0000079282 us-gaap:AccountingStandardsUpdate201409Member us-gaap:DeferredIncomeTaxChargesMember 2017-12-31 0000079282 2018-01-01 0000079282 us-gaap:AccountingStandardsUpdate201409Member us-gaap:OtherCurrentAssetsMember 2017-12-31 0000079282 us-gaap:AccountingStandardsUpdate201409Member us-gaap:PremiumsReceivableMember 2017-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:NationalProgramsMember 2018-01-01 2018-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:RetailMember 2018-01-01 2018-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:ServicesMember 2018-01-01 2018-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:VariousMember 2018-01-01 2018-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:WholesaleBrokerageMember 2018-01-01 2018-12-31 0000079282 bro:TwoThousandEighteenAcquisitionMember 2018-12-31 0000079282 bro:TwoThousandEighteenAcquisitionMember 2017-01-01 2017-12-31 0000079282 bro:TwoThousandEighteenAcquisitionMember 2018-01-01 2018-12-31 0000079282 bro:TwoThousandSeventeenAcquisitionMemberDomain 2017-01-01 2017-12-31 0000079282 bro:TwoThousandSeventeenAcquisitionMemberDomain 2016-01-01 2016-12-31 0000079282 bro:DealerAssociatesMember 2018-12-31 0000079282 bro:VariousMember 2018-12-31 0000079282 bro:TwoThousandSixteenAcquisitionMember 2015-01-01 2015-12-31 0000079282 bro:TwoThousandSixteenAcquisitionMember 2016-01-01 2016-12-31 0000079282 bro:MorstanGeneralAgencyIncMember bro:WholesaleBrokerageMember 2016-12-31 0000079282 bro:SocialSecurityAdvocatesfortheDisabledLLCMember bro:ServicesMember 2016-12-31 0000079282 bro:OtherAcquisitionsMember bro:VariousMember 2016-12-31 0000079282 bro:OtherAcquisitionsMember bro:VariousMember 2016-01-01 2016-12-31 0000079282 bro:MorstanGeneralAgencyIncMember bro:WholesaleBrokerageMember 2016-01-01 2016-12-31 0000079282 bro:SocialSecurityAdvocatesfortheDisabledLLCMember bro:ServicesMember 2016-01-01 2016-12-31 0000079282 bro:SocialSecurityAdvocatesfortheDisabledLLCMember 2016-12-31 0000079282 bro:MorstanGeneralAgencyIncMember 2016-12-31 0000079282 bro:VariousMember 2016-12-31 0000079282 bro:OtherAcquisitionsMember bro:VariousMember 2017-12-31 0000079282 bro:OtherAcquisitionsMember bro:VariousMember 2017-01-01 2017-12-31 0000079282 bro:KerxtonMember bro:RetailMember 2018-12-31 0000079282 bro:TowerHillMember bro:NationalProgramsMember 2018-12-31 0000079282 bro:ADGMember bro:RetailMember 2018-12-31 0000079282 bro:HSRMember bro:NationalProgramsMember 2018-12-31 0000079282 bro:HaysMember bro:RetailMember 2018-01-01 2018-12-31 0000079282 bro:PDAMember bro:ServicesMember 2018-01-01 2018-12-31 0000079282 bro:ServcoMember bro:RetailMember 2018-12-31 0000079282 bro:PDAMember bro:ServicesMember 2018-12-31 0000079282 bro:RodmanMember bro:RetailMember 2018-01-01 2018-12-31 0000079282 bro:DealerAssociatesMember bro:RetailMember 2018-12-31 0000079282 bro:ADGMember bro:RetailMember 2018-01-01 2018-12-31 0000079282 bro:TowerHillMember bro:NationalProgramsMember 2018-01-01 2018-12-31 0000079282 bro:OpusMember bro:RetailMember 2018-01-01 2018-12-31 0000079282 bro:HaysMember bro:RetailMember 2018-12-31 0000079282 bro:OpusMember bro:RetailMember 2018-12-31 0000079282 bro:FIMember bro:RetailMember 2018-12-31 0000079282 bro:ServcoMember bro:RetailMember 2018-01-01 2018-12-31 0000079282 bro:FIMember bro:RetailMember 2018-01-01 2018-12-31 0000079282 bro:DealerAssociatesMember bro:RetailMember 2018-01-01 2018-12-31 0000079282 bro:VariousMember bro:VariousMember 2018-12-31 0000079282 bro:VariousMember bro:VariousMember 2018-01-01 2018-12-31 0000079282 bro:HSRMember bro:NationalProgramsMember 2018-01-01 2018-12-31 0000079282 bro:RodmanMember bro:RetailMember 2018-12-31 0000079282 bro:KerxtonMember bro:RetailMember 2018-01-01 2018-12-31 0000079282 bro:TowerHillMember 2018-12-31 0000079282 bro:FIMember 2018-12-31 0000079282 bro:OpusMember 2018-12-31 0000079282 bro:HSRMember 2018-12-31 0000079282 bro:RodmanMember 2018-12-31 0000079282 bro:PDAMember 2018-12-31 0000079282 bro:KerxtonMember 2018-12-31 0000079282 bro:HaysMember 2018-12-31 0000079282 bro:ADGMember 2018-12-31 0000079282 bro:ServcoMember 2018-12-31 0000079282 bro:WholesaleBrokerageMember 2016-12-31 0000079282 bro:AssetAcquisitionsMember 2018-01-01 2018-12-31 0000079282 us-gaap:NoncompeteAgreementsMember 2018-01-01 2018-12-31 0000079282 bro:RetailMember 2017-12-31 0000079282 us-gaap:OtherNoncurrentLiabilitiesMember 2018-12-31 0000079282 us-gaap:AccountsPayableMember 2017-12-31 0000079282 us-gaap:CustomerRelationshipsMember 2017-01-01 2017-12-31 0000079282 us-gaap:OtherNoncurrentLiabilitiesMember 2017-12-31 0000079282 bro:StockAcquisitionsMember 2016-01-01 2016-12-31 0000079282 us-gaap:CustomerRelationshipsMember 2018-01-01 2018-12-31 0000079282 bro:BookofBusinessPurchasesMember 2016-01-01 2016-12-31 0000079282 bro:NationalProgramsMember 2018-12-31 0000079282 bro:ServicesMember 2018-12-31 0000079282 bro:BookofBusinessPurchasesMember 2017-01-01 2017-12-31 0000079282 us-gaap:AccountsPayableMember 2018-12-31 0000079282 bro:StockPurchasesMember 2018-01-01 2018-12-31 0000079282 bro:NationalProgramsMember 2017-12-31 0000079282 bro:BookofBusinessPurchasesMember 2018-01-01 2018-12-31 0000079282 bro:RetailMember 2018-12-31 0000079282 us-gaap:OtherNoncurrentLiabilitiesMember 2016-12-31 0000079282 us-gaap:CustomerRelationshipsMember 2016-01-01 2016-12-31 0000079282 bro:WholesaleBrokerageMember 2018-12-31 0000079282 bro:AssetAcquisitionsMember 2016-01-01 2016-12-31 0000079282 bro:RetailMember 2016-12-31 0000079282 bro:AssetAcquisitionsMember 2017-01-01 2017-12-31 0000079282 bro:OtherAcquisitionsMember 2018-12-31 0000079282 us-gaap:AccountsPayableMember 2016-12-31 0000079282 bro:WholesaleBrokerageMember 2017-12-31 0000079282 bro:NationalProgramsMember 2016-12-31 0000079282 bro:ServicesMember 2017-12-31 0000079282 us-gaap:NoncompeteAgreementsMember 2016-01-01 2016-12-31 0000079282 bro:ServicesMember 2016-12-31 0000079282 us-gaap:NoncompeteAgreementsMember 2017-01-01 2017-12-31 0000079282 bro:RetailMember 2018-01-01 2018-12-31 0000079282 bro:WholesaleBrokerageMember 2018-01-01 2018-12-31 0000079282 bro:ServicesMember 2018-01-01 2018-12-31 0000079282 bro:NationalProgramsMember 2018-01-01 2018-12-31 0000079282 bro:WholesaleBrokerageMember 2017-01-01 2017-12-31 0000079282 bro:NationalProgramsMember 2017-01-01 2017-12-31 0000079282 bro:ServicesMember 2017-01-01 2017-12-31 0000079282 bro:RetailMember 2017-01-01 2017-12-31 0000079282 us-gaap:NoncompeteAgreementsMember 2017-12-31 0000079282 us-gaap:NoncompeteAgreementsMember 2018-12-31 0000079282 us-gaap:CustomerRelationshipsMember 2018-12-31 0000079282 us-gaap:CustomerRelationshipsMember 2017-12-31 0000079282 us-gaap:USTreasurySecuritiesMember 2017-12-31 0000079282 us-gaap:CorporateDebtSecuritiesMember 2017-12-31 0000079282 us-gaap:USTreasurySecuritiesMember 2018-12-31 0000079282 us-gaap:CorporateDebtSecuritiesMember 2018-12-31 0000079282 us-gaap:ShortTermDebtMember 2018-12-31 0000079282 us-gaap:FurnitureAndFixturesMember 2017-12-31 0000079282 us-gaap:LeaseholdImprovementsMember 2017-12-31 0000079282 us-gaap:LandBuildingsAndImprovementsMember 2018-12-31 0000079282 us-gaap:LandBuildingsAndImprovementsMember 2017-12-31 0000079282 us-gaap:LeaseholdImprovementsMember 2018-12-31 0000079282 us-gaap:FurnitureAndFixturesMember 2018-12-31 0000079282 bro:SeriesCMember bro:MasterAgreementMember 2006-12-22 0000079282 bro:FivePointThreeSevenZeroPercentSeniorNotesDueTwoThousandFifteenMember 2016-12-22 0000079282 2017-06-28 0000079282 us-gaap:SubsequentEventMember 2019-03-31 0000079282 bro:TermLoanMember 2018-12-31 0000079282 bro:TermLoanMember us-gaap:MinimumMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-12-31 0000079282 2014-04-17 0000079282 2018-07-01 2018-09-30 0000079282 us-gaap:RevolvingCreditFacilityMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-12-31 0000079282 bro:SeriesDMember bro:MasterAgreementMember 2008-02-01 0000079282 bro:SeniorNotesDueTwoThousandSixteenMember 2015-01-15 0000079282 bro:SeriesEMember bro:MasterAgreementMember 2018-04-01 2018-06-30 0000079282 bro:UnsecuredSeniorNotesMember 2014-09-18 0000079282 bro:SeriesCMember bro:MasterAgreementMember 2008-02-01 0000079282 us-gaap:RevolvingCreditFacilityMember 2014-05-20 0000079282 us-gaap:ScenarioForecastMember 2019-03-31 0000079282 bro:TermLoanMember us-gaap:MaximumMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-12-31 0000079282 2018-10-01 2018-12-31 0000079282 us-gaap:LongTermDebtMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-12-31 0000079282 bro:TermLoanMember us-gaap:MaximumMember 2018-12-21 0000079282 2018-12-21 2018-12-21 0000079282 bro:SeriesEMember bro:MasterAgreementMember 2011-09-15 0000079282 bro:UnsecuredSeniorNotesMember 2018-12-31 0000079282 bro:SeriesEMember bro:MasterAgreementMember 2018-07-01 2018-09-30 0000079282 us-gaap:RevolvingCreditFacilityMember us-gaap:MinimumMember 2018-01-01 2018-12-31 0000079282 bro:CreditAgreementMember 2014-05-20 2014-05-20 0000079282 2018-11-15 0000079282 us-gaap:RevolvingCreditFacilityMember us-gaap:MaximumMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-12-31 0000079282 bro:CreditAgreementMember 2014-05-20 0000079282 bro:SeriesEMember bro:MasterAgreementMember 2018-05-10 0000079282 bro:TermLoanMember us-gaap:MinimumMember 2018-12-21 0000079282 bro:CreditAgreementMember 2014-04-17 0000079282 bro:TermLoanMember 2018-07-01 2018-09-30 0000079282 us-gaap:RevolvingCreditFacilityMember us-gaap:MinimumMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-12-31 0000079282 us-gaap:RevolvingCreditFacilityMember 2014-09-18 0000079282 us-gaap:RevolvingCreditFacilityMember us-gaap:MaximumMember 2018-01-01 2018-12-31 0000079282 bro:TermLoanMember 2014-05-20 0000079282 bro:TermLoanMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-12-31 0000079282 bro:FiveYearTermLoanFacilityExpiresinTwoThousandTwentyThreeMember 2017-12-31 0000079282 bro:FiveYearTermLoanFacilityExpiresInTwoThousandTwentyTwoMember 2018-12-31 0000079282 bro:FiveYearTermLoanFacilityExpiresinTwoThousandTwentyThreeMember 2018-12-31 0000079282 bro:FivePointSixSixZeroPercentSeniorNotesDueTwoThousandSixteenMember 2017-12-31 0000079282 bro:FourPointTwoZeroZeroPercentSeniorNotesDueTwoThousandTwentyFourMember 2018-12-31 0000079282 bro:FourPointTwoZeroZeroPercentSeniorNotesDueTwoThousandTwentyFourMember 2017-12-31 0000079282 bro:FivePointSixSixZeroPercentSeniorNotesDueTwoThousandSixteenMember 2018-12-31 0000079282 bro:FiveYearRevolvingLoanFacilityExpiresInTwoThousandTwentyTwoMember 2018-12-31 0000079282 bro:FiveYearTermLoanFacilityExpiresInTwoThousandTwentyTwoMember 2017-12-31 0000079282 bro:FiveYearRevolvingLoanFacilityExpiresInTwoThousandTwentyTwoMember 2017-12-31 0000079282 bro:FiveYearRevolvingLoanFacilityExpiresInTwoThousandTwentyTwoMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-12-31 0000079282 bro:FourPointFiveZeroZeroPercentSeniorNotesDueTwoThousandEighteenMember 2017-01-01 2017-12-31 0000079282 bro:FiveYearTermLoanFacilityExpiresInTwoThousandTwentyTwoMember 2018-01-01 2018-12-31 0000079282 bro:FiveYearTermLoanFacilityExpiresInTwoThousandTwentyTwoMember 2017-01-01 2017-12-31 0000079282 bro:FourPointTwoZeroZeroPercentSeniorNotesDueTwoThousandTwentyFourMember 2017-01-01 2017-12-31 0000079282 bro:FiveYearTermLoanFacilityExpiresInTwoThousandTwentyTwoMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-12-31 0000079282 bro:FiveYearRevolvingLoanFacilityExpiresInTwoThousandTwentyTwoMember 2017-01-01 2017-12-31 0000079282 bro:FiveYearTermLoanFacilityExpiresInTwoThousandTwentyTwoMember us-gaap:LondonInterbankOfferedRateLIBORMember 2017-01-01 2017-12-31 0000079282 bro:FiveYearRevolvingLoanFacilityExpiresInTwoThousandTwentyTwoMember 2018-01-01 2018-12-31 0000079282 bro:FiveYearRevolvingLoanFacilityExpiresInTwoThousandTwentyTwoMember us-gaap:LondonInterbankOfferedRateLIBORMember 2017-01-01 2017-12-31 0000079282 bro:FourPointFiveZeroZeroPercentSeniorNotesDueTwoThousandEighteenMember 2018-01-01 2018-12-31 0000079282 bro:FourPointTwoZeroZeroPercentSeniorNotesDueTwoThousandTwentyFourMember 2018-01-01 2018-12-31 0000079282 bro:TaxCutsandJobsAct2017Member 2018-01-01 2018-12-31 0000079282 bro:TaxCutsandJobsAct2017Member 2017-01-01 2017-12-31 0000079282 bro:TaxCutsandJobsAct2017Member 2017-12-31 0000079282 us-gaap:AccountingStandardsUpdate201409Member 2018-12-31 0000079282 bro:TaxCutsandJobsAct2017Member 2018-12-31 0000079282 2014-12-31 0000079282 bro:PerformanceStockPlanMember 2016-01-01 2016-12-31 0000079282 bro:PerformanceStockPlanMember 2017-01-01 2017-12-31 0000079282 bro:PerformanceStockPlanMember 2017-12-31 0000079282 bro:PerformanceStockPlanMember 2016-12-31 0000079282 bro:PerformanceStockPlanMember 2018-01-01 2018-12-31 0000079282 bro:PerformanceStockPlanMember 2015-12-31 0000079282 bro:PerformanceStockPlanMember 2018-12-31 0000079282 bro:PerfomanceBasedMember bro:StockIncentivePlanMember 2018-01-01 2018-12-31 0000079282 us-gaap:EmployeeStockMember 2018-12-31 0000079282 us-gaap:EmployeeStockMember 2016-12-31 0000079282 us-gaap:EmployeeStockMember 2018-01-01 2018-12-31 0000079282 bro:PerfomanceBasedMember bro:StockIncentivePlanMember 2017-01-01 2017-12-31 0000079282 bro:StockIncentivePlanMember 2010-04-28 0000079282 us-gaap:MaximumMember 2017-04-01 2017-06-30 0000079282 us-gaap:EmployeeStockMember 2017-07-31 0000079282 us-gaap:EmployeeStockMember 2016-07-31 0000079282 bro:StockIncentivePlanMember 2018-01-01 2018-12-31 0000079282 us-gaap:EmployeeStockMember 2016-08-31 0000079282 bro:PerfomanceBasedMember bro:StockIncentivePlanMember 2016-01-01 2016-12-31 0000079282 us-gaap:EmployeeStockMember 2018-07-31 0000079282 us-gaap:EmployeeStockMember 2017-12-31 0000079282 us-gaap:EmployeeStockMember 2018-08-31 0000079282 us-gaap:MaximumMember 2016-04-01 2016-06-30 0000079282 bro:StockIncentivePlanMember 2017-01-01 2017-12-31 0000079282 us-gaap:EmployeeStockMember 2015-07-31 0000079282 bro:StockIncentivePlanMember 2018-12-31 0000079282 2009-07-01 2009-07-31 0000079282 bro:StockIncentivePlanMember 2016-01-01 2016-12-31 0000079282 us-gaap:EmployeeStockMember 2017-08-31 0000079282 bro:StockIncentivePlanMember 2016-12-31 0000079282 bro:StockIncentivePlanMember 2014-12-31 0000079282 bro:StockIncentivePlanMember 2017-12-31 0000079282 bro:WrightNationalFloodInsuranceCompanyMember 2018-01-01 2018-12-31 0000079282 us-gaap:PerformanceSharesMember bro:StockIncentivePlanMember 2016-01-01 2016-12-31 0000079282 bro:TimeBasedMember bro:StockIncentivePlanMember 2018-01-01 2018-12-31 0000079282 bro:TimeBasedMember bro:StockIncentivePlanMember 2017-01-01 2017-12-31 0000079282 bro:TimeBasedMember bro:StockIncentivePlanMember 2016-01-01 2016-12-31 0000079282 us-gaap:PerformanceSharesMember bro:StockIncentivePlanMember 2017-01-01 2017-12-31 0000079282 us-gaap:PerformanceSharesMember bro:StockIncentivePlanMember 2018-01-01 2018-12-31 0000079282 us-gaap:EmployeeStockMember 2017-01-01 2017-12-31 0000079282 us-gaap:EmployeeStockMember 2016-01-01 2016-12-31 0000079282 bro:CashandCashEquivalentsinclusiveofRestrictedCashMember 2016-12-31 0000079282 bro:CashandCashEquivalentsinclusiveofRestrictedCashMember 2018-12-31 0000079282 bro:CashandCashEquivalentsinclusiveofRestrictedCashMember 2017-12-31 0000079282 2017-07-01 2017-09-30 0000079282 2017-04-01 2017-06-30 0000079282 2017-10-01 2017-12-31 0000079282 2017-01-01 2017-03-31 0000079282 2018-04-01 2018-06-30 0000079282 2018-01-01 2018-03-31 0000079282 us-gaap:MaterialReconcilingItemsMember 2016-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:WholesaleBrokerageMember 2016-01-01 2016-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:RetailMember 2016-01-01 2016-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:NationalProgramsMember 2016-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:ServicesMember 2016-01-01 2016-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:ServicesMember 2016-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:RetailMember 2016-12-31 0000079282 us-gaap:MaterialReconcilingItemsMember 2016-01-01 2016-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:NationalProgramsMember 2016-01-01 2016-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:WholesaleBrokerageMember 2016-12-31 0000079282 bro:LondonBermudaAndCaymanIslandsOperationsMember 2018-01-01 2018-12-31 0000079282 bro:LondonBermudaAndCaymanIslandsOperationsMember 2016-01-01 2016-12-31 0000079282 bro:LondonBermudaAndCaymanIslandsOperationsMember 2017-01-01 2017-12-31 0000079282 us-gaap:MaterialReconcilingItemsMember 2018-01-01 2018-12-31 0000079282 us-gaap:MaterialReconcilingItemsMember 2018-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:NationalProgramsMember 2018-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:WholesaleBrokerageMember 2018-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:RetailMember 2018-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:ServicesMember 2018-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:NationalProgramsMember 2017-01-01 2017-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:RetailMember 2017-01-01 2017-12-31 0000079282 us-gaap:MaterialReconcilingItemsMember 2017-12-31 0000079282 us-gaap:MaterialReconcilingItemsMember 2017-01-01 2017-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:WholesaleBrokerageMember 2017-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:WholesaleBrokerageMember 2017-01-01 2017-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:ServicesMember 2017-01-01 2017-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:RetailMember 2017-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:NationalProgramsMember 2017-12-31 0000079282 us-gaap:OperatingSegmentsMember bro:ServicesMember 2017-12-31 0000079282 bro:WrightNationalFloodInsuranceCompanyMember 2018-12-31 0000079282 us-gaap:ReinsurerConcentrationRiskMember bro:QuotaShareAgreementMember bro:WrightNationalFloodInsuranceCompanyMember 2018-12-31 0000079282 bro:WrightNationalFloodInsuranceCompanyMember 2018-12-31 0000079282 bro:WrightNationalFloodInsuranceCompanyMember 2018-09-30 0000079282 us-gaap:ReinsurerConcentrationRiskMember bro:QuotaShareAgreementMember bro:WrightNationalFloodInsuranceCompanyMember 2017-12-31 0000079282 bro:WrightNationalFloodInsuranceCompanyMember 2017-01-01 2017-12-31 0000079282 bro:QuotaShareAgreementMember bro:WrightNationalFloodInsuranceCompanyMember 2018-12-31 0000079282 bro:WrightNationalFloodInsuranceCompanyMember 2017-12-31 0000079282 us-gaap:ScenarioForecastMember bro:WrightNationalFloodInsuranceCompanyMember 2019-12-31 0000079282 us-gaap:MaximumMember bro:WrightNationalFloodInsuranceCompanyMember 2018-01-01 2018-12-31 0000079282 bro:AcceleratedShareRepurchaseAgreementMember 2016-01-01 2016-12-31 0000079282 2014-01-01 2017-12-31 0000079282 bro:AcceleratedShareRepurchaseAgreementMember 2017-12-31 0000079282 bro:AcceleratedShareRepurchaseAgreementMember 2015-12-31 0000079282 bro:A2for1StockSplitMember 2018-03-28 0000079282 bro:AcceleratedShareRepurchaseAgreementMember 2014-12-31 0000079282 bro:A2for1StockSplitMember 2018-03-14 0000079282 bro:AcceleratedShareRepurchaseAgreementMember 2016-12-31 0000079282 bro:AcceleratedShareRepurchaseAgreementMember 2018-12-31 0000079282 bro:AcceleratedShareRepurchaseAgreementMember 2014-01-01 2014-12-31 0000079282 us-gaap:MaximumMember 2018-12-31 0000079282 bro:AcceleratedShareRepurchaseAgreementMember 2017-01-01 2017-12-31 0000079282 bro:AcceleratedShareRepurchaseAgreementMember 2015-01-01 2015-12-31 0000079282 us-gaap:MaximumMember 2015-07-20 0000079282 2018-03-28 0000079282 bro:AcceleratedShareRepurchaseAgreementMember 2018-12-12 2018-12-12 0000079282 us-gaap:MaximumMember 2014-07-21 iso4217:USD iso4217:USD xbrli:shares bro:Segment xbrli:shares bro:Securities bro:extension bro:acquisition bro:customer_account xbrli:pure bro:Reinsurer
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018
or

¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission file number 001-13619

BROWN & BROWN, INC.
(Exact name of registrant as specified in its charter)

Florida |  |  |  | 59-0864469
(State or other jurisdiction of incorporation or organization) |  |  | (I.R.S. Employer Identification Number)
220 South Ridgewood Avenue, Daytona Beach, FL |  |  | 32114
(Address of principal executive offices) |  |  | (Zip Code)

Registrant’s telephone number, including area code: (386) 252-9601
Registrant’s Website: www.bbinsurance.com
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Name of each exchange on which registered
COMMON STOCK, $0.10 PAR VALUE | NEW YORK STOCK EXCHANGE

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer |  | ý |  | Accelerated filer |  | ¨
Non-accelerated filer |  | ¨ |  | Smaller reporting company |  | ¨
|  |  |  | Emerging growth company |  | ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
The aggregate market value of the voting common stock held by non-affiliates of the registrant, computed by reference to the price at which the stock was last sold on June 30, 2018 (the last business day of the registrant’s most recently completed second fiscal quarter) was $6,377,992,646.
The number of shares of the Registrant’s common stock, $0.10 par value, outstanding as of February 21, 2019 was 279,701,832.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of Brown & Brown, Inc.’s Proxy Statement for the 2019 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report.

Table of Contents
BROWN & BROWN, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018
INDEX

| PAGE NO.
Part I |
Item 1. | Business | 5
Item 1A. | Risk Factors | 12
Item 1B. | Unresolved Staff Comments | 19
Item 2. | Properties | 20
Item 3. | Legal Proceedings | 20
Item 4. | Mine Safety Disclosures | 20
Part II |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 21
Item 6. | Selected Financial Data | 23
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 46
Item 8. | Financial Statements and Supplementary Data | 47
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 84
Item 9A. | Controls and Procedures | 84
Item 9B. | Other Information | 88
Part III |
Item 10. | Directors, Executive Officers and Corporate Governance | 88
Item 11. | Executive Compensation | 89
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 90
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 90
Item 14. | Principal Accounting Fees and Services | 90
Part IV |
Item 15. | Exhibits, Financial Statement Schedules | 91
Item 16. | Form 10-K Summary | 92
Signatures | 93

2

Table of Contents
Disclosure Regarding Forward-Looking Statements
Brown & Brown, Inc., together with its subsidiaries (collectively, “we,” “Brown & Brown” or the “Company”), makes “forward-looking statements” within the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995, as amended, throughout this report and in the documents we incorporate by reference into this report. You can identify these statements by forward-looking words such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “intend,” “estimate,” “plan” and “continue” or similar words. We have based these statements on our current expectations about potential future events. Although we believe the expectations expressed in the forward-looking statements included in this Form 10-K and the reports, statements, information and announcements incorporated by reference into this report are based upon reasonable assumptions within the bounds of our knowledge of our business, a number of factors could cause actual results to differ materially from those expressed in any forward-looking statements, whether oral or written, made by us or on our behalf. Many of these factors have previously been identified in filings or statements made by us or on our behalf. Important factors which could cause our actual results to differ materially from the forward-looking statements in this report include but are not limited to the following items, in addition to those matters described in Part I, Item 1A “Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”:

• | Future prospects;

• | Premium rates set by insurance companies and insurable exposure units, which have traditionally varied and are difficult to predict;

• | Material adverse changes in economic conditions in the markets we serve and in the general economy;

• | Future regulatory actions and conditions in the states in which we conduct our business;

• | The occurrence of adverse economic conditions, an adverse regulatory climate, or a disaster in Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Texas, Virginia, Washington and Wisconsin, because a significant portion of business written by us is for customers located in these states;

• | Our ability to attract, retain and enhance qualified personnel and to maintain our corporate culture;

• | Competition from others in or entering into the insurance agency, wholesale brokerage, insurance programs and related service business;

• | Disintermediation within the insurance industry, including increased competition from insurance companies, technology companies and the financial services industry, as well as the shift away from traditional insurance markets;

• | The integration of our operations with those of businesses or assets we have acquired, including our November 2018 acquisition of The Hays Group, Inc. and certain of its affiliates, or may acquire in the future and the failure to realize the expected benefits of such integration;

• | Risks that could negatively affect our acquisition strategy, including continuing consolidation among insurance intermediaries and the increasing presence of private equity investors driving up valuations;

• | Our ability to forecast liquidity needs through at least the end of 2019;

• | Our ability to renew or replace expiring leases;

• | Outcomes of existing or future legal proceedings and governmental investigations;

• | Policy cancellations and renewal terms, which can be unpredictable;

• | Potential changes to the tax rate that would affect the value of deferred tax assets and liabilities and the impact on income available for investment or distribution to shareholders;

• | The inherent uncertainty in making estimates, judgments, and assumptions in the preparation of financial statements in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”);

• | Our ability to effectively utilize technology to provide improved value for our customers or carrier partners as well as applying effective internal controls and efficiencies in operations; and

• | Other risks and uncertainties as may be detailed from time to time in our public announcements and Securities and Exchange Commission (“SEC”) filings.

3

Table of Contents
Assumptions as to any of the foregoing and all statements are not based upon historical fact, but rather reflect our current expectations concerning future results and events. Forward-looking statements that we make or that are made by others on our behalf are based upon a knowledge of our business and the environment in which we operate, but because of the factors listed above, among others, actual results may differ from those in the forward-looking statements. Consequently, these cautionary statements qualify all of the forward-looking statements we make herein. We cannot assure you that the results or developments anticipated by us will be realized or, even if substantially realized, that those results or developments will result in the expected consequences for us or affect us, our business or our operations in the way we expect. We caution readers not to place undue reliance on these forward-looking statements, which speak only as of their dates. We assume no obligation to update any of the forward-looking statements.
4

Table of Contents
PART I
ITEM 1. Business.
General
Brown & Brown is a diversified insurance agency, wholesale brokerage, insurance programs and service organization with origins dating from 1939 and is headquartered in Daytona Beach, Florida. The Company markets and sells insurance products and services, primarily in the property, casualty and employee benefits areas. We provide our customers with quality, non-investment insurance contracts, as well as other targeted, customized risk management products and services. As an agent and broker, we do not assume underwriting risks with the exception of the activity in The Wright Insurance Group, LLC (“Wright”). Within Wright, we operate a write-your-own flood insurance carrier, Wright National Flood Insurance Company (“WNFIC”). WNFIC’s entire business consists of policies written pursuant to the National Flood Insurance Program (“NFIP”), the program administered by the Federal Emergency Management Agency (“FEMA”) and excess flood policies which are fully reinsured, thereby substantially eliminating WNFIC’s exposure to underwriting risk, as these policies are backed by either FEMA or a reinsurance carrier with an AM Best Company rating of “A” or better.
The Company is compensated for its services primarily by commissions paid by insurance companies and to a lesser extent, by fees paid directly by customers for certain services. Commission revenues are usually a percentage of the premium paid by the insured and generally depend upon the type of insurance, the particular insurance company and the nature of the services provided by us. In some limited cases, we share commissions with other agents or brokers who have acted jointly with us in a transaction. We may also receive from an insurance company a “profit-sharing contingent commission,” which is a profit-sharing commission based primarily on underwriting results, but may also contain considerations for volume, growth and/or retention. Fee revenues are generated primarily by: (1) our Services Segment, which provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services, and other claims adjusting services, (2) our National Programs and Wholesale Brokerage Segments, which earn fees primarily for the issuing of insurance policies on behalf of insurance carriers, and (3) our Retail Segment for fees received in lieu of commissions. The amount of our revenues from commissions and fees is a function of several factors, including continued new business production, retention of existing customers, acquisitions and fluctuations in insurance premium rates and “insurable exposure units,” which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, sales and payroll levels) to determine what premium to charge the insured. Insurance companies establish these premium rates based upon many factors, including loss experience, risk profile and reinsurance rates paid by such insurance companies, none of which we control.
As of December 31, 2018, our activities were conducted in 286 locations in 42 states as follows, as well as in England, Canada, Bermuda, and the Cayman Islands:

Florida | 46 |  |  | Michigan | 5 |  | Kentucky | 2
California | 24 |  |  | Connecticut | 5 |  | New Hampshire | 2
New York | 19 |  |  | Colorado | 5 |  | Rhode Island | 2
Texas | 14 |  |  | Wisconsin | 4 |  | Utah | 2
Georgia | 14 |  |  | Virginia | 4 |  | Kansas | 2
Washington | 14 |  |  | Indiana | 4 |  | North Carolina | 1
New Jersey | 13 |  |  | Oklahoma | 4 |  | Mississippi | 1
Minnesota | 11 |  |  | Arkansas | 4 |  | Vermont | 1
Pennsylvania | 11 |  |  | Montana | 4 |  | Delaware | 1
Massachusetts | 10 |  |  | Ohio | 4 |  | Nevada | 1
Louisiana | 9 |  |  | South Carolina | 3 |  | Maine | 1
Oregon | 9 |  |  | Maryland | 3 |  | Iowa | 1
Illinois | 7 |  |  | New Mexico | 3 |  |  |
Arizona | 6 |  |  | Tennessee | 3 |  |  |
Hawaii | 5 |  |  | Missouri | 2 |  |  |

5

Table of Contents
Industry Overview
Premium pricing within the property and casualty insurance underwriting (risk-bearing) industry has historically been cyclical in nature, and has varied widely based upon market conditions with a “hard” market in which premium rates are increasing or a “soft” market, characterized by stable or declining premium rates in many lines and geographic areas. Premium pricing is influenced by many factors including loss experience, interest rates and the availability of capital being deployed into the insurance market in search of returns.
Segment Information
Our business is divided into four reportable segments: (1) the Retail Segment, (2) the National Programs Segment, (3) the Wholesale Brokerage Segment and (4) the Services Segment. The Retail Segment provides a broad range of insurance products and services to commercial, public and quasi-public entities, and to professional and individual customers. The National Programs Segment, which acts as a managing general agent (“MGA”), provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches, all of which are delivered through a nationwide network of independent agents, including Brown & Brown retail agents. The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, as well as Brown & Brown retail agents. The Services Segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services and claims adjusting services.
The following table summarizes (1) the commissions and fees generated by each of our reportable operating segments for 2018, 2017 and 2016, and (2) the percentage of our total commissions and fees represented by each segment for each such period:

(in thousands, except percentages) | 2018 |  | % |  | 2017 |  | % |  | 2016 |  | %
Retail Segment | $ | 1,041,691 |  |  | 51.8 | % |  | $ | 942,247 |  |  | 50.7 | % |  | $ | 916,723 |  |  | 52.0 | %
National Programs Segment | 493,878 |  |  | 24.6 | % |  | 479,017 |  |  | 25.8 | % |  | 447,808 |  |  | 25.4 | %
Wholesale Brokerage Segment | 286,364 |  |  | 14.2 | % |  | 271,141 |  |  | 14.6 | % |  | 242,813 |  |  | 13.8 | %
Services Segment | 189,041 |  |  | 9.4 | % |  | 165,073 |  |  | 8.9 | % |  | 156,082 |  |  | 8.8 | %
Other | (1,117 | ) |  | — | % |  | (208 | ) |  | — | % |  | (639 | ) |  | — | %
Total | $ | 2,009,857 |  |  | 100.0 | % |  | $ | 1,857,270 |  |  | 100.0 | % |  | $ | 1,762,787 |  |  | 100.0 | %

We conduct all of our operations within the United States of America, except for one Wholesale Brokerage operation based in England, one National Programs operation in Canada and Retail operations based in Bermuda and The Cayman Islands. These operations generated $15.2 million, $15.9 million and $14.5 million of revenues for the years ended December 31, 2018, 2017 and 2016, respectively. We do not have any material foreign long-lived assets.
See Note 16 to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional segment financial data relating to our business.
Retail Segment
As of December 31, 2018, our Retail Segment employed 5,028 full-time equivalent employees. Our retail insurance agency business provides a broad range of insurance products and services to commercial, public and quasi-public entities, professional and individual customers. The categories of insurance we principally sell include: commercial packages, group medical, workers’ compensation, property risk and general liability. We also sell and service group and individual life, accident, disability, health, hospitalization, medical, dental and other ancillary insurance products.
No material part of our retail business is attributable to a single customer or a few customers. During 2018, commissions and fees from our largest single Retail Segment customer represented three tenths of one percent (0.3%) of the Retail Segment’s total commissions and fees.
In connection with the selling and marketing of insurance coverages, we provide a broad range of related services to our customers, such as risk management strategies, loss control surveys and analysis, consultation in connection with placing insurance coverages and claims processing.
6

Table of Contents
National Programs Segment
As of December 31, 2018, our National Programs Segment employed 1,962 full-time equivalent employees. Our National Programs Segment works with over 40 well-capitalized carrier partners, offering more than 51 programs, which can be grouped into five broad categories: (1) Professional Programs, (2) Personal Lines Programs, (3) Commercial Programs, (4) Public Entity-Related Programs, and (5) the National Flood Program:
Professional Programs. Professional Programs provide professional liability and related package insurance products tailored to the needs of specific professional groups. Professional Programs negotiate policy forms and coverage options with their specific insurance carriers. Securing endorsements of these products from a professional association or sponsoring company is also an integral part of their function. Professional Programs affiliate with professional groups, including but not limited to, dentists, oral surgeons, hygienists, lawyers, optometrists, opticians, ophthalmologists, insurance agents, financial advisors, registered representatives, securities broker-dealers, benefit administrators, real estate title agents and escrow agents. In addition, Professional Programs encompasses supplementary insurance-related products to include weddings, events, medical facilities and cyber liability.
Below are brief descriptions of the Professional Programs:

| Healthcare Professionals: Allied Protector Plan® (“APP®”) specializes in customized professional liability and business insurance programs for individual practitioners and businesses in the healthcare industry. The APP program offers liability insurance coverage for, among others, dental hygienists and dental assistants, home health agencies, physical therapy clinics, and medical directors. Also available through the APP program is cyber/data breach insurance offering a solution to privacy breaches and information security exposures tailored to the needs of healthcare organizations.

Dentists: First initiated in 1969, the Professional Protector Plan® (“PPP®”) for Dentists provides dental professionals insurance products including professional and general liability, property, employment practices liability, workers’ compensation, claims and risk management. The PPP recognized the importance of policyholder and customer service and developed a customized, proprietary, web-based rating and policy issuance system, which provides a seamless policy delivery resource and access to policy information on a real time basis. Obtaining endorsements from state and local dental societies and associations plays an integral role in the PPP partnership.
Financial Professionals: CalSurance® and CITA Insurance Services® have specialized since 1980 to offer professional liability programs designed for insurance agents, financial advisors, registered representatives, securities broker-dealers, benefit administrators, real estate brokers and real estate title agents. A component of CalSurance is Lancer Claims Services, which provides specialty claims administration for insurance companies underwriting CalSurance product lines.
Lawyers: The Lawyer’s Protector Plan® (“LPP®”) has been providing professional liability insurance for over 30 years with a niche focus on law firms with fewer than 20 attorneys. The LPP program handles all aspects of insurance operations including underwriting, distribution management, policy issuance and claims.
Optometrists, Opticians, and Ophthalmologists: Since 1973 the Optometric Protector Plan® (“OPP®”), provides professional liability, general liability, property, workers’ compensation insurance and risk management programs for eye care professionals nationwide. Our carrier partners offer specialty insurance products tailored to the eye care profession, and our agents and brokers are chosen for their expertise. Through our strategic carrier partnerships, we also offer professional liability coverage to chiropractors, podiatrists and physicians nationwide.
Physicians: The Physicians Protector Plan program provides professional liability insurance solutions for physicians on an admitted basis in several key states. The program offers comprehensive insurance solutions and provides risk management benefits and claims services.
Professional Risk Specialty Group: Professional Risk Specialty Group (“PRSG”) has been providing errors & omissions (“E&O”), professional liability and malpractice insurance for over 22 years both in a direct retail sales and brokering capacity. PRSG has been an exclusive state administrator for a Lawyers Professional Liability Program since 1994. The admitted Lawyers Professional Liability Program focuses on law firms with fewer than 20 attorneys, and the non-admitted Lawyers Professional Liability Program is for firms with 20 or more attorneys and is available for primary or excess coverage. PRSG is also involved in direct sales and brokering for other professionals, such as accountants, architects & engineers, medical malpractice, directors & officers, employment practices liability, title agency E&O and miscellaneous E&O.
Real Estate Title Professionals: TitlePac® provides professional liability products and services designed for real estate title agents and escrow agents.
Wedding Protector Plan® and Protector Plan® for Events: These programs provide an online wedding and private event cancellation and postponement insurance policy that offers financial protection if certain unfortunate or unforeseen events should occur during the period leading up to and including the wedding or event date. Liability and liquor liability is available as an option.
7

Table of Contents
The Professional Protector Plan® for Dentists and the Lawyer’s Protector Plan® are marketed and sold primarily through a national network of independent agencies and also through our Brown & Brown retail offices. Certain professional liability programs, CalSurance® and TitlePac®, are principally marketed and sold directly to our insured customers. Under our agency agreements with the insurance companies that underwrite these programs, we often have authority to bind coverages (subject to established guidelines), to bill and collect premiums and, in some cases, to adjust claims. For the programs that we market through independent agencies, we receive a wholesale commission or “override,” which is then shared with these independent agencies.
Personal Lines Programs. Arrowhead is an MGA, General Agent (“GA”), and Program Administrator (“PA”) to the property and casualty insurance industry. Arrowhead acts as a virtual insurer providing outsourced product development, marketing, underwriting, actuarial, compliance and claims and other administrative services to insurance carrier partners. As an MGA, Arrowhead has the authority to underwrite, bind insurance carriers, issue policies, collect premiums and provide administrative and claims services.
Below are brief descriptions of the Personal Lines Programs:
Marine: is a national program manager and wholesale producer of marine insurance products including yachts and high-performance boats, small boats, commercial marine and marine artisan contractors.

| Personal Property: mono-line property coverage for homeowners and renters in numerous states.

Residential Earthquake: specializes in mono-line residential earthquake coverage for California home and condominium owners.
Wheels: provides private passenger automobile and motorcycle coverage for a range of drivers. Arrowhead’s auto program offers two personal auto coverage types: one traditional non-standard auto product offering minimum state required liability limits and another targeting full coverage, multi-vehicle risks. The auto product is written in several states including California, Georgia, Michigan, and Alabama, South Carolina and Tennessee.
Commercial Programs. Commercial Programs market products and services to specific industries, trade groups, and market niches. Most of these products and services are marketed and sold primarily through independent agents, including certain of our Retail Segment offices. However, a number of these products and services are also marketed and sold directly to insured customers. Under agency agreements with the insurance companies that underwrite these programs, we often have authority to bind coverages (subject to established guidelines), to bill and collect premiums and, in some cases, to adjust claims.
Below are brief descriptions of the Commercial Programs:
Affinity programs: Programs provided for package coverage to booksellers and security alarm installers.
All Risk is a program writing all risks meaning that any risk that the contract does not specifically omit is automatically covered. The coverages usually include commercial earthquake, wind, fire and flood. The All Risk program writes insurance on both a primary and excess, shared and layered programs.
American Specialty Insurance & Risk Services, Inc. provides insurance and risk management services for customers in professional sports, motor sports, amateur sports and the entertainment industry.
Automotive Aftermarket was launched in 2012, and writes commercial package insurance for non-dealership automotive services such as mechanical repair shops, brake shops, transmissions shops, oil and lube shops, parts retailers and wholesalers, tire retailers and wholesalers, and auto recyclers. This program distributes product through a direct sales force, independent agencies and our Retail Segment.
Bellingham Underwriters focuses on the commercial transportation industry and companies that are in the business of supporting the commercial transportation industry. The trucking program is specifically designed to handle all coverages for a trucker. Other programs include specialty auto, repair services, forest products and commercial ambulance.
Core Commercial targets accounts paying under $100,000 in annual premium, this program offers business owner’s policies (BOPs) and commercial package coverages for a broad range of industries nationwide.
Earthquake and DIC is a Differences-in-Conditions (“DIC”) Program, writing notably earthquake and flood insurance coverages to commercial property owners. The Earthquake and DIC program writes insurance on both a primary and excess layer basis.
Fabricare: Irving Weber Associates, Inc. (“IWA”) has specialized in this niche since 1946, providing package insurance including workers’ compensation to dry cleaners, linen supply and uniform rental operations. IWA also offers insurance programs for independent grocery stores and restaurants.

| Florida Intracoastal Underwriters, Limited Company (“FIU”) specializes in providing insurance coverage for coastal and inland high-value condominiums and apartments. FIU has developed a specialty insurance facility to support the underwriting activities associated with these risks.

Forestry is a logging equipment specialist for mobile equipment typically to the logging industry in Southeast U.S.
8

Table of Contents
Manufactured Housing provides package policies in all states for manufactured home communities, including mobile home parks, manufactured home dealers and RV parks.

| Parcel Insurance Plan® is a specialty insurance agency providing insurance coverage to commercial and private shippers for small packages and parcels with insured values of less than $25,000 each.

Proctor Financial, Inc. (“Proctor”) provides insurance programs and compliance solutions for financial institutions that service mortgage loans. Proctor’s products include lender-placed hazard and flood insurance, full insurance outsourcing, mortgage impairment, and blanket equity insurance. Proctor acts as a wholesaler and writes surplus lines property business for its financial institution customers. Proctor receives payments for insurance compliance tracking as well as commissions on lender-placed insurance.

| Sigma Underwriting Managers is a nationwide wind catastrophic property insurance specialist for commercial and habitational properties and has over 100 years of underwriting experience. The commercial nationwide program is designed to write all types of low- to-medium-hazard properties including adult living facilities, hotels/motels, medical offices, shopping centers, restaurants, warehouses and churches. The Florida habitational property program is a high-valued property program for commercial residential accounts.

Railroad: The Railroad Protector Plan® (“RRPP®”) provides insurance products for contractors, manufacturers and wholesalers supporting the railroad industry (not the railroads themselves). The insurance coverages include general liability, property, inland marine, commercial auto and umbrella.
Tribal provides tailored solutions across multiple lines of business to sovereign Indian nations.
Workers’ Compensation provides workers’ compensation insurance coverage primarily for California-based insureds. Arrowhead’s workers’ compensation program targets industry segments such as agriculture, contractors, food services, horticulture and manufacturing.

| Wright Specialty Insurance Agency, LLC provides insurance products for specialty industries such as food, grocery, K-12 education and franchise programs that are offered throughout the U.S.

Health Special Risk, Inc. provides accident & health, special events insurance products, and administrative services to licensed agents, brokers, and insurance companies across the U.S.
Daily Rental provides loaner car coverage for auto dealerships.
Public Entity-Related Programs. Public Entity-Related Programs administer various insurance trusts specifically created for cities, counties, municipalities, school boards, special taxing districts and quasi-governmental agencies. These insurance coverages can range from providing fully insured programs to establishing risk retention insurance pools to excess and facultative specific coverages.
Below are brief descriptions of the Public Entity-Related Programs:

| Public Risk Underwriters of Indiana, LLC: doing business as Downey Insurance is a program administrator of insurance trusts offering tailored property and casualty insurance products, risk management consulting, third-party administration and related services designed for cities, counties, municipalities, schools, special taxing districts and other public entities in the State of Indiana.

Public Risk Underwriters of The Northwest, Inc.: doing business as Clear Risk Solutions, a program administrator of insurance trusts offering tailored property and casualty insurance products, risk management consulting, third-party administration and related services designed for cities, counties, municipalities, school boards and non-profit organizations in the State of Washington.
Public Risk Underwriters of Illinois, LLC: doing business as Ideal Insurance Agency is a program administrator offering tailored property and casualty insurance products, risk management consulting, third-party administration and related services designed for municipalities, schools, fire districts and other public entities in the State of Illinois.

| Public Risk Underwriters of New Jersey, Inc.: provides administrative services and insurance procurement for the Statewide Insurance Fund (“Statewide”). Statewide is a municipal joint insurance fund comprising coverages for counties, municipalities, utility authorities, community colleges and emergency services entities in New Jersey.

| Public Risk Underwriters of Florida, Inc.: is the program administrator for the Preferred Governmental Insurance Trust offering tailored property and casualty insurance products, risk management consulting, third-party administration and related services designed for cities, counties, municipalities, schools, special taxing districts and other public entities in the State of Florida.

| Wright Risk Management Company, LLC: is a program administrator for the New York Schools Insurance Reciprocal and the New York Municipal Insurance Reciprocal offering tailored property and casualty insurance products, risk management consulting, third-party administration and related services designed for cities, counties, municipalities, schools, special taxing districts and other public entities in the State of New York.

9

Table of Contents
National Flood Program. Operating as Wright Flood, WNFIC is an insurance carrier. This business provides policies written pursuant to the NFIP, the program administered by FEMA, as well as excess flood insurance policies, all of which are fully reinsured, thereby substantially eliminating WNFIC’s exposure to underwriting risk, given that these policies are backed by either FEMA or a reinsurance carrier with an AM Best Company rating of “A” or better. Through Wright National Flood Insurance Services, the Company acts as an MGA, selling private primary flood insurance policies for a carrier partner.
Wholesale Brokerage Segment
At December 31, 2018, our Wholesale Brokerage Segment employed 1,281 full-time equivalent employees. Our Wholesale Brokerage Segment markets and sells excess and surplus commercial insurance products and services to retail insurance agencies (including Brown & Brown retail offices). The Wholesale Brokerage Segment offices represent various U.S. and U.K. surplus lines insurance companies. Additionally, certain offices are also Lloyd’s of London correspondents. The Wholesale Brokerage Segment also represents admitted insurance companies for purposes of affording access to such companies for smaller agencies that otherwise do not have access to large insurance company representation. Excess and surplus insurance products encompass many insurance coverages, including personal lines, homeowners, yachts, jewelry, commercial property and casualty, commercial automobile, garage, restaurant, builder’s risk and inland marine lines. Difficult-to-insure general liability and products liability coverages are a specialty, as is excess workers’ compensation coverage. Wholesale brokers solicit business through mailings and direct contact with retail agency representatives. During 2018, commissions and fees from our largest Wholesale Brokerage Segment customer represented approximately 1.0% of the Wholesale Brokerage Segment’s total commissions and fees.
Services Segment
At December 31, 2018, our Services Segment employed 1,042 full-time equivalent employees and provided a wide range of insurance-related services.
Below are brief descriptions of the businesses within the Services Segment.
The Advocator Group, LLC (“The Advocator Group”) and Social Security Advocates for the Disabled LLC (“SSAD”) assist individuals throughout the United States who are seeking to establish eligibility for coverage under the federal Social Security Disability program and provides health plan selection and enrollment assistance for Medicare beneficiaries. These two businesses work closely with employer sponsored group life, disability and health plan participants to assist disabled individuals in receiving the education, advocacy and benefit coordination assistance necessary to achieve the fastest possible benefit approvals. In addition, The Advocator Group also provides second injury fund recovery services to the workers’ compensation insurance market.
American Claims Management (“ACM”) provides third-party administration (“TPA”) services to both the commercial and personal property and casualty insurance markets on a nationwide basis, and provides claims adjusting, administration, subrogation, litigation and data management services to insurance companies, self-insureds, public municipalities, insurance brokers and corporate entities. ACM services also include managed care, claim investigations, field adjusting and audit services. Approximately 59% of ACM’s 2018 revenues were derived from various Arrowhead programs in our National Programs Segment, with the remainder generated from third parties.
ICA provides comprehensive claims management solutions for both personal and commercial lines of insurance. ICA is a national service provider for daily claims, catastrophic claims, vendor management, TPA operations and staff augmentation. Additional claims services offered by ICA include first notice of loss, fast track, field appraisals and quality control.
NuQuest provides a full spectrum of Medicare Secondary Payer (“MSP”) statutory compliance services, from Medicare Set-aside Allocation through Professional Administration to over 250 insurance carriers, third-party administrators, self-insured employers, attorneys, brokers and related claims professionals nationwide. Specialty services include medical projections, life care plans, Medicare Set-aside analysis, allocation and administration.
Professional Disability Associates, LLC (“PDA”) is a disability services firm that provides specialty risk resources, including medical, vocational and claim management services to the disability insurance market. PDA has a nationwide physician referral network to address the needs of the industry for claim expertise across multiple specialties. PDA services top disability insurance carriers in the U.S. and Canada, as well as several other insurers, reinsurers, self-insured employers and consulting firms.
Preferred Governmental Claims Solutions (“PGCS”) provides TPA services for government entities and self-funded or fully-insured workers’ compensation and liability plans and trusts. PGCS’ services include claims administration and a dedicated subrogation recovery department.
Protect Professionals Claims Management (“PPCM”) provides TPA services to professional liability insurance markets on a nationwide basis. PPCM’s services include claims adjusting, administration, litigation and data management for professional programs for dentists and lawyers administered by our National Programs Segment.
10

Table of Contents
USIS provides TPA services for insurance entities and self-funded or fully-insured workers’ compensation and liability plans. USIS’s services include claims administration, cost containment consulting, services for secondary disability and subrogation recoveries, and risk management services such as loss control. USIS’s services also include certified and non-certified medical management programs, access to medical networks, case management, and utilization review services certified by URAC, formerly the Utilization Review Accreditation Commission.
In 2018, our four largest contracts represented approximately 20.0% of fees revenues in our Services Segment.
Employees
At December 31, 2018, the Company had 9,590 full-time equivalent employees. For the purposes of measuring full-time equivalent employees, those working more than 30 hours per week are counted as a full-time equivalent employee and those working less than 30 hours per week are counted as half of a full-time equivalent employee. We have agreements with our sales employees and certain other employees that include provisions: (1) protecting our confidential information and trade secrets, (2) restricting their ability post-employment to solicit the business of our customers, and (3) preventing the hiring of our employees for a period of time after separation from employment with us. The enforceability of such agreements varies from state to state depending upon applicable law and factual circumstances. The majority of our employment relationships are at-will and terminable by either party at any time; however, the covenants regarding confidential information and non-solicitation of our customers and employees generally extend for a period of at least two years after cessation of employment.
None of our employees are subject to a collective bargaining agreement and we consider our relations with our employees to be good.
Competition
The insurance intermediary business is highly competitive, and numerous firms actively compete with us for customers and insurance markets. Competition in the insurance business is largely based upon innovation, knowledge, terms and conditions of coverage, quality of service and price. A number of firms and banks with substantially greater resources and market presence compete with us.
A number of insurance companies directly sell insurance, primarily to individuals, and do not pay commissions to third-party agents and brokers. In addition, the Internet continues to be a source for direct placement of personal lines insurance business. While it is difficult to quantify the impact on our business from individuals purchasing insurance over the Internet, we believe this risk would generally be isolated to personal lines customers with single-line coverage, or small businesses that do not have a complex insurance program, which represent a small portion of our overall Retail Segment.
Regulation, Licensing and Agency Contracts
We and/or our designated employees must be licensed to act as agents, brokers, intermediaries or third-party administrators by state regulatory authorities in the locations in which we conduct business. Regulations and licensing laws vary by individual state and international location and are often complex.
The applicable licensing laws and regulations in all states and international jurisdictions are subject to amendment or reinterpretation by regulatory authorities, and such authorities are vested in most cases with relatively broad discretion as to the granting, revocation, suspension and renewal of licenses. We endeavor to monitor the licensing of our employees, but the possibility exists that we and/or our employees could be excluded or temporarily suspended from carrying on some or all of our activities in, or could otherwise be subjected to penalties by a particular jurisdiction.
Available Information
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and its rules and regulations. The Exchange Act requires us to file reports, proxy statements and other information with the SEC. We make available free of charge on our website, at www.bbinsurance.com, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act and the rules promulgated thereunder, as soon as reasonably practicable after electronically filing or furnishing such material to the SEC. These documents are posted on our website at www.bbinsurance.com and may be accessed by selecting the “Investor Relations” link and then the “SEC Filings” link.
The SEC maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s website at www.sec.gov.
The charters of the Audit, Compensation and Nominating/Governance Committees of our Board of Directors as well as our Corporate Governance Principles, Code of Business Conduct and Ethics and Code of Ethics-CEO and Senior Financial Officers (including any amendments to, or waivers of any provision of any of these charters, principles or codes) are also available on our website or upon request. Requests for copies of any of these documents should be directed in writing to: Corporate Secretary, Brown & Brown, Inc., 220 South Ridgewood Avenue, Daytona Beach, Florida 32114, or by telephone to (386)-252-9601.
11

Table of Contents
ITEM 1A. Risk Factors.
Our business, financial condition, results of operations and cash flows are subject to, and could be materially adversely affected by, various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause our actual results to vary materially from recent results or our anticipated future results. We present these risk factors grouped by category, and the risks factors contained in each respective category are presented in order of their relative priority to us.
Risks Related to Our Business
OUR INABILITY TO RETAIN OR HIRE QUALIFIED EMPLOYEES, AS WELL AS THE LOSS OF ANY OF OUR EXECUTIVE OFFICERS, COULD NEGATIVELY IMPACT OUR ABILITY TO RETAIN EXISTING BUSINESS AND GENERATE NEW BUSINESS.
Our success depends on our ability to attract and retain skilled and experienced personnel. There is significant competition from within the insurance industry and from businesses outside the industry for exceptional employees, especially in key positions. If we are not able to successfully attract, retain and motivate our employees, our business, financial results and reputation could be materially and adversely affected.
Losing employees who manage or support substantial customer relationships or possess substantial experience or expertise could adversely affect our ability to secure and complete customer engagements, which would adversely affect our results of operations. Also, if any of our key personnel were to join an existing competitor or form a competing company, some of our customers could choose to use the services of that competitor instead of our services. While our key personnel are generally prohibited by contract from soliciting our employees and customers for a two-year period following separation from employment with us, they are not prohibited from competing with us.
In addition, we could be adversely affected if we fail to adequately plan for the succession of our senior leaders and key executives. While we have succession plans in place and we have employment arrangements with certain key executives, these do not guarantee that the services of these executives will continue to be available to us. Although we operate with a decentralized sales and service operating model, the loss of our senior leaders or other key personnel, or our inability to continue to identify, recruit and retain such personnel, could materially and adversely affect our business, results of operations and financial condition.
OUR GROWTH STRATEGY DEPENDS, IN PART, ON THE ACQUISITION OF OTHER INSURANCE INTERMEDIARIES, WHICH MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS IN THE FUTURE OR WHICH, IF CONSUMMATED, MAY NOT BE ADVANTAGEOUS TO US.
Our growth strategy partially includes the acquisition of other insurance intermediaries. Our ability to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into our operations, and expand into new markets requires us to implement and continuously improve our operations and our financial and management information systems. Integrated, acquired businesses may not achieve levels of revenues or profitability comparable to our existing operations, or otherwise perform as expected. In addition, we compete for acquisition and expansion opportunities with firms and banks that may have substantially greater resources than we do. Acquisitions also involve a number of special risks, such as diversion of management’s attention; difficulties in the integration of acquired operations and retention of personnel; increase in expenses and working capital requirements, which could reduce our return on invested capital; entry into unfamiliar markets or lines of business; unanticipated problems or legal liabilities; estimation of the acquisition earn-out payables; and tax and accounting issues, some or all of which could have a material adverse effect on our results of operations, financial condition and cash flows. Post-acquisition deterioration of operating performance could also result in lower or negative earnings contribution and/or goodwill impairment charges.
A CYBERSECURITY ATTACK, OR ANY OTHER INTERRUPTION IN INFORMATION TECHNOLOGY AND/OR DATA SECURITY AND/OR OUTSOURCING RELATIONSHIPS, COULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND REPUTATION.
We rely on information technology and third party vendors to provide effective and efficient service to our customers, process claims, and timely and accurately report information to carriers and which often involves secure processing of confidential sensitive, proprietary and other types of information. Cybersecurity breaches of any of the systems we rely on may result from circumvention of security systems, denial-of-service attacks or other cyber-attacks, hacking, “phishing” attacks, computer viruses, ransomware, malware, employee or insider error, malfeasance, social engineering, physical breaches or other actions, any of which could expose us to data loss, monetary and reputational damages and significant increases in compliance costs. An interruption of our access to, or an inability to access, our information technology, telecommunications or other systems could significantly impair our ability to perform such functions on a timely basis. If sustained or repeated, such a business interruption, system failure or service denial could result in a deterioration of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or perform other necessary business functions. We have from time to time experienced cybersecurity breaches, such as computer viruses, unauthorized parties gaining access to our information technology systems and similar incidents, which to date have not had a material impact on our business.
12

Table of Contents
Additionally, we are an acquisitive organization and the process of integrating the information systems of the businesses we acquire is complex and exposes us to additional risk as we might not adequately identify weaknesses in the targets’ information systems, which could expose us to unexpected liabilities or make our own systems more vulnerable to attack. In the future, any material breaches of cybersecurity, or media reports of the same, even if untrue, could cause us to experience reputational harm, loss of clients and revenue, loss of proprietary data, regulatory actions and scrutiny, sanctions or other statutory penalties, litigation, liability for failure to safeguard clients’ information or financial losses. Such losses may not be insured against or not fully covered through insurance we maintain.
While we have invested and continue to invest in technology security initiatives, policies and resources and employee training, entirely eliminating all risk of improper access to private information is not possible. The cost and operational consequences of implementing, maintaining and enhancing further system protections measures could increase significantly as cybersecurity threats increase. As these threats evolve, cybersecurity incidents will be more difficult to detect, defend against and remediate. Any of the foregoing may have a material adverse effect on our business, financial condition and reputation.
RAPID TECHNOLOGICAL CHANGE MAY REQUIRE ADDITIONAL RESOURCES AND TIME TO ADEQUATELY RESPOND TO DYNAMICS, WHICH MAY ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS.
Frequent technological changes, new products and services and evolving industry standards are influencing the insurance business. The Internet, for example, is increasingly used to securely transmit benefits and related information to customers and to facilitate business-to-business information exchange and transactions.
We are continuously taking steps to upgrade and expand our information systems capabilities. Maintaining, protecting and enhancing these capabilities to keep pace with evolving industry and regulatory standards, and changing customer preferences, requires an ongoing commitment of significant resources. If the information we rely upon to run our businesses was found to be inaccurate or unreliable or if we fail to effectively maintain our information systems and data integrity, we could experience operational disruptions, regulatory or other legal problems, increases in operating expenses, loss of existing customers, difficulty in attracting new customers, or suffer other adverse consequences.
We are currently underway with a multi-year plan to upgrade many of our technology platforms and anticipate investing a total of $30 million to $40 million, which will have an impact on our operating margins and cash flow during this period. We have not determined, however, if additional resources and time for development and implementation may be required, which if required, may result in short-term, unexpected interruptions or impacts to our business, or may result in a competitive disadvantage in price and/or efficiency, as we develop or implement new technologies.
Our technological development projects may not deliver the benefits we expect once they are completed, or may be replaced or become obsolete more quickly than expected, which could result in the accelerated recognition of expenses. If we do not effectively and efficiently manage and upgrade our technology portfolio regularly, or if the costs of doing so are higher than we expect, our ability to provide competitive services to new and existing customers in a cost-effective manner and our ability to implement our strategic initiatives could be adversely impacted.
CHANGES IN DATA PRIVACY AND PROTECTION LAWS AND REGULATIONS, OR ANY FAILURE TO COMPLY WITH SUCH LAWS AND REGULATIONS, COULD ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL RESULTS.
We are subject to a variety of continuously evolving and developing laws and regulations globally regarding privacy, data protection, and data security, including those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data. Significant uncertainty exists as privacy and data protection laws may be interpreted and applied differently from country to country and may create inconsistent or conflicting requirements. These laws apply to transfers of information among our affiliates, as well as to transactions we enter into with third party vendors. For example, the European Union adopted a comprehensive General Data Privacy Regulation (“GDPR”) in May 2016 that replaced the former EU Data Protection Directive and related country-specific legislation. The GDPR became fully effective in May 2018 and requires companies to satisfy new requirements regarding the handling of personal and sensitive data, including its use, protection and the ability of persons whose data is stored to correct or delete such data about themselves. Failure to comply with GDPR requirements could result in penalties of up to 4% of worldwide revenue. Complying with the enhanced obligations imposed by the GDPR may result in significant costs to our business and require us to revise certain of our business practices. In addition, legislators and regulators in the U.S. have enacted and are proposing new and more robust privacy and cybersecurity laws and regulations in light of the recent broad-based cyber attacks at a number of companies, including but not limited to the New York State Department of Financial Services Cybersecurity Requirements for Financial Services Companies and the California Consumer Privacy Act of 2018.
These and similar initiatives around the world could increase the cost of developing, implementing or securing our servers and require us to allocate more resources to improved technologies, adding to our IT and compliance costs. In addition, enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations continue to increase. The enactment of more restrictive laws, rules, regulations or future enforcement actions or investigations could impact us through increased costs or restrictions on our business, and noncompliance could result in regulatory penalties and significant legal liability.
13

Table of Contents
WE DERIVE A SIGNIFICANT PORTION OF OUR COMMISSION REVENUES FROM A LIMITED NUMBER OF INSURANCE COMPANIES, THE LOSS OF WHICH COULD RESULT IN ADDITIONAL EXPENSE AND LOSS OF MARKET SHARE.
For the year ended December 31, 2018, no insurance company accounted for more than 5.0% of our total core commissions. For the years ended December 31, 2017 and 2016, approximately 5.0% and 6.0%, respectively, of our total core commissions was derived from insurance policies underwritten by one insurance company. Should this insurance company seek to terminate its arrangements with us or to otherwise decrease the number of insurance policies underwritten for us, we believe that other insurance companies are available to underwrite the business, although some additional expense and loss of market share could result.
BECAUSE OUR BUSINESS IS HIGHLY CONCENTRATED IN ARIZONA, CALIFORNIA, FLORIDA, GEORGIA, ILLINOIS, INDIANA, KENTUCKY, MASSACHUSETTS, MICHIGAN, MINNESOTA, NEW JERSEY, NEW YORK, NORTH CAROLINA, OREGON, PENNSYLVANIA, TEXAS, VIRGINIA, WASHINGTON AND WISCONSIN, ADVERSE ECONOMIC CONDITIONS, NATURAL DISASTERS, OR REGULATORY CHANGES IN THESE STATES COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
A significant portion of our business is concentrated in Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Texas, Virginia, Washington and Wisconsin. For the years ended December 31, 2018, 2017 and 2016, we derived $1,976.5 million or 88.6%, $1,692.6 million or 90.0%, and $1,574.0 million or 89.1%, of our annualized revenue, respectively, from our operations located in these states. We believe the current regulatory environment for insurance intermediaries in these states is no more restrictive than in other states. The insurance business is primarily a state-regulated industry, and therefore, state legislatures may enact laws that adversely affect the insurance industry. Because our business is concentrated in the states identified above, we face greater exposure to unfavorable changes in regulatory conditions in those states than insurance intermediaries whose operations are more diversified through a greater number of states. In addition, the occurrence of adverse economic conditions, natural or other disasters, or other circumstances specific to or otherwise significantly impacting these states could adversely affect our financial condition, results of operations and cash flows. We are susceptible to losses and interruptions caused by hurricanes (particularly in Florida, where we have 46 offices and our headquarters, as well as in Texas, where we have 14 offices.), earthquakes (including in California, where we have 24 offices), power shortages, telecommunications failures, water shortages, floods, fire, extreme weather conditions, geopolitical events such as terrorist acts and other natural or man-made disasters. Our insurance coverage with respect to natural disasters is limited and is subject to deductibles and coverage limits. Such coverage may not be adequate, or may not continue to be available at commercially reasonable rates and terms.
OUR CORPORATE CULTURE HAS CONTRIBUTED TO OUR SUCCESS, AND IF WE CANNOT MAINTAIN THIS CULTURE, OR IF WE EXPERIENCE A CHANGE IN MANAGEMENT, MANAGEMENT PHILOSOPHY, OR BUSINESS STRATEGY, OUR BUSINESS MAY BE HARMED.
We believe that a significant contributor to our success has been our corporate culture as a lean, decentralized, highly competitive, profit-oriented sales and service organization. As we grow, including from the integration of employees and businesses acquired in connection with previous or future acquisitions, we may find it difficult to maintain important aspects of our corporate culture, which could negatively affect our profitability and/or our ability to retain and recruit people of the highest integrity and quality who are essential to our future success. We may face pressure to change our culture as we grow, particularly if we experience difficulties in attracting competent personnel who are willing to embrace our culture. In addition, as our organization grows and we are required to implement more complex organizational structures, or if we experience a change in management, management philosophy, or business strategy, we may find it increasingly difficult to maintain the beneficial aspects of our corporate culture, such as our decentralized sales and service operating model, which could negatively impact our future success.
IF WE FAIL TO COMPLY WITH THE COVENANTS CONTAINED IN CERTAIN OF OUR AGREEMENTS, OUR LIQUIDITY, RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED.
The credit agreements that govern our debt contain various covenants and other limitations with which we must comply. At December 31, 2018, we believe we were in compliance with the financial covenants and other limitations contained in each of these agreements. However, failure to comply with material provisions of our covenants in these agreements or other credit or similar agreements to which we may become a party could result in a default, rendering them unavailable to us and causing a material adverse effect on our liquidity, results of operations and financial condition. In the event of certain defaults, the lenders thereunder would not be required to lend any additional amounts to or purchase any additional notes from us and could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and payable. If the indebtedness under these agreements or our other indebtedness, were to be accelerated, there can be no assurance that our assets would be sufficient to repay such indebtedness in full.
14

Table of Contents
CERTAIN OF OUR AGREEMENTS CONTAIN VARIOUS COVENANTS THAT LIMIT THE DISCRETION OF OUR MANAGEMENT IN OPERATING OUR BUSINESS AND COULD PREVENT US FROM ENGAGING IN CERTAIN POTENTIALLY BENEFICIAL ACTIVITIES.
The restrictive covenants in our debt agreements may impact how we operate our business and prevent us from engaging in certain potentially beneficial activities. In particular, among other covenants, our debt agreements require us to maintain a minimum ratio of Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization), adjusted for certain transaction-related items (“Consolidated EBITDA”), to consolidated interest expense and a maximum ratio of consolidated net indebtedness to Consolidated EBITDA. Our compliance with these covenants could limit management’s discretion in operating our business and could prevent us from engaging in certain potentially beneficial activities.
THERE ARE INHERENT UNCERTAINTIES INVOLVED IN ESTIMATES, JUDGMENTS AND ASSUMPTIONS USED IN THE PREPARATION OF FINANCIAL STATEMENTS IN ACCORDANCE WITH U.S. GAAP. ANY CHANGES IN ESTIMATES, JUDGMENTS AND ASSUMPTIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL POSITION AND RESULTS OF OPERATIONS AND THEREFORE OUR BUSINESS.
The annual Consolidated Financial Statements and Condensed Consolidated Financial Statements included in the periodic reports we file with the SEC are prepared in accordance with U.S. GAAP. The preparation of financial statements in accordance with U.S. GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities and related reserves, revenues, expenses and income. Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets, liabilities, revenues, expenses and income, and could have a material adverse effect on our financial position, results of operations and cash flows.
IMPROPER DISCLOSURE OF CONFIDENTIAL INFORMATION COULD NEGATIVELY IMPACT OUR BUSINESS.
We are responsible for maintaining the security and privacy of our customers’ confidential and proprietary information and the personal data of their employees. We have put in place policies, procedures and technological safeguards designed to protect the security and privacy of this information, however, we cannot guarantee that this information will not be improperly disclosed or accessed. Disclosure of this information could harm our reputation and subject us to liability under our contracts and laws that protect personal data, resulting in increased costs or loss of revenues.
DUE TO INHERENT LIMITATIONS, THERE CAN BE NO ASSURANCE THAT OUR SYSTEM OF DISCLOSURE AND INTERNAL CONTROLS AND PROCEDURES WILL BE SUCCESSFUL IN PREVENTING ALL ERRORS OR FRAUD, OR IN INFORMING MANAGEMENT OF ALL MATERIAL INFORMATION IN A TIMELY MANNER.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and internal controls and procedures will prevent all error and fraud. A control system, no matter how well conceived, operated and tested, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system reflects that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur simply because of error or mistake. Additionally, controls can be circumvented by individual acts of some persons, by collusion of two or more people, or by management override of a control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY MAY BE MATERIALLY ADVERSELY AFFECTED BY CERTAIN ACTUAL AND POTENTIAL CLAIMS, REGULATORY ACTIONS AND PROCEEDINGS.
We are subject to various actual and potential claims, regulatory actions and other proceedings including those relating to alleged errors and omissions in connection with the placement or servicing of insurance and/or the provision of services in the ordinary course of business, of which we cannot, and likely will not be able to, predict the outcome with certainty. Because we often assist customers with matters involving substantial amounts of money, including the placement of insurance and the handling of related claims that customers may assert, errors and omissions claims against us may arise alleging potential liability for all or part of the amounts in question. Also, the failure of an insurer with whom we place business could result in errors and omissions claims against us by our customers, which could adversely affect our results of operations and financial condition. Claimants may seek large damage awards, and these claims may involve potentially significant legal costs, including punitive damages. Such claims, lawsuits and other proceedings could, for example, include claims for damages based upon allegations that our employees or sub-agents failed to procure coverage, report claims on behalf of customers, provide insurance companies
15

Table of Contents
with complete and accurate information relating to the risks being insured or appropriately apply funds that we hold for our customers on a fiduciary basis. In addition, given the long-tail nature of professional liability claims, errors and omissions matters can relate to matters dating back many years. Where appropriate, we have established provisions against these potential matters that we believe to be adequate in the light of current information and legal advice, and we adjust such provisions from time to time according to developments.
While most of the errors and omissions claims made against us (subject to our self-insured deductibles) have been covered by our professional indemnity insurance, our business, results of operations, financial condition and liquidity may be adversely affected if, in the future, our insurance coverage proves to be inadequate or unavailable, or if there is an increase in liabilities for which we self-insure. Our ability to obtain professional indemnity insurance in the amounts and with the deductibles we desire in the future may be adversely impacted by general developments in the market for such insurance or our own claims experience. In addition, regardless of monetary costs, these matters could have a material adverse effect on our reputation and cause harm to our carrier, customer or employee relationships, or divert personnel and management resources.
OUR BUSINESS, AND THEREFORE OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION, MAY BE ADVERSELY AFFECTED BY FURTHER CHANGES IN THE U.S.-BASED CREDIT MARKETS.
Although we are not currently experiencing any limitation of access to our revolving credit facility (which matures in 2022) and are not aware of any issues impacting the ability or willingness of our lenders under such facility to honor their commitments to extend us credit, the failure of a lender could adversely affect our ability to borrow on that facility, which over time could negatively impact our ability to consummate significant acquisitions or make other significant capital expenditures. Tightening conditions in the credit markets in future years could adversely affect the availability and terms of future borrowings or renewals or refinancing.
We also have a significant amount of trade accounts receivable from some insurance companies with which we place insurance. If those insurance companies were to experience liquidity problems or other financial difficulties, we could encounter delays or defaults in payments owed to us, which could have a significant adverse impact on our financial condition and results of operations.
CERTAIN OF OUR EXISTING SHAREHOLDERS HAVE SIGNIFICANT CONTROL OF THE COMPANY.
At December 31, 2018, our executive officers, directors and certain of their family members collectively beneficially owned approximately 16.7% of our outstanding common stock, of which J. Hyatt Brown, our Chairman, and his son, J. Powell Brown, our President and Chief Executive Officer, beneficially owned approximately 15.8%. As a result, our executive officers, directors and certain of their family members have significant influence over (1) the election of our Board of Directors, (2) the approval or disapproval of any other matters requiring shareholder approval and (3) our affairs and policies.
WE HAVE OPERATIONS INTERNATIONALLY, WHICH MAY RESULT IN A NUMBER OF ADDITIONAL RISKS AND REQUIRE MORE MANAGEMENT TIME AND EXPENSE THAN OUR DOMESTIC OPERATIONS TO ACHIEVE OR MAINTAIN PROFITABILITY.
We have operations in the United Kingdom, Bermuda, Canada and the Cayman Islands. In the future, we intend to continue to consider additional international expansion opportunities. Our international operations may be subject to a number of risks, including:
•Difficulties in staffing and managing foreign operations;

• | Less flexible employee relationships, which may make it difficult and expensive to terminate employees and which limits our ability to prohibit employees from competing with us after their employment ceases;

•Political and economic instability (including acts of terrorism and outbreaks of war);
•Coordinating our communications and logistics across geographic distances and multiple time zones;
•Unexpected changes in regulatory requirements and laws;

• | Adverse trade policies, and adverse changes to any of the policies of either the U.S. or any of the foreign jurisdictions in which we operate;

•Adverse changes in tax rates;
•Variations in foreign currency exchange rates;
•Legal or political constraints on our ability to maintain or increase prices;
•Governmental restrictions on the transfer of funds to or from us, including to or from our operations outside the United States; and

• | Burdens of complying with a wide variety of labor practices and foreign laws, including those relating to export and import duties, environmental policies and privacy issues.

16

Table of Contents
Risks Related to Our Industry
OUR CURRENT MARKET SHARE MAY DECREASE AS A RESULT OF DISINTERMEDIATION WITHIN THE INSURANCE INDUSTRY, INCLUDING INCREASED COMPETITION FROM INSURANCE COMPANIES, TECHNOLOGY COMPANIES AND THE FINANCIAL SERVICES INDUSTRY, AS WELL AS THE SHIFT AWAY FROM TRADITIONAL INSURANCE MARKETS.
The insurance intermediary business is highly competitive and we actively compete with numerous firms for customers and insurance companies, many of which have relationships with insurance companies or have a significant presence in niche insurance markets that may give them an advantage over us. Other competitive concerns may include the quality of our products and services, our pricing and the ability of some of our customers to self-insure and the entrance of technology companies into the insurance intermediary business. A number of insurance companies are engaged in the direct sale of insurance, primarily to individuals, and do not pay commissions to agents and brokers. In addition, and to the extent that banks, securities firms, private equity funds, and insurance companies affiliate, the financial services industry may experience further consolidation, and we therefore may experience increased competition from insurance companies and the financial services industry, as a growing number of larger financial institutions increasingly, and aggressively, offer a wider variety of financial services, including insurance intermediary services.
In addition, there has been an increase in alternative insurance markets, such as self-insurance, captives, risk retention groups and non-insurance capital markets. While we collaborate and compete in these segments on a fee-for-service basis, we cannot be certain that such alternative markets will provide the same level of insurance coverage or profitability as traditional insurance markets.
CURRENT U.S. ECONOMIC CONDITIONS MAY ADVERSELY AFFECT OUR BUSINESS.
If economic conditions were to worsen, a number of negative effects on our business could result, including declines in values of insurable exposure units, declines in insurance premium rates, the financial insolvency of insurance companies, or the reduced ability of customers to pay. Also, if general economic conditions are poor, some of our customers may cease operations completely or be acquired by other companies, which could have an adverse effect on our results of operations and financial condition. If these customers are affected by poor economic conditions, but yet remain in existence, they may face liquidity problems or other financial difficulties that could result in delays or defaults in payments owed to us, which could have a significant adverse impact on our consolidated financial condition and results of operations. Any of these effects could decrease our net revenues and profitability.
OUR BUSINESS, AND THEREFORE OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION, MAY BE ADVERSELY AFFECTED BY CONDITIONS THAT RESULT IN REDUCED INSURER CAPACITY.
Our results of operations depend on the continued capacity of insurance carriers to underwrite risk and provide coverage, which depends in turn on those insurance companies’ ability to procure reinsurance. Capacity could also be reduced by insurance companies failing or withdrawing from writing certain coverages that we offer to our customers. We have no control over these matters. To the extent that reinsurance becomes less widely available or significantly more expensive, we may not be able to procure the amount or types of coverage that our customers desire and the coverage we are able to procure for our customers may be more expensive or limited.
QUARTERLY AND ANNUAL VARIATIONS IN OUR COMMISSIONS THAT RESULT FROM THE TIMING OF POLICY RENEWALS AND THE NET EFFECT OF NEW AND LOST BUSINESS PRODUCTION MAY HAVE UNEXPECTED EFFECTS ON OUR RESULTS OF OPERATIONS.
Our commission income (including profit-sharing contingent commissions and override commissions) can vary quarterly or annually due to the timing of policy renewals and the net effect of new and lost business production. We do not control the factors that cause these variations. Specifically, customers’ demand for insurance products can influence the timing of renewals, new business and lost business (which includes policies that are not renewed), and cancellations. In addition, we rely on insurance companies for the payment of certain commissions. Because these payments are processed internally by these insurance companies, we may not receive a payment that is otherwise expected from a particular insurance company in a particular quarter or year until after the end of that period, which can adversely affect our ability to forecast these revenues and therefore budget for significant future expenditures. Quarterly and annual fluctuations in revenues based upon increases and decreases associated with the timing of new business, policy renewals and payments from insurance companies may adversely affect our financial condition, results of operations and cash flows.
Profit-sharing contingent commissions are special revenue-sharing commissions paid by insurance companies based upon the profitability, volume and/or growth of the business placed with such companies generally during the prior year. Over the last three years these commissions generally have been in the range of 3.0% to 3.5% of our previous year’s total core commissions and fees. Due to, among other things, potentially poor macroeconomic conditions, the inherent uncertainty of loss in our industry and changes in underwriting criteria due in part to the high loss ratios experienced by insurance companies, we cannot predict the payment of these profit-sharing contingent commissions. Further, we have no control over the ability of insurance companies to estimate loss reserves, which affects our ability to make profit-sharing calculations. Override commissions are paid by insurance companies based upon the volume of business that we place with them and are
17

Table of Contents
generally paid over the course of the year. Because profit-sharing contingent commissions and override commissions materially affect our revenues, any decrease in their payment to us could adversely affect our results of operations, profitability and our financial condition.
WE COULD INCUR SUBSTANTIAL LOSSES FROM OUR CASH AND INVESTMENT ACCOUNTS IF ONE OF THE FINANCIAL INSTITUTIONS THAT WE USE FAILS OR IS TAKEN OVER BY THE U.S. FEDERAL DEPOSIT INSURANCE CORPORATION (“FDIC”).
We maintain cash and investment balances, including restricted cash held in premium trust accounts, at numerous depository institutions in amounts that are significantly in excess of the limits insured by the FDIC. If one or more of the depository institutions with which we maintain significant cash balances were to fail or be taken over by the FDIC, our ability to access these funds might be temporarily or permanently limited, and we could face material liquidity problems and potential material financial losses.
OUR BUSINESS PRACTICES AND COMPENSATION ARRANGEMENTS ARE SUBJECT TO UNCERTAINTY DUE TO POTENTIAL CHANGES IN REGULATIONS.
The business practices and compensation arrangements of the insurance intermediary industry, including our practices and arrangements, are subject to uncertainty due to investigations by various governmental authorities. Certain of our offices are parties to profit-sharing contingent commission agreements with certain insurance companies, including agreements providing for potential payment of revenue-sharing commissions by insurance companies based primarily on the overall profitability of the aggregate business written with those insurance companies and/or additional factors such as retention ratios and the overall volume of business that an office or offices place with those insurance companies. Additionally, to a lesser extent, some of our offices are parties to override commission agreements with certain insurance companies, which provide for commission rates in excess of standard commission rates to be applied to specific lines of business, such as group health business, and which are based primarily on the overall volume of business that such office or offices placed with those insurance companies. The legislatures of various states may adopt new laws addressing contingent commission arrangements, including laws prohibiting such arrangements, and addressing disclosure of such arrangements to insureds. Various state departments of insurance may also adopt new regulations addressing these matters which could adversely affect our results of operations.
WE COMPETE IN A HIGHLY-REGULATED INDUSTRY, WHICH MAY RESULT IN INCREASED EXPENSES OR RESTRICTIONS ON OUR OPERATIONS.
We conduct business in each of the fifty states of the United States of America and are subject to comprehensive regulation and supervision by government agencies in each of those states. The primary purpose of such regulation and supervision is to provide safeguards for policyholders rather than to protect the interests of our shareholders, and it is difficult to anticipate how changes in such regulation would be implemented and enforced. As a result, such regulation and supervision could reduce our profitability or growth by increasing compliance costs, technology compliance, restricting the products or services we may sell, the markets we may enter, the methods by which we may sell our products and services, or the prices we may charge for our services and the form of compensation we may accept from our customers, carriers and third parties. The laws of the various state jurisdictions establish supervisory agencies with broad administrative powers with respect to, among other things, licensing of entities to transact business, licensing of agents, admittance of assets, regulating premium rates, approving policy forms, regulating unfair trade and claims practices, determining technology and data protection requirements, establishing reserve requirements and solvency standards, requiring participation in guarantee funds and shared market mechanisms, and restricting payment of dividends. Also, in response to perceived excessive cost or inadequacy of available insurance, states have from time to time created state insurance funds and assigned risk pools, which compete directly, on a subsidized basis, with private insurance providers. We act as agents and brokers for such state insurance funds and assigned risk pools in California and New York as well as certain other states. These state funds and pools could choose to reduce the sales or brokerage commissions we receive. Any such reductions, in a state in which we have substantial operations could affect the profitability of our operations in such state, or cause us to change our marketing focus. Further, state insurance regulators and the National Association of Insurance Commissioners continually re-examine existing laws and regulations, and such re-examination may result in the enactment of insurance-related laws and regulations, or the issuance of interpretations thereof, that adversely affect our business. Certain federal financial services modernization legislation could lead to additional federal regulation of the insurance industry in the coming years, which could result in increased expenses or restrictions on our operations. Other legislative developments that could adversely affect us include: changes in our business compensation model as a result of regulatory developments (for example, the Affordable Care Act); and federal and state governments establishing programs to provide health insurance or, in certain cases, property insurance in catastrophe-prone areas or other alternative market types of coverage, that compete with, or completely replace, insurance products offered by insurance carriers. Also, as climate change issues become more prevalent, the U.S. and foreign governments are beginning to respond to these issues. This increasing governmental focus on climate change may result in new environmental regulations that may negatively affect us and our customers. This could cause us to incur additional direct costs in complying with any new environmental regulations, as well as increased indirect costs resulting from our customers incurring additional compliance costs that get passed on to us. These costs may adversely impact our results of operations and financial condition.
18

Table of Contents
Although we believe that we are in compliance in all material respects with applicable local, state and federal laws, rules and regulations, there can be no assurance that more restrictive laws, rules, regulations or interpretations thereof, will not be adopted in the future that could make compliance more difficult or expensive.
WE ARE EXPOSED TO INTANGIBLE ASSET RISK; SPECIFICALLY, OUR GOODWILL MAY BECOME IMPAIRED IN THE FUTURE.
As of the date of the filing of our Annual Report on Form 10-K for the 2018 fiscal year, we have $3,432.8 million of goodwill recorded on our Consolidated Balance Sheet. We perform a goodwill impairment test on an annual basis and whenever events or changes in circumstances indicate that the carrying value of our goodwill may not be recoverable from estimated future cash flows. We completed our most recent evaluation of impairment for goodwill as of November 30, 2018 and determined that the fair value of goodwill exceeded the carrying value of such assets. A significant and sustained decline in our stock price and market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the business climate or slower growth rates could result in the need to perform an additional impairment analysis prior to the next annual goodwill impairment test. If we were to conclude that a future write-down of our goodwill is necessary, we would then record the appropriate charge, which could result in material charges that are adverse to our operating results and financial position. See Note 1-“Summary of Significant Accounting Policies” and Note 4-“Goodwill” to the Consolidated Financial Statements and “Management’s Report on Internal Control Over Financial Reporting.”
Additionally, the carrying value of amortizable intangible assets attributable to each business or asset group comprising the Company is periodically reviewed by management to determine if there are events or changes in circumstances that would indicate that its carrying amount may not be recoverable. Accordingly, if there are any such circumstances that occur during the year, we assess the carrying value of our amortizable intangible assets by considering the estimated future undiscounted cash flows generated by the corresponding business or asset group. Any impairment identified through this assessment may require that the carrying value of related amortizable intangible assets be adjusted; however, no impairments have been recorded for the years ended December 31, 2018, 2017 and 2016.
PROPOSED TORT REFORM LEGISLATION, IF ENACTED, COULD DECREASE DEMAND FOR LIABILITY INSURANCE, THEREBY REDUCING OUR COMMISSION REVENUES.
Legislation concerning tort reform has been considered, from time to time, in the United States Congress and in several state legislatures. Among the provisions considered in such legislation have been limitations on damage awards, including punitive damages, and various restrictions applicable to class action lawsuits. Enactment of these or similar provisions by Congress, or by states in which we sell insurance, could reduce the demand for liability insurance policies or lead to a decrease in policy limits of such policies sold, thereby reducing our commission revenues.
Risks Related to Investing in our Securities
OUR CREDIT RATINGS ARE SUBJECT TO CHANGE.
Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of our securities. Agency ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing agency. Each agency’s rating should be evaluated independently of any other agency’s rating.
WE MAY EXPERIENCE VOLATILITY IN OUR STOCK PRICE THAT COULD AFFECT YOUR INVESTMENT.
The market price of our common stock may be subject to significant fluctuations in response to various factors, including: quarterly fluctuations in our operating results; changes in securities analysts’ estimates of our future earnings; changes in securities analysts’ predictions regarding the short-term and long-term future of our industry; changes to the tax code; and our loss of significant customers or significant business developments relating to us or our competitors. Our common stock’s market price also may be affected by our ability to meet stock analysts’ earnings and other expectations. Any failure to meet such expectations, even if minor, could cause the market price of our common stock to decline. In addition, stock markets have generally experienced a high level of price and volume volatility, and the market prices of equity securities of many listed companies have experienced wide price fluctuations not necessarily related to the operating performance of such companies. These broad market fluctuations may adversely affect our common stock’s market price. In the past, securities class action lawsuits frequently have been instituted against companies following periods of volatility in the market price of such companies’ securities. If any such litigation is initiated against us, it could result in substantial costs and a diversion of management’s attention and resources, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
ITEM 1B. Unresolved Staff Comments.
None.
19

Table of Contents
ITEM 2. Properties.
We lease our executive offices, which are located at 220 South Ridgewood Avenue, Daytona Beach, Florida 32114. We lease offices at each of our 291 locations. We own an airplane hangar in Daytona Beach, Florida, which sits upon land leased from Volusia County, Florida. There are no outstanding mortgages on this owned property. Our operating leases expire on various dates. These leases generally contain renewal options and rent escalation clauses based upon increases in the lessors’ operating expenses and other charges. We expect that most leases will be renewed or replaced upon expiration. We believe that our facilities are suitable and adequate for present purposes, and that the productive capacity in such facilities is substantially being utilized. From time to time, we may have unused space and seek to sublet such space to third parties, depending on the demand for office space in the locations involved. In the future, we may need to purchase, build or lease additional facilities to meet the requirements projected in our long-term business plan. See Note 14 to the Consolidated Financial Statements for additional information on our lease commitments.
We have acquired several contiguous parcels of land totaling over thirteen acres in Daytona Beach, Florida, located approximately a mile from our current executive offices. We have initiated a project to build a new office tower to hold our executive offices and certain other business operations with capacity for up to 1000 employees and room for additional expansion through construction of additional office space at this location. Site preparation work began in 2018 and construction will commence in the first quarter of 2019, with completion anticipated in the fourth quarter of 2020. Annual expenditures of approximately $30.0 million to $40.0 million in 2019 and 2020, respectively, are anticipated to complete this project.
ITEM 3. Legal Proceedings.
We are subject to numerous litigation claims that arise in the ordinary course of business. We do not believe any of these are, or are likely to become, material to our business.
ITEM 4. Mine Safety Disclosures.
Not applicable.
20

Table of Contents
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “BRO.”
On February 21, 2019, there were 279,701,832 shares of our common stock outstanding, held by approximately 1,311 shareholders of record.
Sales of Unregistered Securities
We did not sell any unregistered securities during 2018.
Issuer Purchases of Equity Securities
On July 18, 2014, the Company’s Board of Directors authorized the repurchase of up to $200.0 million of its shares of common stock, and on July 20, 2015, the Company’s Board of Directors authorized the repurchase of up to an additional $400.0 million of the Company’s outstanding common stock. Under the authorization from the Company’s Board of Directors, shares may be purchased from time to time, at the Company’s discretion and subject to the availability of stock, market conditions, the trading price of the stock, alternative uses for capital, the Company’s financial performance and other potential factors. These purchases may be carried out through open market purchases, block trades, accelerated share repurchase plans of up to $100.0 million each (unless otherwise approved by the Board of Directors), negotiated private transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act.
On December 12, 2018, the Company entered into an accelerated share repurchase agreement (“ASR”) with an investment bank to purchase an aggregate $100.0 million of the Company's common stock. As part of the ASR, the Company received an initial delivery of 2,910,150 shares of the Company's common stock with a fair market value of approximately $80.0 million. The $20.0 million hold back will be settled within the five-month maturity as agreed to in the program with a clause for early settlement any time after two months of the effective date.
During 2016, the Company repurchased 209,618 shares at an average price per share of $36.53 for a total cost of $7.7 million under the current share repurchase authorization. During 2017, the Company repurchased 2,883,349 shares at an average price per share of $48.52 for a total cost of $140.0 million under the current share repurchase authorization. At December 31, 2018, the remaining amount authorized by our Board of Directors for share repurchases was $147.5 million. Under the authorized repurchase programs, the Company has repurchased a total of approximately 13.8 million shares for an aggregate cost of approximately $477.5 million between 2014 and 2018.
The following table presents information with respect to our purchases of our common stock during the three months ended December 31, 2018.

Period |  | Total number of shares purchased(1) |  | Average price paid per share |  | Total number of shares purchased as part of publicly announced plans or programs |  | Approximate dollar value of shares that may yet be purchased under the plans or programs
October 1, 2018 to October 31, 2018 |  | — |  |  | $ | — |  |  | — |  |  | $ | 227,453,029 |
November 1, 2018 to November 30, 2018 |  | 3,332 |  |  | 28.82 |  |  |  |  |  | 227,453,029 |
December 1, 2018 to December 31, 2018 |  | 2,914,066 |  |  | 27.49 |  |  | 2,910,150 |  |  | 147,453,029 |
Total |  | 2,917,398 |  |  | $ | 27.49 |  |  | 2,910,150 |  |  | $ | 147,453,029 |

(1) | With the exception of 2,910,150 shares purchased in an ASR transaction, all other shares reported above are attributable to shares withheld for employees’ payroll withholding taxes pertaining to the vesting of restricted shares awarded under our Performance Stock Plan and 2010 Stock Incentive Plan.

21

Table of Contents
Performance Graph
The following graph is a comparison of five-year cumulative total shareholder returns for our common stock as compared with the cumulative total shareholder return for the NYSE Composite Index, and a group of peer insurance broker and agency companies (Aon plc, Arthur J. Gallagher & Co, Marsh & McLennan Companies, and Willis Towers Watson Public Limited Company). The returns of each company have been weighted according to such companies’ respective stock market capitalizations as of December 31, 2013 for the purposes of arriving at a peer group average. The total return calculations are based upon an assumed $100 investment on December 31, 2013, with all dividends reinvested.

| 12/13 |  | 12/14 |  | 12/15 |  | 12/16 |  | 12/17 |  | 12/18
Brown & Brown, Inc. | 100.00 |  |  | 106.25 |  |  | 105.10 |  |  | 149.02 |  |  | 173.08 |  |  | 187.43 |
NYSE Composite | 100.00 |  |  | 106.87 |  |  | 102.62 |  |  | 115.02 |  |  | 136.76 |  |  | 124.72 |
Peer Group | 100.00 |  |  | 110.37 |  |  | 109.91 |  |  | 129.81 |  |  | 160.21 |  |  | 172.33 |

22

Table of Contents
ITEM 6. Selected Financial Data.
The following selected Consolidated Financial Data for each of the five fiscal years in the period ended December 31, have been derived from our Consolidated Financial Statements. Such data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of Part II of this Annual Report and with our Consolidated Financial Statements and related Notes thereto in Item 8 of Part II of this Annual Report.

(in thousands, except per share data, number of employees and percentages |  | Year Ended December 31,
| 2018 |  | 2017 |  | 2016 |  | 2015 |  | 2014
REVENUES |  |  |  |  |  |  |  |  |  |
Commissions and fees |  | $ | 2,009,857 |  |  | $ | 1,857,270 |  |  | $ | 1,762,787 |  |  | $ | 1,656,951 |  |  | $ | 1,567,460 |
Investment income |  | 2,746 |  |  | 1,626 |  |  | 1,456 |  |  | 1,004 |  |  | 747 |
Other income, net |  | 1,643 |  |  | 22,451 |  |  | 2,386 |  |  | 2,554 |  |  | 7,589 |
Total revenues(1) |  | 2,014,246 |  |  | 1,881,347 |  |  | 1,766,629 |  |  | 1,660,509 |  |  | 1,575,796 |
EXPENSES |  |  |  |  |  |  |  |  |  |
Employee compensation and benefits |  | 1,068,914 |  |  | 994,652 |  |  | 925,217 |  |  | 856,952 |  |  | 811,112 |
Other operating expenses |  | 332,118 |  |  | 283,470 |  |  | 262,872 |  |  | 251,055 |  |  | 235,328 |
(Gain)/loss on disposal |  | (2,175 | ) |  | (2,157 | ) |  | (1,291 | ) |  | (619 | ) |  | 47,425 |
Amortization |  | 86,544 |  |  | 85,446 |  |  | 86,663 |  |  | 87,421 |  |  | 82,941 |
Depreciation |  | 22,834 |  |  | 22,698 |  |  | 21,003 |  |  | 20,890 |  |  | 20,895 |
Interest |  | 40,580 |  |  | 38,316 |  |  | 39,481 |  |  | 39,248 |  |  | 28,408 |
Change in estimated acquisition earn-out payables |  | 2,969 |  |  | 9,200 |  |  | 9,185 |  |  | 3,003 |  |  | 9,938 |
Total expenses |  | 1,551,784 |  |  | 1,431,625 |  |  | 1,343,130 |  |  | 1,257,950 |  |  | 1,236,047 |
Income before income taxes |  | 462,462 |  |  | 449,722 |  |  | 423,499 |  |  | 402,559 |  |  | 339,749 |
Income taxes(2) |  | 118,207 |  |  | 50,092 |  |  | 166,008 |  |  | 159,241 |  |  | 132,853 |
Net income |  | $ | 344,255 |  |  | $ | 399,630 |  |  | $ | 257,491 |  |  | $ | 243,318 |  |  | $ | 206,896 |
EARNINGS PER SHARE INFORMATION |  |  |  |  |  |  |  |  |  |
Net income per share - diluted(3) |  | $ | 1.22 |  |  | $ | 1.40 |  |  | $ | 0.91 |  |  | $ | 0.85 |  |  | $ | 0.71 |
Weighted average number of shares outstanding - diluted(3) |  | 275,521 |  |  | 277,586 |  |  | 275,608 |  |  | 280,224 |  |  | 285,782 |
Dividends declared per share(3) |  | $ | 0.31 |  |  | $ | 0.28 |  |  | $ | 0.25 |  |  | $ | 0.23 |  |  | $ | 0.21 |
YEAR-END FINANCIAL POSITION |  |  |  |  |  |  |  |  |  |
Total assets(4) |  | $ | 6,688,668 |  |  | $ | 5,747,550 |  |  | $ | 5,262,734 |  |  | $ | 4,979,844 |  |  | $ | 4,931,027 |
Long-term debt(5) |  | $ | 1,456,990 |  |  | $ | 856,141 |  |  | $ | 1,018,372 |  |  | $ | 1,071,618 |  |  | $ | 1,142,948 |
Total shareholders’ equity |  | $ | 3,000,568 |  |  | $ | 2,582,699 |  |  | $ | 2,360,211 |  |  | $ | 2,149,776 |  |  | $ | 2,113,745 |
Total shares outstanding at year end(3) |  | 279,583 |  |  | 276,210 |  |  | 280,208 |  |  | 277,970 |  |  | 286,972 |
OTHER INFORMATION |  |  |  |  |  |  |  |  |  |
Number of full-time equivalent employees at year end |  | 9,590 |  |  | 8,491 |  |  | 8,297 |  |  | 7,807 |  |  | 7,591 |
Total revenues per average number of employees(6) |  | $ | 222,809 |  |  | $ | 224,130 |  |  | $ | 219,403 |  |  | $ | 215,679 |  |  | $ | 216,114 |
Stock price at year end(3) |  | $ | 27.56 |  |  | $ | 25.73 |  |  | $ | 22.43 |  |  | $ | 16.05 |  |  | $ | 16.45 |
Stock price earnings multiple at year-end(7) |  | 22.6 |  |  | 18.3 |  |  | 24.6 |  |  | 18.9 |  |  | 23.3 |
Return on beginning shareholders’ equity(8) |  | 13 | % |  | 17 | % |  | 12 | % |  | 12 | % |  | 10 | %

(1) | Years 2017 to 2014 do not reflect the adoption of “Revenue from Contracts with Customers (Topic 606)” (“Topic 606”), ASC Topic 340 - Other Assets and Deferred Cost (“ASC 340”) and ASU 2016-08, “Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)”.

(2) | Years 2017 to 2014 do not reflect the adoption of ASU 2016-09, “Improvements to Employee Share Based Payment Accounting” (“ASU 2016-09”).

(3) | Years 2017 to 2014 reflect the 2-for-1 stock split that occurred on March 28, 2018.

(4) | Years 2016 to 2014 reflect the adoption of ASU No. 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”).

(5) | Please refer to Part I, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 9 “Long-Term Debt” for more details.

(6) | Represents total revenues divided by the average of the number of full-time equivalent employees at the beginning of the year and the number of full-time equivalent employees at the end of the year.

(7) | Stock price at year-end divided by net income per share diluted.

(8) | Represents net income divided by total shareholders’ equity as of the beginning of the year.

23

Table of Contents
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General
The following discussion should be read in conjunction with our Consolidated Financial Statements and the related Notes to those Financial Statements included elsewhere in this Annual Report on Form 10-K. In addition, please see “Information Regarding Non-GAAP Measures” below, regarding important information on non-GAAP financial measures contained in our discussion and analysis.
We are a diversified insurance agency, wholesale brokerage, insurance programs and services organization headquartered in Daytona Beach, Florida. As an insurance intermediary, our principal sources of revenue are commissions paid by insurance companies and, to a lesser extent, fees paid directly by customers. Commission revenues generally represent a percentage of the premium paid by an insured and are affected by fluctuations in both premium rate levels charged by insurance companies and the insureds’ underlying “insurable exposure units,” which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, or sales and payroll levels) to determine what premium to charge the insured. Insurance companies establish these premium rates based upon many factors, including loss experience, risk profile and reinsurance rates paid by such insurance companies, none of which we control.
We have increased revenues every year from 1993 to 2018, with the exception of 2009, when our revenues dropped 1.0%. Our revenues grew from $95.6 million in 1993 to $2.0 billion in 2018, reflecting a compound annual growth rate of 13.0%. In the same 25-year period, we increased net income from $8.1 million to $344.3 million in 2018, a compound annual growth rate of 16.2%.
The volume of business from new and existing customers, fluctuations in insurable exposure units, changes in premium rate levels, changes in general economic and competitive conditions, and the occurrence of catastrophic weather events all affect our revenues. For example, level rates of inflation or a general decline in economic activity could limit increases in the values of insurable exposure units. Conversely, increasing costs of litigation settlements and awards could cause some customers to seek higher levels of insurance coverage. Historically, our revenues have typically grown as a result of our focus on net new business growth and acquisitions. We foster a strong, decentralized sales and service culture with the goal of consistent, sustained growth over the long-term.
The term “Organic Revenue,” a non-GAAP measure, is our core commissions and fees less (i) the core commissions and fees earned for the first twelve months by newly-acquired operations, (ii) divested business (core commissions and fees generated from offices, books of business or niches sold or terminated during the comparable period), and (iii) the impact of the adoption of Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and Accounting Standards Codification Topic 340 – Other Assets and Deferred Cost (the “New Revenue Standard”) effective January 1, 2018. The term “core commissions and fees” excludes profit-sharing contingent commissions and guaranteed supplemental commissions, and therefore represents the revenues earned directly from specific insurance policies sold, and specific fee-based services rendered. “Organic Revenue” is reported in this manner in order to express the current year’s core commissions and fees on a comparable basis with the prior year’s core commissions and fees. The resulting net change reflects the aggregate changes attributable to (i) net new and lost accounts, (ii) net changes in our customers’ exposure units, (iii) net changes in insurance premium rates or the commission rate paid to us by our carrier partners, (iv) the net change in fees paid to us by our customers and (v) fees earned based upon claim processing volumes within our Services Segment. Organic Revenue is reported in “Results of Operations” and in “Results of Operations - Segment Information” of this Form 10-K.
We also earn “profit-sharing contingent commissions,” which are commissions based primarily on underwriting results, but which may also reflect considerations for volume, growth and/or retention. These commissions which are included in our commissions and fees in the Consolidated Statement of Income, are accrued throughout the year based on actual premiums written and are primarily received in the first and second quarters of each year, based upon the aforementioned considerations for the prior year(s). Prior to the adoption of the New Revenue Standard, these commissions were recorded to income when received. Over the last three years, profit-sharing contingent commissions have averaged approximately 3.1% of the previous year’s commissions and fees revenue.
Certain insurance companies offer guaranteed fixed-base agreements, referred to as “Guaranteed Supplemental Commissions” (“GSCs”) in lieu of profit-sharing contingent commissions. GSCs are accrued throughout the year based upon actual premiums written. For the year ended December 31, 2018, we had earned $10.0 million of GSCs, of which $8.9 million remained accrued at December 31, 2018 as most of this will be collected over the first and second quarters of 2019. For the years ended December 31, 2018, 2017, and 2016, we earned $10.0 million, $10.4 million and $11.5 million, respectively, from GSCs.
Combined, our profit-sharing contingent commissions and GSCs for the year ended December 31, 2018 increased by $3.3 million over 2017 primarily as a result of an increase in profit-sharing contingent commissions and GSCs in the National Programs Segments. Other income decreased by $20.8 million primarily as a result of a legal settlement recognized in the first quarter of 2017.
Fee revenues primarily relate to services other than securing coverage for our customers, as well as fees negotiated in lieu of commissions, and are recognized as performance obligations are satisfied. Fee revenues have historically been generated primarily by: (1) our Services Segment, which provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services, and claims adjusting services; (2) our National Programs and Wholesale Brokerage Segments, which earn fees primarily for the issuance of insurance policies on behalf of insurance companies; and to a lesser extent
24

Table of Contents
(3) our Retail Segment in our large-account customer base. Fee revenues as a percentage of our total commissions and fees, represented 19.8% in 2018, 31.5% in 2017 and 31.3% in 2016.
For the years ended December 31, 2018 and 2017, our commissions and fees growth rate was 8.2% and 5.4%, respectively, and our consolidated Organic Revenue growth rate was 2.4% and 4.4%, respectively. In the event that the gradual increases in insurable exposure units that occurred in the past few years continues through 2019 and premium rate changes are similar with 2018, we believe we will continue to see positive quarterly Organic Revenue growth rates in 2019.
Historically, investment income has consisted primarily of interest earnings on operating cash and where permitted, on premiums and advance premiums collected and held in a fiduciary capacity before being remitted to insurance companies. Our policy is to invest available funds in high-quality, short-term fixed income investment securities. Investment income also includes gains and losses realized from the sale of investments. Other income primarily reflects legal settlements and other miscellaneous income.
Income before income taxes for the year ended December 31, 2018 increased over 2017 by $12.7 million, primarily as a result of net new business and acquisitions completed in the past twelve months offset by lower weather related claims processing revenues in 2018 and a legal settlement recorded in the first quarter of 2017.
Information Regarding Non-GAAP Measures
In the discussion and analysis of our results of operations, in addition to reporting financial results in accordance with generally accepted accounting principles (“GAAP”), we provide references to the following non-GAAP financial measures as defined in Regulation G of SEC rules: Organic Revenue, Organic Revenue growth, EBITDAC and EBITDAC Margin. We view these non-GAAP financial measures as important indicators when assessing and evaluating our performance on a consolidated basis and for each of our segments because they allow us to determine a more comparable, but non-GAAP, measurement of revenue growth and operating performance that is associated with the revenue sources that were a part of our business in both the current and prior year. We believe that Organic Revenue provides a meaningful representation of our operating performance and view Organic Revenue growth as an important indicator when assessing and evaluating the performance of our four segments. Organic Revenue can be expressed as a dollar amount or a percentage rate when describing Organic Revenue growth. We also use Organic Revenue growth and EBITDAC Margin for incentive compensation determinations for executive officers and other key employees. We view EBITDAC and EBITDAC Margin as important indicators of operating performance, because they allow us to determine more comparable, but non-GAAP, measurements of our operating margins in a meaningful and consistent manner by removing the significant non-cash items of depreciation, amortization and the change in estimated acquisition earn-out payables, and also interest expense and taxes, which are reflective of investment and financing activities, not operating performance.
These measures are not in accordance with, or an alternative to the GAAP information provided in this Annual Report on Form 10-K. We present such non-GAAP supplemental financial information because we believe such information is of interest to the investment community and because we believe they provide additional meaningful methods of evaluating certain aspects of our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. We believe these non-GAAP financial measures improve the comparability of results between periods by eliminating the impact of certain items that have a high degree of variability. Our industry peers may provide similar supplemental non-GAAP information with respect to one or more of these measures, although they may not use the same or comparable terminology and may not make identical adjustments. This supplemental financial information should be considered in addition to, not in lieu of, our Consolidated Financial Statements.
Tabular reconciliations of this supplemental non-GAAP financial information to our most comparable GAAP information are contained in this Annual Report on Form 10-K under “Results of Operation - Segment Information.”
Acquisitions
Part of our business strategy is to attract high-quality insurance intermediaries to join our operations. From 1993 through the fourth quarter of 2018, we acquired 513 insurance intermediary operations, excluding acquired books of business (customer accounts). During the year ended December 31, 2018, the Company acquired the assets and assumed certain liabilities of twenty insurance intermediaries, all of the stock of three insurance intermediaries and one book of business (customer accounts). Collectively, these acquired businesses had annualized revenues of approximately $323.2 million.
On November 15, 2018, we completed the acquisition of certain assets and assumption of certain liabilities of The Hays Group, Inc. and certain of its affiliates (collectively, “Hays”). At closing, we delivered a payment of $705 million, consisting of $605 million in cash and the issuance to certain key owners of Hays of 3,376,103 shares of our common stock for a total value of $100.0 million. In addition, the Company may pay additional consideration to Hays in the form of earn-out payments in the aggregate amount of up to $25.0 million in cash over three years, which is subject to certain conditions and the successful achievement of average annual EBITDA compound annual growth rate targets for the acquired business during 2019, 2020 and 2021. Hays was founded in 1994 providing employee benefits, property & casualty, and personal lines insurance and has grown to be the 22nd largest U.S. broker as measured by Business Insurance magazine. With headquarters in Minneapolis, Hays operates across twenty-one states, increasing our presence in the mid-west. This transaction was initially funded through utilization of the Company’s revolving line of credit within our credit facility, details of which can be found in “Management’s Discussion and Analysis of Financial Condition”,“Results of Operations” and Note 9 “Long-Term Debt” in the “Notes to Consolidated Financial Statements”.
25

Table of Contents
Critical Accounting Policies
Our Consolidated Financial Statements are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We continually evaluate our estimates, which are based upon historical experience and on assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for our judgments about the carrying values of our assets and liabilities, of which values are not readily apparent from other sources. Actual results may differ from these estimates.
We believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition, business combinations and purchase price allocations, intangible asset impairments, non-cash stock-based compensation and reserves for litigation. In particular, the accounting for these areas requires significant use of judgment to be made by management. Different assumptions in the application of these policies could result in material changes in our consolidated financial position or consolidated results of operations. Refer to Note 1 “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” for a discussion of the impacts for adopting Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606).
Revenue Recognition
The majority of our revenue is commissions derived from our performance as agents and brokers, acting on behalf of insurance carriers to sell products to customers that are seeking to transfer risk, and conversely, acting on behalf of those customers in negotiating with insurance carriers seeking to acquire risk in exchange for premiums. In these arrangements our performance obligation is complete upon the effective date of the bound policy, as such that is when the associated revenue is recognized. Where the Company’s performance obligations have been completed, but the final amount of compensation is unknown due to variable factors, we estimate the amount of such compensation. We recognize subsequent commission adjustments upon our receipt of additional information or final settlement, whichever occurs first.
To a lesser extent, the Company earns revenues in the form of fees. Like commissions, fees paid to us in lieu of commission, are recognized upon the effective date of the bound policy. When we are paid a fee for service, however, the associated revenue is recognized over a period of time that coincides with when the customer simultaneously receives and consumes the benefit of our work, which characterizes most of our claims processing arrangements and various services performed in our employee benefits practices. Other fees are typically recognized upon the completion of the delivery of the agreed-upon services to the customer.
Management determines a policy cancellation reserve based upon historical cancellation experience adjusted in accordance with known circumstances.
Please see Note 2 “Revenues” in the “Notes to Consolidated Financial Statements” for additional information regarding the nature and timing of our revenues.
Business Combinations and Purchase Price Allocations
We have acquired significant intangible assets through acquisitions of businesses. These assets generally consist of purchased customer accounts, non-compete agreements, and the excess of purchase prices over the fair value of identifiable net assets acquired (goodwill). The determination of estimated useful lives and the allocation of purchase price to intangible assets requires significant judgment and affects the amount of future amortization and possible impairment charges.
All of our business combinations initiated after June 30, 2001 have been accounted for using the acquisition method. In connection with these acquisitions, we record the estimated value of the net tangible assets purchased and the value of the identifiable intangible assets purchased, which typically consist of purchased customer accounts and non-compete agreements. Purchased customer accounts include the physical records and files obtained from acquired businesses that contain information about insurance policies, customers and other matters essential to policy renewals. However, they primarily represent the present value of the underlying cash flows expected to be received over the estimated future renewal periods of the insurance policies comprising those purchased customer accounts. The valuation of purchased customer accounts involves significant estimates and assumptions concerning matters such as cancellation frequency, expenses and discount rates. Any change in these assumptions could affect the carrying value of purchased customer accounts. Non-compete agreements are valued based upon their duration and any unique features of the particular agreements. Purchased customer accounts and non-compete agreements are amortized on a straight-line basis over the related estimated lives and contract periods, which range from 3 to 15 years. The excess of the purchase price of an acquisition over the fair value of the identifiable tangible and intangible assets is assigned to goodwill and is not amortized.
Acquisition purchase prices are typically based upon a multiple of average annual operating profit and/or core revenue earned over a one to three-year period within a minimum and maximum price range. The recorded purchase prices for all acquisitions include an estimation of the fair value of liabilities associated with any potential earn-out provisions, where an earn-out is part of the negotiated transaction. Subsequent changes in the fair value of earn-out obligations are recorded in the Consolidated Statement of Income when changes to the expected performance of the associated business are realized.
The fair value of earn-out obligations is based upon the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions contained in the respective purchase agreements. In determining fair value, the acquired business’s future performance is estimated using financial projections developed by management for the acquired business, and this estimate
26

Table of Contents
reflects market participant assumptions regarding revenue growth and/or profitability. The expected future payments are estimated on the basis of the earn-out formula and performance targets specified in each purchase agreement compared to the associated financial projections. These estimates are then discounted to a present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments will be made.
Intangible Assets Impairment
Goodwill is subject to at least an annual assessment for impairment measured by a fair-value-based test. Amortizable intangible assets are amortized over their useful lives and are subject to an impairment review based upon an estimate of the undiscounted future cash flows resulting from the use of the assets. To determine if there is potential impairment of goodwill, we compare the fair value of each reporting unit with its carrying value. If the fair value of the reporting unit is less than its carrying value, an impairment loss would be recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value. Fair value is estimated based upon multiples of earnings before interest, income taxes, depreciation, amortization and change in estimated acquisition earn-out payables (“EBITDAC”), or on a discounted cash flow basis.
Management assesses the recoverability of our goodwill and our amortizable intangibles and other long-lived assets annually and whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Any of the following factors, if present, may trigger an impairment review: (i) a significant underperformance relative to historical or projected future operating results, (ii) a significant negative industry or economic trend, and (iii) a significant decline in our market capitalization. If the recoverability of these assets is unlikely because of the existence of one or more of the above-referenced factors, an impairment analysis is performed. Management must make assumptions regarding estimated future cash flows and other factors to determine the fair value of these assets. If these estimates or related assumptions change in the future, we may be required to revise the assessment and, if appropriate, record an impairment charge. We completed our most recent evaluation of impairment for goodwill as of November 30, 2018 and determined that the fair value of goodwill exceeded the carrying value of such assets. Additionally, there have been no impairments recorded for amortizable intangible assets for the years ended December 31, 2018, 2017 and 2016.
Non-Cash Stock-Based Compensation
We grant non-vested stock awards to our employees, with the related compensation expense recognized in the financial statements over the associated service period based upon the grant-date fair value of those awards.
During the first quarter of 2017, the performance conditions for 326,808 shares of the Company’s common stock granted under the Company’s Stock Incentive Plan were determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in 2012. These grants had a performance measurement period that concluded on December 31, 2016. The vesting condition for these grants requires continuous employment for a period of up to ten years from the January 2012 grant date in order for the awarded shares to become fully vested and nonforfeitable. As a result of the awarding of these shares, the grantees will be eligible to receive payments of dividends and exercise voting privileges after the awarding date, and the awarded shares will be included as issued and outstanding common stock shares and included in the calculation of basic and diluted net income per share where the net income attributable to unvested awarded stock plans is excluded from the total net income attributable to common shares.
During the first quarter of 2018, the performance conditions for 260,344 shares of the Company’s common stock granted under the Company’s Stock Incentive Plan were determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in 2013. These grants had a performance measurement period that concluded on December 31, 2017. The vesting condition for these grants requires continuous employment for a period of up to ten years from the January 2013 grant date in order for the awarded shares to become fully vested and nonforfeitable. During the third quarter of 2018, the performance conditions for 2,229,561 shares of the Company’s common stock granted under the Company’s Stock Incentive Plan were determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in July 2013. These grants had a performance measurement period that concluded on June 30, 2018. The vesting condition for these grants requires continuous employment for a period of up to seven years from the July 2013 grant date in order for the awarded shares to become fully vested and nonforfeitable. As a result of the awarding of these shares, the grantees will be eligible to receive payments of dividends and exercise voting privileges after the awarding date, and the awarded shares will be included as issued and outstanding common stock shares and included in the calculation of basic and in diluted net income per share where the net income attributable to unvested awarded stock plans is excluded from the total net income attributable to common shares.
During the first quarter of 2019, the performance conditions for approximately 2.0 million shares of the Company’s common stock granted under the Company’s Stock Incentive Plan were determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in 2014 and 2016. These grants had a performance measurement period that concluded on December 31, 2018. The vesting condition for these grants requires continuous employment for a period of up to seven years from the 2014 grant date and five years from the 2016 grant date in order for the awarded shares to become fully vested and nonforfeitable. As a result of the awarding of these shares, the grantees will be eligible to receive payments of dividends and exercise voting privileges after the awarding date, and the awarded shares will be included as issued and outstanding common stock shares and included in the calculation of basic and diluted net income per share.
27

Table of Contents
Litigation and Claims
We are subject to numerous litigation claims that arise in the ordinary course of business. If it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss is estimable, an accrual for the costs to resolve these claims is recorded in accrued expenses in the accompanying Consolidated Financial Statements. Professional fees related to these claims are included in other operating expenses in the accompanying Consolidated Statement of Income as incurred. Management, with the assistance of in-house and outside counsel, determines whether it is probable that a liability has been incurred and estimates the amount of loss based upon analysis of individual issues. New developments or changes in settlement strategy in dealing with these matters may significantly affect the required reserves and affect our net income.
28

Table of Contents
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
The following discussion and analysis regarding results of operations and liquidity and capital resources should be considered in conjunction with the accompanying Consolidated Financial Statements and related Notes.
Financial information relating to our Consolidated Financial Results is as follows:

(in thousands, except percentages) | 2018 |  | % Change |  | 2017 |  | % Change |  | 2016
REVENUES |  |  |  |  |  |  |  |  |
Core commissions and fees | $ | 1,944,021 |  |  | 8.3 | % |  | $ | 1,794,714 |  |  | 5.7 | % |  | $ | 1,697,308 |
Profit-sharing contingent commissions | 55,875 |  |  | 7.1 | % |  | 52,186 |  |  | (3.4 | )% |  | 54,000 |
Guaranteed supplemental commissions | 9,961 |  |  | (3.9 | )% |  | 10,370 |  |  | (9.7 | )% |  | 11,479 |
Commissions and fees | 2,009,857 |  |  | 8.2 | % |  | 1,857,270 |  |  | 5.4 | % |  | 1,762,787 |
Investment income | 2,746 |  |  | 68.9 | % |  | 1,626 |  |  | 11.7 | % |  | 1,456 |
Other income, net | 1,643 |  |  | (92.7 | )% |  | 22,451 |  |  | NMF |  |  | 2,386 |
Total revenues | 2,014,246 |  |  | 7.1 | % |  | 1,881,347 |  |  | 6.5 | % |  | 1,766,629 |
EXPENSES |  |  |  |  |  |  |  |  |
Employee compensation and benefits | 1,068,914 |  |  | 7.5 | % |  | 994,652 |  |  | 7.5 | % |  | 925,217 |
Other operating expenses | 332,118 |  |  | 17.2 | % |  | 283,470 |  |  | 7.8 | % |  | 262,872 |
(Gain)/loss on disposal | (2,175 | ) |  | 0.8 | % |  | (2,157 | ) |  | 67.1 | % |  | (1,291 | )
Amortization | 86,544 |  |  | 1.3 | % |  | 85,446 |  |  | (1.4 | )% |  | 86,663 |
Depreciation | 22,834 |  |  | 0.6 | % |  | 22,698 |  |  | 8.1 | % |  | 21,003 |
Interest | 40,580 |  |  | 5.9 | % |  | 38,316 |  |  | (3.0 | )% |  | 39,481 |
Change in estimated acquisition earn-out payables | 2,969 |  |  | (67.7 | )% |  | 9,200 |  |  | 0.2 | % |  | 9,185 |
Total expenses | 1,551,784 |  |  | 8.4 | % |  | 1,431,625 |  |  | 6.6 | % |  | 1,343,130 |
Income before income taxes | 462,462 |  |  | 2.8 | % |  | 449,722 |  |  | 6.2 | % |  | 423,499 |
Income taxes | 118,207 |  |  | 136.0 | % |  | 50,092 |  |  | (69.8 | )% |  | 166,008 |
NET INCOME | $ | 344,255 |  |  | (13.8 | )% |  | $ | 399,630 |  |  | 55.2 | % |  | $ | 257,491 |
Income Before Income Taxes Margin | 23.0 | % |  |  |  | 23.9 | % |  |  |  | 24.0 | %
EBITDAC (1) | 615,389 |  |  | 1.7 | % |  | 605,382 |  |  | 4.4 | % |  | 579,831 |
EBITDAC Margin (1) | 30.6 | % |  |  |  | 32.2 | % |  |  |  | 32.8 | %
Organic Revenue growth rate (1) | 2.4 | % |  |  |  | 4.4 | % |  |  |  | 3.0 | %
Employee compensation and benefits relative to total revenues | 53.1 | % |  |  |  | 52.9 | % |  |  |  | 52.4 | %
Other operating expenses relative to total revenues | 16.5 | % |  |  |  | 15.1 | % |  |  |  | 14.9 | %
Capital expenditures | $ | 41,520 |  |  | 71.6 | % |  | $ | 24,192 |  |  | 36.2 | % |  | $ | 17,765 |
Total assets at December 31 | $ | 6,688,668 |  |  | 16.4 | % |  | $ | 5,747,550 |  |  | 9.2 | % |  | $ | 5,262,734 |

(1) A non-GAAP measure
NMF = Not a meaningful figure
Commissions and Fees
Commissions and fees, including profit-sharing contingent commissions and GSCs for 2018, increased $152.6 million to $2,009.9 million, or 8.2% over 2017. Core commissions and fees in 2018 increased $149.3 million, of which $91.2 million represented core commissions and fees from acquisitions that had no comparable revenues in 2017; approximately $43.5 million represented net new and renewal business; approximately $16.1 million related to the impact of the adoption of the New Revenue Standard; which was offset by $1.5 million related to commissions and fees revenue from businesses divested in 2017 and 2018, which reflected an Organic Revenue growth rate of 2.4%. Profit-sharing contingent commissions and GSCs for 2018 increased by $3.3 million, or 5.2%, compared to the same period in 2017. The net increase of $3.3 million was mainly driven by an increase in profit-sharing contingent commissions and GSCs in the National Programs Segment.
29

Table of Contents
Commissions and fees, including profit-sharing contingent commissions and GSCs for 2017, increased $94.5 million to $1,857.3 million, or 5.4% over 2016. Core commissions and fees in 2017 increased $97.4 million, of which approximately $27.7 million represented core commissions and fees from agencies acquired since 2016 that had no comparable revenues. After accounting for divested business of $4.9 million, the remaining net increase of $74.6 million represented net new business, which reflected an Organic Revenue growth rate of 4.4% for core commissions and fees. Profit-sharing contingent commissions and GSCs for 2017 decreased by $2.9 million, or 4.5%, compared to the same period in 2016. The net decrease of $2.9 million was mainly driven by a decrease in profit-sharing contingent commissions and GSCs in the Retail and Wholesale Brokerage Segments, as a result of increased loss ratios and lower premium rates, which was partially offset by an increase in profit-sharing contingent commissions and GSCs in the National Programs Segment.
Investment Income
Investment income increased to $2.7 million in 2018, compared with $1.6 million in 2017 and increased to $1.6 million in 2017, compared with $1.5 million in 2016. The increases in both years were due to additional interest income driven by higher interest rates and cash management activities to earn a higher yield on excess cash balances.
Other Income, Net
Other income for 2018 was $1.6 million, compared with $22.4 million in 2017 and $2.4 million in 2016. Other income consists primarily of legal settlements and other miscellaneous income. In 2017, $20.0 million of other income was recognized as a result of a legal settlement with AssuredPartners.
Employee Compensation and Benefits
Employee compensation and benefits expense increased 7.5%, or $74.3 million, in 2018 over 2017. This increase included $34.8 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2017. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time periods of 2018 and 2017 increased by $39.5 million or 3.9%. This underlying employee compensation and benefits expense increase was primarily related to (i) an increase in staff salaries attributable to salary inflation, higher volumes in portions of our business and the mix of business across the company; (ii) increased producer commissions due to higher revenue; partially offset by (iii) a decrease of approximately $8.8 million in commission expense as a result of the adoption of the New Revenue Standard which requires the deferral of incremental costs to obtain a customer contract, and (iv) the increase in the value of corporate-owned life insurance policies associated with our deferred compensation plan which is substantially offset in other operating expenses. Employee compensation and benefits expense as a percentage of total revenues was 53.1% for 2018 as compared to 52.9% for the year ended December 31, 2017.
Employee compensation and benefits expense increased 7.5%, or $69.4 million, in 2017 over 2016. This increase included $11.1 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2016. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time periods of 2017 and 2016 increased by $58.3 million or 6.4%. This underlying employee compensation and benefits expense increase was primarily related to (i) higher bonuses due to increased revenue and operating profit as well as the additional cost associated with the Retail Segment’s performance incentive plan introduced in 2017, (ii) an increase in producer commissions driven by new and renewed business, (iii) an increase in non-cash stock-based compensation expense due to forfeiture credits recognized in 2016, and (iv) increased staff salaries attributable to salary inflation and higher volumes in portions of our business. Employee compensation and benefits expense as a percentage of total revenues was 52.9% for 2017 as compared to 52.4% for the year ended December 31, 2016.
Other Operating Expenses
Other operating expenses in 2018 increased 17.2%, or $48.6 million, over 2017, of which $14.0 million was related to acquisitions that had no comparable costs in the same period of 2017. The other operating expenses for those offices that existed in the same periods in both 2018 and 2017 increased by $34.7 million or 6.6%, which was primarily attributable to (i) additional expenses associated with our investment in information technology and higher value-added consulting services; (ii) an increase of approximately $10.5 million for costs that had previously been reported on a net basis as contra-revenue prior to the adoption of the New Revenue Standard ; (iii) the increase in the value of corporate-owned life insurance policies associated with our deferred compensation plan which was substantially offset by employee compensation and benefits and partially offset by (iv) the benefits from our strategic purchasing program. Other operating expenses as a percentage of total revenues was 16.5% in 2018 as compared to 15.1% for the year ended December 31, 2017.
Other operating expenses in 2017 increased 7.8%, or $20.6 million, over 2016, of which $3.3 million was related to acquisitions that had no comparable costs in the same period of 2016. The other operating expenses for those offices that existed in the same periods in both 2017 and 2016, increased by $17.3 million or 6.6%, which was primarily attributable to (i) higher data processing costs related to our multi-year technology investment program, (ii) the receipt of certain premium tax refunds by our National Flood Program business in 2016, and (iii) professional fees at our National Programs Division. Other operating expenses as a percentage of total revenues was 15.1% in 2017 and 14.9% in 2016.
30

Table of Contents
Gain or Loss on Disposal
The Company recognized gains on disposal of $2.2 million in 2018 and 2017 and $1.3 million in 2016. The change in the gain on disposal was due to activity associated with book of business sales. Although we are not in the business of selling customer accounts, we periodically sell an office or a book of business (one or more customer accounts) that we believe does not produce reasonable margins or demonstrate a potential for growth, or because doing so is in the Company’s best interest.
Amortization
Amortization expense increased $1.1 million, or 1.3%, in 2018, and decreased $1.2 million, or 1.4%, in 2017. The increase in 2018 is a result of the addition of intangibles associated with newly acquired businesses and the decrease in 2017 is a result of certain intangibles becoming fully amortized or otherwise written off as part of disposed businesses, which was partially offset by the amortization of new intangibles from recently acquired businesses.
Depreciation
Depreciation expense increased $0.1 million, or 0.6%, in 2018, and increased $1.7 million, or 8.1% in 2017 as compared to 2016. These increases are due primarily to the addition of fixed assets resulting from capital projects related to our multi-year technology investment program and other business initiatives.
Interest Expense
Interest expense increased $2.3 million, or 5.9%, in 2018 from 2017, and decreased $1.2 million, or 3.0% in 2017 from 2016. The increase in 2018 was due primarily to the additional debt added in the fourth quarter with increased payments for newly acquired businesses, as well as increased interest rate exposure on the Company’s floating rate notes. The decrease in 2017 was due primarily to having less total debt outstanding.
Change in Estimated Acquisition Earn-Out Payables
Accounting Standards Codification (“ASC”) Topic 805-Business Combinations is the authoritative guidance requiring an acquirer to recognize 100% of the fair value of acquired assets, including goodwill, and assumed liabilities (with only limited exceptions) upon initially obtaining control of an acquired entity. Additionally, the fair value of contingent consideration arrangements (such as earn-out purchase price arrangements) at the acquisition date must be included in the purchase price consideration. As a result, the recorded purchase prices for all acquisitions consummated after January 1, 2009 include an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in these earn-out obligations are required to be recorded in the Consolidated Statement of Income when incurred or reasonably estimated. Estimations of potential earn-out obligations are typically based upon future earnings of the acquired operations or entities, usually for periods ranging from one to three years.
The net charge or credit to the Consolidated Statement of Income for the period is the combination of the net change in the estimated acquisition earn-out payables balance, and the interest expense imputed on the outstanding balance of the estimated acquisition earn-out payables.
As of December 31, 2018, the fair values of the estimated acquisition earn-out payables were re-evaluated and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820-Fair Value Measurement. The resulting net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the years ended December 31, 2018, 2017 and 2016 were as follows:

(in thousands) | 2018 |  | 2017 |  | 2016
Change in fair value of estimated acquisition earn-out payables | $ | 603 |  |  | $ | 6,874 |  |  | $ | 6,338 |
Interest expense accretion | 2,366 |  |  | 2,326 |  |  | 2,847 |
Net change in earnings from estimated acquisition earn-out payables | $ | 2,969 |  |  | $ | 9,200 |  |  | $ | 9,185 |

For the years ended December 31, 2018, 2017 and 2016, the fair value of estimated earn-out payables was re-evaluated and increased by $0.6 million, $6.9 million and $6.3 million, respectively, which resulted in charges to the Consolidated Statement of Income.
As of December 31, 2018, the estimated acquisition earn-out payables equaled $89.9 million, of which $21.1 million was recorded as accounts payable and $68.8 million was recorded as other non-current liability. As of December 31, 2017, the estimated acquisition earn-out payables equaled $36.2 million, of which $25.1 million was recorded as accounts payable and $11.1 million was recorded as other non-current liability.
31

Table of Contents
Income Taxes
The effective tax rate on income from operations was 25.6% in 2018, 11.1% in 2017, and 39.2% in 2016. The Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”) makes changes to the U.S. tax code that affected our income tax rate in 2017 and 2018. The Tax Reform Act reduces the U.S. federal corporate income tax rate from 35.0% to 21.0% and requires companies to pay a one-time transition tax on certain unrepatriated earnings from foreign subsidiaries that is payable over eight years. The Tax Reform Act also establishes new tax laws that became effective January 1, 2018. The 2018 effective tax rate reflects the reduction in the federal corporate income tax rate. The 2017 effective tax rate reflects the revaluation of deferred tax liabilities as described in Part II, Note 10 “Income Taxes,” in addition to adoption of FASB Accounting Standards Update 2016-09, “Improvements to Employee Share Based Payment Accounting” (“ASU 2016-09”) in the first quarter of 2017. ASU 2016-09, which requires upon vesting of stock-based compensation, any tax implications be treated as a discrete credit to the income tax expense in the quarter of vesting, amends guidance issued in ASC Topic 718, Compensation - Stock Compensation.
RESULTS OF OPERATIONS — SEGMENT INFORMATION
As discussed in Note 16 “Segment Information” of the Notes to Consolidated Financial Statements, we operate four reportable segments: Retail, National Programs, Wholesale Brokerage and Services. On a segmented basis, changes in amortization, depreciation and interest expenses generally result from activity associated with acquisitions. Likewise, other income in each segment reflects net gains primarily from legal settlements and miscellaneous income. As such, in evaluating the operational efficiency of a segment, management focuses on the Organic Revenue growth rate of core commissions and fees, the ratio of total employee compensation and benefits to total revenues, and the ratio of other operating expenses to total revenues.
The reconciliation of total commissions and fees, included in the Consolidated Statement of Income, to Organic Revenue for the years ended December 31, 2018 and 2017 is as follows:

| Year Ended December 31,
(in thousands) | 2018 |  | 2017
Commissions and fees | $ | 2,009,857 |  |  | $ | 1,857,270 |
Profit-sharing contingent commissions | (55,875 | ) |  | (52,186 | )
Guaranteed supplemental commissions | (9,961 | ) |  | (10,370 | )
Core commissions and fees | 1,944,021 |  |  | 1,794,714 |
New Revenue Standard impact on core commissions and fees | (16,091 | ) |  | — |
Acquisition revenues | (91,177 | ) |  | — |
Divested businesses | — |  |  | (1,490 | )
Organic Revenue | $ | 1,836,753 |  |  | $ | 1,793,224 |

32

Table of Contents
The reconciliation of total commissions and fees to Organic Revenue for the year ended December 31, 2018, by Segment, are as follows:

2018 | Retail(1) |  | National Programs |  | Wholesale Brokerage |  | Services |  | Total
(in thousands, except percentages) | 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017
Commissions and fees | $ | 1,040,574 |  |  | $ | 942,039 |  |  | $ | 493,878 |  |  | $ | 479,017 |  |  | $ | 286,364 |  |  | $ | 271,141 |  |  | $ | 189,041 |  |  | $ | 165,073 |  |  | $ | 2,009,857 |  |  | $ | 1,857,270 |
Total change | $ | 98,535 |  |  |  |  | $ | 14,861 |  |  |  |  | $ | 15,223 |  |  |  |  | $ | 23,968 |  |  |  |  | $ | 152,587 |  |  |
Total growth % | 10.5 | % |  |  |  | 3.1 | % |  |  |  | 5.6 | % |  |  |  | 14.5 | % |  |  |  | 8.2 | % |  |
Profit-sharing contingent commissions | (24,517 | ) |  | (23,377 | ) |  | (23,896 | ) |  | (20,123 | ) |  | (7,462 | ) |  | (8,686 | ) |  | — |  |  | — |  |  | (55,875 | ) |  | (52,186 | )
GSCs | (8,535 | ) |  | (9,108 | ) |  | (76 | ) |  | (31 | ) |  | (1,350 | ) |  | (1,231 | ) |  | — |  |  | — |  |  | (9,961 | ) |  | (10,370 | )
Core commissions and fees | $ | 1,007,522 |  |  | $ | 909,554 |  |  | $ | 469,906 |  |  | $ | 458,863 |  |  | $ | 277,552 |  |  | $ | 261,224 |  |  | $ | 189,041 |  |  | $ | 165,073 |  |  | $ | 1,944,021 |  |  | $ | 1,794,714 |
New Revenue Standard | 1,254 |  |  | — |  |  | (7,973 | ) |  | — |  |  | 935 |  |  | — |  |  | (10,307 | ) |  | — |  |  | (16,091 | ) |  | — |
Acquisition revenues | (73,405 | ) |  | — |  |  | (7,289 | ) |  | — |  |  | (2,514 | ) |  | — |  |  | (7,969 | ) |  | — |  |  | (91,177 | ) |  | — |
Divested business | — |  |  | (1,270 | ) |  | — |  |  | (114 | ) |  | — |  |  | (106 | ) |  | — |  |  | — |  |  | — |  |  | (1,490 | )
Organic Revenue(2) | $ | 935,371 |  |  | $ | 908,284 |  |  | $ | 454,644 |  |  | $ | 458,749 |  |  | $ | 275,973 |  |  | $ | 261,118 |  |  | $ | 170,765 |  |  | $ | 165,073 |  |  | $ | 1,836,753 |  |  | $ | 1,793,224 |
Organic Revenue growth(2) | $ | 27,087 |  |  |  |  | $ | (4,105 | ) |  |  |  | $ | 14,855 |  |  |  |  | $ | 5,692 |  |  |  |  | $ | 43,529 |  |  |
Organic Revenue growth %(2) | 3.0 | % |  |  |  | (0.9 | )% |  |  |  | 5.7 | % |  |  |  | 3.4 | % |  |  |  | 2.4 | % |  |

(1) | The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 16 of the Notes to the Consolidated Financial Statements, which includes corporate and consolidation items.

(2) | A non-GAAP financial measure.

The reconciliation of total commissions and fees, included in the Consolidated Statement of Income, to Organic Revenue for the years ended December 31, 2017 and 2016, is as follows:

| Year Ended December 31,
(in thousands) | 2017 |  | 2016
Commissions and fees | $ | 1,857,270 |  |  | $ | 1,762,787 |
Profit-sharing contingent commissions | (52,186 | ) |  | (54,000 | )
Guaranteed supplemental commissions | (10,370 | ) |  | (11,479 | )
Core commissions and fees | 1,794,714 |  |  | 1,697,308 |
Acquisition revenues | (27,739 | ) |  | — |
Divested businesses | — |  |  | (4,912 | )
Organic Revenue | $ | 1,766,975 |  |  | $ | 1,692,396 |

33

Table of Contents
The reconciliation of total commissions and fees to Organic Revenue for the year ended December 31, 2017, by Segment, are as follows:

2017 | Retail(1) |  | National Programs |  | Wholesale Brokerage |  | Services |  | Total
(in thousands, except percentages) | 2017 |  | 2016 |  | 2017 |  | 2016 |  | 2017 |  | 2016 |  | 2017 |  | 2016 |  | 2017 |  | 2016
Commissions and fees | $ | 942,039 |  |  | $ | 916,084 |  |  | $ | 479,017 |  |  | $ | 447,808 |  |  | $ | 271,141 |  |  | $ | 242,813 |  |  | $ | 165,073 |  |  | $ | 156,082 |  |  | $ | 1,857,270 |  |  | $ | 1,762,787 |
Total change | $ | 25,955 |  |  |  |  | $ | 31,209 |  |  |  |  | $ | 28,328 |  |  |  |  | $ | 8,991 |  |  |  |  | $ | 94,483 |  |  |
Total growth % | 2.8 | % |  |  |  | 7.0 | % |  |  |  | 11.7 | % |  |  |  | 5.8 | % |  |  |  | 5.4 | % |  |
Profit-sharing contingent commissions | (23,377 | ) |  | (25,207 | ) |  | (20,123 | ) |  | (17,306 | ) |  | (8,686 | ) |  | (11,487 | ) |  | — |  |  | — |  |  | (52,186 | ) |  | (54,000 | )
GSCs | (9,108 | ) |  | (9,787 | ) |  | (31 | ) |  | (23 | ) |  | (1,231 | ) |  | (1,669 | ) |  | — |  |  | — |  |  | (10,370 | ) |  | (11,479 | )
Core commissions and fees | $ | 909,554 |  |  | $ | 881,090 |  |  | $ | 458,863 |  |  | $ | 430,479 |  |  | $ | 261,224 |  |  | $ | 229,657 |  |  | $ | 165,073 |  |  | $ | 156,082 |  |  | $ | 1,794,714 |  |  | $ | 1,697,308 |
Acquisition revenues | (8,151 | ) |  | — |  |  | (2,296 | ) |  | — |  |  | (16,442 | ) |  | — |  |  | (850 | ) |  | — |  |  | (27,739 | ) |  | — |
Divested business | — |  |  | (4,838 | ) |  | — |  |  | (277 | ) |  | — |  |  | — |  |  | — |  |  | 203 |  |  | — |  |  | (4,912 | )
Organic Revenue(2) | $ | 901,403 |  |  | $ | 876,252 |  |  | $ | 456,567 |  |  | $ | 430,202 |  |  | $ | 244,782 |  |  | $ | 229,657 |  |  | $ | 164,223 |  |  | $ | 156,285 |  |  | $ | 1,766,975 |  |  | $ | 1,692,396 |
Organic Revenue growth(2) | $ | 25,151 |  |  |  |  | $ | 26,365 |  |  |  |  | $ | 15,125 |  |  |  |  | $ | 7,938 |  |  |  |  | $ | 74,579 |  |  |
Organic Revenue growth %(2) | 2.9 | % |  |  |  | 6.1 | % |  |  |  | 6.6 | % |  |  |  | 5.1 | % |  |  |  | 4.4 | % |  |

(1) | The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 16 of the Notes to the Consolidated Financial Statements, which includes corporate and consolidation items.

(2) | A non-GAAP financial measure.

The reconciliation of total commissions and fees, included in the Consolidated Statement of Income, to Organic Revenue for the years ended December 31, 2016 and 2015, is as follows:

| Year Ended December 31,
(in thousands) | 2016 |  | 2015
Commissions and fees | $ | 1,762,787 |  |  | $ | 1,656,951 |
Profit-sharing contingent commissions | (54,000 | ) |  | (51,707 | )
Guaranteed supplemental commissions | (11,479 | ) |  | (10,026 | )
Core commissions and fees | 1,697,308 |  |  | 1,595,218 |
Acquisition revenues | (61,713 | ) |  | — |
Divested businesses | — |  |  | (6,669 | )
Organic Revenue | $ | 1,635,595 |  |  | $ | 1,588,549 |

34

Table of Contents
The reconciliation of total commissions and fees to Organic Revenue for the year ended December 31, 2016, by Segment, are as follows:

2016 | Retail(1) |  | National Programs |  | Wholesale Brokerage |  | Services |  | Total
(in thousands, except percentages) | 2016 |  | 2015 |  | 2016 |  | 2015 |  | 2016 |  | 2015 |  | 2016 |  | 2015 |  | 2016 |  | 2015
Commissions and fees | $ | 916,084 |  |  | $ | 866,465 |  |  | $ | 447,808 |  |  | $ | 428,473 |  |  | $ | 242,813 |  |  | $ | 216,638 |  |  | $ | 156,082 |  |  | $ | 145,375 |  |  | $ | 1,762,787 |  |  | $ | 1,656,951 |
Total change | $ | 49,619 |  |  |  |  | $ | 19,335 |  |  |  |  | $ | 26,175 |  |  |  |  | $ | 10,707 |  |  |  |  | $ | 105,836 |  |  |
Total growth % | 5.7 | % |  |  |  | 4.5 | % |  |  |  | 12.1 | % |  |  |  | 7.4 | % |  |  |  | 6.4 | % |  |
Profit-sharing contingent commissions | (25,207 | ) |  | (22,051 | ) |  | (17,306 | ) |  | (15,558 | ) |  | (11,487 | ) |  | (14,098 | ) |  | — |  |  | — |  |  | (54,000 | ) |  | (51,707 | )
GSCs | (9,787 | ) |  | (8,291 | ) |  | (23 | ) |  | (30 | ) |  | (1,669 | ) |  | (1,705 | ) |  | — |  |  | — |  |  | (11,479 | ) |  | (10,026 | )
Core commissions and fees | $ | 881,090 |  |  | $ | 836,123 |  |  | $ | 430,479 |  |  | $ | 412,885 |  |  | $ | 229,657 |  |  | $ | 200,835 |  |  | $ | 156,082 |  |  | $ | 145,375 |  |  | $ | 1,697,308 |  |  | $ | 1,595,218 |
Acquisition revenues | (31,151 | ) |  | — |  |  | (1,680 | ) |  | — |  |  | (20,164 | ) |  | — |  |  | (8,718 | ) |  | — |  |  | (61,713 | ) |  | — |
Divested business | — |  |  | (1,926 | ) |  | — |  |  | (1,296 | ) |  | — |  |  | — |  |  | — |  |  | (3,447 | ) |  | — |  |  | (6,669 | )
Organic Revenue(2) | $ | 849,939 |  |  | $ | 834,197 |  |  | $ | 428,799 |  |  | $ | 411,589 |  |  | $ | 209,493 |  |  | $ | 200,835 |  |  | $ | 147,364 |  |  | $ | 141,928 |  |  | $ | 1,635,595 |  |  | $ | 1,588,549 |
Organic Revenue growth(2) | $ | 15,742 |  |  |  |  | $ | 17,210 |  |  |  |  | $ | 8,658 |  |  |  |  | $ | 5,436 |  |  |  |  | $ | 47,046 |  |  |
Organic Revenue growth %(2) | 1.9 | % |  |  |  | 4.2 | % |  |  |  | 4.3 | % |  |  |  | 3.8 | % |  |  |  | 3.0 | % |  |

(1) | The Retail Segment includes commissions and fees reported in the “Other” column of the Segment Information in Note 16 of the Notes to the Consolidated Financial Statements, which includes corporate and consolidation items.

(2) | A non-GAAP financial measure.

The reconciliation of income before incomes taxes, included in the Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, for the year ended December 31, 2018, is as follows:

(in thousands) | Retail |  | National Programs |  | Wholesale Brokerage |  | Services |  | Other |  | Total
Income before income taxes | $ | 217,845 |  |  | $ | 117,375 |  |  | $ | 70,171 |  |  | $ | 34,508 |  |  | $ | 22,563 |  |  | $ | 462,462 |
Income Before Income Taxes Margin | 20.9 | % |  | 23.7 | % |  | 24.4 | % |  | 18.2 | % |  | NMF |  |  | 23.0 | %
Amortization | 44,386 |  |  | 25,954 |  |  | 11,391 |  |  | 4,813 |  |  | — |  |  | 86,544 |
Depreciation | 5,289 |  |  | 5,486 |  |  | 1,628 |  |  | 1,558 |  |  | 8,873 |  |  | 22,834 |
Interest | 35,969 |  |  | 26,181 |  |  | 5,254 |  |  | 2,869 |  |  | (29,693 | ) |  | 40,580 |
Change in estimated acquisition earn-out payables | 1,081 |  |  | 875 |  |  | 815 |  |  | 198 |  |  | — |  |  | 2,969 |
EBITDAC | $ | 304,570 |  |  | $ | 175,871 |  |  | $ | 89,259 |  |  | $ | 43,946 |  |  | $ | 1,743 |  |  | $ | 615,389 |
EBITDAC Margin | 29.2 | % |  | 35.6 | % |  | 31.1 | % |  | 23.2 | % |  | NMF |  |  | 30.6 | %

NMF = Not a meaningful figure
35

Table of Contents
The reconciliation of income before incomes taxes, included in the Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, for the year ended December 31, 2017, is as follows:

(in thousands) | Retail |  | National Programs |  | Wholesale Brokerage |  | Services |  | Other |  | Total
Income before income taxes | $ | 196,616 |  |  | $ | 109,961 |  |  | $ | 68,844 |  |  | $ | 30,498 |  |  | $ | 43,803 |  |  | $ | 449,722 |
Income Before Income Taxes Margin | 20.8 | % |  | 22.9 | % |  | 25.3 | % |  | 18.4 | % |  | NMF |  |  | 23.9 | %
Amortization | 42,164 |  |  | 27,277 |  |  | 11,456 |  |  | 4,548 |  |  | 1 |  |  | 85,446 |
Depreciation | 5,210 |  |  | 6,325 |  |  | 1,885 |  |  | 1,600 |  |  | 7,678 |  |  | 22,698 |
Interest | 31,133 |  |  | 35,561 |  |  | 6,263 |  |  | 3,522 |  |  | (38,163 | ) |  | 38,316 |
Change in estimated acquisition earn-out payables | 8,087 |  |  | 786 |  |  | 327 |  |  | — |  |  | — |  |  | 9,200 |
EBITDAC | $ | 283,210 |  |  | $ | 179,910 |  |  | $ | 88,775 |  |  | $ | 40,168 |  |  | $ | 13,319 |  |  | $ | 605,382 |
EBITDAC Margin | 30.0 | % |  | 37.5 | % |  | 32.7 | % |  | 24.3 | % |  | NMF |  |  | 32.2 | %

NMF = Not a meaningful figure
The reconciliation of income before incomes taxes, included in the Consolidated Statement of Income, to EBITDAC, a non-GAAP measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, for the year ended December 31, 2016, is as follows:

(in thousands) | Retail |  | National Programs |  | Wholesale Brokerage |  | Services |  | Other |  | Total
Income before income taxes | $ | 188,001 |  |  | $ | 91,762 |  |  | $ | 62,623 |  |  | $ | 24,338 |  |  | $ | 56,775 |  |  | $ | 423,499 |
Income Before Income Taxes Margin | 20.5 | % |  | 20.5 | % |  | 25.8 | % |  | 15.6 | % |  | NMF |  |  | 24.0 | %
Amortization | 43,447 |  |  | 27,920 |  |  | 10,801 |  |  | 4,485 |  |  | 10 |  |  | 86,663 |
Depreciation | 6,191 |  |  | 7,868 |  |  | 1,975 |  |  | 1,881 |  |  | 3,088 |  |  | 21,003 |
Interest | 38,216 |  |  | 45,738 |  |  | 3,976 |  |  | 4,950 |  |  | (53,399 | ) |  | 39,481 |
Change in estimated acquisition earn-out payables | 10,253 |  |  | 207 |  |  | (274 | ) |  | (1,001 | ) |  | — |  |  | 9,185 |
EBITDAC | $ | 286,108 |  |  | $ | 173,495 |  |  | $ | 79,101 |  |  | $ | 34,653 |  |  | $ | 6,474 |  |  | $ | 579,831 |
EBITDAC Margin | 31.2 | % |  | 38.7 | % |  | 32.5 | % |  | 22.2 | % |  | NMF |  |  | 32.8 | %

NMF = Not a meaningful figure
36

Table of Contents
Retail Segment
The Retail Segment provides a broad range of insurance products and services to commercial, public and quasi-public, professional and individual insured customers. Approximately 85.9% of the Retail Segment’s commissions and fees revenue is commission based. Because most of our other operating expenses are not correlated to changes in commissions on insurance premiums, a significant portion of any fluctuation in the commissions we receive, net of related producer compensation and cost to fulfill expense deferrals and releases as required by the New Revenue Standard, will result in a similar fluctuation in our income before income taxes, unless we make incremental investments or modifications to the costs in the organization.
Financial information relating to our Retail Segment is as follows:

(in thousands, except percentages) | 2018 |  | % Change |  | 2017 |  | % Change |  | 2016
REVENUES |  |  |  |  |  |  |  |  |
Core commissions and fees | $ | 1,008,639 |  |  | 10.9 | % |  | $ | 909,762 |  |  | 3.2 | % |  | $ | 881,729 |
Profit-sharing contingent commissions | 24,517 |  |  | 4.9 | % |  | 23,377 |  |  | (7.3 | )% |  | 25,207 |
Guaranteed supplemental commissions | 8,535 |  |  | (6.3 | )% |  | 9,108 |  |  | (6.9 | )% |  | 9,787 |
Commissions and fees | 1,041,691 |  |  | 10.6 | % |  | 942,247 |  |  | 2.8 | % |  | 916,723 |
Investment income | 2 |  |  | (75.0 | )% |  | 8 |  |  | (78.4 | )% |  | 37 |
Other income, net | 1,070 |  |  | (11.2 | )% |  | 1,205 |  |  | 86.5 | % |  | 646 |
Total revenues | 1,042,763 |  |  | 10.5 | % |  | 943,460 |  |  | 2.8 | % |  | 917,406 |
EXPENSES |  |  |  |  |  |  |  |  |
Employee compensation and benefits | 570,222 |  |  | 10.6 | % |  | 515,477 |  |  | 6.0 | % |  | 486,303 |
Other operating expenses | 169,104 |  |  | 15.0 | % |  | 147,084 |  |  | 0.5 | % |  | 146,286 |
(Gain)/loss on disposal | (1,133 | ) |  | (51.0 | )% |  | (2,311 | ) |  | 79.0 | % |  | (1,291 | )
Amortization | 44,386 |  |  | 5.3 | % |  | 42,164 |  |  | (3.0 | )% |  | 43,447 |
Depreciation | 5,289 |  |  | 1.5 | % |  | 5,210 |  |  | (15.8 | )% |  | 6,191 |
Interest | 35,969 |  |  | 15.5 | % |  | 31,133 |  |  | (18.5 | )% |  | 38,216 |
Change in estimated acquisition earn-out payables | 1,081 |  |  | (86.6 | )% |  | 8,087 |  |  | (21.1 | )% |  | 10,253 |
Total expenses | 824,918 |  |  | 10.5 | % |  | 746,844 |  |  | 2.4 | % |  | 729,405 |
Income before income taxes | $ | 217,845 |  |  | 10.8 | % |  | $ | 196,616 |  |  | 4.6 | % |  | $ | 188,001 |
Income Before Income Taxes Margin (1) | 20.9 | % |  |  |  | 20.8 | % |  |  |  | 20.5 | %
EBITDAC (1) | 304,570 |  |  | 7.5 | % |  | 283,210 |  |  | (1.0 | )% |  | 286,108 |
EBITDAC Margin (1) | 29.2 | % |  |  |  | 30.0 | % |  |  |  | 31.2 | %
Organic Revenue growth rate (1) | 3.0 | % |  |  |  | 2.9 | % |  |  |  | 1.9 | %
Employee compensation and benefits relative to total revenues | 54.7 | % |  |  |  | 54.6 | % |  |  |  | 53.0 | %
Other operating expenses relative to total revenues | 16.2 | % |  |  |  | 15.6 | % |  |  |  | 15.9 | %
Capital expenditures | $ | 6,858 |  |  | 52.6 | % |  | $ | 4,494 |  |  | (24.5 | )% |  | $ | 5,951 |
Total assets at December 31 | $ | 5,850,045 |  |  | 37.5 | % |  | $ | 4,255,515 |  |  | 10.4 | % |  | $ | 3,854,393 |

(1) A non-GAAP measure
NMF = Not a meaningful figure
The Retail Segment’s total revenues in 2018 increased 10.5%, or $99.3 million, over the same period in 2017, to $1,042.8 million. The $98.9 million increase in core commissions and fees was driven by the following: (i) approximately $73.4 million related to the core commissions and fees from acquisitions that had no comparable revenues in the same period of 2017; (ii) $28.1 million related to net new and renewal business; offset by (iii) $1.3 million related to the impact of adopting the New Revenue Standard; and (iv) a decrease of $1.3 million related to commissions and fees from businesses divested in 2017 and 2018. Profit-sharing contingent commissions and GSCs in 2018 increased 1.7%, or $0.6 million, over 2017, to $33.1 million. The Retail Segment’s growth rate for total commissions and fees was 10.6% and the Organic Revenue growth rate was 3.0% for 2018. The Organic Revenue growth rate was driven by increased new business and higher retention across most lines of business the preceding twelve months.
Income before income taxes for 2018 increased 10.8%, or $21.2 million, over the same period in 2017, to $217.8 million. The primary factors affecting this increase were: (i) the net increase in revenue as described above, (ii) offset by a 10.6%, or $54.7 million, increase in
37

Table of Contents
employee compensation and benefits, due primarily to the year-on-year impact of salary inflation and additional teammates to support revenue growth, (iii) operating expenses which increased by increased by $22.0 million, or 15.0%, primarily due to our multi-year technology investment program and increased professional services to support our customers; (iv) a combined increase in amortization, depreciation and intercompany interest expense of $7.2 million resulting from our acquisition activity over the past twelve months; offset by (v) a reduction in the change in estimated acquisition earn-out payables of $7.0 million, or 86.6%, to $1.1 million.
EBITDAC for 2018 increased 7.5%, or $21.4 million, from the same period in 2017, to $304.6 million. EBITDAC Margin for 2018 decreased to 29.2% from 30.0% in the same period in 2017. EBITDAC Margin was impacted by the net increase in revenue as described above, including the New Revenue Standard, which impacted the EBITDAC Margin by approximately 90 basis points.
The Retail Segment’s total revenues in 2017 increased 2.8%, or $26.1 million, over the same period in 2016, to $943.5 million. The $28.0 million increase in core commissions and fees was driven by the following: (i) $24.6 million related to net new business; (ii) approximately $8.2 million related to the core commissions and fees from acquisitions that had no comparable revenues in the same period of 2016; and (iii) an offsetting decrease of $4.8 million related to commissions and fees from businesses divested in 2016 and 2017. Profit-sharing contingent commissions and GSCs in 2017 decreased 7.2%, or $2.5 million, over 2016, to $32.5 million. The Retail Segment’s growth rate for total commissions and fees was 2.8%, and the Organic Revenue growth rate was 2.9% for 2017. The Organic Revenue growth rate was driven by increased new business and higher retention during the preceding twelve months, along with continued increases in commercial auto and employee benefits rates and underlying exposure unit values that drive insurance premiums.
Income before income taxes for 2017 increased 4.6%, or $8.6 million, over the same period in 2016, to $196.6 million. The primary factors affecting this increase were: (i) the net increase in revenue as described above, which was offset by (ii) a 6.0%, or $29.2 million, increase in employee compensation and benefits, due primarily to the year-on-year impact of salary inflation, additional teammates to support revenue growth and the incremental investment in our performance incentive plan, (iii) an increase in operating expenses by $0.8 million, or 0.5%, primarily due to our multi-year technology investment program and increased value-added consulting services to support our customers; offset by (iv) a reduction in the change in estimated acquisition earn-out payables of $2.2 million, or 21.1%, to $8.1 million, and (v) a combined decrease in amortization, depreciation and intercompany interest expense of $9.3 million.
EBITDAC for 2017 decreased 1.0%, or $2.9 million, from the same period in 2016, to $283.2 million. EBITDAC Margin for 2017 decreased to 30.0% from 31.2% in the same period in 2016. EBITDAC Margin was impacted by the factors impacting employee compensation and benefits as well as other operating expenses described above, partially offset by the net increase in revenue as described above.
38

Table of Contents
National Programs Segment
The National Programs Segment manages over 40 programs supported by approximately one hundred well-capitalized carrier partners. In most cases, the insurance carriers that support the programs have delegated underwriting and, in many instances, claims-handling authority to our programs operations. These programs are generally distributed through a nationwide network of independent agents and Brown & Brown retail agents, and offer targeted products and services designed for specific industries, trade groups, professions, public entities and market niches. The National Programs Segment operations can be grouped into five broad categories: Professional Programs, Personal Lines Programs, Commercial Programs, Public Entity-Related Programs and the National Flood Program. The National Programs Segment’s revenue is primarily commission based.
Financial information relating to our National Programs Segment is as follows:

(in thousands, except percentages) | 2018 |  | % Change |  | 2017 |  | % Change |  | 2016
REVENUES |  |  |  |  |  |  |  |  |
Core commissions and fees | $ | 469,906 |  |  | 2.4 | % |  | $ | 458,863 |  |  | 6.6 | % |  | $ | 430,479 |
Profit-sharing contingent commissions | 23,896 |  |  | 18.7 | % |  | 20,123 |  |  | 16.3 | % |  | 17,306 |
Guaranteed supplemental commissions | 76 |  |  | 145.2 | % |  | 31 |  |  | 34.8 | % |  | 23 |
Commissions and fees | 493,878 |  |  | 3.1 | % |  | 479,017 |  |  | 7.0 | % |  | 447,808 |
Investment income | 506 |  |  | 31.8 | % |  | 384 |  |  | (38.9 | )% |  | 628 |
Other income, net | 79 |  |  | (80.8 | )% |  | 412 |  |  | NMF |  |  | 80 |
Total revenues | 494,463 |  |  | 3.1 | % |  | 479,813 |  |  | 7.0 | % |  | 448,516 |
EXPENSES |  |  |  |  |  |  |  |  |
Employee compensation and benefits | 219,166 |  |  | 8.6 | % |  | 201,816 |  |  | 5.6 | % |  | 191,199 |
Other operating expenses | 98,012 |  |  | — | % |  | 97,988 |  |  | 16.9 | % |  | 83,822 |
(Gain)/loss on disposal | 1,414 |  |  | NMF |  |  | 99 |  |  | — | % |  | — |
Amortization | 25,954 |  |  | (4.9 | )% |  | 27,277 |  |  | (2.3 | )% |  | 27,920 |
Depreciation | 5,486 |  |  | (13.3 | )% |  | 6,325 |  |  | (19.6 | )% |  | 7,868 |
Interest | 26,181 |  |  | (26.4 | )% |  | 35,561 |  |  | (22.3 | )% |  | 45,738 |
Change in estimated acquisition earn-out payables | 875 |  |  | 11.3 | % |  | 786 |  |  | NMF |  |  | 207 |
Total expenses | 377,088 |  |  | 2.0 | % |  | 369,852 |  |  | 3.7 | % |  | 356,754 |
Income before income taxes | $ | 117,375 |  |  | 6.7 | % |  | $ | 109,961 |  |  | 19.8 | % |  | $ | 91,762 |
Income Before Income Taxes Margin (1) | 23.7 | % |  |  |  | 22.9 | % |  |  |  | 20.5 | %
EBITDAC (1) | 175,871 |  |  | (2.2 | )% |  | 179,910 |  |  | 3.7 | % |  | 173,495 |
EBITDAC Margin (1) | 35.6 | % |  |  |  | 37.5 | % |  |  |  | 38.7 | %
Organic Revenue growth rate (1) | (0.9 | )% |  |  |  | 6.1 | % |  |  |  | 4.2 | %
Employee compensation and benefits relative to total revenues | 44.3 | % |  |  |  | 42.1 | % |  |  |  | 42.6 | %
Other operating expenses relative to total revenues | 19.8 | % |  |  |  | 20.4 | % |  |  |  | 18.7 | %
Capital expenditures | $ | 12,391 |  |  | 108.7 | % |  | $ | 5,936 |  |  | (14.9 | )% |  | $ | 6,977 |
Total assets at December 31 | $ | 2,940,097 |  |  | (10.0 | )% |  | $ | 3,267,486 |  |  | 20.5 | % |  | $ | 2,711,378 |

(1) A non-GAAP measure
NMF = Not a meaningful figure
The National Programs Segment’s total revenues in 2018 increased 3.1%, or $14.7 million, over 2017, to a total $494.5 million. The $11.0 million increase in core commissions and fees was driven by the following: (i) $7.9 million related to the impact of adopting the New Revenue Standard; (ii) an increase of approximately $7.3 million related to core commissions and fees from acquisitions that had no comparable revenues in 2017; which was offset by (iii) $4.1 million related to net new and renewal business, which was impacted by lower weather related claims revenue as compared to the prior year; and (iv) a decrease of $0.1 million related to commissions and fees recorded in 2017 from businesses since divested. Profit-sharing contingent commissions and GSCs were $24.0 million in 2018, which was an increase of $3.8 million over 2017, which was primarily driven by the improved loss experience of our carrier partners.
The National Programs Segment’s growth rate for total commissions and fees was 3.1% and the Organic Revenue growth rate was (0.9)% for 2018. The total commissions and fees growth was mainly due to recognizing a full year of revenues for our core commercial program, new
39

Table of Contents
acquisitions, strong growth in our earthquake programs, increased profit-sharing contingent commissions and a non-recurring adjustment of approximately $8.0 million relating to the New Revenue Standard with an offset for the lower weather-related claims revenue. The Organic Revenue growth rate decline was driven substantially by lower flood claims revenue as compared to the prior year.
Income before income taxes for 2018 increased 6.7%, or $7.4 million, from the same period in 2017, to $117.4 million. The increase was the result of a lower intercompany interest charge of $9.4 million, growth in a number of our programs, and was offset by the investment in our core commercial program, and lower weather-related claims revenue.
EBITDAC for 2018 decreased 2.2%, or $4.0 million, from the same period in 2017, to $175.9 million. EBITDAC Margin for 2018 decreased to 35.6% from 37.5% in the same period in 2017. The decrease in EBITDAC Margin was related to (i) increased employee compensation and benefits primarily driven by the investment in our core commercial program; (ii) a decrease in weather-related claims revenue compared to the prior year which has a margin higher than the average margin of the National Programs Segment; partially offset by (iii) the total revenue growth.
The National Programs Segment’s total revenues in 2017 increased 7.0%, or $31.3 million, over 2016, to a total of $479.8 million. The $28.4 million increase in core commissions and fees was driven by the following: (i) $26.4 million related to net new business; (ii) an increase of approximately $2.3 million related to core commissions and fees from acquisitions that had no comparable revenues in 2016; and which was offset by (iii) a decrease of $0.3 million related to commissions and fees recorded in 2016 from businesses since divested. Profit-sharing contingent commissions and GSCs were $20.2 million in 2017, which was an increase of $2.8 million over 2016, which was primarily driven by the improved loss experience of our carrier partners.
The National Programs Segment’s growth rate for total commissions and fees was 7.0% and the Organic Revenue growth rate was 6.1% for 2017. This Organic Revenue growth rate was mainly due to increased flood claims revenues and our new core commercial program with QBE. Growth in these businesses was partially offset by certain programs that have been affected by certain carriers changing their risk appetite for new or existing programs or lower premium rates for certain lines of business.
Income before income taxes for 2017 increased 19.8%, or $18.2 million, from the same period in 2016, to $110.0 million. The increase was the result of a lower intercompany interest charge of $10.2 million, along with leveraging revenue growth of $31.3 million.
EBITDAC for 2017 increased 3.7%, or $6.4 million, from the same period in 2016, to $179.9 million. EBITDAC Margin for 2017 decreased to 37.5% from 38.7% in the same period in 2016. The decrease in EBITDAC Margin was related to (i) the investment in our new core commercial program; which was partially offset by (ii) increased flood claims processing revenue which has a higher than average margin.
40

Table of Contents
Wholesale Brokerage Segment
The Wholesale Brokerage Segment markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, including Brown & Brown retail agents. Like the Retail and National Programs Segments, the Wholesale Brokerage Segment’s revenues are primarily commission based.
Financial information relating to our Wholesale Brokerage Segment is as follows:

(in thousands, except percentages) | 2018 |  | % Change |  | 2017 |  | % Change |  | 2016
REVENUES |  |  |  |  |  |  |  |  |
Core commissions and fees | $ | 277,552 |  |  | 6.3 | % |  | $ | 261,224 |  |  | 13.7 | % |  | $ | 229,657 |
Profit-sharing contingent commissions | 7,462 |  |  | (14.1 | )% |  | 8,686 |  |  | (24.4 | )% |  | 11,487 |
Guaranteed supplemental commissions | 1,350 |  |  | 9.7 | % |  | 1,231 |  |  | (26.2 | )% |  | 1,669 |
Commissions and fees | 286,364 |  |  | 5.6 | % |  | 271,141 |  |  | 11.7 | % |  | 242,813 |
Investment income | 165 |  |  | — | % |  | — |  |  | (100.0 | )% |  | 4 |
Other income, net | 485 |  |  | (18.6 | )% |  | 596 |  |  | 108.4 | % |  | 286 |
Total revenues | 287,014 |  |  | 5.6 | % |  | 271,737 |  |  | 11.8 | % |  | 243,103 |
EXPENSES |  |  |  |  |  |  |  |  |
Employee compensation and benefits | 147,571 |  |  | 6.7 | % |  | 138,297 |  |  | 13.5 | % |  | 121,863 |
Other operating expenses | 50,177 |  |  | 12.3 | % |  | 44,665 |  |  | 6.0 | % |  | 42,139 |
(Gain)/loss on disposal | 7 |  |  | — | % |  | — |  |  | — | % |  | — |
Amortization | 11,391 |  |  | (0.6 | )% |  | 11,456 |  |  | 6.1 | % |  | 10,801 |
Depreciation | 1,628 |  |  | (13.6 | )% |  | 1,885 |  |  | (4.6 | )% |  | 1,975 |
Interest | 5,254 |  |  | (16.1 | )% |  | 6,263 |  |  | 57.5 | % |  | 3,976 |
Change in estimated acquisition earn-out payables | 815 |  |  | NMF |  |  | 327 |  |  | NMF |  |  | (274 | )
Total expenses | 216,843 |  |  | 6.9 | % |  | 202,893 |  |  | 12.4 | % |  | 180,480 |
Income before income taxes | $ | 70,171 |  |  | 1.9 | % |  | $ | 68,844 |  |  | 9.9 | % |  | $ | 62,623 |
Income Before Income Taxes Margin (1) | 24.4 | % |  |  |  | 25.3 | % |  |  |  | 25.8 | %
EBITDAC (1) | 89,259 |  |  | 0.5 | % |  | 88,775 |  |  | 12.2 | % |  | 79,101 |
EBITDAC Margin (1) | 31.1 | % |  |  |  | 32.7 | % |  |  |  | 32.5 | %
Organic Revenue growth rate(1) | 5.7 | % |  |  |  | 6.6 | % |  |  |  | 4.3 | %
Employee compensation and benefits relative to total revenues | 51.4 | % |  |  |  | 50.9 | % |  |  |  | 50.1 | %
Other operating expenses relative to total revenues | 17.5 | % |  |  |  | 16.4 | % |  |  |  | 17.3 | %
Capital expenditures | $ | 2,518 |  |  | 37.1 | % |  | $ | 1,836 |  |  | 41.1 | % |  | $ | 1,301 |
Total assets at December 31 | $ | 1,283,877 |  |  | 1.9 | % |  | $ | 1,260,239 |  |  | 13.7 | % |  | $ | 1,108,829 |

(1) A non-GAAP measure
NMF = Not a meaningful figure
The Wholesale Brokerage Segment’s total revenues for 2018 increased 5.6%, or $15.3 million, over 2017, to $287.0 million. The $16.3 million increase in core commissions and fees was driven by the following: (i) $14.9 million related to net new and renewal business; (ii) $2.5 million related to the core commissions and fees from acquisitions that had no comparable revenues in 2017; which was offset by (iii) a decrease of $0.9 million related to the impact of adopting the New Revenue Standard; and (iv) a decrease of $0.1 million related to commissions and fees recorded in 2017 from businesses since divested. Profit-sharing contingent commissions and GSCs for 2018 decreased $1.1 million over 2017, to $8.8 million. This decrease was driven by higher loss ratios experienced for several carriers due to losses associated with 2017 weather-related events. The Wholesale Brokerage Segment’s growth rate for total commissions and fees was 5.6%, and the Organic Revenue growth rate was 5.7% for 2018. The Organic Revenue growth rate was driven by net new business and modest increases in exposure units that were partially offset by slightly decreasing rates.
Income before income taxes for 2018 increased 1.9%, or $1.3 million, over 2017, to $70.2 million, primarily due to the following: (i) the net increase in revenue as described above, which was offset by (ii) an increase in employee compensation and benefits of $9.3 million, related to additional teammates to support increased transaction volumes, compensation increases for existing teammates, and additional non-cash stock-based compensation expense; (iii) a decrease in profit from lower profit-sharing contingent commissions and GSCs; and (iv) a net $5.5
41

Table of Contents
million increase in operating expenses, primarily related to intercompany technology charges that had no comparable expenses in the same period of 2017.
EBITDAC for 2018 increased 0.5%, or $0.5 million, from the same period in 2017, to $89.3 million. EBITDAC Margin for 2018 decreased to 31.1% from 32.7% in the same period in 2017. The decrease in EBITDAC Margin was primarily driven by the net decrease in profit-sharing contingent commissions as described above and to a lesser extent the intercompany technology charges and increased non-cash stock-based compensation costs, which more than offset margin expansion from leveraging of Organic Revenue growth.
The Wholesale Brokerage Segment’s total revenues for 2017 increased 11.8%, or $28.6 million, over 2016, to $271.7 million. The $31.6 million net increase in core commissions and fees was driven by the following: (i) $16.5 million related to the core commissions and fees from acquisitions that had no comparable revenues in 2016; and (ii) $15.1 million related to net new business. Profit-sharing contingent commissions and GSCs for 2017 decreased $3.2 million over 2016, to $9.9 million. This decrease was driven by higher loss ratios experienced for several carriers, and partially offset by profit-sharing contingent commissions received from acquisitions that had no comparable profit-sharing contingent commissions in 2016. The Wholesale Brokerage Segment’s growth rate for total commissions and fees was 11.7%, and the Organic Revenue growth rate was 6.6% for 2017, which were driven by net new business and modest increases in exposure units that were partially offset by significant contraction in insurance premium rates for catastrophe-prone properties during the first half of the year, which moderated in the latter part of the year.
Income before income taxes for 2017, increased 9.9%, or $6.2 million, over 2016, to $68.8 million, primarily due to the following: (i) the net increase in revenue as described above, offset by (ii) an increase in employee compensation and benefits of $16.4 million, of which $10.4 million was related to acquisitions that had no comparable compensation and benefits in the same period of 2016, with the remainder related to additional teammates to support increased transaction volumes and compensation increases for existing teammates, (iii) a decrease in profit from lower profit-sharing contingent commissions and GSCs, (iv) a net $2.5 million increase in operating expenses, of which $3.1 million was related to acquisitions that had no comparable expenses in the same period of 2016 and (v) higher intercompany interest charges related to acquisitions completed in the previous year.
EBITDAC for 2017 increased 12.2%, or $9.7 million, from the same period in 2016, to $88.8 million. EBITDAC Margin for 2017 increased to 32.7% from 32.5% in the same period in 2016. The increase in EBITDAC Margin was primarily driven by: (i) growth of core commissions and fees of 13.7%; and (ii) improving the EBITDAC Margin of a business acquired in 2016, which were partially offset by (iii) the net decrease in profit-sharing contingent commissions as a result of higher loss ratios.
42

Table of Contents
Services Segment
The Services Segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas. The Services Segment also provides Medicare Set-aside account services, Social Security disability and Medicare benefits advocacy services, and claims adjusting services.
Unlike the other segments, nearly all of the Services Segment’s revenue is generated from fees, which are not significantly affected by fluctuations in general insurance premiums.
Financial information relating to our Services Segment is as follows:

(in thousands, except percentages) | 2018 |  | % Change |  | 2017 |  | % Change |  | 2016
REVENUES |  |  |  |  |  |  |  |  |
Core commissions and fees | $ | 189,041 |  |  | 14.5 | % |  | $ | 165,073 |  |  | 5.8 | % |  | $ | 156,082 |
Profit-sharing contingent commissions | — |  |  | — | % |  | — |  |  | — | % |  | — |
Guaranteed supplemental commissions | — |  |  | — | % |  | — |  |  | — | % |  | — |
Commissions and fees | 189,041 |  |  | 14.5 | % |  | 165,073 |  |  | 5.8 | % |  | 156,082 |
Investment income | 205 |  |  | (31.4 | )% |  | 299 |  |  | 5.7 | % |  | 283 |
Other income, net | — |  |  | — | % |  | — |  |  | — | % |  | — |
Total revenues | 189,246 |  |  | 14.4 | % |  | 165,372 |  |  | 5.8 | % |  | 156,365 |
EXPENSES |  |  |  |  |  |  |  |  |
Employee compensation and benefits | 85,930 |  |  | 6.2 | % |  | 80,944 |  |  | 2.7 | % |  | 78,804 |
Other operating expenses | 61,833 |  |  | 39.9 | % |  | 44,205 |  |  | 3.0 | % |  | 42,908 |
(Gain)/loss on disposal | (2,463 | ) |  | NMF |  |  | 55 |  |  | — | % |  | — |
Amortization | 4,813 |  |  | 5.8 | % |  | 4,548 |  |  | 1.4 | % |  | 4,485 |
Depreciation | 1,558 |  |  | (2.6 | )% |  | 1,600 |  |  | (14.9 | )% |  | 1,881 |
Interest | 2,869 |  |  | (18.5 | )% |  | 3,522 |  |  | (28.8 | )% |  | 4,950 |
Change in estimated acquisition earn-out payables | 198 |  |  | — | % |  | — |  |  | (100.0 | )% |  | (1,001 | )
Total expenses | 154,738 |  |  | 14.7 | % |  | 134,874 |  |  | 2.2 | % |  | 132,027 |
Income before income taxes | $ | 34,508 |  |  | 13.1 | % |  | $ | 30,498 |  |  | 25.3 | % |  | $ | 24,338 |
Income Before Income Taxes Margin (1) | 18.2 | % |  |  |  | 18.4 | % |  |  |  | 15.6 | %
EBITDAC (1) | 43,946 |  |  | 9.4 | % |  | 40,168 |  |  | 15.9 | % |  | 34,653 |
EBITDAC Margin (1) | 23.2 | % |  |  |  | 24.3 | % |  |  |  | 22.2 | %
Organic Revenue growth rate(1) | 3.4 | % |  |  |  | 5.1 | % |  |  |  | 3.8 | %
Employee compensation and benefits relative to total revenues | 45.4 | % |  |  |  | 48.9 | % |  |  |  | 50.4 | %
Other operating expenses relative to total revenues | 32.7 | % |  |  |  | 26.7 | % |  |  |  | 27.4 | %
Capital expenditures | $ | 1,525 |  |  | 47.6 | % |  | $ | 1,033 |  |  | 57.5 | % |  | $ | 656 |
Total assets at December 31 | $ | 471,572 |  |  | 18.1 | % |  | $ | 399,240 |  |  | 7.4 | % |  | $ | 371,645 |

(1) A non-GAAP measure
NMF = Not a meaningful figure
The Services Segment’s total revenues for 2018 increased 14.4%, or $23.9 million, over 2017, to $189.2 million. The $24.0 million increase in core commissions and fees was driven primarily by the following: (i) $10.3 million related to the impact of adopting the New Revenue Standard; (ii) $8.0 million related to the core commissions and fees from acquisitions that had no comparable revenues in the same period of 2017; and (iii) $5.7 million related to net new and renewal business. The Services Segment’s growth rate for total commissions and fees was 14.5%, and the Organic Revenue growth rate was 3.4% for 2018. The Organic Revenue growth rate was driven by growth across multiple businesses.
Income before income taxes for 2018 increased 13.1%, or $4.0 million, over 2017, to $34.5 million due to a combination of: (i) Organic Revenue growth; and (ii) lower intercompany interest charges, which were partially offset by (iii) the growth in other operating expenses associated with the New Revenue Standard and professional fees to support Organic Revenue growth.
43

Table of Contents
EBITDAC for 2018 increased 9.4%, or $3.8 million, over the same period in 2017, to $43.9 million. EBITDAC Margin for 2018 decreased to 23.2% from 24.3% in the same period in 2017. The decrease in EBITDAC Margin was due to the impact of the New Revenue Standard, which resulting in recording $10.0 million of incremental year on year revenues and expenses which therefore compresses margins, along with higher non-cash stock-based compensation costs, and costs associated with onboarding new customers.
The Services Segment’s total revenues for 2017 increased 5.8%, or $9.0 million, over 2016, to $165.4 million. The $9.0 million increase in core commissions and fees was driven primarily by the following: (i) $7.9 million related to net new business; (ii) $0.9 million related to the core commissions and fees from acquisitions that had no comparable revenues in the same period of 2016; and (iii) an increase of $0.2 million related to commissions and fees recorded in 2016 from business since divested. The Services Segment’s growth rate for total commissions and fees was 5.8% and the Organic Revenue growth rate was 5.1% for 2017, primarily driven by our claims offices that handle catastrophe claims.
Income before income taxes for 2017 increased 25.3%, or $6.2 million, over 2016, to $30.5 million due to a combination of: (i) new business realized across most of our businesses, (ii) our claims offices that handled catastrophe claims, (iii) the continued efficient operation of our businesses, and (iv) lower intercompany interest charges.
EBITDAC for 2017 increased 15.9%, or $5.5 million, over the same period in 2016, to $40.2 million. EBITDAC Margin for 2017 increased to 24.3% from 22.2% in the same period in 2016. The increase in EBITDAC Margin was due to net increase in revenue as described above and effective control of expenses.
Other
As discussed in Note 16 of the Notes to Consolidated Financial Statements, the “Other” column in the Segment Information table includes any income and expenses not allocated to reportable segments, and corporate-related items, including the intercompany interest expense charges to reporting segments.
LIQUIDITY AND CAPITAL RESOURCES
The Company seeks to maintain a conservative balance sheet and liquidity profile. Our capital requirements to operate as an insurance intermediary are low and we have been able to grow and invest in our business principally through cash that has been generated from operations. We have the ability to utilize our revolving credit facility (the “Facility”), which provides up to $800.0 million in available cash, and we believe that we have access to additional funds, if needed, through the capital markets to obtain further debt financing under the current market conditions. The Company believes that its existing cash, cash equivalents, short-term investment portfolio and funds generated from operations, together with the funds available under the Facility, will be sufficient to satisfy our normal liquidity needs, including principal payments on our long-term debt, for at least the next twelve months.
Our cash and cash equivalents of $439.0 million at December 31, 2018 reflected a decrease of $134.4 million from the $573.4 million balance at December 31, 2017. During 2018, $567.5 million of cash was generated from operating activities, representing an increase of 28.4%. During this period, $923.9 million of cash was used for acquisitions, $26.6 million was used for acquisition earn-out payments, $41.5 million was used to purchase additional fixed assets, $84.7 million was used for payment of dividends, $100.0 million was used for share repurchases, and $120.0 million was used to pay outstanding principal balances owed on long-term debt.
We hold approximately $19.8 million in cash outside of the U.S., which we currently have no plans to repatriate in the near future.
Our cash and cash equivalents of $573.4 million at December 31, 2017 reflected an increase of $57.8 million from the $515.6 million balance at December 31, 2016. During 2017, $442.0 million of cash was generated from operating activities, representing an increase of 7.5%. During this period, $41.5 million of cash was used for acquisitions, $43.8 million was used for acquisition earn-out payments, $24.2 million was used to purchase additional fixed assets, $77.7 million was used for payment of dividends, $139.9 million was used for share repurchases, and $96.8 million was used to pay outstanding principal balances owed on long-term debt.
Our cash and cash equivalents of $515.6 million at December 31, 2016 reflected an increase of $72.2 million from the $443.4 million balance at December 31, 2015. During 2016, $411.0 million of cash was generated from operating activities. During this period, $122.6 million of cash was used for acquisitions, $28.2 million was used for acquisition earn-out payments, $17.8 million was used for additions to fixed assets, $70.3 million was used for payment of dividends, $7.7 million was used for share repurchases, and $73.1 million was used to pay outstanding principal balances owed on long-term debt.
Our ratio of current assets to current liabilities (the “current ratio”) was 1.22 and 1.13 at December 31, 2018 and 2017, respectively.
44

Table of Contents
Contractual Cash Obligations
As of December 31, 2018, our contractual cash obligations were as follows:

| Payments Due by Period
(in thousands) | Total |  | Less Than 1 Year |  | 1-3 Years |  | 4-5 Years |  | After 5 Years
Long-term debt | $ | 1,515,000 |  |  | $ | 50,000 |  |  | $ | 125,000 |  |  | $ | 840,000 |  |  | $ | 500,000 |
Other liabilities(1) | 53,187 |  |  | 4,907 |  |  | 5,570 |  |  | 2,470 |  |  | 40,240 |
Operating leases | 210,010 |  |  | 48,292 |  |  | 78,353 |  |  | 47,016 |  |  | 36,349 |
Interest obligations | 251,053 |  |  | 57,848 |  |  | 109,532 |  |  | 68,798 |  |  | 14,875 |
Unrecognized tax benefits | 1,639 |  |  | — |  |  | 1,639 |  |  | — |  |  | — |
Maximum future acquisition contingency payments(2) | 198,627 |  |  | 43,184 |  |  | 155,443 |  |  | — |  |  | — |
Total contractual cash obligations | $ | 2,229,516 |  |  | $ | 204,231 |  |  | $ | 475,537 |  |  | $ | 958,284 |  |  | $ | 591,464 |

(1) | Includes the current portion of other long-term liabilities.

(2) | Includes $89.9 million of current and non-current estimated earn-out payables.

Debt
Total debt at December 31, 2018 was $1,507.0 million net of unamortized discount and debt issuance costs, which was an increase of $530.8 million compared to December 31, 2017. The increase reflects the addition of $650.0 million in principal balances, total debt repayments of $120.0 million, net of the amortization of discounted debt related to our Senior Notes due 2024, with a fixed interest rate of 4.200% per year and debt issuance cost amortization of $1.6 million. The Company also added $0.8 million in debt issuance costs related to the Term Loan Credit Agreement (as defined below) that was executed in December 2018.
On May 10, 2018, the Company elected to prepay in full the principal balance of $100.0 million from the Series E Senior Notes, along with accrued interest of $0.7 million and a prepayment premium of $0.7 million as the notes were to mature on September 15, 2018. This resulted in a net interest expense savings of $0.8 million after deducting the pro-rated interest expense and prepayment premiums paid when compared to holding the note to maturity paying the full semi-annual coupon interest expense of $2.3 million.
On June 28, 2017, the Company entered into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent and certain other banks as co-syndication agents and co-documentation agents. The Amended and Restated Credit Agreement amended and restated the credit agreement dated April 17, 2014, among such parties. The Amended and Restated Credit Agreement extends the applicable maturity date of the Facility of $800.0 million to June 28, 2022 and re-evidences the unsecured term loans in the amount of $400.0 million, while also extending the applicable maturity date to June 28, 2022.
The Company borrowed approximately $600.0 million under its Revolving Credit Facility on November 15, 2018 in connection with the closing of the acquisition of certain assets and assumption of certain liabilities of Hays.
On December 21, 2018, the Company borrowed $300.0 million under a term loan credit agreement with Wells Fargo Bank, National Association, as administrative agent, Bank of America, N.A., BMO Harris Bank N.A. and SunTrust Bank as co-syndication agents, and Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BMO Capital Markets Corp. and SunTrust Robinson Humphrey, Inc. as joint lead arrangers and joint bookrunners (the “Term Loan Credit Agreement”). The Term Loan Credit Agreement provides for an unsecured term loan in the initial amount of $300.0 million, which may, subject to lenders’ discretion, potentially be increased up to an aggregate amount of $450.0 million (the “Term Loan”). The Term Loan is repayable over the five-year term from the effective date of the Term Loan Credit Agreement, which was December 21, 2018. Based on the Company’s net debt leverage ratio or a non-credit enhanced senior unsecured long-term debt rating as determined by Moody’s Investor Service and Standard & Poor’s Rating Service, the current rate of interest on the Term Loan is 1.25% above the adjusted 1-Month London Interbank Offered Rate (“LIBOR”). The Company used $250.0 million of the borrowings to reduce indebtedness under the Facility.
Total debt at December 31, 2017 was $976.1 million net of unamortized discount and debt issuance costs, which was a decrease of $97.7 million compared to December 31, 2016. The decrease reflects the repayment of $96.8 million in principal, related to our credit agreements, repayment of the $0.5 million in a short-term note payable related to the 2016 acquisition of Social Security Advocates for the Disabled, LLC (“SSAD”), net of the amortization of discounted debt related to our Senior Notes due 2024, with a fixed interest rate of 4.200% per year and debt issuance cost amortization of $1.9 million. The Company also added $2.8 million in debt issuance costs related to the Amended and Restated Credit Agreement (as defined below) that was executed in June 2017.
45

Table of Contents
Off-Balance Sheet Arrangements
Neither we nor our subsidiaries have ever incurred off-balance sheet obligations through the use of, or investment in, off-balance sheet derivative financial instruments or structured finance or special purpose entities organized as corporations, partnerships or limited liability companies or trusts.
For further discussion of our cash management and risk management policies, see “Quantitative and Qualitative Disclosures About Market Risk.”
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates, foreign exchange rates and equity prices. We are exposed to market risk through our investments, revolving credit line, term loan agreements and international operations.
Our invested assets are held primarily as cash and cash equivalents, restricted cash, available-for-sale marketable debt securities, non-marketable debt securities, certificates of deposit, U.S. treasury securities, and professionally managed short duration fixed income funds. These investments are subject to interest rate risk. The fair values of our invested assets at December 31, 2018 and December 31, 2017, approximated their respective carrying values due to their short-term duration and therefore, such market risk is not considered to be material.
We do not actively invest or trade in equity securities. In addition, we generally dispose of any significant equity securities received in conjunction with an acquisition shortly after the acquisition date.
As of December 31, 2018, we had $1,015.0 million of borrowings outstanding under our various credit agreements, all of which bear interest on a floating basis tied to LIBOR and is therefore subject to changes in the associated interest expense. The effect of an immediate hypothetical 10% change in interest rates would not have a material effect on our Consolidated Financial Statements.
We are subject to exchange rate risk primarily in our U.K.-based wholesale brokerage business that has a cost base principally denominated in British pounds and a revenue base in several other currencies, but principally in U.S. dollars. Based upon our foreign currency rate exposure as of December 31, 2018, an immediate 10% hypothetical changes of foreign currency exchange rates would not have a material effect on our Consolidated Financial Statements.
46

Table of Contents
ITEM 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements

| Page No.
Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016 | 48
Consolidated Balance Sheets as of December 31, 2018 and 2017 | 49
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2018, 2017 and 2016 | 50
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 | 51
Notes to Consolidated Financial Statements for the years ended December 31, 2018, 2017 and 2016 | 52
Note 1: Summary of Significant Accounting Policies | 52
Note 2: Revenues | 59
Note 3: Business Combinations | 60
Note 4: Goodwill | 67
Note 5: Amortizable Intangible Assets | 67
Note 6: Investments | 67
Note 7: Fixed Assets | 69
Note 8: Accrued Expenses and Other Liabilities | 70
Note 9: Long-Term Debt | 70
Note 10: Income Taxes | 72
Note 11: Employee Savings Plan | 74
Note 12: Stock-Based Compensation | 74
Note 13: Supplemental Disclosures of Cash Flow Information | 77
Note 14: Commitments and Contingencies | 78
Note 15: Quarterly Operating Results (Unaudited) | 79
Note 16: Segment Information | 79
Note 17: Reinsurance | 81
Note 18: Statutory Financial Information | 81
Note 19: Subsidiary Dividend Restrictions | 81
Note 20: Shareholders’ Equity | 81
Report of Independent Registered Public Accounting Firm | 83

47

Table of Contents
BROWN & BROWN, INC.
CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data) | For the year ended December 31,
| 2018 |  | 2017 |  | 2016
REVENUES |  |  |  |  |
Commissions and fees | $ | 2,009,857 |  |  | $ | 1,857,270 |  |  | $ | 1,762,787 |
Investment income | 2,746 |  |  | 1,626 |  |  | 1,456 |
Other income, net | 1,643 |  |  | 22,451 |  |  | 2,386 |
Total revenues | 2,014,246 |  |  | 1,881,347 |  |  | 1,766,629 |
EXPENSES |  |  |  |  |
Employee compensation and benefits | 1,068,914 |  |  | 994,652 |  |  | 925,217 |
Other operating expenses | 332,118 |  |  | 283,470 |  |  | 262,872 |
(Gain)/loss on disposal | (2,175 | ) |  | (2,157 | ) |  | (1,291 | )
Amortization | 86,544 |  |  | 85,446 |  |  | 86,663 |
Depreciation | 22,834 |  |  | 22,698 |  |  | 21,003 |
Interest | 40,580 |  |  | 38,316 |  |  | 39,481 |
Change in estimated acquisition earn-out payables | 2,969 |  |  | 9,200 |  |  | 9,185 |
Total expenses | 1,551,784 |  |  | 1,431,625 |  |  | 1,343,130 |
Income before income taxes | 462,462 |  |  | 449,722 |  |  | 423,499 |
Income taxes | 118,207 |  |  | 50,092 |  |  | 166,008 |
Net income | $ | 344,255 |  |  | $ | 399,630 |  |  | $ | 257,491 |
Net income per share: |  |  |  |  |
Basic | $ | 1.24 |  |  | $ | 1.43 |  |  | $ | 0.92 |
Diluted | $ | 1.22 |  |  | $ | 1.40 |  |  | $ | 0.91 |
Dividends declared per share | $ | 0.31 |  |  | $ | 0.28 |  |  | $ | 0.25 |

See accompanying notes to Consolidated Financial Statements.
48

Table of Contents
BROWN & BROWN, INC.
CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data) | December 31, 2018 |  | December 31, 2017
ASSETS |  |  |
Current Assets: |  |  |
Cash and cash equivalents | $ | 438,961 |  |  | $ | 573,383 |
Restricted cash and investments | 338,635 |  |  | 250,705 |
Short-term investments | 12,868 |  |  | 24,965 |
Premiums, commissions and fees receivable | 844,815 |  |  | 546,402 |
Reinsurance recoverable | 65,396 |  |  | 477,820 |
Prepaid reinsurance premiums | 337,920 |  |  | 321,017 |
Other current assets | 128,716 |  |  | 47,864 |
Total current assets | 2,167,311 |  |  | 2,242,156 |
Fixed assets, net | 100,395 |  |  | 77,086 |
Goodwill | 3,432,786 |  |  | 2,716,079 |
Amortizable intangible assets, net | 898,807 |  |  | 641,005 |
Investments | 17,394 |  |  | 13,949 |
Other assets | 71,975 |  |  | 57,275 |
Total assets | $ | 6,688,668 |  |  | $ | 5,747,550 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |
Current Liabilities: |  |  |
Premiums payable to insurance companies | $ | 857,559 |  |  | $ | 685,163 |
Losses and loss adjustment reserve | 65,212 |  |  | 476,721 |
Unearned premiums | 337,920 |  |  | 321,017 |
Premium deposits and credits due customers | 105,640 |  |  | 91,648 |
Accounts payable | 87,345 |  |  | 64,177 |
Accrued expenses and other liabilities | 279,310 |  |  | 228,748 |
Current portion of long-term debt | 50,000 |  |  | 120,000 |
Total current liabilities | 1,782,986 |  |  | 1,987,474 |
Long-term debt less unamortized discount and debt issuance costs | 1,456,990 |  |  | 856,141 |
Deferred income taxes, net | 315,732 |  |  | 256,185 |
Other liabilities | 132,392 |  |  | 65,051 |
Shareholders’ Equity: |  |  |
Common stock, par value $0.10 per share; authorized 560,000 shares; issued 293,380 shares and outstanding 279,583 shares at 2018, issued 286,929 shares and outstanding 276,210 shares at 2017 - in thousands. 2017 share amounts reflect the 2-for-1 stock split effective March 28, 2018 | 29,338 |  |  | 28,689 |
Additional paid-in capital | 615,180 |  |  | 483,733 |
Treasury stock, at cost at 13,797 and 10,719 shares at 2018 and 2017, respectively - in thousands | (477,572 | ) |  | (386,322 | )
Retained earnings | 2,833,622 |  |  | 2,456,599 |
Total shareholders’ equity | 3,000,568 |  |  | 2,582,699 |
Total liabilities and shareholders’ equity | $ | 6,688,668 |  |  | $ | 5,747,550 |

See accompanying notes to Consolidated Financial Statements.
49

Table of Contents
BROWN & BROWN, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

| Common Stock |  |  |  |  |  |  |  |
(in thousands, except per share data) | Shares |  | Par Value |  | Additional Paid-In Capital |  | Treasury Stock |  | Retained Earnings |  | Total
Balance at January 1, 2016 | 282,077 |  | $ | 28,209 |  |  | $ | 412,931 |  |  | $ | (238,775 | ) |  | $ | 1,947,411 |  |  | $ | 2,149,776 |
Net income |  |  |  |  |  |  |  |  |  |  | 257,491 |  |  | 257,491 |
Common stock issued for employee stock benefit plans | 3,350 |  | 334 |  |  | 22,684 |  |  |  |  |  |  |  |  | 23,018 |
Purchase of treasury stock |  |  |  |  |  | 11,250 |  |  | (18,908 | ) |  |  |  | (7,658 | )
Income tax benefit from exercise of stock benefit plans |  |  |  |  |  | 7,346 |  |  |  |  |  |  |  |  | 7,346 |
Common stock issued to directors | 34 |  | 4 |  |  | 496 |  |  |  |  |  |  |  |  | 500 |
Cash dividends paid ($0.25 per share) |  |  |  |  |  |  |  |  |  |  | (70,262 | ) |  | (70,262 | )
Balance at December 31, 2016 | 285,461 |  | 28,547 |  |  | 454,707 |  |  | (257,683 | ) |  | 2,134,640 |  |  | 2,360,211 |
Net income |  |  |  |  |  |  |  |  |  |  | 399,630 |  |  | 399,630 |
Net unrealized holding (loss) gain on available-for-sale securities |  |  |  |  | (47 | ) |  |  |  | 41 |  |  | (6 | )
Common stock issued for employee stock benefit plans | 1,412 |  | 140 |  |  | 39,825 |  |  |  |  |  |  |  |  | 39,965 |
Purchase of treasury stock |  |  |  |  |  | (11,250 | ) |  | (128,639 | ) |  |  |  | (139,889 | )
Common stock issued to directors | 22 |  | 2 |  |  | 498 |  |  |  |  |  |  |  |  | 500 |
Cash dividends paid ($0.28 per share) |  |  |  |  |  |  |  |  |  |  | (77,712 | ) |  | (77,712 | )
Balance at December 31, 2017 | 286,895 |  | 28,689 |  |  | 483,733 |  |  | (386,322 | ) |  | 2,456,599 |  |  | 2,582,699 |
Adoption of Topic 606 at January 1, 2018 |  |  |  |  |  |  |  |  | 117,515 |  |  | 117,515 |
Beginning balance after adoption of Topic 606 | 286,895 |  | 28,689 |  |  | 483,733 |  |  | (386,322 | ) |  | 2,574,114 |  |  | 2,700,214 |
Net income |  |  |  |  |  |  |  |  |  |  | 344,255 |  |  | 344,255 |
Net unrealized holding (loss) gain on available-for-sale securities |  |  |  |  | (21 | ) |  |  |  | (57 | ) |  | (78 | )
Common stock issued for employee stock benefit plans | 3,096 |  | 310 |  |  | 39,857 |  |  |  |  |  |  |  |  | 40,167 |
Common stock issued for agency acquisitions | 3,376 |  | 338 |  |  | 99,662 |  |  |  |  |  |  | 100,000 |
Purchase of treasury stock |  |  |  |  |  | (8,750 | ) |  | (91,250 | ) |  |  |  | (100,000 | )
Common stock issued to directors | 13 |  | 1 |  |  | 699 |  |  |  |  |  |  |  |  | 700 |
Cash dividends paid ($0.31 per share) |  |  |  |  |  |  |  |  |  |  | (84,690 | ) |  | (84,690 | )
Balance at December 31, 2018 | 293,380 |  | $ | 29,338 |  |  | $ | 615,180 |  |  | $ | (477,572 | ) |  | $ | 2,833,622 |  |  | $ | 3,000,568 |

See accompanying notes to Consolidated Financial Statements.
50

Table of Contents
BROWN & BROWN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

| Year Ended December 31,
(in thousands) | 2018 |  | 2017 |  | 2016
Cash flows from operating activities: |  |  |  |  |
Net income | $ | 344,255 |  |  | $ | 399,630 |  |  | $ | 257,491 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |
Amortization | 86,544 |  |  | 85,446 |  |  | 86,663 |
Depreciation | 22,834 |  |  | 22,698 |  |  | 21,003 |
Non-cash stock-based compensation | 33,519 |  |  | 30,631 |  |  | 16,052 |
Change in estimated acquisition earn-out payables | 2,969 |  |  | 9,200 |  |  | 9,185 |
Deferred income taxes | 15,008 |  |  | (102,183 | ) |  | 18,163 |
Amortization of debt discount and disposal of deferred financing costs | 1,627 |  |  | 1,840 |  |  | 1,762 |
Accretion of discounts and premiums, investments | (10 | ) |  | 22 |  |  | 39 |
Income tax benefit from exercise of shares from the stock benefit plans | — |  |  | — |  |  | (7,346 | )
(Gain)/loss on sales of investments, fixed assets and customer accounts | (1,934 | ) |  | (1,841 | ) |  | 596 |
Payments on acquisition earn-outs in excess of original estimated payables | (12,538 | ) |  | (14,501 | ) |  | (3,904 | )
Changes in operating assets and liabilities, net of effect from acquisitions and divestitures: |  |  |  |  |
Premiums, commissions and fees receivable (increase) decrease | (93,630 | ) |  | (43,306 | ) |  | (63,550 | )
Reinsurance recoverables (increase) decrease | 412,424 |  |  | (399,737 | ) |  | (46,115 | )
Prepaid reinsurance premiums (increase) decrease | (16,903 | ) |  | (12,356 | ) |  | 982 |
Other assets (increase) decrease | (22,440 | ) |  | (9,747 | ) |  | (4,718 | )
Premiums payable to insurance companies (increase) decrease | 141,169 |  |  | 37,380 |  |  | 66,084 |
Premium deposits and credits due customers increase (decrease) | 13,792 |  |  | 7,750 |  |  | 527 |
Losses and loss adjustment reserve increase (decrease) | (411,509 | ) |  | 398,638 |  |  | 46,115 |
Unearned premiums increase (decrease) | 16,903 |  |  | 12,356 |  |  | (982 | )
Accounts payable increase (decrease) | 21,880 |  |  | 26,798 |  |  | 30,174 |
Accrued expenses and other liabilities increase (decrease) | 22,801 |  |  | 25,509 |  |  | 8,670 |
Other liabilities increase (decrease) | (9,232 | ) |  | (32,252 | ) |  | (25,849 | )
Net cash provided by operating activities | 567,529 |  |  | 441,975 |  |  | 411,042 |
Cash flows from investing activities: |  |  |  |  |
Additions to fixed assets | (41,520 | ) |  | (24,192 | ) |  | (17,765 | )
Payments for businesses acquired, net of cash acquired | (923,874 | ) |  | (41,471 | ) |  | (122,622 | )
Proceeds from sales of fixed assets and customer accounts | 4,984 |  |  | 4,094 |  |  | 4,957 |
Purchases of investments | (9,284 | ) |  | (10,665 | ) |  | (25,872 | )
Proceeds from sales of investments | 17,923 |  |  | 9,644 |  |  | 18,890 |
Net cash used in investing activities | (951,771 | ) |  | (62,590 | ) |  | (142,412 | )
Cash flows from financing activities: |  |  |  |  |
Payments on acquisition earn-outs | (14,059 | ) |  | (29,265 | ) |  | (24,309 | )
Proceeds from long-term debt | 300,000 |  |  | — |  |  | — |
Payments on long-term debt | (120,000 | ) |  | (96,750 | ) |  | (73,125 | )
Deferred debt issuance costs | (778 | ) |  | (2,821 | ) |  | — |
Borrowings on revolving credit facilities | 600,000 |  |  | — |  |  | — |
Payments on revolving credit facilities | (250,000 | ) |  | — |  |  | — |
Income tax benefit from exercise of shares from the stock benefit plans | — |  |  | — |  |  | 7,346 |
Issuances of common stock for employee stock benefit plans | 19,432 |  |  | 17,422 |  |  | 15,983 |
Repurchase of stock benefit plan shares for employees to fund tax withholdings | (12,155 | ) |  | (7,565 | ) |  | (8,495 | )
Purchase of treasury stock | (91,250 | ) |  | (128,639 | ) |  | (18,908 | )
Settlement (prepayment) of accelerated share repurchase program | (8,750 | ) |  | (11,250 | ) |  | 11,250 |
Cash dividends paid | (84,690 | ) |  | (77,712 | ) |  | (70,262 | )
Net cash provided by (used in) financing activities | 337,750 |  |  | (336,580 | ) |  | (160,520 | )
Net increase (decrease) in cash and cash equivalents inclusive of restricted cash | (46,492 | ) |  | 42,805 |  |  | 108,110 |
Cash and cash equivalents inclusive of restricted cash at beginning of period | 824,088 |  |  | 781,283 |  |  | 673,173 |
Cash and cash equivalents inclusive of restricted cash at end of period | $ | 777,596 |  |  | $ | 824,088 |  |  | $ | 781,283 |

See accompanying notes to Consolidated Financial Statements. Refer to Note 13 for reconciliation of cash and cash equivalents inclusive of restricted cash.
51

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1· Summary of Significant Accounting Policies
Nature of Operations
Brown & Brown, Inc., a Florida corporation, and its subsidiaries (collectively, “Brown & Brown” or the “Company”) is a diversified insurance agency, wholesale brokerage, insurance programs and services organization that markets and sells to its customers, insurance products and services, primarily in the property, casualty and employee benefits areas. Brown & Brown’s business is divided into four reportable segments: the Retail Segment provides a broad range of insurance products and services to commercial, public and quasi-public entities, professional and individual customers; the National Programs Segment, acting as a managing general agent (“MGA”), provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches, all of which are delivered through a nationwide network of independent agents, including Brown & Brown retail agents; the Wholesale Brokerage Segment markets and sells excess and surplus commercial insurance, primarily through a nationwide network of independent agents and brokers, as well as Brown & Brown Retail offices; and the Services Segment provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services, and claims adjusting services.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which provides guidance for accounting for leases. Under ASU 2016-02, the Company will be required to recognize the assets and liabilities for the rights and obligations created by leased assets with initial maturities greater than one year. In July 2018, the FASB also issued ASU 2018-10 and ASU 2018-11 related to Topic 842. ASU 2018-10 narrows certain aspects of the guidance issued in the amendments within ASU 2016-02. ASU 2018-11 provides entities with an additional transition method to adopt ASU 2016-02. Under this new transition method, at the adoption date, a company shall recognize a cumulative-effect adjustment to the opening balance of retained earnings. ASU 2016-02, along with ASU 2018-10 and ASU 2018-11, will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company continues to evaluate the impact of this pronouncement with the principal impact expected to be the present value of the remaining lease payments and will be presented as a liability on the balance sheet as well as an asset of similar value representing the “Right of Use” for those leased properties. The Company plans to adopt Topic 842 under the transition method provided by ASU 2018-11. The undiscounted contractual cash payments remaining on leased properties were $213.2 million as of December 31, 2016, $210.4 million as of December 31, 2017 and $210.0 million as of December 31, 2018 as detailed in Note 14 “Commitments and Contingencies.”
In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which provides guidance for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact of this pronouncement.
Recently Adopted Accounting Standards
In November 2016, the Financial Accountings Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-18, “Statement of Cash Flows (Topic 230)”: Restricted Cash (“ASU 2016-18”), which requires that the Statement of Cash Flows explain the changes during the period of cash and cash equivalents inclusive of amounts categorized as restricted cash. ASU 2016-18 is effective for periods beginning after December 15, 2017. However, the Company elected to early adopt for the reporting period beginning January 1, 2017 under the full retrospective approach for all periods presented. With the adoption of ASU 2016-18, the change in restricted cash is no longer reflected as a change in operating assets and liabilities, and the Statement of Cash Flows details the changes in the balance of cash and cash equivalents inclusive of restricted cash. Net cash provided by operating activities for the year ended December 31, 2016 were previously reported as $375.2 million. With the retrospective adoption, the net cash provided by operating activities for the year ended December 31, 2016 is now reported as $411.0 million. The Company reflects cash collected from customers that is payable to insurance companies as restricted cash if segregation of this cash is required by the state of domicile for the office conducting this transaction or if required by contract with the relevant insurance company providing coverage. Cash collected from customers that is payable to insurance companies is reported in cash and cash equivalents if no such restriction is required.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230)”: Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified and applies to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230. ASU 2016-15 became effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 with early adoption permitted. The Company adopted ASU 2016-15 effective January 1, 2018 and has determined there is no impact
52

Table of Contents
on the Company’s Statement of Cash Flows. The Company already presented cash paid on contingent consideration in business combination as prescribed by ASU 2016-15 and does not, at this time, engage in the other activities being addressed in this ASU.
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share Based Payment Accounting” (“ASU 2016-09”), which amends guidance issued in Accounting Standards Codification (“ASC”) Topic 718, Compensation - Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years and early adoption is permitted. The Company adopted the guidance on January 1, 2017, as required. Prior periods have not been adjusted, as the guidance was adopted prospectively. The principal impact is that the tax benefit or expense from stock compensation is now presented in the income tax line of the Statement of Income, whereas the prior treatment was to present this amount as a component of equity on the Balance Sheet. In addition, the tax benefit or expense is now presented as activity in Cash Flow from Operating Activity, rather than the prior presentation as Cash Flow from Financing Activity in the Statement of Cash Flows. The Company also continues to estimate forfeitures of stock grants as allowed by ASU 2016-09.
In March 2016, the FASB issued ASU 2016-08, “Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)” (“ASU 2016-08”) to clarify certain aspects of the principal-versus-agent guidance included in the new revenue standard ASU 2014-09 “Revenue from Contracts with Customers” (“ASU 2014-09”). The FASB issued the ASU in response to concerns identified by stakeholders, including those related to (1) determining the appropriate unit of account under the revenue standard’s principal-versus-agent guidance and (2) applying the indicators of whether an entity is a principal or an agent in accordance with the revenue standard’s control principle. The Company adopted ASU 2016-08 effective contemporaneously with ASU 2014-09 beginning January 1, 2018. The impact of ASU 2016-08 was limited to the claims administering activities of one of our businesses within our Services Segment and therefore was not material to the net income of the Company.
In November 2015, FASB issued ASU No. 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”), which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as a single non-current item on the balance sheet. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016 with early adoption permitted as of the beginning of any interim or annual reporting period. The Company adopted the guidance on January 1, 2017, as required and prior period have been adjusted to reflect this adoption. This reclassification occurred prior to the passage of the Tax Cuts and Jobs Act of 2017, which had a material impact on the value of deferred tax items. See Note 10 “Income Taxes” for more information.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“Topic 606”), which provides guidance for revenue recognition. Topic 606 affects any entity that either enters into contracts with customers to transfer goods or services. It supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. The standard’s core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. Effective as of January 1, 2018, the Company adopted ASU 2014–09, and all related amendments, which established ASC Topic 606. The Company adopted these standards by recognizing the cumulative effect as an adjustment to opening retained earnings at January 1, 2018, under the modified retrospective method for contracts not completed as of the day of adoption. The cumulative impact of adopting Topic 606 on January 1, 2018 was an increase in retained earnings within stockholders’ equity of $117.5 million. Under the modified retrospective method, the Company was not required to restate comparative financial information prior to the adoption of these standards and, therefore, such information presented prior to January 1, 2018 continue to be reported under the Company’s previous accounting policies.
The following areas are impacted by the adoption of Topic 606:
The Company earns commissions and fees paid by insurance carriers for the binding of insurance coverage. These commissions and fees are earned at a point in time upon the effective date of bound insurance coverage, as no performance obligation exists after coverage is bound. If there are other services within the contract, the Company estimates the stand-alone selling price for each separate performance obligation, and the corresponding apportioned revenue is recognized over the period of time in which the customer receives the service, and as the performance obligations are fulfilled and the Company is entitled to that portion of revenue using the output method for the services. In situations where multiple performance obligations exist within a contract, the use of estimates is required to allocate the transaction price on a relative stand-alone selling price basis to each separate performance obligation.
Commission revenues - Prior to the adoption of Topic 606, commission revenues, including those billed on an installment basis, were recognized on the latter of the policy effective date or the date that the premium was billed to the client, with the exception of the Company’s Arrowhead businesses, which followed a policy of recognizing these revenues on the latter of the policy effective date or processed date in our systems. As a result of the adoption of Topic 606, commission revenues associated with the issuance of policies are now recognized upon the effective date of the associated policy. The overall impact of these changes are not significant on a full-year basis, but the timing of recognizing revenue has impacted our fiscal quarters when compared to prior years. These commission revenues, including those billed on an installment basis, are now recognized earlier than they had been previously. Revenue is now accrued based upon the completion of the performance obligation, thereby creating a current asset for the unbilled revenue, until such time as an invoice is generated, which typically does not exceed twelve months. For the year ended December 31, 2018, the adoption of Topic 606 increased base and incentive commissions
53

Table of Contents
revenue, as defined in Note 2, by $9.9 million compared to what would have been recognized under the Company’s previous accounting policies. Incentive commissions represent a form of variable consideration which includes additional commissions over base commissions received from insurance carriers based on predetermined production levels mutually agreed upon by both parties.
Profit-sharing contingent commissions - Prior to the adoption of Topic 606, revenue that was not fixed and determinable because a contingency existed was not recognized until the contingency was resolved. Under Topic 606, the Company must estimate the amount of consideration that will be received in the coming year such that a significant reversal of revenue is not probable. Profit-sharing contingent commissions represent a form of variable consideration associated with the placement of coverage, for which we earn commissions and fees. In connection with Topic 606, profit-sharing contingent commissions are estimated with a constraint applied and accrued relative to the recognition of the corresponding core commissions. The resulting effect on the timing of recognizing profit-sharing contingent commissions will now more closely follow a similar pattern as our commissions and fees with any true-ups recognized when payments are received or as additional information that affects the estimate becomes available. For the year ended December 31, 2018, the adoption of Topic 606 reduced profit-sharing contingent commissions revenue by $2.3 million compared to what would have been recognized under our previous accounting policies.
Fee revenues - The Company earns fee revenue related to services other than securing insurance coverage, which are predominantly in the Company’s National Programs and Services Segments, and to a lesser extent in the large accounts businesses within the Company’s Retail Segment, where the Company receives negotiated fees in lieu of a commission. In accordance with Topic 606, fee revenue from fee agreements are recognized in earlier periods and others in later periods as compared to our previous accounting treatment depending on when the services within the contract are satisfied and when we have transferred control of the related services to the customer. The overall impact of these changes is not significant on a full-year basis, but the timing of recognizing fees revenue will impact our fiscal quarters when compared to prior years. For the year ended December 31, 2018, the adoption of Topic 606 increased fees revenue by $6.2 million compared to what would have been recognized under our previous accounting policies, including a one-time $10.5 million increase for revenues within our Services Segment. Excluding this increase, fee revenues would have decreased by $4.3 million.
Additionally, the Company has evaluated ASC Topic 340 - Other Assets and Deferred Cost (“ASC 340”) which requires companies to defer certain incremental cost to obtain customer contracts, and certain costs to fulfill customer contracts.
Incremental cost to obtain - The adoption of ASC 340 resulted in the Company deferring certain costs to obtain customer contracts primarily as they relate to commission-based compensation plans in the Retail Segment, in which the Company pays an incremental amount of compensation on new business. These incremental costs are deferred and amortized over a 15-year period, which is consistent with the analysis performed on acquired customer accounts and referenced in Note 5 to the Company’s consolidated financial statements. For incremental costs with an amortization period of less than 12 months, the costs are expensed as incurred. For the year ended December 31, 2018, the Company deferred $13.7 million of incremental cost to obtain customer contracts. The Company expensed $0.5 million of the incremental cost to obtain customer contracts for the year ended December 31, 2018.
Cost to fulfill - The adoption of ASC 340 resulted in the Company deferring certain costs to fulfill contracts and to recognize these costs as the associated performance obligations are fulfilled. In order for contract fulfillment costs to be deferred under ASC 340, the costs must (1) relate directly to a specific contract or anticipated contract, (2) generate or enhance resources that the Company will use in satisfying its obligations under the contract, and (3) be expected to be recovered through sufficient net cash flows from the contract. The Company does not expect the overall impact of these changes to be significant on a full-year basis, but the timing of recognizing these expenses will impact quarterly results compared to prior years as such recognition better aligns with the associated revenue. With the modified retrospective adoption of Topic 606, the Company deferred $52.7 million in contract fulfillment costs on its opening balance sheet on January 1, 2018 based upon the estimated average time spent on policy renewals. For the year ended December 31, 2018, the Company had net expense of $1.3 million related to the release of previously deferred contract fulfillment costs associated with performance obligations that were satisfied in the period, net of current year deferrals for costs incurred that related to performance obligations yet to be fulfilled.
In connection with the implementation of Topic 606 and ASC 340, we modified, and in some instances instituted, additional accounting procedures, processes and internal controls. While the relative impacts of these standards to our revenue and expense streams are significant during a calendar year, we do not view these modifications and additions as a material change in our internal controls over financial reporting on a full year basis.
54

Table of Contents
The cumulative effect of the changes made to our consolidated balance sheet as of January 1, 2018 for the adoption of Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and ASC Topic 340 – Other Assets and Deferred Cost (the “New Revenue Standard”):

(in thousands) | Balance at December 31, 2017 |  | Adjustments due to the New Revenue Standard |  | Balance at January 1, 2018
Balance Sheet |  |  |  |  |
Assets: |  |  |  |  |
Premiums, commissions and fees receivable | $ | 546,402 |  |  | $ | 153,058 |  |  | $ | 699,460 |
Other current assets | 47,864 |  |  | 52,680 |  |  | 100,544 |
Liabilities: |  |  |  |  |
Premiums payable to insurance companies | 685,163 |  |  | 12,107 |  |  | 697,270 |
Accounts payable | 64,177 |  |  | 8,747 |  |  | 72,924 |
Accrued expenses and other liabilities | 228,748 |  |  | 22,794 |  |  | 251,542 |
Deferred income taxes, net | 256,185 |  |  | 44,575 |  |  | 300,760 |
Shareholders' Equity: |  |  |  |  |
Retained earnings | $ | 2,456,599 |  |  | $ | 117,515 |  |  | $ | 2,574,114 |

The $52.7 million adjustment to other current assets reflects the deferral of certain cost to fulfill contracts. The $12.1 million adjustment to premiums payable to insurance companies reflects the estimated amount payable to outside brokers on unbilled premiums, commissions and fees receivable. The $8.7 million adjustment to accounts payable and the $22.8 million adjustment to accrued expenses and other liabilities consists of commissions payable and deferred revenue, respectively.
The following table illustrates the impact of adopting the New Revenue Standard has had on our reported results in the consolidated statement of income.

| December 31, 2018
(in thousands) | As reported |  | Impact of adopting the New Revenue Standard |  | Balances without the New Revenue Standard
Statement of Income |  |  |  |  |
Revenues: |  |  |  |  |
Commissions and fees | $ | 2,009,857 |  |  | $ | 18,399 |  |  | $ | 1,991,458 |
Expenses: |  |  |  |  |
Employee compensation and benefits | 1,068,914 |  |  | (8,835 | ) |  | 1,077,749 |
Other operating expenses | 332,118 |  |  | 10,621 |  |  | 321,497 |
Income taxes | 118,207 |  |  | 4,246 |  |  | 113,961 |
Net income | $ | 344,255 |  |  | $ | 12,367 |  |  | $ | 331,888 |

Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of Brown & Brown, Inc. and its subsidiaries. All significant intercompany account balances and transactions have been eliminated in the Consolidated Financial Statements.
Segment results for prior periods have been recast, where appropriate, to reflect the current year segmental structure. Certain reclassifications have been made to the prior year amounts reported in this Annual Report on Form 10-K in order to conform to the current year presentation.
55

Table of Contents
Revenue Recognition
The Company earns commissions paid by insurance carriers for the binding of insurance coverage. Commissions are earned at a point in time upon the effective date of bound insurance coverage, as no performance obligation exists after coverage is bound. If there are other services within the contract, the Company estimates the stand-alone selling price for each separate performance obligation, and the corresponding apportioned revenue is recognized over a period of time as the performance obligations are fulfilled. The Company earns fee revenue by receiving negotiated fees in lieu of a commission and from services other than securing insurance coverage. Fee revenues from certain agreements are recognized depending on when the services within the contract are satisfied and when we have transferred control of the related services to the customer. In situations where multiple performance obligations exist within a fee contract, the use of estimates is required to allocate the transaction price on a relative stand-alone selling price basis to each separate performance obligation. Incentive commissions represent a form of variable consideration which includes additional commissions over base commissions received from insurance carriers based on predetermined production levels mutually agreed upon by both parties. Profit-sharing contingent commissions represent a form of variable consideration associated with the placement of coverage, for which we earn commissions. Profit-sharing contingent commissions and incentive commissions are estimated with a constraint applied and accrued relative to the recognition of the corresponding core commissions based on the amount of consideration that will be received in the coming year such that a significant reversal of revenue is not probable. Guaranteed supplemental commissions, a form of variable consideration, represent guaranteed fixed-base agreements in lieu of profit-sharing contingent commissions.
Management determines the policy cancellation reserve based upon historical cancellation experience adjusted for any known circumstances.
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosures of contingent assets and liabilities, at the date of the Consolidated Financial Statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents principally consist of demand deposits with financial institutions and highly liquid investments with quoted market prices having maturities of three months or less when purchased.
Restricted Cash and Investments, and Premiums, Commissions and Fees Receivable
In our capacity as an insurance agent or broker, the Company typically collects premiums from insureds and, after deducting the authorized commissions, remits the net premiums to the appropriate insurance company or companies. Accordingly, as reported in the Consolidated Balance Sheets, premiums are receivable from insureds. Unremitted net insurance premiums are held in a fiduciary capacity until the Company disburses them. Where allowed by law, the Company invests these unremitted funds only in cash, money market accounts, tax-free variable-rate demand bonds and commercial paper held for a short-term. In certain states in which the Company operates, the use and investment alternatives for these funds are regulated and restricted by various state laws and agencies. These restricted funds are reported as restricted cash and investments on the Consolidated Balance Sheets. The interest income earned on these unremitted funds, where allowed by state law, is reported as investment income in the Consolidated Statement of Income.
In other circumstances, the insurance companies collect the premiums directly from the insureds and remit the applicable commissions to the Company. Accordingly, as reported in the Consolidated Balance Sheets, commissions are receivables from insurance companies. Fees are primarily receivables due from customers.
Investments
Certificates of deposit, and other securities, having maturities of more than three months when purchased are reported at cost and are adjusted for other-than-temporary market value declines. The Company’s investment holdings include U.S. Government securities, municipal bonds, domestic corporate and foreign corporate bonds as well as short-duration fixed income funds. Investments within the portfolio or funds are held as available-for-sale and are carried at their fair value. Any gain/loss applicable from the fair value change is recorded, net of tax, as other comprehensive income within the equity section of the Consolidated Balance Sheet. Realized gains and losses are reported on the Consolidated Statement of Income, with the cost of securities sold determined on a specific identification basis.
Fixed Assets
Fixed assets, including leasehold improvements, are carried at cost, less accumulated depreciation and amortization. Expenditures for improvements are capitalized, and expenditures for maintenance and repairs are expensed to operations as incurred. Upon sale or retirement, the cost and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or loss, if any, is reflected in other income. Depreciation has been determined using the straight-line method over the estimated useful lives of the related assets, which
56

Table of Contents
range from 3 to 15 years. Leasehold improvements are amortized on the straight-line method over the shorter of the useful life of the improvement or the term of the related lease.
Goodwill and Amortizable Intangible Assets
All of our business combinations initiated after June 30, 2001 are accounted for using the acquisition method. Acquisition purchase prices are typically based upon a multiple of average annual operating profit earned over a period of 3 years within a minimum and maximum price range. The recorded purchase prices for all acquisitions consummated after January 1, 2009 include an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in the fair value of earn-out obligations are recorded in the Consolidated Statement of Income when incurred.
The fair value of earn-out obligations is based upon the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions contained in the respective purchase agreements. In determining fair value, the acquired business’ future performance is estimated using financial projections developed by management for the acquired business and this estimate reflects market participant assumptions regarding revenue growth and/or profitability. The expected future payments are estimated on the basis of the earn-out formula and performance targets specified in each purchase agreement compared to the associated financial projections. These estimates are then discounted to present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments will be made.
Amortizable intangible assets are stated at cost, less accumulated amortization, and consist of purchased customer accounts and non-compete agreements. Purchased customer accounts and non-compete agreements are amortized on a straight-line basis over the related estimated lives and contract periods, which range from 3 to 15 years. Purchased customer accounts primarily consist of records and files that contain information about insurance policies and the related insured parties that are essential to policy renewals.
The excess of the purchase price of an acquisition over the fair value of the identifiable tangible and amortizable intangible assets is assigned to goodwill. While goodwill is not amortizable, it is subject to assessment at least annually, and more frequently in the presence of certain circumstances, for impairment by application of a fair value-based test. The Company compares the fair value of each reporting unit with its carrying amount to determine if there is potential impairment of goodwill. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value. Fair value is estimated based upon multiples of earnings before interest, income taxes, depreciation, amortization and change in estimated acquisition earn-out payables (“EBITDAC”), or on a discounted cash flow basis. The Company completed its most recent annual assessment as of November 30, 2018 and determined that the fair value of goodwill significantly exceeded the carrying value of such assets. In addition, as of December 31, 2018, there are no accumulated impairment losses.
The carrying value of amortizable intangible assets attributable to each business or asset group comprising the Company is periodically reviewed by management to determine if there are events or changes in circumstances that would indicate that its carrying amount may not be recoverable. Accordingly, if there are any such changes in circumstances during the year, the Company assesses the carrying value of its amortizable intangible assets by considering the estimated future undiscounted cash flows generated by the corresponding business or asset group. Any impairment identified through this assessment may require that the carrying value of related amortizable intangible assets be adjusted. There were no impairments recorded for the years ended December 31, 2018, 2017 and 2016.
Income Taxes
The Company records income tax expense using the asset-and-liability method of accounting for deferred income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and the income tax bases of the Company’s assets and liabilities.
The Company files a consolidated federal income tax return and has elected to file consolidated returns in certain states. Deferred income taxes are provided for in the Consolidated Financial Statements and relate principally to expenses charged to income for financial reporting purposes in one period and deducted for income tax purposes in other periods.
Net Income Per Share
Basic net income per share is computed based on the weighted average number of common shares (including participating securities) issued and outstanding during the period. Diluted net income per share is computed based on the weighted average number of common shares issued and outstanding plus equivalent shares, assuming the exercise of stock options. The dilutive effect of stock options is computed by application of the treasury-stock method. The weighted average number of common shares outstanding for 2016 and 2017 reflect the 2-for-1 stock split that occurred on March 28, 2018.
57

Table of Contents
The following is a reconciliation between basic and diluted weighted average shares outstanding for the years ended December 31:

(in thousands, except per share data) | 2018 |  | 2017(1) |  | 2016(1)
Net income | $ | 344,255 |  |  | $ | 399,630 |  |  | $ | 257,491 |
Net income attributable to unvested awarded performance stock | (8,297 | ) |  | (9,746 | ) |  | (6,705 | )
Net income attributable to common shares | $ | 335,958 |  |  | $ | 389,884 |  |  | $ | 250,786 |
Weighted average number of common shares outstanding – basic | 277,663 |  |  | 279,394 |  |  | 279,558 |
Less unvested awarded performance stock included in weighted average number of common shares outstanding – basic | (6,692 | ) |  | (6,814 | ) |  | (7,280 | )
Weighted average number of common shares outstanding for basic earnings per common share | 270,971 |  |  | 272,580 |  |  | 272,278 |
Dilutive effect of stock options | 4,550 |  |  | 5,006 |  |  | 3,330 |
Weighted average number of shares outstanding – diluted | 275,521 |  |  | 277,586 |  |  | 275,608 |
Net income per share: |  |  |  |  |
Basic | $ | 1.24 |  |  | $ | 1.43 |  |  | $ | 0.92 |
Diluted | $ | 1.22 |  |  | $ | 1.40 |  |  | $ | 0.91 |

(1) | The weighted average number of common shares outstanding for 2016 and 2017 reflect the 2-for-1 stock split that occurred on March 28, 2018.

Fair Value of Financial Instruments
The carrying amounts of the Company’s financial assets and liabilities, including cash and cash equivalents; restricted cash and short-term investments; investments; premiums, commissions and fees receivable; reinsurance recoverable; prepaid reinsurance premiums; premiums payable to insurance companies; losses and loss adjustment reserve; unearned premium; premium deposits and credits due customers and accounts payable, at December 31, 2018 and 2017, approximate fair value because of the short-term maturity of these instruments. The carrying amount of the Company’s long-term debt approximates fair value at December 31, 2018 and 2017 as our fixed-rate borrowings of $499.1 million approximate their values using market quotes of notes with the similar terms as ours, which we deem a close approximation of current market rates. The estimated fair value of the $1,015.0 million currently outstanding approximates the carrying value due to the variable interest rate based upon adjusted LIBOR. See Note 3 to our Consolidated Financial Statements for the fair values related to the establishment of intangible assets and the establishment and adjustment of earn-out payables. See Note 6 for information on the fair value of investments and Note 9 for information on the fair value of long-term debt.
Stock-Based Compensation
The Company grants non-vested stock awards to its employees and officers and fully vested stock awards to directors. The Company uses the modified-prospective method to account for share-based payments. Under the modified-prospective method, compensation cost is recognized for all share-based payments granted on or after January 1, 2006 and for all awards granted to employees prior to January 1, 2006 that remained unvested on that date. The Company uses the alternative-transition method to account for the income tax effects of payments made related to stock-based compensation.
The Company uses the Black-Scholes valuation model for valuing all stock options and shares purchased under the Employee Stock Purchase Plan (the “ESPP”). Compensation for non-vested stock awards is measured at fair value on the grant date based upon the number of shares expected to vest. Compensation cost for all awards is recognized in earnings, net of estimated forfeitures, on a straight-line basis over the requisite service period.
Reinsurance
The Company protects itself from claims-related losses by reinsuring all claims risk exposure. The only line of insurance the Company underwrites is flood insurance associated with the Wright National Flood Insurance Company (“WNFIC”), which is part of our National Programs Segment. However, all exposure is reinsured with the Federal Emergency Management Agency (“FEMA”) for basic admitted policies conforming to the National Flood Insurance Program. For excess flood insurance policies, all exposure is reinsured with a reinsurance carrier with an AM Best Company rating of “A” or better. Reinsurance does not legally discharge the ceding insurer from the primary liability for the full amount due under the reinsured policies. Reinsurance premiums, commissions, expense reimbursement and reserves related to ceded business are accounted for on a basis consistent with the accounting for the original policies issued and the terms of reinsurance contracts. Premiums earned and losses and loss adjustment expenses incurred are reported net of reinsurance amounts. Other underwriting expenses are shown net of earned ceding commission income. The liabilities for unpaid losses and loss adjustment expenses and unearned premiums are reported gross of ceded reinsurance recoverable.
Balances due from reinsurers on unpaid losses and loss adjustment expenses, including an estimate of such recoverables related to reserves for incurred but not reported (“IBNR”) losses, are reported as assets and are included in reinsurance recoverable even though amounts
58

Table of Contents
due on unpaid loss and loss adjustment expense are not recoverable from the reinsurer until such losses are paid. The Company does not believe it is exposed to any material credit risk through its reinsurance as the reinsurer is FEMA for basic admitted flood policies and national reinsurance carriers for private flood policies, which has an AM Best Company rating of “A” or better. Historically, no amounts due from reinsurance carriers have been written off as uncollectible.
Unpaid Losses and Loss Adjustment Reserve
Unpaid losses and loss adjustment reserve include amounts determined on individual claims and other estimates based upon the past experience of WNFIC and the policyholders for IBNR claims, less anticipated salvage and subrogation recoverable. The methods of making such estimates and for establishing the resulting reserves are continually reviewed and updated, and any adjustments resulting therefrom are reflected in operations currently.
WNFIC engages the services of outside actuarial consulting firms (the “Actuaries”) to assist on an annual basis to render an opinion on the sufficiency of the Company’s estimates for unpaid losses and related loss adjustment reserve. The Actuaries utilize both industry experience and the Company’s own experience to develop estimates of those amounts as of year-end. These estimated liabilities are subject to the impact of future changes in claim severity, frequency and other factors. In spite of the variability inherent in such estimates, management believes that the liabilities for unpaid losses and related loss adjustment reserve are adequate.
Premiums
Premiums are recognized as income over the coverage period of the related policies. Unearned premiums represent the portion of premiums written that relate to the unexpired terms of the policies in force and are determined on a daily pro rata basis. The income is recorded to the commissions and fees line of the income statement.
NOTE 2· Revenues
The following table presents the revenues disaggregated by revenue source:

| Twelve months ended December 31, 2018
(in thousands) | Retail |  | National Programs |  | Wholesale Brokerage |  | Services |  | Other |  | Total
Base commissions(1) | $ | 811,820 |  |  | $ | 324,168 |  |  | $ | 226,117 |  |  | $ | — |  |  | $ | (68 | ) |  | $ | 1,362,037 |
Fees(2) | 148,121 |  |  | 144,195 |  |  | 50,571 |  |  | 189,041 |  |  | (1,090 | ) |  | 530,838 |
Incentive commissions(3) | 48,698 |  |  | 1,543 |  |  | 864 |  |  | — |  |  | 41 |  |  | 51,146 |
Profit-sharing contingent commissions(4) | 24,517 |  |  | 23,896 |  |  | 7,462 |  |  | — |  |  | — |  |  | 55,875 |
Guaranteed supplemental commissions(5) | 8,535 |  |  | 76 |  |  | 1,350 |  |  | — |  |  | — |  |  | 9,961 |
Investment income(6) | 2 |  |  | 506 |  |  | 165 |  |  | 205 |  |  | 1,868 |  |  | 2,746 |
Other income, net(7) | 1,070 |  |  | 79 |  |  | 485 |  |  | — |  |  | 9 |  |  | 1,643 |
Total Revenues | $ | 1,042,763 |  |  | $ | 494,463 |  |  | $ | 287,014 |  |  | $ | 189,246 |  |  | $ | 760 |  |  | $ | 2,014,246 |

(1) | Base commissions generally represent a percentage of the premium paid by an insured and are affected by fluctuations in both premium rate levels charged by insurance companies and the insureds’ underlying “insurable exposure units,” which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, or sales and payroll levels) to determine what premium to charge the insured. Insurance companies establish these premium rates based upon many factors, including loss experience, risk profile and reinsurance rates paid by such insurance companies, none of which we control.

(2) | Fee revenues relate to fees for services other than securing coverage for our customers and fees negotiated in lieu of commissions.

(3) | Incentive commissions include additional commissions over base commissions received from insurance carriers based on predetermined production levels mutually agreed upon by both parties.

(4) | Profit-sharing contingent commissions are based primarily on underwriting results, but may also reflect considerations for volume, growth and/or retention.

(5) | Guaranteed supplemental commissions represent guaranteed fixed-base agreements in lieu of profit-sharing contingent commissions.

(6) | Investment income consists primarily of interest on cash and investments.

(7) | Other income consists primarily of legal settlements and other miscellaneous income.

59

Table of Contents
Contract Assets and Liabilities
The balances of contract assets and contract liabilities arising from contracts with customers as of December 31, 2018 and 2017 were as follows:

(in thousands) | December 31, 2018 |  | December 31, 2017(1)
Contract assets | $ | 265,994 |  |  | $ | 210,323 |
Contract liabilities | $ | 53,496 |  |  | $ | 51,236 |

(1) | The balances as of December 31, 2017 reported in this footnote have been revised to reflect the impact of adopting the New Revenue Standard.

Unbilled receivables (contract assets) arise when the Company recognizes revenue for amounts which have not yet been billed in our systems. Deferred revenue (contract liabilities) relates to payments received in advance of performance under the contract before the transfer of a good or service to the customer.
As of December 31, 2018, deferred revenue consisted of $37.0 million as current portion to be recognized within one year and $16.5 million in long-term to be recognized beyond one year. As of December 31, 2017, deferred revenue consisted of $44.5 million as current portion to be recognized within one year and $6.7 million in long-term deferred revenue to be recognized beyond one year.
Contract assets and contract liabilities arising from acquisitions in 2018 were approximately $34.3 million and $3.3 million, respectively.
During the twelve months ended December 31, 2018, the amount of revenue recognized related to performance obligations satisfied in a previous period, inclusive of changes due to estimates, was approximately $8.9 million.
NOTE 3· Business Combinations
During the year ended December 31, 2018, the Company acquired the assets and assumed certain liabilities of twenty insurance intermediaries, all the stock of three insurance intermediaries and one book of business (customer accounts). Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last twelve months as permitted by ASC Topic 805 - Business Combinations (“ASC 805”). Such adjustments are presented in the “Other” category within the following two tables. The recorded purchase price for all acquisitions includes an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in the fair value of earn-out obligations will be recorded in the Consolidated Statement of Income when incurred.
The fair value of earn-out obligations is based upon the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements. In determining fair value, the acquired business’s future performance is estimated using financial projections developed by management for the acquired business and reflects market participant assumptions regarding revenue growth and/or profitability. The expected future payments are estimated on the basis of the earn-out formula and performance targets specified in each purchase agreement compared to the associated financial projections. These payments are then discounted to present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments will be made.
Based upon the acquisition date and the complexity of the underlying valuation work, certain amounts included in the Company’s Consolidated Financial Statements may be provisional and thus subject to further adjustments within the permitted measurement period, as defined in ASC 805. For the year ended December 31, 2018, several adjustments were made within the permitted measurement period that resulted in an increase in the aggregate purchase price of the affected acquisitions of $21.4 thousand relating to the assumption of certain liabilities. These measurement period adjustments have been reflected as current period adjustments for the year ended December 31, 2018 in accordance with the guidance in ASU 2015-16 “Business Combinations.” The measurement period adjustments impacted goodwill, with no effect on earnings or cash in the current period.
Cash paid for acquisitions was $934.9 million and $41.5 million in the years ended December 31, 2018 and 2017, respectively. We completed twenty-three acquisitions (excluding book of business purchases) during the year ended December 31, 2018. We completed eleven acquisitions (excluding book of business purchases) during the year ended December 31, 2017.
60

Table of Contents
The following table summarizes the purchase price allocations made as of the date of each acquisition for current year acquisitions and adjustments made during the measurement period for prior year acquisitions. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. These adjustments are made in the period in which the amounts are determined and the current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date.

(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Name | Business segment |  | Effective date of acquisition |  | Cash paid |  | Common Stock Issued |  | Other payable |  | Recorded earn-out payable |  | Net assets acquired |  | Maximum potential earn- out payable
Opus Advisory Group, LLC (Opus) | Retail |  | February 1, 2018 |  | $ | 20,400 |  |  | $ | — |  |  | $ | 200 |  |  | $ | 2,384 |  |  | $ | 22,984 |  |  | $ | 3,600 |
Kerxton Insurance Agency, Inc. (Kerxton) | Retail |  | March 1, 2018 |  | 13,176 |  |  | — |  |  | 1,490 |  |  | 2,080 |  |  | 16,746 |  |  | 2,920 |
Automotive Development Group, LLC (ADG) | Retail |  | May 1, 2018 |  | 29,471 |  |  | — |  |  | 559 |  |  | 17,545 |  |  | 47,575 |  |  | 20,000 |
Servco Pacific, Inc. (Servco) | Retail |  | June 1, 2018 |  | 76,245 |  |  | — |  |  | — |  |  | 934 |  |  | 77,179 |  |  | 7,000 |
Tower Hill Prime Insurance Company (Tower Hill) | National Programs |  | July 1, 2018 |  | 20,300 |  |  | — |  |  | — |  |  | 1,188 |  |  | 21,488 |  |  | 7,700 |
Health Special Risk, Inc. (HSR) | National Programs |  | July 1, 2018 |  | 20,132 |  |  | — |  |  | — |  |  | 1,991 |  |  | 22,123 |  |  | 9,000 |
Professional Disability Associates, LLC (PDA) | Services |  | July 1, 2018 |  | 15,025 |  |  | — |  |  | — |  |  | 9,818 |  |  | 24,843 |  |  | 17,975 |
Finance & Insurance Resources, Inc. (F&I) | Retail |  | September 1, 2018 |  | 44,940 |  |  | — |  |  | 410 |  |  | 9,121 |  |  | 54,471 |  |  | 19,500 |
Rodman Insurance Agency, Inc. (Rodman) | Retail |  | November 1, 2018 |  | 31,121 |  |  | — |  |  | 261 |  |  | 3,720 |  |  | 35,102 |  |  | 9,850 |
The Hays Group, Inc. et al (Hays) | Retail |  | November 16, 2018 |  | 605,000 |  |  | 100,000 |  |  | — |  |  | 19,600 |  |  | 724,600 |  |  | 25,000 |
Dealer Associates, Inc. (Dealer) | Retail |  | December 1, 2018 |  | 28,825 |  |  | — |  |  | 1,175 |  |  | 3,100 |  |  | 33,100 |  |  | 12,125 |
Other | Various |  | Various |  | 30,293 |  |  | — |  |  | 1,367 |  |  | 5,896 |  |  | 37,556 |  |  | 12,998 |
Total |  |  |  |  | $ | 934,928 |  |  | $ | 100,000 |  |  | $ | 5,462 |  |  | $ | 77,377 |  |  | $ | 1,117,767 |  |  | $ | 147,668 |

61

Table of Contents
The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition and adjustments made during the measurement period of the prior year acquisitions.

(in thousands) |  | Opus |  | Kerxton |  | ADG |  | Servco |  | Tower Hill |  | HSR |  | PDA |  | F&I |  | Rodman |  | Hays
Cash |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 8,188 |  |  | $ | — |  |  | $ | 3,114 |  |  | $ | (248 | ) |  | $ | — |  |  | $ | — |  |  | $ | — |
Other current assets |  | 1,215 |  |  | 663 |  |  | 1,500 |  |  | 7,769 |  |  | — |  |  | 818 |  |  | 1,762 |  |  | 999 |  |  | 1,062 |  |  | 36,254 |
Fixed assets |  | 11 |  |  | 10 |  |  | 67 |  |  | 179 |  |  | $ | — |  |  | $ | 124 |  |  | $ | 310 |  |  | $ | 34 |  |  | $ | 45 |  |  | $ | 4,936 |
Goodwill |  | 16,414 |  |  | 12,423 |  |  | 35,769 |  |  | 54,429 |  |  | — |  |  | 18,737 |  |  | 16,547 |  |  | 36,423 |  |  | 26,572 |  |  | 456,217 |
Purchased customer accounts |  | 5,008 |  |  | 4,712 |  |  | 9,751 |  |  | 16,442 |  |  | 21,468 |  |  | 5,516 |  |  | 7,700 |  |  | 16,611 |  |  | 10,129 |  |  | 218,600 |
Non-compete agreements |  | 21 |  |  | 22 |  |  | 21 |  |  | 1 |  |  | 20 |  |  | 65 |  |  | 82 |  |  | 21 |  |  | 51 |  |  | 2,600 |
Other assets |  | 315 |  |  | 419 |  |  | 467 |  |  | 1,478 |  |  | — |  |  | 21 |  |  | 6 |  |  | 383 |  |  | 542 |  |  | 13,977 |
Total assets acquired |  | 22,984 |  |  | 18,249 |  |  | 47,575 |  |  | 88,486 |  |  | 21,488 |  |  | 28,395 |  |  | 26,159 |  |  | 54,471 |  |  | 38,401 |  |  | 732,584 |
Other current liabilities |  | — |  |  | (1,503 | ) |  | — |  |  | (11,307 | ) |  | — |  |  | (5,930 | ) |  | (1,093 | ) |  | — |  |  | (3,299 | ) |  | (7,984 | )
Other liabilities |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (342 | ) |  | (223 | ) |  | — |  |  | — |  |  | — |
Total liabilities assumed |  | — |  |  | (1,503 | ) |  | — |  |  | (11,307 | ) |  | — |  |  | (6,272 | ) |  | (1,316 | ) |  | — |  |  | (3,299 | ) |  | (7,984 | )
Net assets acquired |  | $ | 22,984 |  |  | $ | 16,746 |  |  | $ | 47,575 |  |  | $ | 77,179 |  |  | $ | 21,488 |  |  | $ | 22,123 |  |  | $ | 24,843 |  |  | $ | 54,471 |  |  | $ | 35,102 |  |  | $ | 724,600 |

(in thousands) |  | Dealer |  | Other |  | Total
Cash |  | $ | — |  |  | $ | — |  |  | $ | 11,054 |
Other current assets |  | 552 |  |  | 323 |  |  | 52,917 |
Fixed assets |  | 13 |  |  | 100 |  |  | 5,829 |
Goodwill |  | 21,467 |  |  | 22,712 |  |  | 717,710 |
Purchased customer accounts |  | 10,986 |  |  | 15,085 |  |  | 342,008 |
Non-compete agreements |  | 21 |  |  | 297 |  |  | 3,222 |
Other assets |  | 226 |  |  | 754 |  |  | 18,588 |
Total assets acquired |  | 33,265 |  |  | 39,271 |  |  | 1,151,328 |
Other current liabilities |  | (165 | ) |  | (1,715 | ) |  | (32,996 | )
Other liabilities |  | — |  |  | — |  |  | (565 | )
Total liabilities assumed |  | (165 | ) |  | (1,715 | ) |  | (33,561 | )
Net assets acquired |  | $ | 33,100 |  |  | $ | 37,556 |  |  | $ | 1,117,767 |

The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer accounts, 15 years; and non-compete agreements, 5 years.
Goodwill of $717.7 million, which is net of any opening balance sheet adjustments within the allowable measurement period, was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments in the amounts of $676.9 million, $18.7 million, $5.5 million and $16.5 million, respectively. Of the total goodwill of $717.7 million, the amount currently deductible for income tax purposes is $640.3 million and the remaining $77.4 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid.
62

Table of Contents
For the acquisitions completed during 2018, the results of operations since the acquisition dates have been combined with those of the Company. The total revenues from the acquisitions completed through December 31, 2018 included in the Consolidated Statement of Income for the year ended December 31, 2018 were $82.4 million. The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through December 31, 2018 included in the Consolidated Statement of Income for the year ended December 31, 2018 was $6.3 million. If the acquisitions had occurred as of the beginning of the respective periods, the Company’s results of operations would be as shown in the following table. These unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the acquisitions actually been made at the beginning of the respective periods.

(UNAUDITED) | Year Ended December 31,
(in thousands, except per share data) | 2018 |  | 2017
Total revenues | $ | 2,259,812 |  |  | $ | 2,193,169 |
Income before income taxes | $ | 504,664 |  |  | $ | 503,927 |
Net income | $ | 375,670 |  |  | $ | 447,796 |
Net income per share: |  |  |
Basic | $ | 1.35 |  |  | $ | 1.60 |
Diluted | $ | 1.33 |  |  | $ | 1.57 |
Weighted average number of shares outstanding: |  |  |
Basic | 270,971 |  |  | 272,580 |
Diluted | 275,521 |  |  | 277,586 |

Acquisitions in 2017
During the year ended December 31, 2017, the Company acquired the assets and assumed certain liabilities of eleven insurance intermediaries and one book of business (customer accounts). Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last twelve months as permitted by ASC 805. Such adjustments are presented in the “Other” category within the following two tables.
For the year ended December 31, 2017, several adjustments were made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected acquisitions of $1.5 million, relating to the assumption of certain liabilities.
The following table summarizes the purchase price allocation made as of the date of each acquisition for current year acquisitions and significant adjustments made during the measurement period for prior year acquisitions:

(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |
Name | Business Segment |  | Effective Date of Acquisition |  | Cash Paid |  | Other Payable |  | Recorded Earn-Out Payable |  | Net Assets Acquired |  | Maximum Potential Earn- Out Payable
Other | Various |  | Various |  | $ | 41,471 |  |  | $ | 11,708 |  |  | $ | 6,921 |  |  | $ | 60,100 |  |  | $ | 27,451 |
Total |  |  |  |  | $ | 41,471 |  |  | $ | 11,708 |  |  | $ | 6,921 |  |  | $ | 60,100 |  |  | $ | 27,451 |

63

Table of Contents
The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition.

(in thousands) | Total
Other current assets | $ | 601 |
Fixed assets | 69 |
Goodwill | 42,172 |
Purchased customer accounts | 18,738 |
Non-compete agreements | 721 |
Total assets acquired | 62,301 |
Other current liabilities | (1,512 | )
Deferred income tax, net | (689 | )
Total liabilities assumed | (2,201 | )
Net assets acquired | $ | 60,100 |

The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer accounts, 15.0 years; and non-compete agreements, 5.0 years.
Goodwill of $42.2 million was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments in the amounts of $33.1 million, $7.2 million, $1.2 million and $0.7 million, respectively. Of the total goodwill of $42.2 million, $35.3 million is currently deductible for income tax purposes. The remaining $6.9 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid.
For the acquisitions completed during 2017, the results of operations since the acquisition dates have been combined with those of the Company. The total revenues from the acquisitions completed through December 31, 2017 included in the Consolidated Statement of Income for the year ended December 31, 2017 were $7.8 million. The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through December 31, 2017 included in the Consolidated Statement of Income for the year ended December 31, 2017 was $2.4 million. If the acquisitions had occurred as of the beginning of the respective periods, the Company’s results of operations would be as shown in the following table. These unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the acquisitions actually been made at the beginning of the respective periods.

(UNAUDITED) | Year Ended December 31,
(in thousands, except per share data) | 2017 |  | 2016
Total revenues | $ | 1,891,701 |  |  | $ | 1,784,776 |
Income before income taxes | $ | 453,397 |  |  | $ | 429,490 |
Net income | $ | 401,908 |  |  | $ | 261,133 |
Net income per share: |  |  |
Basic | $ | 1.44 |  |  | $ | 0.93 |
Diluted | $ | 1.41 |  |  | $ | 0.92 |
Weighted average number of shares outstanding: |  |  |
Basic | 272,580 |  |  | 272,278 |
Diluted | 277,586 |  |  | 275,608 |

Acquisitions in 2016
During the year ended December 31, 2016, the Company acquired the assets and assumed certain liabilities of seven insurance intermediaries, all of the stock of one insurance intermediary and three books of business (customer accounts). Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last twelve months as permitted by ASC 805. Such adjustments are presented in the “Other” category within the following two tables.
For the year ended December 31, 2016, several adjustments were made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected acquisitions of $917,497, relating to the assumption of certain liabilities.
64

Table of Contents
The following table summarizes the purchase price allocation made as of the date of each acquisition for current year acquisitions and significant adjustments made during the measurement period for prior year acquisitions:

(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Name | Business Segment |  | Effective Date of Acquisition |  | Cash Paid |  | Note Payable |  | Other Payable |  | Recorded Earn-Out Payable |  | Net Assets Acquired |  | Maximum Potential Earn- Out Payable
Social Security Advocates for the Disabled LLC (SSAD) | Services |  | February 1, 2016 |  | $ | 32,526 |  |  | $ | 492 |  |  | $ | — |  |  | $ | 971 |  |  | $ | 33,989 |  |  | $ | 3,500 |
Morstan General Agency, Inc. (Morstan) | Wholesale Brokerage |  | June 1, 2016 |  | 66,050 |  |  | — |  |  | 10,200 |  |  | 3,091 |  |  | 79,341 |  |  | 5,000 |
Other | Various |  | Various |  | 26,140 |  |  | — |  |  | 464 |  |  | 400 |  |  | 27,004 |  |  | 7,785 |
Total |  |  |  |  | $ | 124,716 |  |  | $ | 492 |  |  | $ | 10,664 |  |  | $ | 4,462 |  |  | $ | 140,334 |  |  | $ | 16,285 |

The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition.

(in thousands) | SSAD |  | Morstan |  | Other |  | Total
Cash | $ | 2,094 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,094 |
Other current assets | 1,042 |  |  | 2,482 |  |  | 1,555 |  |  | 5,079 |
Fixed assets | 307 |  |  | 300 |  |  | 77 |  |  | 684 |
Goodwill | 22,352 |  |  | 51,454 |  |  | 19,570 |  |  | 93,376 |
Purchased customer accounts | 13,069 |  |  | 26,481 |  |  | 11,075 |  |  | 50,625 |
Non-compete agreements | 72 |  |  | 39 |  |  | 117 |  |  | 228 |
Other assets | — |  |  | — |  |  | 20 |  |  | 20 |
Total assets acquired | 38,936 |  |  | 80,756 |  |  | 32,414 |  |  | 152,106 |
Other current liabilities | (1,717 | ) |  | (1,415 | ) |  | (5,410 | ) |  | (8,542 | )
Deferred income tax, net | (3,230 | ) |  | — |  |  | — |  |  | (3,230 | )
Total liabilities assumed | (4,947 | ) |  | (1,415 | ) |  | (5,410 | ) |  | (11,772 | )
Net assets acquired | $ | 33,989 |  |  | $ | 79,341 |  |  | $ | 27,004 |  |  | $ | 140,334 |

The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer accounts, 15 years; and non-compete agreements, 5 years.
Goodwill of $93.4 million was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments in the amounts of $13.1 million, $(1.2) thousand, $57.9 million and $22.4 million, respectively. Of the total goodwill of $93.4 million, $88.9 million is currently deductible for income tax purposes. The remaining $4.5 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid.
For the acquisitions completed during 2016, the results of operations since the acquisition dates have been combined with those of the Company. The total revenues from the acquisitions completed through December 31, 2016 included in the Consolidated Statement of Income for the year ended December 31, 2016 were $34.2 million. The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through December 31, 2016 included in the Consolidated Statement of Income for the year ended December 31, 2016 was $4.3 million. If the acquisitions had occurred as of the beginning of the respective periods, the Company’s results of operations would be as shown in the following table. These unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the acquisitions actually been made at the beginning of the respective periods.
65

Table of Contents

(UNAUDITED) | Year Ended December 31,
(in thousands, except per share data) | 2016 |  | 2015
Total revenues | $ | 1,789,790 |  |  | $ | 1,716,592 |
Income before income taxes | $ | 428,194 |  |  | $ | 414,911 |
Net income | $ | 260,346 |  |  | $ | 250,783 |
Net income per share: |  |  |
Basic | $ | 0.93 |  |  | $ | 0.89 |
Diluted | $ | 0.92 |  |  | $ | 0.87 |
Weighted average number of shares outstanding: |  |  |
Basic | 272,278 |  |  | 275,620 |
Diluted | 275,608 |  |  | 280,224 |

As of December 31, 2018, the maximum future contingency payments related to all acquisitions totaled $198.6 million, all of which relates to acquisitions consummated subsequent to January 1, 2009.
ASC 805 is the authoritative guidance requiring an acquirer to recognize 100% of the fair values of acquired assets, including goodwill, and assumed liabilities (with only limited exceptions) upon initially obtaining control of an acquired entity. Additionally, the fair value of contingent consideration arrangements (such as earn-out purchase arrangements) at the acquisition date must be included in the purchase price consideration. As a result, the recorded purchase prices for all acquisitions consummated after January 1, 2009 include an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in these earn-out obligations will be recorded in the Consolidated Statement of Income when incurred. Potential earn-out obligations are typically based upon future earnings of the acquired entities, usually between one and three years.
As of December 31, 2018, the fair values of the estimated acquisition earn-out payables were re-evaluated and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820-Fair Value Measurement. The resulting additions, payments and net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the years ended December 31, 2018, 2017 and 2016 were as follows:

| Year Ended December 31,
(in thousands) | 2018 |  | 2017 |  | 2016
Balance as of the beginning of the period | $ | 36,175 |  |  | $ | 63,821 |  |  | $ | 78,387 |
Additions to estimated acquisition earn-out payables | 77,377 |  |  | 6,920 |  |  | 4,462 |
Payments for estimated acquisition earn-out payables | (26,597 | ) |  | (43,766 | ) |  | (28,213 | )
Subtotal | 86,955 |  |  | 26,975 |  |  | 54,636 |
Net change in earnings from estimated acquisition earn-out payables: |  |  |  |  |
Change in fair value on estimated acquisition earn-out payables | 603 |  |  | 6,874 |  |  | 6,338 |
Interest expense accretion | 2,366 |  |  | 2,326 |  |  | 2,847 |
Net change in earnings from estimated acquisition earn-out payables | 2,969 |  |  | 9,200 |  |  | 9,185 |
Balance as of December 31, | $ | 89,924 |  |  | $ | 36,175 |  |  | $ | 63,821 |

Of the $89.9 million of estimated acquisition earn-out payables as of December 31, 2018, $21.1 million was recorded as accounts payable, and $68.8 million was recorded as another non-current liability. Included within additions to estimated acquisition earn-out payables are any adjustments to opening balance sheet items prior to the one-year anniversary date of the acquisition and may therefore differ from previously reported amounts. Of the $36.2 million of estimated acquisition earn-out payables as of December 31, 2017, $25.1 million was recorded as accounts payable, and $11.1 million was recorded as other non-current liabilities. Of the $63.8 million of estimated acquisition earn-out payables as of December 31, 2016, $31.8 million was recorded as accounts payable, and $32.0 million was recorded as other non-current liabilities.
66

Table of Contents
NOTE 4· Goodwill
The changes in the carrying value of goodwill by reportable segment for the years ended December 31, are as follows:

(in thousands) | Retail |  | National Programs |  | Wholesale Brokerage |  | Services |  | Total
Balance as of January 1, 2017 | $ | 1,354,667 |  |  | $ | 901,294 |  |  | $ | 284,869 |  |  | $ | 134,572 |  |  | $ | 2,675,402 |
Goodwill of acquired businesses | 33,076 |  |  | 7,178 |  |  | 1,229 |  |  | 689 |  |  | 42,172 |
Goodwill disposed of relating to sales of businesses | (1,495 | ) |  | — |  |  | — |  |  | — |  |  | (1,495 | )
Balance as of December 31, 2017 | $ | 1,386,248 |  |  | $ | 908,472 |  |  | $ | 286,098 |  |  | $ | 135,261 |  |  | $ | 2,716,079 |
Goodwill of acquired businesses | 676,902 |  |  | 18,737 |  |  | 5,524 |  |  | 16,547 |  |  | 717,710 |
Goodwill disposed of relating to sales of businesses | — |  |  | (1,003 | ) |  | — |  |  | — |  |  | (1,003 | )
Balance as of December 31, 2018 | $ | 2,063,150 |  |  | $ | 926,206 |  |  | $ | 291,622 |  |  | $ | 151,808 |  |  | $ | 3,432,786 |

NOTE 5· Amortizable Intangible Assets
Amortizable intangible assets at December 31, 2018 and 2017 consisted of the following:

| December 31, 2018 |  | December 31, 2017
(in thousands) | Gross carrying value |  | Accumulated amortization |  | Net carrying value |  | Weighted average life in years(1) |  | Gross carrying value |  | Accumulated amortization |  | Net carrying value |  | Weighted average life in years(1)
Purchased customer accounts | $ | 1,804,404 |  |  | $ | (909,415 | ) |  | $ | 894,989 |  |  | 14.9 |  | $ | 1,464,274 |  |  | $ | (824,584 | ) |  | $ | 639,690 |  |  | 15.0
Non-compete agreements | 33,469 |  |  | (29,651 | ) |  | 3,818 |  |  | 4.5 |  | 30,287 |  |  | (28,972 | ) |  | 1,315 |  |  | 4.6
Total | $ | 1,837,873 |  |  | $ | (939,066 | ) |  | $ | 898,807 |  |  |  |  | $ | 1,494,561 |  |  | $ | (853,556 | ) |  | $ | 641,005 |  |  |

(1) | Weighted average life calculated as of the date of acquisition.

Amortization expense for amortizable intangible assets for the years ending December 31, 2019, 2020, 2021, 2022 and 2023 is estimated to be $100.4 million, $93.0 million, $89.5 million, $85.0 million and $78.0 million, respectively.
NOTE 6· Investments
At December 31, 2018, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:

(in thousands) | Cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Fair value
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities | $ | 21,729 |  |  | $ | 7 |  |  | $ | (222 | ) |  | $ | 21,514 |
Corporate debt | 623 |  |  | — |  |  | — |  |  | 623 |
Total | $ | 22,352 |  |  | $ | 7 |  |  | $ | (222 | ) |  | $ | 22,137 |

At December 31, 2018, the Company held $21.7 million in fixed income securities composed of U.S Treasury securities, securities issued by U.S. Government agencies and Municipalities, and $0.6 million issued by corporations with investment-grade ratings. Of the total, $4.8 million is classified as short-term investments on the Consolidated Balance Sheet as maturities are less than one year in duration. Additionally, the Company holds $8.1 million in short-term investments, which are related to time deposits held with various financial institutions.
67

Table of Contents
For securities in a loss position, the following table shows the investments’ gross unrealized loss and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2018:

(in thousands) | Less than 12 Months |  | 12 Months or More |  | Total
| Fair value |  | Unrealized losses |  | Fair value |  | Unrealized losses |  | Fair value |  | Unrealized losses
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities | $ | 5,866 |  |  | $ | (6 | ) |  | $ | 12,634 |  |  | $ | (216 | ) |  | $ | 18,500 |  |  | $ | (222 | )
Corporate debt | 457 |  |  | — |  |  | 100 |  |  | — |  |  | 557 |  |  | — |
Total | $ | 6,323 |  |  | $ | (6 | ) |  | $ | 12,734 |  |  | $ | (216 | ) |  | $ | 19,057 |  |  | $ | (222 | )

The unrealized losses from corporate issuers were caused by interest rate increases. At December 31, 2018, the Company had 20 securities in an unrealized loss position. The corporate securities are highly rated securities with no indicators of potential impairment. Based upon the ability and intent of the Company to hold these investments until recovery of fair value, which may be maturity, the bonds were not considered to be other-than-temporarily impaired at December 31, 2018.
At December 31, 2017, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows:

(in thousands) | Cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Fair value
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities | $ | 29,970 |  |  | $ | — |  |  | $ | (206 | ) |  | $ | 29,764 |
Corporate debt | 1,072 |  |  | 12 |  |  | — |  |  | 1,084 |
Total | $ | 31,042 |  |  | $ | 12 |  |  | $ | (206 | ) |  | $ | 30,848 |

The following table shows the investments’ gross unrealized loss and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2017:

(in thousands) | Less than 12 Months |  | 12 Months or More |  | Total
| Fair value |  | Unrealized losses |  | Fair value |  | Unrealized losses |  | Fair value |  | Unrealized losses
U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities | $ | 17,919 |  |  | $ | (157 | ) |  | $ | 11,845 |  |  | $ | (49 | ) |  | $ | 29,764 |  |  | $ | (206 | )
Corporate debt | 400 |  |  | — |  |  | — |  |  | — |  |  | 400 |  |  | — |
Total | $ | 18,319 |  |  | $ | (157 | ) |  | $ | 11,845 |  |  | $ | (49 | ) |  | $ | 30,164 |  |  | $ | (206 | )

The unrealized losses in the Company’s investments in U.S. Treasury Securities and obligations of U.S. Government Agencies and bonds from corporate issuers were caused by interest rate increases. At December 31, 2017, the Company had 27 securities in an unrealized loss position. The contractual cash flows of the U.S. Treasury Securities and obligations of the U.S. Government agencies investments are either guaranteed by the U.S. Government or an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. The corporate securities are highly rated securities with no indicators of potential impairment. Based upon the ability and intent of the Company to hold these investments until recovery of fair value, which may be maturity, the bonds were not considered to be other-than-temporarily impaired at December 31, 2017.
The amortized cost and estimated fair value of the fixed maturity securities at December 31, 2018 by contractual maturity are set forth below:

(in thousands) | Amortized cost |  | Fair value
Years to maturity: |  |  |
Due in one year or less | $ | 4,768 |  |  | $ | 4,743 |
Due after one year through five years | 17,584 |  |  | 17,394 |
Due after five years through ten years | — |  |  | — |
Total | $ | 22,352 |  |  | $ | 22,137 |

68

Table of Contents
The amortized cost and estimated fair value of the fixed maturity securities at December 31, 2017 by contractual maturity are set forth below:

(in thousands) | Amortized cost |  | Fair value
Years to maturity: |  |  |
Due in one year or less | $ | 16,934 |  |  | $ | 16,899 |
Due after one year through five years | 13,876 |  |  | 13,708 |
Due after five years through ten years | 232 |  |  | 241 |
Total | $ | 31,042 |  |  | $ | 30,848 |

The expected maturities in the foregoing table may differ from the contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalty.
Proceeds from the sales and maturity of the Company’s investment in fixed maturity securities were $17.1 million. This along with maturing time deposits yielded total cash proceeds from the sale of investments of $17.9 million in the period of January 1, 2018 to December 31, 2018. These proceeds were used to purchase an additional $9.3 million of fixed maturity securities and to fund certain general corporate purposes. The gains and losses realized on those sales for the period from January 1, 2018 to December 31, 2018 were insignificant.
Proceeds from the sales and maturity of the Company’s investment in fixed maturity securities were $5.8 million for the year ended December 31, 2017. This along with maturing time deposits yielded total cash proceeds from the sale of investments of $9.6 million in the period of January 1, 2017 to December 31, 2017. These proceeds were used to purchase additional fixed- maturity securities. The gains and losses realized on those sales for the period from January 1, 2017 to December 31, 2017 were insignificant.
Realized gains and losses are reported on the Consolidated Statement of Income, with the cost of securities sold determined on a specific identification basis.
At December 31, 2018, investments with a fair value of approximately $4.1 million were on deposit with state insurance departments to satisfy regulatory requirements.
NOTE 7· Fixed Assets
Fixed assets at December 31 consisted of the following:

(in thousands) | 2018 |  | 2017
Furniture, fixtures and equipment | $ | 213,928 |  |  | $ | 190,784 |
Leasehold improvements | 39,194 |  |  | 35,481 |
Construction in progress | 7,568 |  |  | — |
Land, buildings and improvements | 8,185 |  |  | 7,643 |
Total cost | 268,875 |  |  | 233,908 |
Less accumulated depreciation and amortization | (168,480 | ) |  | (156,822 | )
Total | $ | 100,395 |  |  | $ | 77,086 |

Depreciation and amortization expense for fixed assets amounted to $22.8 million in 2018, $22.7 million in 2017 and $21.0 million in 2016.
69

Table of Contents
NOTE 8· Accrued Expenses and Other Current Liabilities
Accrued expenses and other liabilities at December 31 consisted of the following:

(in thousands) | 2018 |  | 2017
Accrued incentive compensation | $ | 120,228 |  |  | $ | 106,923 |
Accrued compensation and benefits | 51,731 |  |  | 40,540 |
Accrued rent and vendor expenses | 34,110 |  |  | 30,616 |
Deferred revenue | 37,018 |  |  | 21,921 |
Reserve for policy cancellations | 15,197 |  |  | 11,048 |
Accrued interest | 7,669 |  |  | 6,749 |
Other | 13,357 |  |  | 10,951 |
Total | $ | 279,310 |  |  | $ | 228,748 |

NOTE 9· Long-Term Debt
Long-term debt at December 31, 2018 and 2017 consisted of the following:

(in thousands) | December 31, 2018 |  | December 31, 2017
Current portion of long-term debt: |  |  |
Current portion of 5-year term loan facility expires 2022 | $ | 35,000 |  |  | $ | 20,000 |
4.500% Senior Notes, Series E, quarterly interest payments, balloon due 2018 | — |  |  | 100,000 |
Current portion of 5-year term loan credit agreement expires 2023 | 15,000 |  |  | — |
Total current portion of long-term debt | 50,000 |  |  | 120,000 |
Long-term debt: |  |  |
Note agreements: |  |  |
4.200% Senior Notes, semi-annual interest payments, balloon due 2024 | 499,101 |  |  | 498,943 |
Total notes | 499,101 |  |  | 498,943 |
Credit agreements: |  |  |
5-year term loan facility, periodic interest and principal payments, LIBOR plus up to 1.750%, expires June 28, 2022 | 330,000 |  |  | 365,000 |
5-year revolving loan facility, periodic interest payments, currently LIBOR plus up to 1.500%, plus commitment fees up to 0.250%, expires June 28, 2022 | 350,000 |  |  | — |
5-year term loan facility, periodic interest and principal payments, LIBOR plus up to 1.750%, expires December 21, 2023 | $ | 285,000 |  |  | $ | — |
Total credit agreements | 965,000 |  |  | 365,000 |
Debt issuance costs (contra) | (7,111 | ) |  | (7,802 | )
Total long-term debt less unamortized discount and debt issuance costs | 1,456,990 |  |  | 856,141 |
Current portion of long-term debt | 50,000 |  |  | 120,000 |
Total debt | $ | 1,506,990 |  |  | $ | 976,141 |

70

Table of Contents
On December 22, 2006, the Company entered into a Master Shelf and Note Purchase Agreement (the “Master Agreement”) with a national insurance company (the “Purchaser”). The initial issuance of notes under the Master Agreement occurred on December 22, 2006, through the issuance of $25.0 million in Series C Senior Notes due December 22, 2016, with a fixed interest rate of 5.660% per year. On February 1, 2008, $25.0 million in Series D Senior Notes due January 15, 2015, with a fixed interest rate of 5.370% per year, were issued. On September 15, 2011, and pursuant to a Confirmation of Acceptance (the “Confirmation”), dated January 21, 2011, in connection with the Master Agreement, $100.0 million in Series E Senior Notes were issued and was due September 15, 2018, with a fixed interest rate of 4.500% per year. The Series E Senior Notes were issued for the sole purpose of retiring existing Senior Notes. On January 15, 2015, the Series D Notes were redeemed at maturity using cash proceeds to pay off the principal of $25.0 million plus any remaining accrued interest. On December 22, 2016, the Series C Notes were redeemed at maturity using cash proceeds to pay off the principal of $25.0 million plus any remaining accrued interest. On May 10, 2018, the principal balance of $100.0 million from the Series E Senior Notes was paid in full, along with accrued interest of $0.7 million and a prepayment premium of $0.7 million. As of December 31, 2018, there was no outstanding debt balance issued under the provisions of the Master Agreement, which is fully terminated with the Series E Senior Notes maturing.
On April 17, 2014, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A. as administrative agent and certain other banks as co-syndication agents and co-documentation agents (the “Credit Agreement”). The Credit Agreement in the amount of $1,350.0 million provides for an unsecured revolving credit facility (the “Credit Facility”) in the initial amount of $800.0 million and unsecured term loans in the initial amount of $550.0 million, either or both of which may, subject to lenders’ discretion, potentially be increased by up to $500.0 million. The Credit Facility was funded on May 20, 2014 in conjunction with the closing of the Wright acquisition, with the $550.0 million term loan being funded as well as a drawdown of $375.0 million on the revolving loan facility. Use of these proceeds was to retire existing term loan debt and to facilitate the closing of the Wright acquisition as well as other acquisitions. The Credit Facility terminates on May 20, 2019, but either or both of the revolving credit facility and the term loans may be extended for two additional one year periods at the Company’s request and at the discretion of the respective lenders. Interest and facility fees in respect to the Credit Facility are based upon the better of the Company’s net debt leverage ratio or a non-credit enhanced senior unsecured long-term debt rating. Based upon the Company’s net debt leverage ratio, the rates of interest charged on the term loan are 1.000% to 1.750%, and the revolving loan is 0.850% to 1.500% above the adjusted LIBOR rate for outstanding amounts drawn. There are fees included in the facility which include a facility fee based upon the revolving credit commitments of the lenders (whether used or unused) at a rate of 0.150% to 0.250% and letter of credit fees based upon the amounts of outstanding secured or unsecured letters of credit. The Credit Facility includes various covenants, limitations and events of default customary for similar facilities for similarly rated borrowers.
On June 28, 2017, the Company entered into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent and certain other banks as co-syndication agents and co-documentation agents. The Amended and Restated Credit Agreement amended and restated the credit agreement dated April 17, 2014, among such parties (the “Original Credit Agreement”). The Amended and Restated Credit Agreement extends the applicable maturity date of the existing revolving credit facility (the “Facility”) of $800.0 million to June 28, 2022 and re-evidences unsecured term loans at $400.0 million, while also extending the applicable maturity date to June 28, 2022. The quarterly term loan principal amortization schedule was reset. At the time of the execution of the Amended and Restated Credit Agreement, $67.5 million of principal from the original unsecured term loans was repaid using operating cash balances, and the Company added an additional $2.8 million in debt issuance costs related to the Facility to the Consolidated Balance Sheet. The Company also expensed to the Consolidated Statements of Income $0.2 million of debt issuance costs related to the Original Credit Agreement due to certain lenders exiting prior to execution of the Amended and Restated Credit Agreement. The Company also carried forward $1.6 million on the Consolidated Balance Sheet the remaining unamortized portion of the Original Credit Agreement debt issuance costs, which will be amortized over the term of the Amended and Restated Credit Agreement. On December 31, 2018, the Company made a scheduled principal payment of $5.0 million per the terms of the Amended and Restated Credit Agreement. As of December 31, 2018, there was an outstanding debt balance issued under the term loan of the Amended and Restated Credit Agreement of $365.0 million with $350.0 million in borrowings outstanding against the Facility. The Company had borrowed approximately $600.0 million under its Revolving Credit Facility on November 15, 2018 in connection with the closing of the acquisition of certain assets and assumption of certain liabilities of the Hays Companies. Per the terms of the Amended and Restated Credit Agreement, a scheduled principal payment of $5.0 million is due March 31, 2019.
On September 18, 2014, the Company issued $500.0 million of 4.200% unsecured Senior Notes due in 2024. The Senior Notes were given investment grade ratings of BBB-/Baa3 with a stable outlook. The notes are subject to certain covenant restrictions and regulations which are customary for credit rated obligations. At the time of funding, the proceeds were offered at a discount of the original note amount which also excluded an underwriting fee discount. The net proceeds received from the issuance were used to repay the outstanding balance of $475.0 million on the revolving Credit Facility and for other general corporate purposes. As of December 31, 2018 and 2017, there was an outstanding debt balance of $500.0 million exclusive of the associated discount balance.
On December 21, 2018, the Company entered into a term loan credit agreement (the “Term Loan Credit Agreement”) with the lenders named therein, Wells Fargo Bank, National Association, as administrative agent, and certain other banks as co-syndication agents and as joint lead arrangers and joint bookrunners. The Term Loan Credit Agreement provides for an unsecured term loan in the initial amount of $300.0 million, which may, subject to lenders’ discretion, potentially be increased up to an aggregate amount of $450.0 million (the “Term Loan”). The Term Loan is repayable over the five-year term from the effective date of the Term Loan Credit Agreement, which was December 21, 2018.
71

Table of Contents
Based on the Company’s net debt leverage ratio or a non-credit enhanced senior unsecured long-term debt rating as determined by Moody’s Investor Service and Standard & Poor’s Rating Service, the rates of interest charged on the term loan are 1.00% to 1.75%, above the adjusted 1-Month LIBOR rate. On December 21, 2018, the Company borrowed $300.0 million under the Term Loan Credit Agreement and used $250.0 million of the proceeds to reduce indebtedness under the Company’s Amended and Restated Credit Agreement, dated June 28, 2017, with the lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, and certain other banks as co-syndication agents and co-documentation agents (the “Revolving Credit Facility”). As of December 31, 2018, there was an outstanding debt balance issued under the term loan of the Term Loan Credit Agreement of $300.0 million. Per the terms of the Term Loan Credit Agreement, a scheduled principal payment of $3.8 million is due March 31, 2019.
The Master Agreement, Amended and Restated Credit Agreement and the Term Loan Credit Agreement require the Company to maintain certain financial ratios and comply with certain other covenants. The Company was in compliance with all such covenants as of December 31, 2018 and 2017.
The 30-day Adjusted LIBOR Rate for the term loan and Revolving Credit Facility of the Amended and Restated Credit Agreement and Term Loan Credit Agreement as of December 31, 2018 was 2.563%, 2.288%, and 2.500%, respectively.
Interest paid in 2018, 2017 and 2016 was $38.0 million, $36.2 million, and $37.7 million, respectively.
At December 31, 2018, maturities of long-term debt were $50.0 million in 2019, $55.0 million in 2020, $70.0 million in 2021, $630.0 million in 2022, $210.0 million in 2023 and $500.0 million in 2024.
NOTE 10· Income Taxes
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”). The Tax Reform Act makes changes to the U.S. tax code that affected our income tax rate in 2017. The Tax Reform Act reduces the U.S. federal corporate income tax rate from 35.0% to 21.0% and requires companies to pay a one-time transition tax on certain unrepatriated earnings from foreign subsidiaries. The Tax Reform Act also establishes new tax laws that became effective January 1, 2018.
ASC 740 requires a company to record the effects of a tax law change in the period of enactment, however, shortly after the enactment of the Tax Reform Act, the SEC staff issued SAB 118, which allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. The measurement period ends when the company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.
For 2017, we made a reasonable estimate of the impact of the Tax Reform Act and recorded a one-time credit in our 2017 income tax expense of $120.9 million, which reflects an estimated reduction in our deferred income tax liabilities of $124.2 million as a result of the maximum federal rate decreasing to 21.0% from 35.0%, which was partially offset by an estimated increase in income tax payable in the amount of $3.3 million as a result of the transition tax on cash and cash equivalent balances related to untaxed accumulated earnings associated with our international operations. During 2018, we made a credit adjustment to the transition tax on untaxed international operations in the amount of $1.6 million. This adjustment was a reduction of income tax expense for 2018 as a result of updated calculations based on the Company’s tax filings for the 2017 year end. As of December 31, 2018, management does not expect any further changes to the amounts previously recorded and adjusted under SAB 118.
Significant components of the provision for income taxes for the years ended December 31 are as follows:

(in thousands) | 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |
Federal | $ | 77,694 |  |  | $ | 129,954 |  |  | $ | 126,145 |
State | 25,096 |  |  | 21,392 |  |  | 21,110 |
Foreign | 409 |  |  | 929 |  |  | 590 |
Total current provision | 103,199 |  |  | 152,275 |  |  | 147,845 |
Deferred: |  |  |  |  |
Federal | 8,483 |  |  | 18,999 |  |  | 15,551 |
State | 6,519 |  |  | 2,984 |  |  | 2,612 |
Foreign | 6 |  |  | — |  |  | — |
Tax Reform Act deferred tax revaluation | — |  |  | (124,166 | ) |  | — |
Total deferred provision | 15,008 |  |  | (102,183 | ) |  | 18,163 |
Total tax provision | $ | 118,207 |  |  | $ | 50,092 |  |  | $ | 166,008 |

72

Table of Contents
A reconciliation of the differences between the effective tax rate and the federal statutory tax rate for the years ended December 31 is as follows:

| 2018 |  | 2017 |  | 2016
Federal statutory tax rate | 21.0% |  | 35.0% |  | 35.0%
State income taxes, net of federal income tax benefit | 5.7 |  | 3.8 |  | 3.9
Non-deductible employee stock purchase plan expense | 0.2 |  | 0.3 |  | 0.3
Non-deductible meals and entertainment | 0.3 |  | 0.3 |  | 0.3
Non-deductible officers’ compensation | 0.3 |  | — |  | —
Tax Reform Act deferred tax revaluation and transition tax impact | (0.3) |  | (26.9) |  | —
Other, net | (1.6) |  | (1.4) |  | (0.3)
Effective tax rate | 25.6% |  | 11.1% |  | 39.2%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for income tax reporting purposes.
Significant components of the Company’s net deferred tax liabilities as of December 31 are as follows:

(in thousands) | 2018 |  | 2017
Non-current deferred tax liabilities: |  |  |
Intangible assets | $ | 334,200 |  |  | $ | 306,351 |
Fixed assets | 4,929 |  |  | 2,723 |
Impact of adoption of ASC 606 revenue recognition | 29,729 |  |  | — |
Net unrealized holding (loss)/gain on available-for-sale securities | (78 | ) |  | (6 | )
Total non-current deferred tax liabilities | 368,780 |  |  | 309,068 |
Non-current deferred tax assets: |  |  |
Deferred compensation | 41,293 |  |  | 36,701 |
Accruals and reserves | 10,455 |  |  | 7,534 |
Deferred profit-sharing contingent commissions | — |  |  | 7,107 |
Net operating loss carryforwards | 2,196 |  |  | 2,434 |
Valuation allowance for deferred tax assets | (896 | ) |  | (893 | )
Total non-current deferred tax assets | 53,048 |  |  | 52,883 |
Net non-current deferred tax liability | $ | 315,732 |  |  | $ | 256,185 |

Income taxes paid in 2018, 2017 and 2016 were $110.6 million, $152.0 million and $143.1 million, respectively.
At December 31, 2018, the Company had net operating loss carryforwards of $0.1 million and $42.5 million for federal and state income tax reporting purposes, respectively, portions of which expire in the years 2019 through 2038. The federal carryforward is derived from insurance operations acquired by the Company in 2001. The state carryforward amount is derived from the operating results of certain subsidiaries and from the 2013 stock acquisition of Beecher Carlson Holdings, Inc.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

(in thousands) | 2018 |  | 2017 |  | 2016
Unrecognized tax benefits balance at January 1 | $ | 1,694 |  |  | $ | 750 |  |  | $ | 584 |
Gross increases for tax positions of prior years | 594 |  |  | 1,070 |  |  | 412 |
Gross decreases for tax positions of prior years | (5 | ) |  | — |  |  | (41 | )
Settlements | (644 | ) |  | (126 | ) |  | (205 | )
Unrecognized tax benefits balance at December 31 | $ | 1,639 |  |  | $ | 1,694 |  |  | $ | 750 |

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2018, 2017 and 2016 the Company had $197,205, $228,608 and $86,191 of accrued interest and penalties related to uncertain tax positions, respectively.
73

Table of Contents
The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate if recognized was $1.6 million as of December 31, 2018, $1.7 million as of December 31, 2017 and $0.8 million as of December 31, 2016. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months.
As a result of a 2006 Internal Revenue Service (“IRS”) audit, the Company agreed to accrue at each December 31, for tax purposes only, a known amount of profit-sharing contingent commissions represented by the actual amount of profit-sharing contingent commissions received in the first quarter of the related year, with a true-up adjustment to the actual amount received by the end of the following March. Since this method for tax purposes differed from the method used for book purposes, it resulted in a current deferred tax asset as of December 31, 2017 and 2016. As of January 1, 2018, pursuant to ASU 606, Revenue Recognition, the deferred tax asset was removed and was included in the Company’s overall beginning retained earnings adjustment per ASC 606. The Company will now follow book treatment for accrued profit-sharing contingent commissions.
The Company is subject to taxation in the United States and various state jurisdictions. The Company is also subject to taxation in the United Kingdom. In the United States, federal returns for fiscal years 2014 through 2018 remain open and subject to examination by the IRS. The Company files and remits state income taxes in various states where the Company has determined it is required to file state income taxes. The Company’s filings with those states remain open for audit for the fiscal years 2012 through 2018. In the United Kingdom, the Company’s filings remain open for audit for the fiscal years 2017 and 2018.
During 2017, the Company settled the previously disclosed IRS income tax audit of The Wright Insurance Group for the short period ended May 1, 2014. Pursuant to the agreement in which the Company acquired The Wright Insurance Group, the Company was fully indemnified for all audit-related assessments.
During 2018, the Company settled the previously disclosed State of Massachusetts income tax audit for the fiscal year 2013 through 2014. In addition, the Company is currently under audit in the states of Colorado, Illinois, Kansas, Massachusetts and New York for the fiscal years 2015 through 2017.
In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations.
NOTE 11· Employee Savings Plan
The Company has an Employee Savings Plan (401(k)) in which substantially all employees with more than 30 days of service are eligible to participate. Under this plan, the Company makes matching contributions of up to 4.0% of each participant’s annual compensation. Prior to 2014, the Company’s matching contribution was up to 2.5% of each participant’s annual compensation with an additional discretionary profit-sharing contribution each year, which equaled 1.5% of each eligible employee’s compensation. The Company’s contribution expense to the plan totaled $22.8 million in 2018, $19.6 million in 2017 and $19.3 million in 2016.
NOTE 12· Stock-Based Compensation
Performance Stock Plan
In 1996, the Company adopted and the shareholders approved a performance stock plan, under which until the suspension of the plan in 2010, up to 28,800,000 Performance Stock Plan (“PSP”) shares could be granted to key employees contingent on the employees’ future years of service with the Company and other performance-based criteria established by the Compensation Committee of the Company’s Board of Directors. Before participants may take full title to Performance Stock, two vesting conditions must be met. Of the grants currently outstanding, specified portions satisfied the first condition for vesting based upon 20% incremental increases in the 20-trading-day average stock price of Brown & Brown’s common stock from the price on the business day prior to date of grant. Performance Stock that has satisfied the first vesting condition is considered “awarded shares.” Awarded shares are included as issued and outstanding common stock shares and are included in the calculation of basic and diluted net income per share. Dividends are paid on awarded shares and participants may exercise voting privileges on such shares. Awarded shares satisfy the second condition for vesting on the earlier of a participant’s: (i) 15 years of continuous employment with Brown & Brown from the date shares are granted to the participants (or, in the case of the July 2009 grant to Powell Brown, 20 years), (ii) attainment of age 64 (on a prorated basis corresponding to the number of years since the date of grant), or (iii) death or disability. On April 28, 2010, the PSP was suspended and any remaining authorized, but unissued shares, as well as any shares forfeited in the future, will be reserved for issuance under the 2010 Stock Incentive Plan (the “SIP”).
At December 31, 2018, 10,269,384 shares had been granted, net of forfeitures, under the PSP. As of December 31, 2018, 1,196,092 shares had met the first condition of vesting and had been awarded, and 9,073,292 shares had satisfied both conditions of vesting and had been distributed to participants. Of the shares that have not vested as of December 31, 2018, the initial stock prices ranged from $8.16 to $12.84.
The Company uses a path-dependent lattice model to estimate the fair value of PSP grants on the grant date.
74

Table of Contents
A summary of PSP activity for the years ended December 31, 2018, 2017 and 2016 is as follows:

| Weighted- average grant date fair value |  | Granted shares |  | Awarded shares |  | Shares not yet awarded
Outstanding at January 1, 2016 | $ | 4.52 |  |  | 3,204,428 |  |  | 3,188,428 |  |  | 16,000 |
Granted | $ | — |  |  | — |  |  | — |  |  | — |
Awarded | $ | — |  |  | — |  |  | 8,000 |  |  | (8,000 | )
Vested | $ | 3.19 |  |  | (1,012,844 | ) |  | (1,012,844 | ) |  | — |
Forfeited | $ | 5.26 |  |  | (185,034 | ) |  | (177,034 | ) |  | (8,000 | )
Outstanding at December 31, 2016 | $ | 5.11 |  |  | 2,006,550 |  |  | 2,006,550 |  |  | — |
Granted | $ | — |  |  | — |  |  | — |  |  | — |
Awarded | $ | — |  |  | — |  |  | — |  |  | — |
Vested | $ | 4.81 |  |  | (277,602 | ) |  | (277,602 | ) |  | — |
Forfeited | $ | 5.24 |  |  | (34,472 | ) |  | (34,472 | ) |  | — |
Outstanding at December 31, 2017 | $ | 5.16 |  |  | 1,694,476 |  |  | 1,694,476 |  |  | — |
Granted | $ | — |  |  | — |  |  | — |  |  | — |
Awarded | $ | — |  |  | — |  |  | — |  |  | — |
Vested | $ | 5.53 |  |  | (453,860 | ) |  | (453,860 | ) |  | — |
Forfeited | $ | 4.92 |  |  | (44,524 | ) |  | (44,524 | ) |  | — |
Outstanding at December 31, 2018 | $ | 5.03 |  |  | 1,196,092 |  |  | 1,196,092 |  |  | — |

The total fair value of PSP grants that vested during each of the years ended December 31, 2018, 2017 and 2016 was $11.9 million, $6.3 million and $18.1 million, respectively.
Stock Incentive Plan
On April 28, 2010, the shareholders of the Company, Inc. approved the Stock Incentive Plan (“SIP”) that provides for the granting of stock options, stock, restricted stock units, and/or stock appreciation rights to employees and directors contingent on criteria established by the Compensation Committee of the Company’s Board of Directors. The principal purpose of the SIP is to attract, incentivize and retain key employees by offering those persons an opportunity to acquire or increase a direct proprietary interest in the Company’s operations and future success. The SIP includes a sub-plan applicable to Decus Insurance Brokers Limited (“Decus”) which, is a subsidiary of Decus Holdings (U.K.) Limited. The shares of stock reserved for issuance under the SIP are any shares that are authorized for issuance under the PSP and not already subject to grants under the PSP, and that were outstanding as of April 28, 2010, the date of suspension of the PSP, together with PSP shares and SIP shares forfeited after that date. As of April 28, 2010, 12,093,536 shares were available for issuance under the PSP, which were then transferred to the SIP. In addition, in May 2016 and May 2017 our shareholders approved amendments to the SIP to increase the shares available for issuance by an additional 2,400,000 and 2,600,000, respectively.
The Company has granted stock to our employees in the form of Restricted Stock Awards and Performance Stock Awards under the SIP. To date, a substantial majority of stock grants to employees under the SIP vest in five to ten years. The Performance Stock Awards are subject to the achievement of certain performance criteria by grantees, which may include growth in a defined book of business, Organic Revenue growth and operating profit growth of a profit center, Organic Revenue growth of the Company and consolidated EPS growth at certain levels of the Company. The performance measurement period ranges from three to five years. Beginning in 2016, certain Performance Stock Awards have a payout range between 0% to 200% depending on the achievement against the stated performance target. Prior to 2016, the majority of the grants had a binary performance measurement criteria that only allowed for 0% or 100% payout.
Non-employee members of the Board of Directors received shares annually issued pursuant to the SIP as part of their annual compensation. A total of 33,720 shares were issued in January 2016, 22,700 shares were issued in January 2017 and 26,620 shares were issued in January 2018.
The Company uses the closing stock price on the day prior to the grant date to determine the fair value of SIP grants and then applies an estimated forfeiture factor to estimate the annual expense. Additionally, the Company uses the path-dependent lattice model to estimate the fair value of grants with PSP-type vesting conditions as of the grant date. SIP shares that satisfied the first vesting condition for PSP-type grants or the established performance criteria are considered awarded shares. Awarded shares are included as issued and outstanding common stock shares and are included in the calculation of basic and diluted net income per share.
75

Table of Contents
A summary of SIP activity for the years ended December 31, 2018, 2017 and 2016 is as follows:

| Weighted- average grant date fair value |  | Granted shares |  | Awarded shares |  | Shares not yet awarded |
Outstanding at January 1, 2016 | $ | 14.37 |  |  | 12,553,944 |  |  | 2,259,988 |  |  | 10,293,956 |  |
Granted | $ | 17.76 |  |  | 1,944,198 |  |  | 365,306 |  |  | 1,578,892 |  | (1)
Awarded | $ | 12.46 |  |  | — |  |  | 2,862,638 |  |  | (2,862,638 | ) |
Vested | $ | 13.66 |  |  | (333,768 | ) |  | (333,768 | ) |  | — |  |
Forfeited | $ | 12.67 |  |  | (1,908,262 | ) |  | (351,576 | ) |  | (1,556,686 | ) |
Outstanding at December 31, 2016 | $ | 14.98 |  |  | 12,256,112 |  |  | 4,802,588 |  |  | 7,453,524 |  |
Granted | $ | 20.82 |  |  | 1,392,912 |  |  | 241,334 |  |  | 1,151,578 |  | (2)
Awarded | $ | 15.72 |  |  | — |  |  | 326,808 |  |  | (326,808 | ) |
Vested | $ | 12.61 |  |  | (484,914 | ) |  | (484,914 | ) |  | — |  |
Forfeited | $ | 14.89 |  |  | (342,120 | ) |  | (76,212 | ) |  | (265,908 | ) |
Outstanding at December 31, 2017 | $ | 15.58 |  |  | 12,821,990 |  |  | 4,809,604 |  |  | 8,012,386 |  |
Granted | $ | 22.87 |  |  | 1,577,721 |  |  | 454,313 |  |  | 1,123,408 |  | (3)
Awarded | $ | 15.89 |  |  | — |  |  | 2,489,905 |  |  | (2,489,905 | ) |
Vested | $ | 14.09 |  |  | (933,916 | ) |  | (933,916 | ) |  | — |  |
Forfeited | $ | 16.37 |  |  | (2,363,420 | ) |  | (224,587 | ) |  | (2,138,833 | ) |
Outstanding at December 31, 2018 | $ | 16.69 |  |  | 11,102,375 |  |  | 6,595,319 |  |  | 4,507,056 |  |

(1) | Of the 1,578,892 shares of performance-based restricted stock granted in 2016, the payout for 706,264 shares may be increased up to 200% of the target or decreased to zero, subject to the level of performance attained. The amount reflected in the table includes all restricted stock grants at a target payout of 100%.

(2) | Of the 1,151,578 shares of performance-based restricted stock granted in 2017, the payout for 641,652 shares may be increased up to 200% of the target or decreased to zero, subject to the level of performance attained. The amount reflected in the table includes all restricted stock grants at a target payout of 100%.

(3) | Of the 1,123,408 shares of performance-based restricted stock granted in 2018, the payout for 576,886 shares may be increased up to 200% of the target or decreased to zero, subject to the level of performance attained. The amount reflected in the table includes all restricted stock grants at a target payout of 100%.

The following table sets forth information as of December 31, 2018, 2017 and 2016, with respect to the number of time-based restricted shares granted and awarded, the number of performance-based restricted shares granted, and the number of performance-based restricted shares awarded under our Performance Stock Plan and 2010 Stock Incentive Plan:

Year |  | Time-based restricted stock granted and awarded |  | Performance-based restricted stock granted |  | Performance-based restricted stock awarded
2018 |  | 454,313 |  |  | 1,123,408 |  | (1) | 2,489,905 |
2017 |  | 241,334 |  |  | 1,151,578 |  | (2) | 326,808 |
2016 |  | 365,306 |  |  | 1,578,892 |  | (3) | 2,870,638 |

(1) | Of the 1,123,408 shares of performance-based restricted stock granted in 2018, the payout for 576,886 shares may be increased up to 200% of the target or decreased to zero, subject to the level of performance attained. The amount reflected in the table includes all restricted stock grants at a target payout of 100%.

(2) | Of the 1,151,578 shares of performance-based restricted stock granted in 2017, the payout for 641,652 shares may be increased up to 200% of the target or decreased to zero, subject to the level of performance attained. The amount reflected in the table includes all restricted stock grants at a target payout of 100%.

(3) | Of the 1,578,892 shares of performance-based restricted stock granted in 2016, the payout for 706,264 shares may be increased up to 200% of the target or decreased to zero, subject to the level of performance attained. The amount reflected in the table includes all restricted stock grants at a target payout of 100%.

76

Table of Contents
At December 31, 2018, 8,697,491 shares were available for future grants. This amount is calculated assuming the maximum payout for all restricted stock grants.
Employee Stock Purchase Plan
The Company has a shareholder-approved Employee Stock Purchase Plan (“ESPP”) with a total of 34,000,000 authorized shares of which 7,316,901 were available for future subscriptions as of December 31, 2018. Employees of the Company who regularly work 20 hours or more per week are eligible to participate in the ESPP. Participants, through payroll deductions, may allot up to 10% of their compensation towards the purchase of a maximum of $25,000 worth of Company stock between August 1st of each year and the following July 31st (the “Subscription Period”) at a cost of 85% of the lower of the stock price as of the beginning or end of the Subscription Period.
The Company estimates the fair value of an ESPP share option as of the beginning of the Subscription Period as the sum of: (1) 15% of the quoted market price of the Company’s stock on the day prior to the beginning of the Subscription Period, and (2) 85% of the value of a one-year stock option on the Company stock using the Black-Scholes option-pricing model. The estimated fair value of an ESPP share option as of the Subscription Period beginning in August 2018 was $5.88. The fair values of an ESPP share option as of the Subscription Periods beginning in August 2017 and 2016, were $4.32 and $3.81, respectively.
For the ESPP plan years ended July 31, 2018, 2017 and 2016, the Company issued 985,601, 1,058,024 and 1,029,330 shares of common stock, respectively. These shares were issued at an aggregate purchase price of $18.7 million, or $18.96 per share, in 2018, $16.4 million, or $15.52 per share, in 2017, and $15.0 million, or $14.62 per share, in 2016.
For the five months ended December 31, 2018, 2017 and 2016 (portions of the 2018-2019, 2017-2018 and 2016-2017 plan years), 402,349, 435,027 and 494,046 shares of common stock (from authorized but unissued shares), respectively, were subscribed to by ESPP participants for proceeds of approximately $9.9 million, $8.2 million and $7.7 million, respectively.
Summary of Non-Cash Stock-Based Compensation Expense
The non-cash stock-based compensation expense for the years ended December 31 is as follows:

(in thousands) |  | 2018 |  | 2017 |  | 2016
Stock incentive plan |  | $ | 28,027 |  |  | $ | 24,899 |  |  | $ | 11,049 |
Employee stock purchase plan |  | 4,744 |  |  | 4,025 |  |  | 3,698 |
Performance stock plan |  | 748 |  |  | 1,707 |  |  | 1,305 |
Total |  | $ | 33,519 |  |  | $ | 30,631 |  |  | $ | 16,052 |

Summary of Unamortized Compensation Expense
As of December 31, 2018, the Company estimates there to be $97.1 million of unamortized compensation expense related to all non-vested stock-based compensation arrangements granted under the Company’s stock-based compensation plans, based upon current projections of grant measurement against performance criteria. That expense is expected to be recognized over a weighted average period of 3.29 years.
NOTE 13· Supplemental Disclosures of Cash Flow Information and Non-Cash Financing and Investing Activities
The Company’s cash paid during the period for interest and income taxes are summarized as follows:

| Year Ended December 31,
(in thousands) | 2018 |  | 2017 |  | 2016
Cash paid during the period for: |  |  |  |  |
Interest | $ | 38,032 |  |  | $ | 36,172 |  |  | $ | 37,652 |
Income taxes | $ | 110,557 |  |  | $ | 152,024 |  |  | $ | 143,111 |

77

Table of Contents
The Company’s significant non-cash investing and financing activities are summarized as follows:

| Year Ended December 31,
(in thousands) | 2018 |  | 2017 |  | 2016
Other payables issued for purchased customer accounts | $ | 5,462 |  |  | $ | 11,708 |  |  | $ | 10,664 |
Estimated acquisition earn-out payables and related charges | $ | 77,378 |  |  | $ | 6,921 |  |  | $ | 4,463 |
Notes payable issued or assumed for purchased customer accounts | $ | — |  |  | $ | — |  |  | $ | 492 |
Notes received on the sale of fixed assets and customer accounts | $ | 52 |  |  | $ | — |  |  | $ | 22 |

Our Restricted Cash balance is comprised of funds held in separate premium trust accounts as required by state law or, in some cases, per agreement with our carrier partners. The following is a reconciliation of cash and cash equivalents inclusive of restricted cash as of December 31, 2018, 2017 and 2016.

| Balance as of December 31,
(in thousands) | 2018 |  | 2017 |  | 2016
Table to reconcile cash and cash equivalents inclusive of restricted cash |  |  |  |  |
Cash and cash equivalents | $ | 438,961 |  |  | $ | 573,383 |  |  | 515,646 |
Restricted cash | 338,635 |  |  | 250,705 |  |  | 265,637 |
Total cash and cash equivalents inclusive of restricted cash at the end of the period | $ | 777,596 |  |  | $ | 824,088 |  |  | 781,283 |

NOTE 14· Commitments and Contingencies
Operating Leases
The Company leases facilities and certain items of office equipment under non-cancelable operating lease arrangements expiring on various dates through 2042. The facility leases generally contain renewal options and escalation clauses based upon increases in the lessors’ operating expenses and other charges. The Company anticipates that most of these leases will be renewed or replaced upon expiration. At December 31, 2018, the aggregate future minimum lease payments under all non-cancelable lease agreements were as follows:

(in thousands) |
2019 | $ | 48,292 |
2020 | 43,517 |
2021 | 34,836 |
2022 | 27,035 |
2023 | 19,981 |
Thereafter | 36,349 |
Total minimum future lease payments | $ | 210,010 |

Rental expense in 2018, 2017 and 2016 for operating leases totaled $54.6 million, $51.0 million and $49.3 million, respectively.
Legal Proceedings
The Company records losses for claims in excess of the limits of, or outside the coverage of, applicable insurance at the time and to the extent they are probable and estimable. In accordance with ASC Topic 450-Contingencies, the Company accrues anticipated costs of settlement, damages, losses for liability claims and, under certain conditions, costs of defense, based upon historical experience or to the extent specific losses are probable and estimable. Otherwise, the Company expenses these costs as incurred. If the best estimate of a probable loss is a range rather than a specific amount, the Company accrues the amount at the lower end of the range.
The Company’s accruals for legal matters that were probable and estimable were not material at December 31, 2018 and 2017. We continue to assess certain litigation and claims to determine the amounts, if any, that management believes will be paid as a result of such claims and litigation and, therefore, additional losses may be accrued and paid in the future, which could adversely impact the Company’s operating results, cash flows and overall liquidity. The Company maintains third-party insurance policies to provide coverage for certain legal claims, in an effort to mitigate its overall exposure to unanticipated claims or adverse decisions. However, as (i) one or more of the Company’s insurance carriers could take the position that portions of these claims are not covered by the Company’s insurance, (ii) to the extent that payments are made to resolve claims and lawsuits, applicable insurance policy limits are eroded and (iii) the claims and lawsuits relating to
78

Table of Contents
these matters are continuing to develop, it is possible that future results of operations or cash flows for any particular quarterly or annual period could be materially affected by unfavorable resolutions of these matters. Based upon the AM Best Company ratings of these third-party insurers, management does not believe there is a substantial risk of an insurer’s material non-performance related to any current insured claims.
On the basis of current information, the availability of insurance and legal advice, in management’s opinion, the Company is not currently involved in any legal proceedings which, individually or in the aggregate, would have a material adverse effect on its financial condition, operations and/or cash flows.
NOTE 15· Quarterly Operating Results (Unaudited)
Quarterly operating results for 2018 and 2017 were as follows:

(in thousands, except per share data) |  | First Quarter |  | Second Quarter |  | Third Quarter |  | Fourth Quarter |
2018 |  |  |  |  |  |  |  |  |  |  |  |  |
Total revenues |  | $ | 501,461 |  |  | $ | 473,187 |  |  | $ | 530,850 |  |  | $ | 508,748 |  |
Total expenses |  | $ | 383,020 |  |  | $ | 372,277 |  |  | $ | 388,350 |  |  | $ | 408,137 |  |
Income before income taxes |  | $ | 118,441 |  |  | $ | 100,910 |  |  | $ | 142,500 |  |  | $ | 100,611 |  |
Net income |  | $ | 90,828 |  |  | $ | 73,922 |  |  | $ | 106,053 |  |  | $ | 73,452 |  |
Net income per share: |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.33 |  |  | $ | 0.27 |  |  | $ | 0.38 |  |  | $ | 0.26 |  |
Diluted |  | $ | 0.32 |  |  | $ | 0.26 |  |  | $ | 0.38 |  |  | $ | 0.26 |  |
2017 |  |  |  |  |  |  |  |  |
Total revenues |  | $ | 465,080 |  |  | $ | 466,305 |  |  | $ | 475,646 |  |  | $ | 474,316 |  |
Total expenses |  | $ | 354,113 |  |  | $ | 358,303 |  |  | $ | 351,227 |  |  | $ | 367,982 |  |
Income before income taxes |  | $ | 110,967 |  |  | $ | 108,002 |  |  | $ | 124,419 |  |  | $ | 106,334 |  |
Net income |  | $ | 70,110 |  |  | $ | 66,102 |  |  | $ | 75,913 |  |  | $ | 187,505 |  |
Net income per share: |  |  |  |  |  |  |  |  |
Basic(1) |  | $ | 0.25 |  |  | $ | 0.24 |  |  | $ | 0.27 |  |  | $ | 0.68 |  |
Diluted(1) |  | $ | 0.25 |  |  | $ | 0.23 |  |  | $ | 0.27 |  |  | $ | 0.66 |  | (2)

(1) | 2017 reflects the 2-for-1 stock split that occurred on March 28, 2018.

(2) | Includes $0.43 impact associated with recording impact of the Tax Reform Act.

Quarterly financial results are affected by seasonal variations. The timing of the Company’s policy renewals and acquisitions may cause revenues, expenses and net income to vary significantly between quarters.
NOTE 16· Segment Information
Brown & Brown’s business is divided into four reportable segments: (1) the Retail Segment, which provides a broad range of insurance products and services to commercial, public and quasi-public entities, and to professional and individual customers, (2) the National Programs Segment, which acts as an MGA, provides professional liability and related package products for certain professionals, a range of insurance products for individuals, flood coverage, and targeted products and services designated for specific industries, trade groups, governmental entities and market niches, all of which are delivered through nationwide networks of independent agents, and Brown & Brown retail agents, (3) the Wholesale Brokerage Segment, which markets and sells excess and surplus commercial and personal lines insurance, primarily through independent agents and brokers, as well as Brown & Brown retail agents, and (4) the Services Segment, which provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers’ compensation and all-lines liability arenas, as well as Medicare Set-aside services, Social Security disability and Medicare benefits advocacy services and claims adjusting services.
Brown & Brown conducts all of its operations within the United States of America, except for a wholesale brokerage operation based in London, England, retail operations in Bermuda and the Cayman Islands, and a national programs operation in Canada. These operations earned $15.2 million, $15.9 million and $14.5 million of total revenues for the years ended December 31, 2018, 2017 and 2016, respectively. Long-lived assets held outside of the United States during each of these three years were not material.
The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates the performance of its segments based upon revenues and income before income taxes. Inter-segment revenues are eliminated.
79

Table of Contents
Summarized financial information concerning the Company’s reportable segments is shown in the following table. The “Other” column includes any income and expenses not allocated to reportable segments and corporate-related items, including the intercompany interest expense charge to the reporting segment.

| Year ended December 31, 2018
(in thousands) | Retail |  | National Programs |  | Wholesale Brokerage |  | Services |  | Other |  | Total
Total revenues | $ | 1,042,763 |  |  | $ | 494,463 |  |  | $ | 287,014 |  |  | $ | 189,246 |  |  | $ | 760 |  |  | $ | 2,014,246 |
Investment income | $ | 2 |  |  | $ | 506 |  |  | $ | 165 |  |  | $ | 205 |  |  | $ | 1,868 |  |  | $ | 2,746 |
Amortization | $ | 44,386 |  |  | $ | 25,954 |  |  | $ | 11,391 |  |  | $ | 4,813 |  |  | $ | — |  |  | $ | 86,544 |
Depreciation | $ | 5,289 |  |  | $ | 5,486 |  |  | $ | 1,628 |  |  | $ | 1,558 |  |  | $ | 8,873 |  |  | $ | 22,834 |
Interest expense | $ | 35,969 |  |  | $ | 26,181 |  |  | $ | 5,254 |  |  | $ | 2,869 |  |  | $ | (29,693 | ) |  | $ | 40,580 |
Income before income taxes | $ | 217,845 |  |  | $ | 117,375 |  |  | $ | 70,171 |  |  | $ | 34,508 |  |  | $ | 22,563 |  |  | $ | 462,462 |
Total assets | $ | 5,850,045 |  |  | $ | 2,940,097 |  |  | $ | 1,283,877 |  |  | $ | 471,572 |  |  | $ | (3,856,923 | ) |  | $ | 6,688,668 |
Capital expenditures | $ | 6,858 |  |  | $ | 12,391 |  |  | $ | 2,518 |  |  | $ | 1,525 |  |  | $ | 18,228 |  |  | $ | 41,520 |

| Year ended December 31, 2017
(in thousands) | Retail |  | National Programs |  | Wholesale Brokerage |  | Services |  | Other |  | Total
Total revenues | $ | 943,460 |  |  | $ | 479,813 |  |  | $ | 271,737 |  |  | $ | 165,372 |  |  | $ | 20,965 |  |  | $ | 1,881,347 |
Investment income | $ | 8 |  |  | $ | 384 |  |  | $ | — |  |  | $ | 299 |  |  | $ | 935 |  |  | $ | 1,626 |
Amortization | $ | 42,164 |  |  | $ | 27,277 |  |  | $ | 11,456 |  |  | $ | 4,548 |  |  | $ | 1 |  |  | $ | 85,446 |
Depreciation | $ | 5,210 |  |  | $ | 6,325 |  |  | $ | 1,885 |  |  | $ | 1,600 |  |  | $ | 7,678 |  |  | $ | 22,698 |
Interest expense | $ | 31,133 |  |  | $ | 35,561 |  |  | $ | 6,263 |  |  | $ | 3,522 |  |  | $ | (38,163 | ) |  | $ | 38,316 |
Income before income taxes | $ | 196,616 |  |  | $ | 109,961 |  |  | $ | 68,844 |  |  | $ | 30,498 |  |  | $ | 43,803 |  |  | $ | 449,722 |
Total assets | $ | 4,255,515 |  |  | $ | 3,267,486 |  |  | $ | 1,260,239 |  |  | $ | 399,240 |  |  | $ | (3,434,930 | ) |  | $ | 5,747,550 |
Capital expenditures | $ | 4,494 |  |  | $ | 5,936 |  |  | $ | 1,836 |  |  | $ | 1,033 |  |  | $ | 10,893 |  |  | $ | 24,192 |

| Year ended December 31, 2016
(in thousands) | Retail |  | National Programs |  | Wholesale Brokerage |  | Services |  | Other |  | Total
Total revenues | $ | 917,406 |  |  | $ | 448,516 |  |  | $ | 243,103 |  |  | $ | 156,365 |  |  | $ | 1,239 |  |  | $ | 1,766,629 |
Investment income | $ | 37 |  |  | $ | 628 |  |  | $ | 4 |  |  | $ | 283 |  |  | $ | 504 |  |  | $ | 1,456 |
Amortization | $ | 43,447 |  |  | $ | 27,920 |  |  | $ | 10,801 |  |  | $ | 4,485 |  |  | $ | 10 |  |  | $ | 86,663 |
Depreciation | $ | 6,191 |  |  | $ | 7,868 |  |  | $ | 1,975 |  |  | $ | 1,881 |  |  | $ | 3,088 |  |  | $ | 21,003 |
Interest expense | $ | 38,216 |  |  | $ | 45,738 |  |  | $ | 3,976 |  |  | $ | 4,950 |  |  | $ | (53,399 | ) |  | $ | 39,481 |
Income before income taxes | $ | 188,001 |  |  | $ | 91,762 |  |  | $ | 62,623 |  |  | $ | 24,338 |  |  | $ | 56,775 |  |  | $ | 423,499 |
Total assets(1) | $ | 3,854,393 |  |  | $ | 2,711,378 |  |  | $ | 1,108,829 |  |  | $ | 371,645 |  |  | $ | (2,783,511 | ) |  | $ | 5,262,734 |
Capital expenditures | $ | 5,951 |  |  | $ | 6,977 |  |  | $ | 1,301 |  |  | $ | 656 |  |  | $ | 2,880 |  |  | $ | 17,765 |

(1) | Total assets have been restated to reflect the adoption of ASU No. 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”).

80

Table of Contents
NOTE 17· Reinsurance
Although the reinsurers are liable to the Company for amounts reinsured, our subsidiary, WNFIC remains primarily liable to its policyholders for the full amount of the policies written whether or not the reinsurers meet their obligations to the Company when they become due. The effects of reinsurance on premiums written and earned at December 31 are as follows:

| 2018 |  | 2017
(in thousands) | Written |  | Earned |  | Written |  | Earned
Direct premiums | $ | 619,223 |  |  | $ | 602,320 |  |  | $ | 604,623 |  |  | $ | 592,267 |
Assumed premiums | — |  |  | — |  |  | — |  |  | — |
Ceded premiums | 619,206 |  |  | 602,303 |  |  | 604,610 |  |  | 592,254 |
Net premiums | $ | 17 |  |  | $ | 17 |  |  | $ | 13 |  |  | $ | 13 |

All premiums written by WNFIC under the National Flood Insurance Program are 100% ceded to FEMA, for which WNFIC received a 30.9% expense allowance from January 1, 2018 through September 30, 2018. From October 1, 2018 through December 31, 2018 WNFIC received a 30.0% expense allowance. As of December 31, 2018 and 2017, the Company ceded $617.2 million and $602.9 million of written premiums, respectively.
Effective April 1, 2014, WNFIC is also a party to a quota share agreement whereby it cedes 100% of its gross private excess flood premiums, excluding fees, to Arch Reinsurance Company and receives a 30.5% commission. WNFIC ceded $2.0 million and $1.7 million for the years ended December 31, 2018 and 2017. As of December 31, 2018, WNFIC had $2.3 million in paid excess flood losses, $99,349 in loss adjustment expenses, case reserves of $0 and incurred but not reported of $0.1 million.
WNFIC also ceded 100%, of the Homeowners, Private Passenger Auto Liability, and Other Liability Occurrence to Stillwater Insurance Company, formerly known as Fidelity National Insurance Company. This business is in runoff. Therefore, only loss data still exists on this business. As of December 31, 2018, no ceded unpaid losses and loss adjustment expenses or incurred but not reported balance for Homeowners, Private Passenger Auto Liability and Other Liability Occurrence.
As of December 31, 2018, the Consolidated Balance Sheet contained Reinsurance recoverable of $65.4 million and Prepaid reinsurance premiums of $337.9 million. As of December 31, 2017, the Consolidated Balance Sheet contained reinsurance recoverable of $477.8 million and prepaid reinsurance premiums of $321.0 million. There was $0.2 million net activity in the reserve for losses and loss adjustment expense for the year ended December 31, 2018, and $1.1 million net activity in the reserve for losses and loss adjustment expense for the year ended December 31, 2017, as WNFIC’s direct premiums written were 100% ceded to two reinsurers. The balance of the reserve for losses and loss adjustment expense, excluding related reinsurance recoverables was $65.4 million as of December 31, 2018 and $477.8 million as of December 31, 2017.
NOTE 18· Statutory Financial Information
WNFIC maintains capital in excess of minimum statutory amount of $7.5 million as required by regulatory authorities. The statutory capital and surplus of WNFIC was $19.4 million as of December 31, 2018 and $28.7 million as of December 31, 2017. As of December 31, 2018 and 2017, WNFIC generated statutory net income of $4.5 million and $4.8 million, respectively.
NOTE 19· Subsidiary Dividend Restrictions
Under the insurance regulations of Texas, where WNFIC in incorporated, the maximum amount of ordinary dividends that WNFIC can pay to shareholders in a rolling twelve month period is limited to the greater of 10% of statutory adjusted capital and surplus as shown on WNFIC’s last annual statement on file with the superintendent of the Texas Department of Insurance or 100% of adjusted net income. There was no dividend payout in 2018 and the maximum dividend payout that may be made in 2019 without prior approval is $4.5 million.
NOTE 20· Shareholders’ Equity
On July 18, 2014, the Company’s Board of Directors authorized the repurchase of up to $200.0 million of its shares of common stock, and on July 20, 2015, the Company’s Board of Directors authorized the repurchase of up to an additional $400.0 million of the Company’s outstanding common stock. Under the authorization from the Company’s Board of Directors, shares may be purchased from time to time, at the Company’s discretion and subject to the availability of stock, market conditions, the trading price of the stock, alternative uses for capital, the Company’s financial performance and other potential factors. These purchases may be carried out through open market purchases, block trades, accelerated share repurchase plans of up to $100.0 million each (unless otherwise approved by the Board of Directors), negotiated private transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934.
81

Table of Contents
On March 28, 2018, we effected a 2-for-1 stock split (the “Stock Split”). As a result of the Stock Split, every share of common stock outstanding as of close of business on March 14, 2018 received an additional share of common stock, increasing the number of outstanding shares of common stock from approximately 138 million shares to approximately 276 million shares. The number of authorized shares of our common stock increased from 280 million shares to 560 million shares. No fractional shares were issued in connection with the Stock Split. Par value of the Company’s common stock was unchanged as a result of the Stock Split remaining at $0.10 per share. The number of shares of common stock reserved or subject to outstanding grants, the exercise or purchase prices applicable to such outstanding grants and
subscriptions, and certain grant limitations under our 1990 Employee Stock Purchase Plan, Performance Stock Plan and 2010 Stock Incentive Plan were adjusted as a result of the Stock Split, as required under the terms of those plans. Treasury shares were not adjusted for the Stock Split. All other shares and per share data included within this Annual Report on Form 10-K, including our Consolidated Financial Statements and related footnotes, have been adjusted to account for the effect of the Stock Split.
On December 12, 2018, the Company entered into accelerated share repurchase agreement ("ASR") with an investment bank to purchase an aggregate $100.0 million of the Company’s common stock. As part of the ASR, the Company received an initial share delivery of 2,910,150 shares of the Company’s common stock with a fair market value of $80.0 million. Upon maturity of the program, the Company will receive the remaining balance of $20.0 million at settlement.
During 2014, the Company repurchased 2,384,760 shares at an average price per share of $31.46 for a total cost of $75.0 million under the original share repurchase authorization from the Board of Directors on July 18, 2014. During 2015, the Company repurchased 5,408,819 shares at an average price per share of $32.35 for a total cost of $175.0 million under the current share repurchase authorization, while exhausting the previous authorization of $200.0 million from the Board of Directors in 2014. During 2016, the Company repurchased 209,618 shares at an average price per share of $36.53 for a total cost of $7.7 million under the current share repurchase authorization. During 2017, the Company repurchased 2,883,349 shares at an average price of $48.51 for a total cost of $139.9 million under the current share repurchase authorization. At December 31, 2018, the remaining amount authorized by our Board of Directors for share repurchases was $147.5 million. Under the authorized repurchase programs, the Company has repurchased a total of approximately 13.8 million shares for an aggregate cost of approximately $477.5 million between 2014 and 2017. The aforementioned share amounts have not been adjusted for the March 28, 2018 Stock Split, as treasury shares did not participate in this stock split transaction.
82

Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Brown & Brown, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Brown & Brown, Inc. and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of income, shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.
Adoption of New Accounting Standards
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for revenue from contracts with customers on January 1, 2018, on a modified retrospective basis due to the adoption of Financial Accounting Standards Board Accounting Standards Codification 606, Revenue from Contracts with Customers, and related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Tampa, Florida
February 25, 2019
We have served as the Company’s auditor since 2002.

83

Table of Contents
ITEM 9. Changes in and Disagreements with Accountants and Financial Disclosure.
There were no changes in or disagreements with accountants on accounting and financial disclosure in 2018.
ITEM 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation (the “Evaluation”) required by Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”) as of December 31, 2018. Based upon the Evaluation, our CEO and CFO concluded that the design and operation of our Disclosure Controls were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our senior management, including our CEO and CFO, to allow timely decisions regarding required disclosures.
Changes in Internal Controls
There has not been any change in our internal control over financial reporting identified in connection with the Evaluation that occurred during the quarter ended December 31, 2018, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Internal Control Over Financial Reporting
Our management, including our CEO and CFO, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
CEO and CFO Certifications
Exhibits 31.1 and 31.2 are the Certifications of the CEO and the CFO, respectively. The Certifications are supplied in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This Item 9A of this Annual Report on Form 10-K contains the information concerning the evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
84

Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Brown & Brown, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Brown & Brown, Inc. and subsidiaries (the “Company”) as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018, of the Company and our report dated February 25, 2019, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of Financial Accounting Standards Board Accounting Standards Codification 606, Revenue from Contracts with Customers, and related amendments.
As described in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at the Automotive Development Group, LLC, Servco Pacific Inc., Health Special Risk, Inc., Professional Disability Associates, LLC, Finance & Insurance Resources Inc., Rodman Insurance Agency, Inc., The Hays Group, Inc. et al, and Dealer Associates, Inc. which were acquired in 2018 and whose financial statements constitute approximately 0.01 percent and 17.55 percent of net and total assets, respectively, 3.18 percent of revenues, and 0.36 percent of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2018. Accordingly, our audit did not include the internal control over financial reporting of these acquired entities.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
85

Table of Contents
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Tampa, Florida
February 25, 2019

86

Table of Contents
Management’s Report on Internal Control Over Financial Reporting
The management of Brown & Brown, Inc. and its subsidiaries (“Brown & Brown”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including Brown & Brown’s principal executive officer and principal financial officer, Brown & Brown conducted an evaluation of the effectiveness of internal control over financial reporting based upon the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In conducting Brown & Brown’s evaluation of the effectiveness of its internal control over financial reporting, Brown & Brown has excluded the following acquisitions completed by Brown & Brown during 2018: the Automotive Development Group, LLC, Servco Pacific Inc., Health Special Risk, Inc., Professional Disability Associates, LLC, Finance & Insurance Resources Inc., Rodman Insurance Agency, Inc., The Hays Group, Inc. et al, and Dealer Associates, Inc. (collectively the “2018 Excluded Acquisitions”), which were acquired during 2018 and whose financial statements constitute approximately 0.01% and 17.55% of net and total assets, respectively, 3.18% of revenues, and 0.36% of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2018. Refer to Note 3 to the Consolidated Financial Statements for further discussion of these acquisitions and their impact on Brown & Brown’s Consolidated Financial Statements.
Based upon Brown & Brown’s evaluation under the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, management concluded that internal control over financial reporting was effective as of December 31, 2018. Management’s internal control over financial reporting as of December 31, 2018 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Brown & Brown, Inc.
Daytona Beach, Florida
February 25, 2019

/s/ J. Powell Brown |  | /s/ R. Andrew Watts
J. Powell Brown Chief Executive Officer |  | R. Andrew Watts Executive Vice President, Chief Financial Officer and Treasurer

87

Table of Contents
ITEM 9B. Other Information.
None
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance.
Set forth below is certain information concerning our executive officers as of February 25, 2019. All officers hold office for one-year terms or until their successors are elected and qualified.

J. Hyatt Brown | Chairman | 81
J. Powell Brown | President and Chief Executive Officer | 51
Robert W. Lloyd | Executive Vice President; Secretary and General Counsel | 54
J. Scott Penny | Executive Vice President; Chief Acquisitions Officer | 52
Julie K. Ryan | Executive Vice President; Chief People Officer | 47
Anthony T. Strianese | Executive Vice President; President - Wholesale Brokerage Division | 57
Chris L. Walker | Executive Vice President; President - National Programs Division | 61
R. Andrew Watts | Executive Vice President; Chief Financial Officer and Treasurer | 50

J. Hyatt Brown. Mr. Brown was our Chief Executive Officer from 1993 to 2009 and our President from 1993 to December 2002, and served as President and Chief Executive Officer of our predecessor corporation from 1961 to 1993. He was a member of the Florida House of Representatives from 1972 to 1980, and Speaker of the House from 1978 to 1980. Mr. Brown serves on the Board of Directors of International Speedway Corporation, a publicly held company. Mr. Brown is a member of the Board of Trustees of Stetson University, of which he is a past Chairman, and the Florida Council of 100. Mr. Hyatt Brown’s son, J. Powell Brown, is employed by us as President and Chief Executive Officer, and has served as a director since October 2007.
J. Powell Brown. Mr. Brown was named Chief Executive Officer in July 2009. He has been our President since January 2007 and was appointed to be a director in October 2007. Prior to 2007, he served as one of our Regional Executive Vice Presidents since 2002. Mr. Brown was previously responsible for overseeing certain or all parts of all of our divisions over the years, and worked in various capacities throughout the Company since joining us in 1995. Mr. Brown has served on the Board of Directors of WestRock Company (formerly RockTenn Company), a publicly held company, since January 2010. He is the son of our Chairman, J. Hyatt Brown.
Robert W. Lloyd. Mr. Lloyd has served as our General Counsel since 2009 and as Executive Vice President and Corporate Secretary since 2014. He previously served as Vice President from 2006 to 2014, Chief Litigation Officer from 2006 until 2009 and as Assistant General Counsel from 2001 until 2006. Prior to that, he worked as sales manager and marketing manager, respectively, in our Daytona Beach, Florida retail office. While working in a sales role, Mr. Lloyd qualified for the Company’s top producer honors (Tangle B) in 2001. He has also earned his Chartered Property Casualty Underwriter (CPCU) and Certified Insurance Counselor (CIC) designations. Before joining us, Mr. Lloyd practiced law and served as outside counsel to the Company with the law firm of Cobb & Cole, P.A. in Daytona Beach, Florida. Mr. Lloyd is a Rotarian; a director, legal counsel, and chairman-elect of the Greater Daytona Beach Area Chamber of Commerce; a director of the Council on Aging of Volusia County; a member of the executive committee of the Halifax Area Civic League; and a member of the Advisory Board of the Central Florida Council - Boy Scouts of America. He also served on the economic advisory committee to the transition team for Florida Governor-Elect Ron Desantis. Since 2017, Mr. Lloyd has served as an independent director of Raydon Corporation, a private company based in Port Orange, Florida.
J. Scott Penny. Mr. Penny has been our Chief Acquisitions Officer since 2011, and he serves as director and as an executive officer for several of our subsidiaries. He served as a Regional President from 2010 to 2014 and Regional Executive Vice President from 2002 to July 2010. From 1999 until January 2003, Mr. Penny served as profit center leader of our Indianapolis, Indiana retail office. Prior to that, Mr. Penny served as profit center leader of our Jacksonville, Florida retail office from 1997 to 1999. From 1989 to 1997, Mr. Penny was employed as an account executive and marketing representative in our Daytona Beach, Florida office.
Julie K. Ryan. Ms. Ryan was appointed Chief People Officer and Executive Vice President in January 2017 and May 2017, respectively. From September 2015 until January 2017, she served as Director, Human Resources and Learning & Development of Pacific Resources Benefits Advisors, LLC, a subsidiary of the Company. From 2012 until 2015, Ms. Ryan was employed by BorgWarner Inc., where she held the positions of Manager, Learning & Development from 2014 until 2015, and Manager, Benefits & Organizational Development from 2012 until 2014. Ms. Ryan was previously employed by BorgWarner Inc. from 2001 until 2007 and prior to that, held a variety of human resources positions with Kimberly-Clark Corporation and Gulfstream Aerospace Corporation, a wholly owned subsidiary of General Dynamics Corporation. In her role as Chief People Officer, Ms. Ryan is responsible for the oversight of all traditional human resources functions.
88

Table of Contents
Anthony T. Strianese. Mr. Strianese has served as President of our Wholesale Brokerage Division since 2014. He served as Regional President from 2012 to 2014 and Regional Executive Vice President from July 2007 to January 2012, and serves as director and as an executive officer for several of our subsidiaries. Mr. Strianese’s responsibilities for our Wholesale Brokerage Division include oversight of the operations of Peachtree Special Risk Brokers, LLC, Hull & Company, Inc., ECC Insurance Brokers, Inc., MacDuff Underwriters, Inc. and Decus Insurance Brokers Limited, which commenced operations in 2008 in London, England. Additionally, Mr. Strianese is responsible for certain of our public entity operations located in Georgia, Texas and Virginia. Mr. Strianese joined the Company in January 2000 and helped form Peachtree Special Risk Brokers. Prior to joining us, he held leadership positions with The Home Insurance Company and Tri-City Brokers in New York City.
Chris L. Walker. Mr. Walker was appointed President of our National Programs Division in 2014. He served as Regional Executive Vice President from 2012 to 2014. Mr. Walker is responsible for our National Programs Division. He has also served as Chief Executive Officer of Arrowhead since 2012. He has been involved with Arrowhead’s business development strategies, product expansion, acquisitions and the overall operations and infrastructure since joining the organization in 2003. Prior to that, he served as Vice Chairman of Aon Re. Mr. Walker’s insurance career began with the reinsurance intermediary E.W. Blanch Co., where he ultimately served as Chairman and CEO of E.W. Blanch Holdings. He previously served as Chairman of the Brokers and Reinsurance Markets Association.
R. Andrew Watts. Mr. Watts joined the Company as Executive Vice President and Treasurer in February 2014, and was appointed Chief Financial Officer effective March 4, 2014. Prior to joining the Company, he had served as Global Head of Customer Administration for Thomson Reuters since 2011, and from 2008 to 2011, he acted as Chief Financial Officer for multiple segments within the Financial and Risk Division of Thomson Reuters. Prior to 2001, Mr. Watts was the Chief Financial Officer and Co-founder of Textera, an internet start-up company, and worked as a Senior Manager with PricewaterhouseCoopers for nine years. Mr. Watts is a Certified Public Accountant (CPA) and holds a Bachelor of Science degree from Illinois State University. He was previously the Chairman of the Board for Surflight Theatre from January 2013 through February 2014 and served on that board from July 2012 until February 2014. He was previously the Chairman of the Board for Make-A-Wish Foundation of New Jersey from 2005 through 2007 and served on that board from 2000 through 2007.
The additional information required by this item regarding directors and executive officers is incorporated herein by reference to our definitive Proxy Statement to be filed with the SEC in connection with the Annual Meeting of Shareholders to be held in 2019 (the “2019 Proxy Statement”) under the headings “Board and Corporate Governance Matters” and “Other Important Information.” We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, and controller. A copy of our Code of Ethics for our Chief Executive Officer and our Senior Financial Officers and a copy of our Code of Business Conduct and Ethics applicable to all employees are posted on our Internet website, at www.bbinsurance.com, and are also available upon written request directed to Corporate Secretary, 220 Brown & Brown, Inc., South Ridgewood Avenue, Daytona Beach, Florida 32114, or by telephone to (386) 252-9601. Any approved amendments to, or waiver of, any provision of the Code of Business Conduct and Ethics will be posted on our website at the above address.
ITEM 11. Executive Compensation.
The information required by this item is incorporated herein by reference to the 2019 Proxy Statement under the heading “Compensation Matters.”
89

Table of Contents
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2018, with respect to compensation plans under which the Company’s equity securities are authorized for issuance:

| A |
Plan Category | Number of securities remaining available for future issuance under equity compensation plans(1) |
Equity compensation plans approved by shareholders: |  |  |
Brown & Brown, Inc. 2010 Stock Incentive Plan | 8,697,491 |  | (2)
Brown & Brown, Inc. 1990 Employee Stock Purchase Plan | 7,316,901 |  |
Brown & Brown, Inc. Performance Stock Plan | — |  |
Total | 16,014,392 |  |
Equity compensation plans not approved by shareholders | — |  |

(1) | All of the shares available for future issuance under the Brown & Brown, Inc. Performance Stock Plan, and the Brown & Brown, Inc. 2010 Stock Incentive Plan may be issued in connection with options, warrants, rights, restricted stock, or other stock-based awards.

(2) | The payout for 1,770,134 shares of our outstanding performance-based restricted stock grants may be increased up to 200% of the target or decreased to zero, subject to the level of performance attained. The amount reflected in the table is calculated assuming the maximum payout for all restricted stock grants.

The information required by this item is incorporated herein by reference to the 2019 Proxy Statement under the heading “Security Ownership of Management and Certain Beneficial Owners.”
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated herein by reference to the 2019 Proxy Statement under the headings “Director Independence,” “Related Party Transactions Policy” and “Relationships and Transactions with Affiliated Parties.”
ITEM 14. Principal Accounting Fees and Services.
The information required by this item is incorporated herein by reference to the 2019 Proxy Statement under the heading “Fees Paid to Deloitte & Touche LLP.”
90

Table of Contents
PART IV
ITEM 15. Exhibits and Financial Statements Schedules.
The following documents are filed as part of this Report:
1. Financial statements
Reference is made to the information set forth in Part II, Item 8 of this Report, which information is incorporated by reference.
2. Consolidated Financial Statement Schedules.
All required Financial Statement Schedules are included in the Consolidated Financial Statements or the Notes to Consolidated Financial Statements.
3. Exhibits
The following exhibits are filed as a part of this Report:

3.1 | Articles of Amendment to the Articles of Incorporation (adopted February 26, 2018) (incorporated by reference to Exhibit 3.1 to Form 8-K filed March 29, 2018 and Articles of Amendment to Articles of Incorporation (adopted April 24, 2003) (incorporated by reference to Exhibit 3a to Form 10-Q for the quarter ended March 31, 2003), and Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3a to Form 10-Q for the quarter ended March 31, 1999).
3.2 | Bylaws (incorporated by reference to Exhibit 3.2 to Form 8-K filed on October 12, 2016).
4.1 | Indenture, dated as of September 18, 2014, between the Registrant and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 to Form 8-K filed on September 18, 2014).
4.2 | First Supplemental Indenture, dated as of September 18, 2014, between the Registrant and U.S. Bank National Association (incorporated by reference to Exhibit 4.2 to Form 8-K filed on September 18, 2014).
4.3 | Form of the Registrant’s 4.200% Notes due 2024 (incorporated by reference to Exhibit 4.3 to Form 8-K filed on September 18, 2014).
10.1(a) | Employment Agreement, dated and effective as of July 1, 2009 between the Registrant and J. Hyatt Brown (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2009).*
10.1(b) | Executive Employment Agreement, effective as of February 17, 2014, between the Registrant and R. Andrew Watts (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2014).*
10.1(c) | Form of Employment Agreement (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended September 30, 2014).*
10.1(d) | Employment Agreement, dated as of January 9, 2012, between the Registrant and Chris L. Walker (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2013).*
10.1(e)** | Employment Agreement, dated as of November 16, 2018, between the Registrant and James C. Hays.*
10.2(a) | Registrant’s Stock Performance Plan (incorporated by reference to Exhibit 4 to Registration Statement No. 333-14925 on Form S-8 filed on October 28, 1996).*
10.2(b) | Registrant’s Stock Performance Plan as amended, effective January 23, 2008 (incorporated by reference to Exhibit 10.6(b) to Form 10-K for the year ended December 31, 2007).*
10.2(c) | Registrant’s Stock Performance Plan as amended, effective July 21, 2009 (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended September 30, 2009).*
10.3 | Registrant’s 2010 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to Form 8-K filed on May 5, 2017).*
10.4(a) | Form of Performance-Based Stock Grant Agreement under 2010 Stock Incentive Plan (incorporated by reference to Exhibit 10.16 to Form 10-K for the year ended December 31, 2010).*
10.4(b) | Form of Performance-Triggered Stock Grant Agreement under 2010 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed on July 8, 2013).*

91

Table of Contents

10.4(c) | Form of Performance Stock Award Agreement under the 2010 Stock Incentive Plan (incorporated by reference to Exhibit 10.5(c) to Form 10-K filed on February 28, 2018).*
10.4(d) | Form of Restricted Stock Award Agreement under the 2010 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Form 8-K filed on March 23, 2016).*
10.4(e) | Form of Director Stock Grant Agreement (incorporated by reference to Exhibit 10.8(e) to Form 10-K filed for the year ended December 31, 2016).
10.5 | Promissory Note dated January 9, 2012, by and between Registrant and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.18 to Form 10-K for the year ended December 31, 2011).
10.6 | Letter Agreement dated January 9, 2012 by and between Registrant and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.19 to Form 10-K for the year ended December 31, 2011).
10.7 | Amended and Restated Credit Agreement dated as of June 28, 2017, among the Registrant, JPMorgan Chase Bank, N.A., Bank of America, N.A., Royal Bank of Canada and SunTrust Bank (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2017).
10.8 | Settlement Agreement, dated March 1, 2017, by and among the Company, AssuredPartners, Inc. and certain of its employees and former employees (incorporated by reference to Exhibit 10.1 to the form 10-Q for the quarter ended March 31, 2017).
10.9** | Asset Purchase Agreement, dated as of October 22, 2018, by and among Brown & Brown, Inc., BBHG, Inc., The Hays Group, Inc., The Hays Group Of Wisconsin LLC, The Hays Benefits Group, LLC, PlanIT, LLC, The Hays Benefits Group of Wisconsin, LLC, and The Hays Group of Illinois, LLC, and Claims Management of Missouri, LLC.
10.10** | Term Loan Credit Agreement, dated December 21, 2018, by and among the Company, Wells Fargo Bank, National Association, as administrative agent, Bank of America, N.A., BMO Harris Bank N.A. and SunTrust Bank as co-syndication agents, and Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BMO Capital Markets Corp. and SunTrust Robinson Humphrey, Inc. as joint lead arrangers and joint bookrunners.
21 | Subsidiaries of the Registrant.
23 | Consent of Deloitte & Touche LLP.
24 | Powers of Attorney.
31.1 | Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer of the Registrant.
31.2 | Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer of the Registrant.
32.1 | Section 1350 Certification by the Chief Executive Officer of the Registrant.
32.2 | Section 1350 Certification by the Chief Financial Officer of the Registrant.
101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH | XBRL Taxonomy Extension Schema Document.
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB | XBRL Taxonomy Extension Label Linkbase Document.
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document.

* Management Contract or Compensatory Plan or Arrangement
** Filed herewith
ITEM 16. Form 10-K Summary.
None
92

Table of Contents
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|  | BROWN & BROWN, INC. Registrant
Date: February 25, 2019 |  | By: | /s/ J. Powell Brown
|  |  | J. Powell Brown
|  |  | President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
93

Table of Contents

Signature |  | Title |  | Date
/s/ J. Powell Brown |  | Director; President and Chief Executive Officer (Principal Executive Officer) |  | February 25, 2019
J. Powell Brown |
/s/ R. Andrew Watts |  | Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |  | February 25, 2019
R. Andrew Watts |
* |  | Chairman of the Board |  | February 25, 2019
J. Hyatt Brown |
* |  | Director |  | February 25, 2019
Samuel P. Bell, III |
* |  | Director |  | February 25, 2019
Hugh M. Brown |
* |  | Director |  | February 25, 2019
Bradley Currey, Jr. |
* |  | Director |  | February 25, 2019
Lawrence L. Gellerstedt |
* |  | Director |  | February 25, 2019
James C. Hays |
* |  | Director |  | February 25, 2019
Theodore J. Hoepner |
* |  | Director |  | February 25, 2019
James S. Hunt |
* |  | Director |  | February 25, 2019
Toni Jennings |
* |  | Director |  | February 25, 2019
Timothy R.M. Main |  |
* |  | Director |  | February 25, 2019
H. Palmer Proctor, Jr. |
* |  | Director |  | February 25, 2019
Wendell Reilly |
* |  | Director |  | February 25, 2019
Chilton D. Varner |

*By: | /s/ Robert W. Lloyd
| Robert W. Lloyd Attorney-in-Fact

94