Internal Revenue Still Weak at Brown

Insurance brokerage Brown & Brown BRO reported further significant weakness in internal revenue in its second-quarter results, released Monday. Internal revenue (excluding acquisition effects) fell 5% in the second quarter, in line with the firm's performance in 2008 and into the first quarter of 2009. Brown has lagged its insurance brokerage peers in this measure since 2007, in part because of the marked severity of the economic downturn in Florida, where the firm has a significant presence. Brown's pretax margins have been trending down in the past few years, but appear to have stabilized in the latest quarter on a sequential basis, at a still-high 27%. We assume a 3% decline in internal revenue for 2009 as a whole. Our fair value estimate is unchanged.