Brown & Brown
Annual Report 2021

Plain-text annual report

2021 Annual Report B r o w n & B r o w n , I n c . 2 0 2 1 A n n u a l R e p o r t | CHARGE ON TO $4 BILLION AND BEYOND CHARGE ONTO $4 BILLION AND BEYOND Committed Committed to Results to Results A Message A Message From Our CEO From Our CEO Brown & Brown Insurance is one of the Brown & Brown Insurance is one of the industry’s most powerful and influential industry’s most powerful and influential leaders. We provide risk management leaders. We provide risk management solutions to help protect and preserve solutions to help protect and preserve what our customers value most. Our four what our customers value most. Our four business segments offer a wide range business segments offer a wide range of insurance solutions and services for of insurance solutions and services for businesses, government institutions, businesses, government institutions, professional organizations, trade professional organizations, trade associations, families and individuals. associations, families and individuals. We have a deeply rooted culture that is built We have a deeply rooted culture that is built on honesty, integrity, innovation, superior on honesty, integrity, innovation, superior capabilities, discipline and a commitment to capabilities, discipline and a commitment to always doing what is best for our customers, always doing what is best for our customers, teammates and communities. teammates and communities. With more than 80 years of proven With more than 80 years of proven success, we consistently provide high- success, we consistently provide high- quality solutions and services to our quality solutions and services to our customers, which deliver strong results customers, which deliver strong results for our shareholders. Our team continues for our shareholders. Our team continues to demonstrate grit, hustle and an to demonstrate grit, hustle and an entrepreneurial spirit as we grow and thrive entrepreneurial spirit as we grow and thrive in the extremely competitive and constantly in the extremely competitive and constantly changing insurance industry. changing insurance industry. We are A Forever Company. We are A Forever Company. Key Facts Key Facts Key Differentiators Key Differentiators B U I L T T O L A S T B U I L T T O L A S T Headquartered in Headquartered in Daytona Beach, Florida Daytona Beach, Florida D O G G E D D O G G E D D I S C I P L I N E D I S C I P L I N E Founded in 1939— Founded in 1939— 82 Years of Dedication 82 Years of Dedication T E A M M A T E - T E A M M A T E - D R I V E N S U C C E S S D R I V E N S U C C E S S 12,000+ Teammates 12,000+ Teammates L O C A L P E O P L E , L O C A L P E O P L E , P O W E R F U L P O W E R F U L S O L U T I O N S S O L U T I O N S 350+ Locations 350+ Locations O W N E R S H I P O W N E R S H I P M I N D S E T M I N D S E T 60+% of Teammates 60+% of Teammates are Shareholders are Shareholders D E C E N T R A L I Z E D S A L E S A N D D E C E N T R A L I Z E D S A L E S A N D S E R V I C E M O D E L S E R V I C E M O D E L Local teams empowered to make Local teams empowered to make decisions that best support their decisions that best support their customers, backed by the powerful customers, backed by the powerful solutions, capabilities and carrier solutions, capabilities and carrier relationships of a top-five brokerage. relationships of a top-five brokerage. F I N A N C I A L P E R F O R M A N C E F I N A N C I A L P E R F O R M A N C E Consistent, industry-leading Consistent, industry-leading financial metrics and corresponding financial metrics and corresponding performance. performance. C U L T U R E C U L T U R E Strong, performance-based culture Strong, performance-based culture grounded in grit and integrity. grounded in grit and integrity. Entrepreneurial meritocracy: providing Entrepreneurial meritocracy: providing long-term opportunities for talented long-term opportunities for talented leaders and teammates. leaders and teammates. C O M M U N I T Y S E R V I C E C O M M U N I T Y S E R V I C E Long-standing history of service to the Long-standing history of service to the communities in which our teams live communities in which our teams live and work. and work. Historical Historical Revenue Revenue EBITDAC EBITDAC Margin(1) Margin(1) $1.9B $1.9B $2.0B $2.0B $2.4B $2.4B $2.6B $2.6B $3.1B $3.1B 32.2% 32.2% 30.6% 30.6% 30.0% 30.0% 31.1% 31.1% 33.5% 33.5% 2 0 17 2 0 17 2 0 18 2 0 18 2 0 19 2 0 19 2 0 20 2 0 20 2 0 2 1 2 0 2 1 EBITDAC Margin is a non-GAAP financial measure and is referenced to provide an additional meaningful method of evaluating our operating performance from period EBITDAC Margin is a non-GAAP financial measure and is referenced to provide an additional meaningful method of evaluating our operating performance from period (1) (1) to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning EBITDAC Margin and a reconciliation to the most closely to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning EBITDAC Margin and a reconciliation to the most closely comparable GAAP measure, refer to pages 16 and 33 of this Annual Report. comparable GAAP measure, refer to pages 16 and 33 of this Annual Report. We focus on “getting We focus on “getting stuff done” (GSD), stuff done” (GSD), and the results follow. and the results follow. Collaboration is at the Collaboration is at the heart of the solutions we heart of the solutions we offer. offer. J. POWELL BROWN J. POWELL BROWN Dear Shareholders, Dear Shareholders, At Brown & Brown, we believe At Brown & Brown, we believe putting our talented teammates putting our talented teammates first enables us to deliver innovative first enables us to deliver innovative solutions for our customers. We focus solutions for our customers. We focus on “getting stuff done” (GSD), and on “getting stuff done” (GSD), and the results follow. Collaboration is at the results follow. Collaboration is at the heart of the solutions we offer. 2021 was the heart of the solutions we offer. 2021 was an outstanding year for Brown & Brown. an outstanding year for Brown & Brown. We crossed the $3 billion annual revenue We crossed the $3 billion annual revenue threshold, growing our annual revenues threshold, growing our annual revenues 10.4% organically(1) and 16.8% overall. 10.4% organically(1) and 16.8% overall. This was accomplished while materially This was accomplished while materially improving our margins, and we are on our improving our margins, and we are on our way to our next intermediate goal of $4 way to our next intermediate goal of $4 billion—all made possible by our 12,000+ billion—all made possible by our 12,000+ teammates’ commitment to our customers. teammates’ commitment to our customers. We have a strong, decentralized sales and We have a strong, decentralized sales and service model and a performance-based service model and a performance-based culture grounded in honesty, integrity and culture grounded in honesty, integrity and The Power of WE. We also have a deep The Power of WE. We also have a deep commitment to the communities where we commitment to the communities where we live and work—our Culture of Caring. live and work—our Culture of Caring. T T R R O O P P E E R R L L A A U U N N N N A A 1 1 2 2 0 0 2 2 1 1 Committed Committed to Results to Results A Message A Message From Our CEO From Our CEO Brown & Brown Insurance is one of the Brown & Brown Insurance is one of the industry’s most powerful and influential industry’s most powerful and influential leaders. We provide risk management leaders. We provide risk management solutions to help protect and preserve solutions to help protect and preserve what our customers value most. Our four what our customers value most. Our four business segments offer a wide range business segments offer a wide range of insurance solutions and services for of insurance solutions and services for businesses, government institutions, businesses, government institutions, professional organizations, trade professional organizations, trade associations, families and individuals. associations, families and individuals. We have a deeply rooted culture that is built We have a deeply rooted culture that is built on honesty, integrity, innovation, superior on honesty, integrity, innovation, superior capabilities, discipline and a commitment to capabilities, discipline and a commitment to always doing what is best for our customers, always doing what is best for our customers, teammates and communities. teammates and communities. With more than 80 years of proven With more than 80 years of proven success, we consistently provide high- success, we consistently provide high- quality solutions and services to our quality solutions and services to our customers, which deliver strong results customers, which deliver strong results for our shareholders. Our team continues for our shareholders. Our team continues to demonstrate grit, hustle and an to demonstrate grit, hustle and an entrepreneurial spirit as we grow and thrive entrepreneurial spirit as we grow and thrive in the extremely competitive and constantly in the extremely competitive and constantly changing insurance industry. changing insurance industry. We are A Forever Company. We are A Forever Company. Key Facts Key Facts Key Differentiators Key Differentiators B U I L T T O L A S T B U I L T T O L A S T Headquartered in Headquartered in Daytona Beach, Florida Daytona Beach, Florida D O G G E D D O G G E D D I S C I P L I N E D I S C I P L I N E Founded in 1939— Founded in 1939— 82 Years of Dedication 82 Years of Dedication T E A M M A T E - T E A M M A T E - D R I V E N S U C C E S S D R I V E N S U C C E S S 12,000+ Teammates 12,000+ Teammates L O C A L P E O P L E , L O C A L P E O P L E , P O W E R F U L P O W E R F U L S O L U T I O N S S O L U T I O N S 350+ Locations 350+ Locations O W N E R S H I P O W N E R S H I P M I N D S E T M I N D S E T 60+% of Teammates 60+% of Teammates are Shareholders are Shareholders D E C E N T R A L I Z E D S A L E S A N D D E C E N T R A L I Z E D S A L E S A N D S E R V I C E M O D E L S E R V I C E M O D E L Local teams empowered to make Local teams empowered to make decisions that best support their decisions that best support their customers, backed by the powerful customers, backed by the powerful solutions, capabilities and carrier solutions, capabilities and carrier relationships of a top-five brokerage. relationships of a top-five brokerage. F I N A N C I A L P E R F O R M A N C E F I N A N C I A L P E R F O R M A N C E Consistent, industry-leading Consistent, industry-leading financial metrics and corresponding financial metrics and corresponding performance. performance. C U L T U R E C U L T U R E Strong, performance-based culture Strong, performance-based culture grounded in grit and integrity. grounded in grit and integrity. Entrepreneurial meritocracy: providing Entrepreneurial meritocracy: providing long-term opportunities for talented long-term opportunities for talented leaders and teammates. leaders and teammates. C O M M U N I T Y S E R V I C E C O M M U N I T Y S E R V I C E Long-standing history of service to the Long-standing history of service to the communities in which our teams live communities in which our teams live and work. and work. $1.9B $1.9B $2.0B $2.0B $2.4B $2.4B $2.6B $2.6B $3.1B $3.1B Historical Historical Revenue Revenue EBITDAC EBITDAC Margin(1) Margin(1) 32.2% 32.2% 30.6% 30.6% 30.0% 30.0% 31.1% 31.1% 33.5% 33.5% 2 0 17 2 0 17 2 0 18 2 0 18 2 0 19 2 0 19 2 0 20 2 0 20 2 0 2 1 2 0 2 1 (1) (1) EBITDAC Margin is a non-GAAP financial measure and is referenced to provide an additional meaningful method of evaluating our operating performance from period EBITDAC Margin is a non-GAAP financial measure and is referenced to provide an additional meaningful method of evaluating our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning EBITDAC Margin and a reconciliation to the most closely to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning EBITDAC Margin and a reconciliation to the most closely comparable GAAP measure, refer to pages 16 and 33 of this Annual Report. comparable GAAP measure, refer to pages 16 and 33 of this Annual Report. We focus on “getting We focus on “getting stuff done” (GSD), stuff done” (GSD), and the results follow. and the results follow. Collaboration is at the Collaboration is at the heart of the solutions we heart of the solutions we offer. offer. J. POWELL BROWN J. POWELL BROWN Dear Shareholders, Dear Shareholders, At Brown & Brown, we believe At Brown & Brown, we believe putting our talented teammates putting our talented teammates first enables us to deliver innovative first enables us to deliver innovative solutions for our customers. We focus solutions for our customers. We focus on “getting stuff done” (GSD), and on “getting stuff done” (GSD), and the results follow. Collaboration is at the results follow. Collaboration is at the heart of the solutions we offer. 2021 was the heart of the solutions we offer. 2021 was an outstanding year for Brown & Brown. an outstanding year for Brown & Brown. We crossed the $3 billion annual revenue We crossed the $3 billion annual revenue threshold, growing our annual revenues threshold, growing our annual revenues 10.4% organically(1) and 16.8% overall. 10.4% organically(1) and 16.8% overall. This was accomplished while materially This was accomplished while materially improving our margins, and we are on our improving our margins, and we are on our way to our next intermediate goal of $4 way to our next intermediate goal of $4 billion—all made possible by our 12,000+ billion—all made possible by our 12,000+ teammates’ commitment to our customers. teammates’ commitment to our customers. We have a strong, decentralized sales and We have a strong, decentralized sales and service model and a performance-based service model and a performance-based culture grounded in honesty, integrity and culture grounded in honesty, integrity and The Power of WE. We also have a deep The Power of WE. We also have a deep commitment to the communities where we commitment to the communities where we live and work—our Culture of Caring. live and work—our Culture of Caring. T T R R O O P P E E R R L L A A U U N N N N A A 1 1 2 2 0 0 2 2 1 1 $100 invested in Brown & $100 invested in Brown & Brown stock in 1993 when Brown stock in 1993 when we began our journey as we began our journey as a public company would a public company would be worth $8,228 as of be worth $8,228 as of December 31, 2021. December 31, 2021. $8,228 $8,228 I N 2 0 2 1 I N 2 0 2 1 $100 $100 I N 1 9 9 3 I N 1 9 9 3 Long-Distance Long-Distance Road Race Road Race Life Is Not a Sprint; Life Is Not a Sprint; It’s a Marathon It’s a Marathon The mental health and well-being of our teammates The mental health and well-being of our teammates and their families have always come first at Brown and their families have always come first at Brown & Brown—health, family, business—in that order. We & Brown—health, family, business—in that order. We define health as physical, brain, spiritual and financial define health as physical, brain, spiritual and financial wellness. By prioritizing these things, our team is wellness. By prioritizing these things, our team is best positioned to deliver for our customers, fellow best positioned to deliver for our customers, fellow teammates and carrier partners. We operate as A teammates and carrier partners. We operate as A Meritocracy, meaning that people rise according to Meritocracy, meaning that people rise according to their abilities and talents. Successful teammates at their abilities and talents. Successful teammates at Brown & Brown share several core values: passion, Brown & Brown share several core values: passion, perseverance, grit, curiosity and discipline. We are very perseverance, grit, curiosity and discipline. We are very proud of our strong ownership culture, where more proud of our strong ownership culture, where more than 60% of teammates are also shareholders. Nearly than 60% of teammates are also shareholders. Nearly a quarter of our company is teammate owned. a quarter of our company is teammate owned. We were very pleased with our 10.4% organic revenue(1) We were very pleased with our 10.4% organic revenue(1) growth last year, and 2021 was arguably the best year growth last year, and 2021 was arguably the best year in our company’s history. We completed 19 acquisitions in our company’s history. We completed 19 acquisitions with annual revenues of approximately $132 million, with annual revenues of approximately $132 million, contributing to the 16.8% overall growth in our total contributing to the 16.8% overall growth in our total revenues. We also completed our second international revenues. We also completed our second international acquisition, with O’Leary Insurances, the largest acquisition, with O’Leary Insurances, the largest independently owned brokerage in Ireland, joining independently owned brokerage in Ireland, joining the team in January 2021. In addition, our EBITDAC the team in January 2021. In addition, our EBITDAC margin(1) improved 240 basis points year over year. margin(1) improved 240 basis points year over year. Driven by these results, our stock performed well, Driven by these results, our stock performed well, delivering total shareholder returns of 49% in 2021. delivering total shareholder returns of 49% in 2021. We were pleased to be added to the S&P 500 Index We were pleased to be added to the S&P 500 Index and then included in the S&P 500 Dividend Aristocrats and then included in the S&P 500 Dividend Aristocrats Index—a distinguished group of long-time dividend Index—a distinguished group of long-time dividend payers that have raised their dividend payments for a payers that have raised their dividend payments for a minimum of 25 consecutive years. Brown & Brown has minimum of 25 consecutive years. Brown & Brown has increased its dividend for 28 straight years. increased its dividend for 28 straight years. Source: FactSet Source: FactSet I N C R E A S E D I N C R E A S E D D I V I D E N D S F O R D I V I D E N D S F O R 28th 28th C O N S E C U T I V E C O N S E C U T I V E Y E A R Y E A R (1) Organic Revenue growth and EBITDAC Margin are non-GAAP financial (1) Organic Revenue growth and EBITDAC Margin are non-GAAP financial measures and are referenced to provide additional meaningful methods of measures and are referenced to provide additional meaningful methods of evaluating our operating performance from period to period on a basis that may evaluating our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning not be otherwise apparent on a GAAP basis. For other information concerning Organic Revenue growth and EBITDAC Margin and to reconciliations to the Organic Revenue growth and EBITDAC Margin and to reconciliations to the most closely comparable GAAP measures, refer to pages 16, 23-24 and 33 of most closely comparable GAAP measures, refer to pages 16, 23-24 and 33 of this Annual Report. this Annual Report. G R E W G R E W R E V E N U E S R E V E N U E S 10.4% 10.4% O R G A N I C A L L Y ( 1 ) T O O R G A N I C A L L Y ( 1 ) T O $3.1 $3.1 B I L L I O N B I L L I O N 2 2 A Forever Company®, The Power of WE®, Culture of Caring®, A Meritocracy® and Built to Last® are registered trademarks of Brown & Brown, Inc. in the United States. A Forever Company®, The Power of WE®, Culture of Caring®, A Meritocracy® and Built to Last® are registered trademarks of Brown & Brown, Inc. in the United States. segment), Tom Kussurelis (National Programs segment) segment), Tom Kussurelis (National Programs segment) And that is the way we try to do things at Brown & And that is the way we try to do things at Brown & We grow our business organically and through the We grow our business organically and through the acquisition of like-minded companies. Our focus on acquisition of like-minded companies. Our focus on growth and profitability enables us to self-finance growth and profitability enables us to self-finance many of these transactions. Cultural fit remains the many of these transactions. Cultural fit remains the most important ingredient to a successful acquisition, most important ingredient to a successful acquisition, followed by favorable financial terms. Through our followed by favorable financial terms. Through our acquisition activity and the hard work of our team, acquisition activity and the hard work of our team, we enhanced our existing capabilities and added we enhanced our existing capabilities and added a number of new ones to our solution set. We have a number of new ones to our solution set. We have invested significantly in our company and team over invested significantly in our company and team over the past five years. These investments include the the past five years. These investments include the addition of talented new teammates, the enhancement addition of talented new teammates, the enhancement of social recognition tools and performance of social recognition tools and performance management processes and equity compensation management processes and equity compensation that ties our teammates and our goals together. Three that ties our teammates and our goals together. Three dynamic teammates were also added to our senior dynamic teammates were also added to our senior leadership team: Anurag Batta (Wholesale Brokerage leadership team: Anurag Batta (Wholesale Brokerage and Mary Raveling (Retail segment). In addition, and Mary Raveling (Retail segment). In addition, we continued to invest in technology that will help we continued to invest in technology that will help us execute more efficiently, improve the customer us execute more efficiently, improve the customer experience and drive innovation through data and experience and drive innovation through data and analytics. analytics. We learned a great deal about the human psyche We learned a great deal about the human psyche in 2020 and 2021. In response, we narrowed our in 2020 and 2021. In response, we narrowed our focus on brain health, prioritizing the creation and focus on brain health, prioritizing the creation and implementation of a Mental Health Guidebook—a implementation of a Mental Health Guidebook—a robust suite of resources to support teammates robust suite of resources to support teammates and their families. We also executed an extensive and their families. We also executed an extensive mental health awareness campaign in May of 2021 mental health awareness campaign in May of 2021 and identified a group teammates from across the and identified a group teammates from across the organization trained to support emotional health and organization trained to support emotional health and well-being needs, known as Mental Health Allies. well-being needs, known as Mental Health Allies. Our Diversity, Inclusion and Belonging (DIB) task Our Diversity, Inclusion and Belonging (DIB) task force continued to make strides to achieve our goal force continued to make strides to achieve our goal of further cultivating an inclusive place to work. of further cultivating an inclusive place to work. In addition, our first Teammate Resource Groups In addition, our first Teammate Resource Groups (African American, Women, LGBTQ+ and Mental (African American, Women, LGBTQ+ and Mental Health) were formed to help our workforce continue Health) were formed to help our workforce continue to evolve and reflect the communities in which we to evolve and reflect the communities in which we live. We also launched a dedicated DIB page on our live. We also launched a dedicated DIB page on our website to clearly state our commitment to fostering website to clearly state our commitment to fostering a more inclusive environment where people from a more inclusive environment where people from all backgrounds with a variety of experiences and all backgrounds with a variety of experiences and perspectives can be their true, authentic selves and be perspectives can be their true, authentic selves and be recognized for their unique contributions and talents. recognized for their unique contributions and talents. We believe a culture that embraces diversity, inclusion We believe a culture that embraces diversity, inclusion and belonging helps deliver better outcomes for our and belonging helps deliver better outcomes for our customers and communities. Visit bbinsurance.com/ customers and communities. Visit bbinsurance.com/ about-us/diversity-inclusion-belonging/ to learn more. about-us/diversity-inclusion-belonging/ to learn more. T O T A L S H A R E H O L D E R T O T A L S H A R E H O L D E R R E T U R N S F O R 2 0 2 1 R E T U R N S F O R 2 0 2 1 49% 49% Finally, I want to acknowledge the loss of Brad Currey, Finally, I want to acknowledge the loss of Brad Currey, a long-time friend, director and mentor to the entire a long-time friend, director and mentor to the entire Brown & Brown team. If I were to write a book like Brown & Brown team. If I were to write a book like Tom Brokaw’s “The Greatest Generation,” Chapter Tom Brokaw’s “The Greatest Generation,” Chapter One would be about Brad. Upon my appointment as One would be about Brad. Upon my appointment as CEO in July 2009, Brad sent me a handwritten note CEO in July 2009, Brad sent me a handwritten note of congratulations with a message similar to this: “You of congratulations with a message similar to this: “You are the right person for the job. Don’t get a big head.” are the right person for the job. Don’t get a big head.” Brown—with honesty, integrity, humility, accountability, Brown—with honesty, integrity, humility, accountability, perseverance and grit. perseverance and grit. If you are a shareholder, thank you If you are a shareholder, thank you for your confidence in our team. If for your confidence in our team. If you are a teammate, thank you for you are a teammate, thank you for everything you do for our customers everything you do for our customers and your fellow teammates. To Brad and your fellow teammates. To Brad Currey, thank you for everything you Currey, thank you for everything you did to make us better and for always did to make us better and for always reminding us that the price of honesty reminding us that the price of honesty is eternal vigilance. We will continue to is eternal vigilance. We will continue to live up to your expectations. Onward live up to your expectations. Onward and upward. and upward. Cheers! Cheers! J . P O W E L L B R O W N , C P C U J . P O W E L L B R O W N , C P C U P R E S I D E N T & C H I E F E X E C U T I V E O F F I C E R P R E S I D E N T & C H I E F E X E C U T I V E O F F I C E R T H I S A N N U A L R E P O R T A N D I T S T H E M E T H I S A N N U A L R E P O R T A N D I T S T H E M E A R E D E D I C A T E D T O O U R F R I E N D A N D A R E D E D I C A T E D T O O U R F R I E N D A N D M E N T O R , B R A D C U R R E Y . M E N T O R , B R A D C U R R E Y . T T R R O O P P E E R R L L A A U U N N N N A A 1 1 2 2 0 0 2 2 3 3 $100 invested in Brown & $100 invested in Brown & Brown stock in 1993 when Brown stock in 1993 when we began our journey as we began our journey as a public company would a public company would be worth $8,228 as of be worth $8,228 as of December 31, 2021. December 31, 2021. $8,228 $8,228 I N 2 0 2 1 I N 2 0 2 1 The mental health and well-being of our teammates The mental health and well-being of our teammates and their families have always come first at Brown and their families have always come first at Brown & Brown—health, family, business—in that order. We & Brown—health, family, business—in that order. We define health as physical, brain, spiritual and financial define health as physical, brain, spiritual and financial wellness. By prioritizing these things, our team is wellness. By prioritizing these things, our team is best positioned to deliver for our customers, fellow best positioned to deliver for our customers, fellow teammates and carrier partners. We operate as A teammates and carrier partners. We operate as A Meritocracy, meaning that people rise according to Meritocracy, meaning that people rise according to their abilities and talents. Successful teammates at their abilities and talents. Successful teammates at Brown & Brown share several core values: passion, Brown & Brown share several core values: passion, perseverance, grit, curiosity and discipline. We are very perseverance, grit, curiosity and discipline. We are very proud of our strong ownership culture, where more proud of our strong ownership culture, where more than 60% of teammates are also shareholders. Nearly than 60% of teammates are also shareholders. Nearly a quarter of our company is teammate owned. a quarter of our company is teammate owned. We were very pleased with our 10.4% organic revenue(1) We were very pleased with our 10.4% organic revenue(1) growth last year, and 2021 was arguably the best year growth last year, and 2021 was arguably the best year in our company’s history. We completed 19 acquisitions in our company’s history. We completed 19 acquisitions with annual revenues of approximately $132 million, with annual revenues of approximately $132 million, contributing to the 16.8% overall growth in our total contributing to the 16.8% overall growth in our total revenues. We also completed our second international revenues. We also completed our second international acquisition, with O’Leary Insurances, the largest acquisition, with O’Leary Insurances, the largest independently owned brokerage in Ireland, joining independently owned brokerage in Ireland, joining the team in January 2021. In addition, our EBITDAC the team in January 2021. In addition, our EBITDAC margin(1) improved 240 basis points year over year. margin(1) improved 240 basis points year over year. Driven by these results, our stock performed well, Driven by these results, our stock performed well, delivering total shareholder returns of 49% in 2021. delivering total shareholder returns of 49% in 2021. We were pleased to be added to the S&P 500 Index We were pleased to be added to the S&P 500 Index and then included in the S&P 500 Dividend Aristocrats and then included in the S&P 500 Dividend Aristocrats Index—a distinguished group of long-time dividend Index—a distinguished group of long-time dividend payers that have raised their dividend payments for a payers that have raised their dividend payments for a minimum of 25 consecutive years. Brown & Brown has minimum of 25 consecutive years. Brown & Brown has increased its dividend for 28 straight years. increased its dividend for 28 straight years. $100 $100 I N 1 9 9 3 I N 1 9 9 3 Source: FactSet Source: FactSet I N C R E A S E D I N C R E A S E D D I V I D E N D S F O R D I V I D E N D S F O R 28th 28th C O N S E C U T I V E C O N S E C U T I V E Y E A R Y E A R G R E W G R E W R E V E N U E S R E V E N U E S 10.4% 10.4% O R G A N I C A L L Y ( 1 ) T O O R G A N I C A L L Y ( 1 ) T O $3.1 $3.1 B I L L I O N B I L L I O N (1) Organic Revenue growth and EBITDAC Margin are non-GAAP financial (1) Organic Revenue growth and EBITDAC Margin are non-GAAP financial measures and are referenced to provide additional meaningful methods of measures and are referenced to provide additional meaningful methods of evaluating our operating performance from period to period on a basis that may evaluating our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning not be otherwise apparent on a GAAP basis. For other information concerning Organic Revenue growth and EBITDAC Margin and to reconciliations to the Organic Revenue growth and EBITDAC Margin and to reconciliations to the most closely comparable GAAP measures, refer to pages 16, 23-24 and 33 of most closely comparable GAAP measures, refer to pages 16, 23-24 and 33 of this Annual Report. this Annual Report. 2 2 A Forever Company®, The Power of WE®, Culture of Caring®, A Meritocracy® and Built to Last® are registered trademarks of Brown & Brown, Inc. in the United States. A Forever Company®, The Power of WE®, Culture of Caring®, A Meritocracy® and Built to Last® are registered trademarks of Brown & Brown, Inc. in the United States. Long-Distance Long-Distance Road Race Road Race Life Is Not a Sprint; Life Is Not a Sprint; It’s a Marathon It’s a Marathon We grow our business organically and through the We grow our business organically and through the acquisition of like-minded companies. Our focus on acquisition of like-minded companies. Our focus on growth and profitability enables us to self-finance growth and profitability enables us to self-finance many of these transactions. Cultural fit remains the many of these transactions. Cultural fit remains the most important ingredient to a successful acquisition, most important ingredient to a successful acquisition, followed by favorable financial terms. Through our followed by favorable financial terms. Through our acquisition activity and the hard work of our team, acquisition activity and the hard work of our team, we enhanced our existing capabilities and added we enhanced our existing capabilities and added a number of new ones to our solution set. We have a number of new ones to our solution set. We have invested significantly in our company and team over invested significantly in our company and team over the past five years. These investments include the the past five years. These investments include the addition of talented new teammates, the enhancement addition of talented new teammates, the enhancement of social recognition tools and performance of social recognition tools and performance management processes and equity compensation management processes and equity compensation that ties our teammates and our goals together. Three that ties our teammates and our goals together. Three dynamic teammates were also added to our senior dynamic teammates were also added to our senior leadership team: Anurag Batta (Wholesale Brokerage leadership team: Anurag Batta (Wholesale Brokerage segment), Tom Kussurelis (National Programs segment) segment), Tom Kussurelis (National Programs segment) and Mary Raveling (Retail segment). In addition, and Mary Raveling (Retail segment). In addition, we continued to invest in technology that will help we continued to invest in technology that will help us execute more efficiently, improve the customer us execute more efficiently, improve the customer experience and drive innovation through data and experience and drive innovation through data and analytics. analytics. We learned a great deal about the human psyche We learned a great deal about the human psyche in 2020 and 2021. In response, we narrowed our in 2020 and 2021. In response, we narrowed our focus on brain health, prioritizing the creation and focus on brain health, prioritizing the creation and implementation of a Mental Health Guidebook—a implementation of a Mental Health Guidebook—a robust suite of resources to support teammates robust suite of resources to support teammates and their families. We also executed an extensive and their families. We also executed an extensive mental health awareness campaign in May of 2021 mental health awareness campaign in May of 2021 and identified a group teammates from across the and identified a group teammates from across the organization trained to support emotional health and organization trained to support emotional health and well-being needs, known as Mental Health Allies. well-being needs, known as Mental Health Allies. Our Diversity, Inclusion and Belonging (DIB) task Our Diversity, Inclusion and Belonging (DIB) task force continued to make strides to achieve our goal force continued to make strides to achieve our goal of further cultivating an inclusive place to work. of further cultivating an inclusive place to work. In addition, our first Teammate Resource Groups In addition, our first Teammate Resource Groups (African American, Women, LGBTQ+ and Mental (African American, Women, LGBTQ+ and Mental Health) were formed to help our workforce continue Health) were formed to help our workforce continue to evolve and reflect the communities in which we to evolve and reflect the communities in which we live. We also launched a dedicated DIB page on our live. We also launched a dedicated DIB page on our website to clearly state our commitment to fostering website to clearly state our commitment to fostering a more inclusive environment where people from a more inclusive environment where people from all backgrounds with a variety of experiences and all backgrounds with a variety of experiences and perspectives can be their true, authentic selves and be perspectives can be their true, authentic selves and be recognized for their unique contributions and talents. recognized for their unique contributions and talents. We believe a culture that embraces diversity, inclusion We believe a culture that embraces diversity, inclusion and belonging helps deliver better outcomes for our and belonging helps deliver better outcomes for our customers and communities. Visit bbinsurance.com/ customers and communities. Visit bbinsurance.com/ about-us/diversity-inclusion-belonging/ to learn more. about-us/diversity-inclusion-belonging/ to learn more. T O T A L S H A R E H O L D E R T O T A L S H A R E H O L D E R R E T U R N S F O R 2 0 2 1 R E T U R N S F O R 2 0 2 1 49% 49% Finally, I want to acknowledge the loss of Brad Currey, Finally, I want to acknowledge the loss of Brad Currey, a long-time friend, director and mentor to the entire a long-time friend, director and mentor to the entire Brown & Brown team. If I were to write a book like Brown & Brown team. If I were to write a book like Tom Brokaw’s “The Greatest Generation,” Chapter Tom Brokaw’s “The Greatest Generation,” Chapter One would be about Brad. Upon my appointment as One would be about Brad. Upon my appointment as CEO in July 2009, Brad sent me a handwritten note CEO in July 2009, Brad sent me a handwritten note of congratulations with a message similar to this: “You of congratulations with a message similar to this: “You are the right person for the job. Don’t get a big head.” are the right person for the job. Don’t get a big head.” And that is the way we try to do things at Brown & And that is the way we try to do things at Brown & Brown—with honesty, integrity, humility, accountability, Brown—with honesty, integrity, humility, accountability, perseverance and grit. perseverance and grit. If you are a shareholder, thank you If you are a shareholder, thank you for your confidence in our team. If for your confidence in our team. If you are a teammate, thank you for you are a teammate, thank you for everything you do for our customers everything you do for our customers and your fellow teammates. To Brad and your fellow teammates. To Brad Currey, thank you for everything you Currey, thank you for everything you did to make us better and for always did to make us better and for always reminding us that the price of honesty reminding us that the price of honesty is eternal vigilance. We will continue to is eternal vigilance. We will continue to live up to your expectations. Onward live up to your expectations. Onward and upward. and upward. Cheers! Cheers! J . P O W E L L B R O W N , C P C U J . P O W E L L B R O W N , C P C U P R E S I D E N T & C H I E F E X E C U T I V E O F F I C E R P R E S I D E N T & C H I E F E X E C U T I V E O F F I C E R T H I S A N N U A L R E P O R T A N D I T S T H E M E T H I S A N N U A L R E P O R T A N D I T S T H E M E A R E D E D I C A T E D T O O U R F R I E N D A N D A R E D E D I C A T E D T O O U R F R I E N D A N D M E N T O R , B R A D C U R R E Y . M E N T O R , B R A D C U R R E Y . T T R R O O P P E E R R L L A A U U N N N N A A 1 1 2 2 0 0 2 2 3 3 3500 3500 0 0 Our Performance Our Performance Every successful team thrives on diversity of talent, thought, character, work ethic and experience, resulting Every successful team thrives on diversity of talent, thought, character, work ethic and experience, resulting in better outcomes and empowering teammates to make more meaningful contributions to our customers, in better outcomes and empowering teammates to make more meaningful contributions to our customers, organization and communities. We are proud of our performance and the teammates who drive our success organization and communities. We are proud of our performance and the teammates who drive our success every day. every day. Total Revenues Total Revenues ( D O L L A R S I N M I L L I O N S ) ( D O L L A R S I N M I L L I O N S ) $1,881 $1,881 $2,014 $2,014 $2,392 $2,392 $2,613 $2,613 $3,051 $3,051 2 0 2 1 2 0 2 1 Uses of Cash Uses of Cash Uses of Capital Uses of Capital Acquisitions Acquisitions Our capital management strategy is based on the Our capital management strategy is based on the We are focused on forever, and our clearly defined growth We are focused on forever, and our clearly defined growth philosophy of investing to optimize returns and minimize philosophy of investing to optimize returns and minimize strategy is characterized by a disciplined focus on acquiring strategy is characterized by a disciplined focus on acquiring debt. We strategically deploy capital to invest internally, debt. We strategically deploy capital to invest internally, businesses that fit culturally. We remain prepared to deploy businesses that fit culturally. We remain prepared to deploy acquire firms and return capital to shareholders while acquire firms and return capital to shareholders while our capital when terms make sense financially. In 2021, our capital when terms make sense financially. In 2021, maintaining a conservative debt profile. maintaining a conservative debt profile. we acquired businesses with approximately $132 million we acquired businesses with approximately $132 million in annual revenue and added 635 talented teammates in annual revenue and added 635 talented teammates through acquisitions. Of the 19 acquisitions we completed through acquisitions. Of the 19 acquisitions we completed in 2021, 15 were acquired within our Retail segment, three in 2021, 15 were acquired within our Retail segment, three within our Wholesale Brokerage segment and one within within our Wholesale Brokerage segment and one within our National Programs segment. our National Programs segment. 12% 12% 7% 7% 16% 16% S H A RE R E PU RC H A S E S S H A RE R E PU RC H A S E S C A P IT A L E X PE N D I T U R E S C A P IT A L E X PE N D I T U R E S D I V I DE N DS D I V I DE N DS $132M $132M 2 0 2 1 A C Q U I R E D A N N U A L R E V E N U E 2 0 2 1 A C Q U I R E D A N N U A L R E V E N U E 2 01 7 2 01 7 2 0 1 8 2 0 1 8 2 01 9 2 01 9 2 0 20 2 0 20 2 0 21 2 0 21 65% 65% A C Q U I S I T IO N S A C Q U I S I T IO N S 2021 Revenue by Segment 2021 Revenue by Segment ( D O L L A R S I N M I L L I O N S ) ( D O L L A R S I N M I L L I O N S ) EBITDAC(1) EBITDAC(1) ( D O L L A R S I N M I L L I O N S ) ( D O L L A R S I N M I L L I O N S ) 1,768 1,768 605 605 615 615 717 717 813 813 1,021 1,021 179 179 403 403 702 702 S ER V I C ES S ER V I C ES W H OL ES A LE W H OL ES A LE B R OK E RA G E B R OK E RA G E N AT I O N AL N AT I O N AL P RO G R A MS P RO G R A MS R E TA I L R E TA I L 2 01 7 2 01 7 2 0 1 8 2 0 1 8 2 01 9 2 01 9 2 0 20 2 0 20 2 0 21 2 0 21 Dividends per Share Dividends per Share ( D O L L A R S ) ( D O L L A R S ) EBITDAC Margin (1) EBITDAC Margin (1) ( P E R C E N T A G E ) ( P E R C E N T A G E ) 0.28 0.28 0.31 0.31 0.33 0.33 0.35 0.35 0.38 0.38 32.2 32.2 30.6 30.6 30.0 30.0 31.1 31.1 33.5 33.5 2 01 7 2 01 7 2 0 1 8 2 0 1 8 2 01 9 2 01 9 2 0 20 2 0 20 2 0 21 2 0 21 2 01 7 2 01 7 2 0 1 8 2 0 1 8 2 01 9 2 01 9 2 0 20 2 0 20 2 0 21 2 0 21 Enhancing Our Enhancing Our Capabilities Capabilities In 2021, we continued our pursuit to grow our capabilities In 2021, we continued our pursuit to grow our capabilities and expand our presence to geographies where we and expand our presence to geographies where we believe we can be successful. Aligned with this vision, believe we can be successful. Aligned with this vision, in early 2021, we completed our acquisition of O’Leary in early 2021, we completed our acquisition of O’Leary Insurances–our first acquisition in Ireland. O’Leary Insurances–our first acquisition in Ireland. O’Leary Insurances grew from a family-owned business to the Insurances grew from a family-owned business to the largest independently owned brokerage in Ireland, largest independently owned brokerage in Ireland, relying on a strong teammate focus and bringing unique relying on a strong teammate focus and bringing unique risk solutions that meet each customer’s needs. We also risk solutions that meet each customer’s needs. We also acquired Winston Benefits, a national leader in providing acquired Winston Benefits, a national leader in providing technology-enabled benefit communication, enrollment technology-enabled benefit communication, enrollment and administration solutions for employers across the U.S. and administration solutions for employers across the U.S. This acquisition will allow us to leverage a best-in-class This acquisition will allow us to leverage a best-in-class T T R R O O P P E E R R L L A A U U N N N N A A 1 1 2 2 0 0 2 2 19 19 S T R A T E G I C A C Q U I S I T I O N S S T R A T E G I C A C Q U I S I T I O N S 635 635 T A L E N T E D T E A M M A T E S J O I N E D T A L E N T E D T E A M M A T E S J O I N E D T H R O U G H A C Q U I S I T I O N T H R O U G H A C Q U I S I T I O N Growing the Brown & Brown Team Growing the Brown & Brown Team S E L E C T 2 0 2 1 A C Q U I S I T I O N S S E L E C T 2 0 2 1 A C Q U I S I T I O N S • AGIS Network • AGIS Network • Berkshire Insurance Group • Berkshire Insurance Group • Corporate Insurance Advisory • Corporate Insurance Advisory • Dealer Admin. Services • Dealer Admin. Services • HARCO Insurance Services • HARCO Insurance Services • Heacock Insurance Group • Heacock Insurance Group • O’Leary Insurances • O’Leary Insurances • Piper Jordan • Piper Jordan • Rainmaker Advisory • Rainmaker Advisory EBITDAC and EBITDAC Margin are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our operating EBITDAC and EBITDAC Margin are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our operating (1) (1) performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning EBITDAC and EBITDAC Margin and performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning EBITDAC and EBITDAC Margin and reconciliations to the most closely comparable GAAP measures, refer to pages 16 and 33 of this Annual Report. reconciliations to the most closely comparable GAAP measures, refer to pages 16 and 33 of this Annual Report. 4 4 benefits administration technology platform to better serve benefits administration technology platform to better serve • Remedy Analytics • Remedy Analytics our current and future customers. our current and future customers. • Winston Benefit Services • Winston Benefit Services 5 5 Our Performance Our Performance Every successful team thrives on diversity of talent, thought, character, work ethic and experience, resulting Every successful team thrives on diversity of talent, thought, character, work ethic and experience, resulting in better outcomes and empowering teammates to make more meaningful contributions to our customers, in better outcomes and empowering teammates to make more meaningful contributions to our customers, organization and communities. We are proud of our performance and the teammates who drive our success organization and communities. We are proud of our performance and the teammates who drive our success Uses of Capital Uses of Capital Acquisitions Acquisitions Our capital management strategy is based on the Our capital management strategy is based on the philosophy of investing to optimize returns and minimize philosophy of investing to optimize returns and minimize debt. We strategically deploy capital to invest internally, debt. We strategically deploy capital to invest internally, acquire firms and return capital to shareholders while acquire firms and return capital to shareholders while maintaining a conservative debt profile. maintaining a conservative debt profile. $2,392 $2,392 $2,613 $2,613 $3,051 $3,051 2 0 2 1 2 0 2 1 Uses of Cash Uses of Cash We are focused on forever, and our clearly defined growth We are focused on forever, and our clearly defined growth strategy is characterized by a disciplined focus on acquiring strategy is characterized by a disciplined focus on acquiring businesses that fit culturally. We remain prepared to deploy businesses that fit culturally. We remain prepared to deploy our capital when terms make sense financially. In 2021, our capital when terms make sense financially. In 2021, we acquired businesses with approximately $132 million we acquired businesses with approximately $132 million in annual revenue and added 635 talented teammates in annual revenue and added 635 talented teammates through acquisitions. Of the 19 acquisitions we completed through acquisitions. Of the 19 acquisitions we completed in 2021, 15 were acquired within our Retail segment, three in 2021, 15 were acquired within our Retail segment, three within our Wholesale Brokerage segment and one within within our Wholesale Brokerage segment and one within our National Programs segment. our National Programs segment. 12% 12% 7% 7% 16% 16% S H A RE R E PU RC H A S E S S H A RE R E PU RC H A S E S C A P IT A L E X PE N D I T U R E S C A P IT A L E X PE N D I T U R E S D I V I DE N DS D I V I DE N DS $132M $132M 2 0 2 1 A C Q U I R E D A N N U A L R E V E N U E 2 0 2 1 A C Q U I R E D A N N U A L R E V E N U E every day. every day. Total Revenues Total Revenues ( D O L L A R S I N M I L L I O N S ) ( D O L L A R S I N M I L L I O N S ) $1,881 $1,881 $2,014 $2,014 3500 3500 0 0 2 01 7 2 01 7 2 0 1 8 2 0 1 8 2 01 9 2 01 9 2 0 20 2 0 20 2 0 21 2 0 21 65% 65% A C Q U I S I T IO N S A C Q U I S I T IO N S 2021 Revenue by Segment 2021 Revenue by Segment ( D O L L A R S I N M I L L I O N S ) ( D O L L A R S I N M I L L I O N S ) EBITDAC(1) EBITDAC(1) ( D O L L A R S I N M I L L I O N S ) ( D O L L A R S I N M I L L I O N S ) 1,768 1,768 605 605 615 615 717 717 813 813 1,021 1,021 179 179 403 403 702 702 S ER V I C ES S ER V I C ES W H OL ES A LE W H OL ES A LE B R OK E RA G E B R OK E RA G E N AT I O N AL N AT I O N AL P RO G R A MS P RO G R A MS R E TA I L R E TA I L 2 01 7 2 01 7 2 0 1 8 2 0 1 8 2 01 9 2 01 9 2 0 20 2 0 20 2 0 21 2 0 21 Dividends per Share Dividends per Share ( D O L L A R S ) ( D O L L A R S ) EBITDAC Margin (1) EBITDAC Margin (1) ( P E R C E N T A G E ) ( P E R C E N T A G E ) 0.28 0.28 0.31 0.31 0.33 0.33 0.35 0.35 0.38 0.38 32.2 32.2 30.6 30.6 30.0 30.0 31.1 31.1 33.5 33.5 2 01 7 2 01 7 2 0 1 8 2 0 1 8 2 01 9 2 01 9 2 0 20 2 0 20 2 0 21 2 0 21 2 01 7 2 01 7 2 0 1 8 2 0 1 8 2 01 9 2 01 9 2 0 20 2 0 20 2 0 21 2 0 21 (1) (1) EBITDAC and EBITDAC Margin are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our operating EBITDAC and EBITDAC Margin are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning EBITDAC and EBITDAC Margin and performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning EBITDAC and EBITDAC Margin and 4 4 reconciliations to the most closely comparable GAAP measures, refer to pages 16 and 33 of this Annual Report. reconciliations to the most closely comparable GAAP measures, refer to pages 16 and 33 of this Annual Report. Enhancing Our Enhancing Our Capabilities Capabilities In 2021, we continued our pursuit to grow our capabilities In 2021, we continued our pursuit to grow our capabilities and expand our presence to geographies where we and expand our presence to geographies where we believe we can be successful. Aligned with this vision, believe we can be successful. Aligned with this vision, in early 2021, we completed our acquisition of O’Leary in early 2021, we completed our acquisition of O’Leary Insurances–our first acquisition in Ireland. O’Leary Insurances–our first acquisition in Ireland. O’Leary Insurances grew from a family-owned business to the Insurances grew from a family-owned business to the largest independently owned brokerage in Ireland, largest independently owned brokerage in Ireland, relying on a strong teammate focus and bringing unique relying on a strong teammate focus and bringing unique risk solutions that meet each customer’s needs. We also risk solutions that meet each customer’s needs. We also acquired Winston Benefits, a national leader in providing acquired Winston Benefits, a national leader in providing technology-enabled benefit communication, enrollment technology-enabled benefit communication, enrollment and administration solutions for employers across the U.S. and administration solutions for employers across the U.S. This acquisition will allow us to leverage a best-in-class This acquisition will allow us to leverage a best-in-class benefits administration technology platform to better serve benefits administration technology platform to better serve our current and future customers. our current and future customers. T T R R O O P P E E R R L L A A U U N N N N A A 1 1 2 2 0 0 2 2 19 19 S T R A T E G I C A C Q U I S I T I O N S S T R A T E G I C A C Q U I S I T I O N S 635 635 T A L E N T E D T E A M M A T E S J O I N E D T A L E N T E D T E A M M A T E S J O I N E D T H R O U G H A C Q U I S I T I O N T H R O U G H A C Q U I S I T I O N Growing the Brown & Brown Team Growing the Brown & Brown Team S E L E C T 2 0 2 1 A C Q U I S I T I O N S S E L E C T 2 0 2 1 A C Q U I S I T I O N S • AGIS Network • AGIS Network • Berkshire Insurance Group • Berkshire Insurance Group • Corporate Insurance Advisory • Corporate Insurance Advisory • Dealer Admin. Services • Dealer Admin. Services • HARCO Insurance Services • HARCO Insurance Services • Heacock Insurance Group • Heacock Insurance Group • O’Leary Insurances • O’Leary Insurances • Piper Jordan • Piper Jordan • Rainmaker Advisory • Rainmaker Advisory • Remedy Analytics • Remedy Analytics • Winston Benefit Services • Winston Benefit Services 5 5 Our Footprint Our Footprint C A N A D A C A N A D A H A W A I I H A W A I I I R E L A N D I R E L A N D E N G L A N D E N G L A N D T T R R O O P P E E R R L L A A U U N N N N A A 1 1 2 2 0 0 2 2 B E R M U D A B E R M U D A G R A N D G R A N D C A Y M A N C A Y M A N Retail Retail 58% 58% O F T O T A L A N N U A L O F T O T A L A N N U A L R E V E N U E S R E V E N U E S 6 6 National Programs National Programs Wholesale Brokerage Wholesale Brokerage 23% 23% O F T O T A L A N N U A L O F T O T A L A N N U A L R E V E N U E S R E V E N U E S 13% 13% O F T O T A L A N N U A L O F T O T A L A N N U A L R E V E N U E S R E V E N U E S Services Services 6% 6% O F T O T A L A N N U A L O F T O T A L A N N U A L R E V E N U E S R E V E N U E S 7 7 Our Footprint Our Footprint C A N A D A C A N A D A H A W A I I H A W A I I I R E L A N D I R E L A N D E N G L A N D E N G L A N D T T R R O O P P E E R R L L A A U U N N N N A A 1 1 2 2 0 0 2 2 B E R M U D A B E R M U D A G R A N D G R A N D C A Y M A N C A Y M A N Retail Retail 58% 58% O F T O T A L A N N U A L O F T O T A L A N N U A L R E V E N U E S R E V E N U E S 6 6 National Programs National Programs Wholesale Brokerage Wholesale Brokerage 23% 23% O F T O T A L A N N U A L O F T O T A L A N N U A L R E V E N U E S R E V E N U E S 13% 13% O F T O T A L A N N U A L O F T O T A L A N N U A L R E V E N U E S R E V E N U E S Services Services 6% 6% O F T O T A L A N N U A L O F T O T A L A N N U A L R E V E N U E S R E V E N U E S 7 7 Performance Performance by Segment by Segment Retail Retail National Programs National Programs Wholesale Brokerage Wholesale Brokerage Services Services In 2021, our Retail segment delivered In 2021, our Retail segment delivered Organic Revenue(1) growth of 11.0%. Organic Revenue(1) growth of 11.0%. In 2021, our National Programs segment In 2021, our National Programs segment delivered Organic Revenue(1) growth of 12.4%. delivered Organic Revenue(1) growth of 12.4%. In 2021, our Wholesale Brokerage segment In 2021, our Wholesale Brokerage segment In 2021, our Services segment delivered In 2021, our Services segment delivered delivered Organic Revenue(1) growth of 8.1%. delivered Organic Revenue(1) growth of 8.1%. Organic Revenue(1) growth of 3.0%. Organic Revenue(1) growth of 3.0%. L E A D E R P. Barrett Brown L E A D E R P. Barrett Brown T E A M M A T E S 6,301 T E A M M A T E S 6,301 L O C A T I O N S I N 42 states, Ireland, the Cayman L O C A T I O N S I N 42 states, Ireland, the Cayman Islands & Bermuda Islands & Bermuda L E A D E R Chris L. Walker L E A D E R Chris L. Walker T E A M M A T E S 2,842 T E A M M A T E S 2,842 L E A D E R Steve M. Boyd L E A D E R Steve M. Boyd T E A M M A T E S 1,594 T E A M M A T E S 1,594 L O C A T I O N S I N 20 states & Canada L O C A T I O N S I N 20 states & Canada L O C A T I O N S I N 22 states & the United Kingdom L O C A T I O N S I N 22 states & the United Kingdom T E A M M A T E S 974 T E A M M A T E S 974 L O C A T I O N S I N 9 states L O C A T I O N S I N 9 states T T R R O O P P E E R R L L A A U U N N N N A A 1 1 2 2 0 0 2 2 S E G M E NT S E G M E NT T O T A L R E V E N U ES T O T A L R E V E N U ES ( I N M I L L I O N S ) ( I N M I L L I O N S ) C O N T R I B U T I O NS C O N T R I B U T I O NS S E G M E NT S E G M E NT T O T A L R E V E N U ES T O T A L R E V E N U ES ( I N M I L L I O N S) ( I N M I L L I O N S) C O N T R I B U T I O NS C O N T R I B U T I O NS TO TO S E G M E NT S E G M E NT T O T A L R E V E N U ES T O T A L R E V E N U ES ( I N M I L L I O N S) ( I N M I L L I O N S) C O N T R I B U T I O NS C O N T R I B U T I O NS TO TO S E G M E NT S E G M E NT T O T A L R E V E N U ES T O T A L R E V E N U ES ( I N M I L L I O N S) ( I N M I L L I O N S) C O N T R I B U T I O NS C O N T R I B U T I O NS 8 8 6 6 7 7 , , 1 1 3 $ 3 $ 7 7 4 4 , , 1 1 $ $ 7 7 6 6 3 3 , , 1 1 $ $ 58% 58% O F TO T A L O F TO T A L R E V E N UE R E V E N UE 2 2 0 0 7 7 $ $ 1 1 1 1 6 6 $ $ 8 8 1 1 5 5 $ $ 4 4 9 9 4 4 $ $ 0 0 8 8 4 4 $ $ 3 3 4 4 0 0 , , 1 1 $ $ 3 3 4 4 9 9 $ $ 54% 54% E B I TD A C E B I TD A C 23% 23% T O T A L T O T A L R E V E N UE R E V E N UE 28% 28% E B I TD A C E B I TD A C 3 3 0 0 4 4 $ $ 3 3 5 5 3 3 $ $ 0 0 1 1 3 3 $ $ 7 7 8 8 2 2 $ $ 2 2 7 7 2 2 $ $ 13% 13% T O T A L T O T A L R E V E N UE R E V E N UE 13% 13% E B I TD A C E B I TD A C ‘17 ‘17 ‘18 ‘18 ‘19 ‘19 ‘20 ‘20 ‘21 ‘21 ‘17 ‘17 ‘18 ‘18 ‘19 ‘19 ‘20 ‘20 ‘21 ‘21 ‘17 ‘17 ‘18 ‘18 ‘19 ‘19 ‘20 ‘20 ‘21 ‘21 ‘17 ‘17 ‘18 ‘18 ‘19 ‘19 ‘20 ‘20 ‘21 ‘21 9 9 8 8 1 1 $ $ 4 4 9 9 1 1 4$ 4$ 7 7 1 1 $ $ 9 9 7 7 1 1 $ $ 5 5 6 6 1 1 $ $ TO TO 6% 6% T O T A L T O T A L R E V E N UE R E V E N UE 4% 4% E B I TD A C E B I TD A C (1) Organic Revenue growth and EBITDAC are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our (1) Organic Revenue growth and EBITDAC are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning Organic Revenue operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning Organic Revenue growth and EBITDAC and reconciliations to the most closely comparable GAAP measures, refer to pages 16, 23-24 and 33 of this Annual Report. growth and EBITDAC and reconciliations to the most closely comparable GAAP measures, refer to pages 16, 23-24 and 33 of this Annual Report. 8 8 (1) Organic Revenue growth and EBITDAC are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our (1) Organic Revenue growth and EBITDAC are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning Organic Revenue operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning Organic Revenue growth and EBITDAC and reconciliations to the most closely comparable GAAP measures, refer to pages 16, 23-24 and 33 of this Annual Report. growth and EBITDAC and reconciliations to the most closely comparable GAAP measures, refer to pages 16, 23-24 and 33 of this Annual Report. 9 9 We are proud to feature our teammates in this Annual Report. We are proud to feature our teammates in this Annual Report. Performance Performance by Segment by Segment Retail Retail National Programs National Programs Wholesale Brokerage Wholesale Brokerage Services Services In 2021, our Retail segment delivered In 2021, our Retail segment delivered Organic Revenue(1) growth of 11.0%. Organic Revenue(1) growth of 11.0%. In 2021, our National Programs segment In 2021, our National Programs segment delivered Organic Revenue(1) growth of 12.4%. delivered Organic Revenue(1) growth of 12.4%. In 2021, our Wholesale Brokerage segment In 2021, our Wholesale Brokerage segment delivered Organic Revenue(1) growth of 8.1%. delivered Organic Revenue(1) growth of 8.1%. In 2021, our Services segment delivered In 2021, our Services segment delivered Organic Revenue(1) growth of 3.0%. Organic Revenue(1) growth of 3.0%. L O C A T I O N S I N 42 states, Ireland, the Cayman L O C A T I O N S I N 42 states, Ireland, the Cayman L O C A T I O N S I N 20 states & Canada L O C A T I O N S I N 20 states & Canada L O C A T I O N S I N 22 states & the United Kingdom L O C A T I O N S I N 22 states & the United Kingdom L E A D E R Chris L. Walker L E A D E R Chris L. Walker T E A M M A T E S 2,842 T E A M M A T E S 2,842 L E A D E R Steve M. Boyd L E A D E R Steve M. Boyd T E A M M A T E S 1,594 T E A M M A T E S 1,594 L E A D E R P. Barrett Brown L E A D E R P. Barrett Brown T E A M M A T E S 6,301 T E A M M A T E S 6,301 Islands & Bermuda Islands & Bermuda T E A M M A T E S 974 T E A M M A T E S 974 L O C A T I O N S I N 9 states L O C A T I O N S I N 9 states T T R R O O P P E E R R L L A A U U N N N N A A 1 1 2 2 0 0 2 2 S E G M E NT S E G M E NT T O T A L R E V E N U ES T O T A L R E V E N U ES ( I N M I L L I O N S ) ( I N M I L L I O N S ) C O N T R I B U T I O NS C O N T R I B U T I O NS S E G M E NT S E G M E NT T O T A L R E V E N U ES T O T A L R E V E N U ES ( I N M I L L I O N S) ( I N M I L L I O N S) C O N T R I B U T I O NS C O N T R I B U T I O NS TO TO S E G M E NT S E G M E NT T O T A L R E V E N U ES T O T A L R E V E N U ES ( I N M I L L I O N S) ( I N M I L L I O N S) C O N T R I B U T I O NS C O N T R I B U T I O NS TO TO S E G M E NT S E G M E NT T O T A L R E V E N U ES T O T A L R E V E N U ES ( I N M I L L I O N S) ( I N M I L L I O N S) C O N T R I B U T I O NS C O N T R I B U T I O NS TO TO 8 8 6 6 7 7 , , 1 1 3 $ 3 $ 7 7 4 4 , , 1 1 $ $ 7 7 6 6 3 3 , , 1 1 $ $ 58% 58% O F TO T A L O F TO T A L R E V E N UE R E V E N UE 2 2 0 0 7 7 $ $ 1 1 1 1 6 6 $ $ 8 8 1 1 5 5 $ $ 4 4 9 9 4 4 $ $ 0 0 8 8 4 4 $ $ 3 3 4 4 0 0 , , 1 1 $ $ 3 3 4 4 9 9 $ $ 54% 54% E B I TD A C E B I TD A C 23% 23% T O T A L T O T A L R E V E N UE R E V E N UE 28% 28% E B I TD A C E B I TD A C 3 3 0 0 4 4 $ $ 3 3 5 5 3 3 $ $ 0 0 1 1 3 3 $ $ 7 7 8 8 2 2 $ $ 2 2 7 7 2 2 $ $ 13% 13% T O T A L T O T A L R E V E N UE R E V E N UE 13% 13% E B I TD A C E B I TD A C 9 9 8 8 1 1 $ $ 4 4 9 9 1 1 4$ 4$ 7 7 1 1 $ $ 9 9 7 7 1 1 $ $ 5 5 6 6 1 1 $ $ 6% 6% T O T A L T O T A L R E V E N UE R E V E N UE 4% 4% E B I TD A C E B I TD A C ‘17 ‘17 ‘18 ‘18 ‘19 ‘19 ‘20 ‘20 ‘21 ‘21 ‘17 ‘17 ‘18 ‘18 ‘19 ‘19 ‘20 ‘20 ‘21 ‘21 ‘17 ‘17 ‘18 ‘18 ‘19 ‘19 ‘20 ‘20 ‘21 ‘21 ‘17 ‘17 ‘18 ‘18 ‘19 ‘19 ‘20 ‘20 ‘21 ‘21 (1) Organic Revenue growth and EBITDAC are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our (1) Organic Revenue growth and EBITDAC are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning Organic Revenue operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning Organic Revenue growth and EBITDAC and reconciliations to the most closely comparable GAAP measures, refer to pages 16, 23-24 and 33 of this Annual Report. growth and EBITDAC and reconciliations to the most closely comparable GAAP measures, refer to pages 16, 23-24 and 33 of this Annual Report. 8 8 (1) Organic Revenue growth and EBITDAC are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our (1) Organic Revenue growth and EBITDAC are non-GAAP financial measures and are referenced to provide additional meaningful methods of evaluating our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning Organic Revenue operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. For other information concerning Organic Revenue growth and EBITDAC and reconciliations to the most closely comparable GAAP measures, refer to pages 16, 23-24 and 33 of this Annual Report. growth and EBITDAC and reconciliations to the most closely comparable GAAP measures, refer to pages 16, 23-24 and 33 of this Annual Report. 9 9 We are proud to feature our teammates in this Annual Report. We are proud to feature our teammates in this Annual Report. Our Leadership Team Our Leadership Team We thrive under the guidance of our We thrive under the guidance of our talented, long-tenured leadership talented, long-tenured leadership team and value their dedication to team and value their dedication to our Brown & Brown team. our Brown & Brown team. J. Powell Brown, CPCU J. Powell Brown, CPCU President & Chief Executive Officer President & Chief Executive Officer T E N U R E 26 years T E N U R E 26 years Anurag Batta Anurag Batta Senior Vice President Senior Vice President James C. Hays James C. Hays Vice Chairman Vice Chairman Kathy H. Colangelo, CIC, ASLI Kathy H. Colangelo, CIC, ASLI Thomas K. Huval, CIC Thomas K. Huval, CIC Richard A. Knudson, CIC Richard A. Knudson, CIC Mary G. Raveling, CPCU Mary G. Raveling, CPCU Senior Vice President & Regional Senior Vice President & Regional Senior Vice President Senior Vice President President – Retail Segment President – Retail Segment Senior Vice President Senior Vice President John M. Esposito, CIC John M. Esposito, CIC Senior Vice President & Regional Senior Vice President & Regional President – Retail Segment President – Retail Segment Joseph S. Failla Joseph S. Failla Senior Vice President Senior Vice President Senior Vice President & Regional Senior Vice President & Regional President – Retail Segment President – Retail Segment CLU CLU Tom Kussurelis, AAI, CPCU, Tom Kussurelis, AAI, CPCU, Senior Vice President Senior Vice President Michael L. Keeby Michael L. Keeby President – Retail Segment President – Retail Segment Senior Vice President & Regional Senior Vice President & Regional President – Retail Segment President – Retail Segment Senior Vice President & Regional Senior Vice President & Regional Donald M. McGowan, Jr. Donald M. McGowan, Jr. Senior Vice President & Director Senior Vice President & Director Paul F. Rogers Paul F. Rogers Senior Vice President & Regional Senior Vice President & Regional President – Retail Segment President – Retail Segment H. Vaughn Stoll H. Vaughn Stoll of Acquisitions of Acquisitions R. Andrew Watts R. Andrew Watts Executive Vice President, Executive Vice President, Chief Financial Officer & Treasurer Chief Financial Officer & Treasurer Steve M. Boyd Steve M. Boyd Executive Vice President & President – Executive Vice President & President – Wholesale Brokerage Segment Wholesale Brokerage Segment P. Barrett Brown P. Barrett Brown Executive Vice President & President – Executive Vice President & President – Retail Segment Retail Segment T E N U R E 7 years T E N U R E 7 years T E N U R E 26 years* T E N U R E 26 years* T E N U R E 18 years T E N U R E 18 years Robert W. Lloyd, Esq., CPCU, CIC Robert W. Lloyd, Esq., CPCU, CIC Executive Vice President, Executive Vice President, General Counsel & Secretary General Counsel & Secretary K. Gray Nester, II K. Gray Nester, II Executive Vice President & Executive Vice President & Chief Information Officer Chief Information Officer J. Scott Penny, CIC J. Scott Penny, CIC Executive Vice President & Executive Vice President & Chief Acquisitions Officer Chief Acquisitions Officer T E N U R E 22 years T E N U R E 22 years T E N U R E 2 years T E N U R E 2 years T E N U R E 32 years T E N U R E 32 years Anthony T. Strianese Anthony T. Strianese Executive Vice President & Chairman – Executive Vice President & Chairman – Wholesale Brokerage Segment Wholesale Brokerage Segment Julie L. Turpin Julie L. Turpin Executive Vice President & Executive Vice President & Chief People Officer Chief People Officer Chris L. Walker Chris L. Walker Executive Vice President & President – Executive Vice President & President – National Programs Segment National Programs Segment T E N U R E 22 years T E N U R E 22 years T E N U R E 9 years T E N U R E 9 years T E N U R E 18 years* T E N U R E 18 years* Wendell S. Reilly Wendell S. Reilly Managing Partner, Managing Partner, Grapevine Partners, LLC Grapevine Partners, LLC CO NC CO NC Esq. Esq. Spalding LLP Spalding LLP CO NC CO NC Chilton D. Varner, Chilton D. Varner, Samuel P. Bell, III, Samuel P. Bell, III, CO Compensation CO Compensation Senior Counsel, King & Senior Counsel, King & Director Emeritus Director Emeritus Esq. Esq. Former Of Counsel to Former Of Counsel to the law firm of Buchanan the law firm of Buchanan Ingersoll & Rooney PC Ingersoll & Rooney PC Nominating/ Nominating/ NC NC Corporate Governance Corporate Governance Chair Chair 10 10 Tenure calculated as of December 31, 2021. Tenure calculated as of December 31, 2021. *Tenure includes service with Arrowhead General Insurance Agency, Inc., which we acquired in 2012. *Tenure includes service with Arrowhead General Insurance Agency, Inc., which we acquired in 2012. Our Board of Directors Our Board of Directors J. Hyatt Brown, J. Hyatt Brown, CPCU, CLU CPCU, CLU Chairman, Chairman, Brown & Brown, Inc. Brown & Brown, Inc. Hugh M. Brown Hugh M. Brown Founder and Founder and former President & former President & Chief Executive Officer, Chief Executive Officer, BAMSI, Inc. BAMSI, Inc. J. Powell Brown, J. Powell Brown, CPCU CPCU President & President & Chief Executive Officer, Chief Executive Officer, Brown & Brown, Inc. Brown & Brown, Inc. Lawrence L. Lawrence L. Gellerstedt III Gellerstedt III Former Chairman of the Former Chairman of the Board and CEO, Cousins Board and CEO, Cousins Properties Incorporated Properties Incorporated James C. Hays James C. Hays Vice Chairman, Vice Chairman, Brown & Brown, Inc. Brown & Brown, Inc. AC AC AC CO AC CO AC AU AC AU Theodore J. Hoepner Theodore J. Hoepner Former Vice Chairman, Former Vice Chairman, SunTrust Bank Holding SunTrust Bank Holding James S. Hunt James S. Hunt Former Executive Former Executive Vice President & Vice President & Company Company AU NC AU NC Chief Financial Officer, Chief Financial Officer, Walt Disney Parks and Walt Disney Parks and Resorts Worldwide Resorts Worldwide AC AU AC AU CO NC CO NC Toni Jennings Toni Jennings Chairman, Jack Chairman, Jack Timothy R. M. Main Timothy R. M. Main Global Head of Financial Global Head of Financial Jennings & Sons; Former Jennings & Sons; Former Institutions Group, Institutions Group, Lieutenant Governor, Lieutenant Governor, Barclays Plc Barclays Plc State of Florida State of Florida AC AC H. Palmer Proctor, Jr. H. Palmer Proctor, Jr. Lead Independent Director Lead Independent Director Chief Executive Officer/ Chief Executive Officer/ Director, Ameris Bancorp Director, Ameris Bancorp and Chief Executive and Chief Executive Officer, Ameris Bank Officer, Ameris Bank NC NC C O M M I T T E E S C O M M I T T E E S AC Acquisition AC Acquisition AU Audit AU Audit T T R R O O P P E E R R L L A A U U N N N N A A 1 1 2 2 0 0 2 2 11 11 Our Leadership Team Our Leadership Team We thrive under the guidance of our We thrive under the guidance of our talented, long-tenured leadership talented, long-tenured leadership team and value their dedication to team and value their dedication to our Brown & Brown team. our Brown & Brown team. J. Powell Brown, CPCU J. Powell Brown, CPCU President & Chief Executive Officer President & Chief Executive Officer T E N U R E 26 years T E N U R E 26 years Anurag Batta Anurag Batta Senior Vice President Senior Vice President James C. Hays James C. Hays Vice Chairman Vice Chairman Kathy H. Colangelo, CIC, ASLI Kathy H. Colangelo, CIC, ASLI Senior Vice President Senior Vice President John M. Esposito, CIC John M. Esposito, CIC Senior Vice President & Regional Senior Vice President & Regional President – Retail Segment President – Retail Segment Joseph S. Failla Joseph S. Failla Senior Vice President Senior Vice President Thomas K. Huval, CIC Thomas K. Huval, CIC Senior Vice President & Regional Senior Vice President & Regional President – Retail Segment President – Retail Segment Michael L. Keeby Michael L. Keeby Senior Vice President & Regional Senior Vice President & Regional President – Retail Segment President – Retail Segment Richard A. Knudson, CIC Richard A. Knudson, CIC Senior Vice President & Regional Senior Vice President & Regional President – Retail Segment President – Retail Segment Tom Kussurelis, AAI, CPCU, Tom Kussurelis, AAI, CPCU, CLU CLU Senior Vice President Senior Vice President Donald M. McGowan, Jr. Donald M. McGowan, Jr. Senior Vice President & Regional Senior Vice President & Regional President – Retail Segment President – Retail Segment Mary G. Raveling, CPCU Mary G. Raveling, CPCU Senior Vice President Senior Vice President Paul F. Rogers Paul F. Rogers Senior Vice President & Regional Senior Vice President & Regional President – Retail Segment President – Retail Segment H. Vaughn Stoll H. Vaughn Stoll Senior Vice President & Director Senior Vice President & Director of Acquisitions of Acquisitions R. Andrew Watts R. Andrew Watts Executive Vice President, Executive Vice President, Steve M. Boyd Steve M. Boyd P. Barrett Brown P. Barrett Brown Executive Vice President & President – Executive Vice President & President – Executive Vice President & President – Executive Vice President & President – Chief Financial Officer & Treasurer Chief Financial Officer & Treasurer Wholesale Brokerage Segment Wholesale Brokerage Segment Retail Segment Retail Segment T E N U R E 7 years T E N U R E 7 years T E N U R E 26 years* T E N U R E 26 years* T E N U R E 18 years T E N U R E 18 years Our Board of Directors Our Board of Directors J. Hyatt Brown, J. Hyatt Brown, CPCU, CLU CPCU, CLU Chairman, Chairman, Brown & Brown, Inc. Brown & Brown, Inc. Hugh M. Brown Hugh M. Brown Founder and Founder and former President & former President & Chief Executive Officer, Chief Executive Officer, BAMSI, Inc. BAMSI, Inc. J. Powell Brown, J. Powell Brown, CPCU CPCU President & President & Chief Executive Officer, Chief Executive Officer, Brown & Brown, Inc. Brown & Brown, Inc. Lawrence L. Lawrence L. Gellerstedt III Gellerstedt III Former Chairman of the Former Chairman of the Board and CEO, Cousins Board and CEO, Cousins Properties Incorporated Properties Incorporated James C. Hays James C. Hays Vice Chairman, Vice Chairman, Brown & Brown, Inc. Brown & Brown, Inc. AC AC AC CO AC CO AC AU AC AU Robert W. Lloyd, Esq., CPCU, CIC Robert W. Lloyd, Esq., CPCU, CIC K. Gray Nester, II K. Gray Nester, II Executive Vice President, Executive Vice President, General Counsel & Secretary General Counsel & Secretary Executive Vice President & Executive Vice President & Chief Information Officer Chief Information Officer J. Scott Penny, CIC J. Scott Penny, CIC Executive Vice President & Executive Vice President & Chief Acquisitions Officer Chief Acquisitions Officer T E N U R E 22 years T E N U R E 22 years T E N U R E 2 years T E N U R E 2 years T E N U R E 32 years T E N U R E 32 years Theodore J. Hoepner Theodore J. Hoepner Former Vice Chairman, Former Vice Chairman, SunTrust Bank Holding SunTrust Bank Holding Company Company AU NC AU NC James S. Hunt James S. Hunt Former Executive Former Executive Vice President & Vice President & Chief Financial Officer, Chief Financial Officer, Walt Disney Parks and Walt Disney Parks and Resorts Worldwide Resorts Worldwide AC AU AC AU Toni Jennings Toni Jennings Chairman, Jack Chairman, Jack Jennings & Sons; Former Jennings & Sons; Former Lieutenant Governor, Lieutenant Governor, State of Florida State of Florida Timothy R. M. Main Timothy R. M. Main Global Head of Financial Global Head of Financial Institutions Group, Institutions Group, Barclays Plc Barclays Plc AC AC CO NC CO NC H. Palmer Proctor, Jr. H. Palmer Proctor, Jr. Lead Independent Director Lead Independent Director Chief Executive Officer/ Chief Executive Officer/ Director, Ameris Bancorp Director, Ameris Bancorp and Chief Executive and Chief Executive Officer, Ameris Bank Officer, Ameris Bank NC NC Anthony T. Strianese Anthony T. Strianese Julie L. Turpin Julie L. Turpin Executive Vice President & Chairman – Executive Vice President & Chairman – Executive Vice President & Executive Vice President & Wholesale Brokerage Segment Wholesale Brokerage Segment Chief People Officer Chief People Officer Chris L. Walker Chris L. Walker Executive Vice President & President – Executive Vice President & President – National Programs Segment National Programs Segment T E N U R E 22 years T E N U R E 22 years T E N U R E 9 years T E N U R E 9 years T E N U R E 18 years* T E N U R E 18 years* Wendell S. Reilly Wendell S. Reilly Managing Partner, Managing Partner, Grapevine Partners, LLC Grapevine Partners, LLC CO NC CO NC Chilton D. Varner, Chilton D. Varner, Esq. Esq. Senior Counsel, King & Senior Counsel, King & Spalding LLP Spalding LLP CO NC CO NC Samuel P. Bell, III, Samuel P. Bell, III, Esq. Esq. Director Emeritus Director Emeritus Former Of Counsel to Former Of Counsel to the law firm of Buchanan the law firm of Buchanan Ingersoll & Rooney PC Ingersoll & Rooney PC Tenure calculated as of December 31, 2021. Tenure calculated as of December 31, 2021. 10 10 *Tenure includes service with Arrowhead General Insurance Agency, Inc., which we acquired in 2012. *Tenure includes service with Arrowhead General Insurance Agency, Inc., which we acquired in 2012. C O M M I T T E E S C O M M I T T E E S AC Acquisition AC Acquisition AU Audit AU Audit CO Compensation CO Compensation NC NC Nominating/ Nominating/ Corporate Governance Corporate Governance Chair Chair T T R R O O P P E E R R L L A A U U N N N N A A 1 1 2 2 0 0 2 2 11 11 ESG Highlights ESG Highlights Disclosure Regarding Forward-Looking Statements Disclosure Regarding Forward-Looking Statements Brown & Brown is Built to Last, as demonstrated by our steadfast focus on customers, teammates and Brown & Brown is Built to Last, as demonstrated by our steadfast focus on customers, teammates and communities. We are driven to consistently improve and are dedicated to the sustainability of our Company. communities. We are driven to consistently improve and are dedicated to the sustainability of our Company. Diversity, Inclusion and Belonging Diversity, Inclusion and Belonging We believe that having a diverse team—people from We believe that having a diverse team—people from different backgrounds who use different thought different backgrounds who use different thought processes—results in teammate empowerment. An processes—results in teammate empowerment. An empowered team is what helps to positively impact our empowered team is what helps to positively impact our customer service and community involvement. As part customer service and community involvement. As part of our strategy, we continue to evolve and build out of our strategy, we continue to evolve and build out our Diversity, Inclusion and Belonging (DIB) task force, our Diversity, Inclusion and Belonging (DIB) task force, which was established in 2020 and is composed of eight which was established in 2020 and is composed of eight teammates and leaders with different backgrounds, work teammates and leaders with different backgrounds, work experiences and skill sets. The mission of the task force is experiences and skill sets. The mission of the task force is to collect ideas, thoughts and stories that will help develop to collect ideas, thoughts and stories that will help develop a strategic framework promoting diversity, inclusion and a strategic framework promoting diversity, inclusion and belonging across our teams. The task force is overseen belonging across our teams. The task force is overseen and guided by our chief people officer and general and guided by our chief people officer and general counsel. counsel. Our DIB task force spent the last year evaluating our Our DIB task force spent the last year evaluating our Company’s current strengths and opportunities for Company’s current strengths and opportunities for development by initiating teammate surveys, listening development by initiating teammate surveys, listening sessions, group focus sessions and training modalities, sessions, group focus sessions and training modalities, including a course focused on understanding and including a course focused on understanding and managing unconscious bias that was assigned to all managing unconscious bias that was assigned to all teammates as a learning opportunity. In 2021, the task teammates as a learning opportunity. In 2021, the task force appointed a DIB Leader who serves as a dedicated force appointed a DIB Leader who serves as a dedicated resource for the team and established a DIB motto—The resource for the team and established a DIB motto—The Power to Be Yourself—which was created and voted upon Power to Be Yourself—which was created and voted upon by our teammates. by our teammates. Teammate Health and Well-Being Teammate Health and Well-Being Brown & Brown’s top priority is the total well-being of our Brown & Brown’s top priority is the total well-being of our teammates. Total well-being at Brown & Brown means teammates. Total well-being at Brown & Brown means physical, emotional, social and financial health and physical, emotional, social and financial health and wellness. We know that healthy teammates provide better wellness. We know that healthy teammates provide better support to their families, communities and customers, support to their families, communities and customers, which results in our continued success as a Company. We which results in our continued success as a Company. We encourage teammates to stay active, maintain a healthy encourage teammates to stay active, maintain a healthy work-life balance, volunteer in their local communities work-life balance, volunteer in their local communities and prioritize their mental and physical health. This and prioritize their mental and physical health. This includes regular communication with teammates about includes regular communication with teammates about the pandemic’s impacts and, when necessary, bi-weekly the pandemic’s impacts and, when necessary, bi-weekly headlines and information focused on physical, mental headlines and information focused on physical, mental and financial wellness. and financial wellness. E S G R E P O R T H I G H L I G H T S E S G R E P O R T H I G H L I G H T S C O M M U N I T Y C O M M U N I T Y H U M A N C A P I T A L H U M A N C A P I T A L We have a long-standing We have a long-standing history of community service history of community service and are committed to and are committed to managing our business and managing our business and community relationships community relationships through our Culture of through our Culture of Caring. Caring. The cornerstones of our The cornerstones of our organization's guiding organization's guiding principles are people, principles are people, performance, service and performance, service and innovation. We believe in innovation. We believe in doing what is best for our doing what is best for our customers, communities, customers, communities, teammates, carrier partners teammates, carrier partners and shareholders—always. and shareholders—always. E N V I R O N M E N T E N V I R O N M E N T We continuously search for We continuously search for new and innovative ways to new and innovative ways to further help our customers, further help our customers, support our teammates support our teammates and contribute to the world and contribute to the world around us. This includes our around us. This includes our commitment to sustainability commitment to sustainability and the environment. and the environment. D A T A S E C U R I T Y D A T A S E C U R I T Y We have invested, and We have invested, and continue to invest, in continue to invest, in technology security technology security initiatives, information initiatives, information technology policies and technology policies and resources, and teammate resources, and teammate training to mitigate the risk of training to mitigate the risk of improper access to private improper access to private information. information. S O L I C I T I N G S O L I C I T I N G F E E D B A C K F E E D B A C K 92% of our teammates say 92% of our teammates say Brown & Brown is a Great Brown & Brown is a Great Place to Work®. Place to Work®. T R A I N I N G A N D T R A I N I N G A N D D E V E L O P M E N T D E V E L O P M E N T C U L T U R E C U L T U R E O F C A R I N G O F C A R I N G Our teammates completed Our teammates completed 24,000+ hours of training 24,000+ hours of training through Brown & Brown through Brown & Brown University. University. We received $121,000 in We received $121,000 in donations to our Brown donations to our Brown & Brown Disaster Relief & Brown Disaster Relief Foundation. Foundation. H E A L T H H E A L T H A N D S A F E T Y A N D S A F E T Y The Company had no The Company had no work-related fatalities and work-related fatalities and 24 injuries or occupational 24 injuries or occupational diseases.* diseases.* R E A D M O R E A B O U T B R O W N & B R O W N ’ S E S G E F F O R T S I N O U R F U L L 2 0 2 2 E S G R E P O R T — R E A D M O R E A B O U T B R O W N & B R O W N ’ S E S G E F F O R T S I N O U R F U L L 2 0 2 2 E S G R E P O R T — V I S I T I N V E S T O R . B B I N S U R A N C E . C O M . V I S I T I N V E S T O R . B B I N S U R A N C E . C O M . 12 12 * As determined based on the number of claims made under our workers’ compensation policy, excluding claims that were closed and for which no payment was made. * As determined based on the number of claims made under our workers’ compensation policy, excluding claims that were closed and for which no payment was made. Brown & Brown, Inc., together with its subsidiaries (collectively, “we,” “Brown Brown & Brown, Inc., together with its subsidiaries (collectively, “we,” “Brown • The potential adverse effect of certain actual or potential claims, • The potential adverse effect of certain actual or potential claims, & Brown” or the “Company”), makes “forward-looking statements” within & Brown” or the “Company”), makes “forward-looking statements” within regulatory actions or proceedings on our businesses, results of regulatory actions or proceedings on our businesses, results of the “safe harbor” provision of the Private Securities Litigation Reform Act the “safe harbor” provision of the Private Securities Litigation Reform Act operations, financial condition or liquidity; operations, financial condition or liquidity; of 1995, as amended, throughout this report and in the documents we of 1995, as amended, throughout this report and in the documents we • Uncertainty in our business practices and compensation arrangements • Uncertainty in our business practices and compensation arrangements incorporate by reference into this report, including those relating to the incorporate by reference into this report, including those relating to the due to potential changes in regulations; due to potential changes in regulations; potential effects of the COVID-19 pandemic (“COVID-19”) on the Company’s potential effects of the COVID-19 pandemic (“COVID-19”) on the Company’s • Regulatory changes that could reduce our profitability or growth by • Regulatory changes that could reduce our profitability or growth by business, operations, financial performance and prospects. You can identify business, operations, financial performance and prospects. You can identify increasing compliance costs, technology compliance, restricting the increasing compliance costs, technology compliance, restricting the these statements by forward-looking words such as “may,” “will,” “should,” these statements by forward-looking words such as “may,” “will,” “should,” products or services we may sell, the markets we may enter, the products or services we may sell, the markets we may enter, the “expect,” “anticipate,” “believe,” “intend,” “estimate,” “plan” and “continue” or “expect,” “anticipate,” “believe,” “intend,” “estimate,” “plan” and “continue” or methods by which we may sell our products and services, or the prices methods by which we may sell our products and services, or the prices similar words. We have based these statements on our current expectations similar words. We have based these statements on our current expectations we may charge for our services and the form of compensation we may we may charge for our services and the form of compensation we may about potential future events. Although we believe the expectations about potential future events. Although we believe the expectations accept from our customers, carriers and third-parties; accept from our customers, carriers and third-parties; expressed in the forward-looking statements included in this Annual Report expressed in the forward-looking statements included in this Annual Report • A decrease in demand for liability insurance as a result of tort reform • A decrease in demand for liability insurance as a result of tort reform and the reports, statements, information and announcements incorporated and the reports, statements, information and announcements incorporated legislation; legislation; by reference into this report are based upon reasonable assumptions by reference into this report are based upon reasonable assumptions • Our failure to comply with any covenants contained in our debt • Our failure to comply with any covenants contained in our debt within the bounds of our knowledge of our business, a number of factors within the bounds of our knowledge of our business, a number of factors agreements; agreements; could cause actual results to differ materially from those expressed in any could cause actual results to differ materially from those expressed in any • The possibility that covenants in our debt agreements could prevent us • The possibility that covenants in our debt agreements could prevent us forward-looking statements, whether oral or written, made by us or on our forward-looking statements, whether oral or written, made by us or on our from engaging in certain potentially beneficial activities; from engaging in certain potentially beneficial activities; behalf. Many of these factors have previously been identified in filings or behalf. Many of these factors have previously been identified in filings or • Changes in the U.S.-based credit markets that might adversely affect our • Changes in the U.S.-based credit markets that might adversely affect our statements made by us or on our behalf. Important factors which could statements made by us or on our behalf. Important factors which could business, results of operations and financial condition; business, results of operations and financial condition; cause our actual results to differ, possibly materially from the forward- cause our actual results to differ, possibly materially from the forward- • Risks associated with the current interest rate environment, and to the • Risks associated with the current interest rate environment, and to the looking statements in this report include but are not limited to the following looking statements in this report include but are not limited to the following extent we use debt to finance our investments, changes in interest rates extent we use debt to finance our investments, changes in interest rates items, in addition to those matters described in “Management’s Discussion items, in addition to those matters described in “Management’s Discussion will affect our cost of capital and net investment income; will affect our cost of capital and net investment income; and Analysis of Financial Condition and Results of Operations”: and Analysis of Financial Condition and Results of Operations”: • Disintermediation within the insurance industry, including increased • Disintermediation within the insurance industry, including increased • COVID-19 and the resulting governmental and societal responses, the • COVID-19 and the resulting governmental and societal responses, the severity and duration of COVID-19 (including through any new variant severity and duration of COVID-19 (including through any new variant strains of the underlying virus), the effectiveness of and accessibility to strains of the underlying virus), the effectiveness of and accessibility to vaccines, the pace and rate at which vaccines are administered, actions vaccines, the pace and rate at which vaccines are administered, actions taken by governmental authorities in response to COVID-19 and the taken by governmental authorities in response to COVID-19 and the direct and indirect impact of COVID-19 on the U.S. economy, the global direct and indirect impact of COVID-19 on the U.S. economy, the global economy and the Company’s business, liquidity, customers, insurance economy and the Company’s business, liquidity, customers, insurance carriers and third parties; carriers and third parties; • The effects of inflation; • The effects of inflation; competition from insurance companies, technology companies and competition from insurance companies, technology companies and the financial services industry, as well as the shift away from traditional the financial services industry, as well as the shift away from traditional insurance markets; insurance markets; • Changes in current U.S. or global economic conditions; • Changes in current U.S. or global economic conditions; • Effects related to pandemics, epidemics or outbreaks of infectious • Effects related to pandemics, epidemics or outbreaks of infectious • Conditions that result in reduced insurer capacity; • Conditions that result in reduced insurer capacity; • Quarterly and annual variations in our commissions that result from the • Quarterly and annual variations in our commissions that result from the timing of policy renewals and the net effect of new and lost business timing of policy renewals and the net effect of new and lost business diseases; diseases; production; production; • The inability to retain or hire qualified employees, as well as the loss of • The inability to retain or hire qualified employees, as well as the loss of • • Intangible asset risk, including the possibility that our goodwill may Intangible asset risk, including the possibility that our goodwill may any of our executive officers or other key employees; any of our executive officers or other key employees; • Acquisition-related risks that could negatively affect the success of • Acquisition-related risks that could negatively affect the success of our growth strategy, including the possibility that we may not be able our growth strategy, including the possibility that we may not be able to successfully identify suitable acquisition candidates, complete to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into our operations, and acquisitions, integrate acquired businesses into our operations, and expand into new markets; expand into new markets; • A cybersecurity attack or any other interruption in information technology • A cybersecurity attack or any other interruption in information technology and/or data security and/or outsourcing relationships; and/or data security and/or outsourcing relationships; • The requirement for additional resources and time to adequately • The requirement for additional resources and time to adequately respond to dynamics resulting from rapid technological change; respond to dynamics resulting from rapid technological change; • The loss of or significant change to any of our insurance company • The loss of or significant change to any of our insurance company become impaired in the future; become impaired in the future; • Other risks and uncertainties as may be detailed from time to time in • Other risks and uncertainties as may be detailed from time to time in our public announcements and Securities and Exchange Commission our public announcements and Securities and Exchange Commission • Other factors that the Company may not have currently identified • Other factors that the Company may not have currently identified (“SEC”) filings; and (“SEC”) filings; and or quantified. or quantified. Assumptions as to any of the foregoing, and all statements, are not based Assumptions as to any of the foregoing, and all statements, are not based upon historical fact, but rather reflect our current expectations concerning upon historical fact, but rather reflect our current expectations concerning future results and events. Forward-looking statements that we make or 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 that are made by others on our behalf are based upon a knowledge of relationships, which could result in additional expense, loss of market relationships, which could result in additional expense, loss of market our business and the environment in which we operate, but because our business and the environment in which we operate, but because share or material decrease in our profit-sharing contingent commissions, share or material decrease in our profit-sharing contingent commissions, of the factors listed above, among others, actual results may differ from of the factors listed above, among others, actual results may differ from guaranteed supplemental commissions or incentive commissions; guaranteed supplemental commissions or incentive commissions; those in the forward-looking statements. Consequently, these cautionary those in the forward-looking statements. Consequently, these cautionary • Adverse economic conditions, natural disasters, or regulatory changes in • Adverse economic conditions, natural disasters, or regulatory changes in statements qualify all of the forward-looking statements we make herein. statements qualify all of the forward-looking statements we make herein. states where we have a concentration of our business; states where we have a concentration of our business; • The inability to maintain our culture or a change in management, • The inability to maintain our culture or a change in management, management philosophy or our business strategy; management philosophy or our business strategy; We cannot assure you that the results or developments anticipated by us We cannot assure you that the results or developments anticipated by us will be realized or, even if substantially realized, will result in the expected will be realized or, even if substantially realized, will result in the expected consequences for us or affect us, our business or our operations in the consequences for us or affect us, our business or our operations in the • Risks facing us in our Services segment, including our third-party claims • Risks facing us in our Services segment, including our third-party claims way we expect. We caution readers not to place undue reliance on these way we expect. We caution readers not to place undue reliance on these administration operations, that are distinct from hose we face in our administration operations, that are distinct from hose we face in our forward-looking statements. All forward-looking statements made herein forward-looking statements. All forward-looking statements made herein insurance intermediary operations; insurance intermediary operations; • The limitations of our system of disclosure and internal controls and • The limitations of our system of disclosure and internal controls and are made only as of the date of this filing, the Company does not undertake are made only as of the date of this filing, the Company does not undertake any obligation to publicly update or correct any forward-looking statements any obligation to publicly update or correct any forward-looking statements procedures in preventing errors or fraud, or in informing management of procedures in preventing errors or fraud, or in informing management of to reflect events or circumstances that subsequently occur or of which the to reflect events or circumstances that subsequently occur or of which the all material information in a timely manner; all material information in a timely manner; Company hereafter becomes aware. Company hereafter becomes aware. • The significant control certain existing shareholders have over the • The significant control certain existing shareholders have over the Company; Company; • Risks related to our international operations, which result in additional • Risks related to our international operations, which result in additional risks and require more management time and expense than our risks and require more management time and expense than our domestic operations to achieve or maintain profitability; domestic operations to achieve or maintain profitability; • Changes in data privacy and protection laws and regulations or any • Changes in data privacy and protection laws and regulations or any failure to comply with such laws and regulations; failure to comply with such laws and regulations; • • Improper disclosure of confidential information; Improper disclosure of confidential information; T T R R O O P P E E R R L L A A U U N N N N A A 1 1 2 2 0 0 2 2 13 13 ESG Highlights Disclosure Regarding Forward-Looking Statements Brown & Brown is Built to Last, as demonstrated by our steadfast focus on customers, teammates and communities. We are driven to consistently improve and are dedicated to the sustainability of our Company. Diversity, Inclusion and Belonging We believe that having a diverse team—people from different backgrounds who use different thought processes—results in teammate empowerment. An empowered team is what helps to positively impact our customer service and community involvement. As part of our strategy, we continue to evolve and build out our Diversity, Inclusion and Belonging (DIB) task force, which was established in 2020 and is composed of eight teammates and leaders with different backgrounds, work experiences and skill sets. The mission of the task force is to collect ideas, thoughts and stories that will help develop a strategic framework promoting diversity, inclusion and belonging across our teams. The task force is overseen and guided by our chief people officer and general counsel. Our DIB task force spent the last year evaluating our Company’s current strengths and opportunities for development by initiating teammate surveys, listening sessions, group focus sessions and training modalities, including a course focused on understanding and managing unconscious bias that was assigned to all teammates as a learning opportunity. In 2021, the task force appointed a DIB Leader who serves as a dedicated resource for the team and established a DIB motto—The Power to Be Yourself—which was created and voted upon by our teammates. Teammate Health and Well-Being Brown & Brown’s top priority is the total well-being of our teammates. Total well-being at Brown & Brown means physical, emotional, social and financial health and wellness. We know that healthy teammates provide better support to their families, communities and customers, which results in our continued success as a Company. We encourage teammates to stay active, maintain a healthy work-life balance, volunteer in their local communities and prioritize their mental and physical health. This includes regular communication with teammates about the pandemic’s impacts and, when necessary, bi-weekly headlines and information focused on physical, mental and financial wellness. E S G R E P O R T H I G H L I G H T S C O M M U N I T Y H U M A N C A P I T A L We have a long-standing The cornerstones of our history of community service and are committed to managing our business and community relationships through our Culture of Caring. organization's guiding principles are people, performance, service and innovation. We believe in doing what is best for our customers, communities, E N V I R O N M E N T We continuously search for new and innovative ways to further help our customers, support our teammates D A T A S E C U R I T Y We have invested, and continue to invest, in technology security initiatives, information and contribute to the world technology policies and around us. This includes our resources, and teammate commitment to sustainability training to mitigate the risk of teammates, carrier partners and the environment. improper access to private and shareholders—always. information. S O L I C I T I N G F E E D B A C K 92% of our teammates say Brown & Brown is a Great Place to Work®. T R A I N I N G A N D D E V E L O P M E N T C U L T U R E O F C A R I N G H E A L T H A N D S A F E T Y Our teammates completed 24,000+ hours of training through Brown & Brown University. We received $121,000 in The Company had no donations to our Brown work-related fatalities and & Brown Disaster Relief 24 injuries or occupational Foundation. diseases.* R E A D M O R E A B O U T B R O W N & B R O W N ’ S E S G E F F O R T S I N O U R F U L L 2 0 2 2 E S G R E P O R T — V I S I T I N V E S T O R . B B I N S U R A N C E . C O M . 12 * As determined based on the number of claims made under our workers’ compensation policy, excluding claims that were closed and for which no payment was made. 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, including those relating to the potential effects of the COVID-19 pandemic (“COVID-19”) on the Company’s business, operations, financial performance and prospects. 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 Annual Report 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, possibly 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”: • COVID-19 and the resulting governmental and societal responses, the severity and duration of COVID-19 (including through any new variant strains of the underlying virus), the effectiveness of and accessibility to vaccines, the pace and rate at which vaccines are administered, actions taken by governmental authorities in response to COVID-19 and the direct and indirect impact of COVID-19 on the U.S. economy, the global economy and the Company’s business, liquidity, customers, insurance carriers and third parties; • The effects of inflation; • The inability to retain or hire qualified employees, as well as the loss of any of our executive officers or other key employees; • Acquisition-related risks that could negatively affect the success of our growth strategy, including the possibility that we may not be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into our operations, and expand into new markets; • A cybersecurity attack or any other interruption in information technology and/or data security and/or outsourcing relationships; • The requirement for additional resources and time to adequately respond to dynamics resulting from rapid technological change; • The loss of or significant change to any of our insurance company relationships, which could result in additional expense, loss of market share or material decrease in our profit-sharing contingent commissions, guaranteed supplemental commissions or incentive commissions; • Adverse economic conditions, natural disasters, or regulatory changes in states where we have a concentration of our business; • The inability to maintain our culture or a change in management, management philosophy or our business strategy; • Risks facing us in our Services segment, including our third-party claims administration operations, that are distinct from hose we face in our insurance intermediary operations; • The limitations of our system of disclosure and internal controls and procedures in preventing errors or fraud, or in informing management of all material information in a timely manner; • The significant control certain existing shareholders have over the Company; • Risks related to our international operations, which result in additional risks and require more management time and expense than our domestic operations to achieve or maintain profitability; • Changes in data privacy and protection laws and regulations or any failure to comply with such laws and regulations; Improper disclosure of confidential information; • • The potential adverse effect of certain actual or potential claims, regulatory actions or proceedings on our businesses, results of operations, financial condition or liquidity; • Uncertainty in our business practices and compensation arrangements due to potential changes in regulations; • Regulatory changes that 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; • A decrease in demand for liability insurance as a result of tort reform legislation; • Our failure to comply with any covenants contained in our debt agreements; • The possibility that covenants in our debt agreements could prevent us from engaging in certain potentially beneficial activities; • Changes in the U.S.-based credit markets that might adversely affect our business, results of operations and financial condition; • Risks associated with the current interest rate environment, and to the extent we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income; • 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; • Changes in current U.S. or global economic conditions; • Effects related to pandemics, epidemics or outbreaks of infectious diseases; • Conditions that result in reduced insurer capacity; • 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; Intangible asset risk, including the possibility that our goodwill may become impaired in the future; • • Other risks and uncertainties as may be detailed from time to time in our public announcements and Securities and Exchange Commission (“SEC”) filings; and • Other factors that the Company may not have currently identified or quantified. 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, 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. All forward-looking statements made herein are made only as of the date of this filing, the Company does not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur or of which the Company hereafter becomes aware. T R O P E R L A U N N A 1 2 0 2 13 2021 Financial Review 15 Management’s Discussion and Analysis of Financial Condition and Results of Operations 33 Non-GAAP Reconciliation—Income Before Income Taxes to EBITDAC and Income Before Income Taxes Margin to EBITDAC Margin 35 Consolidated Statements of Income 36 Consolidated Statements of Comprehensive Income 37 Consolidated Balance Sheets 38 Consolidated Statements of Shareholders’ Equity 39 Consolidated Statements of Cash Flows 40 Notes to Consolidated Financial Statements 70 Report of Independent Registered Public Accounting Firm 73 Management’s Report on Internal Control Over Financial Reporting 74 Performance Graph 14 Management’s Discussion and Analysis of Financial Condition and Results of Operations General Company Overview 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. 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, sales or 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 also operate a capitalized captive insurance facility (the “Captive”) for the purpose of having additional capacity to sell property insurance for earthquake and wind exposed properties. The Captive buys reinsurance, limiting, but not eliminating the Company’s exposure to underwriting losses and revenues are recognized as net retained earned premiums over the associated policy periods. We have increased revenues every year from 1993 to 2021, with the exception of 2009, when our revenues declined 1.0%. Our revenues grew from $95.6 million in 1993 to $3.1 billion in 2021, reflecting a compound annual growth rate of 13.2%. In the same 28-year period, we increased net income from $8.1 million to $587.1 million in 2021, a compound annual growth rate of 16.5%. 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, a health pandemic, 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, we have grown our revenues as a result of our focus on net new business and acquisitions. We foster a strong, decentralized sales and service culture which enables responsiveness to changing business conditions and drives accountability for results. 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 12 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 period over period impact of foreign currency translation, which is calculated by applying current year foreign exchange rates to the same period in the prior year. 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; and (iv) the net change in fees paid to us by our customers. Organic Revenue is reported in “Results of Operations” and in “Results of Operations - Segment Information” of this Annual Report. In connection with the Captive, we will recognize revenue starting in 2022 on a net retained earned premiums basis in a manner consistent with core commissions and fees. Beginning in 2022 we will no longer exclude guaranteed supplemental commissions from core commissions and fees and therefore they will be a component of Organic Revenue. We anticipate presenting certain prior periods accordingly so that the calculation of Organic Revenue compares both periods on the same basis. Guaranteed supplemental commissions are a small and increasingly more stable source of revenue that are highly correlated to core commissions, so excluding them provides no meaningful incremental value in evaluating our revenue performance. T R O P E R L A U N N A 1 2 0 2 15 2021 Financial Review 15 Management’s Discussion and Analysis of Financial Condition and Results of Operations 33 Non-GAAP Reconciliation—Income Before Income Taxes to EBITDAC and Income Before Income Taxes Margin to EBITDAC Margin 35 Consolidated Statements of Income 36 Consolidated Statements of Comprehensive Income 37 Consolidated Balance Sheets 38 Consolidated Statements of Shareholders’ Equity 39 Consolidated Statements of Cash Flows 40 Notes to Consolidated Financial Statements 70 Report of Independent Registered Public Accounting Firm 73 Management’s Report on Internal Control Over Financial Reporting 74 Performance Graph 14 Management’s Discussion and Analysis of Financial Condition and Results of Operations General Company Overview 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. 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, sales or 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 also operate a capitalized captive insurance facility (the “Captive”) for the purpose of having additional capacity to sell property insurance for earthquake and wind exposed properties. The Captive buys reinsurance, limiting, but not eliminating the Company’s exposure to underwriting losses and revenues are recognized as net retained earned premiums over the associated policy periods. We have increased revenues every year from 1993 to 2021, with the exception of 2009, when our revenues declined 1.0%. Our revenues grew from $95.6 million in 1993 to $3.1 billion in 2021, reflecting a compound annual growth rate of 13.2%. In the same 28-year period, we increased net income from $8.1 million to $587.1 million in 2021, a compound annual growth rate of 16.5%. 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, a health pandemic, 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, we have grown our revenues as a result of our focus on net new business and acquisitions. We foster a strong, decentralized sales and service culture which enables responsiveness to changing business conditions and drives accountability for results. 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 12 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 period over period impact of foreign currency translation, which is calculated by applying current year foreign exchange rates to the same period in the prior year. 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; and (iv) the net change in fees paid to us by our customers. Organic Revenue is reported in “Results of Operations” and in “Results of Operations - Segment Information” of this Annual Report. In connection with the Captive, we will recognize revenue starting in 2022 on a net retained earned premiums basis in a manner consistent with core commissions and fees. Beginning in 2022 we will no longer exclude guaranteed supplemental commissions from core commissions and fees and therefore they will be a component of Organic Revenue. We anticipate presenting certain prior periods accordingly so that the calculation of Organic Revenue compares both periods on the same basis. Guaranteed supplemental commissions are a small and increasingly more stable source of revenue that are highly correlated to core commissions, so excluding them provides no meaningful incremental value in evaluating our revenue performance. T R O P E R L A U N N A 1 2 0 2 15 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 subsequent year, based upon the aforementioned considerations for the prior year(s). Over the last three years, profit-sharing contingent commissions have averaged approximately 3.0% of 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 on actual premiums written. Over the last three years, GSCs have averaged less than 1.0% of commissions and fees revenue. Combined, our profit-sharing contingent commissions and GSCs for the year ended December 31, 2021 increased by $14.1 million over 2020. This increase was the result of recent acquisitions and qualifying for certain profit-sharing contingent commissions and GSCs in 2021 that we did not qualify for in the prior year. 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 are generated by: (i) 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; (ii) our National Programs and Wholesale Brokerage segments, which earn fees primarily for the issuance of insurance policies on behalf of insurance companies; and (iii) our Retail segment in our large-account customer base, where we primarily earn fees for securing insurance for our customers, and in our automobile dealer services (“F&I”) businesses where we primarily earn fees for assisting our customers with creating and selling warranty and service risk management programs. Fee revenues as a percentage of our total commissions and fees, represented 27.4% in 2021 and 26.1% in 2020. For the years ended December 31, 2021 and 2020, our commissions and fees growth rate was 16.9% and 9.3%, respectively, and our consolidated Organic Revenue growth rate was 10.4% and 3.8%, respectively. Investment income consists 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 revenues. Income before income taxes for the year ended December 31, 2021 increased by $138.7 million over 2020, as a result of net new business, acquisitions we completed since 2020, and management of our expense base, partially offset by an increase in the change in estimated acquisition earn-out payables. 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. EBITDAC is defined as income before interest, income taxes, depreciation, amortization, and the change in estimated acquisition earn-out payables (“EBITDAC”). EBITDAC Margin is defined as EBITDAC divided by total revenues. 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 use Organic Revenue growth in determining incentive cash compensation and as a performance measure in our equity incentive grants for our executive officers and other key employees. We use EBITDAC Margin for incentive cash compensation determinations for our executive officers. 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, as well as 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. 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 16 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 under “Results of Operation - Segment Information.” Acquisitions Part of our business strategy is to attract high-quality insurance intermediaries and service organizations to join our operations. From 1993 through the fourth quarter of 2021, we acquired 580 insurance intermediary operations. Critical Accounting Policies Our Consolidated Financial Statements are prepared in accordance with 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 a combination of historical experience and assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for our judgments about the recognition of revenues, expenses, 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. 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 the majority of 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. In some arrangements, where we are compensated through commissions, we also perform other services for our customer beyond binding of coverage. In those arrangements we apportion the commission between binding of coverage and other services based on their relative fair value and recognize the associated revenue as those performance obligations are satisfied. 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 refine those estimates 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 property and casualty, and employee benefits practices. Other fees are typically recognized upon the completion of the delivery of the agreed-upon services to the customer. To a much lesser extent, the Company will earn revenues starting in 2022 in the form of net retained earned premiums in connection with the Captive, in which the majority of underwriting risk is reinsured and a small portion is retained by the Company. These premiums are reported net of the ceded premiums for reinsurance and recognized evenly over the associated policy periods. Management determines a policy cancellation reserve based upon historical cancellation experience adjusted in accordance with Please see Note 2 “Revenues” in the “Notes to Consolidated Financial Statements” for additional information regarding the nature and known circumstances. timing of our revenues. T R O P E R L A U N N A 1 2 0 2 17 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 subsequent year, based upon the aforementioned considerations for the prior year(s). Over the last three years, profit-sharing contingent commissions have averaged approximately 3.0% of 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 on actual premiums written. Over the last three years, GSCs have averaged less than 1.0% of commissions and fees revenue. Combined, our profit-sharing contingent commissions and GSCs for the year ended December 31, 2021 increased by $14.1 million over 2020. This increase was the result of recent acquisitions and qualifying for certain profit-sharing contingent commissions and GSCs in 2021 that we did not qualify for in the prior year. 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 are generated by: (i) 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; (ii) our National Programs and Wholesale Brokerage segments, which earn fees primarily for the issuance of insurance policies on behalf of insurance companies; and (iii) our Retail segment in our large-account customer base, where we primarily earn fees for securing insurance for our customers, and in our automobile dealer services (“F&I”) businesses where we primarily earn fees for assisting our customers with creating and selling warranty and service risk management programs. Fee revenues as a percentage of our total commissions and fees, represented 27.4% in 2021 and 26.1% in 2020. For the years ended December 31, 2021 and 2020, our commissions and fees growth rate was 16.9% and 9.3%, respectively, and our consolidated Organic Revenue growth rate was 10.4% and 3.8%, respectively. Investment income consists 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 revenues. Income before income taxes for the year ended December 31, 2021 increased by $138.7 million over 2020, as a result of net new business, acquisitions we completed since 2020, and management of our expense base, partially offset by an increase in the change in estimated acquisition earn-out payables. 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. EBITDAC is defined as income before interest, income taxes, depreciation, amortization, and the change in estimated acquisition earn-out payables (“EBITDAC”). EBITDAC Margin is defined as EBITDAC divided by total revenues. 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 use Organic Revenue growth in determining incentive cash compensation and as a performance measure in our equity incentive grants for our executive officers and other key employees. We use EBITDAC Margin for incentive cash compensation determinations for our executive officers. 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, as well as 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. 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 16 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 under “Results of Operation - Segment Information.” Acquisitions Part of our business strategy is to attract high-quality insurance intermediaries and service organizations to join our operations. From 1993 through the fourth quarter of 2021, we acquired 580 insurance intermediary operations. Critical Accounting Policies Our Consolidated Financial Statements are prepared in accordance with 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 a combination of historical experience and assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for our judgments about the recognition of revenues, expenses, 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. 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 the majority of 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. In some arrangements, where we are compensated through commissions, we also perform other services for our customer beyond binding of coverage. In those arrangements we apportion the commission between binding of coverage and other services based on their relative fair value and recognize the associated revenue as those performance obligations are satisfied. 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 refine those estimates 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 property and casualty, and employee benefits practices. Other fees are typically recognized upon the completion of the delivery of the agreed-upon services to the customer. To a much lesser extent, the Company will earn revenues starting in 2022 in the form of net retained earned premiums in connection with the Captive, in which the majority of underwriting risk is reinsured and a small portion is retained by the Company. These premiums are reported net of the ceded premiums for reinsurance and recognized evenly over the associated policy periods. 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. T R O P E R L A U N N A 1 2 0 2 17 Business Combinations and Purchase Price Allocations Non-Cash Stock-Based Compensation 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. 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 performance measurement period, we review the probable outcome of the performance conditions associated with our performance awards and align the expense accruals with the expected performance outcome. In connection with 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 right to represent insureds or claimants supported by the physical records and files obtained from acquired businesses that contain information about insurance policies, customers and other matters essential to policy renewals of delivery of services. Their value primarily represents the present value of the underlying cash flows expected to be received over the estimated future duration of the acquired customer relationships. 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 typically 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. 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 as a result of updated expectations for the performance of the associated business. 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 reflects market participant assumptions regarding revenue growth and/or profitability. The expected future payments are estimated based on 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 forecast 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. The Company may elect to first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If the Company does not perform a qualitative assessment, or if it is determined that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, the Company will calculate the fair value of the reporting unit. 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 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, 2021 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, 2021 and 2020. 18 During the first quarter of 2021, the performance conditions for approximately 1.2 million shares of the Company’s common stock granted under the Company’s 2010 SIP and approximately 22,000 shares of the Company’s common stock granted under the Company’s 2019 SIP were determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in 2018 and 2020. These grants had a performance measurement period that concluded on December 31, 2020. The vesting condition for these grants requires continuous employment for a period of up to five years from the 2018 grant date and four years from the 2020 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. During the first quarter of 2022, the performance conditions for approximately 1.3 million shares of the Company’s common stock granted under the Company’s 2010 SIP and approximately 22,000 shares of the Company’s common stock granted under the Company’s 2019 SIP were determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in 2019 and 2021. These grants had a performance measurement period that concluded on December 31, 2021. The vesting condition for these grants requires continuous employment for a period of up to five years from the 2019 grant date and four years from the 2021 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. 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. T R O P E R L A U N N A 1 2 0 2 19 Business Combinations and Purchase Price Allocations Non-Cash Stock-Based Compensation 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. 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 performance measurement period, we review the probable outcome of the performance conditions associated with our performance awards and align the expense accruals with the expected performance outcome. In connection with 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 right to represent insureds or claimants supported by the physical records and files obtained from acquired businesses that contain information about insurance policies, customers and other matters essential to policy renewals of delivery of services. Their value primarily represents the present value of the underlying cash flows expected to be received over the estimated future duration of the acquired customer relationships. 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 typically 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. 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 as a result of updated expectations for the performance of the associated business. 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 reflects market participant assumptions regarding revenue growth and/or profitability. The expected future payments are estimated based on 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 forecast 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. The Company may elect to first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If the Company does not perform a qualitative assessment, or if it is determined that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, the Company will calculate the fair value of the reporting unit. 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 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, 2021 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, 2021 and 2020. 18 During the first quarter of 2021, the performance conditions for approximately 1.2 million shares of the Company’s common stock granted under the Company’s 2010 SIP and approximately 22,000 shares of the Company’s common stock granted under the Company’s 2019 SIP were determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in 2018 and 2020. These grants had a performance measurement period that concluded on December 31, 2020. The vesting condition for these grants requires continuous employment for a period of up to five years from the 2018 grant date and four years from the 2020 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. During the first quarter of 2022, the performance conditions for approximately 1.3 million shares of the Company’s common stock granted under the Company’s 2010 SIP and approximately 22,000 shares of the Company’s common stock granted under the Company’s 2019 SIP were determined by the Compensation Committee to have been satisfied relative to performance-based grants issued in 2019 and 2021. These grants had a performance measurement period that concluded on December 31, 2021. The vesting condition for these grants requires continuous employment for a period of up to five years from the 2019 grant date and four years from the 2021 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. 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. T R O P E R L A U N N A 1 2 0 2 19 Results of Operations for the Years Ended December 31, 2021 and 2020 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. For a comparison of our results of operations and liquidity and capital resources for the years ended December 31, 2020 and 2019, please see Part II, Item 7 of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2021. Financial information relating to our Consolidated Financial Results is as follows: (IN THOUSANDS, EXCEPT PERCENTAGES) 2021 % CHANGE 2020 R E V E N U E S Core commissions and fees Profit-sharing contingent commissions Guaranteed supplemental commissions Investment income Other income, net Total revenues E X P E N S E S Employee compensation and benefits Other operating expenses (Gain)/loss on disposal Amortization Depreciation Interest Change in estimated acquisition earn-out payables Total expenses Income before income taxes Income taxes Net Income Income Before Income Taxes Margin(1) EBITDAC(2) EBITDAC Margin(2) Organic Revenue growth rate(2) Employee compensation and benefits relative to total revenues Other operating expenses relative to total revenues Capital expenditures Total assets at December 31 $2,946,291 82,226 19,005 1,099 2,777 17.0% 15.9% 17.4% (60.9)% (37.7)% $2,518,980 70,934 16,194 2,811 4,456 3,051,398 16.8% 2,613,375 1,636,911 402,941 (9,605) 119,593 33,309 64,981 40,445 2,288,575 762,823 175,719 $587,104 25.0% 14.0% 10.1% NMF 10.2% 26.8% 10.2% NMF 15.0% 22.2% 22.4% 22.2% 1,436,377 365,973 (2,388) 108,523 26,276 58,973 (4,458) 1,989,276 624,099 143,616 $480,483 23.9% $1,021,151 25.5% $813,413 33.5% 10.4% 53.6% 13.2% 31.1% 3.8% 55.0% 14.0% $45,045 (36.3)% $70,700 $9,795,443 9.2% $8,966,492 (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues (2) A non-GAAP financial measure NMF = Not a meaningful figure Amortization 20 Commissions and Fees Commissions and fees, including profit-sharing contingent commissions and GSCs for 2021, increased $441.4 million to $3,047.5 million, or 16.9% over 2020. Core commissions and fees in 2021 increased $427.3 million, composed of (i) $261.3 million of net new and renewal business, which reflects an Organic Revenue growth rate of 10.4%; (ii) $170.1 million from acquisitions that had no comparable revenues in the same period of 2020; (iii) a positive impact from foreign currency translation of $1.2 million; and (iv) an offsetting decrease of $5.3 million related to commissions and fees revenue from business divested in the preceding 12 months. Profit-sharing contingent commissions and GSCs for 2021 increased by $14.1 million, or 16.2%, compared to the same period in 2020. This increase was the result of recent acquisitions and qualifying for certain profit-sharing contingent commissions and GSCs in 2021 that we did Investment income decreased to $1.1 million in 2021, compared with $2.8 million in 2020. The decrease was primarily due to lower not qualify for in the prior year. Investment Income interest rates as compared to the prior year. Other Income, Net other miscellaneous income. Other income for 2021 was $2.7 million, compared with $4.5 million in 2020. Other income consists primarily of legal settlements and Employee Compensation and Benefits Employee compensation and benefits expense as a percentage of total revenues was 53.6% for the year ended December 31, 2021 as compared to 55.0% for the year ended December 31, 2020, and increased 14.0%, or $200.5 million. This increase included $70.7 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2020. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time periods of 2021 and 2020 increased by $129.8 million or 9.2%. This underlying employee compensation and benefits expense increase was primarily related to: (i) an increase in staff salaries attributable to salary inflation; (ii) an increase in accrued performance bonuses; and (iii) an increase in producer compensation associated with revenue growth. Other Operating Expenses Other operating expenses represented 13.2% of total revenues for 2021 as compared to 14.0% for the year ended December 31, 2020. Other operating expenses for 2021 increased $37.0 million, or 10.1%, from the same period of 2020 growing slower than revenues. The net increase included: (i) $40.2 million of other operating expenses related to stand-alone acquisitions that had no comparable costs in the same period of 2020; (ii) increased data processing costs as we invest in our business to drive future growth; (iii) slightly higher variable operating expenses, including travel and entertainment and meeting-related expenses; partially offset by (iv) non-recurring legal costs and the write-off recorded in 2020 of certain receivables in one of our programs where it was determined the collectability was in doubt and which did not recur in 2021. Gain or Loss on Disposal The Company recognized net gains on disposals of $9.6 million in 2021 and $2.4 million in 2020. The change in the net gain on disposal was due to activity associated with sales of businesses or portions of businesses. 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 expense for 2021 increased $11.1 million to $119.6 million, or 10.2% over 2020. This increase reflects the amortization of new intangibles from businesses acquired within the past 12 months, partially offset by certain intangible assets becoming fully amortized. T R O P E R L A U N N A 1 2 0 2 21 Results of Operations for the Years Ended December 31, 2021 and 2020 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. For a comparison of our results of operations and liquidity and capital resources for the years ended December 31, 2020 and 2019, please see Part II, Item 7 of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2021. Financial information relating to our Consolidated Financial Results is as follows: Commissions and Fees Commissions and fees, including profit-sharing contingent commissions and GSCs for 2021, increased $441.4 million to $3,047.5 million, or 16.9% over 2020. Core commissions and fees in 2021 increased $427.3 million, composed of (i) $261.3 million of net new and renewal business, which reflects an Organic Revenue growth rate of 10.4%; (ii) $170.1 million from acquisitions that had no comparable revenues in the same period of 2020; (iii) a positive impact from foreign currency translation of $1.2 million; and (iv) an offsetting decrease of $5.3 million related to commissions and fees revenue from business divested in the preceding 12 months. Profit-sharing contingent commissions and GSCs for 2021 increased by $14.1 million, or 16.2%, compared to the same period in 2020. This increase was the result of recent acquisitions and qualifying for certain profit-sharing contingent commissions and GSCs in 2021 that we did not qualify for in the prior year. (IN THOUSANDS, EXCEPT PERCENTAGES) 2021 % CHANGE 2020 Investment Income $2,946,291 $2,518,980 Investment income decreased to $1.1 million in 2021, compared with $2.8 million in 2020. The decrease was primarily due to lower interest rates as compared to the prior year. 3,051,398 16.8% 2,613,375 Other income for 2021 was $2.7 million, compared with $4.5 million in 2020. Other income consists primarily of legal settlements and other miscellaneous income. Other Income, Net Employee Compensation and Benefits Employee compensation and benefits expense as a percentage of total revenues was 53.6% for the year ended December 31, 2021 as compared to 55.0% for the year ended December 31, 2020, and increased 14.0%, or $200.5 million. This increase included $70.7 million of compensation costs related to stand-alone acquisitions that had no comparable costs in the same period of 2020. Therefore, employee compensation and benefits expense attributable to those offices that existed in the same time periods of 2021 and 2020 increased by $129.8 million or 9.2%. This underlying employee compensation and benefits expense increase was primarily related to: (i) an increase in staff salaries attributable to salary inflation; (ii) an increase in accrued performance bonuses; and (iii) an increase in producer compensation associated with revenue growth. Other Operating Expenses Other operating expenses represented 13.2% of total revenues for 2021 as compared to 14.0% for the year ended December 31, 2020. Other operating expenses for 2021 increased $37.0 million, or 10.1%, from the same period of 2020 growing slower than revenues. The net increase included: (i) $40.2 million of other operating expenses related to stand-alone acquisitions that had no comparable costs in the same period of 2020; (ii) increased data processing costs as we invest in our business to drive future growth; (iii) slightly higher variable operating expenses, including travel and entertainment and meeting-related expenses; partially offset by (iv) non-recurring legal costs and the write-off recorded in 2020 of certain receivables in one of our programs where it was determined the collectability was in doubt and which did not recur in 2021. Gain or Loss on Disposal (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues $45,045 (36.3)% $70,700 $9,795,443 9.2% $8,966,492 The Company recognized net gains on disposals of $9.6 million in 2021 and $2.4 million in 2020. The change in the net gain on disposal was due to activity associated with sales of businesses or portions of businesses. 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 for 2021 increased $11.1 million to $119.6 million, or 10.2% over 2020. This increase reflects the amortization of new intangibles from businesses acquired within the past 12 months, partially offset by certain intangible assets becoming fully amortized. Employee compensation and benefits 1,636,911 1,436,377 82,226 19,005 1,099 2,777 402,941 (9,605) 119,593 33,309 64,981 40,445 2,288,575 762,823 175,719 $587,104 25.0% 33.5% 10.4% 53.6% 13.2% 17.0% 15.9% 17.4% (60.9)% (37.7)% 14.0% 10.1% NMF 10.2% 26.8% 10.2% NMF 15.0% 22.2% 22.4% 22.2% 70,934 16,194 2,811 4,456 365,973 (2,388) 108,523 26,276 58,973 (4,458) 1,989,276 624,099 143,616 $480,483 23.9% 31.1% 3.8% 55.0% 14.0% $1,021,151 25.5% $813,413 R E V E N U E S Core commissions and fees Profit-sharing contingent commissions Guaranteed supplemental commissions Investment income Other income, net Total revenues E X P E N S E S Other operating expenses (Gain)/loss on disposal Amortization Depreciation Interest Total expenses Income taxes Net Income Change in estimated acquisition earn-out payables Income before income taxes Income Before Income Taxes Margin(1) EBITDAC(2) EBITDAC Margin(2) Organic Revenue growth rate(2) Employee compensation and benefits relative to total revenues Other operating expenses relative to total revenues Capital expenditures Total assets at December 31 (2) A non-GAAP financial measure NMF = Not a meaningful figure 20 T R O P E R L A U N N A 1 2 0 2 21 Depreciation Depreciation expense for 2021 increased $7.0 million to $33.3 million, or 26.8% over 2020. Changes in depreciation expense reflect the addition of fixed assets resulting from business initiatives, net additions of fixed assets resulting from businesses acquired in the past 12 months, partially offset by fixed assets which became fully depreciated. Interest Expense Interest expense for 2021 increased $6.0 million to $65.0 million, or 10.2%, from 2020. The increase is due to higher average debt balances from increased borrowings associated with the issuance of bonds in September 2020, partially offset by the decrease in interest rates associated with our floating rate debt balances. 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. The recorded purchase price for acquisitions includes 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, 2021, the fair values of the estimated acquisition earn-out payables were reevaluated 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, 2021 and 2020 were as follows: (IN THOUSANDS) Change in fair value of estimated acquisition earn-out payables Interest expense accretion Net change in earnings from estimated acquisition earn-out payables 2021 2020 $34,209 $(11,814) 6,236 7,356 $40,445 $(4,458) For the years ended December 31, 2021 and 2020, the fair value of estimated earn-out payables was reevaluated and increased by $34.2 million for 2021 and decreased by $11.8 million for 2020, which are charges and credits respectively, net of interest expense accretion, to the Consolidated Statement of Income for 2021 and 2020. As of December 31, 2021, the estimated acquisition earn-out payables equaled $291.0 million, of which $78.4 million was recorded as accounts payable and $212.6 million was recorded as other non-current liabilities. As of December 31, 2020, the estimated acquisition earn-out payables equaled $258.9 million, of which $79.2 million was recorded as accounts payable and $179.7 million was recorded as other non-current liabilities. Income Taxes The effective tax rate on income from operations was 23.0% in 2021 and 2020. 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 revenues 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 and EBITDAC margin. 22 The reconciliation of total commissions and fees included in the Consolidated Statements of Income to Organic Revenue, a non- GAAP financial measure, including by segment, and the growth rates for Organic Revenue for the year ended December 31, 2021 are as follows: 2021 (IN THOUSANDS, EXCEPT PERCENTAGES) Commissions and fees Total change Total growth % GSCs Acquisitions Dispositions Foreign currency translation Organic Revenue(2) Organic Revenue growth(2) Organic Revenue growth rate(2) RETAIL(1) NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES TOTAL 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 $1,764,922 $1,470,093 $701,108 $609,842 $402,635 $352,161 $178,857 $174,012 $3,047,522 $2,606,108 $91,266 15.0% $50,474 14.3% $4,845 2.8% $ 441,414 16.9% $294,829 20.1 % (38,895) (16,452) Profit-sharing contingent commissions (35,785) (35,259) (27,278) (8,072) (15,128) (1,619) 238 (934) Core commissions and fees $1,709,575 $1,419,180 $664,230 $582,802 $393,629 $342,986 $178,857 $174,012 $2,946,291 $2,518,980 (7,871) (1,304) — — — — — (82,226) (70,934) (19,005) (16,194) — (170,117) (364) — — — — (5,245) 1,161 (138,968) (8,151) — (22,998) (4,403) — — — — — — (478) 1,161 — — $1,570,607 $1,414,777 $656,079 $583,485 $370,631 $342,986 $178,857 $173,648 $2,776,174 $2,514,896 $155,830 11.0% $72,594 12.4% $27,645 8.1% $5,209 3.0% $261,278 10.4% (1) The Retail segment includes commissions and fees reported in the “Other” column of the Segment Information table 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 Statements of Income to Organic Revenue, a non- GAAP financial measure, including by segment, and the growth rates for Organic Revenue for the year ended December 31, 2020, by segment, are as follows: 2020 (IN THOUSANDS, EXCEPT PERCENTAGES) Commissions and fees Total change Total growth % GSCs Acquisitions Dispositions Foreign currency translation Organic Revenue(2) Organic Revenue growth(2) Organic Revenue growth rate(2) Profit-sharing contingent commissions RETAIL(1) NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES TOTAL 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 $1,470,093 $1,364,755 $609,842 $516,915 $352,161 $309,426 $174,012 $193,641 $2,606,108 $2,384,737 $105,338 7.7% (35,785) (15,128) $92,927 18.0% (34,150) (27,278) (17,517) (11,056) 238 (10,566) $42,735 13.8% (7,871) (1,304) $(19,629) (10.1)% (7,499) (1,443) — — — — — — — — $221,371 9.3% (70,934) (16,194) — — $87,525 3.8% (59,166) (23,065) (12,149) — — — — (11,772) — — — (377) — — — $1,339,600 $1,307,777 $548,629 $488,455 $317,125 $300,484 $172,528 $193,641 $2,377,882 $2,290,357 $31,823 2.4% $60,174 12.3 % $16,641 5.5% $(21,113) (10.9)% Core commissions and fees $1,419,180 $1,319,549 $582,802 $488,832 $342,986 $300,484 $174,012 $193,641 $2,518,980 $2,302,506 (79,580) — (34,173) — (25,861) (1,484) (141,098) — — — — — — — — — (1) The Retail segment includes commissions and fees reported in the “Other” column of the Segment Information table in Note 16 of the Notes to the Consolidated Financial Statements, which includes corporate and consolidation items. (2) A non-GAAP financial measure. T R O P E R L A U N N A 1 2 0 2 23 The reconciliation of total commissions and fees included in the Consolidated Statements of Income to Organic Revenue, a non- GAAP financial measure, including by segment, and the growth rates for Organic Revenue for the year ended December 31, 2021 are as follows: 2021 (IN THOUSANDS, EXCEPT PERCENTAGES) Commissions and fees Total change Total growth % Profit-sharing contingent commissions GSCs RETAIL(1) NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES TOTAL 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 $1,764,922 $1,470,093 $701,108 $609,842 $402,635 $352,161 $178,857 $174,012 $3,047,522 $2,606,108 $294,829 20.1 % (38,895) (16,452) $91,266 15.0% $50,474 14.3% (35,785) (35,259) (27,278) (8,072) (15,128) (1,619) 238 (934) (7,871) (1,304) $4,845 2.8% — — $ 441,414 16.9% — — (82,226) (70,934) (19,005) (16,194) Core commissions and fees $1,709,575 $1,419,180 $664,230 $582,802 $393,629 $342,986 $178,857 $174,012 $2,946,291 $2,518,980 Acquisitions Dispositions Foreign currency translation Organic Revenue(2) Organic Revenue growth(2) Organic Revenue growth rate(2) (138,968) — (8,151) — (22,998) — — (4,403) — — — (478) 1,161 — — — — — — — — — (170,117) (364) — — — — (5,245) 1,161 $1,570,607 $1,414,777 $656,079 $583,485 $370,631 $342,986 $178,857 $173,648 $2,776,174 $2,514,896 $155,830 11.0% $72,594 12.4% $27,645 8.1% $5,209 3.0% $261,278 10.4% (1) The Retail segment includes commissions and fees reported in the “Other” column of the Segment Information table 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 Statements of Income to Organic Revenue, a non- GAAP financial measure, including by segment, and the growth rates for Organic Revenue for the year ended December 31, 2020, by segment, are as follows: net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the years ended 2020 RETAIL(1) NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES TOTAL (IN THOUSANDS, EXCEPT PERCENTAGES) Commissions and fees Total change Total growth % Profit-sharing contingent commissions GSCs 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 $1,470,093 $1,364,755 $609,842 $516,915 $352,161 $309,426 $174,012 $193,641 $2,606,108 $2,384,737 $105,338 7.7% (35,785) (15,128) $92,927 18.0% (34,150) (27,278) (17,517) (11,056) 238 (10,566) $42,735 13.8% (7,871) (1,304) $(19,629) (10.1)% — — (7,499) (1,443) $221,371 9.3% (70,934) (16,194) — — (59,166) (23,065) Core commissions and fees $1,419,180 $1,319,549 $582,802 $488,832 $342,986 $300,484 $174,012 $193,641 $2,518,980 $2,302,506 Acquisitions Dispositions Foreign currency translation Organic Revenue(2) Organic Revenue growth(2) Organic Revenue growth rate(2) (79,580) — (34,173) — (25,861) — — (11,772) — — — (377) — — — — — — (1,484) — — — — — (141,098) — — — (12,149) — $1,339,600 $1,307,777 $548,629 $488,455 $317,125 $300,484 $172,528 $193,641 $2,377,882 $2,290,357 $31,823 2.4% $60,174 12.3 % $16,641 5.5% $(21,113) (10.9)% $87,525 3.8% (1) The Retail segment includes commissions and fees reported in the “Other” column of the Segment Information table in Note 16 of the Notes to the Consolidated Financial Statements, which includes corporate and consolidation items. (2) A non-GAAP financial measure. Depreciation expense for 2021 increased $7.0 million to $33.3 million, or 26.8% over 2020. Changes in depreciation expense reflect the addition of fixed assets resulting from business initiatives, net additions of fixed assets resulting from businesses acquired in the past 12 months, partially offset by fixed assets which became fully depreciated. Depreciation Interest Expense Interest expense for 2021 increased $6.0 million to $65.0 million, or 10.2%, from 2020. The increase is due to higher average debt balances from increased borrowings associated with the issuance of bonds in September 2020, partially offset by the decrease in interest rates associated with our floating rate debt balances. 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. The recorded purchase price for acquisitions includes 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, 2021, the fair values of the estimated acquisition earn-out payables were reevaluated and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820-Fair Value Measurement. The resulting December 31, 2021 and 2020 were as follows: Change in fair value of estimated acquisition earn-out payables (IN THOUSANDS) Interest expense accretion Net change in earnings from estimated acquisition earn-out payables 2021 2020 $34,209 $(11,814) 6,236 7,356 $40,445 $(4,458) For the years ended December 31, 2021 and 2020, the fair value of estimated earn-out payables was reevaluated and increased by $34.2 million for 2021 and decreased by $11.8 million for 2020, which are charges and credits respectively, net of interest expense accretion, to the Consolidated Statement of Income for 2021 and 2020. As of December 31, 2021, the estimated acquisition earn-out payables equaled $291.0 million, of which $78.4 million was recorded as accounts payable and $212.6 million was recorded as other non-current liabilities. As of December 31, 2020, the estimated acquisition earn-out payables equaled $258.9 million, of which $79.2 million was recorded as accounts payable and $179.7 million was recorded as other non-current liabilities. Income Taxes The effective tax rate on income from operations was 23.0% in 2021 and 2020. 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 revenues 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 and EBITDAC margin. 22 T R O P E R L A U N N A 1 2 0 2 23 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, 2021, is as follows: Retail Segment (IN THOUSANDS) Income before income taxes Income Before Income Taxes Margin(2) Amortization Depreciation Interest Change in estimated acquisition earn-out payables EBITDAC(2) EBITDAC Margin(2) RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES OTHER TOTAL $334,377 $242,334 $94,845 $28,257 $63,010 $762,823 Financial information relating to our Retail segment for the 12 months ended December 31, 2021 and 2020 is as follows: 18.9% 77,810 11,194 91,425 40,778 34.5% 27,357 9,839 11,381 (7,652) 23.5% 9,150 2,646 15,990 7,319 15.8% 5,276 1,484 NMF — 8,146 2,899 (56,714) — — 25.0% 119,593 33,309 64,981 40,445 $555,584 $283,259 $129,950 $ 37,916 $14,442 $1,021,151 31.4% 40.4% 32.2% 21.2% NMF 33.5% The Retail segment provides a broad range of insurance products and services to commercial, public and quasi-public, professional and individual insured customers, and non-insurance risk-mitigating products through our automobile dealer services (“F&I”) businesses. Approximately 76.4% of the Retail segment’s commissions and fees revenue is commission based. (IN THOUSANDS, EXCEPT PERCENTAGES) 2021 % CHANGE 2020 (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues (2) A non-GAAP financial measure 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, 2020, is as follows: (IN THOUSANDS) Income before income taxes Income Before Income Taxes Margin(2) Amortization Depreciation Interest Change in estimated acquisition earn-out payables EBITDAC(2) EBITDAC Margin(2) RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES OTHER TOTAL $262,245 $182,892 $93,593 $ 27,994 $57,375 $624,099 17.8% 67,315 9,071 85,968 8,689 30.0% 27,166 8,658 20,597 26.5% 8,481 1,948 10,281 16.1% 5,561 1,424 4,142 NMF — 5,175 (62,015) (10,484) 422 (3,085) — 23.9% 108,523 26,276 58,973 (4,458) $433,288 $228,829 $114,725 $ 36,036 $535 $813,413 29.4% 37.5% 32.5% 20.7% NMF 31.1% (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues (2) A non-GAAP financial measure NMF = Not a meaningful figure 24 R E V E N U E S Core commissions and fees Profit-sharing contingent commissions Guaranteed supplemental commissions Investment income Other income, net Total revenues E X P E N S E S Employee compensation and benefits Other operating expenses (Gain)/loss on disposal Amortization Depreciation Interest Total expenses Income before income taxes Income Before Income Taxes Margin(1) EBITDAC(2) EBITDAC Margin(2) Organic Revenue growth rate(2) Capital expenditures Total assets at December 31(3) (2) A non-GAAP financial measure the consolidated company NMF = Not a meaningful figure Change in estimated acquisition earn-out payables Employee compensation and benefits relative to total revenues Other operating expenses relative to total revenues $1,711,320 20.5% $1,420,439 1,767,938 20.0% 1,472,766 38,895 16,452 278 993 949,351 268,126 (5,123) 77,810 11,194 91,425 40,778 1,433,561 $334,377 18.9% 31.4% 11.0% 53.7% 15.2% 8.7% 8.8% 70.6% (20.6)% 15.7% 21.1% 114.7% 15.6% 23.4% 6.3% NMF 18.4% 27.5% 35,785 15,128 163 1,251 820,368 221,496 (2,386) 67,315 9,071 85,968 8,689 1,210,521 $262,245 17.8% 29.4% 2.4% 55.7% 15.0% 555,584 28.2% 433,288 $8,093 (38.6)% $13,175 $5,040,706 (28.9)% $7,093,627 T R O P E R L A U N N A 1 2 0 2 25 (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues (3) As of December 31, 2021, the Company settled the historical accumulation of the cash outlays paid by Corporate reducing the total assets at the segment level with no effect on The Retail segment’s total revenues in 2021 increased 20.0%, or $295.2 million, over the same period in 2020, to $1,767.9 million. The $290.9 million increase in core commissions and fees was driven by the following: (i) $156.3 million related to net new and renewal business; (ii) approximately $139.0 million related to the core commissions and fees from acquisitions that had no comparable revenues in the same period of 2020; offset by (iii) a decrease of $4.4 million related to commissions and fees from businesses or books of business divested in 2020 and 2021. Profit-sharing contingent commissions and GSCs in 2021 increased 8.7%, or $4.4 million, over 2020, to $55.3 million primarily from acquisitions completed in 2020 and 2021. The Retail segment’s growth rate for total commissions and fees was 20.1% and the Organic Revenue growth rate was 11.0% for 2021. The Organic Revenue growth rate was driven by net new business written during the preceding 12 months and growth on renewals of existing customers. Renewal business was impacted by rate increases in most lines of business and some modest expansion of exposure units. is as follows: (IN THOUSANDS) Income before income taxes Income Before Income Taxes Margin(2) Amortization Depreciation Interest EBITDAC(2) EBITDAC Margin(2) (2) A non-GAAP financial measure NMF = Not a meaningful figure is as follows: (IN THOUSANDS) Income before income taxes Income Before Income Taxes Margin(2) Amortization Depreciation Interest EBITDAC(2) EBITDAC Margin(2) (2) A non-GAAP financial measure NMF = Not a meaningful figure RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES OTHER TOTAL 18.9% 77,810 11,194 91,425 40,778 34.5% 27,357 9,839 11,381 (7,652) 23.5% 9,150 2,646 15,990 7,319 15.8% 5,276 1,484 NMF — 8,146 2,899 (56,714) — — 25.0% 119,593 33,309 64,981 40,445 $555,584 $283,259 $129,950 $ 37,916 $14,442 $1,021,151 31.4% 40.4% 32.2% 21.2% NMF 33.5% Change in estimated acquisition earn-out payables (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues measure, and Income Before Income Taxes Margin to EBITDAC Margin, a non-GAAP measure, for the year ended December 31, 2020, RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES OTHER TOTAL $262,245 $182,892 $93,593 $ 27,994 $57,375 $624,099 17.8% 67,315 9,071 85,968 8,689 30.0% 27,166 8,658 20,597 26.5% 8,481 1,948 10,281 16.1% 5,561 1,424 4,142 NMF — 5,175 (62,015) 23.9% 108,523 26,276 58,973 (4,458) $433,288 $228,829 $114,725 $ 36,036 $535 $813,413 29.4% 37.5% 32.5% 20.7% NMF 31.1% Change in estimated acquisition earn-out payables (10,484) 422 (3,085) — (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues 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, 2021, Retail Segment $334,377 $242,334 $94,845 $28,257 $63,010 $762,823 Financial information relating to our Retail segment for the 12 months ended December 31, 2021 and 2020 is as follows: (IN THOUSANDS, EXCEPT PERCENTAGES) 2021 % CHANGE 2020 The Retail segment provides a broad range of insurance products and services to commercial, public and quasi-public, professional and individual insured customers, and non-insurance risk-mitigating products through our automobile dealer services (“F&I”) businesses. Approximately 76.4% of the Retail segment’s commissions and fees revenue is commission based. The reconciliation of income before incomes taxes, included in the Consolidated Statement of Income, to EBITDAC, a non-GAAP Employee compensation and benefits R E V E N U E S Core commissions and fees Profit-sharing contingent commissions Guaranteed supplemental commissions Investment income Other income, net Total revenues E X P E N S E S Other operating expenses (Gain)/loss on disposal Amortization Depreciation Interest Change in estimated acquisition earn-out payables Total expenses Income before income taxes Income Before Income Taxes Margin(1) EBITDAC(2) EBITDAC Margin(2) Organic Revenue growth rate(2) Employee compensation and benefits relative to total revenues Other operating expenses relative to total revenues Capital expenditures Total assets at December 31(3) $1,711,320 20.5% $1,420,439 38,895 16,452 278 993 8.7% 8.8% 70.6% (20.6)% 35,785 15,128 163 1,251 1,767,938 20.0% 1,472,766 949,351 268,126 (5,123) 77,810 11,194 91,425 40,778 1,433,561 $334,377 18.9% 15.7% 21.1% 114.7% 15.6% 23.4% 6.3% NMF 18.4% 27.5% 820,368 221,496 (2,386) 67,315 9,071 85,968 8,689 1,210,521 $262,245 17.8% 555,584 28.2% 433,288 31.4% 11.0% 53.7% 15.2% 29.4% 2.4% 55.7% 15.0% $8,093 (38.6)% $13,175 $5,040,706 (28.9)% $7,093,627 24 (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues (2) A non-GAAP financial measure (3) As of December 31, 2021, the Company settled the historical accumulation of the cash outlays paid by Corporate reducing the total assets at the segment level with no effect on the consolidated company NMF = Not a meaningful figure The Retail segment’s total revenues in 2021 increased 20.0%, or $295.2 million, over the same period in 2020, to $1,767.9 million. The $290.9 million increase in core commissions and fees was driven by the following: (i) $156.3 million related to net new and renewal business; (ii) approximately $139.0 million related to the core commissions and fees from acquisitions that had no comparable revenues in the same period of 2020; offset by (iii) a decrease of $4.4 million related to commissions and fees from businesses or books of business divested in 2020 and 2021. Profit-sharing contingent commissions and GSCs in 2021 increased 8.7%, or $4.4 million, over 2020, to $55.3 million primarily from acquisitions completed in 2020 and 2021. The Retail segment’s growth rate for total commissions and fees was 20.1% and the Organic Revenue growth rate was 11.0% for 2021. The Organic Revenue growth rate was driven by net new business written during the preceding 12 months and growth on renewals of existing customers. Renewal business was impacted by rate increases in most lines of business and some modest expansion of exposure units. T R O P E R L A U N N A 1 2 0 2 25 Income before income taxes for 2021 increased 27.5%, or $72.1 million, over the same period in 2020, to $334.4 million. The primary factors driving this increase were: (i) the net increase in revenue as described above, offset by (ii) a 15.7%, or $129.0 million, increase in employee compensation and benefits, due primarily to the year-on-year impact of salary inflation and additional employees to support revenue growth and acquisitions, (iii) operating expenses which increased by $46.6 million, or 21.1%, due to increased professional services to support our customers and acquisitions; (iv) an increase in the change in estimated acquisition earn-out payables of $32.1 million, to $40.8 million; and (v) a combined increase in amortization, depreciation and intercompany interest expense of $18.1 million resulting from our acquisition activity over the past 12 months. EBITDAC for 2021 increased 28.2%, or $122.3 million, from the same period in 2020, to $555.6 million. EBITDAC Margin for 2021 increased to 31.4% from 29.4% in the same period in 2020. EBITDAC Margin was impacted by (i) the leveraging of our expense base, (ii) higher profit-sharing contingent commissions and GSCs; partially offset by, (iii) increased non-stock cash compensation costs. National Programs Segment The National Programs segment manages over 40 programs supported by approximately 100 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 Specialty programs. Approximately 75.2% of the National Programs segment’s commissions and fees revenue is commission based. Financial information relating to our National Programs segment for the 12 months ended December 31, 2021 and 2020 is as follows: (IN THOUSANDS, EXCEPT PERCENTAGES) 2021 % CHANGE 2020 R E V E N U E S Core commissions and fees Profit-sharing contingent commissions Guaranteed supplemental commissions Investment income Other income, net Total revenues E X P E N S E S Employee compensation and benefits Other operating expenses (Gain)/loss on disposal Amortization Depreciation Interest Change in estimated acquisition earn-out payables Total expenses Income before income taxes Income Before Income Taxes Margin(1) EBITDAC(2) EBITDAC Margin(2) Organic Revenue growth rate(2) Employee compensation and benefits relative to total revenues Other operating expenses relative to total revenues Capital expenditures Total assets at December 31(3) $664,230 35,259 1,619 550 192 701,850 294,713 128,368 (4,490) 27,357 9,839 11,381 (7,652) 459,516 $242,334 34.5% 283,259 40.4% 12.4% 42.0% 18.3% 14.0% 29.3% NMF (27.2)% NMF 14.9% 13.3% 5.5% NMF 0.7% 13.6% (44.7)% (27.0)% 7.4% 32.5% 23.8% $582,802 27,278 (238) 756 42 610,640 260,141 121,670 — 27,166 8,658 20,597 (10,484) 427,748 $182,892 30.0% 228,829 37.5% 12.3% 42.6% 19.9% $13,467 86.8% $7,208 Other operating expenses relative to total revenues $2,943,006 (16.2)% $3,510,983 Capital expenditures (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues (2) A non-GAAP financial measure (3) As of December 31, 2021, the Company settled the historical accumulation of the cash outlays paid by Corporate reducing the total assets at the segment level with no effect on (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues the consolidated company NMF = Not a meaningful figure 26 (3) As of December 31, 2021, the Company settled the historical accumulation of the cash outlays paid by Corporate reducing the total assets at the segment level with no effect on The National Programs segment’s total revenue for 2021 increased 14.9%, or $91.2 million, as compared to the same period in 2020, to $701.9 million. The $81.4 million increase in core commissions and fees revenue was driven by: (i) $72.6 million related to net new and renewal business; (ii) approximately $8.2 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in 2020; (iii) a positive impact from foreign currency translation of $1.2 million; offset by (iv) a decrease of $0.5 million related to commissions and fees revenue from business divested in the preceding 12 months. The National Programs segment’s growth rate for total commissions and fees was 15.0% and the Organic Revenue growth rate was 12.4% for 2021. The total commissions and fees growth was due to strong Organic Revenue growth across many of our programs along with new acquisitions. The Organic Revenue growth was driven by new business, good retention, exposure unit expansion and rate increases across many programs. Income before income taxes for 2021 increased 32.5%, or $59.4 million, from the same period in 2020, to $242.3 million. The increase was the result of: (i) strong total revenue growth; (ii) lower intercompany interest expense; (iii) a gain on sale of one of our businesses; partially offset by; (iv) an increase in estimated acquisition earn-out payables. EBITDAC for 2021 increased 23.8%, or $54.4 million, from the same period in 2020, to $283.3 million. EBITDAC Margin for 2021 increased to 40.4% due to (i) Organic Revenue growth and scaling of a number of our programs; (ii) higher contingent commissions, and (iii) a gain on the sale of one of our businesses. 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. Approximately 83.3% of the Wholesale Brokerage segment’s commissions and fees revenue is commission based. Financial information relating to our Wholesale Brokerage segment for the 12 months ended December 31, 2021 and 2020 is as follows: (IN THOUSANDS, EXCEPT PERCENTAGES) 2021 % CHANGE 2020 Change in estimated acquisition earn-out payables R E V E N U E S Core commissions and fees Profit-sharing contingent commissions Guaranteed supplemental commissions Investment income Other income, net Total revenues E X P E N S E S Employee compensation and benefits Other operating expenses (Gain)/loss on disposal Amortization Depreciation Interest Total expenses Income before income taxes Income Before Income Taxes Margin(1) EBITDAC(2) EBITDAC Margin(2) Organic Revenue growth rate(2) Total assets at December 31(3) (2) A non-GAAP financial measure the consolidated company NMF = Not a meaningful figure Employee compensation and benefits relative to total revenues $393,629 8,072 934 155 627 403,417 212,781 60,686 — 9,150 2,646 15,990 7,319 308,572 $94,845 23.5% 129,950 32.2% 8.1% 52.7% 15.0% $1,612 14.8% 2.6% (28.4)% (15.8)% 38.7% 14.3% 15.4% 13.1% — 7.9% 35.8% 55.5% NMF 19.0% 1.3% 13.3% $342,986 7,871 1,304 184 452 352,797 184,429 53,643 — 8,481 1,948 10,281 422 259,204 $93,593 26.5% 114,725 32.5% 5.5% 52.3% 15.2% $3,324 $1,154,373 $1,791,717 (51.5)% (35.6)% T R O P E R L A U N N A 1 2 0 2 27 Income before income taxes for 2021 increased 27.5%, or $72.1 million, over the same period in 2020, to $334.4 million. The primary factors driving this increase were: (i) the net increase in revenue as described above, offset by (ii) a 15.7%, or $129.0 million, increase in employee compensation and benefits, due primarily to the year-on-year impact of salary inflation and additional employees to support revenue growth and acquisitions, (iii) operating expenses which increased by $46.6 million, or 21.1%, due to increased professional services to support our customers and acquisitions; (iv) an increase in the change in estimated acquisition earn-out payables of $32.1 million, to $40.8 million; and (v) a combined increase in amortization, depreciation and intercompany interest expense of $18.1 million resulting from our acquisition activity over the past 12 months. EBITDAC for 2021 increased 28.2%, or $122.3 million, from the same period in 2020, to $555.6 million. EBITDAC Margin for 2021 increased to 31.4% from 29.4% in the same period in 2020. EBITDAC Margin was impacted by (i) the leveraging of our expense base, (ii) higher profit-sharing contingent commissions and GSCs; partially offset by, (iii) increased non-stock cash compensation costs. National Programs Segment The National Programs segment manages over 40 programs supported by approximately 100 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 Specialty programs. Approximately 75.2% of the National Programs segment’s commissions and fees revenue is commission based. Financial information relating to our National Programs segment for the 12 months ended December 31, 2021 and 2020 is as follows: (IN THOUSANDS, EXCEPT PERCENTAGES) 2021 % CHANGE 2020 The National Programs segment’s total revenue for 2021 increased 14.9%, or $91.2 million, as compared to the same period in 2020, to $701.9 million. The $81.4 million increase in core commissions and fees revenue was driven by: (i) $72.6 million related to net new and renewal business; (ii) approximately $8.2 million related to the core commissions and fees revenue from acquisitions that had no comparable revenues in 2020; (iii) a positive impact from foreign currency translation of $1.2 million; offset by (iv) a decrease of $0.5 million related to commissions and fees revenue from business divested in the preceding 12 months. The National Programs segment’s growth rate for total commissions and fees was 15.0% and the Organic Revenue growth rate was 12.4% for 2021. The total commissions and fees growth was due to strong Organic Revenue growth across many of our programs along with new acquisitions. The Organic Revenue growth was driven by new business, good retention, exposure unit expansion and rate increases across many programs. Income before income taxes for 2021 increased 32.5%, or $59.4 million, from the same period in 2020, to $242.3 million. The increase was the result of: (i) strong total revenue growth; (ii) lower intercompany interest expense; (iii) a gain on sale of one of our businesses; partially offset by; (iv) an increase in estimated acquisition earn-out payables. EBITDAC for 2021 increased 23.8%, or $54.4 million, from the same period in 2020, to $283.3 million. EBITDAC Margin for 2021 increased to 40.4% due to (i) Organic Revenue growth and scaling of a number of our programs; (ii) higher contingent commissions, and (iii) a gain on the sale of one of our businesses. 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. Approximately 83.3% of the Wholesale Brokerage segment’s commissions and fees revenue is commission based. Financial information relating to our Wholesale Brokerage segment for the 12 months ended December 31, 2021 and 2020 is as follows: (IN THOUSANDS, EXCEPT PERCENTAGES) 2021 % CHANGE 2020 R E V E N U E S Core commissions and fees Profit-sharing contingent commissions Guaranteed supplemental commissions Investment income Other income, net Total revenues E X P E N S E S Employee compensation and benefits Other operating expenses (Gain)/loss on disposal Amortization Depreciation Interest Change in estimated acquisition earn-out payables Total expenses Income before income taxes Income Before Income Taxes Margin(1) EBITDAC(2) EBITDAC Margin(2) Organic Revenue growth rate(2) Employee compensation and benefits relative to total revenues $13,467 86.8% $7,208 Other operating expenses relative to total revenues $2,943,006 (16.2)% $3,510,983 Capital expenditures Total assets at December 31(3) 14.8% 2.6% (28.4)% (15.8)% 38.7% 14.3% 15.4% 13.1% — 7.9% 35.8% 55.5% NMF 19.0% 1.3% 13.3% $393,629 8,072 934 155 627 403,417 212,781 60,686 — 9,150 2,646 15,990 7,319 308,572 $94,845 23.5% 129,950 32.2% 8.1% 52.7% 15.0% $1,612 $1,154,373 (51.5)% (35.6)% $342,986 7,871 1,304 184 452 352,797 184,429 53,643 — 8,481 1,948 10,281 422 259,204 $93,593 26.5% 114,725 32.5% 5.5% 52.3% 15.2% $3,324 $1,791,717 (3) As of December 31, 2021, the Company settled the historical accumulation of the cash outlays paid by Corporate reducing the total assets at the segment level with no effect on (2) A non-GAAP financial measure (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues (3) As of December 31, 2021, the Company settled the historical accumulation of the cash outlays paid by Corporate reducing the total assets at the segment level with no effect on the consolidated company NMF = Not a meaningful figure R E V E N U E S Core commissions and fees Profit-sharing contingent commissions Guaranteed supplemental commissions Investment income Other income, net Total revenues E X P E N S E S Employee compensation and benefits Other operating expenses (Gain)/loss on disposal Amortization Depreciation Interest Total expenses Income before income taxes Income Before Income Taxes Margin(1) EBITDAC(2) EBITDAC Margin(2) Organic Revenue growth rate(2) Change in estimated acquisition earn-out payables Employee compensation and benefits relative to total revenues Other operating expenses relative to total revenues Capital expenditures Total assets at December 31(3) (2) A non-GAAP financial measure the consolidated company NMF = Not a meaningful figure 26 (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues $664,230 35,259 1,619 550 192 701,850 294,713 128,368 (4,490) 27,357 9,839 11,381 (7,652) 459,516 $242,334 34.5% 283,259 40.4% 12.4% 42.0% 18.3% 14.0% 29.3% NMF (27.2)% NMF 14.9% 13.3% 5.5% NMF 0.7% 13.6% (44.7)% (27.0)% 7.4% 32.5% 23.8% $582,802 27,278 (238) 756 42 610,640 260,141 121,670 — 27,166 8,658 20,597 (10,484) 427,748 $182,892 30.0% 228,829 37.5% 12.3% 42.6% 19.9% T R O P E R L A U N N A 1 2 0 2 27 The Wholesale Brokerage segment’s total revenues for 2021 increased 14.3%, or $50.6 million, over 2020, to $403.4 million. The $50.6 million increase in core commissions and fees was driven by the following: (i) $27.6 million related to net new and renewal business and; (ii) $23.0 million related to the core commissions and fees from acquisitions that had no comparable revenues in 2020. Profit-sharing contingent commissions and GSCs for 2021 decreased $0.2 million compared to 2020, to $9.0 million. The Wholesale Brokerage segment’s growth rate for total commissions and fees was 14.3%, and the Organic Revenue growth rate was 8.1% for 2021. The Organic Revenue growth rate was driven by net new business, as well as increased rates seen across most lines of business, which was partially offset by shrinking capacity in the catastrophe exposed personal lines market. Income before income taxes for 2021 increased 1.3%, or $1.3 million, over 2020, to $94.8 million, primarily due to the following: (i) the net increase in total revenues as described above, which was offset by; (ii) an increase in amortization expense; (iii) an increase in intercompany interest expense; (iv) an increase in employee compensation and benefits of $28.3 million, related to additional employees from acquisitions completed in the past 12 months and net additions to support increased transaction volumes, compensation increases for existing employees, and additional non-cash stock-based compensation expense; and (v) a net $7.0 million increase in other operating expenses, primarily acquisition related. EBITDAC for 2021 increased 13.3%, or $15.2 million, from the same period in 2020, to $129.9 million. EBITDAC Margin for 2021 decreased to 32.2% from 32.5% in the same period in 2020. The decrease in EBITDAC Margin was primarily driven by; (i) increased employee compensation based on the composition of revenue growth and non-cash stock-based compensation costs, in addition to; (ii) a variable expense normalization which was partially offset by; (iii) revenue growth as described above. 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. 28 Financial information relating to our Services segment for the 12 months ended December 31, 2021 and 2020 is as follows: (IN THOUSANDS, EXCEPT PERCENTAGES) 2021 % CHANGE 2020 R E V E N U E S Core commissions and fees Profit-sharing contingent commissions Guaranteed supplemental commissions Investment income Other income, net Total revenues E X P E N S E S Employee compensation and benefits Other operating expenses (Gain)/loss on disposal Amortization Depreciation Interest Total expenses Income before income taxes Income Before Income Taxes Margin(1) EBITDAC(2) EBITDAC Margin(2) Organic Revenue growth rate(2) Capital expenditures Total assets at December 31(3) (2) A non-GAAP financial measure the consolidated company NMF = Not a meaningful figure $178,857 2.8% $174,012 178,860 2.8% 174,012 — — 3 — 89,723 51,212 9 5,276 1,484 2,899 150,603 $28,257 15.8% 37,916 21.2% 3.0% 50.2% 28.6% — — — — 1.1% 4.1% — (5.1)% 4.2% (30.0)% 3.1% 0.9% 5.2% — — — — 88,787 49,191 (2) 5,561 1,424 4,142 146,018 $27,994 16.1% 36,036 20.7% (10.9)% 51.0% 28.3% $1,424 $1,609 13.0% $299,185 (37.7)% $480,440 Change in estimated acquisition earn-out payables — (100.0)% (3,085) Employee compensation and benefits relative to total revenues Other operating expenses relative to total revenues (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues (3) As of December 31, 2021, the Company settled the historical accumulation of the cash outlays paid by Corporate reducing the total assets at the segment level with no effect on The Services segment’s total revenues for 2021 increased 2.8%, or $4.8 million, from 2020, to $178.9 million. The $4.8 million increase in core commissions and fees, was driven by; (i) specialized claims handling in our advisory business; (ii) expansion of existing programs; (iii) partially offset by continued pressure in our advocacy space (iii) and reduction in workers’ compensation severity claims. Total commissions and fees increased 2.8%, and Organic Revenue increased 3.0% in 2021, both as compared to 2020. Income before income taxes for 2021 increased 0.9%, or $0.3 million, from 2020, to $28.3 million due to a combination of: (i) lower intercompany interest; (ii) drivers of EBITDAC described below and; (iii) partially offset by the earn-out liability credit recorded in prior EBITDAC for 2021 increased 5.2%, or $1.9 million, from the same period in 2020, to $37.9 million. EBITDAC Margin for 2021 increased to 21.2% from 20.7% in the same period in 2020. The increase in EBITDAC and EBITDAC Margin were driven primarily by leveraging our expense base with higher Organic Revenue growth and lower variable expenses in response to COVID-19. year. 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. T R O P E R L A U N N A 1 2 0 2 29 $50.6 million increase in core commissions and fees was driven by the following: (i) $27.6 million related to net new and renewal Profit-sharing contingent commissions and GSCs for 2021 decreased $0.2 million compared to 2020, to $9.0 million. The Wholesale Brokerage segment’s growth rate for total commissions and fees was 14.3%, and the Organic Revenue growth rate was 8.1% for 2021. The Organic Revenue growth rate was driven by net new business, as well as increased rates seen across most lines of business, which was partially offset by shrinking capacity in the catastrophe exposed personal lines market. Income before income taxes for 2021 increased 1.3%, or $1.3 million, over 2020, to $94.8 million, primarily due to the following: (i) the net increase in total revenues as described above, which was offset by; (ii) an increase in amortization expense; (iii) an increase in intercompany interest expense; (iv) an increase in employee compensation and benefits of $28.3 million, related to additional employees from acquisitions completed in the past 12 months and net additions to support increased transaction volumes, compensation increases for existing employees, and additional non-cash stock-based compensation expense; and (v) a net $7.0 million increase in other operating expenses, primarily acquisition related. EBITDAC for 2021 increased 13.3%, or $15.2 million, from the same period in 2020, to $129.9 million. EBITDAC Margin for 2021 decreased to 32.2% from 32.5% in the same period in 2020. The decrease in EBITDAC Margin was primarily driven by; (i) increased employee compensation based on the composition of revenue growth and non-cash stock-based compensation costs, in addition to; (ii) a variable expense normalization which was partially offset by; (iii) revenue growth as described above. 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. 28 The Wholesale Brokerage segment’s total revenues for 2021 increased 14.3%, or $50.6 million, over 2020, to $403.4 million. The Financial information relating to our Services segment for the 12 months ended December 31, 2021 and 2020 is as follows: business and; (ii) $23.0 million related to the core commissions and fees from acquisitions that had no comparable revenues in 2020. (IN THOUSANDS, EXCEPT PERCENTAGES) 2021 % CHANGE 2020 R E V E N U E S Core commissions and fees Profit-sharing contingent commissions Guaranteed supplemental commissions Investment income Other income, net Total revenues E X P E N S E S Employee compensation and benefits Other operating expenses (Gain)/loss on disposal Amortization Depreciation Interest $178,857 2.8% $174,012 — — 3 — — — — — — — — — 178,860 2.8% 174,012 89,723 51,212 9 5,276 1,484 2,899 1.1% 4.1% — (5.1)% 4.2% (30.0)% 88,787 49,191 (2) 5,561 1,424 4,142 Change in estimated acquisition earn-out payables — (100.0)% (3,085) Total expenses Income before income taxes Income Before Income Taxes Margin(1) EBITDAC(2) EBITDAC Margin(2) Organic Revenue growth rate(2) Employee compensation and benefits relative to total revenues Other operating expenses relative to total revenues Capital expenditures Total assets at December 31(3) 3.1% 0.9% 5.2% 150,603 $28,257 15.8% 37,916 21.2% 3.0% 50.2% 28.6% $1,609 13.0% 146,018 $27,994 16.1% 36,036 20.7% (10.9)% 51.0% 28.3% $1,424 $299,185 (37.7)% $480,440 (1) “Income Before Income Taxes Margin” is defined as income before income taxes divided by total revenues (2) A non-GAAP financial measure (3) As of December 31, 2021, the Company settled the historical accumulation of the cash outlays paid by Corporate reducing the total assets at the segment level with no effect on the consolidated company NMF = Not a meaningful figure The Services segment’s total revenues for 2021 increased 2.8%, or $4.8 million, from 2020, to $178.9 million. The $4.8 million increase in core commissions and fees, was driven by; (i) specialized claims handling in our advisory business; (ii) expansion of existing programs; (iii) partially offset by continued pressure in our advocacy space (iii) and reduction in workers’ compensation severity claims. Total commissions and fees increased 2.8%, and Organic Revenue increased 3.0% in 2021, both as compared to 2020. Income before income taxes for 2021 increased 0.9%, or $0.3 million, from 2020, to $28.3 million due to a combination of: (i) lower intercompany interest; (ii) drivers of EBITDAC described below and; (iii) partially offset by the earn-out liability credit recorded in prior year. EBITDAC for 2021 increased 5.2%, or $1.9 million, from the same period in 2020, to $37.9 million. EBITDAC Margin for 2021 increased to 21.2% from 20.7% in the same period in 2020. The increase in EBITDAC and EBITDAC Margin were driven primarily by leveraging our expense base with higher Organic Revenue growth and lower variable expenses in response to COVID-19. 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. T R O P E R L A U N N A 1 2 0 2 29 Liquidity and Capital Resources Debt 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, which as of December 31, 2021 provided access to up to $800.0 million in available cash. We believe that we have access to additional funds, if needed, through the capital markets or private placements 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 revolving credit facility, will be sufficient to satisfy our normal liquidity needs, including principal payments on our long-term debt, for at least the next 12 months. The revolving credit facility contains an expansion for up to an additional $500.0 million of borrowing capacity, subject to the approval of participating lenders. In addition, under the term loan credit agreement, the unsecured term loan in the initial amount of $300.0 million may be increased by up to $150.0 million, subject to the approval of participating lenders. Including the expansion options under all existing credit agreements, the Company has access to up to $1.5 billion of incremental borrowing capacity as of December 31, 2021. Our cash and cash equivalents of $887.0 million at December 31, 2021, of which $245.6 million was held in a fiduciary capacity, reflected an increase of $69.6 million from the $817.4 million balance at December 31, 2020. During 2021, $942.5 million of cash was generated from operating activities, representing an increase of 30.6%. During this period, $366.8 million of cash was used for new acquisitions, $89.1 million was used for acquisition earn-out payments, $45.0 million was used to purchase additional fixed assets, $107.2 million was used for payment of dividends, $82.6 million was used for share repurchases and $73.1 million was used to pay outstanding principal balances owed on long-term debt. We hold approximately $66.4 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 $817.4 million at December 31, 2020, of which $211.9 million was held in a fiduciary capacity, reflected an increase of $275.2 million from the $542.2 million balance at December 31, 2019. During 2020, $721.6 million of cash was generated from operating activities, representing an increase of 6.4%. During this period, $694.8 million of cash was used for new acquisitions, $29.5 million was used for acquisition earn-out payments, $70.7 million was used to purchase additional fixed assets, $100.6 million was used for payment of dividends, $55.1 million was used for share repurchases and $55.0 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 1.25 and 1.26 for December 31, 2021 and December 31, 2020, respectively. Contractual Cash Obligations As of December 31, 2021, our contractual cash obligations were as follows: (IN THOUSANDS) Long-term debt Other liabilities(1) Operating leases(2) Interest obligations Unrecognized tax benefits PAYMENTS DUE BY PERIOD TOTAL LESS THAN 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS $2,036,875 $42,500 $750,625 $193,750 $1,050,000 178,299 260,801 349,233 917 38,816 49,529 61,157 — 18,621 87,355 111,940 917 11,237 58,928 71,391 — — 109,625 64,989 104,745 — — Maximum future acquisition contingency payments(3) 484,815 116,033 368,782 Total contractual cash obligations(4) $3,310,940 $308,035 $1,338,240 $335,306 $1,329,359 (1) (2) (3) Includes the current portion of other long-term liabilities, and approximately $15.6 million of remaining deferred employer-only payroll tax payments related to the CARES Act which are expected to be paid in December 2022. The Company paid the first installment of $15.6 million in December 2021. Includes $18.8 million of future lease commitments expected to commence in 2022. Includes $291.0 million of current and non-current estimated earn-out payables. $25.0 million of this balance is not subject to any further contingency as a result of the Amendment dated as of July 27, 2020 by and among the Company, The Hays Group, Inc., and certain of its affiliates, to the Asset Purchase Agreement, dated as of October 22, 2018. (4) Does not include approximately $28.9 million of current liability for a dividend of $0.1025 per share approved by the board of directors on January 20, 2022. 30 Total debt at December 31, 2021 was $2,022.9 million net of unamortized discount and debt issuance costs, which was an decrease of $73.0 million compared to December 31, 2020. The decrease includes: (i) the repayment of the principal balance of $73.1 million for scheduled principal amortization balances related to our various existing floating rate debt term notes; (ii) an additional $2.7 million including debt issuance costs related to the Company’s refinanced credit facility, the Second Amended and Restated Credit Agreement (as defined below), on October 27, 2021; offset by (iii) net of the amortization of discounted debt related to our various unsecured Senior Notes, and debt issuance cost amortization of $2.8 million. On October 27, 2021, the Company entered into an amended and restated credit agreement (the “Second Amended and Restated Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent, Bank of America, N.A., Truist Bank and BMO Harris Bank N.A. as co-syndication agents, and U.S. Bank National Association, Fifth Third Bank, National Association, Wells Fargo Bank, National Association, PNC Bank, National Association, Morgan Stanley Senior Funding, Inc. and Citizens Bank, N.A. as co-documentation agents. The Second Amended and Restated Credit Agreement amended and restated the credit agreement dated April 17, 2014, among certain of such parties, as amended by that certain amended and restated credit agreement dated June 28, 2017 (the “Original Credit Agreement”). The Second Amended and Restated Credit Agreement, among other certain terms, extended the maturity of the revolving credit facility of $800.0 million and unsecured term loans associated with the agreement of $250.0 million to October 27, 2026. At the time of the renewal, the Company added an additional $2.7 million in debt issuance costs related to the transaction. The Company carried forward $0.6 million of existing debt issuance costs related to the previous credit facility agreements while expensing $0.1 million in debt issuance costs due to certain lenders exiting the renewed facility agreement. During the 12 months ended December 31, 2021, the Company has repaid $30.0 million of principal related to the amended and restated credit agreement term loan through quarterly scheduled amortized principal payments each equaling $10.0 million on March 31, 2021, June 30, 2021, September 30, 2021 and on October 27, 2021 in conjunction with the closing of the Second Amended and Restated Credit Agreement, the Company repaid an additional $10.0 million of outstanding principal related to the term loan under the amended and restated credit agreement. On December 31, 2021, the Company repaid $3.1 million under the Second Amended and Restated Credit Agreement as part of a scheduled amortized principal payment/ The Second Amended and Restated Credit Agreement term loan had an outstanding balance of $246.9 million as of December 31, 2021. The Company’s next scheduled amortized principal payment is due March 31, 2022 and is equal to $3.1 million. During the 12 months ended December 31, 2021, the Company has repaid $30.0 million of principal related to the term loan credit agreement through quarterly scheduled amortized principal payments each equaling $7.5 million on March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021. The term loan credit agreement had an outstanding balance of $240.0 million as of December 31, 2021. The Company’s next scheduled amortized principal payment is due March 31, 2021 and is equal to $7.5 million. Total debt at December 31, 2020 was $2,095.9 million net of unamortized discount and debt issuance costs, which was an increase of $540.6 million compared to December 31, 2019. The increase includes: (i) incremental borrowings of $700.0 million related to the Company’s 2.375% Senior Notes due 2031 issued on September 24, 2020; (ii) net of the amortization of discounted debt related to our various unsecured Senior Notes, and debt issuance cost amortization of $2.3 million; offset by (iii) the repayment of the principal balance of $55.0 million for scheduled principal amortization balances related to our various existing floating rate debt term notes; (iv) the net repayment of $100.0 million under the revolving credit facility; and (v) an additional $6.7 million including debt issuance costs and the portion of discount applied to the proceeds issued under the incremental borrowings related to the Company’s 2.375% Senior Notes due 2031 issued on September 24, 2020. On September 24, 2020, the Company completed the issuance of $700.0 million aggregate principal amount of the Company’s 2.375% Senior Notes due 2031. The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 positive outlook. The notes are subject to certain covenant restrictions, 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 a portion of the outstanding balance of $200.0 million on the revolving credit facility, to pay a portion of the purchase price in connection with the acquisitions of LP Insurance Services, LLP and CKP Insurance, LLC and for other general corporate purposes. As of December 31, 2020, there was an outstanding debt balance of $700.0 million exclusive of the associated discount balance. During the 12 months ended December 31, 2020, the Company has repaid $40.0 million of principal related to the amended and restated credit agreement term loan through quarterly scheduled amortized principal payments each equaling $10.0 million on March 31, 2020, June 30, 2020, September 30, 2020 and December 31, 2020. The amended and restated credit agreement term loan had an outstanding balance of $290.0 million as of December 31, 2020. The Company’s next scheduled amortized principal payment is due March 31, 2021 and is equal to $10.0 million. During the 12 months ended December 31, 2020, the Company has repaid $15.0 million of principal related to the term loan credit agreement through quarterly scheduled amortized principal payments each equaling $3.8 million on March 31, 2020, June 30, 2020, T R O P E R L A U N N A 1 2 0 2 31 Liquidity and Capital Resources Debt 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, which as of December 31, 2021 provided access to up to $800.0 million in available cash. We believe that we have access to additional funds, if needed, through the capital markets or private placements 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 revolving credit facility, will be sufficient to satisfy our normal liquidity needs, including principal payments on our long-term debt, for at least the next 12 months. The revolving credit facility contains an expansion for up to an additional $500.0 million of borrowing capacity, subject to the approval of participating lenders. In addition, under the term loan credit agreement, the unsecured term loan in the initial amount of $300.0 million may be increased by up to $150.0 million, subject to the approval of participating lenders. Including the expansion options under all existing credit agreements, the Company has access to up to $1.5 billion of incremental borrowing capacity as of December 31, 2021. Our cash and cash equivalents of $887.0 million at December 31, 2021, of which $245.6 million was held in a fiduciary capacity, reflected an increase of $69.6 million from the $817.4 million balance at December 31, 2020. During 2021, $942.5 million of cash was generated from operating activities, representing an increase of 30.6%. During this period, $366.8 million of cash was used for new acquisitions, $89.1 million was used for acquisition earn-out payments, $45.0 million was used to purchase additional fixed assets, $107.2 million was used for payment of dividends, $82.6 million was used for share repurchases and $73.1 million was used to pay outstanding principal balances owed on long-term debt. We hold approximately $66.4 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 $817.4 million at December 31, 2020, of which $211.9 million was held in a fiduciary capacity, reflected an increase of $275.2 million from the $542.2 million balance at December 31, 2019. During 2020, $721.6 million of cash was generated from operating activities, representing an increase of 6.4%. During this period, $694.8 million of cash was used for new acquisitions, $29.5 million was used for acquisition earn-out payments, $70.7 million was used to purchase additional fixed assets, $100.6 million was used for payment of dividends, $55.1 million was used for share repurchases and $55.0 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 1.25 and 1.26 for December 31, 2021 and December 31, 2020, respectively. Contractual Cash Obligations As of December 31, 2021, our contractual cash obligations were as follows: (IN THOUSANDS) Long-term debt Other liabilities(1) Operating leases(2) Interest obligations Unrecognized tax benefits PAYMENTS DUE BY PERIOD TOTAL LESS THAN 1 YEAR 1-3 YEARS 4-5 YEARS $2,036,875 $42,500 $750,625 $193,750 $1,050,000 178,299 260,801 349,233 917 38,816 49,529 61,157 — 18,621 87,355 111,940 917 AFTER 5 YEARS 109,625 64,989 104,745 — — 11,237 58,928 71,391 — — Maximum future acquisition contingency payments(3) 484,815 116,033 368,782 Total contractual cash obligations(4) $3,310,940 $308,035 $1,338,240 $335,306 $1,329,359 (1) Includes the current portion of other long-term liabilities, and approximately $15.6 million of remaining deferred employer-only payroll tax payments related to the CARES Act which are expected to be paid in December 2022. The Company paid the first installment of $15.6 million in December 2021. Includes $18.8 million of future lease commitments expected to commence in 2022. Includes $291.0 million of current and non-current estimated earn-out payables. $25.0 million of this balance is not subject to any further contingency as a result of the Amendment dated as of July 27, 2020 by and among the Company, The Hays Group, Inc., and certain of its affiliates, to the Asset Purchase Agreement, dated as of (2) (3) October 22, 2018. (4) Does not include approximately $28.9 million of current liability for a dividend of $0.1025 per share approved by the board of directors on January 20, 2022. 30 Total debt at December 31, 2021 was $2,022.9 million net of unamortized discount and debt issuance costs, which was an decrease of $73.0 million compared to December 31, 2020. The decrease includes: (i) the repayment of the principal balance of $73.1 million for scheduled principal amortization balances related to our various existing floating rate debt term notes; (ii) an additional $2.7 million including debt issuance costs related to the Company’s refinanced credit facility, the Second Amended and Restated Credit Agreement (as defined below), on October 27, 2021; offset by (iii) net of the amortization of discounted debt related to our various unsecured Senior Notes, and debt issuance cost amortization of $2.8 million. On October 27, 2021, the Company entered into an amended and restated credit agreement (the “Second Amended and Restated Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent, Bank of America, N.A., Truist Bank and BMO Harris Bank N.A. as co-syndication agents, and U.S. Bank National Association, Fifth Third Bank, National Association, Wells Fargo Bank, National Association, PNC Bank, National Association, Morgan Stanley Senior Funding, Inc. and Citizens Bank, N.A. as co-documentation agents. The Second Amended and Restated Credit Agreement amended and restated the credit agreement dated April 17, 2014, among certain of such parties, as amended by that certain amended and restated credit agreement dated June 28, 2017 (the “Original Credit Agreement”). The Second Amended and Restated Credit Agreement, among other certain terms, extended the maturity of the revolving credit facility of $800.0 million and unsecured term loans associated with the agreement of $250.0 million to October 27, 2026. At the time of the renewal, the Company added an additional $2.7 million in debt issuance costs related to the transaction. The Company carried forward $0.6 million of existing debt issuance costs related to the previous credit facility agreements while expensing $0.1 million in debt issuance costs due to certain lenders exiting the renewed facility agreement. During the 12 months ended December 31, 2021, the Company has repaid $30.0 million of principal related to the amended and restated credit agreement term loan through quarterly scheduled amortized principal payments each equaling $10.0 million on March 31, 2021, June 30, 2021, September 30, 2021 and on October 27, 2021 in conjunction with the closing of the Second Amended and Restated Credit Agreement, the Company repaid an additional $10.0 million of outstanding principal related to the term loan under the amended and restated credit agreement. On December 31, 2021, the Company repaid $3.1 million under the Second Amended and Restated Credit Agreement as part of a scheduled amortized principal payment/ The Second Amended and Restated Credit Agreement term loan had an outstanding balance of $246.9 million as of December 31, 2021. The Company’s next scheduled amortized principal payment is due March 31, 2022 and is equal to $3.1 million. During the 12 months ended December 31, 2021, the Company has repaid $30.0 million of principal related to the term loan credit agreement through quarterly scheduled amortized principal payments each equaling $7.5 million on March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021. The term loan credit agreement had an outstanding balance of $240.0 million as of December 31, 2021. The Company’s next scheduled amortized principal payment is due March 31, 2021 and is equal to $7.5 million. Total debt at December 31, 2020 was $2,095.9 million net of unamortized discount and debt issuance costs, which was an increase of $540.6 million compared to December 31, 2019. The increase includes: (i) incremental borrowings of $700.0 million related to the Company’s 2.375% Senior Notes due 2031 issued on September 24, 2020; (ii) net of the amortization of discounted debt related to our various unsecured Senior Notes, and debt issuance cost amortization of $2.3 million; offset by (iii) the repayment of the principal balance of $55.0 million for scheduled principal amortization balances related to our various existing floating rate debt term notes; (iv) the net repayment of $100.0 million under the revolving credit facility; and (v) an additional $6.7 million including debt issuance costs and the portion of discount applied to the proceeds issued under the incremental borrowings related to the Company’s 2.375% Senior Notes due 2031 issued on September 24, 2020. On September 24, 2020, the Company completed the issuance of $700.0 million aggregate principal amount of the Company’s 2.375% Senior Notes due 2031. The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 positive outlook. The notes are subject to certain covenant restrictions, 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 a portion of the outstanding balance of $200.0 million on the revolving credit facility, to pay a portion of the purchase price in connection with the acquisitions of LP Insurance Services, LLP and CKP Insurance, LLC and for other general corporate purposes. As of December 31, 2020, there was an outstanding debt balance of $700.0 million exclusive of the associated discount balance. During the 12 months ended December 31, 2020, the Company has repaid $40.0 million of principal related to the amended and restated credit agreement term loan through quarterly scheduled amortized principal payments each equaling $10.0 million on March 31, 2020, June 30, 2020, September 30, 2020 and December 31, 2020. The amended and restated credit agreement term loan had an outstanding balance of $290.0 million as of December 31, 2020. The Company’s next scheduled amortized principal payment is due March 31, 2021 and is equal to $10.0 million. During the 12 months ended December 31, 2020, the Company has repaid $15.0 million of principal related to the term loan credit agreement through quarterly scheduled amortized principal payments each equaling $3.8 million on March 31, 2020, June 30, 2020, T R O P E R L A U N N A 1 2 0 2 31 September 30, 2020 and December 31, 2020. The term loan credit agreement had an outstanding balance of $270.0 million as of December 31, 2020. The Company’s next scheduled amortized principal payment is due March 31, 2021 and is equal to $7.5 million. On April 30, 2020, the Company borrowed $250.0 million under the revolving credit facility. The proceeds were used in conjunction with the payment of the purchase price for the previously announced acquisition of LP Insurance Services LLC and for additional liquidity to further strengthen the Company’s financial position and balance sheet in the event cash receipts from customers or carrier partners are delayed due to the COVID-19 pandemic. On June 30, 2020, the Company repaid $150.0 million on the revolving credit facility. On September 24, 2020, the Company repaid the total outstanding borrowings under the revolving credit facility of $200.0 million using the proceeds received from the borrowings under the Company’s 2.375% Senior Notes due 2031. 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, 2021 and December 31, 2020, approximated their respective carrying values due to their short-term duration and therefore, such market risk is not considered to be material. Non-GAAP Reconciliation INCOME BEFORE INCOME TAXES TO EBITDAC(1) AND INCOME BEFORE INCOME TAXES MARGIN(2) TO EBITDAC MARGIN(3) TOTAL Total Revenues Amortization Depreciation Interest EBITDAC EBITDAC Margin Change in estimated acquisition earn-out payables Income before income taxes 762,823 624,099 525,929 462,462 449,722 Income before income taxes margin 25.0% 23.9% 22.0% 2021 2020 2019 2018 2017 3,051,398 $2,613,375 $2,392,171 $2,014,246 $1,881,347 119,593 108,523 105,298 33,309 64,981 26,276 58,973 23,417 63,660 23.0% 86,544 22,834 40,580 23.9% 85,446 22,698 38,316 40,445 (4,458) (1,366) 2,969 9,200 1,021,151 $813,413 $716,938 $615,389 $605,382 33.5% 31.1% 30.0% 30.6% 32.2% (1) “EBITDAC,” a non-GAAP measure, is defined as income before interest, income taxes, depreciation, amortization and the change in estimated acquisition earn-out payables. 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. (2) “Income before income taxes margin” is defined as income before income taxes divided by total revenues. (3) “EBITDAC Margin,” a non-GAAP measure, is defined as EBITDAC divided by total revenues. As of December 31, 2021, we had $486.9 million of borrowings outstanding under our various credit agreements, all of which bear interest on a floating basis tied to London Inter-bank Offered Rate (“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. As of July 2017, the UK Financial Conduct Authority (“FCA”) has urged banks and institutions to discontinue their use of the LIBOR benchmark rate for floating rate debt, and other financial instruments tied to the rate after 2021. The Alternative Reference Rates Committee (“ARRC”) have recommended the Secured Overnight Financing Rate (“SOFR”) as the best alternative rate to LIBOR post discontinuance and has proposed a transition plan and timeline designed to encourage the adoption of SOFR from LIBOR. On March 5, 2021 the ICE Benchmark Administration, which administrators LIBOR, and the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be represented immediately after December 31, 2021 for all non-U.S. dollar LIBOR settings and one-week and two-month U.S. dollar LIBOR settings and immediately after June 30, 2023 for the remaining U.S. dollar LIBOR settings. On October 27, 2021 the Company entered into the Second Amended and Restated Credit Agreement. The Second Amended and Restated Credit Agreement includes provisions regarding transition from LIBOR to SOFR in preparation of the LIBOR cessation. Management will continue to actively assess the related opportunities and risks associated with the transition as well as monitor related proposals, guidance and other alternative-rate initiatives, with an expectation that the Company will be prepared for a termination of LIBOR benchmarks prior to June 30, 2023 when typical rate settings will no longer be available. We are subject to operational 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, and in our Canadian MGA business that has substantially all of its revenues and cost base denominated in Canadian dollars. As of January 14, 2021, the Company announced the completion of the acquisition of O’Leary Insurances, an Ireland based retail brokerage business which has substantially all of its revenue and cost base in euros. Based upon our foreign currency rate exposure as of December 31, 2021, an immediate 10% hypothetical change of foreign currency exchange rates would not have a material effect on our Consolidated Financial Statements. 32 T R O P E R L A U N N A 1 2 0 2 33 Income before income taxes margin 25.0% 23.9% 22.0% 23.0% 86,544 22,834 40,580 23.9% 85,446 22,698 38,316 119,593 108,523 105,298 33,309 64,981 26,276 58,973 23,417 63,660 Amortization Depreciation Interest Change in estimated acquisition earn-out payables EBITDAC EBITDAC Margin Non-GAAP Reconciliation INCOME BEFORE INCOME TAXES TO EBITDAC(1) AND INCOME BEFORE INCOME TAXES MARGIN(2) TO EBITDAC MARGIN(3) TOTAL Total Revenues 2021 2020 2019 2018 2017 3,051,398 $2,613,375 $2,392,171 $2,014,246 $1,881,347 Income before income taxes 762,823 624,099 525,929 462,462 449,722 September 30, 2020 and December 31, 2020. The term loan credit agreement had an outstanding balance of $270.0 million as of December 31, 2020. The Company’s next scheduled amortized principal payment is due March 31, 2021 and is equal to $7.5 million. On April 30, 2020, the Company borrowed $250.0 million under the revolving credit facility. The proceeds were used in conjunction with the payment of the purchase price for the previously announced acquisition of LP Insurance Services LLC and for additional liquidity to further strengthen the Company’s financial position and balance sheet in the event cash receipts from customers or carrier partners are delayed due to the COVID-19 pandemic. On June 30, 2020, the Company repaid $150.0 million on the revolving credit facility. On September 24, 2020, the Company repaid the total outstanding borrowings under the revolving credit facility of $200.0 million using the proceeds received from the borrowings under the Company’s 2.375% Senior Notes due 2031. Quantitative and Qualitative Disclosures About Market Risk international operations. 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 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, 2021 and December 31, 2020, approximated their respective carrying values due to their short-term duration and therefore, such market risk is not considered to be material. As of December 31, 2021, we had $486.9 million of borrowings outstanding under our various credit agreements, all of which bear interest on a floating basis tied to London Inter-bank Offered Rate (“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. As of July 2017, the UK Financial Conduct Authority (“FCA”) has urged banks and institutions to discontinue their use of the LIBOR benchmark rate for floating rate debt, and other financial instruments tied to the rate after 2021. The Alternative Reference Rates Committee (“ARRC”) have recommended the Secured Overnight Financing Rate (“SOFR”) as the best alternative rate to LIBOR post discontinuance and has proposed a transition plan and timeline designed to encourage the adoption of SOFR from LIBOR. On March 5, 2021 the ICE Benchmark Administration, which administrators LIBOR, and the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be represented immediately after December 31, 2021 for all non-U.S. dollar LIBOR settings and one-week and two-month U.S. dollar LIBOR settings and immediately after June 30, 2023 for the remaining U.S. dollar LIBOR settings. On October 27, 2021 the Company entered into the Second Amended and Restated Credit Agreement. The Second Amended and Restated Credit Agreement includes provisions regarding transition from LIBOR to SOFR in preparation of the LIBOR cessation. Management will continue to actively assess the related opportunities and risks associated with the transition as well as monitor related proposals, guidance and other alternative-rate initiatives, with an expectation that the Company will be prepared for a termination of LIBOR benchmarks prior to June 30, 2023 when typical rate settings will no longer be available. We are subject to operational 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, and in our Canadian MGA business that has substantially all of its revenues and cost base denominated in Canadian dollars. As of January 14, 2021, the Company announced the completion of the acquisition of O’Leary Insurances, an Ireland based retail brokerage business which has substantially all of its revenue and cost base in euros. Based upon our foreign currency rate exposure as of December 31, 2021, an immediate 10% hypothetical change of foreign currency exchange rates would not have a material effect on our Consolidated Financial Statements. 32 We do not actively invest or trade in equity securities. In addition, we generally dispose of any significant equity securities received in (2) “Income before income taxes margin” is defined as income before income taxes divided by total revenues. conjunction with an acquisition shortly after the acquisition date. (3) “EBITDAC Margin,” a non-GAAP measure, is defined as EBITDAC divided by total revenues. (1) “EBITDAC,” a non-GAAP measure, is defined as income before interest, income taxes, depreciation, amortization and the change in estimated acquisition earn-out payables. T R O P E R L A U N N A 1 2 0 2 33 40,445 (4,458) (1,366) 2,969 9,200 1,021,151 $813,413 $716,938 $615,389 $605,382 33.5% 31.1% 30.0% 30.6% 32.2% Financial Statements and Supplementary Data Index to Consolidated Financial Statements Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019 Consolidated Balance Sheets as of December 31, 2021 and 2020 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021, 2020 and 2019 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 Notes to Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019 Note 1: Summary of Significant Accounting Policies Note 2: Revenues Note 3: Business Combinations Note 4: Goodwill Note 5: Amortizable Intangible Assets Note 6: Investments Note 7: Fixed Assets Note 8: Accrued Expenses and Other Liabilities Note 9: Long-Term Debt Note 10: Income Taxes Note 11: Employee Savings Plan Note 12: Stock-Based Compensation Note 13: Supplemental Disclosures of Cash Flow Information and Non-Cash Financing and Investing Activities Note 14: Commitments and Contingencies Note 15: Leases Note 16: Segment Information Note 17: Insurance Company WNFIC Note 18: Shareholders’ Equity Report of Independent Registered Public Accounting Firm Brown & Brown, Inc. Consolidated Statements Page No. 35 36 37 38 39 40 40 45 46 55 55 55 57 58 58 60 62 62 65 66 66 67 69 69 70 of Income (IN THOUSANDS, EXCEPT PER SHARE DATA) R E V E N U E S Commissions and fees Investment income Other income, net Total revenues E X P E N S E S Employee compensation and benefits Other operating expenses (Gain)/loss on disposal Amortization Depreciation Interest Total expenses Income before income taxes Income taxes Net income Net income per share: Basic Diluted Dividends declared per share Change in estimated acquisition earn-out payables See accompanying notes to Consolidated Financial Statements. FOR THE YEAR ENDED DECEMBER 31, 2021 2020 2019 $3,047,522 $2,606,108 $2,384,737 1,099 2,777 2,811 4,456 5,780 1,654 3,051,398 2,613,375 2,392,171 1,636,911 1,436,377 1,308,165 402,941 365,973 (9,605) (2,388) 119,593 108,523 33,309 64,981 40,445 26,276 58,973 (4,458) 377,089 (10,021) 105,298 23,417 63,660 (1,366) 2,288,575 1,989,276 1,866,242 762,823 175,719 624,099 143,616 525,929 127,415 $587,104 $480,483 $398,514 $2.08 $2.07 $0.38 $1.70 $1.69 $0.35 $1.42 $1.40 $0.33 T R O P E R L A U N N A 1 2 0 2 35 34 Financial Statements and Supplementary Data Index to Consolidated Financial Statements Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019 Consolidated Balance Sheets as of December 31, 2021 and 2020 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021, 2020 and 2019 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 Notes to Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019 Note 1: Summary of Significant Accounting Policies Note 2: Revenues Note 3: Business Combinations Note 4: Goodwill Note 5: Amortizable Intangible Assets Note 6: Investments Note 7: Fixed Assets Note 9: Long-Term Debt Note 10: Income Taxes Note 11: Employee Savings Plan Note 12: Stock-Based Compensation Note 8: Accrued Expenses and Other Liabilities Note 14: Commitments and Contingencies Note 15: Leases Note 16: Segment Information Note 17: Insurance Company WNFIC Note 18: Shareholders’ Equity Report of Independent Registered Public Accounting Firm Note 13: Supplemental Disclosures of Cash Flow Information and Non-Cash Financing and Investing Activities Page No. 35 36 37 38 39 40 40 45 46 55 55 55 57 58 58 60 62 62 65 66 66 67 69 69 70 Brown & Brown, Inc. Consolidated Statements of Income (IN THOUSANDS, EXCEPT PER SHARE DATA) R E V E N U E S Commissions and fees Investment income Other income, net Total revenues E X P E N S E S Employee compensation and benefits Other operating expenses (Gain)/loss on disposal Amortization Depreciation Interest Change in estimated acquisition earn-out payables Total expenses Income before income taxes Income taxes Net income Net income per share: Basic Diluted Dividends declared per share See accompanying notes to Consolidated Financial Statements. FOR THE YEAR ENDED DECEMBER 31, 2021 2020 2019 $3,047,522 $2,606,108 $2,384,737 1,099 2,777 2,811 4,456 5,780 1,654 3,051,398 2,613,375 2,392,171 1,636,911 1,436,377 1,308,165 402,941 365,973 (9,605) (2,388) 119,593 108,523 33,309 64,981 40,445 26,276 58,973 (4,458) 377,089 (10,021) 105,298 23,417 63,660 (1,366) 2,288,575 1,989,276 1,866,242 762,823 175,719 624,099 143,616 525,929 127,415 $587,104 $480,483 $398,514 $2.08 $2.07 $0.38 $1.70 $1.69 $0.35 $1.42 $1.40 $0.33 T R O P E R L A U N N A 1 2 0 2 35 34 Brown & Brown, Inc. Consolidated Statements of Comprehensive Income Brown & Brown, Inc. Consolidated Balance Sheets (IN THOUSANDS, EXCEPT PER SHARE DATA) DECEMBER 31, 2021 DECEMBER 31, 2020 (IN THOUSANDS) Net income Foreign currency translation Unrealized loss on available-for-sale debt securities, net of tax Comprehensive income YEAR ENDED DECEMBER 31, 2021 2020 2019 $587,104 $480,483 $398,514 (9,287) (122) — — — — $577,695 $480,483 $398,514 36 Common stock, par value $0.10 per share; authorized 560,000 shares; issued 300,993 shares and outstanding 282,496 at 2021, issued 299,689 shares and outstanding Treasury stock, at cost at 18,497 at 2021 and 16,685 shares at 2020, respectively - in 283,004 shares at 2020 - in thousands. Additional paid-in capital thousands Accumulated other comprehensive loss Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity 30,099 849,424 (673,902) (9,409) 4,000,681 4,196,893 $9,795,443 29,969 794,909 (591,338) — 3,520,683 3,754,223 $8,966,492 See accompanying notes to Consolidated Financial Statements. A S S E T S Current Assets: Cash and cash equivalents Restricted cash and investments Short-term investments Premiums, commissions and fees receivable Reinsurance recoverable Prepaid reinsurance premiums Other current assets Total current assets Fixed assets, net Operating lease assets Goodwill Amortizable intangible assets, net Investments Other assets Total assets Current Liabilities: L I A B I L I T I E S A N D S H A R E H O L D E R S ’ E Q U I T Y Premiums payable to insurance companies Losses and loss adjustment reserve Unearned premiums Premium deposits and credits due customers Accounts payable Accrued expenses and other liabilities Current portion of long-term debt Total current liabilities Long-term debt less unamortized discount and debt issuance costs Operating lease liabilities Deferred income taxes, net Other liabilities Shareholders’ Equity: $887,009 583,247 12,891 1,216,188 63,106 392,222 175,621 3,330,284 212,033 197,035 4,736,828 1,081,465 30,970 206,828 63,106 392,222 122,447 206,370 456,159 42,500 2,667,366 1,980,437 179,976 386,794 383,977 $817,398 454,517 18,332 1,099,248 43,469 377,615 147,670 2,958,249 201,115 186,998 4,395,918 1,049,660 24,971 149,581 43,469 377,615 102,505 190,497 371,737 70,000 2,354,352 2,025,906 172,935 344,222 314,854 $9,795,443 $8,966,492 $1,384,562 $1,198,529 T R O P E R L A U N N A 1 2 0 2 37 Brown & Brown, Inc. Consolidated Statements of Comprehensive Income Brown & Brown, Inc. Consolidated Balance Sheets (IN THOUSANDS, EXCEPT PER SHARE DATA) DECEMBER 31, 2021 DECEMBER 31, 2020 (IN THOUSANDS) Net income Foreign currency translation Comprehensive income Unrealized loss on available-for-sale debt securities, net of tax YEAR ENDED DECEMBER 31, 2021 2020 2019 $587,104 $480,483 $398,514 (9,287) (122) — — — — $577,695 $480,483 $398,514 36 A S S E T S Current Assets: Cash and cash equivalents Restricted cash and investments Short-term investments Premiums, commissions and fees receivable Reinsurance recoverable Prepaid reinsurance premiums Other current assets Total current assets Fixed assets, net Operating lease assets Goodwill Amortizable intangible assets, net Investments Other assets Total assets L I A B I L I T I E S A N D S H A R E H O L D E R S ’ E Q U I T Y Current Liabilities: Premiums payable to insurance companies Losses and loss adjustment reserve Unearned premiums Premium deposits and credits due customers Accounts payable Accrued expenses and other liabilities Current portion of long-term debt Total current liabilities Long-term debt less unamortized discount and debt issuance costs Operating lease liabilities Deferred income taxes, net Other liabilities Shareholders’ Equity: Common stock, par value $0.10 per share; authorized 560,000 shares; issued 300,993 shares and outstanding 282,496 at 2021, issued 299,689 shares and outstanding 283,004 shares at 2020 - in thousands. Additional paid-in capital Treasury stock, at cost at 18,497 at 2021 and 16,685 shares at 2020, respectively - in thousands Accumulated other comprehensive loss Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity See accompanying notes to Consolidated Financial Statements. $887,009 583,247 12,891 1,216,188 63,106 392,222 175,621 3,330,284 212,033 197,035 4,736,828 1,081,465 30,970 206,828 $817,398 454,517 18,332 1,099,248 43,469 377,615 147,670 2,958,249 201,115 186,998 4,395,918 1,049,660 24,971 149,581 $9,795,443 $8,966,492 $1,384,562 $1,198,529 63,106 392,222 122,447 206,370 456,159 42,500 2,667,366 1,980,437 179,976 386,794 383,977 30,099 849,424 (673,902) (9,409) 4,000,681 4,196,893 $9,795,443 43,469 377,615 102,505 190,497 371,737 70,000 2,354,352 2,025,906 172,935 344,222 314,854 29,969 794,909 (591,338) — 3,520,683 3,754,223 $8,966,492 T R O P E R L A U N N A 1 2 0 2 37 Brown & Brown, Inc. Consolidated Statements of Shareholders’ Equity Brown & Brown, Inc. Consolidated Statements of Cash Flows COMMON STOCK SHARES OUTSTANDING PAR VALUE ADDITIONAL PAID-IN CAPITAL TREASURY STOCK ACCUMULATED OTHER COMPREHENSIVE LOSS RETAINED EARNINGS TOTAL 279,583 $29,338 $615,180 $(477,572) $— $2,833,622 $3,000,568 (IN THOUSANDS, EXCEPT PER SHARE DATA) Balance at January 1, 2019 Net Income Net unrealized holding (loss) gain on available-for-sale securities Shares issued - employee stock compensation plans Employee stock purchase plan Stock incentive plans Agency acquisition Directors 976 2,519 569 28 98 252 57 3 182 30,453 40,311 19,943 877 Repurchase shares to fund tax withholdings for non-cash stock-based compensation Purchase of treasury stock Cash dividends paid ($0.33 per share) (366) (37) (10,897) (1,654) 20,000 (58,671) 398,514 398,514 (30) 152 30,551 40,563 20,000 880 (10,934) (38,671) (91,344) (91,344) Cash dividends paid ($0.33 per share) Balance at December 31, 2019 Net Income Net unrealized holding (loss) gain on available-for-sale securities Shares issued - employee stock compensation plans Employee stock purchase plan Stock incentive plans Agency acquisition Directors Repurchase shares to fund tax withholdings for non-cash stock-based compensation Purchase of treasury stock Cash dividends paid ($0.35 per share) Balance at December 31, 2020 Net Income Net unrealized holding (loss) gain on available-for-sale securities Foreign currency translation 281,655 29,711 716,049 (536,243) — 3,140,762 3,350,279 466 38,047 50,934 30,048 585 96 189 72 2 (101) (41,220) (55,095) 962 1,895 723 16 (1,013) (1,234) 480,483 480,483 30 496 38,143 51,123 30,120 587 (41,321) (55,095) 283,004 29,969 794,909 (591,338) — 3,520,683 3,754,223 (100,592) (100,592) 587,104 587,104 Shares issued - employee stock compensation plans Employee stock purchase plan Stock incentive plans Agency acquisition Directors Repurchase shares to fund tax withholdings for non-cash stock-based compensation Purchase of treasury stock Cash dividends paid ($0.38 per share) 851 1,313 184 17 (1,061) (1,812) (508) 42,800 51,129 9,873 897 85 131 19 2 (107) (49,676) (82,564) (122) (9,287) 123 (630) (9,164) 42,885 51,260 9,892 899 (49,783) (82,564) (107,229) (107,229) Effect of foreign exchange rate cash changes Balance at December 31, 2021 282,496 $30,099 $849,424 $(673,902) $(9,409) $4,000,681 $4,196,893 Net increase (decrease) in cash and cash equivalents inclusive of restricted cash See accompanying notes to Consolidated Financial Statements. 38 Cash and cash equivalents inclusive of restricted cash at beginning of period Cash and cash equivalents inclusive of restricted cash at end of period $1,470,256 $1,271,915 $962,975 See accompanying notes to Consolidated Financial Statements. Refer to Note 13 for reconciliation of cash and cash equivalents inclusive of restricted cash. (IN THOUSANDS) Cash flows from operating activities: Net income Amortization Depreciation Adjustments to reconcile net income to net cash provided by operating activities: Non-cash stock-based compensation Change in estimated acquisition earn-out payables Deferred income taxes Amortization of debt discount and disposal of deferred financing costs Accretion of discounts and premiums, investments (Gain)/loss on sales of investments, fixed assets and customer accounts Payments on acquisition earn-outs in excess of original estimated payables Effect of changes in foreign exchange rate changes Changes in operating assets and liabilities, net of effect from acquisitions and divestitures: Premiums, commissions and fees receivable (increase) decrease Reinsurance recoverables (increase) decrease Prepaid reinsurance premiums (increase) decrease Other assets (increase) decrease Premiums payable to insurance companies (increase) decrease Premium deposits and credits due customers increase (decrease) Losses and loss adjustment reserve increase (decrease) Unearned premiums increase (decrease) Accounts payable increase (decrease) Accrued expenses and other liabilities increase (decrease) Other liabilities increase (decrease) Net cash provided by operating activities Cash flows from investing activities: Additions to fixed assets Payments for businesses acquired, net of cash acquired Proceeds from sales of fixed assets and customer accounts Purchases of investments Proceeds from sales of investments Net cash used in investing activities Cash flows from financing activities: Payments on acquisition earn-outs Proceeds from long-term debt Payments on long-term debt Deferred debt issuance costs Borrowings on revolving credit facilities Payments on revolving credit facilities Issuances of common stock for employee stock benefit plans Repurchase of stock benefit plan shares for employees to fund tax withholdings Purchase of treasury stock Settlement of accelerated share repurchase program Cash dividends paid Net cash (used in) provided by financing activities YEAR ENDED DECEMBER 31, 2021 2020 2019 $587,104 $480,483 $398,514 119,593 108,523 105,298 33,309 61,018 40,445 33,616 2,839 171 (7,096) (21,060) 494 (72,843) (19,637) (14,607) (53,746) 127,991 19,581 19,637 14,607 51,404 66,782 (47,133) 942,469 (45,045) (366,780) 16,735 (12,375) 10,785 (62,521) (73,125) (2,683) 34,026 (49,783) (82,564) — — — — (107,229) (343,879) (3,569) 198,341 1,271,915 26,276 59,749 (4,458) 15,943 2,319 48 (831) (4,532) — (135,367) 15,036 (11,594) (42,731) 158,775 (12,886) (15,036) 11,594 107,754 34,716 (72,134) 721,647 (24,977) 700,000 (55,000) (6,756) 250,000 30,104 (41,321) (55,095) (100,592) 346,363 — — 308,940 962,975 23,417 46,994 (1,366) 12,383 2,054 (5) (9,550) (351) — (86,778) 6,891 (28,101) (46,520) 148,658 7,820 (6,707) 28,101 17,800 43,330 16,298 678,180 (9,566) 350,000 (50,000) (3,701) 100,000 24,999 (10,933) (58,671) 20,000 (91,344) (79,216) — 185,379 777,596 (350,000) (350,000) (70,700) (73,108) (694,842) (353,043) 9,615 (14,168) 11,025 21,592 (17,520) 8,494 (396,680) (759,070) (413,585) T R O P E R L A U N N A 1 2 0 2 39 Brown & Brown, Inc. Consolidated Statements of Shareholders’ Equity Brown & Brown, Inc. Consolidated Statements of Cash Flows COMMON STOCK ACCUMULATED SHARES OUTSTANDING PAR VALUE ADDITIONAL PAID-IN CAPITAL TREASURY COMPREHENSIVE STOCK OTHER LOSS 279,583 $29,338 $615,180 $(477,572) $— $2,833,622 $3,000,568 RETAINED EARNINGS TOTAL 398,514 398,514 (30) 152 (IN THOUSANDS, EXCEPT PER SHARE DATA) Balance at January 1, 2019 Net Income Net unrealized holding (loss) gain on available-for-sale securities Employee stock purchase plan Stock incentive plans Agency acquisition Directors Shares issued - employee stock compensation plans 976 2,519 569 28 98 252 57 3 182 30,453 40,311 19,943 877 Repurchase shares to fund tax withholdings for non-cash stock-based compensation (366) (37) (10,897) Purchase of treasury stock Cash dividends paid ($0.33 (1,654) 20,000 (58,671) 281,655 29,711 716,049 (536,243) — 3,140,762 3,350,279 (91,344) 480,483 480,483 30 496 Shares issued - employee stock compensation plans Repurchase shares to fund tax withholdings for non-cash per share) Net Income Cash dividends paid ($0.33 per share) Balance at December 31, 2019 Net unrealized holding (loss) gain on available-for-sale securities Employee stock purchase plan Stock incentive plans Agency acquisition Directors stock-based compensation Purchase of treasury stock Cash dividends paid ($0.35 per share) Balance at December 31, 2020 Net Income Net unrealized holding (loss) gain on available-for-sale securities Foreign currency translation Employee stock purchase plan Stock incentive plans Agency acquisition Directors Shares issued - employee stock compensation plans 466 38,047 50,934 30,048 585 96 189 72 2 (101) (41,220) (55,095) (508) 42,800 51,129 9,873 897 85 131 19 2 962 1,895 723 16 (1,013) (1,234) 851 1,313 184 17 (1,061) (1,812) Repurchase shares to fund tax withholdings for non-cash stock-based compensation Purchase of treasury stock Cash dividends paid ($0.38 per share) (107) (49,676) (82,564) 283,004 29,969 794,909 (591,338) — 3,520,683 3,754,223 (100,592) (100,592) 587,104 587,104 (122) (9,287) 123 30,551 40,563 20,000 880 (10,934) (38,671) (91,344) 38,143 51,123 30,120 587 (41,321) (55,095) (630) (9,164) 42,885 51,260 9,892 899 (49,783) (82,564) (IN THOUSANDS) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Amortization Depreciation Non-cash stock-based compensation Change in estimated acquisition earn-out payables Deferred income taxes Amortization of debt discount and disposal of deferred financing costs Accretion of discounts and premiums, investments (Gain)/loss on sales of investments, fixed assets and customer accounts Payments on acquisition earn-outs in excess of original estimated payables Effect of changes in foreign exchange rate changes Changes in operating assets and liabilities, net of effect from acquisitions and divestitures: Premiums, commissions and fees receivable (increase) decrease Reinsurance recoverables (increase) decrease Prepaid reinsurance premiums (increase) decrease Other assets (increase) decrease Premiums payable to insurance companies (increase) decrease Premium deposits and credits due customers increase (decrease) Losses and loss adjustment reserve increase (decrease) Unearned premiums increase (decrease) Accounts payable increase (decrease) Accrued expenses and other liabilities increase (decrease) Other liabilities increase (decrease) Net cash provided by operating activities Cash flows from investing activities: Additions to fixed assets Payments for businesses acquired, net of cash acquired Proceeds from sales of fixed assets and customer accounts Purchases of investments Proceeds from sales of investments Net cash used in investing activities Cash flows from financing activities: Payments on acquisition earn-outs Proceeds from long-term debt Payments on long-term debt Deferred debt issuance costs Borrowings on revolving credit facilities Payments on revolving credit facilities Issuances of common stock for employee stock benefit plans Repurchase of stock benefit plan shares for employees to fund tax withholdings Purchase of treasury stock Settlement of accelerated share repurchase program Cash dividends paid Net cash (used in) provided by financing activities Balance at December 31, 2021 282,496 $30,099 $849,424 $(673,902) $(9,409) $4,000,681 $4,196,893 Net increase (decrease) in cash and cash equivalents inclusive of restricted cash (107,229) (107,229) Effect of foreign exchange rate cash changes See accompanying notes to Consolidated Financial Statements. Cash and cash equivalents inclusive of restricted cash at beginning of period Cash and cash equivalents inclusive of restricted cash at end of period T R O P E R L A U N N A 1 2 0 2 YEAR ENDED DECEMBER 31, 2021 2020 2019 $587,104 $480,483 $398,514 119,593 33,309 61,018 40,445 33,616 2,839 171 (7,096) (21,060) 494 (72,843) (19,637) (14,607) (53,746) 127,991 19,581 19,637 14,607 51,404 66,782 (47,133) 942,469 (45,045) (366,780) 16,735 (12,375) 10,785 (396,680) (62,521) — (73,125) (2,683) — — 34,026 (49,783) (82,564) — (107,229) (343,879) (3,569) 198,341 1,271,915 $1,470,256 108,523 26,276 59,749 (4,458) 15,943 2,319 48 (831) (4,532) — (135,367) 15,036 (11,594) (42,731) 158,775 (12,886) (15,036) 11,594 107,754 34,716 (72,134) 721,647 (70,700) (694,842) 9,615 (14,168) 11,025 (759,070) (24,977) 700,000 (55,000) (6,756) 250,000 (350,000) 30,104 (41,321) (55,095) — (100,592) 346,363 — 308,940 962,975 $1,271,915 105,298 23,417 46,994 (1,366) 12,383 2,054 (5) (9,550) (351) — (86,778) 6,891 (28,101) (46,520) 148,658 7,820 (6,707) 28,101 17,800 43,330 16,298 678,180 (73,108) (353,043) 21,592 (17,520) 8,494 (413,585) (9,566) 350,000 (50,000) (3,701) 100,000 (350,000) 24,999 (10,933) (58,671) 20,000 (91,344) (79,216) — 185,379 777,596 $962,975 38 See accompanying notes to Consolidated Financial Statements. Refer to Note 13 for reconciliation of cash and cash equivalents inclusive of restricted cash. 39 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 service organization that markets and sells 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, professional and individual insured customers, and non-insurance risk-mitigating products through our automobile dealer services (“F&I”) businesses. 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. Recently Issued Accounting Pronouncements In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendment requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Accounting Standards Codification (“ASC”) Topic 606. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. While the Company is continuing to assess the timing of adoption and the potential impacts of ASU 2021-08, it does not expect ASU 2021-08 to have a material effect on its consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”), or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We are currently evaluating our contracts and the available expedients provided by the new standard; however, the Company can assert there is no impact to any carrying value of assets or liabilities aside from our floating-rate debt instruments that are indexed to LIBOR and are carried at amortized cost. Any further impact of adoption will be in determining the new periodic floating interest rate indexed to our floating-rate debt instruments with no impact on the balance sheet upon adoption. Recently Adopted Accounting Standards In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The standard removes specific exceptions in the current rules and eliminates the need for an organization to analyze whether the following apply in a given period: (a) exception to the incremental approach for intra-period tax allocation; (b) exceptions to accounting for basis differences when there are ownership changes in foreign investments and (c) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The standard also is designed to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for (a) franchise taxes that are partially based on income; (b) transactions with a government that result in a step-up in the tax basis of goodwill; (c) separate financial statements of legal entities that are not subject to tax and (d) enacted changes in tax laws in interim periods. The Company adopted ASU 2019-12 effective January 1, 2021. The impact of adopting this standard was not material to the presentation of the Consolidated Financial Statements. 40 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 became effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-15 effective January 1, 2020. The impact of adoption of this standard on our consolidated financial statements, including accounting policies, processes and systems, was not material. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The new guidance eliminates Step 2 of the goodwill impairment test. The updated guidance requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit to its carrying value, and recognizing a non-cash impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value with the loss not exceeding the total amount of goodwill allocated to that reporting unit. ASU 2017-04 became effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and will be applied prospectively. The Company adopted ASU 2017-04 effective January 1, 2020, with interim or annual goodwill impairment tests now comparing the fair value of a reporting unit with its carrying value and no longer performing Step 2 of the goodwill impairment test. There was no impact from adopting ASU 2017-04 as there were no impairments recorded. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The new guidance adds an impairment model, known as the current expected credit loss (CECL) model that is based on expected losses rather than incurred losses. These amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable forward-looking information, which is intended to result in more timely recognition of such losses. All related guidance has been codified into, and is now known as, ASC 326 – Financial Instruments—Credit Losses. The new standard is effective for public companies for annual reporting periods beginning after December 15, 2019, and interim periods therein. The Company adopted ASU 2016-13 effective January 1, 2020 and determined there was not a material impact on the Company’s Financial Statements given that historical trend analysis and assessments for forward-looking qualitative analysis are already integrated into financial assessments for the Company. 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. Principles of Consolidation 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, in some instances 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. Management determines the policy cancellation reserve based upon historical cancellation experience adjusted for any known circumstances. Use of Estimates T R O P E R L A U N N A 1 2 0 2 The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“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. 41 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 service organization that markets and sells 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, professional and individual insured customers, and non-insurance risk-mitigating products through our automobile dealer services (“F&I”) businesses. 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. Recently Issued Accounting Pronouncements In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendment requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Accounting Standards Codification (“ASC”) Topic 606. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. While the Company is continuing to assess the timing of adoption and the potential impacts of ASU 2021-08, it does not expect ASU 2021-08 to have a material effect on its consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”), or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We are currently evaluating our contracts and the available expedients provided by the new standard; however, the Company can assert there is no impact to any carrying value of assets or liabilities aside from our floating-rate debt instruments that are indexed to LIBOR and are carried at amortized cost. Any further impact of adoption will be in determining the new periodic floating interest rate indexed to our floating-rate debt instruments with no impact on the balance sheet upon adoption. Recently Adopted Accounting Standards In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The standard removes specific exceptions in the current rules and eliminates the need for an organization to analyze whether the following apply in a given period: (a) exception to the incremental approach for intra-period tax allocation; (b) exceptions to accounting for basis differences when there are ownership changes in foreign investments and (c) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The standard also is designed to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for (a) franchise taxes that are partially based on income; (b) transactions with a government that result in a step-up in the tax basis of goodwill; (c) separate financial statements of legal entities that are not subject to tax and (d) enacted changes in tax laws in interim periods. The Company adopted ASU 2019-12 effective January 1, 2021. The impact of adopting this standard was not material to the presentation of the Consolidated Financial Statements. 40 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 became effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-15 effective January 1, 2020. The impact of adoption of this standard on our consolidated financial statements, including accounting policies, processes and systems, was not material. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The new guidance eliminates Step 2 of the goodwill impairment test. The updated guidance requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit to its carrying value, and recognizing a non-cash impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value with the loss not exceeding the total amount of goodwill allocated to that reporting unit. ASU 2017-04 became effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and will be applied prospectively. The Company adopted ASU 2017-04 effective January 1, 2020, with interim or annual goodwill impairment tests now comparing the fair value of a reporting unit with its carrying value and no longer performing Step 2 of the goodwill impairment test. There was no impact from adopting ASU 2017-04 as there were no impairments recorded. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The new guidance adds an impairment model, known as the current expected credit loss (CECL) model that is based on expected losses rather than incurred losses. These amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable forward-looking information, which is intended to result in more timely recognition of such losses. All related guidance has been codified into, and is now known as, ASC 326 – Financial Instruments—Credit Losses. The new standard is effective for public companies for annual reporting periods beginning after December 15, 2019, and interim periods therein. The Company adopted ASU 2016-13 effective January 1, 2020 and determined there was not a material impact on the Company’s Financial Statements given that historical trend analysis and assessments for forward-looking qualitative analysis are already integrated into financial assessments for the Company. 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. 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, in some instances 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. Management determines the policy cancellation reserve based upon historical cancellation experience adjusted for any known circumstances. T R O P E R L A U N N A 1 2 0 2 Use of Estimates The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“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. 41 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 typically range from 3 to 15 years. Purchased customer accounts represent the value of the customer relationship, but also 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. The Company may elect to first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If the Company does not perform a qualitative assessment, or if it is determined that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, the Company will calculate the fair value of the reporting unit. 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, 2021 and determined that the fair value of goodwill significantly exceeded the carrying value of such assets. In addition, as of December 31, 2021, 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 after determining the fair value of the amortizable intangible assets. There were no impairments recorded for the years ended December 31, 2021, 2020 and 2019. 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. Included in cash and cash equivalents are unrestricted premium from insureds and prefunded claims from carriers held in a fiduciary capacity. 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, premiums that are receivable from insureds are reported within Premiums, commissions, and fees receivable in the Consolidated Balance Sheets. Unremitted net insurance premiums are held in a fiduciary capacity until the Company disburses them, and the use of such funds is restricted by laws in certain jurisdictions in which our subsidiaries operate, or restricted due to our contracts with a certain insurance company or companies in which we hold premiums in a fiduciary capacity. 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 Income Taxes 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 Sheets. Realized gains and losses are reported as investment income on the Consolidated Statement of Income, with the cost of securities sold determined on a specific identification basis. 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. T R O P E R L A U N N A 1 2 0 2 Fixed Assets Net Income Per Share 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 range from 3 to 40 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 are accounted for using the acquisition method. Acquisition purchase prices are typically based upon a multiple of average annual EBITDAC (defined below), and/or revenue earned over a period of 3 years within a minimum and maximum price range. The recorded purchase prices for acquisitions 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 forecast earn-out payments will be made. 42 common share Dilutive effect of stock options Net income per share: Basic Diluted 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 following is a reconciliation between basic and diluted weighted average shares outstanding for the years ended December 31: (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income Net income attributable to unvested awarded performance stock Net income attributable to common shares 2021 2020 2019 $587,104 (12,942 ) $480,483 $398,514 (15,197) (12,873) $574,162 $465,286 $385,641 Weighted average number of common shares outstanding – basic 282,246 283,294 281,566 Less unvested awarded performance stock included in weighted average number of common shares outstanding – basic (6,222) (8,960) (9,095) Weighted average number of common shares outstanding for basic earnings per Weighted average number of shares outstanding – diluted 277,414 275,867 274,616 276,024 1,390 274,334 272,471 1,533 2,145 $2.08 $2.07 $1.70 $1.69 $1.42 $1.40 43 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. Included in cash and cash equivalents are unrestricted premium from insureds and prefunded claims from carriers held in a fiduciary capacity. 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, premiums that are receivable from insureds are reported within Premiums, commissions, and fees receivable in the Consolidated Balance Sheets. Unremitted net insurance premiums are held in a fiduciary capacity until the Company disburses them, and the use of such funds is restricted by laws in certain jurisdictions in which our subsidiaries operate, or restricted due to our contracts with a certain insurance company or companies in which we hold premiums in a fiduciary capacity. 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. 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 Sheets. Realized gains and losses are reported as investment income on the Consolidated Statement of Income, with the cost of securities sold determined on a Investments 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 range from 3 to 40 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 are accounted for using the acquisition method. Acquisition purchase prices are typically based upon a multiple of average annual EBITDAC (defined below), and/or revenue earned over a period of 3 years within a minimum and maximum price range. The recorded purchase prices for acquisitions 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 42 consideration the likelihood that the forecast 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 typically range from 3 to 15 years. Purchased customer accounts represent the value of the customer relationship, but also 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. The Company may elect to first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If the Company does not perform a qualitative assessment, or if it is determined that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, the Company will calculate the fair value of the reporting unit. 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, 2021 and determined that the fair value of goodwill significantly exceeded the carrying value of such assets. In addition, as of December 31, 2021, 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 after determining the fair value of the amortizable intangible assets. There were no impairments recorded for the years ended December 31, 2021, 2020 and 2019. 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 following is a reconciliation between basic and diluted weighted average shares outstanding for the years ended December 31: (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income Net income attributable to unvested awarded performance stock Net income attributable to common shares 2021 2020 2019 $587,104 (12,942 ) $480,483 $398,514 (15,197) (12,873) $574,162 $465,286 $385,641 Weighted average number of common shares outstanding – basic 282,246 283,294 281,566 Less unvested awarded performance stock included in weighted average number of common shares outstanding – basic (6,222) (8,960) (9,095) Weighted average number of common shares outstanding for basic earnings per common share Dilutive effect of stock options 276,024 1,390 274,334 272,471 1,533 2,145 Weighted average number of shares outstanding – diluted 277,414 275,867 274,616 T R O P E R L A U N N A 1 2 0 2 Net income per share: Basic Diluted $2.08 $2.07 $1.70 $1.69 $1.42 $1.40 43 Fair Value of Financial Instruments Unpaid Losses and Loss Adjustment Reserve 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, 2021 and 2020, 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, 2021 and 2020 as our fixed-rate borrowings of $1,548.5 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 our variable floating rate debt agreements is $486.9 million which 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. Non-Cash Stock-Based Compensation The Company has stock-based compensation plans that provide for grants of restricted stock, restricted stock units, stock options and other stock-based awards to employees and non-employee directors of the Company. In addition, the Company has an Employee Stock Purchase Plan which allows employees to purchase shares in the Company. The Company expenses stock-based compensation, which is included in Employee compensation and benefits in the Consolidated Statements of Income over the requisite service period. The significant assumptions underlying our expense calculations include the fair value of the award on the date of grant, the estimated achievement of any performance targets and estimated forfeiture rates. 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 acts in a risk-bearing capacity for flood insurance associated with the Wright National Flood Insurance Company (“WNFIC”), which is part of our National Programs Segment. The Company protects itself from claims-related losses by reinsuring all claims risk exposure. However, for basic admitted policies conforming to the National Flood Insurance Program all exposure is reinsured with the Federal Emergency Management Agency (“FEMA”). 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 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. The Company also operates a capitalized captive insurance facility (the “Captive”), which started in December 2021, for the purpose of having additional capacity to sell property insurance for earthquake and wind exposed properties. The Captive buys reinsurance, limiting, but not completely eliminating the Company’s exposure to underwriting losses. The operations of the Captive were not material to the Consolidated Financial Statements for the year ended December 31, 2021. 44 45 Unpaid losses and loss adjustment reserve include amounts determined on individual claims and other estimates based upon the past experience of WNFIC, the Captive 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. The Company 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 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 Consolidated Statement of Income. NOTE 2. Revenues The following tables present the revenues disaggregated by revenue source: Profit-sharing contingent commissions(4) Guaranteed supplemental commissions(5) (IN THOUSANDS) Base commissions(1) Fees(2) Incentive commissions(3) Investment income(6) Other income, net(7) Total Revenues (IN THOUSANDS) Base commissions(1) Fees(2) Incentive commissions(3) Investment income(6) Other income, net(7) Total Revenues Profit-sharing contingent commissions(4) Guaranteed supplemental commissions(5) 833,030 103,249 82,226 19,005 1,099 2,777 — — — 113 965 T R O P E R L A U N N A 1 2 0 2 FOR THE YEAR ENDED DECEMBER 31, 2021 RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES OTHER(8) TOTAL $1,198,129 $488,787 $323,054 $— $42 $2,010,012 414,937 173,790 67,233 178,857 (1,787) $ 1,767,938 $701,850 $403,417 $178,860 $(667) $ 3,051,398 FOR THE YEAR ENDED DECEMBER 31, 2020 RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES OTHER(8) TOTAL $1,054,619 $422,916 $273,878 $— $1 $1,751,414 275,900 159,337 66,051 174,012 (1,291) 674,009 98,254 38,895 16,452 278 993 1,653 35,259 1,619 550 192 89,920 35,785 15,128 163 1,251 549 27,278 (238) 756 42 3,342 8,072 934 155 627 3,057 7,871 1,304 184 452 — — — 3 — — — — — — 31 — — 1,708 2,711 93,557 70,934 16,194 2,811 4,456 $1,472,766 $610,640 $352,797 $174,012 $3,160 $2,613,375 (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, fees negotiated in lieu of commissions, and F&I products and services. (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. (6) Investment income consists primarily of interest on cash and investments. (7) Other income consists primarily of legal settlements and other miscellaneous income. (8) Fees within other reflects the elimination of intercompany revenues. Fair Value of Financial Instruments 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, the Captive 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. The Company 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 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 Consolidated Statement of Income. NOTE 2. Revenues The following tables present the revenues disaggregated by revenue source: (IN THOUSANDS) Base commissions(1) Fees(2) Incentive commissions(3) Profit-sharing contingent commissions(4) Guaranteed supplemental commissions(5) Investment income(6) Other income, net(7) Total Revenues (IN THOUSANDS) Base commissions(1) Fees(2) Balances due from reinsurers on unpaid losses and loss adjustment expenses, including an estimate of such recoverables related to Incentive commissions(3) Profit-sharing contingent commissions(4) Guaranteed supplemental commissions(5) Investment income(6) Other income, net(7) Total Revenues FOR THE YEAR ENDED DECEMBER 31, 2021 RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES OTHER(8) TOTAL $1,198,129 $488,787 $323,054 $— $42 $2,010,012 414,937 173,790 67,233 178,857 (1,787) 98,254 38,895 16,452 278 993 1,653 35,259 1,619 550 192 3,342 8,072 934 155 627 — — — 3 — — — — 113 965 833,030 103,249 82,226 19,005 1,099 2,777 $ 1,767,938 $701,850 $403,417 $178,860 $(667) $ 3,051,398 FOR THE YEAR ENDED DECEMBER 31, 2020 RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES OTHER(8) TOTAL $1,054,619 $422,916 $273,878 $— $1 $1,751,414 275,900 159,337 66,051 174,012 (1,291) 674,009 89,920 35,785 15,128 163 1,251 549 27,278 (238) 756 42 3,057 7,871 1,304 184 452 — — — — — 31 — — 1,708 2,711 93,557 70,934 16,194 2,811 4,456 $1,472,766 $610,640 $352,797 $174,012 $3,160 $2,613,375 (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, fees negotiated in lieu of commissions, and F&I products and services. (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. (6) Investment income consists primarily of interest on cash and investments. (7) Other income consists primarily of legal settlements and other miscellaneous income. (8) Fees within other reflects the elimination of intercompany revenues. T R O P E R L A U N N A 1 2 0 2 45 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, 2021 and 2020, 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, 2021 and 2020 as our fixed-rate borrowings of $1,548.5 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 our variable floating rate debt agreements is $486.9 million which 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. Non-Cash Stock-Based Compensation The Company has stock-based compensation plans that provide for grants of restricted stock, restricted stock units, stock options and other stock-based awards to employees and non-employee directors of the Company. In addition, the Company has an Employee Stock Purchase Plan which allows employees to purchase shares in the Company. The Company expenses stock-based compensation, which is included in Employee compensation and benefits in the Consolidated Statements of Income over the requisite service period. The significant assumptions underlying our expense calculations include the fair value of the award on the date of grant, the estimated achievement of any performance targets and estimated forfeiture rates. 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 acts in a risk-bearing capacity for flood insurance associated with the Wright National Flood Insurance Company (“WNFIC”), which is part of our National Programs Segment. The Company protects itself from claims-related losses by reinsuring all claims risk exposure. However, for basic admitted policies conforming to the National Flood Insurance Program all exposure is reinsured with the Federal Emergency Management Agency (“FEMA”). 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. reserves for incurred but not reported (“IBNR”) losses, are reported as assets and are included in reinsurance recoverable even though amounts 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. The Company also operates a capitalized captive insurance facility (the “Captive”), which started in December 2021, for the purpose of having additional capacity to sell property insurance for earthquake and wind exposed properties. The Captive buys reinsurance, limiting, but not completely eliminating the Company’s exposure to underwriting losses. The operations of the Captive were not material to the Consolidated Financial Statements for the year ended December 31, 2021. 44 Contract Assets and Liabilities The balances of contract assets and contract liabilities arising from contracts with customers as of December 31, 2021 and 2020 were as follows: 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 (IN THOUSANDS) Contract assets Contract liabilities DECEMBER 31, 2021 DECEMBER 31, 2020 financial projections. These payments are then discounted to present value using a risk-adjusted rate that takes into consideration the $ 361,834 $97,933 $ 308,755 $80,997 likelihood that the forecast earn-out payments will be made. 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, 2021, deferred revenue (recorded within the accrued expenses and other liabilities caption in the Company’s Consolidated Balance Sheets) consisted of $67.4 million as current portion to be recognized within one year and $30.5 million in long-term (recorded within the other liabilities caption in the Company’s Consolidated Balance Sheets) to be recognized beyond one year. As of December 31, 2020, deferred revenue consisted of $54.0 million as current portion to be recognized within one year and $27.0 million in long-term deferred revenue to be recognized beyond one year. Contract assets and contract liabilities arising from acquisitions in 2021 were approximately $5.5 million and $1.2 million, respectively. Contract assets and contract liabilities arising from acquisitions in 2020 were approximately $11.5 million and $20.0 million, respectively. During the 12 months ended December 31, 2021 and 2020, the amount of revenue recognized related to performance obligations satisfied in a previous period, inclusive of changes due to estimates, was approximately $23.3 million and $8.9 million, respectively. The $23.3 million for 2021 consists of additional variable consideration received on our incentive and profit-sharing contingent commissions. The $8.9 million for 2020 consists of $18.1 million of additional variable consideration received on our incentive and profit-sharing contingent commissions, offset by $7.1 million of revised estimates related to variable consideration on policies where the exposure units were expected to be impacted by the COVID-19 pandemic (“COVID-19”) and $2.1 million of other adjustments. Other Assets and Deferred Cost Incremental cost to obtain – The Company defers 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. The cost to obtain balance within the Other assets caption in the Company’s Consolidated Balance Sheets was $58.2 million and $42.2 million as of December 31, 2021 and December 31, 2020, respectively. For the 12 months ended December 31, 2021 and December 31, 2020, the Company deferred $19.8 million and $17.8 million of incremental cost to obtain customer contracts, respectively. The Company expensed $3.8 million and $2.5 million of the incremental cost to obtain customer contracts for the 12 months ended December 31, 2021 and December 31, 2020, respectively. Cost to fulfill - The Company defers certain costs to fulfill contracts and recognizes these costs as the associated performance obligations are fulfilled. The cost to fulfill balance within the Other current assets caption in the Company’s Consolidated Balance Sheets was $89.3 million, which is inclusive of deferrals from businesses acquired in the current year of $9.9 million. The cost to fulfill balance as of December 31, 2020 was $77.8 million. For the 12 months ended December 31, 2021 and 2020, the Company had net deferrals of $1.6 million and $3.3 million related to current year deferrals for costs incurred that relate to performance obligations yet to be fulfilled, net of the expense of previously deferred contract fulfillment costs associated with performance obligations that were satisfied in the period, respectively. NOTE 3. Business Combinations During the year ended December 31, 2021, the Company acquired the assets and assumed certain liabilities of 13 insurance intermediaries, all of the share capital of 1 insurance intermediary, all the stock of 2 insurance intermediaries, and 3 books of businesses (customer accounts). Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last 12 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. 46 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, 2021, adjustments were made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected acquisitions of $0.5 million relating to the assumption of certain liabilities on acquisitions completed in 2020. These measurement period adjustments have been reflected as current period adjustments for the year ended December 31, 2021. The measurement period adjustments impacted goodwill, with no effect on earnings or cash in the current period. Gross cash paid for acquisitions was $424.6 million and $722.5 million in the years ended December 31, 2021 and 2020, respectively. We completed 19 acquisitions (including book of business purchases) during the year ended December 31, 2021. We completed 25 acquisitions (including book of business purchases) during the year ended December 31, 2020. 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 COMMON CASH PAID STOCK ISSUED OTHER PAYABLE RECORDED EARN-OUT NET POTENTIAL ASSETS EARN-OUT PAYABLE ACQUIRED PAYABLE MAXIMUM O'Leary Insurances (O'Leary) Retail 2021 $117,408 $4,892 $— $15,348 $137,648 $30,575 Piper Jordan LLC (Piper) Retail 43,428 1,397 9,854 54,679 15,000 Berkshire Insurance Group, Inc. (Berkshire) Retail 1, 2021 41,500 — — 41,500 — AGIS Network, Inc. (AGIS)(1) Retail 1, 2021 11,203 24,114 739 36,056 12,289 Winston Financial Services, Inc. (Winston) Retail 79,461 5,000 7,724 16,427 108,612 29,000 Remedy Analytics, Inc. (Remedy) Retail 2021 40,762 473 7,364 48,599 25,000 Retail 2021 18,248 455 1,900 20,603 6,000 Heacock Insurance Group, LLC (Heacock) L.L.C. (CIA) Corporate Insurance Advisors, Rainmaker Advisory, LLC (Rainmaker) HARCO Insurance Services, Inc. (HARCO) Other Total Retail Retail Retail Various 15,314 14,174 24,266 18,849 181 6,542 22,037 14,000 776 5,937 20,887 10,000 1,000 3,066 4,423 7,227 29,689 29,142 7,350 13,118 $424,613 $9,892 $39,186 $75,761 $549,452 $162,332 EFFECTIVE DATE OF ACQUISITION January 1, May 1, 2021 September September October 1, 2021 October 1, October 1, December 1, 2021 December 1, 2021 December 31, 2021 Various — — — — — — — — — (1) Amount in the “other payable” column relates to additional contingent consideration expected to be paid within 12 months. T R O P E R L A U N N A 1 2 0 2 47 Contract Assets and Liabilities The balances of contract assets and contract liabilities arising from contracts with customers as of December 31, 2021 and 2020 were as follows: (IN THOUSANDS) Contract assets Contract liabilities DECEMBER 31, 2021 DECEMBER 31, 2020 $ 361,834 $97,933 $ 308,755 $80,997 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, 2021, deferred revenue (recorded within the accrued expenses and other liabilities caption in the Company’s Consolidated Balance Sheets) consisted of $67.4 million as current portion to be recognized within one year and $30.5 million in long-term (recorded within the other liabilities caption in the Company’s Consolidated Balance Sheets) to be recognized beyond one year. As of December 31, 2020, deferred revenue consisted of $54.0 million as current portion to be recognized within one year and $27.0 million in long-term deferred revenue to be recognized beyond one year. Contract assets and contract liabilities arising from acquisitions in 2021 were approximately $5.5 million and $1.2 million, respectively. Contract assets and contract liabilities arising from acquisitions in 2020 were approximately $11.5 million and $20.0 million, respectively. During the 12 months ended December 31, 2021 and 2020, the amount of revenue recognized related to performance obligations satisfied in a previous period, inclusive of changes due to estimates, was approximately $23.3 million and $8.9 million, respectively. The $23.3 million for 2021 consists of additional variable consideration received on our incentive and profit-sharing contingent commissions. The $8.9 million for 2020 consists of $18.1 million of additional variable consideration received on our incentive and profit-sharing contingent commissions, offset by $7.1 million of revised estimates related to variable consideration on policies where the exposure units were expected to be impacted by the COVID-19 pandemic (“COVID-19”) and $2.1 million of other adjustments. Other Assets and Deferred Cost Incremental cost to obtain – The Company defers 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. The cost to obtain balance within the Other assets caption in the Company’s Consolidated Balance Sheets was $58.2 million and $42.2 million as of December 31, 2021 and December 31, 2020, respectively. For the 12 months ended December 31, 2021 and December 31, 2020, the Company deferred $19.8 million and $17.8 million of incremental cost to obtain customer contracts, respectively. The Company expensed $3.8 million and $2.5 million of the incremental cost to obtain customer contracts for the 12 months ended December 31, 2021 and December 31, 2020, respectively. respectively. Cost to fulfill - The Company defers certain costs to fulfill contracts and recognizes these costs as the associated performance obligations are fulfilled. The cost to fulfill balance within the Other current assets caption in the Company’s Consolidated Balance Sheets was $89.3 million, which is inclusive of deferrals from businesses acquired in the current year of $9.9 million. The cost to fulfill balance as of December 31, 2020 was $77.8 million. For the 12 months ended December 31, 2021 and 2020, the Company had net deferrals of $1.6 million and $3.3 million related to current year deferrals for costs incurred that relate to performance obligations yet to be fulfilled, net of the expense of previously deferred contract fulfillment costs associated with performance obligations that were satisfied in the period, NOTE 3. Business Combinations During the year ended December 31, 2021, the Company acquired the assets and assumed certain liabilities of 13 insurance intermediaries, all of the share capital of 1 insurance intermediary, all the stock of 2 insurance intermediaries, and 3 books of businesses (customer accounts). Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last 12 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. 46 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 forecast 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, 2021, adjustments were made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected acquisitions of $0.5 million relating to the assumption of certain liabilities on acquisitions completed in 2020. These measurement period adjustments have been reflected as current period adjustments for the year ended December 31, 2021. The measurement period adjustments impacted goodwill, with no effect on earnings or cash in the current period. Gross cash paid for acquisitions was $424.6 million and $722.5 million in the years ended December 31, 2021 and 2020, respectively. We completed 19 acquisitions (including book of business purchases) during the year ended December 31, 2021. We completed 25 acquisitions (including book of business purchases) during the year ended December 31, 2020. 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 O'Leary Insurances (O'Leary) Piper Jordan LLC (Piper) Berkshire Insurance Group, Inc. (Berkshire) AGIS Network, Inc. (AGIS)(1) Winston Financial Services, Inc. (Winston) Remedy Analytics, Inc. (Remedy) Heacock Insurance Group, LLC (Heacock) Corporate Insurance Advisors, L.L.C. (CIA) Rainmaker Advisory, LLC (Rainmaker) HARCO Insurance Services, Inc. (HARCO) Other Total BUSINESS SEGMENT EFFECTIVE DATE OF ACQUISITION January 1, CASH PAID COMMON STOCK ISSUED OTHER PAYABLE RECORDED EARN-OUT PAYABLE NET ASSETS ACQUIRED MAXIMUM POTENTIAL EARN-OUT PAYABLE Retail Retail Retail Retail Retail Retail Retail Retail Retail Retail Various 11,203 79,461 41,500 43,428 2021 $117,408 May 1, 2021 September 1, 2021 September 1, 2021 October 1, 2021 October 1, 2021 October 1, 2021 December 1, 2021 December 1, 2021 December 31, 2021 Various 18,248 40,762 18,849 15,314 14,174 24,266 $4,892 $— $15,348 $137,648 $30,575 — — — 1,397 9,854 54,679 15,000 — — 41,500 — 24,114 739 36,056 12,289 5,000 7,724 16,427 108,612 29,000 — — — — — — 473 7,364 48,599 25,000 455 1,900 20,603 6,000 181 6,542 22,037 14,000 776 5,937 20,887 10,000 1,000 3,066 4,423 7,227 29,689 29,142 7,350 13,118 $424,613 $9,892 $39,186 $75,761 $549,452 $162,332 (1) Amount in the “other payable” column relates to additional contingent consideration expected to be paid within 12 months. T R O P E R L A U N N A 1 2 0 2 47 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) Cash Other current assets Fixed assets Goodwill Purchased customer accounts Non-compete agreements Other assets Total assets acquired Other current liabilities Deferred income tax, net Other liabilities Total liabilities assumed Net assets acquired (IN THOUSANDS) Cash Other current assets Fixed assets Goodwill Purchased customer accounts Non-compete agreements Other assets Total assets acquired Other current liabilities Deferred income tax, net Other liabilities Total liabilities assumed Net assets acquired O'LEARY PIPER BERKSHIRE AGIS WINSTON REMEDY capital charge, from the acquisitions completed through December 31, 2021 included in the Consolidated Statement of Income for the $45,441 $— $— $— $5,024 $6,675 43,350 2,397 1,621 13,693 544 9 9 20 84,619 40,019 27,059 8,715 40,459 12,233 12,313 13,577 819 135 21 — 11 504 51 — 7,527 1,185 74,441 25,006 872 27 215,367 54,679 41,517 36,056 114,082 (72,649) (5,057) (13) (77,719) — — — — (17) — — (17) — — — — (5,470) — — 1,786 151 33,255 13,697 508 1,354 57,426 (5,233) (3,594) — (5,470) (8,827) Weighted average number of shares outstanding: $137,648 $54,679 $41,500 $36,056 $108,612 $48,599 RAINMAKER HARCO OTHER TOTAL HEACOCK $— 738 39 CIA $— 32 11 $— — 8 $— 737 63 13,910 17,310 15,029 20,609 5,800 4,781 5,838 8,183 31 382 11 278 12 — 32 493 $692 5,060 14 15,007 11,735 150 259 $57,832 76,941 2,053 349,973 153,622 2,518 3,432 During the year ended December 31, 2020, the Company acquired the assets and assumed certain liabilities of 20 insurance intermediaries, all the stock of 1 F&I administrative services company and 4 book of business (customer accounts). Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last 12 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, 2020, several adjustments were made within the permitted measurement period that resulted in an increase in the aggregate purchase price of the affected acquisitions of $3.5 million, relating to the assumption of certain liabilities. 20,900 22,423 20,887 30,117 32,917 646,371 (297) (386) — — — — (297) (386) — — — — (428) (3,775) (88,255) — — — — (8,651) (13) (428) (3,775) (96,919) $20,603 $22,037 $20,887 $29,689 $29,142 $549,452 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 $350.0 million, which is net of any opening balance sheet adjustments within the allowable measurement period, was allocated to the Retail, National Programs, and Wholesale Brokerage Segments in the amounts of $346.0 million, ($1.3) million, and $5.3 million, respectively. Of the total goodwill of $350.0 million, the amount currently deductible for income tax purposes is $179.1 million, $117.9 million is non-deductible related to the O’Leary and Remedy acquisitions and the remaining $53.0 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid. 48 For the acquisitions completed during 2021, 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, 2021 included in the Consolidated Statement of Income for the year ended December 31, 2021 were $63.8 million. The income before income taxes, including the intercompany cost of year ended December 31, 2021 was a loss of $10.6 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) (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenues Income before income taxes Net income Net income per share: Basic Diluted Basic Diluted Acquisitions in 2020 YEAR ENDED DECEMBER 31, 2021 2020 $3,128,530 $2,751,167 $779,533 $653,270 $599,964 $502,942 $2.13 $2.12 $1.78 $1.77 276,024 277,414 274,334 275,867 T R O P E R L A U N N A 1 2 0 2 49 For the acquisitions completed during 2021, 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, 2021 included in the Consolidated Statement of Income for the year ended December 31, 2021 were $63.8 million. The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through December 31, 2021 included in the Consolidated Statement of Income for the year ended December 31, 2021 was a loss of $10.6 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) (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenues Income before income taxes Net income Net income per share: Basic Diluted (5,470) (8,827) Weighted average number of shares outstanding: $137,648 $54,679 $41,500 $36,056 $108,612 $48,599 HEACOCK RAINMAKER HARCO OTHER TOTAL Basic Diluted Acquisitions in 2020 YEAR ENDED DECEMBER 31, 2021 2020 $3,128,530 $2,751,167 $779,533 $653,270 $599,964 $502,942 $2.13 $2.12 $1.78 $1.77 276,024 277,414 274,334 275,867 During the year ended December 31, 2020, the Company acquired the assets and assumed certain liabilities of 20 insurance intermediaries, all the stock of 1 F&I administrative services company and 4 book of business (customer accounts). Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last 12 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, 2020, several adjustments were made within the permitted measurement period that resulted in an increase in the aggregate purchase price of the affected acquisitions of $3.5 million, relating to the assumption of certain liabilities. 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) Cash Other current assets Fixed assets Goodwill Purchased customer accounts Non-compete agreements Other assets Total assets acquired Other current liabilities Deferred income tax, net Other liabilities Total liabilities assumed Net assets acquired (IN THOUSANDS) Cash Other current assets Fixed assets Goodwill Purchased customer accounts Non-compete agreements Other assets Total assets acquired Other current liabilities Deferred income tax, net Other liabilities Total liabilities assumed Net assets acquired O'LEARY PIPER BERKSHIRE AGIS WINSTON REMEDY $45,441 $— $— $— $5,024 $6,675 43,350 2,397 1,621 13,693 544 9 9 20 84,619 40,019 27,059 8,715 40,459 12,233 12,313 13,577 215,367 54,679 41,517 36,056 114,082 7,527 1,185 74,441 25,006 872 27 (5,470) — — $692 5,060 14 15,007 11,735 150 259 1,786 151 33,255 13,697 508 1,354 57,426 (5,233) (3,594) — $57,832 76,941 2,053 349,973 153,622 2,518 3,432 — — (8,651) (13) 51 — — — — — $— 737 63 32 493 — — 11 504 (17) — — (17) $— — 8 12 — — — — — 13,910 17,310 15,029 20,609 5,800 4,781 5,838 8,183 20,900 22,423 20,887 30,117 32,917 646,371 (297) (386) (428) (3,775) (88,255) (297) (386) (428) (3,775) (96,919) $20,603 $22,037 $20,887 $29,689 $29,142 $549,452 819 135 (72,649) (5,057) (13) (77,719) $— 738 39 31 382 — — 21 — — — — — CIA $— 32 11 11 278 — — 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 $350.0 million, which is net of any opening balance sheet adjustments within the allowable measurement period, was allocated to the Retail, National Programs, and Wholesale Brokerage Segments in the amounts of $346.0 million, ($1.3) million, and $5.3 million, respectively. Of the total goodwill of $350.0 million, the amount currently deductible for income tax purposes is $179.1 million, $117.9 million is non-deductible related to the O’Leary and Remedy acquisitions and the remaining $53.0 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid. T R O P E R L A U N N A 1 2 0 2 49 48 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: 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) NAME Special Risk Insurance Managers Ltd. (Special Risk) Texas All Risk General Agency, Inc. et al (Texas Risk) BUSINESS SEGMENT National Programs Wholesale Brokerage The Colonial Group, Inc. et al (Colonial) Wholesale Brokerage RLA Insurance Intermediaries, LLC (RLA) Dealer Financial Services of N.C., LLC d/b/a The Sterling Group (Sterling) LP Insurance Services, LLC (LP) Wholesale Brokerage Retail National Programs First Resource, Inc. (First) Buiten & Associates, LLC (Buiten) Amity Insurance, Inc. (Amity) Frank E. Neal & Co., Inc. (Neal) BrookStone Insurance Group, LLC (BrookStone) VAS GenPar, LLC (VAS) Bright & Associates, Inc. (Bright) Retail Retail Retail Retail Retail Retail Retail J.E. Brown & Associates Insurance Services, Inc. (J.E. Brown) Wholesale Brokerage EFFECTIVE DATE OF ACQUISITION COMMON STOCK ISSUED CASH PAID OTHER PAYABLE RECORDED EARN-OUT PAYABLE NET ASSETS ACQUIRED MAXIMUM POTENTIAL EARN-OUT PAYABLE January 1, 2020 January 1, 2020 March 1, 2020 March 1, 2020 April 1, 2020 May 1, 2020 July 1, 2020 August 1, 2020 August 1, 2020 September 1, 2020 September 1, 2020 October 1, 2020 October 1, 2020 October 1, 2020 $70,156 $— $— $9,859 $80,015 $14,650 10,511 29,037 42,496 19,341 — — — — 159 310 10,980 1,150 527 7,577 37,141 10,150 786 11,687 54,969 22,500 300 4,129 23,770 5,400 115,948 10,000 318 23,394 149,660 75,850 Other liabilities — — — — — 10,700 — 450 3,776 14,926 5,800 38,225 — 1,175 7,448 46,848 14,175 14,820 2,000 200 1,860 18,880 4,060 32,589 3,120 345 5,732 41,786 10,325 12,030 — 114,249 15,000 — — 1,058 13,088 1,878 23,274 152,523 48,000 12,528 — 1,257 3,854 17,639 5,775 33,331 — 1,030 5,947 40,308 10,425 (IN THOUSANDS) RISK TEXAS RISK COLONIAL RLA STERLING FIRST BUITEN AMITY NEAL SPECIAL $— 2,477 345 $— 446 27 $— 1,344 59 $— — 55 LP $— 3,162 $— 612 16 1,877 $— 302 1 $— 2,595 43 $— 653 58 $— 2,337 46 63,087 8,940 27,845 53,567 17,339 99,983 9,523 33,641 15,454 28,929 Cash Other current assets Fixed assets Goodwill Purchased customer accounts 14,286 3,222 9,205 12,309 5,962 44,801 5,095 11,323 5,614 13,225 Non-compete agreements Other assets 136 — 25 — 43 — 481 — 21 — Total assets acquired 80,331 12,660 38,496 66,412 23,950 149,854 14,942 47,693 21,800 44,842 Other current liabilities (316) (1,680) (1,355) (11,443) (180) 31 — (10) (184) (194) 91 — 21 — 31 274 (845) (2,920) (3,056) — — — (845) (2,920) (3,056) Total liabilities assumed (316) (1,680) (1,355) (11,443) (180) Net assets acquired $80,015 $10,980 $37,141 $54,969 $23,770 149,660 $14,926 $46,848 $18,880 $41,786 BROOK STONE VAS BRIGHT BROWN MAJ WESTERN BERRY OTHER TOTAL J.E. COVER HOUND SOUTH & $— $27,673 527 22 5,486 138 $— 402 23 $— 375 6,441 $— 413 — —$ — 30 $— $27,673 912 22,043 25 9,387 8,585 100,826 12,218 31,476 19,524 13,003 63,128 29,702 11,325 648,095 21 — (16) — (16) —$ — 149 (IN THOUSANDS) Cash Other current assets Fixed assets Goodwill Purchased customer accounts 3,689 48,188 5,055 9,479 3,678 8,034 18,513 9,701 8,582 239,961 Non-compete agreements Other assets 21 290 101 — 42 — — — 11 — 21 — 11 — 64 3,088 1,213 3,652 Total assets acquired 13,134 182,412 17,740 41,028 30,018 21,461 81,811 39,444 23,996 952,024 Other current liabilities (46) (3,760) (101) (720 ) (1,823) (83) (3,651) (424) (120) (32,549) $— — 32 41 — CoverHound, Inc. and CyberPolicy, Inc. (CoverHound) MAJ Companies, Ltd. (MAJ) Retail Retail November 1, 2020 December 1, 2020 27,595 19,072 — — 600 — 28,195 — Other liabilities — (26,129) — — — — — — (26,313) 300 2,006 21,378 6,475 Total liabilities assumed (46) (29,889) (101) (720 ) (1,823) (83) (3,651) (424) (120) (58,862) Net assets acquired $13,088 $152,523 $17,639 $40,308 $28,195 $21,378 $78,160 $39,020 $23,876 $893,162 South & Western General Agency, Inc. (South & Western) Wholesale Brokerage December 1, 2020 69,673 — 1,193 7,294 78,160 18,000 The weighted average useful lives for the acquired amortizable intangible assets are as follows: purchased customer accounts, 15 years; Berry Insurance Group, Inc. (Berry) Other Total Retail December 31, 2020 35,326 Various Various 14,888 — — — 3,694 39,020 6,500 and non-compete agreements, 5 years. 490 8,498 23,876 12,337 allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments in the amounts of $300.0 million, $163.1 million, Goodwill of $648.1 million, which is net of any opening balance sheet adjustments within the allowable measurement period, was $722,515 $30,120 $9,130 $131,397 $893,162 $273,450 $185.0 million and $0.1 million, respectively. Of the total goodwill of $648.1 million, the amount currently deductible for income tax purposes is $516.7 million and the remaining $131.4 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid. 50 For the acquisitions completed during 2020, 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, 2020 included in the Consolidated Statement of Income for the year ended December 31, 2020 were $93.9 million. The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through December 31, 2020 included in the Consolidated Statement of Income for the year ended December 31, 2020 was $7.5 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. T R O P E R L A U N N A 1 2 0 2 51 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: 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. $— 612 16 1,877 LP $— 3,162 (IN THOUSANDS) RISK TEXAS RISK COLONIAL RLA STERLING SPECIAL $— 2,477 345 $— 446 27 $— 1,344 59 $— — 55 Cash Other current assets Fixed assets Goodwill Purchased customer accounts FIRST BUITEN AMITY NEAL $— 302 1 $— 2,595 43 $— 653 58 $— 2,337 46 63,087 8,940 27,845 53,567 17,339 99,983 9,523 33,641 15,454 28,929 14,286 3,222 9,205 12,309 5,962 44,801 5,095 11,323 5,614 13,225 Special Risk Insurance Managers Ltd. January 1, $70,156 $— $— $9,859 $80,015 $14,650 EFFECTIVE DATE OF ACQUISITION COMMON RECORDED CASH PAID STOCK OTHER EARN-OUT NET ASSETS EARN-OUT ISSUED PAYABLE PAYABLE ACQUIRED PAYABLE MAXIMUM POTENTIAL January 1, 10,511 159 310 10,980 1,150 The Colonial Group, Inc. et al (Colonial) Wholesale March 1, 29,037 527 7,577 37,141 10,150 (IN THOUSANDS) NAME (Special Risk) Texas All Risk General Agency, Inc. et al (Texas Risk) RLA Insurance Intermediaries, LLC (RLA) Dealer Financial Services of N.C., LLC d/b/a The Sterling Group (Sterling) BUSINESS SEGMENT National Programs Wholesale Brokerage Brokerage Wholesale Brokerage Retail National Programs Retail First Resource, Inc. (First) 10,700 — 450 3,776 14,926 5,800 Buiten & Associates, LLC (Buiten) Retail August 1, 38,225 — 1,175 7,448 46,848 14,175 Amity Insurance, Inc. (Amity) Retail August 1, 14,820 2,000 200 1,860 18,880 4,060 Frank E. Neal & Co., Inc. (Neal) Retail September 1, 32,589 3,120 345 5,732 41,786 10,325 BrookStone Insurance Group, LLC Retail September 1, 12,030 — 1,058 13,088 1,878 (BrookStone) VAS GenPar, LLC (VAS) Retail October 1, 114,249 15,000 23,274 152,523 48,000 — — Bright & Associates, Inc. (Bright) Retail October 1, 12,528 — 1,257 3,854 17,639 5,775 J.E. Brown & Associates Insurance Services, Inc. (J.E. Brown) Wholesale Brokerage October 1, 33,331 — 1,030 5,947 40,308 10,425 Inc. (CoverHound) MAJ Companies, Ltd. (MAJ) Retail December 1, 19,072 300 2,006 21,378 6,475 South & Western General Agency, Wholesale December 1, 69,673 — 1,193 7,294 78,160 18,000 Inc. (South & Western) Brokerage Berry Insurance Group, Inc. (Berry) Retail December 31, 35,326 — 3,694 39,020 6,500 Other Total Various Various 14,888 490 8,498 23,876 12,337 $722,515 $30,120 $9,130 $131,397 $893,162 $273,450 2020 2020 2020 2020 April 1, 2020 2020 July 1, 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 — — — — — — — — 50 March 1, 42,496 786 11,687 54,969 22,500 19,341 300 4,129 23,770 5,400 Non-compete agreements Other assets 136 — 25 — 43 — 481 — 21 — 31 — 21 — 91 — 21 — 31 274 Total assets acquired 80,331 12,660 38,496 66,412 23,950 149,854 14,942 47,693 21,800 44,842 LP Insurance Services, LLC (LP) May 1, 115,948 10,000 318 23,394 149,660 75,850 Other liabilities — — — — — Other current liabilities (316) (1,680) (1,355) (11,443) (180) Total liabilities assumed (316) (1,680) (1,355) (11,443) (180) (10) (184) (194) (16) — (16) (845) (2,920) (3,056) — — — (845) (2,920) (3,056) Net assets acquired $80,015 $10,980 $37,141 $54,969 $23,770 149,660 $14,926 $46,848 $18,880 $41,786 (IN THOUSANDS) Cash Other current assets Fixed assets Goodwill Purchased customer accounts BROOK STONE VAS BRIGHT J.E. BROWN COVER HOUND $— $27,673 527 22 5,486 138 $— 402 23 $— — 32 $— 375 6,441 SOUTH & WESTERN BERRY OTHER TOTAL —$ — 149 —$ — 30 $— $27,673 912 22,043 25 9,387 MAJ $— 413 — 8,585 100,826 12,218 31,476 19,524 13,003 63,128 29,702 11,325 648,095 3,689 48,188 5,055 9,479 3,678 8,034 18,513 9,701 8,582 239,961 Non-compete agreements Other assets 21 290 101 — 42 — 41 — — — 11 — 21 — 11 — 64 3,088 1,213 3,652 Total assets acquired 13,134 182,412 17,740 41,028 30,018 21,461 81,811 39,444 23,996 952,024 Other current liabilities (46) (3,760) (101) (720 ) (1,823) (83) (3,651) (424) (120) (32,549) CoverHound, Inc. and CyberPolicy, Retail November 1, 27,595 600 — 28,195 — Other liabilities — (26,129) — — — — — — (26,313) Total liabilities assumed (46) (29,889) (101) (720 ) (1,823) (83) (3,651) (424) (120) (58,862) Net assets acquired $13,088 $152,523 $17,639 $40,308 $28,195 $21,378 $78,160 $39,020 $23,876 $893,162 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 $648.1 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 $300.0 million, $163.1 million, $185.0 million and $0.1 million, respectively. Of the total goodwill of $648.1 million, the amount currently deductible for income tax purposes is $516.7 million and the remaining $131.4 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid. For the acquisitions completed during 2020, 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, 2020 included in the Consolidated Statement of Income for the year ended December 31, 2020 were $93.9 million. The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through December 31, 2020 included in the Consolidated Statement of Income for the year ended December 31, 2020 was $7.5 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. T R O P E R L A U N N A 1 2 0 2 51 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenues Income before income taxes Net income Net income per share: Basic Diluted Weighted average number of shares outstanding: Basic Diluted Acquisitions in 2019 YEAR ENDED DECEMBER 31, The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition. 2020 2019 (IN THOUSANDS) SMITH PIPINO COSSIO MEDVAL UNITED TWINBROOK WBR YOZELL $2,714,314 $2,579,075 Cash $650,618 $576,355 $500,900 $436,722 $1.77 $1.76 $1.55 $1.54 274,334 275,867 272,471 274,616 During the year ended December 31, 2019, the Company acquired the assets and assumed certain liabilities of 22 insurance intermediaries, all the stock of 1 insurance intermediary and 4 book of business (customer accounts). Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last 12 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, 2019, several adjustments were made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected acquisitions of $4.1 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: Purchased customer accounts 6,500 11,360 4,403 7,300 7,065 8,557 8,800 4,022 3,550 32,274 16,042 16,765 10,010 19,108 15,111 18,935 24,938 9,096 8,904 110,495 Other current assets Fixed assets Goodwill Non-compete agreements Other assets $— 680 39 41 — $— 819 112 11 772 Other current liabilities (469) (3,463 ) Deferred income tax, net — — Total liabilities assumed (469) (3,463 ) $— $3,217 236 1,708 29 50 21 — (3) — (3) 1 15 (480) (29) (509) $— 477 20 11 — (41) — (41) IRS $— 1,375 11 $— 919 85 12 — 11 — (292) (126) — — (292) (126) CKP $— $— 1,781 9,170 12 193 21 — — — — 21 — (870) — (870) $— 449 10 34 — (166) (378) (544) Total assets acquired 23,302 29,839 14,699 31,399 22,684 28,508 35,135 13,611 14,268 152,153 Net assets acquired $22,833 $26,376 $14,696 $30,890 $22,643 $28,216 $35,009 $13,067 $14,268 $151,283 (IN THOUSANDS) NAME Smith Insurance Associates, Inc. (Smith) Donald P. Pipino Company, LTD (Pipino) AGA Enterprises, LLC d/b/a Cossio Insurance Agency (Cossio) Retail Retail Retail February 1, 2019 February 1, 2019 March 1, 2019 March 1, 2019 16,420 13,990 29,106 Medval, LLC (Medval) Services United Development Systems, Inc. (United) Twinbrook Insurance Brokerage, Inc. (Twinbrook) Retail May 1, 2019 18,987 Retail June 1, 2019 26,251 Innovative Risk Solutions, Inc. (IRS) Retail July 1, 2019 26,435 WBR Insurance Agency, LLC et al (WBR) West Ridge Insurance Agency, Inc. d/b/a Yozell Associates (Yozell) CKP Insurance, LLC (CKP) Poole Professional Ltd. Insurance Agents and Brokers et al (Poole) VerHagen Glendenning & Walker LLP (VGW) Retail Retail Retail Retail Retail August 1, 2019 August 1, 2019 August 1, 2019 October 1, 2019 October 1, 2019 10,667 13,030 32,358 23,032 Various Various 36,665 — — — — — — — — 135 9,821 26,376 12,996 10 100 388 400 696 14,696 2,000 1,684 30,890 2,500 3,268 22,643 8,625 1,565 28,216 5,073 2,465 203 6,109 2,197 35,009 13,067 9,000 4,575 470 768 14,268 6,730 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 $328.5 million was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments in the amounts of $302.6 million, $0.1 million, $6.5 million and $19.3 million, respectively. Of the total goodwill of $328.5 million, $245.6 million is currently deductible for income tax purposes. The remaining $82.9 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid. (IN THOUSANDS) Cash Other current assets Fixed assets Goodwill Purchased customer accounts Non-compete agreements Other assets Total assets acquired Other current liabilities Other liabilities Total liabilities assumed Net assets acquired POOLE VGW OTHER TOTAL $— 938 4 $— $— $3,217 1,190 (6,786) 12,956 20 (130) 455 28,233 16,595 34,314 328,546 10,359 9,092 15,020 128,302 33 — 34 — 161 (732) 412 55 39,567 26,931 41,847 473,943 (2,578) (16) 6,235 (2,269) — — — (407) (2,578) (16) 6,235 (2,676) $36,989 $26,915 $48,082 $471,267 T R O P E R L A U N N A 1 2 0 2 53 — — — 75 4,556 36,989 6,850 1,498 2,385 26,915 8,170 2,391 9,026 48,082 14,454 89,190 20,000 4,000 38,093 151,283 76,500 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 $20,129 $— $0 $2,704 $22,833 $4,550 Other 52 Total $356,260 $20,000 $12,135 $82,872 $471,267 $162,023 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenues Income before income taxes Net income Net income per share: Basic Diluted Basic Diluted Acquisitions in 2019 Weighted average number of shares outstanding: $650,618 $576,355 $500,900 $436,722 $1.77 $1.76 $1.55 $1.54 274,334 275,867 272,471 274,616 During the year ended December 31, 2019, the Company acquired the assets and assumed certain liabilities of 22 insurance intermediaries, all the stock of 1 insurance intermediary and 4 book of business (customer accounts). Additionally, miscellaneous adjustments were recorded to the purchase price allocation of certain prior acquisitions completed within the last 12 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, 2019, several adjustments were made within the permitted measurement period that resulted in a decrease in the aggregate purchase price of the affected acquisitions of $4.1 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 Inc. (Smith) LTD (Pipino) (United) Inc. (Twinbrook) et al (WBR) EFFECTIVE DATE OF BUSINESS SEGMENT ACQUISITION CASH PAID COMMON STOCK ISSUED RECORDED NET POTENTIAL OTHER EARN-OUT ASSETS EARN-OUT PAYABLE PAYABLE ACQUIRED PAYABLE MAXIMUM Smith Insurance Associates, Retail February 1, $20,129 $— $0 $2,704 $22,833 $4,550 Donald P. Pipino Company, Retail February 1, 16,420 135 9,821 26,376 12,996 AGA Enterprises, LLC d/b/a Cossio Retail March 1, 13,990 696 14,696 2,000 Insurance Agency (Cossio) Medval, LLC (Medval) Services March 1, 29,106 1,684 30,890 2,500 United Development Systems, Inc. Retail May 1, 2019 18,987 3,268 22,643 8,625 Twinbrook Insurance Brokerage, Retail June 1, 2019 26,251 1,565 28,216 5,073 10 100 388 400 Innovative Risk Solutions, Inc. (IRS) Retail July 1, 2019 26,435 WBR Insurance Agency, LLC Retail August 1, 10,667 2,465 203 6,109 2,197 35,009 13,067 9,000 4,575 West Ridge Insurance Agency, Inc. Retail August 1, 13,030 470 768 14,268 6,730 CKP Insurance, LLC (CKP) Retail August 1, 89,190 20,000 4,000 38,093 151,283 76,500 VerHagen Glendenning & Walker Retail October 1, 23,032 1,498 2,385 26,915 8,170 Retail October 1, 32,358 75 4,556 36,989 6,850 2019 2019 2019 2019 2019 2019 2019 2019 2019 — — — — — — — — — — — Various Various 36,665 2,391 9,026 48,082 14,454 $356,260 $20,000 $12,135 $82,872 $471,267 $162,023 d/b/a Yozell Associates (Yozell) Poole Professional Ltd. Insurance Agents and Brokers et al (Poole) LLP (VGW) Other 52 Total YEAR ENDED DECEMBER 31, The following table summarizes the estimated fair values of the aggregate assets and liabilities acquired as of the date of each acquisition. 2020 2019 (IN THOUSANDS) SMITH PIPINO COSSIO MEDVAL UNITED TWINBROOK WBR YOZELL $2,714,314 $2,579,075 Cash Other current assets Fixed assets Goodwill $— 680 39 $— 819 112 $— $3,217 236 1,708 29 50 $— 477 20 $— 919 85 IRS $— 1,375 11 CKP $— $— 1,781 9,170 12 193 $— 449 10 16,042 16,765 10,010 19,108 15,111 18,935 24,938 9,096 8,904 110,495 Purchased customer accounts 6,500 11,360 4,403 7,300 7,065 8,557 8,800 4,022 3,550 32,274 Non-compete agreements Other assets 41 — 11 772 21 — 1 15 11 — 12 — 11 — 34 — 21 — 21 — Total assets acquired 23,302 29,839 14,699 31,399 22,684 28,508 35,135 13,611 14,268 152,153 Other current liabilities (469) (3,463 ) Deferred income tax, net — — Total liabilities assumed (469) (3,463 ) (3) — (3) (480) (29) (509) (41) — (41) (292) (126) — — (292) (126) (166) (378) (544) — — — (870) — (870) Net assets acquired $22,833 $26,376 $14,696 $30,890 $22,643 $28,216 $35,009 $13,067 $14,268 $151,283 (IN THOUSANDS) Cash Other current assets Fixed assets Goodwill Purchased customer accounts Non-compete agreements Other assets Total assets acquired Other current liabilities Other liabilities Total liabilities assumed Net assets acquired POOLE VGW OTHER TOTAL $— 938 4 $— $— $3,217 1,190 (6,786) 12,956 20 (130) 455 28,233 16,595 34,314 328,546 10,359 9,092 15,020 128,302 33 — 34 — 161 (732) 412 55 39,567 26,931 41,847 473,943 (2,578) (16) 6,235 (2,269) — — — (407) (2,578) (16) 6,235 (2,676) $36,989 $26,915 $48,082 $471,267 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 $328.5 million was allocated to the Retail, National Programs, Wholesale Brokerage and Services Segments in the amounts of $302.6 million, $0.1 million, $6.5 million and $19.3 million, respectively. Of the total goodwill of $328.5 million, $245.6 million is currently deductible for income tax purposes. The remaining $82.9 million relates to the recorded earn-out payables and will not be deductible until it is earned and paid. T R O P E R L A U N N A 1 2 0 2 53 For the acquisitions completed during 2019, 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, 2019 included in the Consolidated Statement of Income for the year ended December 31, 2019 were $49.1 million. The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through December 31, 2019 included in the Consolidated Statement of Income for the year ended December 31, 2019 was $3.4 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) (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenues Income before income taxes Net income Net income per share: Basic Diluted Weighted average number of shares outstanding: Basic Diluted YEAR ENDED DECEMBER 31, 2019 $2,447,401 $545,182 $412,974 $1.47 $1.46 272,471 274,616 As of December 31, 2021, the maximum future contingency payments related to all acquisitions totaled $484.8 million. 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 acquisitions 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, 2021, 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, 2021, 2020 and 2019 were as follows: (IN THOUSANDS) Balance as of the beginning of the period Additions to estimated acquisition earn-out payables from new acquisitions Payments for estimated acquisition earn-out payables Subtotal Net change in earnings from estimated acquisition earn-out payables: Change in fair value on estimated acquisition earn-out payables Interest expense accretion Net change in earnings from estimated acquisition earn-out payables Foreign currency translation adjustments during the year Balance as of December 31, YEAR ENDED DECEMBER 31, 2021 2020 2019 $258,943 $161,513 $89,924 75,761 131,397 (83,581) 251,123 (29,509) 263,401 82,872 (9,917) 162,879 34,209 6,236 40,445 (521) (11,814) 7,356 (4,458) — (7,298) 5,932 (1,366) — $291,047 $258,943 $161,513 Of the $291.0 million of estimated acquisition earn-out payables as of December 31, 2021, $78.4 million was recorded as current liabilities within the accounts payable caption in the Company’s Consolidated Balance Sheets, and $212.6 million was recorded as non-current liabilities within the other liabilities caption in the Company’s Consolidated Balance Sheets. Included within additions to estimated acquisition earn-out payables are any adjustments to opening balance sheet items before the first anniversary date of the acquisition and may therefore differ from previously reported amounts. Of the $258.9 million of estimated acquisition earn-out payables as of December 31, 2020, $79.2 million was recorded as accounts payable, and $179.7 million was recorded as other liabilities. Of the $161.5 million of estimated acquisition earn-out payables as of December 31, 2019, $17.9 million was recorded as accounts payable, and $143.6 million was recorded as other liabilities. 54 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) Balance as of January 1, 2020 Goodwill of acquired businesses RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES TOTAL $2,351,291 $925,541 $298,101 $171,161 $3,746,094 299,961 163,070 184,956 108 648,095 Goodwill disposed of relating to sales of businesses Foreign currency translation adjustments during the year (782) — — 2,511 Balance as of December 31, 2020 $2,650,470 $1,091,122 $483,057 $171,269 $4,395,918 Goodwill of acquired businesses (1,337) 5,349 Goodwill disposed of relating to sales of businesses Foreign currency translation adjustments during the year 345,961 (3,050) (6,135) — 122 — — — — — — — — — (782) 2,511 349,973 (3,050) (6,013) Balance as of December 31, 2021 $2,987,246 $1,089,907 $488,406 $171,269 $4,736,828 NOTE 5. Amortizable Intangible Assets Amortizable intangible assets at December 31, 2021 and 2020 consisted of the following: (IN THOUSANDS) GROSS NET GROSS CARRYING ACCUMULATED CARRYING VALUE AMORTIZATION VALUE CARRYING ACCUMULATED VALUE AMORTIZATION WEIGHTED AVERAGE LIFE IN YEARS(1) NET CARRYING VALUE WEIGHTED AVERAGE LIFE IN YEARS(1) DECEMBER 31, 2021 DECEMBER 31, 2020 Purchased customer accounts $2,311,605 $(1,235,261) $1,076,344 14.9 $2,164,968 $(1,118,316) $1,046,652 Non-compete agreements 37,587 (32,466) 5,121 4.5 35,093 (32,085) 3,008 Total $2,349,192 $(1,267,727) $1,081,465 $2,200,061 $(1,150,401) $1,049,660 T R O P E R L A U N N A 1 2 0 2 15.0 4.6 (1) Weighted average life calculated as of the date of acquisition. Amortization expense for amortizable intangible assets for the years ending December 31, 2022, 2023, 2024, 2025 and 2026 is estimated to be $122.4 million, $115.5 million, $111.3 million, $108.9 million and $102.9 million, respectively. NOTE 6. Investments At December 31, 2021, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows: U.S. Treasury securities, obligations of U.S. Government agencies $30,232 COST 8,259 $38,491 GROSS GROSS UNREALIZED UNREALIZED GAINS $152 108 $260 LOSSES FAIR VALUE $(363) $30,021 (62) 8,305 $(425) $38,326 At December 31, 2021, the Company held $30.0 million in fixed income securities composed of U.S Treasury securities, securities issued by U.S. Government agencies and municipalities, and $8.3 million issued by corporations with investment-grade ratings. Of the total, $7.4 million is classified as short-term investments on the Consolidated Balance Sheets as maturities are less than one year in duration. Additionally, the Company holds $5.5 million in short-term investments, which are related to time deposits held with various (IN THOUSANDS) and Municipalities Corporate debt Total financial institutions. 55 For the acquisitions completed during 2019, 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, 2019 included in the Consolidated Statement of Income for the year ended December 31, 2019 were $49.1 million. The income before income taxes, including the intercompany cost of capital charge, from the acquisitions completed through December 31, 2019 included in the Consolidated Statement of Income for the year ended December 31, 2019 was $3.4 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) (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenues Income before income taxes Net income Net income per share: Basic Diluted Basic Diluted Weighted average number of shares outstanding: 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) Balance as of January 1, 2020 Goodwill of acquired businesses RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES TOTAL $2,351,291 $925,541 $298,101 $171,161 $3,746,094 299,961 163,070 184,956 108 648,095 Goodwill disposed of relating to sales of businesses Foreign currency translation adjustments during the year (782) — — 2,511 — — — — (782) 2,511 Balance as of December 31, 2020 $2,650,470 $1,091,122 $483,057 $171,269 $4,395,918 Goodwill of acquired businesses Goodwill disposed of relating to sales of businesses Foreign currency translation adjustments during the year 345,961 (3,050) (6,135) (1,337) 5,349 — 122 — — — — — 349,973 (3,050) (6,013) Balance as of December 31, 2021 $2,987,246 $1,089,907 $488,406 $171,269 $4,736,828 NOTE 5. Amortizable Intangible Assets Amortizable intangible assets at December 31, 2021 and 2020 consisted of the following: YEAR ENDED DECEMBER 31, 2019 $2,447,401 $545,182 $412,974 $1.47 $1.46 272,471 274,616 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 acquisitions include an estimation of the fair value of liabilities associated with any (IN THOUSANDS) DECEMBER 31, 2021 DECEMBER 31, 2020 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 $2,311,605 $(1,235,261) $1,076,344 14.9 $2,164,968 $(1,118,316) $1,046,652 Non-compete agreements 37,587 (32,466) 5,121 4.5 35,093 (32,085) 3,008 Total $2,349,192 $(1,267,727) $1,081,465 $2,200,061 $(1,150,401) $1,049,660 15.0 4.6 (1) Weighted average life calculated as of the date of acquisition. Amortization expense for amortizable intangible assets for the years ending December 31, 2022, 2023, 2024, 2025 and 2026 is estimated to be $122.4 million, $115.5 million, $111.3 million, $108.9 million and $102.9 million, respectively. NOTE 6. Investments At December 31, 2021, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows: (IN THOUSANDS) U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities Corporate debt Total COST $30,232 8,259 $38,491 GROSS UNREALIZED GAINS GROSS UNREALIZED LOSSES FAIR VALUE $152 $(363) $30,021 108 $260 (62) 8,305 $(425) $38,326 At December 31, 2021, the Company held $30.0 million in fixed income securities composed of U.S Treasury securities, securities issued by U.S. Government agencies and municipalities, and $8.3 million issued by corporations with investment-grade ratings. Of the total, $7.4 million is classified as short-term investments on the Consolidated Balance Sheets as maturities are less than one year in duration. Additionally, the Company holds $5.5 million in short-term investments, which are related to time deposits held with various financial institutions. As of December 31, 2021, the maximum future contingency payments related to all acquisitions totaled $484.8 million. 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, 2021, 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, 2021, 2020 and 2019 were as follows: (IN THOUSANDS) Balance as of the beginning of the period Additions to estimated acquisition earn-out payables from new acquisitions Payments for estimated acquisition earn-out payables Subtotal Net change in earnings from estimated acquisition earn-out payables: Change in fair value on estimated acquisition earn-out payables Interest expense accretion Net change in earnings from estimated acquisition earn-out payables Foreign currency translation adjustments during the year Balance as of December 31, YEAR ENDED DECEMBER 31, 2021 2020 2019 $258,943 $161,513 $89,924 75,761 131,397 (83,581) 251,123 (29,509) 263,401 82,872 (9,917) 162,879 34,209 6,236 40,445 (521) (11,814) 7,356 (4,458) — (7,298) 5,932 (1,366) — $291,047 $258,943 $161,513 Of the $291.0 million of estimated acquisition earn-out payables as of December 31, 2021, $78.4 million was recorded as current liabilities within the accounts payable caption in the Company’s Consolidated Balance Sheets, and $212.6 million was recorded as non-current liabilities within the other liabilities caption in the Company’s Consolidated Balance Sheets. Included within additions to estimated acquisition earn-out payables are any adjustments to opening balance sheet items before the first anniversary date of the acquisition and may therefore differ from previously reported amounts. Of the $258.9 million of estimated acquisition earn-out payables as of December 31, 2020, $79.2 million was recorded as accounts payable, and $179.7 million was recorded as other liabilities. Of the $161.5 million of estimated acquisition earn-out payables as of December 31, 2019, $17.9 million was recorded as accounts payable, and $143.6 million was recorded as other liabilities. 54 T R O P E R L A U N N A 1 2 0 2 55 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, 2021: The amortized cost and estimated fair value of the fixed maturity securities at December 31, 2020 by contractual maturity are set forth below: $(363) (62) $(425) $16,792 $(322) $959 $(41) $17,751 (IN THOUSANDS) U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities Corporate debt Total 3,920 (62) — — 3,920 $20,712 $(384) $959 $(41) $21,671 LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL FAIR VALUE UNREALIZED LOSSES FAIR VALUE UNREALIZED LOSSES FAIR VALUE UNREALIZED LOSSES (IN THOUSANDS) Years to maturity: The unrealized losses from corporate issuers were caused by interest rate increases. At December 31, 2021, the Company had 23 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, 2021. At December 31, 2020, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows: (IN THOUSANDS) U.S. Treasury securities, obligations of U.S. Government agencies and Municipalities Corporate debt Total COST $28,372 7,190 $35,562 GROSS UNREALIZED GAINS GROSS UNREALIZED LOSSES FAIR VALUE $464 239 $703 $(5) $28,831 the period of January 1, 2020 to December 31, 2020. These proceeds were used to purchase an additional $14.2 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, (6) 7,423 $(11) $36,254 2020 to December 31, 2020 were insignificant. Realized gains and losses are reported on the Consolidated Statement of Income, with the cost of securities sold determined on a 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, 2020: At December 31, 2021, investments with a fair value of approximately $4.1 million were on deposit with state insurance departments to (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 $1,995 $(5) Corporate debt Total 808 $2,803 (6) $(11) $— — $— $— $1,995 — $— 808 $2,803 $(5) (6) $(11) 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, 2020, the Company had 3 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, 2020. The amortized cost and estimated fair value of the fixed maturity securities at December 31, 2021 by contractual maturity are set forth below: Depreciation expense for fixed assets amounted to $33.3 million in 2021, $26.3 million in 2020 and $23.4 million in 2019. (IN THOUSANDS) Years to maturity: Due in one year or less Due after one year through five years Due after five years through ten years Total 56 AMORTIZED COST FAIR VALUE $7,298 30,193 1,000 $7,356 30,011 959 $38,491 $38,326 Construction in progress primarily reflects expenditures related to the construction of the new headquarters in Daytona Beach, Florida which was placed into service in January 2021. AMORTIZED COST FAIR VALUE $11,214 $11,283 23,348 1,000 23,976 995 $35,562 $36,254 Due in one year or less Due after one year through five years Due after five years through ten years Total 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 $9.2 million. This along with maturing time deposits yielded total cash proceeds from the sale of investments of $10.8 million in the period of January 1, 2021 to December 31, 2021. These proceeds, along with other sources of cash were used to purchase an additional $12.4 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, 2021 to December 31, 2021 were insignificant. Proceeds from the sales and maturity of the Company’s investment in fixed maturity securities were $8.6 million for the year ended December 31, 2020. This along with maturing time deposits yielded total cash proceeds from the sale of investments of $11.0 million in specific identification basis. satisfy regulatory requirements. NOTE 7. Fixed Assets Fixed assets at December 31 consisted of the following: (IN THOUSANDS) Furniture, fixtures, equipment and software Leasehold improvements Construction in progress Land, buildings and improvements Less accumulated depreciation and amortization Total cost Total 2021 2020 $259,081 $259,524 52,142 — 97,200 42,261 81,736 8,428 408,423 391,949 (196,390) (190,834) $212,033 $201,115 T R O P E R L A U N N A 1 2 0 2 57 For securities in a loss position, the following table shows the investments’ gross unrealized loss and fair value, aggregated by investment The amortized cost and estimated fair value of the fixed maturity securities at December 31, 2020 by contractual maturity are set forth below: (IN THOUSANDS) Years to maturity: Due in one year or less Due after one year through five years Due after five years through ten years Total AMORTIZED COST FAIR VALUE $11,214 $11,283 23,348 1,000 23,976 995 $35,562 $36,254 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 $9.2 million. This along with maturing time deposits yielded total cash proceeds from the sale of investments of $10.8 million in the period of January 1, 2021 to December 31, 2021. These proceeds, along with other sources of cash were used to purchase an additional $12.4 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, 2021 to December 31, 2021 were insignificant. Proceeds from the sales and maturity of the Company’s investment in fixed maturity securities were $8.6 million for the year ended December 31, 2020. This along with maturing time deposits yielded total cash proceeds from the sale of investments of $11.0 million in the period of January 1, 2020 to December 31, 2020. These proceeds were used to purchase an additional $14.2 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, 2020 to December 31, 2020 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, 2021, 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) Furniture, fixtures, equipment and software Leasehold improvements Construction in progress Land, buildings and improvements Total cost Less accumulated depreciation and amortization Total 2021 2020 $259,081 $259,524 52,142 — 97,200 42,261 81,736 8,428 408,423 391,949 (196,390) (190,834) $212,033 $201,115 The amortized cost and estimated fair value of the fixed maturity securities at December 31, 2021 by contractual maturity are set forth below: Depreciation expense for fixed assets amounted to $33.3 million in 2021, $26.3 million in 2020 and $23.4 million in 2019. AMORTIZED COST FAIR VALUE Construction in progress primarily reflects expenditures related to the construction of the new headquarters in Daytona Beach, Florida which was placed into service in January 2021. category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2021: LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL FAIR VALUE UNREALIZED LOSSES FAIR VALUE UNREALIZED LOSSES FAIR VALUE (IN THOUSANDS) Corporate debt Total U.S. Treasury securities, obligations of U.S. $16,792 $(322) $959 $(41) $17,751 Government agencies and Municipalities 3,920 (62) — — 3,920 $20,712 $(384) $959 $(41) $21,671 UNREALIZED LOSSES $(363) (62) $(425) The unrealized losses from corporate issuers were caused by interest rate increases. At December 31, 2021, the Company had 23 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, 2021. At December 31, 2020, the Company’s amortized cost and fair values of fixed maturity securities are summarized as follows: (IN THOUSANDS) and Municipalities Corporate debt Total (IN THOUSANDS) Corporate debt Total U.S. Treasury securities, obligations of U.S. Government agencies GROSS GROSS UNREALIZED UNREALIZED COST $28,372 7,190 $35,562 GAINS $464 239 $703 LOSSES FAIR VALUE $(5) $28,831 (6) 7,423 $(11) $36,254 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, 2020: 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. $1,995 $(5) $— $1,995 Government agencies and Municipalities 808 $2,803 (6) $(11) — $— 808 $2,803 $— — $— $(5) (6) $(11) 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, 2020, the Company had 3 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, 2020. (IN THOUSANDS) Years to maturity: Due in one year or less Due after one year through five years Due after five years through ten years Total 56 $7,298 30,193 1,000 $7,356 30,011 959 $38,491 $38,326 T R O P E R L A U N N A 1 2 0 2 57 NOTE 8. Accrued Expenses and Other Liabilities Accrued expenses and other current liabilities at December 31 consisted of the following: (IN THOUSANDS) Accrued incentive compensation Accrued compensation and benefits Lease liability(1) Deferred revenue Reserve for policy cancellations Accrued interest Accrued rent and vendor expenses Other Total 2021 2020 $216,721 $159,356 53,547 43,441 67,450 29,213 15,871 7,552 22,364 41,550 43,542 53,956 31,081 15,260 6,682 20,310 $456,159 $371,737 (1) The Lease liability is the current portion of the Operating lease liabilities as reflected in the Consolidated Balance Sheets as of December 31, 2021 and 2020. NOTE 9. Long-Term Debt Long-term debt at December 31, 2021 and 2020 consisted of the following: (IN THOUSANDS) Current portion of long-term debt: Current portion of 5-year term loan facility expires 2026 Current portion of 5-year term loan facility expires 2022 Current portion of 5-year term loan credit agreement expires 2023 Total current portion of long-term debt Long-term debt: Note agreements: 4.200% Senior Notes, semi-annual interest payments, balloon due 2024 4.500% Senior Notes, semi-annual interest payments, balloon due 2029 2.375% Senior Note due 2031, semi-annual interest payments, balloon due 2031 Total notes Credit agreements: DECEMBER 31, 2021 DECEMBER 31, 2020 $12,500 — 30,000 42,500 $— 40,000 30,000 70,000 499,574 349,596 699,325 499,416 349,540 699,252 1,548,495 1,548,208 5-year term loan facility, periodic interest and principal payments, LIBOR plus up to 1.750%, expires October 27, 2026 234,375 — 5-year term loan facility, periodic interest and principal payments, LIBOR plus up to 1.750%, expires June 28, 2022 5-year revolving loan facility, periodic interest payments, currently LIBOR plus up to 1.500%, plus commitment fees up to 0.225%, expires October 27, 2026 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 5-year term loan facility, periodic interest and principal payments, LIBOR plus up to 1.750%, expires December 21, 2023 Total credit agreements Debt issuance costs (contra) Total long-term debt less unamortized discount and debt issuance costs Current portion of long-term debt 58 Total debt — — — 250,000 — — 210,000 444,375 (12,433) 240,000 490,000 (12,302) 1,980,437 2,025,906 42,500 70,000 $2,022,937 $2,095,906 On October 27, 2021, the Company entered into an amended and restated credit agreement (the “Second Amended and Restated Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent, Bank of America, N.A., Truist Bank and BMO Harris Bank N.A. as co-syndication agents, and U.S. Bank National Association, Fifth Third Bank, National Association, Wells Fargo Bank, National Association, PNC Bank, National Association, Morgan Stanley Senior Funding, Inc. and Citizens Bank, N.A. as co-documentation agents. The Second Amended and Restated Credit Agreement amended and restated the credit agreement dated April 17, 2014, among certain of such parties, as amended by that certain amended and restated credit agreement dated June 28, 2017 (the “Original Credit Agreement”). The Second Amended and Restated Credit Agreement, among other certain terms, extended the maturity of the revolving credit facility of $800.0 million and unsecured term loans associated with the agreement of $250.0 million to October 27, 2026. At the time of the renewal, the Company added an additional $2.7 million in debt issuance costs related to the transaction. The Company carried forward $0.6 million of existing debt issuance costs related to the previous credit facility agreements while expensing $0.1 million in debt issuance costs due to certain lenders exiting the renewed facility agreement. As of December 31, 2021, there was an outstanding debt balance issued under the term loan of the Second Amended and Restated Credit Agreement of $246.9 million with no borrowings outstanding against the revolving credit facility. 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 extended the applicable maturity date of the existing revolving credit facility (the “Revolving Credit 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 Revolving Credit Facility to the Consolidated Balance Sheets. 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 before execution of the Amended and Restated Credit Agreement. The Company also carried forward $1.6 million on the Consolidated Balance Sheets 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. As of December 31, 2020, there was an outstanding debt balance issued under the term loan of the Amended and Restated Credit Agreement of $290.0 million with no borrowings outstanding against the Revolving Credit Facility. 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, 2021 and December 31, 2020, 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. 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 1.000% to 1.750%, 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 Revolving Credit Facility. As of December 31, 2021, there was an outstanding debt balance issued under the Term Loan of $240.0 million. As of December 31, 2020, there was an outstanding debt balance issued under the Term Loan of $270.0 million. On March 11, 2019, the Company completed the issuance of $350.0 million aggregate principal amount of the Company’s 4.500% Senior Notes due 2029. The Senior Notes were given investment grade ratings of BBB-/Baa3 with a stable outlook. The notes are subject to certain covenant restrictions, 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 a portion of the outstanding balance of $350.0 million on the Revolving Credit Facility, utilized in connection with the financing related to our acquisition of Hays and for other general corporate purposes. As of December 31, 2021, and December 31, 2020 there was an outstanding debt balance of $350.0 million exclusive of the associated discount balance. On September 24, 2020, the Company completed the issuance of $700.0 million aggregate principal amount of the Company’s 2.375% Senior Notes due 2031. The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 positive outlook. The notes are subject to certain covenant restrictions, 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 T R O P E R L A U N N A 1 2 0 2 59 NOTE 8. Accrued Expenses and Other Liabilities Accrued expenses and other current liabilities at December 31 consisted of the following: (IN THOUSANDS) Accrued incentive compensation Accrued compensation and benefits Lease liability(1) Deferred revenue Reserve for policy cancellations Accrued interest Accrued rent and vendor expenses Other Total 2021 2020 $216,721 $159,356 53,547 43,441 67,450 29,213 15,871 7,552 22,364 41,550 43,542 53,956 31,081 15,260 6,682 20,310 $456,159 $371,737 DECEMBER 31, DECEMBER 31, 2021 2020 $12,500 — 30,000 42,500 $— 40,000 30,000 70,000 499,574 349,596 699,325 499,416 349,540 699,252 1,548,495 1,548,208 234,375 — — — 250,000 — — — 210,000 444,375 (12,433) 240,000 490,000 (12,302) 1,980,437 2,025,906 42,500 70,000 $2,022,937 $2,095,906 (1) The Lease liability is the current portion of the Operating lease liabilities as reflected in the Consolidated Balance Sheets as of December 31, 2021 and 2020. NOTE 9. Long-Term Debt Long-term debt at December 31, 2021 and 2020 consisted of the following: (IN THOUSANDS) Current portion of long-term debt: Current portion of 5-year term loan facility expires 2026 Current portion of 5-year term loan facility expires 2022 Current portion of 5-year term loan credit agreement expires 2023 Total current portion of long-term debt 4.200% Senior Notes, semi-annual interest payments, balloon due 2024 4.500% Senior Notes, semi-annual interest payments, balloon due 2029 2.375% Senior Note due 2031, semi-annual interest payments, balloon due 2031 Long-term debt: Note agreements: Total notes Credit agreements: October 27, 2026 June 28, 2022 5-year term loan facility, periodic interest and principal payments, LIBOR plus up to 1.750%, expires 5-year term loan facility, periodic interest and principal payments, LIBOR plus up to 1.750%, expires 5-year revolving loan facility, periodic interest payments, currently LIBOR plus up to 1.500%, plus commitment fees up to 0.225%, expires October 27, 2026 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 5-year term loan facility, periodic interest and principal payments, LIBOR plus up to 1.750%, expires December 21, 2023 Total credit agreements Debt issuance costs (contra) Total long-term debt less unamortized discount and debt issuance costs Current portion of long-term debt 58 Total debt On October 27, 2021, the Company entered into an amended and restated credit agreement (the “Second Amended and Restated Credit Agreement”) with the lenders named therein, JPMorgan Chase Bank, N.A. as administrative agent, Bank of America, N.A., Truist Bank and BMO Harris Bank N.A. as co-syndication agents, and U.S. Bank National Association, Fifth Third Bank, National Association, Wells Fargo Bank, National Association, PNC Bank, National Association, Morgan Stanley Senior Funding, Inc. and Citizens Bank, N.A. as co-documentation agents. The Second Amended and Restated Credit Agreement amended and restated the credit agreement dated April 17, 2014, among certain of such parties, as amended by that certain amended and restated credit agreement dated June 28, 2017 (the “Original Credit Agreement”). The Second Amended and Restated Credit Agreement, among other certain terms, extended the maturity of the revolving credit facility of $800.0 million and unsecured term loans associated with the agreement of $250.0 million to October 27, 2026. At the time of the renewal, the Company added an additional $2.7 million in debt issuance costs related to the transaction. The Company carried forward $0.6 million of existing debt issuance costs related to the previous credit facility agreements while expensing $0.1 million in debt issuance costs due to certain lenders exiting the renewed facility agreement. As of December 31, 2021, there was an outstanding debt balance issued under the term loan of the Second Amended and Restated Credit Agreement of $246.9 million with no borrowings outstanding against the revolving credit facility. 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 extended the applicable maturity date of the existing revolving credit facility (the “Revolving Credit 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 Revolving Credit Facility to the Consolidated Balance Sheets. 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 before execution of the Amended and Restated Credit Agreement. The Company also carried forward $1.6 million on the Consolidated Balance Sheets 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. As of December 31, 2020, there was an outstanding debt balance issued under the term loan of the Amended and Restated Credit Agreement of $290.0 million with no borrowings outstanding against the Revolving Credit Facility. 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, 2021 and December 31, 2020, 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. 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 1.000% to 1.750%, 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 Revolving Credit Facility. As of December 31, 2021, there was an outstanding debt balance issued under the Term Loan of $240.0 million. As of December 31, 2020, there was an outstanding debt balance issued under the Term Loan of $270.0 million. On March 11, 2019, the Company completed the issuance of $350.0 million aggregate principal amount of the Company’s 4.500% Senior Notes due 2029. The Senior Notes were given investment grade ratings of BBB-/Baa3 with a stable outlook. The notes are subject to certain covenant restrictions, 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 a portion of the outstanding balance of $350.0 million on the Revolving Credit Facility, utilized in connection with the financing related to our acquisition of Hays and for other general corporate purposes. As of December 31, 2021, and December 31, 2020 there was an outstanding debt balance of $350.0 million exclusive of the associated discount balance. On September 24, 2020, the Company completed the issuance of $700.0 million aggregate principal amount of the Company’s 2.375% Senior Notes due 2031. The Senior Notes were given investment grade ratings of BBB- stable outlook and Baa3 positive outlook. The notes are subject to certain covenant restrictions, 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 T R O P E R L A U N N A 1 2 0 2 59 (IN THOUSANDS) Non-current deferred tax liabilities: Intangible assets Fixed assets ASC 842 ROU Asset Non-current deferred tax assets: Deferred compensation Accruals and reserves ASC 842 lease liabilities from the issuance were used to repay a portion of the outstanding balance of $200.0 million on the Revolving Credit Facility, utilized in connection with the financing related to the acquisitions of LP Insurance Services, LLP and CKP Insurance, LLC and for other general corporate purposes. As of December 31, 2021 and December 31, 2020, there was an outstanding debt balance of $700.0 million exclusive of the associated discount balance. The Second Amended and Restated Credit Agreement and 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, 2021 and December 31, 2020. Significant components of the Company’s net deferred tax liabilities as of December 31 are as follows: The 30-day Adjusted LIBOR Rate for the term loan of the Amended and Restated Credit Agreement and Term Loan Credit Agreement as of December 31, 2021 was 0.125%. Impact of adoption of ASC 606 revenue recognition Net unrealized holding (loss)/gain on available-for-sale securities Interest paid in 2021, 2020 and 2019 was $61.5 million, $52.4 million, and $58.3 million, respectively. Total non-current deferred tax liabilities 523,080 478,909 At December 31, 2021, maturities of long-term debt were $42.5 million in 2022, $225.6 million in 2023, $525.0 million in 2024, $25.0 million in 2025, $168.8 million in 2026, $350.0 million in 2029 and $700.0 million in 2031. NOTE 10. Income Taxes Significant components of the provision for income taxes for the years ended December 31 are as follows: (IN THOUSANDS) Current: Federal State Foreign 2021 2020 2019 $106,763 $93,620 $85,507 32,635 1,831 34,123 28,905 325 620 Total current provision 141,229 128,068 115,032 operating loss carryforward in Canada of $1.8 million. Deferred: Federal State Foreign Total deferred provision Total tax provision 27,963 11,655 4,954 1,573 4,119 (226) 14,994 (2,587) (24) 34,490 15,548 12,383 $175,719 $143,616 $127,415 (IN THOUSANDS) Unrecognized tax benefits balance at January 1 Gross increases for tax positions of prior years Gross decreases for tax positions of prior years Settlements 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: Unrecognized tax benefits balance at December 31 Net operating loss carryforwards and 163( j) disallowed carryforwards Valuation allowance for deferred tax assets Total non-current deferred tax assets Net non-current deferred tax liability Income taxes paid in 2021, 2020 and 2019 were $147.5 million, $132.9 million and $110.0 million, respectively. At December 31, 2021, the Company had no net operating loss carryforwards for federal purposes and $34.5 million net operating loss carryforwards for state income tax reporting purposes, portions of which expire in the years 2022 through indefinite. The state carryforward amount is derived from the operating results of certain subsidiaries. As of December 31, 2021, the Company had a net A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: 2021 2020 $440,238 $400,335 20,004 47,663 15,216 (41) 66,354 15,708 53,343 1,910 (1,029) 11,740 46,730 19,928 176 59,897 19,497 53,150 3,168 (1,025) 136,286 $386,794 134,687 $344,222 T R O P E R L A U N N A 1 2 0 2 2021 2020 2019 $1,267 $1,127 $1,639 270 (446) (174) 848 (708) — 778 (791) (499 ) $917 $1,267 $1,127 (IN THOUSANDS) Federal statutory tax rate State income taxes, net of federal income tax benefit Non-deductible employee stock purchase plan expense Non-deductible meals and entertainment Non-deductible officers’ compensation Stock Vesting under ASU 2016-19 Other, net Effective tax rate 2021 2020 2019 and 2019 the Company had $0.3 million, $0.3 million and $0.2 million of accrued interest and penalties related to uncertain tax positions, The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2021, 2020 21.0% 21.0 % 21.0% respectively. 4.7 0.2 0.0 0.4 (3.6) 0.3 5.3 0.3 0.1 0.3 (3.5) (0.5) 3.8 0.3 0.3 0.2 (1.1) (0.3) 23.0% 23.0% 24.2% 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. income taxes in these countries. 60 The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate if recognized was $0.9 million as of December 31, 2021, $1.3 million as of December 31, 2020 and $1.1 million as of December 31, 2019. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. 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, Ireland and Canada. In the United States, federal returns for fiscal years 2018 through 2021 remain open and subject to examination by the Internal Revenue Service. 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 2017 through 2021. In the United Kingdom, the Company’s filings remain open for audit for the fiscal years 2020 through 2021. In Canada, the Company’s filings remain open for audit for the fiscal years 2016 through 2021. In Ireland, the Company’s filings remain open for audit for the fiscal years 2017 through 2021. The Company also operates in Bermuda and the Cayman Islands. The Company is not subject to any During 2019, the Company settled the previously disclosed State of Colorado income tax audit for the fiscal years 2013-2016, the State of Kansas income tax audit for the fiscal years 2014-2016, and the State of New York income tax audit for the fiscal years 2015-2017. During 2021, the Company settled the previously disclosed State of Wisconsin income tax audit for the fiscal years 2015-2018, the State of Illinois income tax audit for the fiscal years 2015-2017, and the State of California income tax audit for the fiscal years 2015-2017. There were no material adjustments as a result of the finalization of these audits. The Company is currently under audit in the State of 61 from the issuance were used to repay a portion of the outstanding balance of $200.0 million on the Revolving Credit Facility, utilized in Significant components of the Company’s net deferred tax liabilities as of December 31 are as follows: connection with the financing related to the acquisitions of LP Insurance Services, LLP and CKP Insurance, LLC and for other general corporate purposes. As of December 31, 2021 and December 31, 2020, there was an outstanding debt balance of $700.0 million (IN THOUSANDS) The Second Amended and Restated Credit Agreement and 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, exclusive of the associated discount balance. 2021 and December 31, 2020. of December 31, 2021 was 0.125%. The 30-day Adjusted LIBOR Rate for the term loan of the Amended and Restated Credit Agreement and Term Loan Credit Agreement as Impact of adoption of ASC 606 revenue recognition Net unrealized holding (loss)/gain on available-for-sale securities Non-current deferred tax liabilities: Intangible assets Fixed assets ASC 842 ROU Asset 2021 2020 $440,238 $400,335 20,004 47,663 15,216 (41) 11,740 46,730 19,928 176 Interest paid in 2021, 2020 and 2019 was $61.5 million, $52.4 million, and $58.3 million, respectively. Total non-current deferred tax liabilities 523,080 478,909 At December 31, 2021, maturities of long-term debt were $42.5 million in 2022, $225.6 million in 2023, $525.0 million in 2024, $25.0 million in 2025, $168.8 million in 2026, $350.0 million in 2029 and $700.0 million in 2031. NOTE 10. Income Taxes Significant components of the provision for income taxes for the years ended December 31 are as follows: (IN THOUSANDS) 2021 2020 2019 Non-current deferred tax assets: Deferred compensation Accruals and reserves ASC 842 lease liabilities Net operating loss carryforwards and 163( j) disallowed carryforwards Valuation allowance for deferred tax assets Total non-current deferred tax assets Net non-current deferred tax liability 66,354 15,708 53,343 1,910 (1,029) 59,897 19,497 53,150 3,168 (1,025) 136,286 $386,794 134,687 $344,222 Income taxes paid in 2021, 2020 and 2019 were $147.5 million, $132.9 million and $110.0 million, respectively. At December 31, 2021, the Company had no net operating loss carryforwards for federal purposes and $34.5 million net operating loss carryforwards for state income tax reporting purposes, portions of which expire in the years 2022 through indefinite. The state carryforward amount is derived from the operating results of certain subsidiaries. As of December 31, 2021, the Company had a net operating loss carryforward in Canada of $1.8 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: A reconciliation of the differences between the effective tax rate and the federal statutory tax rate for the years ended December 31 is Unrecognized tax benefits balance at December 31 (IN THOUSANDS) Unrecognized tax benefits balance at January 1 Gross increases for tax positions of prior years Gross decreases for tax positions of prior years Settlements 2021 2020 2019 $1,267 $1,127 $1,639 270 (446) (174) 848 (708) — 778 (791) (499 ) $917 $1,267 $1,127 T R O P E R L A U N N A 1 2 0 2 The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2021, 2020 and 2019 the Company had $0.3 million, $0.3 million and $0.2 million of accrued interest and penalties related to uncertain tax positions, respectively. The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate if recognized was $0.9 million as of December 31, 2021, $1.3 million as of December 31, 2020 and $1.1 million as of December 31, 2019. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. 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, Ireland and Canada. In the United States, federal returns for fiscal years 2018 through 2021 remain open and subject to examination by the Internal Revenue Service. 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 2017 through 2021. In the United Kingdom, the Company’s filings remain open for audit for the fiscal years 2020 through 2021. In Canada, the Company’s filings remain open for audit for the fiscal years 2016 through 2021. In Ireland, the Company’s filings remain open for audit for the fiscal years 2017 through 2021. The Company also operates in Bermuda and the Cayman Islands. The Company is not subject to any income taxes in these countries. During 2019, the Company settled the previously disclosed State of Colorado income tax audit for the fiscal years 2013-2016, the State of Kansas income tax audit for the fiscal years 2014-2016, and the State of New York income tax audit for the fiscal years 2015-2017. During 2021, the Company settled the previously disclosed State of Wisconsin income tax audit for the fiscal years 2015-2018, the State of Illinois income tax audit for the fiscal years 2015-2017, and the State of California income tax audit for the fiscal years 2015-2017. There were no material adjustments as a result of the finalization of these audits. The Company is currently under audit in the State of 61 Current: Federal State Foreign Deferred: Federal State Foreign Total current provision Total deferred provision Total tax provision as follows: (IN THOUSANDS) Federal statutory tax rate State income taxes, net of federal income tax benefit Non-deductible employee stock purchase plan expense Non-deductible meals and entertainment Non-deductible officers’ compensation Stock Vesting under ASU 2016-19 Other, net Effective tax rate 60 $106,763 $93,620 $85,507 32,635 1,831 34,123 28,905 325 620 141,229 128,068 115,032 27,963 11,655 4,954 1,573 4,119 (226) 14,994 (2,587) (24) 34,490 15,548 12,383 $175,719 $143,616 $127,415 2021 2020 2019 21.0% 21.0 % 21.0% 4.7 0.2 0.0 0.4 (3.6) 0.3 5.3 0.3 0.1 0.3 (3.5) (0.5) 3.8 0.3 0.3 0.2 (1.1) (0.3) 23.0% 23.0% 24.2% 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. Massachusetts for the fiscal years 2015 through 2017. A subsidiary of the Company is currently under audit in the State of Wisconsin for the fiscal years 2017-2020 and with the Internal Revenue Service for the fiscal years 2017-2018. In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. The Company has determined it is not practical to determine the unrecognized deferred tax liabilities on the undistributed earnings from the Company’s international subsidiaries as such earnings are considered to be indefinitely reinvested. $5.0 million and $3.5 million, respectively. Stock Incentive Plans The total fair value of PSP grants that vested during each of the years ended December 31, 2021, 2020 and 2019 was $2.3 million, 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. The Company’s contribution expense to the plan totaled $35.6 million in 2021 and $31.2 million in 2020. 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 last business day before 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, were reserved for issuance under the 2010 Stock Incentive Plan (the “2010 SIP”). At December 31, 2021, 10,192,982 shares had been granted, net of forfeitures, under the PSP. As of December 31, 2021, 839,842 shares had met the first condition of vesting and had been awarded, and 9,353,140 shares had satisfied both conditions of vesting and had been distributed to participants. Of the shares that have not vested as of December 31, 2021, the initial stock prices ranged from $8.30 to $10.31. The Company uses a path-dependent lattice model to estimate the fair value of PSP grants on the grant date. A summary of 2010 SIP and 2019 SIP activity for the years ended December 31, 2021, 2020 and 2019 is as follows: A summary of PSP activity for the years ended December 31, 2021, 2020 and 2019 is as follows: WEIGHTED- AVERAGE GRANT DATE FAIR VALUE GRANTED SHARES AWARDED SHARES SHARES NOT YET AWARDED Outstanding at January 1, 2019 Outstanding at January 1, 2019 $5.03 1,196,092 1,196,092 Granted Awarded Vested Forfeited Outstanding at December 31, 2019 Granted Awarded Vested Forfeited Outstanding at December 31, 2020 Granted Awarded Vested Forfeited Outstanding at December 31, 2021 62 $— $— $5.29 $4.74 $5.00 $— $— $6.06 $5.03 $4.86 $— $— $4.73 $5.50 $4.87 — — — — (115,040) (115,040) (29,760) (29,760) 1,051,292 1,051,292 — — — — (119,072) (119,072) (22,392) 909,828 (22,392) 909,828 — — — — (45,736) (24,250) (45,736) (24,250) 839,842 839,842 Outstanding at December 31, 2019 Outstanding at December 31, 2020 Granted Awarded Vested Forfeited Granted Awarded Vested Forfeited Granted Awarded Vested Forfeited — — — — — — — — — — — — — — — — On April 28, 2010, the shareholders of the Company approved the 2010 Stock Incentive Plan (“2010 SIP”), which was suspended May 1, 2019. On May 1, 2019, the shareholders of the Company approved the 2019 Stock Incentive Plan (“2019 SIP”) that provides for the granting of restricted stock, restricted stock units, stock options, stock appreciation rights and other stock-based awards to employees and directors contingent on performance-based and/or time-based criteria established by the Compensation Committee of the Company’s board of directors. In addition, the 2019 SIP provides for a limited delegation of authority of the Company’s chief executive officer to grant awards to individuals who are not subject to Section 16 of the Securities Exchange Act of 1934. The principal purpose of the 2019 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 number of shares of stock reserved for issuance under the 2019 SIP is 2,283,475 shares, plus any shares that are authorized for issuance under the 2010 SIP (described below), and not already subject to grants under the 2010 SIP, and that were outstanding as of May 1, 2019, the date of suspension of the 2010 SIP, together with PSP shares, 2010 SIP shares and 2019 SIP shares forfeited after that date. As of May 1, 2019, 6,957,897 shares were available for issuance under the 2010 SIP, which were then transferred to the 2019 SIP. The Company has granted restricted share awards (including both restricted stock and restricted stock units) to our employees in the form of time-based grants and performance-based grants under the 2010 SIP and 2019 SIP. To date, a substantial majority of restricted share grants to employees under these plans vest in 5 to 10 years. The performance-based grants 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 diluted net income per share growth at certain levels of the Company. The performance measurement period ranges from 3 to 5 years. Beginning in 2016, certain performance-based grants 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 2010 SIP and 2019 SIP as part of their annual compensation. A total of 27,885 shares were issued in April 2019, 16,490 shares were issued in May 2020 and 16,857 shares were issued in May 2021. The Company uses the closing stock price on the day before the grant date to determine the fair value of grants under the 2010 SIP and 2019 SIP 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. T R O P E R L A U N N A 1 2 0 2 63 WEIGHTED- AVERAGE GRANT DATE FAIR VALUE GRANTED SHARES AWARDED SHARES SHARES NOT YET AWARDED 11,102,375 6,595,319 4,507,056 1,812,047 797,778 1,014,269(1) 299,339 1,954,983 (1,655,644) (1,068,211) (1,068,211) (503,632) (209,293) 11,641,918 8,070,576 970,997 497,082 148,015 1,880,512 (1,383,430) (3,059,619) (3,059,619) (356,041) 9,694,337 1,143,094 (119,637) 6,919,847 204,826 310,147 1,272,554 (3,223,964) (3,223,964) (294,339) 3,571,342 822,982(2) (236,404) 2,774,490 938,268(3) (962,407) — — — $16.69 $28.53 $17.26 $14.29 $19.09 $18.10 $46.58 $19.71 $15.97 $20.75 $19.89 $46.05 $25.80 $15.73 $30.54 Outstanding at December 31, 2021 (315,168) (147,702) (167,466) $21.59 7,608,446 5,025,561 2,582,885 Massachusetts for the fiscal years 2015 through 2017. A subsidiary of the Company is currently under audit in the State of Wisconsin for the fiscal years 2017-2020 and with the Internal Revenue Service for the fiscal years 2017-2018. The total fair value of PSP grants that vested during each of the years ended December 31, 2021, 2020 and 2019 was $2.3 million, $5.0 million and $3.5 million, respectively. In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. The Company has determined it is not practical to determine the unrecognized deferred tax liabilities on the undistributed earnings from the Company’s Stock Incentive Plans On April 28, 2010, the shareholders of the Company approved the 2010 Stock Incentive Plan (“2010 SIP”), which was suspended May 1, 2019. On May 1, 2019, the shareholders of the Company approved the 2019 Stock Incentive Plan (“2019 SIP”) that provides for the granting of restricted stock, restricted stock units, stock options, stock appreciation rights and other stock-based awards to employees and directors contingent on performance-based and/or time-based criteria established by the Compensation Committee of the Company’s board of directors. In addition, the 2019 SIP provides for a limited delegation of authority of the Company’s chief executive officer to grant awards to individuals who are not subject to Section 16 of the Securities Exchange Act of 1934. The principal purpose of the 2019 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 number of shares of stock reserved for issuance under the 2019 SIP is 2,283,475 shares, plus any shares that are authorized for issuance under the 2010 SIP (described below), and not already subject to grants under the 2010 SIP, and that were outstanding as of May 1, 2019, the date of suspension of the 2010 SIP, together with PSP shares, 2010 SIP shares and 2019 SIP shares forfeited after that date. As of May 1, 2019, 6,957,897 shares were available for issuance under the 2010 SIP, which were then transferred to the 2019 SIP. The Company has granted restricted share awards (including both restricted stock and restricted stock units) to our employees in the form of time-based grants and performance-based grants under the 2010 SIP and 2019 SIP. To date, a substantial majority of restricted share grants to employees under these plans vest in 5 to 10 years. The performance-based grants 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 diluted net income per share growth at certain levels of the Company. The performance measurement period ranges from 3 to 5 years. Beginning in 2016, certain performance-based grants 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 2010 SIP and 2019 SIP as part of their annual compensation. A total of 27,885 shares were issued in April 2019, 16,490 shares were issued in May 2020 and 16,857 shares were issued in May 2021. The Company uses the closing stock price on the day before the grant date to determine the fair value of grants under the 2010 SIP and 2019 SIP 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. The Company uses a path-dependent lattice model to estimate the fair value of PSP grants on the grant date. A summary of 2010 SIP and 2019 SIP activity for the years ended December 31, 2021, 2020 and 2019 is as follows: international subsidiaries as such earnings are considered to be indefinitely reinvested. 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. The Company’s contribution expense to the plan totaled $35.6 million in 2021 and $31.2 million in 2020. 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 last business day before 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, were reserved for issuance under the 2010 Stock Incentive Plan (the “2010 SIP”). At December 31, 2021, 10,192,982 shares had been granted, net of forfeitures, under the PSP. As of December 31, 2021, 839,842 shares had met the first condition of vesting and had been awarded, and 9,353,140 shares had satisfied both conditions of vesting and had been distributed to participants. Of the shares that have not vested as of December 31, 2021, the initial stock prices ranged from $8.30 to $10.31. A summary of PSP activity for the years ended December 31, 2021, 2020 and 2019 is as follows: Outstanding at January 1, 2019 $5.03 1,196,092 1,196,092 Outstanding at December 31, 2019 Outstanding at December 31, 2020 Granted Awarded Vested Forfeited Granted Awarded Vested Forfeited Granted Awarded Vested Forfeited 62 Outstanding at December 31, 2021 $— $— $5.29 $4.74 $5.00 $— $— $6.06 $5.03 $4.86 $— $— $4.73 $5.50 $4.87 — — — — — — — — — — — — (115,040) (115,040) (29,760) (29,760) 1,051,292 1,051,292 (119,072) (119,072) (22,392) 909,828 (22,392) 909,828 (45,736) (24,250) (45,736) (24,250) 839,842 839,842 — — — — — — — — — — — — — — — — WEIGHTED- AVERAGE GRANT DATE FAIR VALUE GRANTED SHARES AWARDED SHARES SHARES NOT YET AWARDED Outstanding at January 1, 2019 Granted Awarded Vested Forfeited Outstanding at December 31, 2019 Granted Awarded Vested Forfeited Outstanding at December 31, 2020 Granted Awarded Vested Forfeited WEIGHTED- AVERAGE GRANT DATE FAIR VALUE $16.69 $28.53 $17.26 $14.29 $19.09 $18.10 $46.58 $19.71 $15.97 $20.75 $19.89 $46.05 $25.80 $15.73 $30.54 (3,059,619) (3,059,619) (356,041) 9,694,337 1,143,094 (119,637) 6,919,847 204,826 310,147 1,272,554 (3,223,964) (3,223,964) — (236,404) 2,774,490 938,268(3) (962,407) — (315,168) (147,702) (167,466) GRANTED SHARES AWARDED SHARES SHARES NOT YET AWARDED 11,102,375 6,595,319 4,507,056 1,812,047 797,778 1,014,269(1) 299,339 1,954,983 (1,655,644) Outstanding at December 31, 2021 $21.59 7,608,446 5,025,561 2,582,885 (1,068,211) (1,068,211) (503,632) (209,293) 11,641,918 8,070,576 — (294,339) 3,571,342 822,982(2) 1,880,512 (1,383,430) 970,997 497,082 148,015 T R O P E R L A U N N A 1 2 0 2 63 (1) Of the 1,014,269 performance-based shares granted in 2019, the payout for 501,384 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 time-based share grants at a target payout of 100%. (2) Of the 822,982 performance-based shares granted in 2020, the payout for 365,606 shares may be increased up to 200% of the target or decreased to zero, 20,611 shares may be increased up to 120% of the target or decreased to zero, 15,850 shares may be increased up to 150% of the target or decreased to zero and 56,226 shares may be increased up to 150% or decreased to 50% of target subject to the level of performance attained. The amount reflected in the table includes all time-based share grants at a target payout of 100%. (3) Of the 938,268 performance-based shares granted in 2021, the payout for 486,679 shares may be increased up to 200% of the target or decreased to zero, 21,651 shares may be increased up to 120% of the target or decreased to zero and 3,886 shares may be increased up to 150% or decreased to 50% of target subject to the level of performance attained. The amount reflected in the table includes all time-based share grants at a target payout of 100%. The following table sets forth information as of December 31, 2021, 2020 and 2019, 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 and 2019 Stock Incentive Plans: Summary of Unamortized Compensation Expense As of December 31, 2021, the Company estimates there to be $135.1 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 3.36 years. NOTE 13. Supplemental Disclosures of Cash Flow Information and Non-Cash Financing and YEAR 2021 2020 2019 TIME-BASED RESTRICTED STOCK GRANTED AND AWARDED PERFORMANCE-BASED RESTRICTED STOCK GRANTED PERFORMANCE-BASED RESTRICTED STOCK AWARDED Investing Activities 204,826 148,015 797,778 938,268(1) 822,982(2) 1,014,269(3) 1,272,554 1,880,512 1,954,983 Throughout 2020, the Company deferred $31.1 million in employer-only payroll tax payments as allowed under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act), which was signed into law on March 27, 2020. During 2021, there were no additional deferrals under the CARES Act. The Company paid the first installment of $15.6 million in December 2021. The remaining balance of approximately $15.6 million of deferred employer payroll tax payments related to the CARES Act is expected to be paid in December 2022. (1) Of the 938,268 performance-based shares granted in 2021, the payout for 486,679 shares may be increased up to 200% of the target or decreased to zero, 21,651 shares may be increased up to 120% of the target or decreased to zero and 3,886 shares may be increased up to 150% or decreased to 50% of target subject to the level of performance attained. The amount reflected in the table includes all time-based share grants at a target payout of 100%. (2) Of the 822,982 performance-based shares granted in 2020, the payout for 365,606 shares may be increased up to 200% of the target or decreased to zero, 20,611 shares may be increased up to 120% of the target or decreased to zero, 15,850 shares may be increased up to 150% of the target or decreased to zero and 56,226 shares may be increased up to 150% or decreased to 50% of target subject to the level of performance attained. The amount reflected in the table includes all time-based share grants at a target payout of 100%. During the second quarter of 2021, the Company received an $8.1 million reimbursement for capitalizable costs of public infrastructure improvements related to the construction of the Company’s headquarters in accordance with an economic development grant agreement between the Company and the City of Daytona Beach and Volusia County. The reimbursement has been reflected as a reduction to the additions to fixed asset line item on the Consolidated Statements of Cash Flows for the year ended December 31, 2021. (3) Of the 1,014,269 performance-based shares granted in 2019, the payout for 501,384 shares may be increased up to 200% of the target or decreased to zero, subject to the level of The Company’s cash paid during the period for interest and income taxes are summarized as follows: performance attained. The amount reflected in the table includes all time-based share grants at a target payout of 100%. At December 31, 2021, 7,569,607 shares were available for future grants under the 2019 SIP. This amount is calculated assuming the maximum payout for all 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 4,527,511 were available for future subscriptions as of December 31, 2021. Employees of the Company who regularly work 20 hours or more per week are generally 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: (i) 15% of the quoted market price of the Company’s stock on the day prior to the beginning of the Subscription Period, and (ii) 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 2021 was $11.60. The fair values of an ESPP share option as of the Subscription Periods beginning in August 2020 and 2019, were $12.43 and $7.46, respectively. For the ESPP plan years ended July 31, 2021, 2020 and 2019, the Company issued 850,956, 962,131 and 976,303 shares of common stock, respectively. These shares were issued at an aggregate purchase price of $32.9 million, or $38.70 per share, in 2021, $29.3 million, or $30.51 per share, in 2020 and $24.0 million, or $24.63 per share, in 2019. For the five months ended December 31, 2021, 2020 and 2019 (portions of the 2021-2022, 2020-2021 and 2019-2020 plan years), 354,911, 381,371 and 419,446 shares of common stock (from authorized but unissued shares), respectively, were subscribed to by ESPP participants for proceeds of approximately $16.4 million, $14.8 million and $12.8 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) Stock incentive plan Employee stock purchase plan Performance stock plan Total 64 2021 2020 2019 $50,664 $50,198 $39,626 9,953 401 8,789 762 6,504 864 $61,018 $59,749 $46,994 (IN THOUSANDS) Cash paid during the period for: Interest Income taxes, net of refunds The Company’s significant non-cash investing and financing activities are summarized as follows: (IN THOUSANDS) Other payables issued for agency acquisitions and purchased customer accounts Estimated acquisition earn-out payables and related charges Contingent payable issued for agency acquisition Common stock issued for agency acquisition Notes payable assumed for agency acquisition Notes received on the sale of fixed assets and customer accounts Our Restricted Cash balance is composed 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, 2021, 2020 and 2019. Table to reconcile cash and cash equivalents inclusive of restricted cash (IN THOUSANDS) Cash and cash equivalents Restricted cash Total cash and cash equivalents inclusive of restricted cash at the end of the period $1,470,256 $1,271,915 $962,975 YEAR ENDED DECEMBER 31, 2021 2020 2019 $61,531 $52,378 $58,290 $146,932 $131,596 $109,766 YEAR ENDED DECEMBER 31, 2021 $15,072 $75,761 $24,114 $9,892 $1,355 $— 2020 $9,130 $131,397 $— $— $— $— 2019 $12,135 $82,872 $— $— $— $9,903 BALANCE AS OF DECEMBER 31, 2021 2020 2019 $887,009 $817,398 $542,174 583,247 454,517 420,801 T R O P E R L A U N N A 1 2 0 2 65 (1) Of the 1,014,269 performance-based shares granted in 2019, the payout for 501,384 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 time-based share grants at a target payout of 100%. (2) Of the 822,982 performance-based shares granted in 2020, the payout for 365,606 shares may be increased up to 200% of the target or decreased to zero, 20,611 shares may be increased up to 120% of the target or decreased to zero, 15,850 shares may be increased up to 150% of the target or decreased to zero and 56,226 shares may be increased up to 150% or decreased to 50% of target subject to the level of performance attained. The amount reflected in the table includes all time-based share grants at a target payout of 100%. (3) Of the 938,268 performance-based shares granted in 2021, the payout for 486,679 shares may be increased up to 200% of the target or decreased to zero, 21,651 shares may be increased up to 120% of the target or decreased to zero and 3,886 shares may be increased up to 150% or decreased to 50% of target subject to the level of performance attained. The amount reflected in the table includes all time-based share grants at a target payout of 100%. The following table sets forth information as of December 31, 2021, 2020 and 2019, 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 and 2019 Stock Incentive Plans: YEAR 2021 2020 2019 TIME-BASED RESTRICTED PERFORMANCE-BASED PERFORMANCE-BASED STOCK GRANTED AND RESTRICTED STOCK GRANTED RESTRICTED STOCK AWARDED AWARDED 204,826 148,015 797,778 At December 31, 2021, 7,569,607 shares were available for future grants under the 2019 SIP. This amount is calculated assuming the maximum payout for all 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 4,527,511 were available for future subscriptions as of December 31, 2021. Employees of the Company who regularly work 20 hours or more per week are generally 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: (i) 15% of the quoted market price of the Company’s stock on the day prior to the beginning of the Subscription Period, and (ii) 85% of the value of a Summary of Unamortized Compensation Expense As of December 31, 2021, the Company estimates there to be $135.1 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 3.36 years. NOTE 13. Supplemental Disclosures of Cash Flow Information and Non-Cash Financing and Investing Activities 938,268(1) 822,982(2) 1,014,269(3) 1,272,554 1,880,512 1,954,983 Throughout 2020, the Company deferred $31.1 million in employer-only payroll tax payments as allowed under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act), which was signed into law on March 27, 2020. During 2021, there were no additional deferrals under the CARES Act. The Company paid the first installment of $15.6 million in December 2021. The remaining balance of approximately $15.6 million of deferred employer payroll tax payments related to the CARES Act is expected to be paid in December 2022. (1) Of the 938,268 performance-based shares granted in 2021, the payout for 486,679 shares may be increased up to 200% of the target or decreased to zero, 21,651 shares may be increased up to 120% of the target or decreased to zero and 3,886 shares may be increased up to 150% or decreased to 50% of target subject to the level of performance attained. The amount reflected in the table includes all time-based share grants at a target payout of 100%. (2) Of the 822,982 performance-based shares granted in 2020, the payout for 365,606 shares may be increased up to 200% of the target or decreased to zero, 20,611 shares may be increased up to 120% of the target or decreased to zero, 15,850 shares may be increased up to 150% of the target or decreased to zero and 56,226 shares may be increased up to 150% or decreased to 50% of target subject to the level of performance attained. The amount reflected in the table includes all time-based share grants at a target payout of 100%. During the second quarter of 2021, the Company received an $8.1 million reimbursement for capitalizable costs of public infrastructure improvements related to the construction of the Company’s headquarters in accordance with an economic development grant agreement between the Company and the City of Daytona Beach and Volusia County. The reimbursement has been reflected as a reduction to the additions to fixed asset line item on the Consolidated Statements of Cash Flows for the year ended December 31, 2021. (3) Of the 1,014,269 performance-based shares granted in 2019, the payout for 501,384 shares may be increased up to 200% of the target or decreased to zero, subject to the level of The Company’s cash paid during the period for interest and income taxes are summarized as follows: performance attained. The amount reflected in the table includes all time-based share grants at a target payout of 100%. (IN THOUSANDS) Cash paid during the period for: Interest Income taxes, net of refunds YEAR ENDED DECEMBER 31, 2021 2020 2019 $61,531 $52,378 $58,290 $146,932 $131,596 $109,766 one-year stock option on the Company stock using the Black-Scholes option-pricing model. The estimated fair value of an ESPP share Common stock issued for agency acquisition option as of the Subscription Period beginning in August 2021 was $11.60. The fair values of an ESPP share option as of the Subscription Periods beginning in August 2020 and 2019, were $12.43 and $7.46, respectively. Notes payable assumed for agency acquisition Notes received on the sale of fixed assets and customer accounts The Company’s significant non-cash investing and financing activities are summarized as follows: (IN THOUSANDS) Other payables issued for agency acquisitions and purchased customer accounts Estimated acquisition earn-out payables and related charges Contingent payable issued for agency acquisition YEAR ENDED DECEMBER 31, 2021 $15,072 $75,761 $24,114 $9,892 $1,355 $— 2020 $9,130 $131,397 $— $— $— $— 2019 $12,135 $82,872 $— $— $— $9,903 For the ESPP plan years ended July 31, 2021, 2020 and 2019, the Company issued 850,956, 962,131 and 976,303 shares of common stock, respectively. These shares were issued at an aggregate purchase price of $32.9 million, or $38.70 per share, in 2021, $29.3 million, or $30.51 per share, in 2020 and $24.0 million, or $24.63 per share, in 2019. For the five months ended December 31, 2021, 2020 and 2019 (portions of the 2021-2022, 2020-2021 and 2019-2020 plan years), 354,911, 381,371 and 419,446 shares of common stock (from authorized but unissued shares), respectively, were subscribed to by ESPP participants for proceeds of approximately $16.4 million, $14.8 million and $12.8 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: Our Restricted Cash balance is composed 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, 2021, 2020 and 2019. (IN THOUSANDS) Table to reconcile cash and cash equivalents inclusive of restricted cash Cash and cash equivalents Restricted cash BALANCE AS OF DECEMBER 31, 2021 2020 2019 $887,009 $817,398 $542,174 583,247 454,517 420,801 Total cash and cash equivalents inclusive of restricted cash at the end of the period $1,470,256 $1,271,915 $962,975 (IN THOUSANDS) Stock incentive plan Employee stock purchase plan Performance stock plan 64 Total 2021 2020 2019 $50,664 $50,198 $39,626 9,953 401 8,789 762 6,504 864 $61,018 $59,749 $46,994 T R O P E R L A U N N A 1 2 0 2 65 NOTE 14. Commitments and Contingencies As of December 31, 2021, the Company has entered into future lease agreements expected to commence in 2022 consisting of undiscounted lease liabilities of $18.8 million. 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, 2021 and 2020. 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 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. Leases Substantially all of the Company’s leases are classified as operating leases and primarily represent real estate leases for office space used to conduct the Company’s business that expire on various dates through 2041. 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. The Company assesses at inception of a contract if it contains a lease. This assessment is based on: (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. The right-of-use asset is initially measured at cost, which is primarily composed of the initial lease liability, plus any initial direct costs incurred, less any lease incentives received. The lease liability is initially measured at the present value of the minimum lease payments through the term of the lease. Minimum lease payments are discounted to present value using the incremental borrowing rate at the lease commencement date, which approximates the rate of interest the Company expects to be paid on a secured borrowing in an amount equal to the lease payments for the underlying asset under similar terms and economic conditions. The Company elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a total term of 12 months or less. The effect of short- term leases on the Company’s right-of-use asset and lease liability would not be significant. The balances and classification of operating lease right-of-use assets and operating lease liabilities within the Consolidated Balance Sheets as of December 31, 2021 and 2020 is as follows: (IN THOUSANDS) BALANCE SHEET Assets: Operating lease right-of-use assets Total assets Liabilities: Operating lease assets Current operating lease liabilities Accrued expenses and other liabilities Non-current operating lease liabilities Operating lease liabilities Total liabilities 66 DECEMBER 31, 2021 DECEMBER 31, 2020 $197,035 197,035 43,441 179,976 $223,417 $186,998 186,998 43,542 172,935 $216,477 Variable lease cost represents lease payments that are based on an index or similar rate. They are initially measured using the index or rate in effect at lease commencement and are based on the minimum payments stated in the lease. Additional payments based on the change in an index or rate, or payments based on a change in the Company’s portion of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred. Lease expense for operating leases consists of the lease payments, inclusive of lease incentives, plus any initial direct costs, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. The components of lease cost for operating leases for the 12 months ended December 31, 2021 and 2020 were: FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 31, 2021 DECEMBER 31, 2020 The weighted average remaining lease term and the weighted average discount rate for operating leases as of December 31, 2021 were: Maturities of the operating lease liabilities by fiscal year at December 31, 2021 for the Company’s operating leases are as follows: (IN THOUSANDS) Operating leases: Lease cost Variable lease cost Short term lease cost Operating lease cost Sublease income Total lease cost net Weighted-average remaining lease term Weighted-average discount rate (IN THOUSANDS) 2022 2023 2024 2025 2026 Thereafter Total undiscounted lease payments Less: Imputed interest Present value of future lease payments Supplemental cash flow information for operating leases: (IN THOUSANDS) Cash paid for amounts included in measurement of liabilities Operating cash flows from operating leases Right-of-use assets obtained in exchange for new operating liabilities $52,751 4,316 1,165 58,232 (1,661) $56,571 T R O P E R L A U N N A 1 2 0 2 OPERATING LEASES $53,821 3,739 468 58,028 (1,798) $56,230 6.47 2.72 $48,743 44,794 37,996 31,587 22,511 56,416 242,047 18,630 $223,417 FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 31, 2021 DECEMBER 31, 2020 $56,034 $53,978 $54,946 $45,750 NOTE 16. Segment Information Brown & Brown’s business is divided into four reportable segments: (i) 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, and non-insurance risk-mitigating products through our F&I businesses, (ii) 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 67 NOTE 14. Commitments and Contingencies As of December 31, 2021, the Company has entered into future lease agreements expected to commence in 2022 consisting of undiscounted lease liabilities of $18.8 million. Variable lease cost represents lease payments that are based on an index or similar rate. They are initially measured using the index or rate in effect at lease commencement and are based on the minimum payments stated in the lease. Additional payments based on the change in an index or rate, or payments based on a change in the Company’s portion of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred. Lease expense for operating leases consists of the lease payments, inclusive of lease incentives, plus any initial direct costs, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. The components of lease cost for operating leases for the 12 months ended December 31, 2021 and 2020 were: (IN THOUSANDS) Operating leases: Lease cost Variable lease cost Short term lease cost Operating lease cost Sublease income Total lease cost net FOR THE YEAR ENDED DECEMBER 31, 2021 FOR THE YEAR ENDED DECEMBER 31, 2020 $52,751 4,316 1,165 58,232 (1,661) $56,571 $53,821 3,739 468 58,028 (1,798) $56,230 The weighted average remaining lease term and the weighted average discount rate for operating leases as of December 31, 2021 were: Weighted-average remaining lease term Weighted-average discount rate 6.47 2.72 Substantially all of the Company’s leases are classified as operating leases and primarily represent real estate leases for office space used to conduct the Company’s business that expire on various dates through 2041. Leases generally contain renewal options and Maturities of the operating lease liabilities by fiscal year at December 31, 2021 for the Company’s operating leases are as follows: escalation clauses based upon increases in the lessors’ operating expenses and other charges. The Company anticipates that most of (IN THOUSANDS) OPERATING LEASES incurred, less any lease incentives received. The lease liability is initially measured at the present value of the minimum lease payments Thereafter 2022 2023 2024 2025 2026 Total undiscounted lease payments Less: Imputed interest Present value of future lease payments Supplemental cash flow information for operating leases: (IN THOUSANDS) Cash paid for amounts included in measurement of liabilities Operating cash flows from operating leases Right-of-use assets obtained in exchange for new operating liabilities $48,743 44,794 37,996 31,587 22,511 56,416 242,047 18,630 $223,417 FOR THE YEAR ENDED DECEMBER 31, 2021 FOR THE YEAR ENDED DECEMBER 31, 2020 $56,034 $53,978 $54,946 $45,750 T R O P E R L A U N N A 1 2 0 2 NOTE 16. Segment Information Brown & Brown’s business is divided into four reportable segments: (i) 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, and non-insurance risk-mitigating products through our F&I businesses, (ii) 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 67 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, 2021 and 2020. 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 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. Leases these leases will be renewed or replaced upon expiration. The Company assesses at inception of a contract if it contains a lease. This assessment is based on: (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. The right-of-use asset is initially measured at cost, which is primarily composed of the initial lease liability, plus any initial direct costs through the term of the lease. Minimum lease payments are discounted to present value using the incremental borrowing rate at the lease commencement date, which approximates the rate of interest the Company expects to be paid on a secured borrowing in an amount equal to the lease payments for the underlying asset under similar terms and economic conditions. The Company elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a total term of 12 months or less. The effect of short- term leases on the Company’s right-of-use asset and lease liability would not be significant. The balances and classification of operating lease right-of-use assets and operating lease liabilities within the Consolidated Balance Sheets as of December 31, 2021 and 2020 is as follows: (IN THOUSANDS) BALANCE SHEET Assets: Total assets Liabilities: Total liabilities 66 Operating lease right-of-use assets Operating lease assets Current operating lease liabilities Accrued expenses and other liabilities Non-current operating lease liabilities Operating lease liabilities DECEMBER 31, DECEMBER 31, 2021 2020 $197,035 197,035 43,441 179,976 $223,417 $186,998 186,998 43,542 172,935 $216,477 delivered through nationwide networks of independent agents, and Brown & Brown retail agents, (iii) 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 (iv) 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 Ireland, Bermuda and the Cayman Islands, and a national programs operation in Canada. These operations earned $78.0 million, $35.1 million and $17.7 million of total revenues for the years ended December 31, 2021, 2020 and 2019, 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. Intersegment revenues are eliminated. 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. Income before income taxes $334,377 $242,334 Total assets Capital expenditures $5,040,706 $2,943,006 $1,154,373 $299,185 $358,173 $9,795,443 $8,093 $13,467 $1,612 $1,609 $20,264 $45,045 (IN THOUSANDS) Total revenues Investment income Amortization Depreciation Interest expense (IN THOUSANDS) Total revenues Investment income Amortization Depreciation Interest expense (IN THOUSANDS) Total revenues Investment income Amortization Depreciation Interest expense YEAR ENDED DECEMBER 31, 2021 RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES OTHER TOTAL $1,767,938 $701,850 $403,417 $178,860 $(667) $3,051,398 $278 $77,810 $11,194 $91,425 $550 $27,357 $9,839 $11,381 $155 $9,150 $2,646 $15,990 $94,845 $3 $5,276 $1,484 $2,899 $28,257 $113 $— $8,146 $(56,714) $63,010 $1,099 $119,593 $33,309 $64,981 $762,823 YEAR ENDED DECEMBER 31, 2020 RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES $1,472,766 $610,640 $352,797 $174,012 $163 $67,315 $9,071 $85,968 $756 $27,166 $8,658 $20,597 $184 $8,481 $1,948 $10,281 $93,593 $— $5,561 $1,424 $4,142 $27,994 OTHER $3,160 $1,708 TOTAL $2,613,375 $2,811 $— $108,523 $5,175 $(62,015) $57,375 $26,276 $58,973 $624,099 YEAR ENDED DECEMBER 31, 2019 RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES OTHER TOTAL $1,367,261 $518,384 $310,087 $193,781 $2,658 $2,392,171 $149 $63,146 $7,390 $87,295 $1,397 $25,482 $6,791 $16,690 $178 $11,191 $1,674 $4,756 $139 $5,479 $1,229 $4,404 $3,917 $5,780 $— $105,298 $6,333 $(49,485) $36,241 $23,417 $63,660 $525,929 Income before income taxes $262,245 $182,892 Total assets Capital expenditures $7,093,627 $3,510,983 $1,791,717 $480,440 $(3,910,275) $8,966,492 $13,175 $7,208 $3,324 $1,424 $45,569 $70,700 Income before income taxes $222,875 $143,737 $82,739 $40,337 Total assets Capital expenditures $6,413,459 $3,110,368 $1,390,250 $481,336 $(3,772,592) $7,622,821 $12,497 $10,365 $6,171 $804 $43,271 $73,108 68 Historically, the total assets balance in the “Other” column has been negative, reflecting the historical accumulation of the purchase price for acquisitions which are funded at the corporate level, net of a portion returned to Corporate through intercompany interest charges, as well as the historical accumulation of payments for income taxes, dividends, and share repurchases which are paid by Corporate, but not pushed down to the segments. As of December 31, 2021, the Company settled the historical accumulation of the cash outlays paid by Corporate that gave rise to the related intercompany receivables and payables to better reflect the total assets of each segment. NOTE 17. Insurance Company WNFIC 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: (IN THOUSANDS) Direct premiums Assumed premiums Ceded premiums Net premiums 2021 2020 WRITTEN EARNED WRITTEN EARNED $747,384 $732,777 $728,109 $716,515 — — — — 747,366 732,759 728,093 716,499 $18 $18 $16 $16 All premiums written by WNFIC under the National Flood Insurance Program are 100.0% ceded to FEMA, for which WNFIC received a 30.0% expense allowance from January 1, 2021 through September 30, 2021 and a 29.9% expense allowance from October 1, 2021 through December 31, 2021. As of December 31, 2021 and 2020, the Company ceded $745.0 million and $725.8 million of written premiums for Federal Flood, respectively. As of December 31, 2021, the Consolidated Balance Sheets contained Reinsurance recoverable of $63.1 million and Prepaid reinsurance premiums of $392.2 million. As of December 31, 2020, the Consolidated Balance Sheets contained reinsurance recoverable of $43.5 million and prepaid reinsurance premiums of $377.6 million. There was no net activity in the reserve for losses and loss adjustment expense for the years ended December 31, 2021 and 2020, as WNFIC’s direct premiums written were 100.0% ceded to two reinsurers. The balance of the reserve for losses and loss adjustment expense, excluding related reinsurance recoverables was $63.1 million as of December 31, 2021 and $43.5 million as of December 31, 2020. 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 $33.1 million as of December 31, 2021 and $32.6 million as of December 31, 2020. As of December 31, 2021 and 2020, WNFIC generated statutory net income of $1.6 million and $0.8 million, respectively. The maximum amount of ordinary dividends that WNFIC can pay to shareholders in a rolling 12 month period is limited to the greater of 10.0% of statutory adjusted capital and surplus of 100.0% of adjusted net income. There was no dividend payout in 2020 and 2021 and the maximum dividend payout that may be made in 2022 without prior approval is $3.3 million. T R O P E R L A U N N A 1 2 0 2 NOTE 18. Shareholders’ Equity 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. On May 1, 2019, the Company’s board of directors authorized the purchasing of up to an additional $372.5 million of the Company’s outstanding common stock. During 2021, the Company repurchased 1,811,853 shares at an average price of $45.57 for a total cost of $82.6 million under the current share repurchase authorization. During 2020, the Company repurchased 1,234,417 shares at an average price of $44.63 for a total cost of $55.1 million under the current share repurchase authorization. At December 31, 2021, the remaining amount authorized by our board of directors for share repurchases was approximately $323.6 million. Under the authorized repurchase programs, the Company has repurchased approximately 18.5 million shares for an aggregate cost of approximately $673.9 million between 2014 and 2021. During 2021, the Company paid an annualized dividend of $0.380 per share for a total of $107.2 million in annualized dividends paid. During 2020, the Company paid an annualized dividend of $0.348 per share for a total $100.6 million in annualized dividends paid. On January 20, 2022 the board of directors approved a dividend of $0.1025 per share payable on February 16, 2022 to shareholders of record on February 4, 2022. During 2021, the Company issued 184,772 shares valued at $9.9 million associated with business combinations. During 2020, the 69 Company issued 722,939 shares valued at $30.1 million associated with business combinations. delivered through nationwide networks of independent agents, and Brown & Brown retail agents, (iii) 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 (iv) 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 Historically, the total assets balance in the “Other” column has been negative, reflecting the historical accumulation of the purchase price for acquisitions which are funded at the corporate level, net of a portion returned to Corporate through intercompany interest charges, as well as the historical accumulation of payments for income taxes, dividends, and share repurchases which are paid by Corporate, but not pushed down to the segments. As of December 31, 2021, the Company settled the historical accumulation of the cash outlays paid by Corporate that gave rise to the related intercompany receivables and payables to better reflect the total assets of each segment. 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 Ireland, Bermuda and the Cayman Islands, and a national programs operation in Canada. These operations earned $78.0 million, $35.1 million and $17.7 million of total revenues for the years ended December 31, 2021, 2020 and 2019, 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. Intersegment revenues are eliminated. 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. Income before income taxes $334,377 $242,334 Income before income taxes $262,245 $182,892 YEAR ENDED DECEMBER 31, 2021 RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES OTHER TOTAL $1,767,938 $701,850 $403,417 $178,860 $(667) $3,051,398 $278 $77,810 $11,194 $91,425 $550 $27,357 $9,839 $11,381 $155 $9,150 $2,646 $15,990 $94,845 $3 $5,276 $1,484 $2,899 $28,257 $113 $— $8,146 $(56,714) $63,010 $1,099 $119,593 $33,309 $64,981 $762,823 $5,040,706 $2,943,006 $1,154,373 $299,185 $358,173 $9,795,443 $8,093 $13,467 $1,612 $1,609 $20,264 $45,045 YEAR ENDED DECEMBER 31, 2020 RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES $1,472,766 $610,640 $352,797 $174,012 $163 $67,315 $9,071 $85,968 $756 $27,166 $8,658 $20,597 $184 $8,481 $1,948 $10,281 $93,593 $— $5,561 $1,424 $4,142 $27,994 OTHER $3,160 $1,708 TOTAL $2,613,375 $2,811 $— $108,523 $5,175 $(62,015) $57,375 $26,276 $58,973 $624,099 $7,093,627 $3,510,983 $1,791,717 $480,440 $(3,910,275) $8,966,492 $13,175 $7,208 $3,324 $1,424 $45,569 $70,700 YEAR ENDED DECEMBER 31, 2019 RETAIL NATIONAL PROGRAMS WHOLESALE BROKERAGE SERVICES OTHER TOTAL $1,367,261 $518,384 $310,087 $193,781 $2,658 $2,392,171 $149 $63,146 $7,390 $87,295 $1,397 $25,482 $6,791 $16,690 $178 $11,191 $1,674 $4,756 $139 $5,479 $1,229 $4,404 $3,917 $5,780 $— $105,298 $6,333 $(49,485) $36,241 $23,417 $63,660 $525,929 $6,413,459 $3,110,368 $1,390,250 $481,336 $(3,772,592) $7,622,821 $12,497 $10,365 $6,171 $804 $43,271 $73,108 (IN THOUSANDS) Total revenues Investment income Amortization Depreciation Interest expense Total assets Capital expenditures (IN THOUSANDS) Total revenues Investment income Amortization Depreciation Interest expense Total assets Capital expenditures (IN THOUSANDS) Total revenues Investment income Amortization Depreciation Interest expense Total assets Capital expenditures 68 Income before income taxes $222,875 $143,737 $82,739 $40,337 NOTE 17. Insurance Company WNFIC 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: (IN THOUSANDS) Direct premiums Assumed premiums Ceded premiums Net premiums 2021 2020 WRITTEN EARNED WRITTEN EARNED $747,384 $732,777 $728,109 $716,515 — — — — 747,366 732,759 728,093 716,499 $18 $18 $16 $16 All premiums written by WNFIC under the National Flood Insurance Program are 100.0% ceded to FEMA, for which WNFIC received a 30.0% expense allowance from January 1, 2021 through September 30, 2021 and a 29.9% expense allowance from October 1, 2021 through December 31, 2021. As of December 31, 2021 and 2020, the Company ceded $745.0 million and $725.8 million of written premiums for Federal Flood, respectively. As of December 31, 2021, the Consolidated Balance Sheets contained Reinsurance recoverable of $63.1 million and Prepaid reinsurance premiums of $392.2 million. As of December 31, 2020, the Consolidated Balance Sheets contained reinsurance recoverable of $43.5 million and prepaid reinsurance premiums of $377.6 million. There was no net activity in the reserve for losses and loss adjustment expense for the years ended December 31, 2021 and 2020, as WNFIC’s direct premiums written were 100.0% ceded to two reinsurers. The balance of the reserve for losses and loss adjustment expense, excluding related reinsurance recoverables was $63.1 million as of December 31, 2021 and $43.5 million as of December 31, 2020. 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 $33.1 million as of December 31, 2021 and $32.6 million as of December 31, 2020. As of December 31, 2021 and 2020, WNFIC generated statutory net income of $1.6 million and $0.8 million, respectively. The maximum amount of ordinary dividends that WNFIC can pay to shareholders in a rolling 12 month period is limited to the greater of 10.0% of statutory adjusted capital and surplus of 100.0% of adjusted net income. There was no dividend payout in 2020 and 2021 and the maximum dividend payout that may be made in 2022 without prior approval is $3.3 million. T R O P E R L A U N N A 1 2 0 2 NOTE 18. Shareholders’ Equity 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. On May 1, 2019, the Company’s board of directors authorized the purchasing of up to an additional $372.5 million of the Company’s outstanding common stock. During 2021, the Company repurchased 1,811,853 shares at an average price of $45.57 for a total cost of $82.6 million under the current share repurchase authorization. During 2020, the Company repurchased 1,234,417 shares at an average price of $44.63 for a total cost of $55.1 million under the current share repurchase authorization. At December 31, 2021, the remaining amount authorized by our board of directors for share repurchases was approximately $323.6 million. Under the authorized repurchase programs, the Company has repurchased approximately 18.5 million shares for an aggregate cost of approximately $673.9 million between 2014 and 2021. During 2021, the Company paid an annualized dividend of $0.380 per share for a total of $107.2 million in annualized dividends paid. During 2020, the Company paid an annualized dividend of $0.348 per share for a total $100.6 million in annualized dividends paid. On January 20, 2022 the board of directors approved a dividend of $0.1025 per share payable on February 16, 2022 to shareholders of record on February 4, 2022. During 2021, the Company issued 184,772 shares valued at $9.9 million associated with business combinations. During 2020, the Company issued 722,939 shares valued at $30.1 million associated with business combinations. 69 Report of Independent Registered Public Accounting Firm To the shareholders and the Board of Directors of Brown & Brown, Inc. statements. We believe that our audits provide a reasonable basis for our opinion. Opinion on the Financial Statements Critical Audit Matter We have audited the accompanying consolidated balance sheets of Brown & Brown, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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 22, 2022 expressed an unqualified opinion on the Company’s internal control over financial reporting. 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 The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Earn-out obligation — Refer to Notes 1 (Goodwill and Amortizable Intangible Assets) and 3 (Business Combinations) to the financial statements Critical Audit Matter Description The Company’s acquisition purchase price for business combinations is typically based upon a multiple of average annual operating profit and/or revenue earned over a one to three-year period within a minimum and maximum price range. The recorded purchase price for most acquisitions includes an estimation of the fair value of liabilities associated with potential earn-out provisions, when an earn-out obligation is part of the negotiated transaction. The fair value of the 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. Subsequent changes in the fair value of the earn-out obligations are recorded in the consolidated statement of income when incurred. In determining fair value of the earn-out obligation, the acquired business’s future performance is estimated using financial projections of future earnings developed by management that are discounted to a present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out obligation will be paid. The earn-out obligation balance was $291 million as of December 31, 2021 and the potential maximum earn-out obligation was $484.8 million. Of the total earn-out obligation balance, $78.4 million is recorded in accounts payable and $212.6 million is recorded in other liabilities in the consolidated balance sheet. We identified the earn-out obligation as a critical audit matter because of the increased auditor judgment and extent of effort 70 required to evaluate whether an adjustment is required for the earn-out obligation in periods after the acquisition. Specifically, there was a high degree of auditor judgment and an increased extent of effort to audit the reasonableness of management’s assumptions related to projections of future earnings of the acquired businesses. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the forecasted future earnings assumptions used in determining the fair value of the earn-out obligation included the following, among others: • We tested the design and operating effectiveness of controls over management’s earn-out obligation calculation, including the controls over management’s determination of future earnings. • We read the asset/stock purchase agreements and associated addenda and agreed the provisions of the contracts to the earn- out obligation models for our testing selections. • We read any post-acquisition asset/stock purchase agreements and associated addenda modifications for any additional terms to evaluate the completeness and reasonableness of the models utilized to calculate the earn-out obligation for our testing selections. • We evaluated the reasonableness of projections of future earnings for the earn-out obligation models by comparing the projections to historical results and assessing management’s key assumptions for our testing selections. • We evaluated management’s ability to accurately forecast future earnings by comparing actual results to management’s historical forecast and forecasted growth rates to that of comparable subsidiaries for our testing selections. /s/ Deloitte & Touche LLP Tampa, Florida February 22, 2022 We have served as the Company’s auditor since 2002. T R O P E R L A U N N A 1 2 0 2 71 required to evaluate whether an adjustment is required for the earn-out obligation in periods after the acquisition. Specifically, there was a high degree of auditor judgment and an increased extent of effort to audit the reasonableness of management’s assumptions related to projections of future earnings of the acquired businesses. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the forecasted future earnings assumptions used in determining the fair value of the earn-out obligation included the following, among others: • We tested the design and operating effectiveness of controls over management’s earn-out obligation calculation, including the controls over management’s determination of future earnings. • We read the asset/stock purchase agreements and associated addenda and agreed the provisions of the contracts to the earn- out obligation models for our testing selections. • We read any post-acquisition asset/stock purchase agreements and associated addenda modifications for any additional terms to evaluate the completeness and reasonableness of the models utilized to calculate the earn-out obligation for our testing selections. • We evaluated the reasonableness of projections of future earnings for the earn-out obligation models by comparing the projections to historical results and assessing management’s key assumptions for our testing selections. • We evaluated management’s ability to accurately forecast future earnings by comparing actual results to management’s historical forecast and forecasted growth rates to that of comparable subsidiaries for our testing selections. provisions, when an earn-out obligation is part of the negotiated /s/ Deloitte & Touche LLP Tampa, Florida February 22, 2022 We have served as the Company’s auditor since 2002. Report of Independent Registered Public Accounting Firm To the shareholders and the Board of Directors of Brown & statements. We believe that our audits provide a reasonable basis Brown, Inc. Opinion on the Financial Statements for our opinion. Critical Audit Matter We have audited the accompanying consolidated balance sheets of Brown & Brown, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Earn-out obligation — Refer to Notes 1 (Goodwill and Amortizable Intangible Assets) and 3 (Business We have also audited, in accordance with the standards of the Combinations) to the financial statements Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, 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 22, 2022 expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion Critical Audit Matter Description The Company’s acquisition purchase price for business combinations is typically based upon a multiple of average annual operating profit and/or revenue earned over a one to three-year period within a minimum and maximum price range. The recorded purchase price for most acquisitions includes an estimation of the fair value of liabilities associated with potential earn-out These financial statements are the responsibility of the Company’s transaction. The fair value of the earn-out obligations is based 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 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. Subsequent changes in the fair value of the earn-out obligations are recorded in the consolidated statement of income when applicable rules and regulations of the Securities and Exchange incurred. Commission and the PCAOB. In determining fair value of the earn-out obligation, the acquired We conducted our audits in accordance with the standards of the business’s future performance is estimated using financial projections PCAOB. Those standards require that we plan and perform the of future earnings developed by management that are discounted audit to obtain reasonable assurance about whether the financial to a present value using a risk-adjusted rate that takes into statements are free of material misstatement, whether due to error consideration the likelihood that the forecasted earn-out obligation or fraud. Our audits included performing procedures to assess the will be paid. The earn-out obligation balance was $291 million as of risks of material misstatement of the financial statements, whether December 31, 2021 and the potential maximum earn-out obligation due to error or fraud, and performing procedures that respond to was $484.8 million. Of the total earn-out obligation balance, $78.4 those risks. Such procedures included examining, on a test basis, million is recorded in accounts payable and $212.6 million is evidence regarding the amounts and disclosures in the financial recorded in other liabilities in the consolidated balance sheet. 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 70 We identified the earn-out obligation as a critical audit matter because of the increased auditor judgment and extent of effort T R O P E R L A U N N A 1 2 0 2 71 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. (the “Company”) and subsidiaries as of December 31, 2021, 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, 2021, 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, 2021, of the Company and our report dated February 22, 2022, expressed an unqualified opinion on those financial statements. As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at O’Leary Insurance, Piper Jordan, LLC, Berkshire Insurance Group, Inc., AGIS Network, Inc., Winston Financial Services, Inc., Remedy Analytics Inc., Heacock Insurance Group, LLC, and Dealer Admin. Services, Inc., which were acquired in 2021 and whose financial statements constitute approximately 2.44% and 5.63% of net and total assets, respectively, 1.91% of revenues, and (1.55%) of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2021. 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. 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 Tampa, Florida February 22, 2022 72 Management’s Report on Internal Control over Financial Reporting The management of Brown & Brown, Inc. and its subsidiaries (“Brown Based upon Brown & Brown’s evaluation under the framework & Brown”) is responsible for establishing and maintaining adequate in Internal Control-Integrated Framework (2013) issued by internal control over financial reporting, as such term is defined in the Committee of Sponsoring Organizations of the Treadway Securities Exchange Act Rule 13a-15(f). Under the supervision and Commission, management concluded that internal control with the participation of management, including Brown & Brown’s over financial reporting was effective as of December 31, 2021. principal executive officer and principal financial officer, Brown & Management’s internal control over financial reporting as of Brown conducted an evaluation of the effectiveness of internal December 31, 2021 has been audited by Deloitte & Touche LLP, an control over financial reporting based upon the framework in Internal independent registered public accounting firm, as stated in their Control-Integrated Framework (2013) issued by the Committee of report which is included herein. Sponsoring Organizations of the Treadway Commission (“COSO”). Brown & Brown, Inc. Daytona Beach, Florida February 22, 2022 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 2021: O’Leary Insurances, Piper Jordan LLC, Berkshire Insurance Group, Inc., AGIS Network, Inc., Winston Financial Services, Inc., Remedy Analytics, Inc., Heacock Insurance Group, LLC, and Dealer Admin. Services, Inc. (collectively the “2021 Excluded Acquisitions”), which were acquired during 2021 and whose financial statements constitute approximately 2.44% and 5.63% of net and total assets, respectively, 1.91% of revenues, and (1.55%) of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2021. 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. /s/ J. Powell Brown J. Powell Brown Chief executive officer /s/ R. Andrew Watts R. Andrew Watts Executive vice president, chief financial officer and treasurer T R O P E R L A U N N A 1 2 0 2 73 Report of Independent Registered Public Accounting Firm To the shareholders and the Board of Directors of Brown & We conducted our audit in accordance with the standards of the Brown, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Brown & Brown, Inc. (the “Company”) and subsidiaries as of December 31, 2021, 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 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. Definition and Limitations of Internal Control over Financial financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) Reporting 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, 2021, of the Company and our report dated February 22, 2022, expressed an unqualified opinion on those financial statements. As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at O’Leary Insurance, Piper Jordan, LLC, Berkshire Insurance Group, Inc., AGIS Network, Inc., Winston Financial Services, Inc., Remedy Analytics Inc., Heacock Insurance Group, LLC, and Dealer Admin. Services, Inc., which were acquired in 2021 and whose financial statements constitute approximately 2.44% and 5.63% of net and total assets, respectively, 1.91% of revenues, and (1.55%) of net income of the consolidated 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. 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. financial statement amounts as of and for the year ended Because of its inherent limitations, internal control over financial December 31, 2021. Accordingly, our audit did not include the internal reporting may not prevent or detect misstatements. Also, projections 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 /s/ Deloitte & Touche LLP the Company’s internal control over financial reporting based on our Tampa, Florida audit. We are a public accounting firm registered with the PCAOB February 22, 2022 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. 72 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 2021: O’Leary Insurances, Piper Jordan LLC, Berkshire Insurance Group, Inc., AGIS Network, Inc., Winston Financial Services, Inc., Remedy Analytics, Inc., Heacock Insurance Group, LLC, and Dealer Admin. Services, Inc. (collectively the “2021 Excluded Acquisitions”), which were acquired during 2021 and whose financial statements constitute approximately 2.44% and 5.63% of net and total assets, respectively, 1.91% of revenues, and (1.55%) of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2021. 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, 2021. Management’s internal control over financial reporting as of December 31, 2021 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 22, 2022 /s/ J. Powell Brown J. Powell Brown Chief executive officer /s/ R. Andrew Watts R. Andrew Watts Executive vice president, chief financial officer and treasurer T R O P E R L A U N N A 1 2 0 2 73 Performance Graph Shareholder Information 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, 2016 for the purposes of arriving at a peer group average. The total return calculations are based upon an assumed $100 investment on December 31, 2016, with all dividends reinvested. Brown & Brown, Inc. NYSE Composite Peer Group 12/16 12/17 12/18 12/19 12/20 12/21 100.00 116.15 125.78 181.96 220.27 328.87 100.00 118.90 108.45 136.38 146.05 176.45 100.00 123.56 133.21 184.04 206.45 283.30 COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Brown & Brown, Inc, the NYSE Composite Index, and Peer Group $350.00 $300.00 $250.00 $200.00 $150.00 $100.00 $50.00 $0.00 12/16 12/17 12/18 12/19 12/20 12/21 Brown & Brown, Inc. NYSE Composite Peer Group * 100 invested on 12/31/16 in stock or index, including reinvestment of dividends. Fiscal year ending December 31 Corporate Information and Shareholder Services The Company has included, as Exhibits 31.1 and 31.2, and 32.1 (800) 937-5449 and 32.2 to its Annual Report on Form 10-K for fiscal year 2021, email: help@amstock.com filed with the Securities and Exchange Commission, certificates www.astfinancial.com Corporate Offices 300 North Beach Street Daytona Beach, Florida 32114 (386) 252-9601 Outside Counsel Holland & Knight LLP 200 South Orange Avenue, Suite 2600 Orlando, Florida 32801 of the chief executive officer and the chief financial officer of the Company certifying the Company’s public disclosure is accurate and complete and that they have established and maintained adequate internal controls. The Company has also submitted to the New York Stock Exchange a certificate from its chief executive officer certifying that he is not aware of any violation by the Company of New York Stock Exchange corporate governance listing standards. A copy of the Company’s 2021 Annual Report on Form 10-K will be furnished without charge to any shareholder who directs a request in writing to: Corporate Secretary Brown & Brown, Inc. 300 North Beach Street Daytona Beach, Florida 32114 A reasonable charge will be made for copies of the exhibits to the Form 10-K. Annual Meeting The Annual Meeting of Shareholders of Brown & Brown, Inc. will be held virtually. Please register at http://www.viewproxy.com/bbinsurance.com/2022/htype.asp Transfer Agent and Registrar American Stock Transfer & Trust Company, LLC 6201 15th Ave. Brooklyn, New York 11219 Independent Registered Public Accounting Firm Deloitte & Touche LLP 201 North Franklin Street Suite 3600 Tampa, Florida 33602 Stock Listing shareholders of record. Additional Information The New York Stock Exchange Symbol: BRO On February 18, 2022, there were 282,215,614 shares of our common stock outstanding, held by approximately 1,512 Information concerning the services of Brown & Brown, Inc., as well as access to current earnings releases, is available on Brown & Brown’s website at www.bbinsurance.com. 74 Performance Graph Shareholder Information 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, 2016 for the purposes of arriving at a peer group average. The total return calculations are based upon an assumed $100 investment on December 31, 2016, with all dividends reinvested. 12/16 12/17 12/18 12/19 12/20 12/21 100.00 116.15 125.78 181.96 220.27 328.87 100.00 118.90 108.45 136.38 146.05 176.45 100.00 123.56 133.21 184.04 206.45 283.30 COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Brown & Brown, Inc, the NYSE Composite Index, and Peer Group 12/16 12/17 12/18 12/19 12/20 12/21 Brown & Brown, Inc. NYSE Composite Peer Group * 100 invested on 12/31/16 in stock or index, including reinvestment of dividends. Fiscal year ending December 31 Corporate Offices 300 North Beach Street Daytona Beach, Florida 32114 (386) 252-9601 Outside Counsel Holland & Knight LLP 200 South Orange Avenue, Suite 2600 Orlando, Florida 32801 Corporate Information and Shareholder Services The Company has included, as Exhibits 31.1 and 31.2, and 32.1 and 32.2 to its Annual Report on Form 10-K for fiscal year 2021, filed with the Securities and Exchange Commission, certificates of the chief executive officer and the chief financial officer of the Company certifying the Company’s public disclosure is accurate and complete and that they have established and maintained adequate internal controls. The Company has also submitted to the New York Stock Exchange a certificate from its chief executive officer certifying that he is not aware of any violation by the Company of New York Stock Exchange corporate governance listing standards. A copy of the Company’s 2021 Annual Report on Form 10-K will be furnished without charge to any shareholder who directs a request in writing to: Corporate Secretary Brown & Brown, Inc. 300 North Beach Street Daytona Beach, Florida 32114 A reasonable charge will be made for copies of the exhibits to the Form 10-K. Annual Meeting The Annual Meeting of Shareholders of Brown & Brown, Inc. will be held virtually. Please register at http://www.viewproxy.com/bbinsurance.com/2022/htype.asp Transfer Agent and Registrar American Stock Transfer & Trust Company, LLC 6201 15th Ave. Brooklyn, New York 11219 (800) 937-5449 email: help@amstock.com www.astfinancial.com Independent Registered Public Accounting Firm Deloitte & Touche LLP 201 North Franklin Street Suite 3600 Tampa, Florida 33602 Stock Listing The New York Stock Exchange Symbol: BRO On February 18, 2022, there were 282,215,614 shares of our common stock outstanding, held by approximately 1,512 shareholders of record. Additional Information Information concerning the services of Brown & Brown, Inc., as well as access to current earnings releases, is available on Brown & Brown’s website at www.bbinsurance.com. Brown & Brown, Inc. NYSE Composite Peer Group $350.00 $300.00 $250.00 $200.00 $150.00 $100.00 $50.00 $0.00 74 Ten-Year Statistical Summary The following includes selected Consolidated Financial Data for each of the ten fiscal years in the period ended December 31 that 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 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, AND PERCENTAGES) (IN THOUSANDS, EXCEPT PER SHARE DATA, AND PERCENTAGES) 2021 2021 2020 2020 2019 2019 2018 2018 2017 2017 2016 2016 2015 2015 2014 2014 2013 2013 2012 2012 Year Ended December 31, Year Ended December 31, Revenues Revenues Commissions & fees Commissions & fees Investment income Investment income Other income, net Other income, net Total revenues(1) Total revenues(1) Expenses Expenses Employee compensation and benefits Employee compensation and benefits Other operating expenses Other operating expenses (Gain)/loss on disposal (Gain)/loss on disposal Amortization Amortization Depreciation Depreciation Interest Interest Change in estimated earn-out payables Change in estimated earn-out payables Total expenses Total expenses Income before income taxes Income before income taxes Income taxes(2) Income taxes(2) Net income Net income Earnings per Share Information Earnings per Share Information Net income per share - diluted(3) Net income per share - diluted(3) Weighted average number of shares outstanding - diluted(3) Weighted average number of shares outstanding - diluted(3) Dividends paid per share Dividends paid per share Year-End Financial Position Year-End Financial Position Total assets(4) Total assets(4) Long-term debt(5) Long-term debt(5) Total shareholders’ equity Total shareholders’ equity Total shares outstanding at year-end(3) Total shares outstanding at year-end(3) Other Information Other Information $ 3,047,522 $ 3,047,522 1,099 1,099 2,777 2,777 3,051,398 3,051,398 $ 2,606,108 $ 2,606,108 2,811 2,811 4,456 4,456 2,613,375 2,613,375 1,636,911 1,636,911 402,941 402,941 (9,605) (9,605) 119,593 119,593 33,309 33,309 64,981 64,981 40,445 40,445 2,288,575 2,288,575 762,823 762,823 175,719 175,719 $ 587,104 $ 587,104 1,436,377 1,436,377 365,973 365,973 (2,388) (2,388) 108,523 108,523 26,276 26,276 58,973 58,973 (4,458) (4,458) 1,989,276 1,989,276 624,099 624,099 143,616 143,616 $ 480,483 $ 480,483 $ 2,384,737 $ 2,384,737 $ 2,009,857 $ 2,009,857 $ $ 1,857,270 1,857,270 $ $ 1,762,787 1,762,787 $ $ 1,656,951 1,656,951 $ $ 1,567,460 1,567,460 $ $ 1,355,503 1,355,503 $ $ 1,189,081 1,189,081 5,780 5,780 1,654 1,654 2,746 2,746 1,643 1,643 2,392,171 2,392,171 2,014,246 2,014,246 1,308,165 1,308,165 1,068,914 1,068,914 377,089 377,089 (10,021) (10,021) 105,298 105,298 23,417 23,417 63,660 63,660 (1,366) (1,366) 332,118 332,118 (2,175) (2,175) 86,544 86,544 22,834 22,834 40,580 40,580 2,969 2,969 1,866,242 1,866,242 1,551,784 1,551,784 525,929 525,929 127,415 127,415 462,462 462,462 118,207 118,207 $ 398,514 $ 398,514 $ 344,255 $ 344,255 $ $ $ $ 2.07 2.07 277,414 277,414 0.38 0.38 $ $ $ $ 1.69 1.69 275,867 275,867 0.35 0.35 $ $ $ $ 1.40 1.40 274,616 274,616 0.33 0.33 $ $ $ $ 1.22 1.22 275,521 275,521 0.31 0.31 $ 9,795,443 $ 9,795,443 $ 1,980,437 $ 1,980,437 $ 4,196,893 $ 4,196,893 282,496 282,496 $ 8,966,492 $ 8,966,492 $ 2,025,906 $ 2,025,906 $ 3,754,223 $ 3,754,223 283,004 283,004 $ 7,622,821 $ 7,622,821 $ 6,688,668 $ 6,688,668 $ 1,500,343 $ 1,500,343 $ 1,456,990 $ 1,456,990 $ 3,350,279 $ 3,350,279 $ 3,000,568 $ 3,000,568 281,655 281,655 279,583 279,583 Number of full-time equivalent employees at year-end Number of full-time equivalent employees at year-end Total revenues per average number of employees(6) Total revenues per average number of employees(6) Stock price at year-end(3) Stock price at year-end(3) Stock price earnings multiple at year-end(7) Stock price earnings multiple at year-end(7) Return on beginning shareholders’ equity(8) Return on beginning shareholders’ equity(8) $ $ $ $ 12,023 12,023 263,517 263,517 70.28 70.28 34.0 34.0 16% 16% $ $ $ $ 11,136 11,136 246,324 246,324 47.41 47.41 28.1 28.1 $ $ $ $ 10,083 10,083 243,193 243,193 39.48 39.48 28.2 28.2 $ $ $ $ 9,590 9,590 222,809 222,809 27.56 27.56 22.6 22.6 14% 14% 13% 13% 13% 13% 17% 17% 12% 12% 12% 12% 10% 10% 12% 12% 11% 11% (1) Years 2017 and 2016 do not reflect the adoption of “Revenue from Contracts with Customers (Topic 606)” (“Topic 606”), ASC Topic 340 - Other Assets and Deferred Cost (“ASC (1) Years 2017 and 2016 do not reflect the adoption of “Revenue from Contracts with Customers (Topic 606)” (“Topic 606”), ASC Topic 340 - Other Assets and Deferred Cost (“ASC (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 340”) and ASU 2016-08, “Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)”, which was adopted under the modified retrospective method. 340”) and ASU 2016-08, “Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)”, which was adopted under the modified retrospective method. details. (2) Years 2017 and 2016 do not reflect the adoption of ASU 2016-09, “Improvements to Employee Share Based Payment Accounting” (“ASU 2016-09”), which was adopted using the (2) Years 2017 and 2016 do not reflect the adoption of ASU 2016-09, “Improvements to Employee Share Based Payment Accounting” (“ASU 2016-09”), which was adopted using the (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 prospective method. prospective method. (3) Years 2017 and 2016 reflect the 2-for-1 stock split that occurred on March 28, 2018. (3) Years 2017 and 2016 reflect the 2-for-1 stock split that occurred on March 28, 2018. equivalent employees at the end of the year. (7) Stock price at year-end divided by net income per share diluted. (4) All years presented reflect the adoption of ASU No. 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). (4) All years presented reflect the adoption of ASU No. 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). (8) Represents net income divided by total shareholders’ equity as of the beginning of the year. 1,626 1,626 22,451 22,451 1,456 1,456 2,386 2,386 1,004 1,004 2,554 2,554 747 747 7,589 7,589 638 638 7,138 7,138 797 797 10,154 10,154 1,881,347 1,881,347 1,766,629 1,766,629 1,660,509 1,660,509 1,575,796 1,575,796 1,363,279 1,363,279 1,200,032 1,200,032 1,431,625 1,431,625 1,343,130 1,343,130 1,257,950 1,257,950 1,236,047 1,236,047 1,005,670 1,005,670 994,652 994,652 283,470 283,470 (2,157) (2,157) 85,446 85,446 22,698 22,698 38,316 38,316 9,200 9,200 449,722 449,722 50,092 50,092 399,630 399,630 1.40 1.40 277,586 277,586 0.28 0.28 5,747,550 5,747,550 856,141 856,141 2,582,699 2,582,699 276,210 276,210 8,491 8,491 224,130 224,130 25.73 25.73 18.3 18.3 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 925,217 925,217 262,872 262,872 (1,291) (1,291) 86,663 86,663 21,003 21,003 39,481 39,481 9,185 9,185 423,499 423,499 166,008 166,008 257,491 257,491 0.91 0.91 275,608 275,608 0.25 0.25 5,262,734 5,262,734 1,018,372 1,018,372 2,360,211 2,360,211 280,208 280,208 8,297 8,297 219,403 219,403 22.43 22.43 24.6 24.6 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 856,952 856,952 251,055 251,055 (619) (619) 87,421 87,421 20,890 20,890 39,248 39,248 3,003 3,003 402,559 402,559 159,241 159,241 243,318 243,318 0.85 0.85 280,224 280,224 0.23 0.23 4,979,844 4,979,844 1,071,618 1,071,618 2,149,776 2,149,776 277,970 277,970 7,807 7,807 215,679 215,679 16.05 16.05 18.9 18.9 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 811,112 811,112 235,328 235,328 47,425 47,425 82,941 82,941 20,895 20,895 28,408 28,408 9,938 9,938 339,749 339,749 132,853 132,853 206,896 206,896 0.71 0.71 285,782 285,782 0.21 0.21 4,931,027 4,931,027 1,142,948 1,142,948 2,113,745 2,113,745 286,972 286,972 7,591 7,591 216,114 216,114 16.45 16.45 23.3 23.3 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 705,603 705,603 195,677 195,677 — — 67,932 67,932 17,485 17,485 16,440 16,440 2,533 2,533 357,609 357,609 140,497 140,497 217,112 217,112 0.74 0.74 285,248 285,248 0.19 0.19 3,620,232 3,620,232 379,171 379,171 2,007,141 2,007,141 290,838 290,838 6,992 6,992 203,020 203,020 15.70 15.70 21.1 21.1 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 624,371 624,371 174,389 174,389 — — 63,573 63,573 15,373 15,373 16,097 16,097 1,418 1,418 895,221 895,221 304,811 304,811 120,766 120,766 184,045 184,045 0.63 0.63 284,020 284,020 0.17 0.17 3,103,650 3,103,650 449,136 449,136 1,807,333 1,807,333 287,756 287,756 6,438 6,438 191,729 191,729 12.73 12.73 20.2 20.2 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Ten-Year Statistical Summary The following includes selected Consolidated Financial Data for each of the ten fiscal years in the period ended December 31 that 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 this Annual Report and with our Consolidated Financial Statements and related Notes thereto in Item 8 of Part II of this Annual Report. Revenues Revenues Commissions & fees Commissions & fees Investment income Investment income Other income, net Other income, net Total revenues(1) Total revenues(1) Expenses Expenses Other operating expenses Other operating expenses (Gain)/loss on disposal (Gain)/loss on disposal Amortization Amortization Depreciation Depreciation Interest Interest Change in estimated earn-out payables Change in estimated earn-out payables Total expenses Total expenses Income before income taxes Income before income taxes Income taxes(2) Income taxes(2) Net income Net income Earnings per Share Information Earnings per Share Information Net income per share - diluted(3) Net income per share - diluted(3) Dividends paid per share Dividends paid per share Year-End Financial Position Year-End Financial Position Total assets(4) Total assets(4) Long-term debt(5) Long-term debt(5) Total shareholders’ equity Total shareholders’ equity Total shares outstanding at year-end(3) Total shares outstanding at year-end(3) Other Information Other Information 402,941 402,941 (9,605) (9,605) 119,593 119,593 33,309 33,309 64,981 64,981 40,445 40,445 762,823 762,823 175,719 175,719 365,973 365,973 (2,388) (2,388) 108,523 108,523 26,276 26,276 58,973 58,973 (4,458) (4,458) 624,099 624,099 143,616 143,616 377,089 377,089 (10,021) (10,021) 105,298 105,298 23,417 23,417 63,660 63,660 (1,366) (1,366) 525,929 525,929 127,415 127,415 2.07 2.07 0.38 0.38 $ $ $ $ 1.69 1.69 0.35 0.35 $ $ $ $ 1.40 1.40 0.33 0.33 332,118 332,118 (2,175) (2,175) 86,544 86,544 22,834 22,834 40,580 40,580 2,969 2,969 462,462 462,462 118,207 118,207 1.22 1.22 0.31 0.31 $ 587,104 $ 587,104 $ 480,483 $ 480,483 $ 398,514 $ 398,514 $ 344,255 $ 344,255 $ 9,795,443 $ 9,795,443 $ 8,966,492 $ 8,966,492 $ 7,622,821 $ 7,622,821 $ 6,688,668 $ 6,688,668 $ 1,980,437 $ 1,980,437 $ 2,025,906 $ 2,025,906 $ 1,500,343 $ 1,500,343 $ 1,456,990 $ 1,456,990 $ 4,196,893 $ 4,196,893 $ 3,754,223 $ 3,754,223 $ 3,350,279 $ 3,350,279 $ 3,000,568 $ 3,000,568 282,496 282,496 283,004 283,004 281,655 281,655 279,583 279,583 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Weighted average number of shares outstanding - diluted(3) Weighted average number of shares outstanding - diluted(3) 277,414 277,414 275,867 275,867 274,616 274,616 275,521 275,521 Number of full-time equivalent employees at year-end Number of full-time equivalent employees at year-end Total revenues per average number of employees(6) Total revenues per average number of employees(6) Stock price at year-end(3) Stock price at year-end(3) Stock price earnings multiple at year-end(7) Stock price earnings multiple at year-end(7) Return on beginning shareholders’ equity(8) Return on beginning shareholders’ equity(8) 12,023 12,023 263,517 263,517 70.28 70.28 34.0 34.0 16% 16% $ $ $ $ 11,136 11,136 246,324 246,324 47.41 47.41 28.1 28.1 $ $ $ $ 10,083 10,083 243,193 243,193 39.48 39.48 28.2 28.2 9,590 9,590 222,809 222,809 27.56 27.56 22.6 22.6 (IN THOUSANDS, EXCEPT PER SHARE DATA, AND PERCENTAGES) (IN THOUSANDS, EXCEPT PER SHARE DATA, AND PERCENTAGES) 2021 2021 2020 2020 2019 2019 2018 2018 2017 2017 2016 2016 2015 2015 2014 2014 2013 2013 2012 2012 Year Ended December 31, Year Ended December 31, $ 3,047,522 $ 3,047,522 $ 2,606,108 $ 2,606,108 $ 2,384,737 $ 2,384,737 $ 2,009,857 $ 2,009,857 $ $ 1,857,270 1,857,270 $ $ 1,762,787 1,762,787 $ $ 1,656,951 1,656,951 $ $ 1,567,460 1,567,460 $ $ 1,355,503 1,355,503 $ $ 1,189,081 1,189,081 1,099 1,099 2,777 2,777 2,811 2,811 4,456 4,456 5,780 5,780 1,654 1,654 2,746 2,746 1,643 1,643 3,051,398 3,051,398 2,613,375 2,613,375 2,392,171 2,392,171 2,014,246 2,014,246 1,626 1,626 22,451 22,451 1,456 1,456 2,386 2,386 1,004 1,004 2,554 2,554 747 747 7,589 7,589 638 638 7,138 7,138 797 797 10,154 10,154 1,881,347 1,881,347 1,766,629 1,766,629 1,660,509 1,660,509 1,575,796 1,575,796 1,363,279 1,363,279 1,200,032 1,200,032 Employee compensation and benefits Employee compensation and benefits 1,636,911 1,636,911 1,436,377 1,436,377 1,308,165 1,308,165 1,068,914 1,068,914 2,288,575 2,288,575 1,989,276 1,989,276 1,866,242 1,866,242 1,551,784 1,551,784 1,431,625 1,431,625 1,343,130 1,343,130 1,257,950 1,257,950 1,236,047 1,236,047 1,005,670 1,005,670 994,652 994,652 283,470 283,470 (2,157) (2,157) 85,446 85,446 22,698 22,698 38,316 38,316 9,200 9,200 925,217 925,217 262,872 262,872 (1,291) (1,291) 86,663 86,663 21,003 21,003 39,481 39,481 9,185 9,185 856,952 856,952 251,055 251,055 (619) (619) 87,421 87,421 20,890 20,890 39,248 39,248 3,003 3,003 811,112 811,112 235,328 235,328 47,425 47,425 82,941 82,941 20,895 20,895 28,408 28,408 9,938 9,938 705,603 705,603 195,677 195,677 — — 67,932 67,932 17,485 17,485 16,440 16,440 2,533 2,533 449,722 449,722 50,092 50,092 399,630 399,630 1.40 1.40 277,586 277,586 0.28 0.28 5,747,550 5,747,550 856,141 856,141 2,582,699 2,582,699 276,210 276,210 8,491 8,491 224,130 224,130 25.73 25.73 18.3 18.3 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 423,499 423,499 166,008 166,008 257,491 257,491 0.91 0.91 275,608 275,608 0.25 0.25 5,262,734 5,262,734 1,018,372 1,018,372 2,360,211 2,360,211 280,208 280,208 8,297 8,297 219,403 219,403 22.43 22.43 24.6 24.6 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 402,559 402,559 159,241 159,241 243,318 243,318 0.85 0.85 280,224 280,224 0.23 0.23 4,979,844 4,979,844 1,071,618 1,071,618 2,149,776 2,149,776 277,970 277,970 7,807 7,807 215,679 215,679 16.05 16.05 18.9 18.9 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 339,749 339,749 132,853 132,853 206,896 206,896 0.71 0.71 285,782 285,782 0.21 0.21 4,931,027 4,931,027 1,142,948 1,142,948 2,113,745 2,113,745 286,972 286,972 7,591 7,591 216,114 216,114 16.45 16.45 23.3 23.3 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 357,609 357,609 140,497 140,497 217,112 217,112 0.74 0.74 285,248 285,248 0.19 0.19 3,620,232 3,620,232 379,171 379,171 2,007,141 2,007,141 290,838 290,838 6,992 6,992 203,020 203,020 15.70 15.70 21.1 21.1 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 624,371 624,371 174,389 174,389 — — 63,573 63,573 15,373 15,373 16,097 16,097 1,418 1,418 895,221 895,221 304,811 304,811 120,766 120,766 184,045 184,045 0.63 0.63 284,020 284,020 0.17 0.17 3,103,650 3,103,650 449,136 449,136 1,807,333 1,807,333 287,756 287,756 6,438 6,438 191,729 191,729 12.73 12.73 20.2 20.2 (1) Years 2017 and 2016 do not reflect the adoption of “Revenue from Contracts with Customers (Topic 606)” (“Topic 606”), ASC Topic 340 - Other Assets and Deferred Cost (“ASC (1) Years 2017 and 2016 do not reflect the adoption of “Revenue from Contracts with Customers (Topic 606)” (“Topic 606”), ASC Topic 340 - Other Assets and Deferred Cost (“ASC (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 340”) and ASU 2016-08, “Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)”, which was adopted under the modified retrospective method. 340”) and ASU 2016-08, “Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)”, which was adopted under the modified retrospective method. details. (2) Years 2017 and 2016 do not reflect the adoption of ASU 2016-09, “Improvements to Employee Share Based Payment Accounting” (“ASU 2016-09”), which was adopted using the (2) Years 2017 and 2016 do not reflect the adoption of ASU 2016-09, “Improvements to Employee Share Based Payment Accounting” (“ASU 2016-09”), which was adopted using the (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 prospective method. prospective method. (3) Years 2017 and 2016 reflect the 2-for-1 stock split that occurred on March 28, 2018. (3) Years 2017 and 2016 reflect the 2-for-1 stock split that occurred on March 28, 2018. equivalent employees at the end of the year. (7) Stock price at year-end divided by net income per share diluted. (4) All years presented reflect the adoption of ASU No. 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). (4) All years presented reflect the adoption of ASU No. 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). (8) Represents net income divided by total shareholders’ equity as of the beginning of the year. 14% 14% 13% 13% 13% 13% 17% 17% 12% 12% 12% 12% 10% 10% 12% 12% 11% 11% B r o w n & B r o w n , I n c . 2 0 2 1 A n n u a l R e p o r t | 300 North Beach Street Daytona Beach, FL 32114 (386) 252-9601 bbinsurance.com CHARGE ON TO $4 BILLION AND BEYOND CHARGE ONTO $4 BILLION AND BEYOND 

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