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Brown & Brown CEO expects more headwinds from 'squirrely' coastal property pricing

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Brown & Brown CEO expects more headwinds from 'squirrely' coastal property pricing

Thatcoastal property rates remain under significant pressure for more than three yearscomes as a surprise to Brown & BrownInc. President and CEO J. Powell Brown.

Brownsaid during a conference call to discuss second-quarter earnings that his companywitnessed carriers "do some really squirrely things in terms of pricing"as it again saw reductions in rates of between 10% and 25% in catastrophe-exposedproperty business.

"Sometimes you just see crazy things,"he said. "They do pricing that just doesn't make sense where they blow somethingout of the water, and we don't know how long that is going to last or if it is realor whatever the case may be."

Brownsaid the rate levels he is seeing in some cases are approaching pre-Hurricane Andrewlevels, causing him to "sort of scratch our head" at the continued downwardpressure.

"There'sgot to be a point usually where you hit the bottom," he said. "And so,what I'm saying is if you compare it to the quarter last year in 2015, we mighthave thought that the rate decreases on certain properties would be not as great."

Brown& Brown expects pressure on coastal property pricing to continue for the remainderof 2016, and the CEO said pricing in 2017 would depend on the occurrence of a majorweather-related event during the current hurricane season.

"However,we are starting to see some standard carriers begin to draw the line with theirunderwriting guidelines in coastal property," Brown noted.

Higher-exposureunits have helped partially offset the rate impact on Brown & Brown's brokeragebusiness, but Brown said the negative coastal property pricing trend has createdheadwinds for the company's retail, wholesale and national programs segments.

Brownsaid coastal property does not represent an "enormous" part of the company'sbusiness, but the rate pressure "still does impact many of our coastal offices"in Florida, along the East Coast and in Texas.