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What changed in RYAN SPECIALTY HOLDINGS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of RYAN SPECIALTY HOLDINGS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+496 added−492 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-01)

Top changes in RYAN SPECIALTY HOLDINGS, INC.'s 2023 10-K

496 paragraphs added · 492 removed · 366 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

88 edited+22 added−20 removed82 unchanged
Biggest changeUnderwriting Management Underwriting Management offers insurance carriers cost-effective, specialty market expertise in distinct and complex market niches underserved in today’s marketplace through MGAs and MGUs, which act on behalf of insurance carriers that have given us relatively broad authority to underwrite and bind coverage, as well as critical product design, administrative and distribution responsibilities, for specific risks, and (often proprietary) National Programs that offer commercial and personal insurance for specific product lines or industry classes.
Biggest changeOur industry distribution channels include (among others): • General Liability: Manufacturing, Start Ups, Contractors, Liquor, Plowing. • Property: Vacant, Coastal, Distressed, Warehouse, Subsidized Housing, Student Housing. • Other: Workers’ Compensation, Builder’s Risk, Contractor’s Equipment, Motor Truck Cargo, Hole-In-One, Crime. 10 Underwriting Management Our Underwriting Management Specialty operates under multiple brands, which are collectively referred to as “Ryan Specialty Underwriting Managers.” Underwriting Management offers insurance carriers cost-effective, specialty market expertise in distinct and complex market niches underserved in today’s marketplace through MGAs and MGUs, which act on behalf of insurance carriers that have given us relatively broad authority to underwrite and bind coverage, as well as critical product design, administrative and distribution responsibilities, for specific risks, and (often proprietary) National 11 Programs that offer commercial and personal insurance for specific product lines or industry classes.
Our largest distribution channels include (among others): • Property coverages: Real Estate (Condos, Vacant Property), Catastrophic Exposures (Coastal Wind, Flood, Earthquake, Terrorism), Specialized Coverage (Deductible Buy-Backs, Large Deductible Placements), Builder’s Risk, Distribution / Warehousing, Group Programs, Healthcare Risks. • Casualty coverages: Construction (Project Specific, Residential and Commercial Contractor), Real Estate (Habitational / OL&T / Lessors Risk), Life Sciences, Healthcare, Environmental, Primary and Excess Auto, Political Risks, Liquor Liability. • Professional & Executive Liability coverages: Private Company Management Liability, Public Company Directors and Officers Liability, Financial Institutions Management Liability, Not-For-Profit 9 Organization Management Liability, Crime / Kidnap / Ransom, Privacy Liability and Network Security, Errors and Omissions Liability, Medical Professional Liability. • Transportation coverages: Local and Long Haul Trucking, Haz-Mat Haulers, Contractors Fleets, Home Delivery, Non-Emergency Medical Transport, Waste Haulers, Auto Haulers. • Personal Lines coverages: Homeowners (Condo Unit Owner, Contents In-Storage, High Value Homeowners, Home-Based Business Product, Manufactured Homes), Farm & Ranch, Flood, Recreational (Collector Vehicle, All Terrain, Snowmobile, Watercraft).
Our largest distribution channels include (among others): • Property coverages: Real Estate (Condos, Vacant Property), Catastrophic Exposures (Coastal Wind, Flood, Earthquake, Terrorism), Specialized Coverage (Deductible Buy-Backs, Large Deductible Placements), Builder’s Risk, Distribution / Warehousing, Group Programs, Healthcare Risks. • Casualty coverages: Construction (Project Specific, Residential and Commercial Contractor), Real Estate (Habitational / OL&T / Lessors Risk), Life Sciences, Healthcare, Environmental, Primary and Excess Auto, Political Risks, Liquor Liability. • Professional & Executive Liability coverages: Private Company Management Liability, Public Company Directors and Officers Liability, Financial Institutions Management Liability, Not-For-Profit Organization Management Liability, Crime / Kidnap / Ransom, Privacy Liability and Network Security, Errors and Omissions Liability, Medical Professional Liability. • Transportation coverages: Local and Long Haul Trucking, Haz-Mat Haulers, Contractors Fleets, Home Delivery, Non-Emergency Medical Transport, Waste Haulers, Auto Haulers. • Personal Lines coverages: Homeowners (Condo Unit Owner, Contents In-Storage, High Value Homeowners, Home-Based Business Product, Manufactured Homes), Farm & Ranch, Flood, Recreational (Collector Vehicle, All Terrain, Snowmobile, Watercraft).
Our Binding Authority Producers are renowned for their ability to quickly bind smaller accounts with unique attributes. Our Underwriting Management Specialty offers retail and wholesale brokers a wide assortment of risk solutions for highly specialized needs, such as: renewable energy, construction, cyber, transportation, transactional liability, long-term care facilities, M&A representations and warranties, and catastrophe-exposed properties.
Our Binding Authority Producers are renowned for their ability to quickly bind smaller accounts with unique attributes. Our Underwriting Management Specialty offers retail and wholesale brokers a wide assortment of risk solutions for highly specialized needs, such as: renewable energy, construction, cyber, transportation, transactional liability, long-term care facilities, M&A representations and warranties, complex facilities, and catastrophe-exposed properties.
It can produce multiple bindable quotes sourced from high-quality E&S carriers across several risk classes in minutes. In cases when certain risks do not fit into The Connector’s highly automated underwriting criteria, the retail insurance broker is automatically directed to our Producers and underwriters for more traditional placement methods.
It can produce multiple bindable quotes sourced from high-quality E&S carriers across several risk classes in minutes. In cases when certain risks do not fit into RT Connector’s highly automated underwriting criteria, the retail insurance broker is automatically directed to our Producers and underwriters for more traditional placement methods.
Ryan, a widely respected entrepreneur and global insurance leader who previously founded Aon, the second-largest global retail insurance broker, and who served as Aon’s Chairman and/or CEO for 41 years. Mr. Ryan serves as our Chairman and CEO and is joined by an experienced leadership team, each member of which has significant exposure in the wholesale distribution market.
Ryan, a widely respected entrepreneur and global insurance leader who previously founded Aon, the second-largest global retail insurance broker, and who served as Aon’s Chairman and/or CEO for 41 years. Mr. Ryan serves as our Chairman and CEO and is joined by an experienced leadership team, each member of which has significant exposure in the wholesale 7 distribution market.
The inherent weakness of this model has been illuminated as retail insurance brokers have consolidated and the risks placed into the E&S market have grown larger, more complex and higher hazard. We are able to thrive by not just providing market access, but by also constantly offering differentiated and innovative solutions.
The inherent weakness of this model has been illuminated as retail insurance brokers have consolidated and the risks placed into the E&S market have grown larger, have become more complex and are higher hazard. We are able to thrive by not just providing market access, but by also constantly offering differentiated and innovative solutions.
For example, Timothy W. Turner began his career in the insurance industry in 1987. Prior to joining Ryan Specialty, he was with CRC Insurance Services, Inc. for 10 years and was its President at the time of 7 his departure. Our management team and employees also have significant alignment with stockholders.
For example, Timothy W. Turner began his career in the insurance industry in 1987. Prior to joining Ryan Specialty, he was with CRC Insurance Services, Inc. for 10 years and was its President at the time of his departure. Our management team and employees also have significant alignment with stockholders.
We created The Connector to be a unique technology entrant into the E&S space. The Connector allows us to better serve retail insurance brokers by placing their smaller-premium accounts efficiently, evaluating more of their submissions rapidly, and binding more policies for them cost-effectively.
We created RT Connector to be a unique technology entrant into the E&S space. RT Connector allows us to better serve retail insurance brokers by placing their smaller-premium accounts efficiently, evaluating more of their submissions rapidly, and binding more policies for them cost-effectively.
These carriers have provided us the authority to design, underwrite and bind coverage, and administer policies for specific risks. We also have a National Specialty Programs Platform that, together with our MGAs and MGUs, offers commercial insurance for specific product lines or industry classes.
These carriers have provided us the authority to design, underwrite and bind coverage, and administer policies for specific risks. We also have a National Programs Platform that, together with our MGAs and MGUs, offers commercial insurance for specific product lines or industry classes.
E&S insurance carriers rely on wholesale insurance distributors for product expertise and distribution capabilities. By leveraging Ryan Specialty as a wholesale distributor, E&S insurance carriers are able to access a national network that includes over 17,000 retail insurance brokerage firms in a highly efficient manner, while simultaneously enhancing the quality of policy submissions by using a knowledgeable counterparty.
E&S insurance carriers rely on wholesale insurance distributors for product expertise and distribution capabilities. By leveraging Ryan Specialty as a wholesale distributor, E&S insurance carriers are able to access a national network that includes over 20,000 retail insurance brokerage firms in a highly efficient manner, while simultaneously enhancing the quality of policy submissions by using a knowledgeable counterparty.
These concentration statistics reflect both Wholesale Brokerage and Binding Authority Specialties, as many producers utilize both placement strategies. During 2022, we conducted business with thousands of retail brokerage firms, including substantially all of the 100 largest United States retail brokers as identified by Business Insurance in 2021.
These concentration statistics reflect both Wholesale Brokerage and Binding Authority Specialties, as many producers utilize both placement strategies. During 2023, we conducted business with thousands of retail brokerage firms, including substantially all of the 100 largest United States retail brokers as identified by Business Insurance in 2022.
When we acquire Wholesale Brokerage businesses, they gain access to over 17,000 retail insurance brokerage firms, including preferred relationships with substantially all of the top 100 retail insurance brokers and exclusive product capabilities. When we acquire Underwriting Managers, they gain access to our wholesale Producers, deep carrier relationships, and visionary leadership.
When we acquire Wholesale Brokerage businesses, they gain access to over 20,000 retail insurance brokerage firms, including preferred relationships with substantially all of the top 100 retail insurance brokers and exclusive product capabilities. When we acquire Underwriting Managers, they gain access to our wholesale Producers, deep carrier relationships, and visionary leadership.
In January 2023, Ryan Specialty acquired certain assets of Griffin Underwriting Managers, which enhances our market presence in the Pacific Northwest, provides access to new appointments with critical carriers in this market, and allows us to better attract high quality production talent in this market.
Our Recent Acquisitions In January 2023, Ryan Specialty acquired certain assets of Griffin Underwriting Managers, which enhances our market presence in the Pacific Northwest, provides access to new appointments with critical carriers in this market, and allows us to better attract high quality production talent in this market.
We have access to over 17,000 retail insurance brokerage firms, including preferred relationships with substantially all of the top 100 retail insurance brokers. We have been highly successful in our recruiting and retention efforts and are a destination of choice for top-tier talent.
We have access to over 20,000 retail insurance brokerage firms, including preferred relationships with substantially all of the top 100 retail insurance brokers. We have been highly successful in our recruiting and retention efforts and are a destination of choice for top-tier talent.
This method is most similar to our Underwriting Management Specialty and allows wholesale distributors to underwrite coverage on behalf of an insurance carrier for a specific type of risk, with relatively expansive delegated authority subject to agreed-upon guidelines and limits.
This method is most similar to our Underwriting Management Specialty and allows wholesale distributors to underwrite coverage on behalf of an insurance carrier for a 5 specific type of risk, with relatively expansive delegated authority subject to agreed-upon guidelines and limits. 3.
As of December 31, 2022, we had over 600 employee stockholders, including all of our top 50 Producers. Our management team and employees remain committed to our vision of market leadership by providing differentiated intellectual capital, building trusted relationships and pioneering risk solutions.
As of December 31, 2023, we had over 600 employee stockholders, including all of our top 50 Producers. Our management team and employees remain committed to our vision of market leadership by providing differentiated intellectual capital, building trusted relationships and pioneering risk solutions.
In addition, we have amassed a large underlying data set based on the over 2.1 million total policy submissions we receive annually. We expect to leverage this data set to further refine our pricing models, enhance our placement advice, and increase our efficiency.
In addition, we have amassed a large underlying data set based on the over 2.5 million total policy submissions we receive annually. We expect to leverage this data set to further refine our pricing models, enhance our placement advice, and increase our efficiency.
For example, many of our 10 de novo MGUs were formed to respond to emerging risks such as life sciences (LifeScienceRisk®), renewable energy (PERse®), excess commercial general liability (Emerald Underwriting Managers), cyber (EmergIn Risk), and professional liability (CorRisk).
For example, many of our 11 de novo MGUs were formed to respond to emerging risks such as life sciences (LifeScienceRisk®), renewable energy (PERse®), excess commercial general liability (Emerald Underwriting Managers), cyber (EmergIn Risk), and professional liability (CorRisk).
Our comprehensive suite of products and services and our broad geographic footprint allow us to place coverage for nearly any risk brought to us by the over 17,000 retail insurance brokerage firms with which we do business.
Our comprehensive suite of products and services and our broad geographic footprint allow us to place coverage for nearly any risk brought to us by the over 20,000 retail insurance brokerage firms with which we do business.
The overall top five U.S. writers of E&S products in 2021 included: Berkshire Hathaway Inc., American International Group, Inc., Markel Corporation, Fairfax Financial Group, and W.R. Berkley Corporation, with whom we maintain meaningful relationships.
The overall top five U.S. writers of E&S products in 2022 included: Berkshire Hathaway Inc., American International Group, Inc., Markel Corporation, Fairfax Financial Group, and W.R. Berkley Corporation, with whom we maintain meaningful relationships.
Comprehensive, full service product offering: Our success has been driven by our ability to provide a broad and innovative product offering that continues to meet the needs of our trading partners, regardless of complexity or risk profile. To provide this comprehensive level of service, we have developed a full suite of products, relationships, and capabilities.
Comprehensive, full service product offering: Our success has been driven by our ability to provide broad and innovative product offerings that continue to meet the needs of our trading partners, regardless of complexity or risk profile. To provide this comprehensive level of service, we have developed a full suite of products, relationships, and capabilities.
Under these arrangements, policies that do not fit our trading partner’s Admitted markets platform are referred directly into The Connector platform for access to E&S solutions.
Under these arrangements, policies that do not fit our trading partner’s Admitted markets platform are referred directly into RT Connector platform for access to E&S solutions.
We alleviate our more than 200 carrier trading partners of administrative burdens by offering 22 MGAs/MGUs and our National Programs Platform which together offer commercial insurance for specific product lines or industry classes. The diversity of our offerings enables our carrier trading partners to cost-efficiently access new risk classes in a timely manner, including on a delegated authority basis.
We alleviate our more than 250 carrier trading partners of administrative burdens by offering 21 MGAs/MGUs and our National Programs Platform which together offer commercial insurance for specific product lines or industry classes. The diversity of our offerings enables our carrier trading partners to cost-efficiently access new risk classes in a timely manner, including on a delegated authority basis.
We believe in the relentless pursuit of innovation in order to respond to evolving market conditions and to reach underserved specialty markets. Further to this effort, we acquired Keystone Risk Partners, representing our entrance into the alternative capital market and captive management business.
We believe in the relentless pursuit of innovation in order to respond to evolving market conditions and to reach underserved specialty markets. Further to this effort, we acquired Keystone Risk Partners at the end of 2022, representing our entrance into the alternative capital market and captive management business.
The growing relevance of the E&S market has been driven by the rapid emergence of large, complex and high-hazard risks across many lines of insurance.
The growing relevance of the E&S market has been driven by the continued emergence of large, complex and high-hazard risks across many lines of insurance.
Wholesale distributors can also receive fees in addition to commissions for placing certain insurance policies. Wholesale distributors generally utilize one of three methods to place insurance risks into the E&S market: 1. Wholesale brokerage: 57% of 2021 E&S premiums were placed by wholesale insurance brokers without binding authority, according to AM Best.
Wholesale distributors can also receive fees in addition to commissions for placing certain insurance policies. Wholesale distributors generally utilize one of three methods to place insurance risks into the E&S market: 1. Wholesale brokerage: 42% of 2022 E&S premiums were placed by wholesale insurance brokers without binding authority, according to AM Best.
We are able to retain new and tenured employees alike by offering unprecedented market access, supporting Producers in growing their books and providing broad opportunities for rapid career advancement within our organization. For example, in 2022 and 2021, 83% and 87%, respectively, of our Producers grew their book of business.
We are able to retain new and tenured employees alike by offering unprecedented market access, supporting Producers in growing their books and providing broad opportunities for rapid career advancement within our organization. For example, in 2023 and 2022, 81% and 83%, respectively, of our Producers grew their book of business.
Our Producers are able to offer retail insurance brokers multi-channel access to E&S and Admitted markets through our three Specialties: Wholesale Brokerage, Binding Authority, and Underwriting Management. • Wholesale Brokerage : Our Wholesale Brokerage Specialty operates predominantly under the brand “RT Specialty” along with others such as "RT ProExec" and "CERT." Wholesale Brokerage distributes a wide range and diversified mix of specialty property, casualty, professional lines, personal lines, and workers’ compensation insurance products from insurance carriers to retail brokerage firms.
Our Producers are able to offer retail insurance brokers multi-channel access to E&S and Admitted markets through our three Specialties: Wholesale Brokerage, Binding Authority, and Underwriting Management. • Wholesale Brokerage : Our Wholesale Brokerage Specialty operates predominantly under the brand “RT Specialty” along with others such as “RT ProExec” and “CERT.” Wholesale Brokerage distributes a wide range and diversified mix of specialty property, casualty, professional lines, personal lines, and workers’ compensation insurance products from insurance carriers to retail brokerage firms.
We are compensated for providing services primarily by commissions and fees. Our business was founded to address the growing need for specialists in the increasingly important E&S market. For the year ended December 31, 2022, 74% of the total premiums we placed were in the E&S market.
We are compensated for providing services primarily by commissions and fees. Our business was founded to address the growing need for specialists in the increasingly important E&S market. For the year ended December 31, 2023, 78% of the total premiums we placed were in the E&S market.
For a reconciliation of Adjusted diluted earnings per share to its most directly comparable GAAP metric, 4 Diluted earnings (loss) per share, please see “ Management’s Discussion and Analysis of Financial Condition and Results of Operation – Non-GAAP Financial Measures and Key Performance Indicators. ” Industry Overview As a wholesale distributor, we operate within the broader P&C insurance distribution market, which comprises both wholesale insurance brokers and retail insurance brokers.
For a reconciliation of Adjusted diluted earnings per share to its most directly comparable GAAP metric, Diluted earnings (loss) per share, please see “ Management’s Discussion and Analysis of Financial Condition and Results of Operation – Non-GAAP Financial Measures and Key Performance Indicators ” included elsewhere in this Annual Report. 4 Industry Overview As a wholesale distributor, we operate within the broader P&C insurance distribution market, which comprises both wholesale insurance brokers and retail insurance brokers.
Fiduciary Funds Insurance authorities in the United States, United Kingdom, and certain other jurisdictions in which our subsidiaries operate have also enacted laws and regulations governing the investment of funds, such as premiums, claims proceeds and surplus lines taxes, held in a fiduciary capacity for others.
Fiduciary Funds Insurance authorities in the United States, United Kingdom, and certain other jurisdictions in which our subsidiaries operate have also enacted laws and regulations governing the retention and investment of funds, such as premiums, claims proceeds and premium taxes, held in a fiduciary capacity for others.
We have formalized our Producer sourcing and development program through the establishment of Ryan Specialty University, allowing us to even more effectively cultivate talent across all specialties. We expect this program will continue to drive growth in the future.
We continue to make significant investments in people. We have formalized our Producer sourcing and development program through the establishment of Ryan Specialty University, allowing us to even more effectively cultivate talent across all specialties. We expect this program will continue to drive growth in the future.
For the years ended December 31, 2022 and 2021, our Wholesale Brokerage Specialty generated $1,129.2 million in net commission and fees, representing 66.0% of our net commission and fees and $932.0 million in net commission and fees, representing 65.1% of our net commission and fees, respectively. • Binding Authority: Our Binding Authority Specialty operates under the “RT Specialty” and “RT Binding Authority” brands.
For the years ended December 31, 2023 and 2022, our Wholesale Brokerage Specialty generated $1,319.1 million in net commission and fees, representing 65.1% of our net commission and fees and $1,129.2 million in net commission and fees, representing 66.0% of our net commission and fees, respectively. • Binding Authority: Our Binding Authority Specialty operates under the “RT Specialty” and “RT Binding Authority” brands.
For the years ended December 31, 2022 and 2021, our Binding Authority Specialty generated $231.0 million in net commission and fees, representing 13.5% of our net commission and fees and $209.6 million in revenue, representing 14.6% of our net commission and fees, respectively. • Underwriting Management : Our Underwriting Management Specialty operates under multiple brands, which are collectively referred to as “Ryan Specialty Underwriting Managers.” Our Underwriting Management Specialty offers insurance carriers cost-effective specialty market expertise in distinct and complex market niches underserved in today’s marketplace through 22 MGAs and MGUs, which act on behalf of insurance carriers.
For the years ended December 31, 2023 and 2022, our Binding Authority Specialty generated $276.0 million in net commission and fees, representing 13.6% of our net commission and fees and $231.0 million in revenue, representing 13.5% of our net commission and fees, respectively. • Underwriting Management : Our Underwriting Management Specialty operates under multiple brands, which are collectively referred to as “Ryan Specialty Underwriting Managers.” Our Underwriting Management Specialty offers insurance carriers cost-effective specialty market expertise in distinct and complex market niches underserved in today’s marketplace through 21 MGAs and MGUs, which act on behalf of insurance carriers.
According to Business Insurance, this M&A velocity contributed to the Top 100 retail brokers growing revenue by over 19% in 2021. As retail brokers have become larger, they have looked to establish relationships with fewer, more trusted wholesale brokers.
According to Business Insurance, this M&A velocity contributed to the Top 100 retail brokers growing revenue by over 13% in 2022. As retail brokers have become larger, they have looked to establish relationships with fewer, more trusted wholesale brokers.
For the years ended December 31, 2022 and 2021, our Underwriting Management Specialty generated $351.6 million in net commission and fees, representing 20.5% of our net commission and fees and $290.6 million in revenue, representing 20.3% of our net commission and fees, respectively. We have significantly enhanced our human capital, product capabilities and geographic footprint through strategic acquisitions.
For the years ended December 31, 2023 and 2022, our Underwriting Management Specialty generated $431.6 million in net commission and fees, representing 21.3% of our net commission and fees and $351.6 million in revenue, representing 20.5% of our net commission and fees, respectively. We have significantly enhanced our human capital, product capabilities and geographic footprint through strategic acquisitions.
P&C insurance Wholesale Broker, according to premium volume reported in the 2022 Business Insurance broker rankings Special Report. Our distribution network encompasses over 680 individuals directly responsible for revenue generation in either Wholesale Brokerage or Binding Authority (each, a “Producer” and together, the “Producers”) who provide us access to over 17,000 retail insurance brokerage firms and over 200 insurance carriers.
P&C insurance Wholesale Broker, according to premium volume reported in the 2022 Business Insurance broker rankings Special Report. Our distribution network encompasses over 700 individuals directly responsible for revenue generation in either Wholesale Brokerage or Binding Authority (each, a “Producer” and together, the “Producers”) who provide us access to over 20,000 retail insurance brokerage firms and over 250 insurance carriers.
The primary market for these insurance placements is the E&S market, where retail insurance brokers often must utilize wholesaler distributors who have distinct expertise and execution capabilities with specialized carriers. According to AM Best, over the past five years wholesalers were involved in placing approximately 87% to 91% of annual E&S premiums.
The primary market for these insurance placements is the E&S market, where retail insurance brokers often must utilize wholesaler distributors who have distinct expertise and execution capabilities with specialized carriers. According to AM Best, over the past five years wholesalers were involved in placing on average 85% of annual E&S premiums.
Approximately 79% of U.S. premiums are generated through the Admitted market, which has highly regulated rates and policy forms. As a result, products in the Admitted market are relatively uniform in price and coverage. According to data from AM Best, the E&S market comprised $83 billion of direct written premium in 2021.
Approximately 78% of U.S. premiums are generated through the Admitted market, which has highly regulated rates and policy forms. As a result, products in the Admitted market are relatively uniform in price and coverage. According to data from AM Best, the E&S market comprised $98 billion of direct written premium in 2022.
The Tax Receivable Agreement provides for the payment by us to the current and certain 12 former LLC Unitholders, collectively, of 85% of the amount of tax benefits, if any, that we actually realize (or in some circumstances are deemed to realize) as a result of (i) certain increases in the tax basis of assets of the LLC and its subsidiaries resulting from purchases or exchanges of LLC Common Units (“ Exchange Tax Attributes ”), (ii) certain tax attributes of the LLC and its subsidiaries that existed prior to the IPO (“ Pre-IPO M&A Tax Attributes ”), (iii) certain favorable “remedial” partnership tax allocations to which we become entitled (if any), and (iv) certain other tax benefits related to our entering into the Tax Receivable Agreement, including certain tax benefits attributable to payments that we make under the Tax Receivable Agreement (“ TRA Payment Tax Attributes ” and collectively with Exchange Tax Attributes and Pre-IPO M&A Tax Attributes, the “ Tax Attributes ”).
The Tax Receivable Agreement provides for the payment by us to the current and certain former LLC Unitholders, collectively, of 85% of the net cash savings, if any, in U.S. federal, state, and local income taxes that we actually realize (or in some circumstances are deemed to realize) as a result of (i) certain increases in the tax basis of assets of the LLC and its subsidiaries resulting from purchases or exchanges of LLC Common Units (“ Exchange Tax Attributes ”), (ii) certain tax attributes of the LLC and its subsidiaries that existed prior to the IPO (“ Pre-IPO M&A Tax Attributes ”), (iii) certain favorable “remedial” partnership tax allocations to which we become entitled (if any), and (iv) certain other tax benefits related to our entering into the Tax Receivable Agreement, including certain tax benefits attributable to payments that we make under the Tax Receivable Agreement (“ TRA Payment Tax Attributes ” and collectively with Exchange Tax Attributes and Pre-IPO M&A Tax Attributes, the “ Tax Attributes ”).
New LLC was formed as a Delaware limited liability company on April 20, 2021, for the purpose of becoming, subsequent to our IPO, an intermediate holding company between Ryan Specialty Holdings, Inc., and Ryan Specialty, LLC.
Our Organizational Structure The Company is the sole managing member of New LLC. New LLC was formed as a Delaware limited liability company on April 20, 2021, for the purpose of becoming, subsequent to our IPO, an intermediate holding company between Ryan Specialty Holdings, Inc., and Ryan Specialty, LLC.
We are on track to complete the merger of the binding authority service model, technology platform, and premium scale of All Risks with our differentiated technology platform, The Connector, in 2023. The Connector is a digital marketplace through which our retail clients and internal producers can receive quotes and bind policies online.
We completed the merger of the binding authority service model, technology platform, and premium scale of All Risks with our differentiated technology platform, RT Connector, in 2023. RT Connector is a digital marketplace through which our retail clients and internal producers can receive quotes and bind policies online.
Our growth has been further supported by the rapid consolidation among retail insurance brokers and the consolidation of their wholesaler trading partner relationships. During 2022, retail insurance brokers completed 987 merger and acquisition (“M&A”) transactions during the preceding twelve-month period according to OPTIS Partners, compared to 1,034 in 2021, 795 in 2020, and 206 in 2010.
Our growth has been further supported by the rapid consolidation among retail insurance brokers and the consolidation of their wholesaler trading partner relationships. During 2023, retail insurance brokers completed 782 merger and acquisition (“M&A”) transactions according to OPTIS Partners, compared to 987 in 2022, 1,034 in 2021, and 795 in 2020.
Lloyd’s, which represents a market of 90 syndicates, is also a prominent player in the E&S space and approximately 17% of 2021 E&S premiums in the United States was for insurance coverage placed in the Lloyd’s market according to AM Best.
Lloyd’s, which represents a market of 87 syndicates, is also a prominent player in the E&S space and approximately 16% of 2022 E&S premiums in the United States was for insurance coverage placed in the Lloyd’s market according to AM Best.
Binding Authority We believe our Binding Authority Specialty to be among the largest binding authority platforms in the nation. For the year ended December 31, 2022, our Binding Authority Specialty generated $231.0 million in net commission and fees, representing 13.5% of our total net commission and fees.
Binding Authority We believe our Binding Authority Specialty to be among the largest binding authority platforms in the nation. For the year ended December 31, 2023, our Binding Authority Specialty generated $276.0 million in net commission and fees, representing 13.6% of our total net commission and fees.
We employ experienced practice leaders across all broad classes of business, including property, casualty, and professional & executive liability coverages, in addition to specialists who run highly focused distribution channels such as construction, cyber, transportation, renewable energy, professional liability, alternative risk, and transactional liability.
We employ experienced practice leaders across all broad classes of business, including property, casualty, and professional & executive liability coverages, in addition to specialists who run highly focused distribution channels such as construction, cyber, transportation, renewable energy, professional liability, medical stop loss and other employee benefits coverage, alternative risk, excess casualty, and transactional liability.
Our Wholesale Brokerage Producers are highly regarded for their ability to procure coverage for the largest, most complex, and high-hazard risks. Our Wholesale Brokers are able to place policies for challenging risks such as coastal condos, power generators, kidnap and ransom exposures, hospitals, trucking fleets, and waste haulers.
Our Wholesale Brokerage Producers are highly regarded for their ability to procure coverage for the largest, most complex, and high-hazard risks. Our Wholesale Brokers are able to place policies for challenging risks such as coastal properties, power generators, kidnap and ransom exposures, hospitals, trucking fleets and commercial transportation liability, large construction projects, and waste haulers.
Professionals in the Underwriting Management Specialty often have a meaningful percentage of their compensation tied to underwriting performance to align interests with those of our carrier trading partners. For the year ended December 31, 2022, our Underwriting Management Specialty generated $351.6 million in net commission and fees, representing 20.5% of our total net commission and fees.
Professionals in the Underwriting Management Specialty often have a meaningful percentage of their compensation tied to underwriting performance to align interests with those of our carrier trading partners. For the year ended December 31, 2023, our Underwriting Management Specialty generated $431.6 million in net commission and fees, representing 21.3% of our total net commission and fees.
For the year ended December 31, 2022, our Wholesale Brokerage Specialty generated $1,129.2 million in net commission and fees, representing 66.0% of our total net commission and fees. Wholesale Brokerage operates predominantly under the brand “RT Specialty.” Our Wholesale Brokers distribute a wide range and diversified mix of specialty insurance products from insurance carriers to retail insurance brokerage firms.
For the year ended December 31, 2023, our Wholesale Brokerage Specialty generated $1,319.1 million in net commission and fees, representing 65.1% of our total net commission and fees. Wholesale Brokerage operates predominantly under the brand “RT Specialty.” 9 Our Wholesale Brokers distribute a wide range and diversified mix of specialty insurance products from insurance carriers to retail insurance brokerage firms.
With a nationally scaled binding authority operation, as well as the capabilities existing within our Underwriting Management Specialty, we expect to be able to comprehensively address the opportunities in the delegated authority market, which represented 30% of E&S premiums in 2021 according to AM Best (inclusive of binding authority and program manager business).
With a nationally scaled binding authority operation, as well as the capabilities existing within our Underwriting Management Specialty, we expect to be able to comprehensively address the opportunities in the delegated authority market, which represented 32% of E&S premiums in 2022 according to AM Best.
Since inception, we have partnered with over 40 firms through acquisition. These firms represent a diverse mix of specialties and geographies, allowing us to better service both existing and prospective trading partners. The targets that we acquired in 2021 and 2020 had revenues for the unaudited twelve-month period prior to acquisition of $34.0 million and $239.7 million, respectively.
Since inception, we have partnered with over 50 firms through acquisition. These firms represent a diverse mix of specialties and geographies, allowing us to better service both existing and prospective trading partners. The targets that we acquired in 2023 had revenues for the unaudited twelve-month period prior to acquisition of over $95 million.
E&S market (which comprised $83 billion of direct written premium in 2021) has grown at a CAGR of 9.1%, compared to 4.2% for the U.S. Admitted market, between 2010 and 2021. E&S market share as a percentage of total U.S. commercial insurance premium increased from 13.5% in 2010 to 20.6% in 2021.
E&S market (which comprised $98 billion of direct written premium in 2022) has grown at a CAGR of 9.9%, compared to 4.7% for the U.S. Admitted market, between 2010 and 2022. E&S market share as a percentage of total U.S. commercial insurance premium increased from 13.5% in 2010 to 21.9% in 2022.
Since the beginning of 2018, we have recruited 79 Producers who are now responsible for $524 million of annual premiums (figures exclude Producers who are not associated with a discrete book of business). Each of the recruited Producer cohorts of 2016, 2017, 2018, 2019, 2020, and 2021 generated revenue that exceeded compensation costs by their second year.
Since the beginning of 2018, we have recruited 93 Producers who are now responsible for $635 million of annual premiums (figures exclude Producers who are not associated with a discrete book of business). Each of the recruited Producer cohorts since 2016 generated revenue that exceeded compensation costs by the end of their second full year.
Our Wholesale Brokerage Specialty has extensive relationships with blue-chip insurance carriers and retail insurance brokers. With regard to entities that our Wholesale Brokerage Specialty has a relationship with, there are no material concentrations in retail insurance brokers (top five: 27.5% of 2022 revenue), insurance carriers (top five: 22.7% of 2022 revenue), or internal Producers (top five: 18.9% of 2022 revenue).
Our Wholesale Brokerage Specialty has extensive relationships with blue-chip insurance carriers and retail insurance brokers. With regard to entities that our Wholesale Brokerage Specialty has a relationship with, there are no material concentrations in retail insurance brokers (top five: 27.6% of 2023 revenue), insurance carriers (top five: 21.9% of 2023 revenue), or internal Producers (top five: 16.1% of 2023 revenue).
Please see “ Note 13, Earnings (Loss) Per Share ” in the footnotes to the Consolidated Financial Statements in this Annual Report for additional information. Adjusted diluted earnings per share is a non-GAAP metric.
Our Adjusted diluted earnings per share increased from $1.15 in 2022 to $1.38 in 2023. Please see “ Note 12, Earnings (Loss) Per Share ” in the footnotes to the Consolidated Financial Statements in this Annual Report for additional information. Adjusted diluted earnings per share is a non-GAAP metric.
Members of the executive team who joined as part of the All Risks Acquisition are now leading our efforts to further develop both our national, fully integrated Binding Authority Specialty and our program platform, the latter of which is part of our Underwriting Management Specialty.
Members of the executive team who joined as part of the All Risks Acquisition were instrumental in developing both our national, fully integrated Binding Authority Specialty and our program platform, the latter of which is part of our Underwriting Management Specialty.
This method is most similar to our Binding Authority Specialty and utilizes in-house binding agreements, with a relatively limited scope of delegated authority, to facilitate rapid execution. 3. Program manager, MGA/MGU: 10% of 2021 E&S premiums were placed by program managers, including MGUs and MGAs, according to AM Best.
Wholesale brokerage with binding authority: 14% of 2022 E&S premiums were placed by wholesale insurance brokers with binding authority, according to AM Best. This method is most similar to our Binding Authority Specialty and utilizes in-house binding agreements, with a relatively limited scope of delegated authority, to facilitate rapid execution.
We have applied for trademarks in the United States for “Ryan Specialty” and “RT Specialty” and expect these word marks to be registered in the near future. The logo design for RT Specialty, and numerous of our other brand names and logos, are registered as trademarks in the United States and other jurisdictions.
We have trademarks in the United States for “Ryan Specialty” and “RT Specialty.” The logo design for RT Specialty, and numerous of our other brand names and logos, are registered as trademarks in the United States and other jurisdictions. We have also registered numerous internet domain names related to our business.
All Risks possessed all of the key attributes we sought in an acquisition partner: it had a track record of strong organic revenue growth, enhanced our market presence, was accretive to our talent base, complementary in products and geography, and possessed a high-quality management team that was both aligned with our culture and sought to remain active in the business.
All Risks possessed some key attributes we seek in our acquisition partners: a strong track record of organic revenue growth, enhancing our market presence, accretive to our talent base, complementary in products and geography, and possessing a high-quality management team that is aligned with our culture.
This method, also referred to as “open brokerage,” is most similar to our Wholesale Brokerage Specialty and includes a wide range and diversified mix of products. 5 2. Wholesale brokerage with binding authority: 20% of 2021 E&S premiums were placed by wholesale insurance brokers with binding authority, according to AM Best.
This method, also referred to as “open brokerage,” is most similar to our Wholesale Brokerage Specialty and includes a wide range and diversified mix of products. 2. Program manager, MGA/MGU: 18% of 2022 E&S premiums were placed by program managers, including MGUs and MGAs, according to AM Best.
Our acquisition strategy is centered on increasing our intellectual capital, distribution reach, and product capabilities, which mutually reinforce one another. We take a consistent and disciplined approach to deal structuring and integration in order to ensure both that our partners are positioned to succeed after the acquisition and interests are aligned between ourselves and our new teammates.
We take a consistent and disciplined approach to deal structuring and integration in order to ensure both that our partners are positioned to succeed after the acquisition and interests are aligned between ourselves and our new teammates.
Companies in the insurance industry may own large numbers of copyrights, trademarks, and other intellectual property and proprietary rights, and these companies and entities have and may in the future request license agreements, threaten litigation or file suit against us based on allegations of infringement, misappropriation or other violations of their intellectual property and proprietary rights. 13 See “ Risk Factors — Risks Related to Our Intellectual Property and Cybersecurity ” for a more comprehensive description of risks related to our intellectual property.
In addition, the legal standards relating to the validity, enforceability, and scope of protection of intellectual property and proprietary rights are uncertain and still evolving. 13 Companies in the insurance industry may own large numbers of copyrights, trademarks, and other intellectual property and proprietary rights, and these companies and entities have and may in the future request license agreements, threaten litigation or file suit against us based on allegations of infringement, misappropriation or other violations of their intellectual property and proprietary rights.
Accordingly, our business is built to respond to rapidly shifting market conditions by constantly looking for ways to broaden and enhance our product offerings.
Lead with innovation in an ever-changing market: We believe that change is inevitable and necessary. Accordingly, our business is built to respond to rapidly shifting market conditions by constantly looking for ways to broaden and enhance our product offerings.
Seasonality Our Wholesale Brokerage and Binding Authority Specialties typically experience higher revenues in the second and fourth calendar quarters of each year, primarily due to the timing of policy renewals. Our Underwriting Management Specialty typically experiences higher revenues in the fourth quarter, primarily due to the timing of policy renewals.
Castel is headquartered in London, England with additional offices in the Netherlands and Belgium and operations in Singapore. Seasonality Our Wholesale Brokerage and Binding Authority Specialties typically experience higher revenues in the second and fourth calendar quarters of each year, primarily due to the timing of policy renewals.
The All Risks Acquisition advanced many of our strategic priorities, including leveraging technology to drive both productivity and efficiency. As an expert in binding authority, All Risks is able to cost-efficiently secure coverage for smaller-premium policies through its best-in-class operating model that drives efficiency and eliminates unnecessary data entry and duplicative work.
Considering its expertise in binding authority, the addition of the talented All Risks team increased our capacity to cost-efficiently secure coverage for smaller-premium policies through a best-in-class operating model that drives efficiency and eliminates unnecessary data entry and duplicative work.
Our financial performance reflects the strength of our strategy and business model, including a 20.4% and 40.7% increase in revenue from year ended December 31, 2021 to December 31, 2022 and year ended December 31, 2020 to December 31, 2021, respectively.
Our financial performance reflects the strength of our strategy and business model, including a 20.4% increase in revenue from both year ended December 31, 2022 to December 31, 2023 and year ended December 31, 2021 to December 31, 2022. This rapid pace of growth was accompanied by Diluted earnings per share of $0.52 in both 2023 and 2022.
Human Capital Management Our culture is the foundation of everything we do. Our employees are our greatest asset, and we strive to foster a productive and empowering work environment that embodies our core values: Integrity, Client Centricity, Teamwork, Inclusion, Empowerment, Innovation, and Courage.
Our employees are our greatest asset, and we strive to foster a productive and empowering work environment that embodies our core values: Integrity, Client Centricity, Teamwork, Inclusion, Empowerment, Innovation, and Courage. Our key differentiators are not only our talent and expertise but also the creativity and execution we deliver on behalf of our clients.
National scale in E&S distribution, underwriting expertise, and broad access to carrier capacity are key to building a cohesive binding authority platform. We have been diligently focused on all three elements and our efforts accelerated with the All Risks Acquisition, which is renowned for its binding authority capabilities.
We have been diligently focused on all three elements and our efforts accelerated with the All Risks Acquisition, which is renowned for its binding authority capabilities.
In recent years, several states considered new legislation or regulations regarding the compensation of brokers by insurance carriers. The proposals ranged in nature from new disclosure requirements to new duties on insurance agents and brokers in dealing with clients.
In recent years, several states considered new legislation or regulations regarding the compensation of brokers by insurance carriers.
We enter into agreements with our employees, contractors, clients, partners, and other parties with which we do business to limit access to, and disclosure of, our proprietary information.
Some of our most important brand names are not yet registered, and we rely on common-law trademark protection to protect this intellectual property. We enter into agreements with our employees, contractors, clients, partners, and other parties with which we do business to limit access to, and disclosure of, our proprietary information.
We primarily source our acquisitions through proprietary dialogue with potential partners and selectively take part in auction processes in which we believe we have a differentiated approach or value proposition. We take a consistent and disciplined approach to deal structuring and integration in order to best ensure that our partners are positioned to succeed after the acquisition.
We take a consistent and disciplined 3 approach to deal structuring and integration in order to best ensure that our partners are positioned to succeed after the acquisition.
Our ability to retain top talent is highlighted by the fact that since the All Risks Acquisition was completed, as of December 31, 2022, retention has been consistent with Ryan Specialty’s historical retention rates. Lead with innovation in an ever-changing market: We believe that change is inevitable and necessary.
Our ability to retain top talent is a core objective of our strategy, exemplified by the fact that from 2019 through 2023 our annual retention rate has exceeded 97% and further highlighted by the fact that since the All Risks Acquisition was completed, as of December 31, 2023, Producer retention from All Risks has been consistent with Ryan Specialty’s historical retention rates.
Competition also comes from other businesses that do not fall into the categories above, including commercial and investment banks and consultants that provide risk-related services and products. Key competitive factors in our market include: • expertise and intellectual capital; • market access and/or product availability; and • client service. We believe that we compete favorably on these factors.
We also compete with insurance and reinsurance carriers that market and service their insurance products without the assistance of brokers or agents. Competition also comes from other businesses that do not fall into the categories above, including commercial and investment banks and consultants that provide risk-related services and products.
The top five retail brokers in the United States account for 19.0% of our revenue, and no single retail broker accounted for more than 8.9% of total revenue in 2022. No carrier accounted for more than 6.7% of total revenue in 2022 (excluding all Lloyd’s syndicates combined).
Our clients are retail brokers and agents, other intermediaries, and insurance carriers. The top five retail brokers in the United States account for 20.3% of our revenue, and no single retail broker accounted for more than 9.0% of total revenue in 2023.
Clients The insureds served by our clients operate in many businesses and industries throughout the United States, Canada, the United Kingdom, Europe, and certain other countries in which our subsidiaries operate. Our clients are retail brokers and agents, other intermediaries, and insurance carriers.
Our Underwriting Management Specialty typically experiences higher revenues in the fourth quarter, primarily due to the timing of policy renewals. Clients The insureds served by our clients operate in many businesses and industries throughout the United States, Canada, the United Kingdom, Europe, and certain other countries in which our subsidiaries operate.
Beyond the traditional wholesale P&C opportunities, we also expect to continue to expand our alternative risk offerings and develop a wholesale employee benefits specialty. Build the largest and most comprehensive national binding authority business: We believe that both M&A consolidation and panel consolidation are in nascent stages in the binding authority market, providing us with meaningful growth opportunities.
Build the largest and most comprehensive national binding authority business: We believe that both M&A consolidation and panel consolidation are in nascent stages in the binding authority market, providing us with meaningful growth opportunities. National scale in E&S distribution, underwriting expertise, and broad access to carrier capacity are key to building a cohesive binding authority platform.
The connectivity among our Specialties, as well as with key trading partners, enhances the value of our platform to recruited Producers and presents a highly attractive value proposition to acquisition partners. 8 Deepen and broaden our relationships with retail broker trading partners: Retail insurance brokers have multiple wholesale distribution relationships, even those that have consolidated their wholesale panels.
As we continue to grow, these positive network effects become stronger. The connectivity among our Specialties, as well as with key trading partners, enhances the value of our platform to recruited Producers and presents a highly attractive value proposition to acquisition partners.
Ensuring individual Producer book of business growth is critical for our business as it supports our organic growth, motivates our Producers, and fosters retention. In 2022, our Producer retention rate was 97%. We continue to make significant investments in people.
Each of the cohorts of Producers hired since 2016 generated revenue which exceeded compensation costs by the end their second full year. Ensuring individual Producer book of business growth is critical for our business as it supports our organic growth, motivates our Producers, and fosters retention. In 2023, our Producer retention rate was 97%.
Key to deepening our relationships with retail insurance brokers will be expanding our product offerings and enhancing our geographic footprint through organic initiatives, continued producer hires, and strategic acquisitions. In addition to deepening our relationships with existing clients, we will continue to broaden our footprint by establishing new retail broker trading partner relationships.
For example, in 2023, our revenue derived from the Top 100 firms (as ranked by Business Insurance) expanded faster than our 2023 organic revenue growth rate of 15.0%. Key to deepening our relationships with retail insurance brokers will be expanding our product offerings and enhancing our geographic footprint through organic initiatives, continued producer hires, and strategic acquisitions.
As of December 31, 2022, we employed approximately 3,850 people with 94 offices across the United States, Canada, the United Kingdom, and Europe. We also engage temporary employees and consultants and none of our employees are represented by unions. We offer competitive compensation and benefits programs in order to attract and retain top talent.
We also engage temporary employees and consultants and none of our employees are represented by unions. We offer competitive compensation and benefits programs in order to attract and retain top talent. We have high employee engagement and ownership, low turnover and consider our current relationship with our employees to be very good.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRyan or other members of our senior management team or to recruit and retain revenue producers; • the impact of breaches in security that cause significant system or network disruption or business interruption; • the impact of improper disclosure of confidential, personal or proprietary data, misuse of information by employees or counterparties or as a result of cyberattacks; • the potential loss of our relationships with insurance carriers or our clients, failure to maintain good relationships with insurance carriers or clients, becoming dependent upon a limited number of insurance carriers or clients or the failure to develop new insurance carrier and client relationships; • errors in, or ineffectiveness of, our underwriting models and the risks presented to our reputation and relationships with insurance carriers, retail brokers and agents; • failure to maintain, protect, and enhance our brand or prevent damage to our reputation; • any failure to maintain the valuable aspects of our Company’s culture; • our inability to successfully recover upon experiencing a disaster or other business continuity problem; • the impact of third parties that perform key functions of our business operations acting in ways that harm our business; • the cyclicality of, and the economic conditions in, the markets in which we operate and conditions that result in reduced insurer capacity or a migration of business away from the E&S market and into the Admitted market; • a reduction in insurer capacity; • significant competitive pressures in each of our businesses; • decreases in premiums or commission rates set by insurers, or actions by insurers seeking repayment of commissions; • decrease in the amount of supplemental or contingent commissions we receive; • our inability to collect our receivables; • disintermediation within the insurance industry and shifts away from traditional insurance markets; • changes in the mode of compensation in the insurance industry; • impairment of goodwill and intangibles; 16 • the impact on our operations and financial condition from the effects of a pandemic or the outbreak of a contagious disease and resulting governmental and societal responses; • the inability to maintain rapid growth and generate sufficient revenue to maintain profitability; • the loss of clients or business as a result of consolidation within the retail insurance brokerage industry; • the impact if our MGA or MGU programs are terminated or changed; • unsatisfactory evaluation of potential acquisitions and the integration of acquired businesses as well as introduction of new products, lines of business and markets; • significant investment in our growth strategy and whether expectation of internal efficiencies are realized; • our ability to gain internal efficiencies through the application of technology or effectively apply technology in driving value for our clients or the failure of technology and automated systems to function or perform as expected; • the unavailability or inaccuracy of our clients’ and third parties’ data for pricing and underwriting insurance policies; • the competitiveness and cyclicality of the reinsurance industry; • the occurrence of natural or man-made disasters; • the economic and political conditions of the countries and regions in which we operate; • the failure or take-over by the FDIC of one of the financial institutions that we use; • our inability to respond quickly to operational or financial problems or promote the desired level of cooperation and interaction among our offices; • the impact of infringement, misappropriation or dilution of our intellectual property; • the impact of the failure to protect our intellectual property rights, or allegations that we have infringed on the intellectual property rights of others; • our international operations expose us to various international risks, including exchange rate fluctuations and risks resulting from geopolitical tensions; Risks Related to Legal and Regulatory Requirements • the impact of governmental regulations, legal proceedings and governmental inquiries related to our business; • being subject to E&O claims as well as other contingencies and legal proceedings; • our handling of client funds and surplus lines taxes that exposes us to complex fiduciary regulations; • changes in tax laws or regulations; • decreased commission revenues due to proposed tort reform legislation; • the impact of regulations affecting insurance carriers; Risks Related to Our Indebtedness • our outstanding debt potentially adversely affecting our financial flexibility and subjecting us to restrictions and limitations that could significantly affect our ability to operate; • not being able to generate sufficient cash flow to service all of our indebtedness and being forced to take other actions to satisfy our obligations under such indebtedness; • being affected by further changes in the U.S. based credit markets; • changes in our credit ratings; Risks Related to Our Organizational Structure and our Class A Common Stock 17 • risks related to the payments required by our Tax Receivable Agreement; and • risks relating to our organizational structure that could result in conflicts of interests between the LLC Unitholders and the holders of our Class A common stock; These and other risks are more fully described below.
Biggest changeRyan or other members of our senior management team or to recruit and retain revenue producers; • the impact of breaches in security that cause significant system or network disruption or business interruption; • the impact of improper disclosure of confidential, personal or proprietary data, misuse of information by employees or counterparties or as a result of cyberattacks; • the potential loss of our relationships with insurance carriers or our clients, failure to maintain good relationships with insurance carriers or clients, becoming dependent upon a limited number of insurance carriers or clients or the failure to develop new insurance carrier and client relationships; • errors in, or ineffectiveness of, our underwriting models and the risks presented to our reputation and relationships with insurance carriers, retail brokers and agents; • failure to maintain, protect, and enhance our brand or prevent damage to our reputation; • unsatisfactory evaluation of potential acquisitions, integration of acquired businesses, and/or introduction of new products, lines of business, and markets; • our inability to successfully recover upon experiencing a disaster or other interruption in business continuity; • the impact of third parties that perform key functions of our business operations acting in ways that harm our business; • the cyclicality of, and the economic conditions in, the markets in which we operate and conditions that result in reduced insurer capacity or a migration of business away from the E&S market and into the Admitted market; • a reduction in insurer capacity to adequately and appropriately underwrite risk and provide coverage; • our international operations expose us to various international risks, including required compliance with legal and regulatory obligations, that are different, and at times more burdensome, than those set forth in the United States; • changes in interest rates and deterioration of credit quality could reduce the value of our cash balances or interest income; • failure to maintain the valuable aspects of our Company’s culture; • significant competitive pressures in each of our businesses; • decreases in premiums or commission rates set by insurers, or actions by insurers seeking repayment of commissions; 17 • decrease in the amount of supplemental or contingent commissions we receive; • our inability to collect our receivables; • disintermediation within the insurance industry and shifts away from traditional insurance markets; • changes in the mode of compensation in the insurance industry; • impairment of goodwill and intangibles; • the impact on our operations and financial condition from the effects of a pandemic or the outbreak of a contagious disease and resulting governmental and societal responses; • the inability to maintain rapid growth and generate sufficient revenue to maintain profitability; • the loss of clients or business as a result of consolidation within the retail insurance brokerage industry; • the impact if our MGA or MGU programs are terminated or changed; • the inability to achieve the intended results of our previously announced restructuring program; • significant investment in our growth strategy and whether expectation of internal efficiencies are realized; • our ability to gain internal efficiencies through the application of technology or effectively apply technology in driving value for our clients or the failure of technology and automated systems to function or perform as expected; • the unavailability or inaccuracy of our clients’ and third parties’ data for pricing and underwriting insurance policies; • the competitiveness and cyclicality of the reinsurance industry; • the occurrence of natural or man-made disasters; • the economic and political conditions of the countries and regions in which we operate; • the challenges with properly assessing and managing the adoption and use of artificial intelligence technologies; • the failure or take-over by the FDIC of one of the financial institutions that we use; • our inability to respond quickly to operational or financial problems or promote the desired level of cooperation and interaction among our offices; • our international operations expose us to various international risks, including exchange rate fluctuations; Risks Related to Legal, Regulatory and Intellectual Property Issues • the impact of governmental regulations, legal proceedings and governmental inquiries related to our business; • being subject to E&O claims as well as other contingencies and legal proceedings; • our handling of client funds and surplus lines taxes that exposes us to complex fiduciary regulations; • the impact of infringement, misappropriation or dilution of our intellectual property; • the impact of the failure to protect our intellectual property rights, or allegations that we have infringed on the intellectual property rights of others; • changes in tax laws or regulations; • decreased commission revenues due to proposed tort reform legislation; • the impact of regulations affecting insurance carriers; Risks Related to Our Indebtedness 18 • our outstanding debt potentially adversely affecting our financial flexibility and subjecting us to restrictions and limitations that could significantly affect our ability to operate; • not being able to generate sufficient cash flow to service all of our indebtedness and being forced to take other actions to satisfy our obligations under such indebtedness; • being affected by further changes in the U.S. based credit markets; • changes in our credit ratings; Risks Related to Our Organizational Structure and our Class A Common Stock • risks related to the payments required by our Tax Receivable Agreement; and • risks relating to our organizational structure that could result in conflicts of interests between the LLC Unitholders, the Ryan Parties, and the holders of our Class A common stock; These and other risks are more fully described below.
We are at risk of attack by a growing list of adversaries through increasingly sophisticated methods of attack. Because the techniques used to infiltrate or sabotage systems change frequently, we may be unable to anticipate these techniques or implement adequate preventative measures. For example, in mid-April 2021, we became aware that the Company was the victim of a cyber-phishing event.
We are at risk of attack by a growing list of adversaries through increasingly sophisticated methods. Because the techniques used to infiltrate or sabotage systems change frequently, we may be unable to anticipate these techniques or implement adequate preventative measures. For example, in mid-April 2021, we became aware that the Company was the victim of a cyber-phishing event.
From time to time, either through acquisitions or internal development, we enter new distribution channels, lines of business or offer new products and services within existing lines of business. These new distribution channels, lines of business or new products and services present additional risks, particularly in instances where the markets are not fully developed.
From time to time, either through acquisitions or internal development, we enter new distribution channels or lines of business or offer new products and services within existing lines of business. These new distribution channels, lines of business, or new products and services present additional risks, particularly in instances where the markets are not fully developed.
We are exposed to various risks arising out of natural disasters, including earthquakes, hurricanes, fires, floods, landslides, tornadoes, typhoons, tsunamis, hailstorms, explosions, climate events or weather patterns and pandemic health events, as well as man-made disasters, including acts of terrorism, military actions, cyberterrorism, explosions and biological, chemical or radiological events.
We are exposed to various risks arising out of natural disasters, including earthquakes, hurricanes, fires, floods, landslides, tornadoes, typhoons, tsunamis, hailstorms, climate events or weather patterns and pandemic health events, as well as man-made disasters, including acts of terrorism, military actions, cyberterrorism, explosions and biological, chemical or radiological events.
Among other things: • our dual-class common stock structure provides our holders of Class B common stock with the ability to significantly influence the outcome of matters requiring stockholder approval; • these provisions allow us to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include supermajority voting, special approval, dividend, or other rights or preferences superior to the rights of stockholders; • these provisions provide for a classified board of directors with staggered three-year terms; • these provisions provide that, at any time when the Ryan Parties control, in the aggregate, less than 40% in voting power of our stock entitled to vote generally in the election of directors, directors may only be removed for cause, and only by the affirmative vote of holders of at least 66 2/3% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; • these provisions prohibit stockholder action by consent in lieu of a meeting from and after the date on which the Ryan Parties control, in the aggregate, less than 40% of the voting power of our stock entitled to vote generally in the election of directors; • these provisions provide that for as long as the Ryan Parties control, in the aggregate, less than 40% in voting power of all outstanding shares of our stock entitled to vote generally in the election of directors, any amendment, alteration, rescission or repeal of our bylaws or certain provisions of our certificate of incorporation by our stockholders requires the affirmative vote of the holders of at least 66 2/3% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; and 46 • these provisions establish advance notice requirements for nominations for elections to our Board or for proposing matters that can be acted upon by stockholders at stockholder meetings; provided, however, at any time when the Ryan Parties control, in the aggregate, at least 10% ownership of the outstanding Class B common stock, in the aggregate, such advance notice procedure does not apply to the Ryan Parties.
Among other things: • our dual-class common stock structure provides our holders of Class B common stock with the ability to significantly influence the outcome of matters requiring stockholder approval; • these provisions allow us to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include supermajority voting, special approval, dividend, or other rights or preferences superior to the rights of stockholders; • these provisions provide for a classified board of directors with staggered three-year terms; • these provisions provide that, at any time when the Ryan Parties control, in the aggregate, less than 40% in voting power of our stock entitled to vote generally in the election of directors, directors may only be removed for cause, and only by the affirmative vote of holders of at least 66 2/3% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; • these provisions prohibit stockholder action by consent in lieu of a meeting from and after the date on which the Ryan Parties control, in the aggregate, less than 40% of the voting power of our stock entitled to vote generally in the election of directors; • these provisions provide that for as long as the Ryan Parties control, in the aggregate, less than 40% in voting power of all outstanding shares of our stock entitled to vote generally in the election of directors, any amendment, alteration, rescission or repeal of our bylaws or certain provisions of our certificate of incorporation by our stockholders requires the affirmative vote of the holders of at least 66 2/3% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; and • these provisions establish advance notice requirements for nominations for elections to our Board or for proposing matters that can be acted upon by stockholders at stockholder meetings; provided, however, at any time when the Ryan Parties control, in the aggregate, at least 10% ownership of the outstanding Class B common stock, in the aggregate, such advance notice procedure does not apply to the Ryan Parties.
We believe our revenue growth depends on a number of factors, including, but not limited to, our ability to: • price our products effectively so that we are able to attract and retain clients without compromising our profitability; • attract new clients, successfully deploy and implement our products, obtain client renewals and provide our clients with excellent client support; • attract and retain talented Producers, managers, executives and other employees; • increase our network of insurer trading partners; • adequately expand, train, integrate and retain our wholesale brokers and underwriters and other new employees, and maintain or increase our sales force’s productivity; • enhance our information, training and communication systems to ensure that our employees are well coordinated and can effectively communicate with each other and clients; • improve our internal control over financial reporting and disclosure controls and procedures to ensure timely and accurate reporting of our operational and financial results; • successfully create new distribution channels; • successfully introduce new products and enhance existing products; • successfully introduce our products to new markets inside and outside of the United States; 26 • successfully compete against larger companies and new market entrants; and • increase awareness of our brand.
We believe our revenue growth depends on a number of factors, including, but not limited to, our ability to: • price our products effectively so that we are able to attract and retain clients without compromising our profitability; • attract new clients, successfully deploy and implement our products, obtain client renewals and provide our clients with excellent client support; • attract and retain talented Producers, managers, executives and other employees; • increase our network of insurer trading partners; • adequately expand, train, integrate and retain our wholesale brokers and underwriters and other new employees, and maintain or increase our sales force’s productivity; • enhance our information, training and communication systems to ensure that our employees are well coordinated and can effectively communicate with each other and clients; • improve our internal control over financial reporting and disclosure controls and procedures to ensure timely and accurate reporting of our operational and financial results; • successfully create new distribution channels; • successfully introduce new products and enhance existing products; • successfully introduce our products to new markets inside and outside of the United States; • successfully compete against larger companies and new market entrants; and • increase awareness of our brand.
For example, it could: • make it more difficult for us to satisfy our obligations with respect to our current and future indebtedness, including the Senior Secured Notes and the indebtedness governed by our Credit Agreement; • increase our vulnerability to adverse changes in prevailing economic, industry and competitive conditions, including recessions and periods of significant inflation, rising interest rate environments and financial market volatility; • require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, the execution of our business strategy and other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • increase our cost of borrowing; • restrict us from exploiting business opportunities; • place us at a disadvantage compared to our competitors that have fewer indebtedness obligations; and • limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, indebtedness service requirements, execution of our business strategy and other general corporate purposes.
For example, it could: • make it more difficult for us to satisfy our obligations with respect to our current and future indebtedness, including the Senior Secured Notes and the indebtedness governed by our Credit Agreement; • increase our vulnerability to adverse changes in prevailing economic, industry and competitive conditions, including recessions and periods of significant inflation, rising interest rate environments and financial market volatility; 39 • require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, the execution of our business strategy and other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • increase our cost of borrowing; • restrict us from exploiting business opportunities; • place us at a disadvantage compared to our competitors that have fewer indebtedness obligations; and • limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, indebtedness service requirements, execution of our business strategy and other general corporate purposes.
In particular, the agreements limit or prohibit our ability to, among other things: • incur additional debt and guarantees; • pay distributions or dividends and repurchase stock; • make other restricted payments, including, without limitation, certain restricted investments and certain repayments of other debt; • change the composition of our business; • create liens; • enter into agreements that restrict dividends from subsidiaries; • issue certain types of equity which have debt-like features • engage in transactions with affiliates; and 39 • enter into mergers, consolidations or sales of substantially all of our assets.
In particular, the agreements limit or prohibit our ability to, among other things: • incur additional debt and guarantees; • pay distributions or dividends and repurchase stock; • make other restricted payments, including, without limitation, certain restricted investments and certain repayments of other debt; • change the composition of our business; • create liens; • enter into agreements that restrict dividends from subsidiaries; • issue certain types of equity which have debt-like features • engage in transactions with affiliates; and • enter into mergers, consolidations or sales of substantially all of our assets.
While we manage some of our information technology systems and some are outsourced to third parties, all information technology systems are potentially vulnerable to damage, breakdown or interruption from a variety of sources, including but not limited to cyberattacks, ransomware, malware, security breaches, theft or misuse, unauthorized access or improper actions by insiders or employees, sophisticated nation-state and nation-state-supported actors, natural disasters, terrorism, war, telecommunication, and electrical failures or other compromise.
While we manage some of our information technology systems and some are outsourced to third parties, all information technology systems are potentially vulnerable to damage, breakdown or interruption from a variety of sources, including but not limited to cyberattacks, ransomware, malware, security breaches, theft or misuse, 19 unauthorized access or improper actions by insiders or employees, sophisticated nation-state and nation-state-supported actors, natural disasters, terrorism, war, telecommunication, and electrical failures or other compromise.
Should we experience a local or regional disaster or other business continuity problem, such as a security incident or attack, a natural disaster, climate event, terrorist attack, civil unrest, pandemic, power loss, telecommunications failure, or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel and office facilities, and the proper functioning of computer systems, telecommunications, and other related systems and operations.
Should we experience a local or regional disaster or other business continuity problem, such as a security incident or attack, a natural disaster, climate event, terrorist attack, civil unrest, pandemic, power loss, telecommunications failure, or other natural or man-made disaster, our continued success will depend, in part, on the availability of our 23 personnel and office facilities, and the proper functioning of computer systems, telecommunications, and other related systems and operations.
Given the current regulatory environment and the number of our subsidiaries operating in local markets throughout the country, it is possible that we will become subject to further governmental inquiries and subpoenas and have lawsuits filed against us. Regulators may raise issues during investigations, examinations or audits that could, if determined adversely, have a material impact on us.
Given the current regulatory environment and the number of our subsidiaries operating in local markets throughout the country, it is possible that we will become subject to further governmental inquiries and subpoenas and have lawsuits filed against us. Regulators may raise issues during investigations, 36 examinations or audits that could, if determined adversely, have a material impact on us.
If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and there could be a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.
If our efforts to 47 comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and there could be a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.
These practices include, without limitation, the receipt of supplemental and contingent commissions by insurance brokers and agents from insurance companies and the extent to which such compensation has been disclosed, the collection of broker 34 fees, which we define as fees separate from commissions charged directly to clients for efforts performed in the issuance of new insurance policies, bid rigging and related matters.
These practices include, without limitation, the receipt of supplemental and contingent commissions by insurance brokers and agents from insurance companies and the extent to which such compensation has been disclosed, the collection of broker fees, which we define as fees separate from commissions charged directly to clients for efforts performed in the issuance of new insurance policies, bid rigging and related matters.
These types of incidents affecting us, our clients or our third-party vendors could result in intellectual property or other confidential information being lost or stolen, including client, employee or company data. In addition, we may not be able to detect breaches in our information technology systems or assess the severity or impact of a breach in a timely manner.
These types of breaches affecting us, our clients or our third-party vendors could result in intellectual property or other confidential information being lost or stolen, including client, employee, or company data. In addition, we may not be able to detect breaches in our information technology systems or assess the severity or impact of a breach in a timely manner.
The continued threat of terrorism and ongoing military actions may cause significant volatility in global financial markets, and a natural or man-made disaster could trigger an economic downturn in the areas directly or indirectly affected by the disaster. These consequences could, among other things, result in a decline in business and increased claims from those areas.
The continued threat of terrorism and ongoing military actions may 32 cause significant volatility in global financial markets, and a natural or man-made disaster could trigger an economic downturn in the areas directly or indirectly affected by the disaster. These consequences could, among other things, result in a decline in business and increased claims from those areas.
While our Board may choose to distribute such cash balances as dividends on our Class A common stock, it will not be required to do so, and may in its sole discretion choose to use such excess cash for any other purpose depending upon the facts and circumstances at the time of determination.
While our Board may choose to distribute such cash balances as dividends on our Class A common stock, it will not be required to do so, and may in its sole discretion 45 choose to use such excess cash for any other purpose depending upon the facts and circumstances at the time of determination.
Our certificate of incorporation further provides that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and 47 consented to the provisions of our certificate of incorporation described above; however, our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
Our certificate of incorporation further provides that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the provisions of our certificate of incorporation described above; however, our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
Additionally, if we cannot offer new technologies as quickly as our competitors, if our competitors develop more cost-effective technologies, or if our ideas are not accepted in the marketplace, it could have a material adverse effect on our ability to obtain and complete client engagements. For example, we have invested significantly in The Connector.
Additionally, if we cannot offer new technologies as quickly as our competitors, if our competitors develop more cost-effective technologies, or if our ideas are not accepted in the marketplace, it could have a material adverse effect on our ability to obtain and complete client engagements. For example, we have invested significantly in RT Connector.
Under the LLC Operating Agreement, tax distributions shall be made on a pro rata basis among the LLC Unitholders and will be calculated without regard to any applicable basis adjustment from which we may benefit under Section 743(b) of the U.S. Internal Revenue Code of 1986, as amended (the "Code").
Under the LLC Operating Agreement, tax distributions shall be made on a pro rata basis among the LLC Unitholders and will be calculated without regard to any applicable basis adjustment from which we may benefit under Section 743(b) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”).
However, the LLC’s ability to make such distributions may be subject to various limitations and restrictions, such as restrictions on distributions that would violate either any contract or agreement to which the LLC or its 40 subsidiaries is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering the LLC or its subsidiaries insolvent.
However, the LLC’s ability to make such distributions may be subject to various limitations and restrictions, such as restrictions on distributions that would violate either any contract or agreement to which the LLC or its subsidiaries is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering the LLC or its subsidiaries insolvent.
Additionally, we are an acquisitive organization and the process of integrating the information systems of the businesses we acquire is complex and exposes us to additional risk as we might not adequately identify weaknesses in the targets’ information systems, which could expose us to unexpected liabilities or make our own systems more vulnerable to attack.
Additionally, we are an acquisitive organization and the process of integrating the information systems of the businesses we acquire is complex and exposes us to additional risk as we might not adequately identify weaknesses in an acquisition targets’ information systems, which could expose us to unexpected liabilities or make our own systems more vulnerable to attack.
We are subject to ongoing and periodic tax audits and disputes in U.S. federal and various state, local and foreign jurisdictions. An unfavorable outcome from any tax audit could result in higher tax costs, penalties and interest, thereby adversely affecting our financial condition or results of operations.
We are subject to ongoing and periodic tax audits and disputes in U.S. federal and various state, local and foreign jurisdictions. An unfavorable outcome from any tax audit could 38 result in higher tax costs, penalties and interest, thereby adversely affecting our financial condition or results of operations.
Successful challenges against us could require us to modify or discontinue our use of technology or business processes where such use is found to infringe or violate the rights of others, or require us to purchase 31 licenses from third parties, any of which could adversely affect our business, financial condition and operating results.
Successful challenges against us could require us to modify or discontinue our use of technology or business processes where such use is found to infringe or violate the rights of others, or require us to purchase licenses from third parties, any of which could adversely affect our business, financial condition and operating results.
Accruals for these exposures, when applicable, have been recorded to the extent that losses are deemed probable and are reasonably estimable. These accruals are adjusted from time to 35 time as developments warrant and may also be adversely affected by disputes we may have with our insurers over coverage.
Accruals for these exposures, when applicable, have been recorded to the extent that losses are deemed probable and are reasonably estimable. These accruals are adjusted from time to time as developments warrant and may also be adversely affected by disputes we may have with our insurers over coverage.
We confirmed that unauthorized access was gained to the email accounts of five of our employees. In response to this event, the Company took immediate action to secure the compromised email accounts and to prevent the unauthorized person(s) from continuing to have access, or gaining future access, to the Company’s accounts or 18 related information.
We confirmed that unauthorized access was gained to the email accounts of five of our employees. In response to this event, the Company took immediate action to secure the compromised email accounts and to prevent the unauthorized person(s) from continuing to have access, or gaining future access, to the Company’s accounts or related information.
Our offices are geographically dispersed across the United States, the United Kingdom, Canada and Europe, and we may not be able to respond quickly to operational or financial problems or promote the desired level of cooperation and interaction among our offices, which could harm our business and operating results.
Our offices are geographically dispersed across the United States, the United Kingdom, Canada, Europe, and Singapore, and we may not be able to respond quickly to operational or financial problems or promote the desired level of cooperation and interaction among our offices, which could harm our business and operating results.
We have also entered into the registration rights agreement pursuant to which we have agreed under certain circumstances to file a registration statement to register the resale of shares of our Class A commons stock held by the Ryan Parties, as well as to cooperate in certain public offerings of such shares.
We have also entered into the registration rights agreement 49 pursuant to which we have agreed under certain circumstances to file a registration statement to register the resale of shares of our Class A commons stock held by the Ryan Parties, as well as to cooperate in certain public offerings of such shares.
There can be no assurance that our tax payments, tax credits, or incentives will not be adversely affected by these or other initiatives. 36 Proposed tort reform legislation, if enacted, could decrease demand for casualty insurance, thereby reducing our commission revenues.
There can be no assurance that our tax payments, tax credits, or incentives will not be adversely affected by these or other initiatives. Proposed tort reform legislation, if enacted, could decrease demand for casualty insurance, thereby reducing our commission revenues.
In addition to the potential for retailers developing their own wholesale distribution channels or choosing to work with wholesale distributors other than us, retail brokers often might prefer to place business directly with insurance carriers, without the involvement of a wholesaler.
In addition to the potential for retail brokers developing their own wholesale distribution channels or choosing to work with wholesale distributors other than us, retail brokers often might prefer to place business directly with insurance carriers, without the involvement of a wholesaler.
The termination, amendment or consolidation of our relationships with our insurance carriers could harm our business, financial condition and results of operations. We depend, to a large extent, on our relationships with all of our trading partners and our reputation for high-quality advice and solutions.
The termination, 21 amendment or consolidation of our relationships with our insurance carriers could harm our business, financial condition and results of operations. We depend, to a large extent, on our relationships with all of our trading partners and our reputation for high-quality advice and solutions.
An increase in the number of insolvencies associated with an economic downturn, especially insolvencies in the insurance industry, could adversely affect our business through the loss of clients and insurance markets and by hampering our ability to place insurance business or by exposing us to E&O claims.
An increase in the number of insolvencies 24 associated with an economic downturn, especially insolvencies in the insurance industry, could adversely affect our business through the loss of clients and insurance markets and by hampering our ability to place insurance business or by exposing us to E&O claims.
We may not successfully accomplish any of these objectives and as a result, it is difficult for us to forecast our future results of operations. Our historical growth rate should not be considered indicative of our future performance and may decline in the future.
We may not successfully accomplish any of these objectives and as a result, it is difficult for us to forecast our future results of operations. Our historical growth rate should not be considered indicative of our future performance 29 and may decline in the future.
In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combination, or other changes of control.
In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain 44 mergers, asset sales, other forms of business combination, or other changes of control.
The success of our acquisition strategy is dependent upon our ability to identify appropriate acquisition targets, negotiate transactions on favorable terms, complete 27 transactions, have adequate access to financing and the ability to finance acquisitions on acceptable terms, and successfully integrate them into our existing businesses.
The success of our acquisition strategy is dependent upon our ability to identify appropriate acquisition targets, negotiate transactions on favorable terms, complete transactions, have adequate access to financing and the ability to finance acquisitions on acceptable terms, and successfully integrate them into our existing businesses.
As a result, the reinsurance business historically has been a cyclical industry characterized by periods of intense price 29 competition due to excess underwriting capacity as well as periods when shortages of capacity permitted improvements in reinsurance rate levels and terms and conditions.
As a result, the reinsurance business historically has been a cyclical industry characterized by periods of intense price competition due to excess underwriting capacity as well as periods when shortages of capacity permitted improvements in reinsurance rate levels and terms and conditions.
There is no assurance that our technological investments will properly 28 facilitate our operational needs, and any failure of technology and automated systems to function or perform as expected could harm our operations, business and financial condition.
There is no assurance that our technological investments will properly facilitate our operational needs, and any failure of technology and automated systems to function or perform as expected could harm our operations, business and financial condition.
The carrying value of these intangible assets is periodically reviewed by management to determine if there are events or changes in circumstances that would indicate that the carrying amount may not be recoverable.
The carrying value of these intangible assets is periodically reviewed by management to determine if there are events or changes in 28 circumstances that would indicate that the carrying amount may not be recoverable.
Our performance can be affected by global economic conditions as well as geopolitical tensions and other conditions with global reach. In recent years, concerns about the global economic outlook have adversely affected economic markets and business conditions in general.
Our performance can be affected by global economic conditions as well as geopolitical tensions and other circumstances with global reach. In recent years, concerns about the global economic outlook have adversely affected economic markets and business conditions in general.
Circumstances may arise in the future when the interests of the LLC Unitholders conflict with the interests of our stockholders. As we control the LLC, we have certain obligations to the LLC Unitholders that may conflict with fiduciary duties our officers and directors owe to our stockholders.
Circumstances may arise in the future when the interests of the LLC Unitholders conflict with the interests of our stockholders. As we control the LLC, we have 43 certain obligations to the LLC Unitholders that may conflict with fiduciary duties our officers and directors owe to our stockholders.
These individuals may not report negative developments that occur in their businesses to management on a timely basis because of, among other things, the potential damage to their reputation, the risk that they may lose all or some of their operational control, the risk that it could impair financial earnouts or incentive compensation, or the risk that they may be personally liable to us 30 under the indemnification provisions of the agreements pursuant to which their businesses were acquired.
These individuals may not report negative developments that occur in their businesses to management on a timely basis because of, among other things, the potential damage to their reputation, the risk that they may lose all or some of their operational control, the risk that it could impair financial earnouts or incentive compensation, or the risk that they may be personally liable to us 33 under the indemnification provisions of the agreements pursuant to which their businesses were acquired.
Our international operations expose us to various international risks that could adversely affect our business. Our operations are conducted in numerous countries including the United States, United Kingdom, Canada and Europe.
Our international operations expose us to various international risks that could adversely affect our business. Our operations are conducted in numerous countries including the United States, the United Kingdom, Canada, Europe, and Singapore.
As of December 31, 2022, our E&O insurance policy tower has a $100.0 million limit per occurrence and in the aggregate, and we are responsible for paying a self-insured retention of up to $2.5 million per claim. If we exhaust or materially deplete our coverage under our E&O policy, it could have a significant adverse financial impact.
As of December 31, 2023, our E&O insurance policy tower has a $100.0 million limit per occurrence and in the aggregate, and we are responsible for paying a self-insured retention of up to $2.5 million per claim. If we exhaust or materially deplete our coverage under our E&O policy, it could have a significant adverse financial impact.
As of December 31, 2022, we had, on a consolidated basis, $2,013 million aggregate principal amount of outstanding indebtedness, including $400.0 million related to the Senior Secured Notes and $1,613 million of borrowings under our Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”) and no borrowings under our Revolving Credit Facility.
As of December 31, 2023, we had, on a consolidated basis, $2,013 million aggregate principal amount of outstanding indebtedness, including $400.0 million related to the Senior Secured Notes and $1,613 million of borrowings under our Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”) and no borrowings under our Revolving Credit Facility.
Any such incident or misuse of data could harm our reputation, lead to legal exposure, divert management attention and resources, increase our operating expenses due to the employment of consultants and third-party experts and the purchase of additional security infrastructure, and/or subject us to liability, resulting in increased costs and loss of revenue.
Any such breach or misuse of data could harm our reputation, lead to legal exposure, divert management attention and resources, increase our operating expenses due to the employment of consultants and third-party experts and the purchase of additional security infrastructure, and/or subject us to liability, resulting in increased costs and loss of revenue.
Such estimates and assumptions could change in the future as more information becomes available, which could impact the amounts reported and disclosed. We completed our most recent evaluation of impairment for goodwill as of October 1, 2022, and determined that the fair value of goodwill is not less than its carrying value.
Such estimates and assumptions could change in the future as more information becomes available, which could impact the amounts reported and disclosed. We completed our most recent evaluation of impairment for goodwill as of October 1, 2023, and determined that the fair value of goodwill is not less than its carrying value.
Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we determine, which tax reporting positions will be based on the 41 advice of our tax advisors.
Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we determine, which tax reporting positions will be based on the advice of our tax advisors.
As of December 31, 2022, a significant number of Class A common stock (or LLC Common Units exchangeable for Class A common stock) were held by certain of our pre-IPO equity holders which are not otherwise, or are no longer, subject to either vesting or other sales restrictions imposed by the Company.
As of December 31, 2023, a significant number of Class A common stock (or LLC Common Units exchangeable for Class A common stock) were held by certain of our pre-IPO equity holders which are not otherwise, or are no longer, subject to either vesting or other sales restrictions imposed by the Company.
Our business could also be harmed if we fail to develop new relationships with retailers or other sources of business. Historically, wholesale brokers and other wholesale distributors have been involved in a very high percentage of risks placed in the E&S market.
Our business could also be harmed if we fail to develop relationships with new retail brokers or other sources of business. Historically, wholesale brokers and other wholesale distributors have been involved in a very high percentage of risks placed in the E&S market.
In addition, it is possible that state regulators may initiate investigations of the Company in connection with the incident, that the Company could be subject to civil penalties, resolution agreements, monitoring or similar agreements, or third-party claims against the Company, including class-action lawsuits.
In addition, it is possible that state regulators may initiate investigations of the Company in connection with the breach, that the Company could be subject to civil penalties, resolution agreements, monitoring or similar agreements, or third-party claims against the Company, including class-action lawsuits.
Should our dependence on a smaller number of insurance carriers, retailers or other trading partners increase, whether as a result of the termination of relationships, consolidation or otherwise, we may become more vulnerable to adverse changes in our relationships with these counterparties, particularly in states where we offer insurance products from a relatively small number of insurance carriers or where a small number of insurance companies or retailers dominate a geographic area, lines of business or market segment.
Should our dependence on a smaller number of insurance carriers, retail brokers or other trading partners increase, whether as a result of the termination of relationships, consolidation or otherwise, we may become more vulnerable to adverse changes in our relationships with these counterparties, particularly in states where we offer insurance products from a relatively small number of insurance carriers or where a small number of insurance companies or retail brokers dominate a geographic area, lines of business or market segment.
We will also consider qualitative and quantitative developments between the date of the goodwill impairment review, October 1 and December 31 to determine if an impairment may be present. No impairments were recorded for the years ended December 31, 2022 and 2021.
We will also consider qualitative and quantitative developments between the date of the goodwill impairment review, October 1 and December 31 to determine if an impairment may be present. No impairments were recorded for the years ended December 31, 2023 and 2022.
Any impairment identified through this assessment may require that the carrying value of related amortizable intangible assets be adjusted; however, no impairments were recorded for the years ended December 31, 2022 and 2021.
Any impairment identified through this assessment may require that the carrying value of related amortizable intangible assets be adjusted; however, no impairments were recorded for the years ended December 31, 2023 and 2022.
Our business could also be harmed if we fail to develop new insurance carrier relationships. Similarly, retailers and other trading partners could develop their own wholesale distribution channels or choose to work with wholesale distributors other than us. This could reduce the number of submissions we receive which could result in reduced commissions.
Our business could also be harmed if we fail to develop new insurance carrier relationships. Similarly, retail brokers and other trading partners could develop their own wholesale distribution channels or choose to work with wholesale distributors other than us. This could reduce the number of submissions we receive which could result in reduced commissions.
However, we cannot be assured that we will not be affected by industry consolidation that occurs in the future, particularly if any of our significant retail insurance brokerage clients are acquired by retail insurance brokers with their own wholesale insurance brokerage operations or preferred relationships with wholesalers other than Ryan Specialty.
However, we cannot be assured that we will not be affected by industry consolidation or specialty expansion at the retail level that occurs in the future, particularly if any of our significant retail insurance brokerage clients are acquired by retail insurance brokers with their own wholesale insurance brokerage operations or preferred relationships with wholesalers other than Ryan Specialty.
This includes potential changes in tax laws or the interpretation of tax laws arising out of the Base Erosion Profit Shifting project (“BEPS”) initiated by the Organization for Economic Co-operation and Development (OECD”).
This includes potential changes in tax laws or the interpretation of tax laws arising out of the Base Erosion Profit Shifting project (“BEPS”) initiated by the Organization for Economic Co-operation and Development (“OECD”).
Our business strategy includes plans to continue to make acquisitions and we face risks associated with the evaluation of potential acquisitions and the integration of acquired businesses as well as introduction of new products, lines of business and markets.
Our business strategy includes plans to continue to make acquisitions and we face risks associated with the evaluation of potential acquisitions, the integration of acquired businesses, and the introduction of new products, lines of business, and markets.
Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation. 49 Item 1B. Unresolv ed Staff Comments None.
Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation. 51 Item 1B. Unresolv ed Staff Comments None.
Our Underwriting Management Specialty generated 20.5% and 20.3% of our consolidated total net commissions and fees for the years ended December 31, 2022 and 2021, respectively. Our MGA and MGU programs are governed by contracts between us and the insurance carriers.
Our Underwriting Management Specialty generated 21.3% and 20.5% of our consolidated total net commissions and fees for the years ended December 31, 2023 and 2022, respectively. Our MGA and MGU programs are governed by contracts between us and the insurance carriers.
In the future, we may have a reduced number of insurance carriers or retailers with which we trade or derive a greater portion of our commissions and fees from a more concentrated number of insurance carriers, retailers or other trading partners as our business and the insurance industry evolve.
In the future, we may have a reduced number of insurance carriers or retail brokers with which we trade or derive a greater portion of our commissions and fees from a more concentrated number of insurance carriers, retail brokers or other trading partners as our business and the insurance industry evolve.
In addition, for so long as the Ryan Parties hold the 44 nomination rights specified in (i) through (v), the Ryan Parties have the right to nominate the chairman of the Board. The Director Nomination Agreement also provides that the Ryan Parties and Onex may assign such rights to an affiliate.
In addition, for so long as the Ryan Parties hold the nomination rights specified in (i) through (v), the Ryan Parties have the right to nominate the chairman of the Board. The Director Nomination Agreement also provides that the Ryan Parties may assign such rights to an affiliate.
As of December 31, 2022, we had $1.3 billion of goodwill recorded on our Consolidated Balance Sheets. We perform a goodwill impairment test on an annual basis and whenever events or changes in circumstances indicate that the carrying value of our goodwill may not be recoverable from estimated future cash flows.
As of December 31, 2023, we had $1.6 billion of goodwill recorded on our Consolidated Balance Sheets. We perform a goodwill impairment test on an annual basis and whenever events or changes in circumstances indicate that the carrying value of our goodwill may not be recoverable from estimated future cash flows.
Our operating results and the trading price of our Class A common stock may fluctuate in response to various factors, including: • market conditions in our industry or the broader stock market; • actual or anticipated fluctuations in our quarterly financial and operating results; • introduction of new products or services by us or our competitors; • issuance of new or changed securities analysts’ reports or recommendations; • sales, or anticipated sales, of large blocks of our stock; • additions or departures of key personnel; • regulatory or political developments; • litigation and governmental investigations; • changing economic conditions; • investors’ perception of us; • events beyond our control such as weather, war and health crises; and • any default on our indebtedness.
Our operating results and the trading price of our Class A common stock may fluctuate in response to various factors, including: • market conditions in our industry or the broader stock market; • actual or anticipated fluctuations in our quarterly financial and operating results; • introduction of new products or services by us or our competitors; • issuance of new or changed securities analysts’ reports or recommendations; • sales, or anticipated sales, of large blocks of our stock; • additions or departures of key personnel; • regulatory or political developments; • litigation and governmental investigations; 50 • changing economic conditions (including inflationary pressures and any related interest rate volatility); • investors’ perception of us; • events beyond our control such as weather, war and health crises; and • any default on our indebtedness.
Due to the uncertainty of various factors, we cannot precisely quantify the likely tax benefits we will realize as a result of the LLC Common Unit exchanges and the resulting amounts we are likely to pay out to the current or certain former LLC Unitholders, collectively, pursuant to the Tax Receivable Agreement; however, as of December 31, 2022, the Company has recorded Tax Receivable Agreement liabilities in the Consolidated Balance Sheets for the amount of $295.3 million associated with the payments to be made to current and certain former LLC Unit holders subject to the TRA.
Due to the uncertainty of various factors, we cannot precisely quantify the likely tax benefits we will realize as a result of the LLC Common Unit exchanges and the resulting amounts we are likely to pay out to the current or certain former LLC Unitholders, collectively, pursuant to the Tax Receivable Agreement; however, as of December 31, 2023, the Company has recorded Tax Receivable Agreement liabilities in the Consolidated Balance Sheets for the amount of $358.9 million associated with the payments to be made to current and certain former LLC Unit holders subject to the TRA.
Due to the uncertainty of various factors, we cannot precisely quantify the likely tax benefits we may realize as a result of the Organizational Transactions, and the resulting amounts we are likely to pay out to current and certain former LLC Unitholders pursuant to the Tax Receivable Agreement; however, as of December 31, 2022, the Company has recorded Tax Receivable Agreement liabilities in the Consolidated Balance Sheets for the amount of $295.3 million associated with the payments to be made to current and certain former LLC Unitholders subject to the Tax Receivable Agreement.
Due to the uncertainty of various factors, we cannot precisely quantify the likely tax benefits we may realize as a result of the Organizational Transactions, and the resulting amounts we are likely to pay out to current and certain former LLC Unitholders pursuant to the Tax Receivable Agreement; however, as of December 31, 2023, the Company has recorded Tax Receivable Agreement liabilities in the Consolidated Balance Sheets for the amount of $358.9 million associated with the payments to be made to current and certain former LLC Unitholders subject to the Tax Receivable Agreement.
We cannot assure you that the financial statements or records of companies or assets we have acquired or may acquire would not, or will not, be materially different if such statements were independently reviewed or audited.
We cannot be certain that the financial statements or records of companies or assets we have acquired or may acquire would not, or will not, be materially different if such statements were independently reviewed or audited.
As of December 31, 2022, the Ryan Parties, which include our founder, chairman and chief executive officer, control approximately 72% of the voting power of our outstanding capital stock, which means that, based on their percentage voting power the Ryan Parties control the vote of all matters submitted to a vote of our stockholders.
As of December 31, 2023, the Ryan Parties, which include our founder, chairman and chief executive officer, control approximately 74% of the voting power of our outstanding capital stock, which means that, based on their percentage voting power the Ryan Parties control the vote of all matters submitted to a vote of our stockholders.
Our business typically enters into contractual relationships with insurance carriers, retailers and other clients or trading partners that are sometimes unique to us, but nonexclusive and terminable on short notice by either party for any reason. In many cases, insurance carriers also have the ability to amend the terms of our agreements unilaterally on short notice.
Our business typically enters into contractual relationships with insurance carriers, retail brokers and other trading partners that are sometimes unique to us, but nonexclusive and terminable on short notice by either party for any reason. In many cases, insurance carriers also have the ability to amend the terms of our agreements unilaterally on short notice.
This provision would not apply to any action or proceeding asserting a claim under the Securities Act of 1933 or the Exchange Act of 1934 for which the federal courts have exclusive jurisdiction or any other claim for which the federal courts have exclusive jurisdiction.
This provision would not apply to any action or proceeding asserting a claim under the Securities Act or the Exchange Act for which the federal courts have exclusive jurisdiction or any other claim for which the federal courts have exclusive jurisdiction.
If we are not able to continue to provide high levels of client service, our reputation, as well as our business, results of operations and financial condition, could be adversely affected. We may lose clients or business as a result of consolidation within the retail insurance brokerage industry.
If we are not able to continue to provide high levels of client service, our reputation, as well as our business, results of operations and financial condition, could be adversely affected. We may lose clients or business as a result of consolidation within, or the expansion of specialty services provided by, the retail insurance brokerage industry.
At December 31, 2022, we had 94 offices across the United States, the United Kingdom, Canada and Europe. Some of these offices are under the day-to-day management of individuals who previously owned acquired businesses or played a key role in the development of an office.
At December 31, 2023, we had 110 offices across the United States, the United Kingdom, Canada, Europe, and Singapore. Some of these offices are under the day-to-day management of individuals who previously owned acquired businesses or played a key role in the development of an office.
Outcomes from these audits could have an adverse effect on our operating results and financial condition. 43 If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.
If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.
In addition to data protection laws, countries and states in the United States are enacting cybersecurity laws and regulations. For example, the New York State Department of Financial Services 33 issued in 2017 cybersecurity regulations which imposed an array of detailed security measures on covered entities.
In addition to data protection laws, certain countries and U.S. states are enacting cybersecurity laws and regulations. For example, in 2017 the New York State Department of Financial Services issued cybersecurity regulations which imposed an array of detailed security measures on covered entities.
The three largest insurance carriers (excluding Lloyd’s syndicates) with which we place business represented an aggregate of 15.3% and 15.4% of our revenues for the years ended December 31, 2022 and 2021, respectively. The three largest retailers with which we place business represented 19.4% and 19.6% of our revenues for the years ended December 31, 2022 and 2021, respectively.
The three largest insurance carriers (excluding Lloyd’s syndicates) with which we place business represented an aggregate of 15.3% and 15.4% of our revenues for the years ended December 31, 2023 and 2022, respectively. The three largest retail brokers with which we place business represented 19.4% and 19.6% of our revenues for the years ended December 31, 2023 and 2022, respectively.
We cannot assure you that these individuals will cooperate with our efforts to improve the operating results in offices for which they are not directly responsible. Our dispersed operations may impede our integration efforts and organic growth, which could harm our business and operating results. Infringement, misappropriation or dilution of our intellectual property could harm our business.
We cannot assure you that these individuals will cooperate with our efforts to improve the operating results in offices for which they are not directly responsible. Our dispersed operations may impede our integration efforts and organic growth, which could harm our business and operating results.
For additional discussion, see “ Note 2—Summary of Significant Accounting Policies ” and “ Note 7—Goodwill and Other Intangible Assets ” to the consolidated financial statements included elsewhere in this Annual Report. 25 As of December 31, 2022, we had $486.4 million of amortizable intangible assets, primarily consisting of customer relationship intangibles acquired in connection with the All Risks Acquisition.
For additional discussion, see “ Note 2—Summary of Significant Accounting Policies ” and “ Note 7—Goodwill and Other Intangible Assets ” in the footnotes to the consolidated financial statements in this Annual Report. As of December 31, 2023, we had $610.7 million. of amortizable intangible assets, primarily consisting of customer relationship intangibles acquired in connection with the All Risks Acquisition.
Moreover, future incidents of this nature that could occur with respect to our systems or the systems of our third-party service providers, as well as any other security incident or other misuse or disclosure of our participant or other data could lead to improper use or disclosure of Company information, including personally identifiable information obtained from our participants, and information from employees.
Moreover, future incidents could occur with respect to our systems or the systems of our third-party service providers, as well as any other data breaches or other misuse or disclosure of our participant or other data, could lead to improper use or disclosure of Company information, including personally identifiable information or protected health information obtained from our participants, and information from employees.
Maintaining, protecting and enhancing the Ryan Specialty brand is critical to growing our business, particularly in new markets where we have limited brand recognition. If we do not successfully build and maintain a strong brand, our business could be materially harmed.
We have developed a strong brand that we believe has contributed significantly to the success of our business. Maintaining, protecting and enhancing the Ryan Specialty brand is critical to growing our business, particularly in new markets where we have limited brand recognition. If we do not successfully build and maintain a strong brand, our business could be materially harmed.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not prohibited by the terms of the Senior Secured Notes or the Credit Agreement could have the effect of exacerbating the risks associated with our substantial indebtedness or diminishing our ability to make payments on our debt when due, and may also require us to dedicate a substantial portion of our cash flow from operations to payments on our other indebtedness, which would reduce the availability of cash flow to fund our operations, working capital and capital expenditures.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not prohibited by the terms of the Senior Secured Notes or the Credit Agreement could have the effect of exacerbating the risks associated with our substantial indebtedness or diminishing our ability to make payments on our debt when due, and may also require us to dedicate a substantial portion of our cash flow from operations to payments on our other indebtedness, which would reduce the availability of cash flow to fund our operations, working capital and capital expenditures. 40 We may not be able to generate sufficient cash flow to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful.
In addition, we entered into a Director Nomination Agreement with the Ryan Parties and Onex that provides the Ryan Parties the right to designate (in each instance, rounded up to the nearest whole number if necessary): (i) all of the nominees (with the exception of the nominee of Onex, if applicable) for election to our Board for so long as the Ryan Parties control, in the aggregate, 50% or more of the total number of shares of our common stock beneficially owned by the Ryan Parties upon completion of our IPO, as adjusted for any reorganization, recapitalization, stock dividend, stock split, reverse stock split or similar changes in our capitalization (the “ Original Amount ”); (ii) 50% of the nominees for election to our Board for so long as the Ryan Parties control, in the aggregate, more than 40%, but less than 50% of the Original Amount; (iii) 40% of the nominees for election to our Board for so long as the Ryan Parties control, in the aggregate, more than 30%, but less than 40% of the Original Amount; (iv) 30% of the nominees for election to our Board for so long as the Ryan Parties control, in the aggregate, more than 20%, but less than 30% of the Original Amount; and (v) 20% of the nominees for election to our Board for so long as the Ryan Parties control, in the aggregate, more than 10%, but less than 20% of the Original Amount, which could result in representation on our Board that is disproportionate to the Ryan Parties’ beneficial ownership.
The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of Class A common stock as part of a sale of the Company and ultimately might affect the market price of our Class A common stock. 46 In addition, we entered into a Director Nomination Agreement with the Ryan Parties and Onex that provides the Ryan Parties the right to designate (in each instance, rounded up to the nearest whole number if necessary): (i) all of the nominees for election to our Board for so long as the Ryan Parties control, in the aggregate, 50% or more of the total number of shares of our common stock beneficially owned by the Ryan Parties upon completion of our IPO, as adjusted for any reorganization, recapitalization, stock dividend, stock split, reverse stock split or similar changes in our capitalization (the “ Original Amount ”); (ii) 50% of the nominees for election to our Board for so long as the Ryan Parties control, in the aggregate, more than 40%, but less than 50% of the Original Amount; (iii) 40% of the nominees for election to our Board for so long as the Ryan Parties control, in the aggregate, more than 30%, but less than 40% of the Original Amount; (iv) 30% of the nominees for election to our Board for so long as the Ryan Parties control, in the aggregate, more than 20%, but less than 30% of the Original Amount; and (v) 20% of the nominees for election to our Board for so long as the Ryan Parties control, in the aggregate, more than 10%, but less than 20% of the Original Amount, which could result in representation on our Board that is disproportionate to the Ryan Parties’ beneficial ownership.
An interruption in or the cessation of service by any service provider as a result of systems failures, cybersecurity incidents, capacity constraints, financial difficulties, or for any other reason could disrupt our operations, impact our ability to offer certain products and services, and result in contractual or regulatory penalties, liability claims from clients or employees, damage to our reputation, and harm to our business. 22 We may be negatively affected by the cyclicality of and the economic conditions in the markets in which we operate.
An interruption in or the cessation of service by any service provider as a result of systems failures, cybersecurity incidents, capacity constraints, financial difficulties, or for any other reason could disrupt our operations, impact our ability to offer certain products and services, and result in contractual or regulatory penalties, liability claims from clients or employees, damage to our reputation, and harm to our business.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOn December 22, 2022, we entered into a new lease for space in the city containing approximately 40,000 square feet and plan to move into the space prior to year-end. This new lease incorporates our remote work flexibility into our post-pandemic operating model and we will continue to look at all of our offices to maximize size and efficiency.
Biggest changeItem 2. Pro perties Our corporate headquarters are in Chicago, Illinois, where we currently lease just over 40,000 square feet of office space under a newly leased space that incorporates our remote work flexibility into our post-pandemic operating model and we will continue to look at all of our offices to maximize size and efficiency.
We have additional office locations in 28 U.S. states as well as in Canada, the United Kingdom, and Europe where we lease a total of approximately 1,084,000 square feet. We believe that our facilities are adequate for our current needs.
We have additional office locations in 32 U.S. states as well as in Canada, the United Kingdom, Europe, and Singapore where, as of December 31, 2023, we lease a total of approximately 985,000 square feet. We believe that our facilities are adequate for our current needs.
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Item 2. Pro perties Our corporate headquarters are in Chicago, Illinois, where we currently lease 56,250 square feet of office space under a lease that we have elected to terminate as of December 31, 2023.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFor further information, please see “ Note 18, Commitments and Contingencies” in Part II, Item 8 of this Annual Report. Item 4. Mine S afety Disclosure Not applicable. 50 PA RT II
Biggest changeFor further information, please see “ Note 16, Commitments and Contingencies ” in the footnotes to the consolidated financial statements in this Annual Report. Item 4. Mine S afety Disclosure Not applicable. 54 PA RT II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeWhile our Board may choose to distribute such cash balances as dividends on our Class A common stock (subject to the limitations set forth in the preceding paragraph), it will not be required (and does not currently intend) to do so and may in its sole discretion choose to use such excess cash for any purpose depending upon the facts and circumstances at the time of determination.
Biggest changeWhile the Board has chosen to initiate a regular $0.11 cash dividend per share of Class A common stock in the first quarter of 2024, it is not required to do so and may in the future, in its sole discretion, choose to use such excess cash for any other purpose depending upon the facts and circumstances at the time of determination.
Item 5. Market for Registrant’s Comm on Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our shares of Class A common stock, $0.001 par value per share, are traded on the NYSE under the trading symbol RYAN. Our Class B common stock is not listed nor traded on any stock exchange.
Item 5. Market for Registrant’s Comm on Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our shares of Class A common stock, $0.001 par value per share, are traded on the New York Stock Exchange under the trading symbol RYAN. Our Class B common stock is not listed nor traded on any stock exchange.
Stock Performance Graph The following graph illustrate the total return from July 22, 2021, the first trading date of our Class A common stock after our IPO, through December 31, 2022 for (i) our Class A common stock, (ii) the Standard and Poor's 500 51 Index, and (iii) the Standard and Poor's 500 Financials Sector Index, assuming an investment of $100 on July 22, 2021, including the reinvestment of dividends: Ite m 6. [Reserved] 52
Stock Performance Graph The following graph illustrates the total return from July 22, 2021, the first trading date of our Class A common stock after our IPO, through December 31, 2023 for (i) our Class A common stock, (ii) the Standard and Poor's 500 55 Index, and (iii) the Standard and Poor’s 500 Financials Sector Index, assuming an investment of $100 on July 22, 2021, including the reinvestment of dividends: Ite m 6. [Reserved] 56
On February 27, 2023 we had approximately 293 stockholders of record of our Class A common stock and 77 stockholders of record of our Class B common stock.
On February 26, 2024 we had approximately 170 stockholders of record of our Class A common stock and 77 stockholders of record of our Class B common stock. Dividend Policy Prior to 2024, we had never declared or paid any cash dividend on our Class A common stock.
Removed
Dividend Policy We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness and, therefore, we do not anticipate paying any cash dividends in the foreseeable future.
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On February 27, 2024, our Board declared a one-time special cash dividend of $0.23 per share on our outstanding Class A common stock. In addition, the Board initiated a regular quarterly dividend of $0.11 per share on our outstanding Class A common stock.
Removed
On December 20, 2022, Ryan Specialty Holdings, Inc., issued 18,953 shares of Class A Common Stock in a private placement transaction to a former employee in connection with the settlement of pending litigation in reliance on 4(a)(2).
Added
Both the special and regular quarterly dividend will be payable on March 27, 2024 to stockholders of record as of the close of business on March 13, 2024. We intend to pay the regular $0.11 cash dividend per share of Class A common stock on a quarterly basis going forward.
Added
The payment of future cash dividends is subject to future declaration by our Board, which will be based in part on continued capital availability, market conditions, applicable laws and agreements, and our Board continuing to determine that the declaration of dividends is in the best interests of our stockholders.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeGAAP Plus: Net income (loss) attributable to the LLC before the Organizational Transactions Plus: Impact of all LLC Common Units exchanged for Class A shares (1) Plus: Adjustments to Adjusted net income (2) Plus: Dilutive impact of unvested equity awards (3) Adjusted diluted earnings per share Numerator: Net income (loss) attributable to Class A common shareholders- diluted $ (7,064 ) $ 72,937 $ (9,241 ) $ 233,485 $ — $ 290,117 Denominator: Weighted-average shares of Class A common stock outstanding- diluted 105,730 — 142,968 — 19,313 268,011 Net income (loss) per share of Class A common stock- diluted $ (0.07 ) $ 0.69 $ (0.40 ) $ 0.94 $ (0.08 ) $ 1.08 (1) For comparability purposes, this calculation incorporates the Net income (loss) and weighted average shares of Class A common stock that would be outstanding if all LLC Common Units (together with shares of Class B common stock) were exchanged for shares of Class A common stock and the non-controlling interest in Ryan Re for the period of time prior to March 31, 2021 when we did not own 100% of the business.
Biggest changeThe most directly comparable GAAP financial metric is Diluted earnings (loss) per share. 73 A reconciliation of Adjusted diluted earnings per share to Diluted earnings (loss) per share, the most directly comparable GAAP measure, for each of the periods indicated is as follows: Year Ended December 31, 2023 2022 2021 Earnings (loss) per share of Class A common stock – diluted $ 0.52 $ 0.52 $ (0.07 ) Plus: Net income attributable to the LLC before the Organizational Transactions (1) — — 0.69 Less: Net income attributed to dilutive shares and substantively vested RSUs (2) (0.03 ) (0.29 ) — Plus: Impact of all LLC Common Units exchanged for Class A shares (3) 0.24 0.38 (0.40 ) Plus: Adjustments to Adjusted net income (4) 0.67 0.56 0.94 Plus: Dilutive impact of unvested equity awards (5) (0.02 ) (0.02 ) (0.08 ) Adjusted diluted earnings per share $ 1.38 $ 1.15 $ 1.08 (Share count in '000s) Weighted-average shares of Class A common stock outstanding – diluted 125,745 265,750 105,730 Plus: Impact of all LLC Common Units exchanged for Class A shares (3) 142,384 — 142,968 Plus: Dilutive impact of unvested equity awards (5) 4,137 4,731 19,313 Adjusted diluted earnings per share diluted share count 272,266 270,481 268,011 (1) Adjustment includes $72.9 million of Net income attributable to the LLC before the Organizational Transactions on 105.7 million shares.
Year Ended December 31, Period over Period (in thousands, except percentages) 2022 % of total 2021 % of total Change Wholesale Brokerage $ 1,129,241 66.0 % $ 931,979 65.1 % $ 197,262 21.2 % Binding Authority 231,048 13.5 209,622 14.6 21,426 10.2 Underwriting Management 351,572 20.5 290,578 20.3 60,994 21.0 Total Net commissions and fees $ 1,711,861 $ 1,432,179 $ 279,682 19.5 % Wholesale Brokerage net commissions and fees increased by $197.3 million, or 21.2%, period-over-period, primarily due to strong organic growth within the Specialty as well as contributions from the Crouse and Centurion acquisitions.
Year Ended December 31, Period over Period (in thousands, except percentages) 2022 % of total 2021 % of total Change Wholesale Brokerage $ 1,129,241 66.0 % $ 931,979 65.1 % $ 197,262 21.2 % Binding Authority 231,048 13.5 209,622 14.6 21,426 10.2 Underwriting Management 351,572 20.5 290,578 20.3 60,994 21.0 Total Net commissions and fees $ 1,711,861 $ 1,432,179 $ 279,682 19.5 % 66 Wholesale Brokerage net commissions and fees increased by $197.3 million, or 21.2%, period-over-period, primarily due to strong organic growth within the Specialty as well as contributions from the Crouse and Centurion acquisitions.
The main drivers of this growth continue to be the acquisition of new business and expansion of ongoing client relationships in response to the increasing demand for new, complex E&S products as well as the inflow of risks from the Admitted market into the E&S market. In aggregate, we experienced stable commission rates period over period.
The main drivers of this growth continue to be the acquisition of new business and expansion of ongoing client relationships in response to the increasing demand for new, complex E&S products as well as the inflow of risks from the Admitted market into the E&S market. In aggregate, we experienced stable commission rates period over period.
Our ability to successfully pursue strategic acquisitions is dependent upon a number of factors, including sustained execution of a disciplined and selective acquisition strategy which requires acquisition targets to have a cultural and strategic fit, competition for these assets, purchase price multiples that we deem appropriate and our ability to effectively integrate targeted companies or assets and grow our business.
Our ability to successfully pursue strategic acquisitions is dependent upon a number of factors, including sustained execution of a 58 disciplined and selective acquisition strategy which requires acquisition targets to have a cultural and strategic fit, competition for these assets, purchase price multiples that we deem appropriate and our ability to effectively integrate targeted companies or assets and grow our business.
Our future success is dependent upon a number of factors, including on our ability to successfully develop, market, and sell existing and new products and services to both new and existing trading partners. Generate Commission Regardless of the State of the E&S Market We earn commissions, which are calculated as a percentage of the total insurance policy premium, and fees.
Our future success is dependent upon a number of factors, including our ability to successfully develop, market, and sell existing and new products and services to both new and existing trading partners. Generate Commission Regardless of the State of the E&S Market We earn commissions, which are calculated as a percentage of the total insurance policy premium, and fees.
Adjusted Net Income and Adjusted Net Income Margin We define Adjusted net income as tax-effected earnings before amortization and certain items of income and expense, gains and losses, equity-based compensation, acquisition related long-term incentive compensation, acquisition-related expenses, costs associated with the IPO, and certain exceptional or non-recurring items. The most 70 comparable GAAP financial metric is Net income.
Adjusted Net Income and Adjusted Net Income Margin We define Adjusted net income as tax-effected earnings before amortization and certain items of income and expense, gains and losses, equity-based compensation, acquisition related long-term incentive compensation, acquisition-related expenses, costs associated with the IPO, and certain exceptional or non-recurring items. The most comparable GAAP financial metric is Net income.
We also receive loss mitigation and other fees, some of which are not dependent on the placement of a risk. 58 In our Wholesale Brokerage and Binding Authority Specialties, we generally work with retail insurance brokers to secure insurance coverage for their clients, who are the ultimate insured party.
We also receive loss mitigation and other fees, some of which are not dependent on the placement of a risk. In our Wholesale Brokerage and Binding Authority Specialties, we generally work with retail insurance brokers to secure insurance coverage for their clients, who are the ultimate insured party.
Our ability to deepen and broaden relationships with our retail broker trading partners and increase sales is dependent upon a number of factors, including client satisfaction with our distribution reach and our product capabilities, retail brokers 54 continuing to require or desire our services, competition, pricing, economic conditions, and spending on our product offerings.
Our ability to deepen and broaden relationships with our retail broker trading partners and increase sales is dependent upon a number of factors, including client satisfaction with our distribution reach and our product capabilities, retail brokers continuing to require or desire our services, competition, pricing, economic conditions, and spending on our product offerings.
While we believe that the estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate was made. 78 Refer to “ Note 2, Summary of Significant Accounting Policies” in the consolidated financial statements in this Annual Report for further information on the critical accounting estimates and policies.
While we believe that the estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate was made. Refer to “ Note 2, Summary of Significant Accounting Policies” in the consolidated financial statements in this Annual Report for further information on the critical accounting estimates and policies.
The following table sets forth our revenue by type of commission and fees: Year Ended December 31, Period over Period (in thousands, except percentages) 2022 % of total 2021 % of total Change Net commissions and policy fees $ 1,633,325 95.4 % $ 1,370,955 95.7 % $ 262,370 19.1 % Supplemental and contingent commissions 50,005 2.9 % 36,750 2.6 % 13,255 36.1 Loss mitigation and other fees 28,531 1.7 % 24,474 1.7 % 4,057 16.6 Total Net commissions and fees $ 1,711,861 $ 1,432,179 $ 279,682 19.5 % Net commissions and policy fees grew 19.1%, slightly lower than the overall net commissions and fee revenue growth of 19.5% for the year ended December 31, 2022, period-over-period as compared to the prior year.
The following table sets forth our revenue by type of commission and fees: Year Ended December 31, Period over Period (in thousands, except percentages) 2022 % of total 2021 % of total Change Net commissions and policy fees $ 1,633,325 95.4 % $ 1,370,955 95.7 % $ 262,370 19.1 % Supplemental and contingent commissions 50,005 2.9 36,750 2.6 13,255 36.1 Loss mitigation and other fees 28,531 1.7 24,474 1.7 4,057 16.6 Total Net commissions and fees $ 1,711,861 $ 1,432,179 $ 279,682 19.5 % Net commissions and policy fees grew $262.4 million, or 19.1%, slightly lower than the overall net commissions and fee revenue growth of 19.5% for the year ended December 31, 2022 as compared to the prior year.
Estimating the fair value at an acquisition date and in subsequent periods involves significant judgments, including projecting the future financial performance of the acquired businesses. The Company updates its assumptions each reporting period based on new developments and records such amounts at fair value based on the revised assumptions.
Estimating the fair value at the acquisition date and in subsequent periods involves significant judgments, including projecting the future financial performance of the acquired businesses. The Company updates its assumptions each reporting period based on new developments and records such amounts at fair value based on the revised assumptions.
Actual results could differ materially from those discussed in or implied by such forward-looking statements as a result of various factors, including those discussed below and in the sections entitled “Risk Factors” and “Information Concerning Forward-Looking Statements”.
Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and in the sections entitled “Risk Factors” and “Information Concerning Forward-Looking Statements”.
Fiduciary Investment Income Fiduciary investment income consists of interest earned on insurance premiums and surplus lines taxes that are held in a fiduciary capacity, in cash and cash equivalents, until disbursed. Expenses Compensation and Benefits Compensation and benefits is our largest expense.
Fiduciary Investment Income Fiduciary investment income consists of interest earned on insurance premiums and surplus lines taxes that are held in a fiduciary capacity, in cash and cash equivalents, until disbursed. 60 Expenses Compensation and Benefits Compensation and benefits is our largest expense.
Components of Results of Operations Revenue Net Commissions and Fees Net commissions and fees are derived primarily by commissions from our three Specialties and are paid for our role as an intermediary in facilitating the placement of coverage in the insurance distribution chain.
Components of Results of Operations Revenue Net Commissions and Fees Net commissions and fees are derived primarily from our three Specialties and are paid for our role as an intermediary in facilitating the placement of coverage in the insurance distribution chain.
Item 7. Manageme nt’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity, and cash flows of our Company as of and for the periods presented below.
Item 7. Manageme nt’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity, and cash flows of the Company as of and for the periods presented below.
Net income (loss) and Other comprehensive income (loss) is attributed to the non-controlling interests based on the weighted average LLC Common Units outstanding during the period and is presented on the Consolidated Statements of Income.
Net income and Other comprehensive income (loss) are attributed to the non-controlling interests based on the weighted average LLC Common Units outstanding during the period and Net income attributed to the non-controlling interests is presented on the Consolidated Statements of Income.
The following were the principal drivers of this increase: • Commissions increased $95.2 million, or 22.0%, period-over-period, driven by the 19.5% increase in total Net Commissions and Fees discussed above; 62 • The remaining $42.2 million period-over-period increase was driven by a $80.3 million increase generated from (i) the addition of 304 employees compared to the same period prior year and (ii) growth in the business.
The following were the principal drivers of this increase: • Commissions increased $95.2 million, or 22.0%, period-over-period, driven by the 19.5% increase in total Net Commissions and Fees discussed above; • The remaining $42.2 million period-over-period increase was driven by a $80.3 million increase generated from (i) the addition of 304 employees compared to the prior year and (ii) growth in the business.
These obligations are described within “ Note 9, Leases ” and “ Note 10, Debt ” in the notes to our audited consolidated financial statements in this Annual Report and provide further description on provisions that create, increase or accelerate obligations, or other pertinent data to the extent necessary for an understanding of the timing and amount of the specified contractual obligations.
These obligations are described within “ Note 8, Leases ” and “ Note 9, Debt ” in the notes to our audited consolidated financial statements in this Annual Report and provide further description on provisions that create, increase or accelerate obligations, or other pertinent data to the extent necessary for an understanding of the timing and amount of the specified contractual obligations.
Organic Revenue Growth Rate Organic revenue growth rate represents the percentage change in Total revenue, as compared to the same period for the year prior, adjusted for revenue attributable to recent acquisitions during the first 12 months of Ryan Specialty’s ownership, and other adjustments such as contingent commissions, fiduciary investment income, and the impact of changes in foreign exchange rates.
Organic Revenue Growth Rate Organic revenue growth rate represents the percentage change in Total revenue, as compared to the prior year, adjusted for revenue attributable to recent acquisitions during the first 12 months of Ryan Specialty’s ownership, and other adjustments such as contingent commissions, fiduciary investment income, and the impact of changes in foreign exchange rates.
These measures start with consolidated Net income and do not deduct earnings related to the non-controlling interest in Ryan Re for the period of time prior to March 31, 2021 when we did not own 100% of the business or the non-controlling interest attributed to the retained ownership of the LLC.
These measures start with consolidated Net income and do not deduct earnings related to the non-controlling interest in Ryan Re for the period of time prior to March 31, 2021 when the Company did not own 100% of the business or the non-controlling interest attributed to the retained ownership of the LLC.
This growth of $80.3 million was offset by a $21.8 million decrease to IPO- related expense and a $16.3 million decrease to Acquisition related long-term incentive compensation. Overall headcount increased to 3,850 full-time employees as of December 31, 2022 compared to 3,546 as of December 31, 2021.
This growth of $80.3 million was offset by a $21.8 million decrease to IPO-related expense and a $16.3 million decrease to Acquisition related long-term incentive compensation. Overall headcount increased to 3,850 full-time employees as of December 31, 2022 from 3,546 as of December 31, 2021.
Therefore, we only recognize a liability for TRA payments if we determine it is probable that we will generate sufficient future taxable income over the term of the TRA to utilize the related tax benefits. Estimating future taxable income is inherently uncertain and requires judgment.
Therefore, we only recognize a liability for TRA payments if we determine it is probable that we will generate sufficient future taxable income over the term of the TRA to utilize the related tax benefits. Projecting future taxable income is inherently uncertain and requires judgment.
Interest Expense, Net Interest expense, net consists of interest payable on indebtedness, amortization of the Company's interest rate cap, imputed interest on finance leases and contingent consideration, and amortization of deferred debt issuance costs, offset by interest income on the Company's Cash and cash equivalents balances and payments received in relation to the interest rate cap.
Interest Expense, Net Interest expense, net consists of interest payable on indebtedness, amortization of the Company’s interest rate cap, imputed interest on contingent consideration, and amortization of deferred debt issuance costs, offset by interest income on the Company’s Cash and cash equivalents balances and payments received in relation to the interest rate cap.
As interest rates have rapidly risen, leading to friction in debt markets, we have started to observe some delays to both construction projects and M&A activity which, in turn, pauses the binding of construction and M&A transactional liability insurance policies. We believe over time these lines of business will continue to grow as the economy steadies and again grows.
As interest rates have rapidly risen, leading to friction in debt markets, we have observed some delays to both construction projects and M&A activity which, in turn, pauses the binding of construction and M&A transactional liability insurance policies. We believe over time these lines of business will continue to grow as the economy steadies and again grows.
The following discussion provides commentary on the financial results derived from our audited financial statements for the years ended December 31, 2022, 2021, and 2020 prepared in accordance with U.S. GAAP.
The following discussion provides commentary on the financial results derived from our audited financial statements for the years ended December 31, 2023, 2022, and 2021 prepared in accordance with U.S. GAAP.
Amounts payable under the TRA are contingent upon, among other things: (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws.
Amounts payable under the TRA are contingent upon, among other things: (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws, including tax rate changes.
Cash and cash equivalents on the Consolidated Balance Sheets includes funds available for general corporate purposes. Fiduciary cash and receivables cannot be used for general corporate purposes. Insurance premiums, claims funds, and surplus lines taxes are held in a fiduciary capacity and the obligation to remit these funds is recorded as Fiduciary liabilities in the Consolidated Balance Sheets.
Cash and cash equivalents on the Consolidated Balance Sheets include funds available for general corporate purposes. Fiduciary cash and receivables cannot be used for general corporate purposes. Insurance premiums, claims funds, and surplus lines taxes are held in a fiduciary capacity and the obligation to remit these funds are recorded as Fiduciary liabilities on the Consolidated Balance Sheets.
Within Current accrued compensation and Non-current accrued compensation we have various long-term incentive compensation agreements accrued for. These agreements are typically associated with an acquisition. 77 Below we have outlined the liabilities accrued as of December 31, 2022, the projected future expense, and the projected timing of future cash outflows associated with these arrangements.
Within Current accrued compensation and Non-current accrued compensation we have various long-term incentive compensation agreements accrued for. These agreements are typically associated with an acquisition. Below we have outlined the liabilities accrued as of December 31, 2023, the projected future expense, and the projected timing of future cash outflows associated with these arrangements.
Refer to “ Note 20, Income Taxes” in the consolidated financial statements in this Annual Report for further information on the estimates involved in income taxes and the TRA liability.
Refer to “ Note 18, Income Taxes” in the consolidated financial statements in this Annual Report for further information on the estimates involved in income taxes and the TRA liability.
Supplemental and contingent commissions increased 36.1% period-over-period driven by the performance of risks placed on eligible business earning profit-based or volume-based commissions. Loss mitigation and other fees grew 16.6% period-over-period primarily due to captive management and other risk management services fees from the placement of alternative risk insurance solutions in 2022.
Supplemental and contingent commissions increased $13.3 million, or 36.1%, period-over-period driven by the performance of risks placed on eligible business earning profit-based or volume-based commissions. Loss mitigation and other fees grew $4.1 million, or 16.6%, period-over-period primarily due to captive management and other risk management services fees from the placement of alternative risk insurance solutions in 2022.
The most comparable GAAP financial metric is 67 Compensation and benefits expense. Adjusted compensation and benefits expense ratio is defined as Adjusted compensation and benefits expense as a percentage of Total revenue. The most comparable GAAP financial metric is Compensation and benefits expense ratio.
The most comparable GAAP financial metric is 69 Compensation and benefits expense. Adjusted compensation and benefits expense ratio is defined as Adjusted compensation and benefits expense as a percentage of Total revenue. The most comparable GAAP financial metric is Compensation and benefits expense ratio.
The main drivers of cash flows provided by financing activities during the year ended December 31, 2022 were the issuance of the Senior Secured Notes generating $394.0 million in net proceeds and the net change in fiduciary liabilities of $17.4 million, offset by cash distributions to LLC Unitholders of $39.9 million, payment of interest rate cap premium of $25.5 million, the repayment of term debt of $16.5 million, and the payment of contingent consideration of $6.2 million.
The main drivers of cash flows provided by financing activities during the year ended December 31, 2022 were the Proceeds from senior secured notes generating $394.0 million and the Net change in fiduciary liabilities of $17.4 million, offset by Tax distributions to LLC Unitholders of $39.9 million, Payment of interest rate cap premium, net of $23.3 million, the Repayment of term debt of $16.5 million, and the Payment of contingent consideration of $6.2 million.
(2) The mergers and acquisitions adjustment excludes net commission and fees revenue generated during the first 12 months following an acquisition. The total adjustment for the years ended December 31, 2022, 2021, and 2020 was $40.0 million $186.4 million and $98.4 million, respectively.
(2) The mergers and acquisitions adjustment excludes net commission and fees revenue generated during the first 12 months following an acquisition. The total adjustment for the years ended December 31, 2023, 2022, and 2021 was $48.2 million $40.0 million and $186.4 million, respectively.
(3) The other adjustments exclude the year-over-year change in contingent commissions, fiduciary investment income, and foreign exchange rates. The total adjustment for the years ended December 31, 2022, 2021, and 2020 was $16.0 million $0.6 million and $1.6 million, respectively.
(3) The other adjustments exclude the year-over-year change in contingent commissions, fiduciary investment income, and foreign exchange rates. The total adjustment for the years ended December 31, 2023, 2022, and 2021 was $44.6 million $16.0 million and $0.6 million, respectively.
Below we have outlined the liabilities accrued as of December 31, 2022, the projected future expense, and the projected timing of future cash outflows associated with these contingent consideration agreements.
Below we have outlined the liabilities accrued as of December 31, 2023, the 78 projected future expense, and the projected timing of future cash outflows associated with these contingent consideration agreements.
As of December 31, 2022, we recognized $295.3 million of liabilities relating to our obligations under the TRA, after concluding that it was probable that we would have sufficient future taxable income to utilize the related tax benefits.
As of December 31, 2023 and 2022, we recognized $358.9 million and $295.3 million, respectively, of liabilities relating to our obligations under the TRA, after concluding that it was probable that we would have sufficient future taxable income to utilize the related tax benefits.
Throughout 2022 as the public company D&O insurance markets stabilized, 55 the number of IPOs slowed, and new insurance capital that previously entered the market impacted the public company D&O space, public company D&O rate decreases have accelerated. We believe these factors have also created opportunities for retailers to place some of that coverage directly.
Throughout 2022 and 2023 as the public company D&O insurance markets stabilized, IPO markets have slowed, and new insurance capital that previously entered the market has impacted the public company D&O space, public company D&O rate decreases have accelerated. We believe these factors have also created opportunities for retailers to place some of that coverage directly.
On April 7, 2022, the Company entered into an interest rate cap agreement to manage its exposure to interest rate fluctuations related to the Company’s Term Loan for an upfront cost of $25.5 million. The interest rate cap has a $1,000.0 million notional amount, 2.75% strike, and terminates on December 31, 2025.
On April 7, 2022, the Company entered into an interest rate cap agreement to manage its exposure to interest rate fluctuations related to the Company’s Term Loan. The interest rate cap has a $1,000.0 million notional amount, 2.75% strike, and terminates on December 31, 2025.
(3) For comparability purposes and to be consistent with the treatment of the adjustments to arrive at Adjusted net income, the dilutive effect of unvested equity awards is calculated using the treasury stock method as if the weighted average unrecognized cost associated with the awards was $0 over the period, less any unvested equity awards determined to be dilutive within the Diluted loss per share calculation disclosed in “ Note 13, Earnings (Loss) Per Share ” of the audited consolidated financial statements in this Annual Report.
(5) For comparability purposes and to be consistent with the treatment of the adjustments to arrive at Adjusted net income, the dilutive effect of unvested equity awards is calculated using the treasury stock method as if the weighted average unrecognized cost associated with the awards was $0 over the period, less any unvested equity awards determined to be dilutive within the Diluted EPS calculation disclosed in “ Note 12, Earnings 74 (Loss) Per Share ” of the audited consolidated financial statements.
Such expenses incurred to accommodate both organic and inorganic revenue growth include IT, occupancy, and professional services. The net impact of revenue growth and the factors listed above resulted in a General and administrative expense ratio increase of 1.7% from 9.7% to 11.4% period-over-period.
Such expenses incurred to accommodate both organic and inorganic revenue growth include IT, occupancy, and insurance. The net impact of revenue growth and the factors listed above resulted in a General and administrative expense ratio increase of 1.9% from 11.4% to 13.3% period-over-period.
As set forth in the table below, and assuming no changes in the relevant tax law and that we earn sufficient taxable income to realize all cash tax savings that are subject to the TRA as a result of transaction, we expect future payments under the TRA as a result of transactions as of December 31, 2022 will be $295.3 million in aggregate.
As set forth in the table below, and assuming no changes in the relevant tax law and that we earn sufficient taxable income to realize all cash tax savings that are subject to the TRA, we expect future payments under the TRA as a result of transactions as of December 31, 2023 will be $358.9 million in aggregate.
Expenses Compensation and Benefits Compensation and benefits expense increased by $137.4 million, or 13.9%, from $991.6 million to $1,129.0 million for the year ended December 31, 2022 compared to the same period in 2021.
Expenses Compensation and Benefits Compensation and benefits expense increased by $137.4 million, or 13.9%, from $991.6 million to $1,129.0 million for the year ended December 31, 2022 compared to the prior year.
Adjusted Diluted Earnings Per Share We define Adjusted diluted earnings per share as Adjusted net income divided by diluted shares outstanding after adjusting for the effect of the exchange of 100% of the outstanding LLC Common Units (together with the shares of Class B common stock) into shares of Class A common stock and the effect of unvested equity awards.
Adjusted Diluted Earnings Per Share We define Adjusted diluted earnings per share as Adjusted net income divided by diluted shares outstanding after adjusting for the effect if 100% of the outstanding LLC Common Units (together with the shares of Class B common stock), vested Class C Incentive Units, and unvested equity awards were exchanged into shares of Class A common stock.
In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations.
In completing this evaluation, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations.
A reconciliation of Organic revenue growth rate to Total revenue growth rate, the most directly comparable GAAP measure, for each of the periods indicated is as follows (in percentages): Year Ended December 31, 2022 2021 2020 Total revenue growth rate (GAAP) (1) 20.4 % 40.7 % 33.1 % Less: Mergers and acquisitions (2) (2.8 ) (18.3 ) (12.9 ) Change in other (3) (1.2 ) 0.0 0.2 Organic revenue growth rate (Non-GAAP) 16.4 % 22.4 % 20.4 % (1) December 31, 2022 revenue of $1,725.2 million less December 31, 2021 revenue of $1,432.8 million is a $292.4 million year-over-year change.
A reconciliation of Organic revenue growth rate to Total revenue growth rate, the most directly comparable GAAP measure, for each of the periods indicated is as follows (in percentages): Year Ended December 31, 2023 2022 2021 Total revenue growth rate (GAAP) (1) 20.4 % 20.4 % 40.7 % Less: Mergers and acquisitions (2) (2.8 ) (2.8 ) (18.3 ) Change in other (3) (2.6 ) (1.2 ) 0.0 Organic revenue growth rate (Non-GAAP) 15.0 % 16.4 % 22.4 % (1) December 31, 2023 revenue of $2,077.5 million less December 31, 2022 revenue of $1,725.2 million is a $352.3 million year-over-year change.
The Company has financial liabilities resulting from our business combinations, namely contingent consideration arrangements. We estimate the fair value of these contingent consideration arrangements using Level 3 inputs that require the use of numerous assumptions and Monte Carlo simulations, which may change based on the occurrence of future events and lead to increased or decreased operating income in future periods.
We estimate the fair value of these contingent consideration arrangements using Level 3 inputs that require the use of numerous assumptions and Monte Carlo simulations, which may change based on the occurrence of future events and lead to increased or decreased operating income in future periods.
For example, in 2022, our revenue derived from the Top 100 firms (as ranked by Business Insurance) expanded faster than our Organic revenue growth rate of 16.4%.
For example, in 2023, our revenue derived from the Top 100 firms (as ranked by Business Insurance) expanded faster than our Organic revenue growth rate of 15.0%.
For the year ended December 31, 2020 this calculation of adjusted tax expense is based on a federal statutory rate of 21% and a combined state income tax rate net of federal benefits of 4.03% on 100% of our adjusted income before income taxes as if the Company owned 100% of the LLC. 72 (12) Net income margin is Net income as a percentage of Total revenue.
For the year ended December 31, 2023, this calculation of adjusted tax expense is based on a federal statutory rate of 21% and a combined state income tax rate net of federal benefits of 5.12% on 100% of our adjusted income before income taxes as if the Company owned 100% of the LLC.
Due to the uncertainty of various factors, we cannot precisely quantify the likely tax benefits we will realize as a result of the LLC Common Unit exchanges and the resulting amounts we are likely to pay out to current and certain former LLC Unitholders pursuant to the TRA; however, we estimate that such tax benefits and the related TRA payments may be substantial.
The Company recognizes a liability on the Consolidated Balance Sheets based on the undiscounted estimated future payments under the TRA. 76 Due to the uncertainty of various factors, we cannot precisely quantify the likely tax benefits we will realize as a result of the LLC Common Unit exchanges and the resulting amounts we are likely to pay out to current and certain former LLC Unitholders pursuant to the TRA; however, we estimate that such tax benefits and the related TRA payments may be substantial.
Net Income Net income decreased $13.9 million from $70.5 million to $56.6 million for the year ended December 31, 2021 compared to the same period in the prior year as a result of the factors described above. 66 Non-GAAP Financial Measures and Key Performance Indicators In assessing the performance of our business, we use non-GAAP financial measures that are derived from our consolidated financial information, but which are not presented in our consolidated financial statements prepared in accordance with GAAP.
Net Income Net income increased $106.6 million from $56.6 million to $163.3 million for the year ended December 31, 2022 compared to the prior year as a result of the factors described above. 68 Non-GAAP Financial Measures and Key Performance Indicators In assessing the performance of our business, we use non-GAAP financial measures that are derived from our consolidated financial information, but which are not presented in our consolidated financial statements prepared in accordance with GAAP.
Other Non-Operating Loss In 2022, Other non-operating loss included a change related to the TRA liability caused by an update in our blended state tax rates. In 2021, Other non-operating loss included the change in fair value of the embedded derivatives on the Redeemable Preferred Units.
Other Non-Operating Loss For years ended December 31, 2023 and 2022, Other non-operating loss included charges related to the change in the TRA liability caused by a change in our blended state tax rates. In 2021, Other non-operating loss included the change in fair value of the embedded derivatives on the Redeemable Preferred Units.
See "Liquidity and Capital Resources - Tax Receivable Agreement" for additional information about the TRA. 53 ACCELERATE 2025 Program In the first quarter of 2023 we are initiating a two-year restructuring program that will enable continued growth, drive innovation, and deliver sustainable productivity improvements over the long term.
See “ Liquidity and Capital Resources - Tax Receivable Agreement ” for additional information about the TRA. 57 ACCELERATE 2025 Program During the first quarter of 2023 we initiated the ACCELERATE 2025 program that will enable continued growth, drive innovation, and deliver sustainable productivity improvements over the long term.
The primary sources of liquidity are Cash and cash equivalents on the Consolidated Balance Sheets, cash flows provided by operations, and debt capacity available under our Revolving Credit Facility, Term Loan, and Senior Secured Notes.
We believe that the balance sheet and strong cash flow profile of our business provides adequate liquidity. The primary sources of liquidity are Cash and cash equivalents on the Consolidated Balance Sheets, cash flows provided by operations, and debt capacity available under our Revolving Credit Facility, Term Loan, and Senior Secured Notes.
Recent Accounting Pronouncements For a description of our recently adopted accounting pronouncements see “ Note 2, Summary of Significant Accounting Policies ” in the notes to our audited consolidated financial statements in this Annual Report. 80
Recent Accounting Pronouncements For a description of recently issued accounting pronouncements see “ Note 2, Summary of Significant Accounting Policies ” in the footnotes to the consolidated financial statements in this Annual Report. 81
A summary of our cash flows provided by and used for ongoing operations from operating, investing, and financing activities is as follows: 76 Cash Flows From Operating Activities Net cash provided by operating activities during the year ended December 31, 2022 increased $62.0 million from the year ended December 31, 2021 to $335.5 million.
A summary of our cash flows provided by and used for ongoing operations from operating, investing, and financing activities is as follows: Cash Flows From Operating Activities Net cash provided by operating activities during the year ended December 31, 2023 increased $141.7 million from the year ended December 31, 2022 to $477.2 million.
A valuation allowance is provided if it is determined that it is more likely than not that the deferred tax asset will not be realized. Estimating future taxable income is inherently uncertain and requires judgment. In projecting future taxable income, we consider our historical results and incorporate certain assumptions.
A valuation allowance is provided if it is determined that it is more likely than not that the deferred tax asset will not be realized. Estimating future taxable income is inherently uncertain and requires judgment.
The change, $292.4 million, divided by the December 31, 2021 revenue of $1,432.8 million is a total revenue change of 20.4%. December 31, 2021 revenue of $1,432.8 million less December 31, 2020 revenue of $1,018.3 million is a $414.5 million year-over-year change.
The change, $352.3 million, divided by the December 31, 2022 revenue of $1,725.2 million is a total revenue change of 20.4%. December 31, 2022 revenue of $1,725.2 million less December 31, 2021 revenue of $1,432.8 million is a $292.4 million year-over-year change.
Of the $992.6 million of Cash and cash equivalents on the Consolidated Balance Sheet as of December 31, 2022, $66.2 million was held in fiduciary accounts representing collected revenue and was available to be transferred to operating accounts and used for general corporate purposes.
Of the $838.8 million of Cash and cash equivalents on the Consolidated Balance Sheet as of December 31, 2023, $106.4 million was held in fiduciary 75 accounts representing collected revenue and was available to be transferred to operating accounts and used for general corporate purposes.
Income Before Income Taxes Due to the factors above, Income before income taxes increased $117.6 million from $61.6 million to $179.2 million for the year ended December 31, 2022 compared to the same period in the prior year. 63 Income Tax Expense Income tax expense increased $11.0 million from $4.9 million to $15.9 million for the year ended December 31, 2022 as compared to the same period in the prior year due to the Company being allocated pre-tax book loss for the post-IPO period ended December 31, 2021 compared to pre-tax book income for the year ended December 31, 2022.
Income Tax Expense Income tax expense increased $11.0 million from $4.9 million to $15.9 million for the year ended December 31, 2022 as compared to the prior year due to the Company being allocated pre-tax book loss for the post-IPO period ended December 31, 2021 compared to pre-tax book income for the year ended December 31, 2022.
The loss in 2021 also includes expense of $8.6 million associated with the extinguishment of a portion of our deferred debt issuance costs on the term debt.
The loss in 2021 also included expense of $8.6 million associated with the extinguishment of a portion of our deferred debt issuance costs on the term debt. Equity-based compensation reflects non-cash equity-based expense.
The loss in 2021 also includes expense of $8.6 million associated with the extinguishment of a portion of our deferred debt issuance costs on the term debt.
It also includes the expense associated with the extinguishment of a portion of our deferred debt issuance costs on the term debt in the first quarter of 2021.
Total revenue less Adjusted compensation and benefits expense and Adjusted general and administrative expense is equivalent to Adjusted EBITDAC. The most directly comparable GAAP financial metric is Net income. Adjusted EBITDAC margin is defined as Adjusted EBITDAC as a percentage of Total revenue. The most comparable GAAP financial metric is Net income margin.
The most directly comparable GAAP financial metric to Adjusted EBITDAC is Net income. Adjusted EBITDAC margin is defined as Adjusted EBITDAC as a percentage of Total revenue. The most comparable GAAP financial metric is Net income margin.
Long-term Incentive Compensation Agreements (in thousands) December 31, 2022 Current accrued compensation $ — Non-current accrued compensation 83 Total liability $ 83 Projected future expense 195 Total projected future cash outflows $ 278 Projected Future Cash Outflows (in thousands) 2023 $ — 2024 — 2025 — 2026 56 Thereafter $ 223 Within “ Note 4, Mergers and Acquisitions ” in the notes to our audited consolidated financial statements in this Annual Report we outline various contingent consideration arrangements and their impact.
Long-term Incentive Compensation Agreements (in thousands) December 31, 2023 Current accrued compensation $ — Non-current accrued compensation 2,499 Total liability $ 2,499 Projected future expense 4,769 Total projected future cash outflows $ 7,268 Projected Future Cash Outflows (in thousands) 2024 $ — 2025 — 2026 6,734 2027 134 Thereafter $ 401 Within “ Note 4, Mergers and Acquisitions ” and “Note 15, Fair Value Measurements” in the notes to our audited consolidated financial statements in this Annual Report we outline various contingent consideration arrangements and their impact.
See “Note 13, Earnings (Loss) Per Share” of the audited consolidated financial statements in this Annual Report.
See “Note 12, Earnings (Loss) Per Share” in the footnotes to the consolidated financial statements in this Annual Report.
Refer to “Note 11, Stockholders' and Members' Equity” of the audited consolidated financial statements in this Annual Report for more information. 60 Results of Operations Below is a summary table of the financial results and Non-GAAP measures that we find relevant to our business operations: Year Ended December 31, (in thousands, except percentages and per share data) 2022 2021 2020 Revenue Net commissions and fees $ 1,711,861 $ 1,432,179 $ 1,016,685 Fiduciary investment income 13,332 592 1,589 Total revenue $ 1,725,193 $ 1,432,771 $ 1,018,274 Expenses Compensation and benefits 1,128,981 991,618 686,155 General and administrative 196,971 138,955 107,381 Amortization 103,601 107,877 63,567 Depreciation 5,690 4,806 3,934 Change in contingent consideration 442 2,891 (1,301 ) Total operating expenses $ 1,435,685 $ 1,246,147 $ 859,736 Operating income $ 289,508 $ 186,624 $ 158,538 Interest expense, net 104,829 79,354 47,243 Loss (income) from equity method investment in related party 414 759 (440 ) Other non-operating loss 5,073 44,947 32,270 Income before income taxes $ 179,192 $ 61,564 $ 79,465 Income tax expense 15,935 4,932 8,952 Net income $ 163,257 $ 56,632 $ 70,513 GAAP financial measures Revenue $ 1,725,193 $ 1,432,771 $ 1,018,274 Compensation and benefits 1,128,981 991,618 686,155 General and administrative 196,971 138,955 107,381 Net income $ 163,257 $ 56,632 $ 70,513 Total revenue growth rate 20.4 % 40.7 % 33.1 % Compensation and benefits expense ratio 65.4 % 69.2 % 67.4 % General and administrative expense ratio 11.4 % 9.7 % 10.5 % Net income margin 9.5 % 4.0 % 6.9 % Earnings (loss) per share $ 0.57 $ (0.07 ) $ — Diluted earnings (loss) per share $ 0.52 $ (0.07 ) $ — Non-GAAP financial measures* Organic revenue growth rate 16.4 % 22.4 % 20.4 % Adjusted compensation and benefits expense $ 1,021,823 $ 846,563 $ 632,241 Adjusted compensation and benefits expense ratio 59.2 % 59.1 % 62.1 % Adjusted general and administrative expense $ 185,956 $ 125,977 $ 92,525 Adjusted general and administrative expense ratio 10.8 % 8.8 % 9.1 % Adjusted EBITDAC $ 517,414 $ 460,231 $ 293,508 Adjusted EBITDAC margin 30.0 % 32.1 % 28.8 % Adjusted net income $ 311,991 $ 290,117 $ 185,426 Adjusted net income margin 18.1 % 20.2 % 18.2 % Adjusted diluted earnings per share $ 1.15 $ 1.08 $ — * These measures are Non-GAAP.
Refer to “Note 10, Stockholders’ Equity” of the audited consolidated financial statements in this Annual Report for more information. 61 Results of Operations Below is a summary table of the financial results and Non-GAAP measures that we find relevant to our business operations: Year Ended December 31, (in thousands, except percentages and per share data) 2023 2022 2021 Revenue Net commissions and fees $ 2,026,596 $ 1,711,861 $ 1,432,179 Fiduciary investment income 50,953 13,332 592 Total revenue $ 2,077,549 $ 1,725,193 $ 1,432,771 Expenses Compensation and benefits 1,321,029 1,128,981 991,618 General and administrative 276,181 196,971 138,955 Amortization 106,799 103,601 107,877 Depreciation 9,038 5,690 4,806 Change in contingent consideration 5,421 442 2,891 Total operating expenses $ 1,718,468 $ 1,435,685 $ 1,246,147 Operating income $ 359,081 $ 289,508 $ 186,624 Interest expense, net 119,507 104,829 79,354 Loss (income) from equity method investment in related party (8,731 ) 414 759 Other non-operating loss 10,380 5,073 44,947 Income before income taxes $ 237,925 $ 179,192 $ 61,564 Income tax expense 43,445 15,935 4,932 Net income $ 194,480 $ 163,257 $ 56,632 GAAP financial measures Revenue $ 2,077,549 $ 1,725,193 $ 1,432,771 Compensation and benefits 1,321,029 1,128,981 991,618 General and administrative 276,181 196,971 138,955 Net income $ 194,480 $ 163,257 $ 56,632 Total revenue growth rate 20.4 % 20.4 % 40.7 % Compensation and benefits expense ratio (1) 63.6 % 65.4 % 69.2 % General and administrative expense ratio (2) 13.3 % 11.4 % 9.7 % Net income margin (3) 9.4 % 9.5 % 4.0 % Earnings (loss) per share (4) $ 0.53 $ 0.57 $ (0.07 ) Diluted earnings (loss) per share (4) $ 0.52 $ 0.52 $ (0.07 ) Non-GAAP financial measures* Organic revenue growth rate 15.0 % 16.4 % 22.4 % Adjusted compensation and benefits expense $ 1,222,342 $ 1,021,823 $ 846,563 Adjusted compensation and benefits expense ratio 58.8 % 59.2 % 59.1 % Adjusted general and administrative expense $ 230,467 $ 185,956 $ 125,977 Adjusted general and administrative expense ratio 11.1 % 10.8 % 8.8 % Adjusted EBITDAC $ 624,740 $ 517,414 $ 460,231 Adjusted EBITDAC margin 30.1 % 30.0 % 32.1 % Adjusted net income $ 375,582 $ 311,991 $ 290,117 Adjusted net income margin 18.1 % 18.1 % 20.2 % Adjusted diluted earnings per share $ 1.38 $ 1.15 $ 1.08 (1) Compensation and benefits expense ratio is defined as Compensation and benefits expense divided by Total revenue.
It also includes the expense associated with the extinguishment of a portion of our deferred debt issuance costs on the term debt in the first quarter of 2021. 59 Income Tax Expense Income tax expense includes tax on the Company's allocable share of any net taxable income from the LLC, from certain state and local jurisdictions that impose taxes on partnerships, as well as earnings from our foreign subsidiaries and C-Corporations subject to entity level taxation.
Income Tax Expense Income tax expense includes tax on the Company’s allocable share of any net taxable income from the LLC, from certain state and local jurisdictions that impose taxes on partnerships, as well as earnings from our foreign subsidiaries and C-Corporations subject to entity level taxation.
(11) The Company is subject to United States federal income taxes, in addition to state, local, and foreign taxes, with respect to our allocable share of any net taxable income of the LLC.
(2) Adjustments to Net income are described in the definition of Adjusted EBITDAC to Net income in “Adjusted EBITDAC and Adjusted EBITDAC Margin.” (3) The Company is subject to United States federal income taxes, in addition to state, local, and foreign taxes, with respect to our allocable share of any net taxable income of the LLC.
(4) See "Note 13, Earnings (Loss) Per Share" of the audited consolidated financial statements in this Annual Report for further discussion of how these metrics are calculated.
(4) See “Note 12, Earnings (Loss) Per Share ” in the footnotes to the consolidated financial statements in this Annual Report for further discussion of how these metrics are calculated. * These measures are Non-GAAP.
A reconciliation of Adjusted net income and Adjusted net income margin to Net income and Net income margin, the most directly comparable GAAP measures, for each of the periods indicated is as follows: Year Ended December 31, (in thousands, except percentages) 2022 2021 2020 Total Revenue $ 1,725,193 $ 1,432,771 $ 1,018,274 Net Income $ 163,257 $ 56,632 $ 70,513 Income tax expense 15,935 4,932 8,952 Amortization 103,601 107,877 63,567 Amortization of deferred debt issuance costs (1) 12,054 11,372 5,002 Change in contingent consideration 442 2,891 (1,301 ) Acquisition-related expense (2) 4,599 4,275 18,286 Acquisition related long-term incentive compensation (3) 22,093 38,405 13,064 Restructuring and related expense (4) 5,717 14,661 12,890 Amortization and expense related to discontinued prepaid incentives (5) 6,738 7,209 14,173 Other non-operating loss (income) (6) 5,073 44,947 32,270 Equity-based compensation (7) 23,390 13,639 10,800 Discontinued programs expense (8) — — (789 ) Other non-recurring expense (9) — 351 346 IPO related expenses (10) 55,636 79,493 — (Income) / loss from equity method investments in related party 414 759 (440 ) Adjusted Income before Income Taxes $ 418,949 $ 387,443 $ 247,333 Adjusted tax expense (11) (106,958 ) (97,326 ) (61,907 ) Adjusted Net Income $ 311,991 $ 290,117 $ 185,426 Net Income Margin (12) 9.5 % 4.0 % 6.9 % Adjusted Net Income Margin 18.1 % 20.2 % 18.2 % (1) Interest expense includes amortization of deferred debt issuance costs.
For comparability purposes, this calculation incorporates the impact of federal and state statutory tax rates on 100% of our adjusted pre-tax income as if the Company owned 100% of the LLC. 72 A reconciliation of Adjusted net income and Adjusted net income margin to Net income and Net income margin, the most directly comparable GAAP measures, for each of the periods indicated is as follows: Year Ended December 31, (in thousands, except percentages) 2023 2022 2021 Total Revenue $ 2,077,549 $ 1,725,193 $ 1,432,771 Net Income $ 194,480 $ 163,257 $ 56,632 Income tax expense 43,445 15,935 4,932 Amortization 106,799 103,601 107,877 Amortization of deferred debt issuance costs (1) 12,172 12,054 11,372 Change in contingent consideration 5,421 442 2,891 Acquisition-related expense 23,274 4,599 4,275 Acquisition related long-term incentive compensation (4,334 ) 22,093 38,405 Restructuring and related expense 49,277 5,717 14,661 Amortization and expense related to discontinued prepaid incentives 6,441 6,738 7,209 Other non-operating loss 10,380 5,073 44,947 Equity-based compensation 31,047 23,390 13,639 Other non-recurring expense — — 351 IPO related expenses 38,696 55,636 79,493 (Income) / loss from equity method investments in related party (8,731 ) 414 759 Adjusted Income before Income Taxes (2) $ 508,367 $ 418,949 $ 387,443 Adjusted tax expense (3) (132,785 ) (106,958 ) (97,326 ) Adjusted Net Income $ 375,582 $ 311,991 $ 290,117 Net Income Margin 9.4 % 9.5 % 4.0 % Adjusted Net Income Margin 18.1 % 18.1 % 20.2 % (1) Interest expense, net includes amortization of deferred debt issuance costs.
A reconciliation of Adjusted EBITDAC and Adjusted EBITDAC margin to Net income (loss) and Net income margin, the most directly comparable GAAP measures, for each of the periods indicated is as follows: Year Ended December 31, (in thousands, except percentages) 2022 2021 2020 Total Revenue $ 1,725,193 $ 1,432,771 $ 1,018,274 Net Income $ 163,257 $ 56,632 $ 70,513 Interest expense, net 104,829 79,354 47,243 Income tax expense 15,935 4,932 8,952 Depreciation 5,690 4,806 3,934 Amortization 103,601 107,877 63,567 Change in contingent consideration 442 2,891 (1,301 ) EBITDAC $ 393,754 $ 256,492 $ 192,908 Acquisition-related expense (1) 4,599 4,275 18,286 Acquisition related long-term incentive compensation (2) 22,093 38,405 13,064 Restructuring and related expense (3) 5,717 14,661 12,890 Amortization and expense related to discontinued prepaid incentives (4) 6,738 7,209 14,173 Other non-operating loss (income) (5) 5,073 44,947 32,270 Equity-based compensation (6) 23,390 13,639 10,800 Discontinued programs expense (7) — — (789 ) Other non-recurring expense (8) — 351 346 IPO related expenses (9) 55,636 79,493 — (Income) / loss from equity method investments in related party 414 759 (440 ) Adjusted EBITDAC $ 517,414 $ 460,231 $ 293,508 Net Income Margin (10) 9.5 % 4.0 % 6.9 % Adjusted EBITDAC Margin 30.0 % 32.1 % 28.8 % (1) Acquisition-related expense includes diligence, transaction-related, and integration costs.
A reconciliation of Adjusted EBITDAC and Adjusted EBITDAC margin to Net income and Net income margin, the most directly comparable GAAP measures, for each of the periods indicated is as follows: 71 Year Ended December 31, (in thousands, except percentages) 2023 2022 2021 Total Revenue $ 2,077,549 $ 1,725,193 $ 1,432,771 Net Income $ 194,480 $ 163,257 $ 56,632 Interest expense, net 119,507 104,829 79,354 Income tax expense 43,445 15,935 4,932 Depreciation 9,038 5,690 4,806 Amortization 106,799 103,601 107,877 Change in contingent consideration 5,421 442 2,891 EBITDAC $ 478,690 $ 393,754 $ 256,492 Acquisition-related expense 23,274 4,599 4,275 Acquisition related long-term incentive compensation (1) (4,334 ) 22,093 38,405 Restructuring and related expense 49,277 5,717 14,661 Amortization and expense related to discontinued prepaid incentives 6,441 6,738 7,209 Other non-operating loss 10,380 5,073 44,947 Equity-based compensation 31,047 23,390 13,639 Other non-recurring expense — — 351 IPO related expenses 38,696 55,636 79,493 (Income) / loss from equity method investments in related party (8,731 ) 414 759 Adjusted EBITDAC $ 624,740 $ 517,414 $ 460,231 Net Income Margin 9.4 % 9.5 % 4.0 % Adjusted EBITDAC Margin 30.1 % 30.0 % 32.1 % (1) In 2023, Acquisition related long-term incentive compensation includes a $6.8 million expense reversal related to the claw back of an All Risks LTIP payment from a terminated employee.
The expense associated with both the revaluation of existing awards as well as the issuance of new equity awards both directly relate to the Organizational Transactions and IPO, however amounts related to each will continue to be expensed over future periods as the underlying awards vest; • A $25.3 million impact from acquisition related long-term incentive compensation, reflecting our assumption of obligations in the All Risks Acquisition.
The expense associated with both the revaluation of existing awards as well as the issuance of new equity awards both relate directly to the Organizational Transactions and IPO, however, amounts related to each will continue to be expensed over future periods as the underlying awards vest.
Fiduciary cash and receivables included cash of $744.7 million and $752.7 million as of December 31, 2022 and 2021, respectively, and fiduciary receivables of $1,837.0 million and $1,637.5 million as of December 31, 2022 and 2021, respectively.
Fiduciary cash and receivables included cash of $917.5 million and $774.7 million as of December 31, 2023 and 2022, respectively, and fiduciary receivables of $2,214.1 million and $1,837.0 million as of December 31, 2023 and 2022, respectively.
Our intangible assets decreased by $87.5 million when comparing the balance as of December 31, 2022 to the balance as of December 31, 2021. Interest Expense, Net Interest expense, net increased $25.4 million, or 32.0%, from $79.4 million to $104.8 million for the year ended December 31, 2022 compared to the prior year.
Interest Expense, Net Interest expense, net increased $25.4 million, or 32.0%, from $79.4 million to $104.8 million for the year ended December 31, 2022 compared to the prior year.
We recognize fiduciary amounts due to others as Fiduciary liabilities and fiduciary amounts collectible and held on behalf of others, including insurance carriers, other insurance intermediaries, surplus lines taxing authorities, clients, and insurance policy holders, as Fiduciary cash and receivables in the Consolidated Balance Sheets. 74 In our capacity as an insurance broker or agent, we collect premiums from insureds and, after deducting our commission, remit the premiums to the respective insurance markets and carriers.
We recognize fiduciary amounts due to others as Fiduciary liabilities and fiduciary amounts collectible and held on behalf of others, including insurance carriers, other insurance intermediaries, surplus lines taxing authorities, clients, and insurance policy holders, as Fiduciary cash and receivables on the Consolidated Balance Sheets.
Net commissions and policy fees are generally calculated as a percentage of the total insurance policy premium placed, but we also receive supplemental commissions based on the volume placed or profitability of a book of business. We share a portion of these net commissions and policy fees with the retail insurance broker and recognize revenue on a net basis.
Net commissions and policy fees are generally calculated as a percentage of the total insurance policy premium placed, although fees can often be a fixed amount irrespective of the premium, but we also receive supplemental commissions based on the volume placed or profitability of a book of business.
The net impact of revenue growth and the factors above resulted in a Compensation and benefits expense ratio decrease of 3.8% from 69.2% to 65.4% period-over-period. In general, we expect to continue experiencing a rise in commissions, salaries, incentives, and benefits expense commensurate with our expected growth in business volume, revenue, and headcount.
The net impact of revenue growth and the factors above resulted in a Compensation and benefits expense ratio decrease of 3.8% from 69.2% to 65.4% period-over-period.
Net Income Net income increased $106.7 million from $56.6 million to $163.3 million for the year ended December 31, 2022 compared to the same period in the prior year as a result of the factors described above.
Net Income Net income increased $31.2 million, or 19.1%, from $163.3 million to $194.5 million for the year ended December 31, 2023 compared to the prior year as a result of the factors described above.
Cash Flows From Investing Activities Cash flows used for investing activities during the year ended December 31, 2022 were $22.4 million, a decrease of $435.5 million compared to the $457.9 million of cash flows used for investing activities during the year ended December 31, 2021.
Cash Flows From Investing Activities Cash flows used for investing activities during the year ended December 31, 2023 were $476.2 million, an increase of $453.8 million compared to the $22.4 million of cash flows used for investing activities during the year ended December 31, 2022.
A reconciliation of Adjusted compensation and benefits expense and Adjusted compensation and benefits expense ratio to Compensation and benefits expense and Compensation and benefits expense ratio, the most directly comparable GAAP measures, for each of the periods indicated, is as follows: Year Ended December 31, (in thousands, except percentages) 2022 2021 2020 Total Revenue $ 1,725,193 $ 1,432,771 $ 1,018,274 Compensation and Benefits Expense $ 1,128,981 $ 991,618 $ 686,155 Acquisition-related expense (122 ) — (4,479 ) Acquisition related long-term incentive compensation (22,093 ) (38,405 ) (13,064 ) Restructuring and related expense (724 ) (9,934 ) (10,465 ) Amortization and expense related to discontinued prepaid incentives (6,738 ) (7,209 ) (14,173 ) Equity-based compensation (23,390 ) (13,639 ) (10,800 ) Discontinued programs expense — — (996 ) Other non-recurring expense — — 63 IPO related expenses (54,091 ) (75,868 ) — Adjusted Compensation and Benefits Expense (1) $ 1,021,823 $ 846,563 $ 632,241 Compensation and Benefits Expense Ratio 65.4 % 69.2 % 67.4 % Adjusted Compensation and Benefits Expense Ratio 59.2 % 59.1 % 62.1 % (1) Adjustments made to Compensation and benefits expense are described in the footnotes of the reconciliation of Adjusted EBITDAC to Net income in “ Adjusted EBITDAC and Adjusted EBITDAC Margin ”.
A reconciliation of Adjusted compensation and benefits expense and Adjusted compensation and benefits expense ratio to Compensation and benefits expense and Compensation and benefits expense ratio, the most directly comparable GAAP measures, for each of the periods indicated, is as follows: Year Ended December 31, (in thousands, except percentages) 2023 2022 2021 Total Revenue $ 2,077,549 $ 1,725,193 $ 1,432,771 Compensation and Benefits Expense $ 1,321,029 $ 1,128,981 $ 991,618 Acquisition-related expense (4,186 ) (122 ) — Acquisition related long-term incentive compensation (1) 4,334 (22,093 ) (38,405 ) Restructuring and related expense (22,651 ) (724 ) (9,934 ) Amortization and expense related to discontinued prepaid incentives (6,441 ) (6,738 ) (7,209 ) Equity-based compensation (31,047 ) (23,390 ) (13,639 ) IPO related expenses (38,696 ) (54,091 ) (75,868 ) Adjusted Compensation and Benefits Expense (2) $ 1,222,342 $ 1,021,823 $ 846,563 Compensation and Benefits Expense Ratio 63.6 % 65.4 % 69.2 % Adjusted Compensation and Benefits Expense Ratio 58.8 % 59.2 % 59.1 % (1) In 2023, Acquisition related long-term incentive compensation includes a $6.8 million expense reversal related to the claw back of an All Risks LTIP payment from a terminated employee.
(5) For the year ended December 31, 2022, Other non-operating loss includes a $5.6 million charge related to the change in the TRA liability caused by a change in our blended state tax rates. For the year ended December 31, 2021, Other non-operating loss includes the change in fair value of the embedded derivatives on the Redeemable Preferred Units.
Other non-operating loss included a $10.4 million and $5.6 million charge for the years ended December 31, 2023 and 2022, respectively, related to the change in the TRA liability caused by a change in our blended state tax rates.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+6 added−1 removed2 unchanged
Biggest changeThe exposure to foreign currency risk from the potential changes between the exchange rates between the USD and other currencies is immaterial. Interest Rate Risk Fiduciary investment income is affected by changes in international and domestic short-term interest rates.
Biggest changeThe exposure to foreign currency risk from the potential changes between the exchange rates between the USD and other currencies is immaterial. Interest Rate Risk and Credit Risk Certain of the Company’s revenues, expenses, assets and liabilities are exposed to the impact of interest rate changes.
The fair value of the Term Loan approximates the carrying amount as of December 31, 2022 and 2021, as determined based upon information available. On April 7, 2022, the Company entered into an interest rate cap agreement to manage its exposure to interest rate fluctuations related to the Company's Term Loan for an upfront cost of $25.5 million.
The fair value of the Term Loan approximates the carrying amount as of December 31, 2023, as determined based upon information available. On April 7, 2022, the Company entered into an interest rate cap agreement to manage its exposure to interest rate fluctuations related to the Company’s Term Loan for an upfront cost of $25.5 million.
Other financial instruments consist of Cash and cash equivalents, Commissions and fees receivable – net, Other current assets, and Accounts payable and accrued liabilities. The carrying amounts of Cash and cash equivalents, Commissions and fees receivable – net, and Accounts payable and accrued liabilities approximate fair value because of the short-term nature of the instruments. 81
Other financial instruments consist of Cash and cash equivalents, Commissions and fees receivable – net, Other current assets, and Accounts payable and accrued liabilities. The carrying amounts of Cash and cash equivalents, Commissions and fees receivable – net, and Accounts payable and accrued liabilities approximate fair value because of the short-term nature of the instruments. 83
Foreign Currency Risk For the year ended December 31, 2022, approximately 3% of revenues were generated from activities in the United Kingdom, Europe, and Canada. We are exposed to currency risk from the potential changes between the exchange rates of the US Dollar, Canadian Dollar, British Pound, Euro, Swedish Krona, Danish Krone, and other European currencies.
Foreign Currency Risk For the year ended December 31, 2023, approximately 3% of revenues were generated from activities in the United Kingdom, Europe, Canada, and Singapore. We are exposed to currency risk from the potential changes between the exchange rates of the US Dollar, Canadian Dollar, British Pound, Euro, Swedish Krona, Danish Krone, and other currencies.
As of December 31, 2022, we had $1,612.9 million of outstanding principal on our Term Loan borrowings, which bears interest on a floating rate, subject to a 0.75% floor. We are subject to Adjusted Term SOFR interest rate changes and exposure in excess of the floor.
As of December 31, 2023, we had $1,596.4 million of outstanding principal on our Term Loan borrowings, which bears interest on a floating rate, subject to a 0.75% floor. We are subject to Adjusted Term SOFR interest rate changes and exposure in excess of the floor.
Removed
On April 29, 2022, the Company entered into the Fourth Amendment to the Credit Agreement on its Term Loan and Revolving Credit Facility to transition its Eurocurrency Rate (LIBOR) to a Benchmark Replacement of Adjusted Term SOFR plus a Credit Spread Adjustment of 10 basis points, 15 basis points, or 25 basis points for the one-month, three-month, or six-month borrowing periods, respectively.
Added
Interest rate risk and credit risk to counterparties generated from the Company’s Cash and cash equivalents, and Cash and cash equivalents held in a fiduciary capacity will fluctuate with the general level of interest rates.
Added
Based on the below balances as of December 31, 2023, the impact of a hypothetical 100 basis point (BPS) increase or decrease in year-end prevailing short-term interest rates for one year would be: (in thousands) Balance at December 31, 2023 100 BPS Increase 100 BPS Decrease Cash and cash equivalents $ 838,790 $ (8,388 ) $ 8,388 Term Loan principal outstanding (1) 1,596,375 15,964 $ (15,964 ) Interest rate cap notional amount (2) 1,000,000 (10,000 ) $ 10,000 Net exposure to Interest expense, net (2,424 ) 2,424 Cash and cash equivalents held in a fiduciary capacity 917,542 9,175 $ (9,175 ) Net exposure to Fiduciary investment income $ 9,175 $ (9,175 ) Impact to Net income 11,600 (11,600 ) (1) To the extent SOFR falls below 0.75%, the impact of a change in interest rates is zero.
Added
(2) To the extent interest rates fall below 2.75%, the impact of a change in interest rates is zero. In addition to interest rate risk, our cash investments and fiduciary cash holdings are subject to potential loss of value due to counterparty credit risk.
Added
To minimize this risk, the Company and its subsidiaries hold funds pursuant to a Board approved investment policy. The policy mandates the preservation of principal and liquidity and requires broad diversification with counter-party limits assigned based primarily on credit rating and type of investment.
Added
The Company carefully monitors its cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity, and plans to further restrict the portfolio as appropriate with respect to market conditions.
Added
The majority of Cash and cash equivalents and Cash and cash equivalents held in a fiduciary capacity are held in demand deposit accounts and 82 short-term investments, consisting principally of AAA-rated money market funds and treasury bills, having original maturities of 90 days or less.

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