Brown & Brown Insurance 2016 Annual Report

Revenue Recognition
Commission revenues are recognized as of the effective date of the insurance policy or the date on which the policy premium
is processed into our systems and invoiced to the customer, whichever is later. Commission revenues related to
installment billings are recognized on the latter of effective or invoiced date, with the exception of our Arrowhead business
which follows a policy of recognizing on the latter of effective or processed date into our systems, regardless of the billing
arrangement. Management determines the policy cancellation reserve based upon historical cancellation experience
adjusted for any known circumstances. Subsequent commission adjustments are recognized upon our receipt of notification
from insurance companies concerning matters necessitating such adjustments. Profit-sharing contingent commissions are
recognized when determinable, which is generally when such commissions are received from insurance companies, or when
we receive formal notification of the amount of such payments. Fee revenues and commissions for workers’ compensation
programs are recognized as services are rendered.
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, as well as disclosures of contingent assets and liabilities, at the date of the Consolidated
Financial Statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may
differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents principally consist of demand deposits with financial institutions and highly liquid investments
with quoted market prices having maturities of three months or less when purchased.
Restricted Cash and Investments, and Premiums, Commissions and Fees Receivable
In our capacity as an insurance agent or broker, the Company typically collects premiums from insureds and, after deducting
its authorized commissions, remits the net premiums to the appropriate insurance company or companies. Accordingly, as
reported in the Consolidated Balance Sheets, “premiums” are receivable from insureds. Unremitted net insurance premiums
are held in a fiduciary capacity until Brown & Brown disburses them. Where allowed by law, Brown & Brown invests these
unremitted funds only in cash, money market accounts, tax-free variable-rate demand bonds and commercial paper held for
a short term. In certain states in which Brown & Brown operates, the use and investment alternatives for these funds are
regulated and restricted by various state laws and agencies. These restricted funds are reported as restricted cash and
investments on the Consolidated Balance Sheets. The interest income earned on these unremitted funds, where allowed by
state law, is reported as investment income in the Consolidated Statement of Income.
In other circumstances, the insurance companies collect the premiums directly from the insureds and remit the applicable
commissions to Brown & Brown. Accordingly, as reported in the Consolidated Balance Sheets, “commissions” are
receivables from insurance companies. “Fees” are primarily receivables due from customers.
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2016 Annual Report
Investments
Certificates of deposit, and other securities, having maturities of more than three months when purchased are reported at
cost and are adjusted for other-than-temporary market value declines. The Company’s investment holdings include U.S.
Government securities, municipal bonds, domestic corporate and foreign corporate bonds as well as short-duration fixed
income funds. Investments within the portfolio or funds are held as available for sale and are carried at their fair value. Any
gain/loss applicable from the fair value change is recorded, net of tax, as other comprehensive income within the equity
section of the Consolidated Balance Sheet. Realized gains and losses are reported on the Consolidated Statement of Income,
with the cost of securities sold determined on a specific identification basis.
Fixed Assets
Fixed assets, including leasehold improvements, are carried at cost, less accumulated depreciation and amortization.
Expenditures for improvements are capitalized, and expenditures for maintenance and repairs are expensed to operations
as incurred. Upon sale or retirement, the cost and related accumulated depreciation and amortization are removed from the
accounts and the resulting gain or loss, if any, is reflected in other income. Depreciation has been determined using the