THE FOLLOWING DISCUSSION UPDATES THE MD&A CONTAINED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED IN 2008, AND THE TWO DISCUSSIONS SHOULD BE READ TOGETHER.

GENERAL

We are a diversified insurance agency, wholesale brokerage and services organization headquartered in Daytona Beach and Tampa, Florida. As an insurance intermediary, our principal sources of revenue are commissions paid by insurance companies and, to a lesser extent, fees paid directly by customers. Commission revenues generally represent a percentage of the premium paid by an insured and are materially affected by fluctuations in both premium rate levels charged by insurance companies and the insureds' underlying "insurable exposure units," which are units that insurance companies use to measure or express insurance exposed to risk (such as property values, sales and payroll levels) in order to determine what premium to charge the insured. These premium rates are established by insurance companies based upon many factors, including reinsurance rates paid by insurance carriers, none of which we control.

The volume of business from new and existing insured customers, fluctuations in insurable exposure units and changes in general economic and competitive conditions all affect our revenues. For example, level rates of inflation or a continuing general decline in economic activity could limit increases in the values of insurable exposure units. Conversely, the increasing costs of litigation settlements and awards have caused some customers to seek higher levels of insurance coverage. Historically, our revenues have continued to grow as a result of an intense focus by us on net new business growth and acquisitions.

Our culture is a strong, decentralized sales culture with a focus on consistent, sustained growth over the long term. Our senior leadership group, in addition to the CEO and COO, includes 11 executive officers with regional responsibility for oversight of designated operations within the Company. Effective July 1, 2009, J. Powell Brown, who previously served as President of Brown & Brown, Inc., succeeded his father, J. Hyatt Brown, when he retired from the position of Chief Executive Officer. Mr. Hyatt Brown continued to serve as Chairman of the Board, and continues to be actively involved with acquisitions and recruitment.

We have increased annual revenues from $95.6 million in 1993 (as originally stated, without giving effect to any subsequent acquisitions accounted for under the pooling-of-interests method of accounting) to $977.6 million in 2008, a compound annual growth rate of 16.8%. In the same period, we increased annual net income from $8.0 million (as originally stated, without giving effect to any subsequent acquisitions accounted for under the pooling-of-interests method of accounting) to $166.1 million in 2008, a compound annual growth rate of 22.4%. From 1993 through 2006, excluding the historical impact of poolings, our pre-tax margins (income before income taxes and minority interest divided by total revenues) improved in all but one year, and in that year, the pre-tax margin was essentially flat. These improvements resulted primarily from net new business growth (new business production offset by lost business), revenues generated by acquisitions, and continued operating efficiencies.

We experienced increased overall revenue growth in 2008, which was primarily attributable to our acquisition in 2008 of 45 agency entities and several books of business (customer accounts) that generated total annualized revenues of approximately $120.2 million. In the first nine months of 2009, we acquired eight agency entities and several books of business (customer accounts) that generated total annualized revenues of approximately $20.4 million.

Despite this increased overall revenue growth, however, the past two years have posed significant challenges for us and for our industry in the form of a prevailing decline in insurance premium rates, commonly referred to as a "soft market," increased significant governmental involvement in the Florida insurance marketplace and, beginning in the second half of 2008, increased pressure on the number of insurable exposure units as the consequence of the general weakening of the economy in the United States. Due to these challenges, among others, we have suffered substantial loss of revenues. While insurance premium rates declined during most of 2008 in most lines of coverage, the rate of the decline seemed to slow in the second half of 2008 and the first nine months of 2009. For the remaining three months of 2009, continued declining exposure units are likely to have a greater negative impact on our commissions and fees revenues than will any declining insurance premium rates.

We also earn "profit-sharing contingent commissions," which are profit-sharing commissions based primarily on underwriting results, but may also reflect considerations for volume, growth and/or retention. These commissions are primarily received in the first and second quarters of each year, based on underwriting results and the other aforementioned considerations for the prior year(s). Over the last three years, profit-sharing contingent commissions have averaged approximately 6.1% of the previous year's total commissions and fees revenue. Profit-sharing contingent commissions are typically included in our total commissions and fees in the Consolidated Statements of Income in the year received. The term "core commissions and fees" that we use herein excludes profit-sharing contingent commissions and therefore represents the revenues earned directly from specific insurance policies sold, and specific fee-based services rendered. In 2007 and 2008, six national insurance companies announced the replacement of the current loss-ratio based profit-sharing contingent commission calculation with a more guaranteed fixed-based methodology, referred to as "Guaranteed Supplemental Commissions" ("GSC"). Since this new GSC is not subject to the uncertainty of loss ratios, earnings are accrued throughout the year based on actual premiums written and included in our calculations of "core commissions and fees." During 2008, $13.4 million was earned from GSC, of which most was collected in the first quarter of 2009. For the nine months ended September 30, 2009 and 2008, $12.8 million and $9.7 million, respectively was earned from GSC.

Fee revenues are generated primarily by: (1) our Services Division, which provides insurance-related services, including third-party claims administration and comprehensive medical utilization management services in both the workers' compensation and all-lines liability arenas, as well as Medicare set-aside services, and (2) our Wholesale Brokerage and National Program Divisions which earn fees primarily for the issuance of insurance policies on behalf of insurance carriers. Fee revenues, as a percentage of our total commissions and fees, represented 13.7% in 2008, 14.3% in 2007 and 14.1% in 2006.

Investment income historically consists primarily of interest earnings on premiums and advance premiums collected and held in a fiduciary capacity before being remitted to insurance companies. Our policy is to invest available funds in high-quality, short-term fixed income investment securities. As a result of the bank liquidity and solvency issues in the United States in the last quarter of 2008, we moved substantial amounts of our cash into non-interest bearing checking accounts so that they would be fully insured by the Federal Depository Insurance Corporation ("FDIC") or into money-market investment funds, (a portion of which recently became FDIC insured) of SunTrust and Wells Fargo, two large banks. Investment income also includes gains and losses realized from the sale of investments.

Florida Insurance Overview

Many states have established "Residual Markets," which are governmental or quasi-governmental insurance facilities that provide coverage to individuals and/or businesses that cannot buy insurance in the private marketplace, i.e., "insurers of last resort." These facilities can be for any type of risk or exposure; however, the most common are usually automobile or high-risk property coverage. Residual Markets can also be referred to as: FAIR Plans, Windstorm Pools, Joint Underwriting Associations, or may even be given names styled after the private sector such as "Citizens Property Insurance Corporation."

In August 2002, the Florida Legislature created "Citizens Property Insurance Corporation" ("Citizens") to be the "insurer of last resort" in Florida and Citizens therefore charged insurance rates that were higher than those prevailing in the general private insurance marketplace. In each of 2004 and 2005, four major hurricanes made landfall in Florida, and as a result of the significant insurance property losses, insurance rates increased in 2006. To counter the increased property insurance rates, the State of Florida instructed Citizens to essentially cut its property insurance rates in half beginning in January 2007. By state law, Citizens has guaranteed these rates through January 1, 2010. Therefore, Citizens became one of the most, if not the most, competitive risk-bearers for a large percentage of the commercial habitational coastal property exposures, such as condominiums, apartments, and certain assisted living facilities. Additionally, Citizens became the only reasonably available insurance market for certain homeowner policies throughout Florida. By the end of 2007 and throughout 2008 and the first nine months of 2009, Citizens was one of the largest underwriters of coastal property exposures in Florida.

Since Citizens became the principal direct competitor of the insurance carriers that underwrite the condominium program administered by Florida Intracoastal Underwriters ("FIU"), one of our subsidiaries, and the excess and surplus lines insurers represented by our Florida-based wholesale brokers such as Hull & Company, another of our subsidiaries, these operations lost significant amounts of revenue to Citizens during 2007. During 2008, FIU's revenues were relatively flat and therefore, Citizens' impact was not as dramatic as in 2007. However, Citizens continued to be very competitive against the excess and surplus lines insurers and therefore significantly negatively affected the revenues of our Florida-based wholesale brokerage operations.

Citizens' impact on our Florida Retail Division was less severe than on our National Programs and Wholesale Brokerage Divisions, because to our Florida Retail Division, Citizens represents another risk-bearer with which to write business, although at slightly lower commission rates and greater difficulty in placing coverage. Citizens' rates for 2009 will remain relatively unchanged. Based on new legislation passed into law during the second quarter of 2009, however, Citizens' rates will increase by approximately 10% effective January 1, 2010.

Company Overview - Third Quarter of 2009

For the eleventh consecutive quarter, we recorded negative internal revenue growth of our core commissions and fees revenues as a direct result of the continuing "soft market," the competitiveness of Citizens, and the general weakness of the economy since the second half of 2008. Our total commissions and fees revenues excluding the effect of recent acquisitions, profit-sharing contingencies and sales of books of businesses over the last three months, had a negative internal growth rate of (5.2)%. Partially offsetting the negative internal growth rate were the revenues from acquisitions completed since the third quarter of 2008.

Acquisitions

During the first nine months of 2009, we acquired the assets and assumed certain liabilities of eight insurance intermediary operations, and several books of business (customer accounts). The aggregate purchase price was $47.0 million, including $38.8 million of net cash payments, the issuance of $0.3 million of notes payable, the assumption of $1.6 million of liabilities and $6.3 million of recorded earn-out payables. These acquisitions had estimated aggregate annualized revenues of $20.4 million.

During the first nine months of 2008, we acquired the assets and assumed certain liabilities of 28 insurance intermediary operations, the stock of two insurance intermediaries and several books of business (customer accounts). The aggregate purchase price was $233.9 million, including $215.1 million of net cash payments, the issuance of $5.2 million in notes payable and the assumption of $13.6 million of liabilities. These acquisitions had estimated aggregate annualized revenues of $95.3 million.

Critical Accounting Policies

Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We continually evaluate our estimates, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for our judgments about the carrying values of our assets and liabilities, which values are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that of our significant accounting and reporting policies, the more critical policies include our accounting for revenue recognition, business acquisitions and purchase price allocations, intangible asset impairments and reserves for litigation. In particular, the accounting for these areas requires significant judgments to be made by management. Different assumptions in the application of these policies could result in material changes in our consolidated financial position or consolidated results of operations. Refer to Note 1 in the "Notes to Consolidated Financial Statements" in our Annual Report on Form 10-K for the year ended December 31, 2008 on file with the Securities and Exchange Commission ("SEC") for details regarding our critical and significant accounting policies. In addition, refer to Note 4 in the "Notes to Condensed Consolidated Financial Statements" in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, for a description of the new accounting rules governing business acquisitions.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND
2008

The following discussion and analysis regarding results of operations and liquidity and capital resources should be considered in conjunction with the accompanying Condensed Consolidated Financial Statements and related Notes.

Financial information relating to our Condensed Consolidated Financial Results for the three and nine months ended September 30, 2009 and 2008 is as follows (in thousands, except percentages):

                             For the three months                            For the nine months
                              ended September 30,                            ended September 30,
                                                       %                                               %
                     2009              2008          Change          2009             2008           Change
REVENUES
Commissions and
fees               $ 232,595         $ 234,036          (0.6 )%   $   704,422      $   684,640           2.9 %
Profit-sharing
contingent
commissions           10,421             9,730           7.1 %         47,153           51,489          (8.4 )%
Investment
income                   175             1,228         (85.7 )%           945            5,136         (81.6 )%
Other income,
net                      575             2,035         (71.1 )%         1,195            4,199         (71.5 )%
Total revenues       243,766           247,029          (1.3 )%       753,715          745,464           1.1 %

EXPENSES
Employee
compensation and
benefits             119,607           122,172          (2.1 )%       369,573          363,873           1.6 %
Non-cash
stock-based
compensation           1,732             1,819          (4.8 )%         5,243            5,563          (5.8 )%
Other operating
expenses              35,523            36,405          (2.4 )%       107,007          101,993           4.9 %
Amortization          12,468            12,281           1.5 %         37,372           34,789           7.4 %
Depreciation           3,323             3,391          (2.0 )%         9,955            9,929           0.3 %
Interest               3,622             3,867          (6.3 )%        10,888           11,045          (1.4 )%
Total expenses       176,275           179,935          (2.0 )%       540,038          527,192           2.4 %

Income before
income taxes          67,491            67,094           0.6 %        213,677          218,272          (2.1 )%

Income taxes          26,530            26,501           0.1 %         84,036           85,521          (1.7 )%

NET INCOME         $  40,961         $  40,593           0.9 %    $   129,641      $   132,751          (2.3 )%

Net internal
growth rate -
core commissions
and fees                (5.2 )%           (5.1 )%                        (4.1 )%          (5.8 )%
Employee
compensation and
benefits ratio          49.1 %            49.5 %                         49.0 %           48.8 %
Other operating
expenses ratio          14.6 %            14.7 %                         14.2 %           13.7 %

Capital
expenditures       $   2,472         $   2,921                    $     8,734      $    11,115
Total assets at
September 30,
2009 and 2008                                                     $ 2,238,122      $ 2,107,301

Commissions and Fees

Commissions and fees, including profit-sharing contingent commissions, for the third quarter of 2009 decreased $0.8 million, or 0.3%, from the same period in 2008. Profit-sharing contingent commissions for the third quarter of 2009 increased $0.7 million over the third quarter of 2008, to $10.4 million. Core commissions and fees are our commissions and fees, less (i) profit-sharing contingent commissions and (ii) divested business (commissions and fees generated from offices, books of business or niches sold or terminated). Core commissions and fees revenue for the third quarter of 2009 decreased $0.8 million. Factored into this $0.8 million decrease are (i) approximately $11.3 million of core commissions and fees from acquisitions that had no comparable operations in the same period of 2008, (ii) divested business of $0.6 million, and (iii) $12.1 million of net lost business, which was driven primarily by a combination of reduced insurable exposure units resulting from a slowing economy, as well as a continuation of declining insurance property rates, although declining at a slower rate than the previous quarter. This reflects a
(5.2)% internal growth rate for core commissions and fees.

Commissions and fees, including profit-sharing contingent commissions, for the nine months ended September 30, 2009 increased $15.5 million, or 2.1%, over the same period in 2008. For the nine months ended September 30, 2009, profit-sharing contingent commissions decreased $4.3 million from the comparable period in 2008, to $47.2 million. Core commissions and fees revenue for the first nine months of 2009 increased $23.9 million. Factored into this $23.9 million increase are (i) approximately $51.7 million of core commissions and fees from acquisitions that had no comparable operations in the same period of 2008, (ii) divested business of $4.2 million, and (iii) $27.8 million of net lost business, which was driven primarily by a combination of reduced insurable exposure units resulting from a slowing economy, as well as a continuation of declining insurance property rates, although declining at a slower rate than the comparable period in the prior year. This reflects a (4.1)% internal growth rate for core commissions and fees.

Investment Income

Investment income for the three months ended September 30, 2009 decreased $1.1 million, or 85.7%, from the same period in 2008. Investment income for the nine months ended September 30, 2009 decreased $4.2 million, or 81.6%, from the same period in 2008. These decreases are primarily due to substantially lower interest yields on short-term money-market investments.

Other Income, net

Other income for the three months ended September 30, 2009 decreased $1.5 million, or 71.7%, from the same period in 2008. Other income for the nine months ended September 30, 2009 decreased $3.0 million, or 71.5%, from the same period in 2008. Other income consists primarily of gains and losses from the sale and disposition of assets. Although we are not in the business of selling customer accounts, we periodically will sell an office or a book of business (one or more customer accounts) that does not produce reasonable margins or demonstrate a potential for growth.

Employee Compensation and Benefits

Employee compensation and benefits for the third quarter of 2009 decreased $2.6 million, or 2.1%, from the same period in 2008. Employee compensation and benefits as a percentage of total revenue decreased marginally to 49.1% for the third quarter of 2009, from 49.5% for the third quarter of 2008. Factored into the $2.6 million decrease in employee compensation and benefits is a $2.7 million increase related to acquisitions that resulted in stand-alone offices which had no comparable operations in the same period of 2008. Therefore, excluding the impact of these acquisitions of stand-alone offices, there was a net reduction of $5.3 million in employee compensation and benefits in the offices that operated in both periods. The $5.3 million of net reductions was primarily the result of less commissioned producer compensation of $1.6 million, less salaries by $2.4 million, and lower group health insurance cost of $1.2 million.

Employee compensation and benefits for the nine months ended September 30, 2009 increased $5.7 million, or 1.6%, over the same period in 2008. This increase is primarily related to the addition of new employees from acquisitions completed during 2008. Employee compensation and benefits as a percentage of total revenue increased to 49.0% for the nine months ended September 30, 2009, from 48.8% for the nine months ended September 30, 2008. Factored into the $5.7 million increase in employee compensation and benefits is a $17.7 million increase related to acquisitions that resulted in stand-alone offices which had no comparable operations in the same period of 2008. Therefore, excluding the impact of these acquisitions of stand-alone offices, there was a net reduction of $12.0 million in employee compensation and benefits in the offices that operated in both periods. The $12.0 million of net reductions was primarily the result of less commissioned producer compensation of $4.4 million, less salaries of $6.2 million, and lower group health insurance cost of $1.9 million.

Non-Cash Stock-Based Compensation

Non-cash stock-based compensation for the three and nine months ended September 30, 2009 decreased approximately $0.1 million, or 4.8% and $0.3 million or 5.8%, from the same periods in 2008, respectively. For the entire year of 2009, we expect the total non-cash stock-based compensation expense to be slightly more than the total annual cost of $7.3 million in 2008.

Other Operating Expenses

Other operating expenses for the third quarter of 2009 decreased $0.9 million, or 2.4%, from the same period in 2008. Other operating expenses as a percentage of total revenue decreased to 14.6% for the third quarter of 2009, from 14.7% for the third quarter of 2008. Acquisitions since August 1, 2008 that resulted in stand-alone offices resulted in approximately $0.7 million of increased other operating expenses. Therefore, there was a net reduction in other operating expenses of approximately $1.6 million with respect to offices in existence in the third quarters of both 2009 and 2008. Of this decrease, $0.5 million was the result of less T&E expenses, $0.7 less bad debt expense, $0.4 million less postage and supplies, while the remaining net costs were attributable to various other expense categories.

Other operating expenses for the nine months ended September 30, 2009 increased $5.0 million, or 4.9%, over the same period in 2008. Other operating expenses as a percentage of total revenue increased to 14.2% for the nine months ended September 30, 2009, from 13.7% for the nine months ended September 30, 2008. Acquisitions since February 1, 2008 that resulted in stand-alone offices resulted in approximately $4.6 million of increased other operating expenses. Therefore, there was a net increase in other operating expenses of approximately $0.5 million with respect to offices in existence in the first nine months of both 2009 and 2008. Of this net increase, $2.3 million was an increase in error and omission expenses and reserves, and litigation expenses but offset by $1.8 million reduction in T&E expenses, while the remaining net cost increases were attributable to various other expense categories.

Amortization

Amortization expense for the third quarter of 2009 increased $0.2 million, or 1.5%, over the third quarter of 2008. Amortization expense for the nine months ended September 30, 2009 increased $2.6 million, or 7.4%, over the same period of 2008. These increases are primarily due to the amortization of additional intangible assets as the result of new acquisitions.

Depreciation

Depreciation expense for the third quarter of 2009 of $3.3 million was essentially flat with the third quarter of 2008. Depreciation expense for the nine months ended September 30, 2009 of $10.0 million was also essentially flat with the same period of 2008.

Interest Expense

Interest expense for the third quarter of 2009 decreased $0.2 million, or 6.3%, from the same period in 2008. For the nine months ended September 30, 2009, interest expense decreased $0.2 million, or 1.4%, from the same period in 2008. This decrease is primarily due to less debt outstanding in 2009 as compared to 2008.

RESULTS OF OPERATIONS - SEGMENT INFORMATION

As discussed in Note 13 of the Notes to Condensed Consolidated Financial Statements, we operate in four reportable segments: the Retail, Wholesale Brokerage, National Programs and Services Divisions. On a divisional basis, increases in amortization, depreciation and interest expenses are the result of acquisitions within a given division in a particular year. Likewise, other income in each division primarily reflects net gains on sales of customer accounts and fixed assets. As such, in evaluating the operational efficiency of a division, management places emphasis on the net internal growth rate of core commissions and fees revenue, the gradual improvement of the ratio of employee compensation and benefits to total revenues, and the gradual improvement of the percentage of other operating expenses to total revenues.

The internal growth rates for our core commissions and fees for the three months ended September 30, 2009 and 2008, by divisional units are as follows (in thousands, except percentages):

                  For the three months
2009               ended September 30,
. . .