Q1 2021 Arthur J Gallagher & Co Earnings Call

April 29, 2021

[music].

Good afternoon, and welcome to Arthur J, Gallagher and co 's first quarter 2021 earnings conference call participants have been placed on a listen only mode. Your lines will be opened for questions. Following the presentation. Today's call is being recorded if you have any objections you may.

Disconnect at this time some of the comments made during this conference call, including answers given in response to questions may constitute forward looking statements within the meaning of the security laws.

Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

Please refer to the cautionary statements and risk factors contained in the company's 10-K, 10-Q, and 8-K filings for more details on its forward looking statements. In addition for a reconciliation of the non-GAAP measures discussed on this call as well as other information regarding these measures. Please refer to the earnings.

The release and other materials in the Investor Relations section of the company's website. It is now my pleasure to introduce J, Patrick Gallagher, Chairman President and co.

Of Arthur J Gallagher and co. Mr. Gallagher you may begin.

Thank you Laura good afternoon, and thank you for joining us for our first quarter 2021 earnings coal on the call with me today is Doug Howell, our CFO as well as the heads of our operating divisions.

What a fantastic quarter, we executed against our four long term operating priorities to drive shareholder value first we grew organically second we grew through acquisitions third we improved our productivity, while raising our quality and fourth we continue to reap the benefits of our unique Gallagher culture.

I'm extremely proud of how our team continues to execute and deliver world class expertise and service day in and day out we're on.

To a great start in 2021.

So let me give you some more detail on the quarter, starting with our brokerage segment.

Reported revenue growth of 12, 2% of debt, 6% was organic revenue growth better than our recent IR day expectations. Thanks to an excellent March our.

Our cost containment efforts saved about $60 million in the quarter, helping drive our net earnings margin higher by 94 basis points and expand our adjusted EBITDA margin by 480 basis points and net earnings were up 17% and adjusted EBITDAX was up 24%.

An excellent quarter from the brokerage team.

So let me walk you around the world and give you some sound bites about each of our brokerage units starting with our PC operations.

In the U S retail organic growth was strong at about 5% new business was excellent and retention remains strong.

In our U S wholesale operations risk placement services organic was about 6% open brokerage organic was 15% due to rate increases higher levels of new business and improved retention.

Our MGA programs binding businesses were up about 4% retention and new business were similar to the first quarter of 2020. However, we did see a little bit more tailwind from rate and exposure during the quarter.

Moving to the U K over 7% organic for the quarter in both our retail and specialty operations, New business was up over prior year, while retention held pretty steady.

Australia, and New Zealand combined posted organic of 3% new business and retention were both similar to prior year net.

Finally, our Canadian retail operations excellent organic of 13% fantastic new business and rate all added to our stellar performance again this quarter.

So overall, our global PC operations posted more than 7% organic which is better than the 5% to 6% we discussed at our Investor day, Thanks to a really strong March.

Moving to our employee benefit brokerage and consulting business first quarter organic was up slightly which was better than our March IR day expectations.

Revenue from our traditional health and welfare business held up well while fees from consulting arrangements Special project work in our life business were up slightly so when I bring PC and benefits together total brokerage segment organic was 6% a really strong start to the year.

Next I'd like to make a few comments on the PC market, starting with the rate environment.

Global PC rates remained firm overall on the increases we saw during the first quarter of 2021 are consistent with the past couple of quarters rates in Canada led the way up double digits, driven by property and professional liability.

In the U S rates were up about 7%, including double digit rate increases within our wholesale open brokerage operations, our U K retail in London specialty operations combined rates are up about 5% and finally, Australia and New Zealand combined rate increases are in the low single digits.

At the same time capacity is constrained in certain lines and carriers are pushing for tighter terms and conditions.

There are also quite a few pockets in the U S, Canada, and London specialty market that I would describe as hard such as cat exposed property cyber umbrella and public company D&O just to name a few so the global PC environment remains difficult, but it is giving us some tailwind.

Looking forward, we don't see conditions that would indicate this rate environment will change anytime soon.

We are seeing more and more economic activity across our client base.

For example, customers are adding coverages and exposures to their existing policies and through yesterday April endorsements premium audits and other midterm policy adjustments.

A net positive overall that two is an encouraging sign.

On the benefit side are recovering labor market in 2021 should favorably impact our core health and welfare business and we remain optimistic that we will start to see some incremental HR consulting and special project work.

This is a terrific time for our team to shine.

Our global rates, increasing exposure units and recovering employment, our clients need our expertise and we are there with the very best insurance consulting and risk management advice.

So while theres a lot of year left I have greater conviction that our full year 2021 brokerage segment organic will be equal to or perhaps even better than pre pandemic 2019 organic.

Moving on to mergers and acquisitions, we finished the first quarter with five completed brokerage mergers representing about $90 million of estimated annualized revenues.

I'd like to thank all of our new partners for joining us and I extend a very warm welcome to our growing Gallagher family of professionals.

As I look at our tuck in M&A pipeline, we have more than 40 term sheets signed in or being prepared representing about $250 million of annualized revenues. Our global platform is a great fit for savvy and successful engineers and entrepreneurs, we have the tools data products niche expertise and carrier.

Our relationships to help these owners support their current clients and take their business to the next level.

Next I'd like to move to our risk management segment Gallagher Bassett.

First quarter organic growth was 6%, which is in line with our March IR day expectations of about flat.

It was still a tough compare to pre pandemic first quarter 2020. However, there is no doubt we are starting to see more and more core workers comp claim activity when compared to what we were seeing last year. At this time traditional worker's comp claims are returning and we are seeing fewer and fewer COVID-19 related claims.

Our cost containment efforts paid off again this quarter, we saved around $4 million and expanded our adjusted EBITDA margin by 180 basis points to 18, 4% another great quarter of execution by the Gallagher Bassett team.

Looking forward to the next three quarters, we would expect new claims arising to be higher than what we saw last year, perhaps not back to pre pandemic levels quite yet, but certainly higher than last year. So when I combine that with some really nice new business wins, we should be back to seeing organic in the upper single digits for the next few quarters that would also go on.

Well for keeping margins above 18% for the remainder of the year.

Let me wrap up with some comments regarding our unique Gallagher culture.

It's a culture that emphasizes doing things the right way for the right reasons with the right people.

It's a culture of service service to our clients to one another and to the communities, where we work and where we live and our culture continues to be recognized externally just last week Forbes named Gallagher one of the best U S employers for diversity and that's on top of Gallagher being recognized by the Ethisphere Institute.

<unk> is one of the world's most ethical companies for the 10th year in a row 10 straight years and once again the sole insurance broker recognized these.

These recognitions are a direct reflection of our more than 30000 global colleagues working together as a team guided by the 25 tenants of the Gallagher way culture is a key differentiator for our franchise every day all of our people get up and work diligently to maintain our culture to promote our culture to live.

Our culture and I believe our culture has never been stronger.

Doug.

Over to you.

Thanks, Pat and good afternoon, everyone.

Echo Pat's comments, an excellent quarter and a terrific start to the year.

Today I'll spend most of my time on both our cost savings initiatives and our clean energy cash flows then highlight a few items in our CFO commentary document and I'll close with some comments on M&A cash and liquidity.

Before I plunge and on cost one quick comment on page three in the brokerage segment organic table.

You'll see that we had a great quarter for contingent commissions, there is a little bit of favorable timing in their call. It about 50 basis points on total organic that will flip the other way next quarter, but regardless, a really solid quarter.

Okay, Let's go to page five the brokerage segment adjusted EBITDA table you'll.

You'll see that we grew adjusted EBITDA by $122 million over last year's first quarter, resulting in about 480 basis points of adjusted margin expansion.

That would've been closer to 550 basis points, but as we discussed.

March IR day, M&A Roland isn't as seasonally large and we did strengthen bonus of debt given our outlook for 2021 is considerably more optimistic today than it was last year at this time standing at the gates of a global pandemic.

Within that $122 million on EBITDA growth it was about $60 million.

That is directly related to our cost savings initiatives called out about 300 basis or 370 basis points of margin expansion.

So when controlling for these three items, we see underlying margin expansion of about 180 basis points on that 6% all in organic once again, absolutely terrific execution by the team.

Moving on to the risk management segment on page six.

We grew adjusted EBITDA by $4 $3 million, resulting in about 180 basis points of adjusted margin expansion, leading us to post margins nicely over 18% most of that was due to our cost savings initiatives.

When I combine our brokerage and risk management segments savings were around $64 million pretty similar to the last three quarters and that consists of reduced travel entertainment and advertising about $25 million reduced consulting and professional fees about $15 million reduced outside labor and other workforce costs about $15 million.

And then reduced office supplies consumables and occupancy costs of about another $9 million.

But remember first quarter 2021 is the last quarter, we have a favorable comparison to pre pandemic spend levels. So so now it's all about how much of the cost savings we can hold going forward as I look at it today I still believe we will hold a lot of it.

As we have said before we do see certain costs coming back, but that won't happen overnight. Our best guess is maybe $15 million coming back in the second quarter. 'twenty. One then stepped that up by about $5 million to $7 million in the third quarter and a similar step up again in the fourth quarter that was on those amounts that I have given our.

10% to 2020 same corners adjusted for the rolling impact of M&A.

As for how that translates into margins, that's really dependent on where we land on organic but say you assume organic is around 5% or above for the remainder of the year. The math would say that would be enough to show some full year margin expansion.

And regardless on where we land, let's keep this in perspective from the longer term. The pandemic has allowed and perhaps even forced us to accelerate a lot of the improvements we had on the drawing board and also served as an opportunity to design, new and better ways to run our business. Both of these make us more productive today than we were 15 months ago.

Our service quality has even improved.

This will provide a lasting benefit for years to come.

So let's move now to the CFO commentary document we posted on our Investor website on.

On page three most items are very similar to what we provided at our March IR day.

On page four both clean energy and the corporate line came in better than we had provided in March. The corporate line is just timing between first and third quarters for certain tax items, but the clean energy.

Investment had a much better quarter, and we bumped up our full year estimate it's now looking like $70 million to $80 million of full year after tax earnings which is really good news.

Next flip to page five of the CFO commentary.

If you missed the clean energy then yes that I gave during our March IR day, it might be worth a listen to the replay on our website starts at the hour nine minute Mark here on the punch lines first recall 2021 as the last year, what we call the credit generation era.

2022 will be the first meaningful year on the cash harvesting era.

This means 2020 excuse me 2021 is the last year, we will reported GAAP earnings in 2022 will be the first year meaningful cash flows show up on our cash flow statement.

You'll see here on page five that we think 2020 to annual cash flows could increase by around $125 million to $150 million.

And finally this is not a one year benefited cash flow, we have more than $1 billion of tax credit carryforwards on our balance sheet that should favorably impact cash flows for the next six to seven years.

As for M&A capacity at March 31st available cash on hand was more than $400 million and we had no outstanding borrowings on our revolving credit facility.

With cash on hand, our untapped borrowing capacity and another year of strong cash flows it means upwards of $2 $5 billion of M&A capacity here in 'twenty one or.

But the nice M&A pipeline, we are in good shape to continue with our tuck in strategy.

Before I pass it back to Pat.

And that was a mouthful.

Sit here today I see a lot of positive organic has a nice tailwind from rate and exposure growth.

Add to that a lot of pent up consumer demand and perhaps a wave of governmental spending both could be additional growth catalysts. We have a robust M&A pipeline that should continue to grow, especially if an increase in capital gains tax gets momentum and.

And we've learned a lot from the <unk> on how to operate better faster and cheaper all the while improving service quality and our productivity gains we achieved over the last year appear to be sticky.

This all bodes well for another year of strong cash flow generation with a kicker starting in 2022 from our clean energy investment. So we are very well positioned operationally and financially I can feel the excitement out in the field about coming out of the pandemic stronger than ever before it's setting up to be another great year back to you Pat.

Thanks, Doug.

Laura I think we can go to some questions and answers.

At this time that will be conducting a question and answer session. If you have a question please pick up on.

Star one on your telephone at this time.

You are on a speaker phone.

Functions hired a pressing star one.

Sure.

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You may remove yourself from the queue at any point by pressing star Kim again that is star one for question.

Our first question comes from the line of Amit.

Greenspan Wells Fargo. You May proceed with your question.

Hi, Thanks, good evening.

My question Hi, My first question is on on.

Danny.

Hi, Dan.

In the quarter on.

You know as I comment.

Comment on that.

Perhaps you get back to where we were in 2019, which is also 6%.

If you think about what's going on today.

Sales from P&C pricing on the economy is getting better so what would cause on.

With me quarter. It does this year cannot be stronger do you see anything decelerating or is it just there's some conservatism in that outlook.

On stable over the rest of the year.

I think it depends on the recovery pattern I think theres still a lot of unearned point in there and yes, we're running somewhere in that five 5% to 6% range right now we're going to hold that for the rest of the year. It looks like it could be a pretty good year. So there's nothing inherently different today and that thinking other than it feels kind of like 2019.

Okay.

We're doing our clients are doing much better.

They are coming back to 2019, not surging beyond it.

Okay, and then from the.

The margin rate guidance had alluded to.

100 basis points of margin expansion.

I hear that.

And that 80 basis points above, but you still have the headwind you were alluding to so what was better.

I guess relative to the IR day.

The margin was at the contingents and supplemental or was it just kind of core margin expansion away from this day is better than you were thinking it was a contingent commissions that came in better primarily field that.

Okay, and then on on the M&A side of things you pointed to an active on <unk>.

Brian in terms of tuck ins.

That'd be great.

Pretty big merger between Aon and Willis, that's where they are.

Working towards our regulatory approvals and I'm not sure you know what you can comment on is obviously a lot of speculation on the price in terms of what may or may not be divested, but as you guys think about larger deals can you just give us a sense.

How youre thinking about potentially on the M&A side, it's on par.

That could become available there.

The divestment process.

Things that could potentially be attractive to gallagher.

Alright, so there's a lot of done packing that I'll hit the debt capacity, we have up to $2 $5 billion worth of M&A capacity. This year and we've got a full pipeline of nice tuck in acquisitions.

That are out there in terms of what comes out of the Aon and Willis.

Opportunity.

We read the same things that you are.

You are reading in.

We just typically don't comment on acquisitions, and we hear about in the papers, but we've got to $5 billion and we like our tuck in merger strategy.

Okay. That's helpful. Thanks for the color.

Thanks Luis.

Our next question comes from the line of Greg Peters with Raymond James You May proceed with your question.

Good afternoon, Hey, Greg.

So I just wanted to.

Turnaround the discussion on on M&A.

Can you can you go back and revisit sort of the process that evolved and emerged when you guys were doing the J L. T Global aerospace deal on in 2019 was it a three months process was it a one month process.

And I guess ultimately what we're getting at is are where I'm going with this.

Some pretty.

Strong timeline issues with Aon and Willis towers, Watson and I guess.

Some of your investors might be concerned that you you know in an effort to meet their timelines if not that youre doing anything but.

You might sacrifice through due diligence if that makes sense.

Greg I'll take a shot at that we did the arrow deal in London in pretty short order.

Really happy with that acquisition it turned out to be terrific.

No we didn't seem to sacrifice anything.

Okay.

And so you know one on the other areas you you references culture.

Maybe you could go back to the acquisitions. The large acquisitions you did in <unk> in New Zealand, and Australia and talk to us a little bit how you were able to ensure the continuity of your culture when youre doing large deals.

Well I think in that situation.

You had very good strong standalone businesses.

We could in fact.

To meet the leadership of <unk>.

Thank you remember the story, we did fly to Australia met leadership and gave them. The choice they were planning on going public in their own right.

We met two leaders with our top leadership and basically that evening said you know you got a choice to make do you want to go public on your own or you want to join us rich too.

Steve Lockwood, who is still with us had.

That decision to make I think he made a pretty good decision. So things are going great I think Greg on that one in particular to us that this it seems odd from the accounting to say this but when you on.

On that deal. It was owned by an industrial conglomerate that really didnt view brokerage as being its priority insurance brokerage and I got to say from the way our sales leadership and our operational leadership came down.

Down to Australia combined with Steves.

Our relentless focus on sales and we really it was really the Australia business that needed a positive shot in the arm when it comes to embracing and supporting our sales culture, and we think that debt.

What works at Gallagher or people that want to come in and sell insurance and we've worked hard over the number of years to show that we're a broker run by brokers and so we like to sell insurance and that is the culture that we think really really was.

Was the secret sauce to to taking it was running negative 7% organic in Australia. When we bought it and we think we did a terrific job posting.

Posting nice.

Organic year on year out since that since we did that Canada.

Our Canadian operation was running negative organic as well.

Well the accounting didn't do too bad misses answer so.

Remember, it's been around 20 years growth.

Yes, I'm well aware.

I'd like to pivot to the operations just the two things that stuck out the employee benefits business clearly.

Is still.

I don't want to say struggling but it hasn't rebounded the way it was pre pandemic.

Can you is there any ASC 606 issues as we think about the first quarter results relative to the year before or is there.

It's expected that as we move through the year there could be some benefit in that if if the economies do recover.

There's nothing noteworthy on 606 and the numbers what could happen in the future. If you had a substantial recovery in covered lives compared to our estimate of covered lives compared to our estimates today you could see some upside development in those estimates for the rest of this year as you know all that.

Quite benefits business.

Most of it is a one one renewal we have to make our estimate of covered lives.

And if there was a substantial surge in employment.

It would probably pull up those estimates a little bit over the next three quarters as that develops.

Got it.

Feel like I've Hogged enough of your time I'll, let others ask questions. Thanks for your answers thanks, Greg.

Our next question comes from the line of David Law on Madden with Evercore ISI. You May proceed with your question.

Hi, good evening.

I had a question hi, I had a I had a question just following up on the benefits business and hoping to maybe.

Get a bit more granular detail.

Just in terms of how youre thinking about organic throughout the rest of the year.

And specifically I know you spoke about.

In your response to the previous question just about your on your estimates about covered lives and what those do for the year. So I'm wondering what your expectations are.

For the rest of the year just for covered lives like what's baked in that you know that.

That statement that Youre assuming.

We can get back to 2019 organic levels here in 2021, yeah.

Yeah. So our assumption is on the 600 <unk> reserve.

<unk> are not substantial recovery in covered lives different than where our brokers place the business.

They put that to rest here in January so there isn't a substantial uptick in expectation also on that point remember that business didn't fall off the cliff last year, because the employers that we do are pretty stable employers and so while.

We didn't have a substantial decrease in covered lives last year.

And so I wouldn't expect a substantial recovery of that for the rest of their so kind of flat where they renewed is what our expectations were used when we set that reserve or that estimate.

Where we see some opportunity to grow back as the fee business.

That business was just it was slammed shut the end of the first quarter last year.

And those are projects that need to be done they need professionals to do them and I think that there will be some more demand there.

I mean, the orphan talent is coming back so.

And that's where that's where we excel on that is helping employers with that.

Got it no debt that's helpful and I'm, sorry, if I missed it but did you did you talk about how that's trending thus far.

In the second quarter, just on the on the consulting arrangements.

We didn't comment on we're happy to not a substantial difference sitting here on April 29, as we saw let's say on March 29th but there is a there are some green shoots are our consultants are getting some more calls so I think that you'll see a little bit more active.

Summer and fall.

Let's hope.

Got it no. That's helpful. And then maybe just stepping back bigger picture question.

Sort of on the M&A theme, but I'm just sort of I'm wondering just how you guys are thinking about.

Broader acquisitions as opposed to a team lift outs and sort of how you way.

Both potential very similar ways.

On growth.

But obviously you know.

Different in terms of the way the financials work. So just wondering how you think about.

Both of those avenues now let me be real clear David I think these players in the market they want to ignore contracts slip teams litigate and called it a cheaper way to get talent.

Let me see if I can clean up my comments I don't like that.

We like to see people that have built companies entrepreneurial in nature have a culture respect their clients respect their people and sell ongoing enterprises to US do we recruit individual people absolutely and do we bring teams across yeah, we do.

But the other method isn't for us.

Got it yeah that makes sense.

That's that's all that I have I'll I'll, let others ask questions and re queue. Thank you. Thanks David.

Our next question comes from the line of Mark Hughes with choice. You May proceed with your question.

Yes.

Hey, Mark Hello.

Hey.

On the risk management business I'll ask a question about claims.

You say that year over year, clearly frequency or claims counts are going to be up but it sounds like Q4, and Q1 and maybe even so far in Q2 holding relatively steady.

The right way to think about that yes.

Yes, I think theres, a little bit of a crossover here Mark is COVID-19 claims started to client we started to see regular workers comp claim co op.

You'll have a little bit of that on our second quarter, but not much I think the COVID-19 claims are pretty well through our process. At this point and then the regular workers comp claims will far exceed that going forward, so that might be what you.

What youre seeing in that number.

On just the pricing environment. There is some talk of moderation you all seem to be pretty consistent.

The trends are holding steady similar rates of increase I think in the text you might have pointed to higher rates of increase from the second quarter.

Are you seeing any sort of moderation.

No we're not I think we're seeing.

Consistent demand for proper pricing, we've done a couple of years now into some hardening numbers. So.

So I do think that over time that will moderate but we're not seeing any lack of discipline in the market at this point and underwriters are continuing to ask for increases.

Yeah, when youll get the Darwin the year over year dollar over dollar increases the dollars are still going up the rate or the percentage.

Not be as big as Ed just because you're on a bigger base, but theres still rate increases happening everywhere, even workers' comp is getting right at this point.

And then Doug any green shoots about extending the clean energy legislation.

Oh, you know Theres a lot of infrastructure packages out there and I think that there is opportunity to realize this process does contribute.

Contributed some pretty good value to the environment. So.

There's always hope.

Now if we get a.

On opportunity to in the infrastructure package or in the tax reconciliation process that might come through there's always hope on that.

Thank you.

Sure. Thanks Mark.

Our next question comes from the line of.

Qunar with Goldman Sachs. You May proceed with your question.

Hi, good afternoon everybody.

Mike.

Hello.

First question on the contingent commissions, if I'm doing my math correct.

<unk> got to like 120 basis points or so of margin expansion coming from contingency as debt does that resonate.

What do you assume as a margin.

About 70% yes.

Yes, it might be a little effect I mean, a lot of contingent commissions go to.

When it comes debt leadership our variable.

Variable comp, there's a piece of that that feels that so 70% might be a little rich but.

Some of it maybe 100 basis points, maybe not 100 to one okay.

So you got like 60 basis points of call it organic.

<unk> expansion on Dread coming from contingent from the rest from countries. If I wanted to divide it into buckets, probably almost a point from regular thrust.

Then when you take out the contingent on you can't take out the margin from that.

Okay. That's helpful.

And did I did I hear you say that you're switching over to cash EPS in 2022.

No I think what I was saying.

On the clean energy.

Segment, you're going to start seeing 120 day 100 $125 million to $150 million of additional cash flows that will come from our cash flow statement, well, obviously make sure that we call that out every quarter on how much is that because it's the rundown on that deferred tax asset.

Sits on our balance sheet that moves from being a non cash asset into a cash cash.

Cash asset so we'll make sure we highlight it.

As we go forward.

Got it okay. Thank you very much and congrats on the quarter. Thanks Huh.

Our next question comes from the line of Mayor Shields with J B W. You May proceed with your question.

Thanks, I guess, the big Dumb question that I'm struggling with is that if we're seeing rate increases hold flat and we assume that the economy.

Comes back.

Wouldn't that point to organic growth on a year over year basis, well about five.

Hope so.

Part of that though too is remember our job is to help our clients structure programs that actually mitigate some of the rate increase it's hard to it's hard to mitigate exposure growth unless you want to take more deductibles are lower limits. Our rate increases are you can you can do the same thing, but it was summer.

He adds two or three more trucks you got to ensure that was other two or three more trucks. So if exposure units overtake the recovery from rate on that.

The programs that we design you'd see more of that hitting the bottom line, but if it just purely rate you.

Can mitigate some of that through through different program structure.

Okay. That's very helpful. And then if I can dig a little deeper on the <unk>.

The claims workers' compensation claim that you are seeing and the trend is.

Is there a material difference to your revenues when you're handling traditional work comp claims versus COVID-19.

Well, there's two different there's different pieces in there is the liability piece and then there's the medical or the medical only piece in traditional worker's comp.

I think debt.

Our longer tail liability type of risk comp claim is more <unk>.

Profitable to us than just the.

Kind of the recurring medical only claims or basically paying the bills on it. So you would see that you would.

The revenues that come off from a liability related to workers comp claim would probably exceed the COVID-19.

Claims.

Okay Alright.

That's very helpful. Thanks for that.

Thanks, Brian.

Our last question comes from the line of sales for final with Deutsche Bank. You May proceed with your question.

Yeah, Thanks, and good evening.

Just a few quick ones most have been asked and answered, but so as we think about the.

The appropriate base for our margin for first quarter 2022 is it. The 39, two that was printed or shall we make some kind of adjustment for the the margin benefit from the the contingents and supplemental.

Okay, So you're asking about a year from now and first quarter 2021 day.

What I'll say I hope you think got out a second here is I think that yeah. When you look at our 39 two of the base price and start from you have you heard the earlier question on we probably got a little lift from contingent commissions in that number. So you want to start off a little bit while our base and let's say by then we're holding half of our savings long term.

Savings compared to where we are today.

Maybe there is $30 million worth of cost that are back into the structure by that time and spread that across.

1 billion eight or a $1 nine.

It's probably the right way to think about next year.

Okay, but it's fair to say any of us this.

This is lumpy stuff as it should probably be normalized for.

Say that again I'm sorry.

It's fair to say that any of the lumpy kind of impacts.

On contingent over earning yeah, we should probably normalized for that as we think about the forward margin, yes, I think so okay. Okay.

Okay Alright perfect.

And then from the risk management segment I guess.

There was a comment around it being in the upper single digits for the next few quarters.

It is the right way to think about this year over year or sequentially I guess I mean in my mind when I think about your comment about claim counts being kind of flattish fourth quarter to first quarter. It feels like that that's reflected in the revenues and as we think about claim counts expanding with the economy opening back up I guess.

You know maybe 2021 is kind of the one of those is this is where I look at this sequentially as opposed to on a year over year basis.

Is that off base.

Either way as long as you understand that last year's second quarter, there was a trough and there'll be some recovery out of it this year relative to that quarter.

But if youre if youre basing it off the last two quarters, we wanted to do a run rate that way.

Probably not a bad way to do it either.

Okay, Alright, perfect I think that's all I had.

Thank you Phil.

Well. Thank you again, everybody for being on today. This afternoon, we really appreciate it we delivered an excellent first quarter and I'd like to thank all of our Gallagher professionals for their hard work our clients for their trust and our carrier partners for their support I am confident that we can deliver another great year of financial performance in 2021 and truly believe.

<unk>, we're just getting started thanks for being with us.

Yeah.

This does conclude today's conference call you may disconnect. Your lines at this time. Thank you for your participation on drive the rest of your evening.

Okay.

[music].

Good afternoon, and welcome to Arthur J, Gallagher and Cold first quarter 2021 earnings conference call participants have been placed on a listen only mode. Your lines will be opened for questions. Following the presentation. Today's call is being recorded if you have any objections you may disconnect at this time some of the comments.

Made during this conference call, including answers given in response to questions may constitute forward looking statements within the meaning of the security laws.

Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

Please refer to the cautionary statement and risk factors contained in the company's 10-K, 10-Q, and 8-K filings for more details on its forward looking statements.

In addition for reconciliations of the non-GAAP measures discussed on this call as well as other information regarding these measures. Please refer to the earnings release and other materials in the Investor Relations section of the company's website. It is now my pleasure to introduce J, Patrick Gallagher, Chairman President and CEO.

Of Arthur J Gallagher and co. Mr. Gallagher you may begin.

Thank you Laura good afternoon, and thank you for joining us for our first quarter 2021 earnings call on the call with me today is Doug Howell, our CFO as well as the heads of our operating divisions.

On a fantastic quarter, we executed against our four long term operating priorities to drive shareholder value first we grew organically second we grew through acquisitions third we improved our productivity, while raising our quality and fourth we continue to reap the benefits of our unique Gallagher culture.

I'm extremely proud of how our team continues to execute and deliver world class expertise and service day in and day out we're off to a great start in 2021.

So let me give you some more detail on the quarter, starting with our brokerage segment.

Reported revenue growth of 12, 2% of debt, 6% was organic revenue growth better than our recent IR day expectations. Thanks to an excellent March our.

Our cost containment efforts saved about $60 million in the quarter, helping drive our net earnings margin higher by 94 basis points and expand our adjusted EBITDAX margin by 480 basis points and net earnings were up 17% and adjusted EBITDAX was up 24%.

An excellent quarter from the brokerage team.

So let me walk you around the world and give you some soundbites about each of our brokerage unit starting with our PC operations.

In the U S retail organic growth was strong at about 5% new business was excellent and retention remains strong and on.

Our U S wholesale operations risk placement services organic was about 6%.

<unk> opened brokerage organic was 15% due to rate increases higher levels of new business and improved retention, our MGA programs binding businesses were up about 4%.

Retention and new business were similar to the first quarter of 2020. However, we did see a little bit more tailwind from rate and exposure during the quarter.

Moving to the U K over 7% organic for the quarter in both our retail and specialty operations, New business was up over prior year, while retention held pretty steady.

Australia, and New Zealand combined posted organic of 3% new business and retention were both similar to prior year and finally, our Canadian retail operations excellent organic of 13% fantastic new business and rate all added to our stellar performance again this quarter.

Sure.

So overall, our global PC operations posted more than 7% organic which is better than the 5% to 6% we discussed at our Investor day, Thanks to a really strong March.

Moving to our employee benefit brokerage and consulting business first quarter organic was up slightly which is better than our March IR day expectations revenue from our traditional health and welfare business held up well while fees from consulting arrangements Special project work in our life business were up slightly.

When I bring PC and benefits together total brokerage segment organic was 6% a really strong start to the year.

Next I'd like to make a few comments on the PC market, starting with the rate environment.

Global PC rates remain firm overall on the increases we saw during the first quarter of 2021 are consistent with the past couple of quarters rates in Canada led the way up double digits, driven by property and professional liability.

In the U S rates were up about 7%, including double digit rate increases within our wholesale open brokerage operations are.

Our U K retail in London specialty operations combined rates are up about 5% and finally, Australia and New Zealand combined rate increases are in the low single digits.

At the same time capacity is constrained in certain lines and carriers are pushing for tighter terms and conditions.

There are also quite a few pockets in the U S, Canada, and London specialty market that I would describe as hard such as cat exposed property cyber umbrella and public company D&O just to name a few.

So the global PC environment remains difficult, but it's giving us some tailwind.

Looking forward, we don't see conditions that would indicate this rate environment will change anytime soon and we are seeing more and more economic activity across our client base. For example, customers are adding coverages and exposures to their existing policies and through yesterday April endorsements premium audits and other mid tier.

On policy adjustments on a net positive overall.

That too is an encouraging sign.

On the benefit side or on covering labor market in 2021 should favorably impact our core health and welfare business and we remain optimistic that we will start to see some incremental HR consulting and special project work.

This is a terrific time for our team to shine firm global rates, increasing exposure units and recovering employment our clients need our expertise and we are there with the very best insurance consulting and risk management advice.

So while theres a lot of year left I have greater conviction that our full year 2021 brokerage segment organic will be equal to or perhaps even better than pre pandemic 2019 organic.

Moving on to mergers and acquisitions. We finished the first quarter with five completed brokerage mergers representing about $90 million of estimated annualized revenues I'd like to thank all of our new partners for joining us and I extend a very warm welcome to our growing Gallagher family of professionals as.

Our relationships to help these owners support their current clients and take their business to the next level.

Next I'd like to move to our risk management segment Gallagher Bassett.

First quarter organic growth was <unk>, 6%, which is in line with our March IR day expectations of about flat it.

Well for keeping margins above 18% for the remainder of the year.

Let me wrap up with some comments regarding our unique Gallagher culture.

It's a culture that emphasizes doing things the right way for the right reasons with the right people.

A culture of service service to our clients to one another and to the communities, where we work and where we live and our culture continues to be recognized externally just last week Forbes named Gallagher one of the best U S employers for diversity and that's on top of Gallagher being recognized by the Ethisphere Institute.

<unk> is one of the world's most ethical companies for the 10th year in a row 10 straight years and once again the sole insurance broker recognized these.

Our culture and I believe our culture has never been stronger.

Doug.

Over to you.

Thanks, Pat and good afternoon, everyone I'll Echo Pat's comments, an excellent quarter and a terrific start to the year.

Before I plunge and on cost one quick comment on page three in the brokerage segment organic table.

You'll see that we had a great quarter for contingent commissions, there is a little bit of favorable timing in there call. It about 50 basis points on total organic that will flip the other way next quarter, but regardless, a really solid corner.

Okay, Let's go to page five the brokerage segment adjusted EBITDA table Youll.

You'll see that we grew adjusted EBITDA by $122 million over last year's first quarter, resulting in about 480 basis points of adjusted margin expansion.

That would've been closer to 550 basis point, but as we discussed.

On our March IR day, M&A Rowland isn't as seasonally large and we did strengthen bonus a bet given our outlook for 2021 is considerably more optimistic today than it was last year at this time standing at the gates on a global pandemic.

Within that $122 million on EBITDA growth is about $60 million.

And that is directly related to our cost savings initiatives called out about 300 basis or 370 basis points of margin expansion.

When controlling for these three items, we see underlying margin expansion of about 180 basis points on that 6% all in organic once again, absolutely terrific execution by the team.

Moving on to the risk management segment on page six we grew adjusted EBITDA by $4 $3 million, resulting in about 180 basis points of adjusted margin expansion, leading us to post margins nicely over 18% most of that was due to our cost savings initiatives. So when I combine our brokerage and.

The risk management segment savings were around $64 million pretty similar to the last three quarters and that consists of.

Travel entertainment and advertising about $25 million reduced consulting and professional fees about 15 million reduced outside labor and other workforce costs about $15 million and then reduced office supplies consumables and occupancy costs of about another $9 million.

But remember our first quarter 2021 is the last quarter, we have a favorable comparison to pre pandemic spend levels.

So now it's all about how much of the cost savings, we can hold going forward as I look at it today I still believe we will hold a lot of it.

Relative to 2020 same corners adjusted for the rolling impact of M&A.

And regardless on where we land, let's keeps us from perspective from a longer term debt.

<unk> has allowed and perhaps even forced us to accelerate a lot of the improvements we had on the drawing board and also served as an opportunity to design, new and better ways to run our business. Both of these make us more productive today than we were 15 months ago and our service quality has even improved.

This will provide a lasting benefit for years to come.

So let's move now to the CFO commentary document we posted on our Investor website on.

On page three most items are very similar to what we provided at our March IR day.

Investment had a much better quarter, and we bumped up our full year estimate it's now looking like $70 million to $80 million of full year after tax earnings which is really good news.

Next flip to page five of the CFO commentary.

If you missed the clean energy vignettes that I gave during our March IR day, it might be worth a listen to the replay on our website starts at the hour a nine minute mark here on the punch lines first recall 2021 as the last year of what we call the credit generation era.

2022 will be the first meaningful year on the cash harvesting era.

This means 2020 excuse me 2021 is the last year, we will report GAAP earnings and 2022 will be the first year of meaningful cash flows show up on our cash flow statement.

You'll see here on page five that we think 2020 to annual cash flows could increase by around $125 million to $150 million.

And finally this is not a one year benefit to cash flow, we have more than $1 billion of tax credit carryforwards on our balance sheet that should favorably impact cash flows for the next six to seven years.

As for M&A capacity at March 31st available cash on hand was more than $400 million and we had no outstanding borrowings on our revolving credit facility.

With cash on hand, our untapped borrowing capacity and another year of strong cash flows it means upwards of $2 $5 billion of M&A capacity here in 'twenty one.

But the nice M&A pipeline, we are in good shape to continue with our tuck in strategy.

Before I pass it back to Pat.

And that was a mouthful [laughter].

I sit here today I see a lot of positive organic has a nice tailwind from rate and exposure growth.

And we've learned a lot from the pandemic dynamic on how to operate better faster and cheaper all the while improving service quality and our productivity gains we achieved over the last year appear to be stacking.

Thanks, Doug.

Laura I think we can go to some questions and answers.

At this time that will be conducting a question and answer session. If you have a question please pick up on.

Plus star one on your telephone at this time.

You are on a speaker phone.

Well that function prior to pressing star one.

Sure.

On quality.

You may remove yourself from the queue at any point by pressing star Q again that is star one quick question on.

Our first question comes from the line of Elyse Greenspan with Wells Fargo. You May proceed with your question.

Hi, Thanks, good evening.

At least my question Hi, My first question is on on our journey.

Hi, Jade.

With that in the quarter.

You know if I comment on.

Perhaps you get back to where we were in 2019, which is also 6%.

If you think about what's going on today.

Net sales strong P&C pricing on the.

<unk> is getting better so what would cause on.

With me quarter. It does this year cannot be stronger like do you see anything decelerating or is it just there's some conservatism in that outlook.

Stable over the rest of the year.

I think it depends on the recovery pattern I think theres still a lot of unearned point in there and yes, we're running somewhere in that five 5% to 6% range right now if we can hold that for the rest of the year. It looks like it could be a pretty good year. So there's nothing inherently different today and that thinking other than it feels kind of like 2019.

Okay.

We're doing our clients are doing much better I think they are coming back to 2019 not surging beyond it.

Okay and then on.

The margin guidance had alluded to.

On your thesis points of margin expansion.

I R.

And that came 80 basis points above, but we still have the headwind you are alluding to so what was better.

I guess relative to the IR day.

Okay, and then on on the M&A side of things you pointed to an active on.

Hi, Brian in terms of tuck ins on theirs.

That'd be great.

Pretty big merger between Aon, and Willis debt, where they're working towards their regulatory approvals and I'm not sure. If you can comment on is obviously a lot of speculation on the price in terms of what may or may not be divested, but as you guys think about larger deals could you just give us a sense of.

How youre thinking about potentially on the M&A side.

That could become available there is.

The divestment process.

Things that could potentially be attractive to gallagher.

Alright, so there's a lot to unpack in that all hit the debt capacity, we have up to $2 $5 billion worth of M&A capacity. This year and we've got a full pipeline of nice tuck in acquisitions.

That are out there in terms of what comes out of the Aon and Willis.

Opportunity.

We read the same things that you're.

You are reading in.

We just typically don't comment on acquisitions, and we hear about in the papers, but we've got to $5 billion and we like our tuck in merger strategy.

Okay. That's helpful. Thanks for the color.

Thanks Luis.

Our next question comes from the line of Greg Peters with Raymond James You May proceed with your question.

Good afternoon, Hey, Greg.

So I just wanted to.

Turnaround the discussion on on M&A.

And I guess ultimately what we're.

Were getting at is are where I'm going with as you know there was some pretty.

Strong timeline issues with Aon and Willis towers, Watson and I guess.

Some of your investors might be concerned that you you know in an effort to meet their timelines if not that youre doing anything but.

You might sacrifice through due diligence if that makes sense.

Greg I'll take a shot at that we did the arrow deal in London in pretty short order.

Really happy with that acquisition that turned out to be terrific.

No we didn't seem to sacrifice anything.

Okay, and and so you know one on the other areas you you references culture.

Maybe you could go back to the acquisitions. The large acquisitions you did in <unk>, and New Zealand, and Australia and talk to us a little bit how you were able to ensure the continuity of your culture when youre doing large deals.

Well I think in that situation.

You had very good strong standalone businesses.

We could in fact.

To meet the leadership of <unk>.

Thank you remember the story, we did fly to Australia met leadership and gave them. The choice they were planning on going public in their own right.

We met two leaders with our top leadership and basically that evening said you know you got a choice to make you want to go public on your own or you want to join us rich too.

Steve Lockwood, who is still with US had debt decision to make I think you've made a pretty good decision.

Great. Thank you Gregg on that one in particular to us that this it seems odd from the accounting to say this but when you on that deal. It was owned by an industrial conglomerate that really didnt view brokerage as being its priority insurance brokerage and I got to say for the way our sales leadership and our operational leadership came down.

And down to Australia, combined with Steve's a relentless focus on sales and we really it was really the Australia business that needed a positive shot on the arm when it comes to embracing and supporting our sales culture, and we think that debt.

What works at Gallagher on people that want to come in and sell insurance and we've worked hard over the number of years to show that we're a broker run by brokers and so we like to sell insurance and that is the culture that we think really really was.

Was the secret sauce to to taking it was running negative 7% organic in Australia. When we bought it and we think we did a terrific job posting.

Posted nice.

Organic year on year out since that since we did that Canada.

Our Canadian operation was running negative organic as well.

Well on the accounting didn't do too bad misses answer so.

On pivotal you remember has been around 20 years group.

Yes, I'm well aware.

I'd like to pivot to the operations are just the two things that stuck out the employee benefits business. Clearly you know is still you know I don't want to say struggling but it hasn't rebounded the way it was pre pandemic.

Can you is there was there any ASC 606 issues as we think about the first quarter results relative to the year before or is there you know as soon as expected debt as we move through the year there could be some benefit in that if if the economies do recover.

There's nothing noteworthy on <unk> in the numbers what could happen in the future. If you had a substantial recovery in covered lives compared to our estimate of covered lives compared to our estimates today you could see some upside development and those estimates for the rest of this year as you know all of that.

Floyd benefits business.

Most of it is a one one renewal we have to make our estimate of covered lives and if there was a substantial surge in employment.

Would probably pull up those estimates a little bit over the next three quarters as that develops.

Got it you know I feel like Ive hogged enough of your time I'll, let others ask questions. Thanks for your answers thanks, Greg.

Our next question comes from the line of David Law on Madden with Evercore ISI. You May proceed with your question.

Hi, good evening.

I had a question hi.

I had a question just following up on the benefits business and hoping to maybe.

I get a bit more granular detail.

Just in terms of how youre thinking about organic throughout the rest of the year.

And specifically I know you spoke about.

In your response on the previous question just about your estimates about covered lives and what those do for the year. So I'm wondering what your expectations are.

For the rest of the year just for covered lives like what's baked in that you know that that statement that youre assuming.

Yeah, we can get back to 2019 organic levels here on 2021, yeah.

Yeah. So our assumption is on the <unk> reserve.

Estimates are not substantial recovery in covered lives different than where our brokers place the business.

So you know we didn't have a substantial decrease in covered lives last year.

And so I wouldn't expect a substantial recovery of that for the rest of their so kind of flat where they renewed is what our expectations were used when we set that reserve or that estimate.

Where we see some opportunity to grow back as the fee business.

That business was just it was slammed shut the end of the first quarter of last year.

And those are projects that need to be done they need professionals to do them and I think that there will be some more demand there.

I mean, the war for talent is coming back so I think that that's where that's where we excel on that is helping employers with that.

Got it no debt that's helpful and I'm, sorry, if I missed it but did you did you talk about how that's trending thus far.

In in in the second quarter, just on the on the consulting arrangements.

We didn't comment about happy to not a substantial difference sitting here on April 29, as we saw let's say on March 29th but there is there are some green shoots are our consultants are getting some more calls so I think that you'll see a little bit more active.

Summer and fall.

Let's hope.

Got it no. That's helpful. And then maybe just stepping back bigger picture question.

Sort of on the M&A theme, but I'm just sort of I'm wondering just how you guys are thinking about.

Broader acquisitions as opposed to team lift outs and sort of how you way.

Both potential very similar ways.

On growth.

But obviously, yes ill defer.

Different in terms of the way the financials work. So I'm just wondering how you think about.

Both of those avenues now let me be real clear David I think these players in the market they want to ignore contracts lift teams litigate and call that a cheaper way to get talent.

Let me see if I can clean up my comments I don't like that.

But the other method isn't for us.

Got it yeah that makes sense.

That's that's all that I have I'll I'll, let others ask questions and re queue. Thank you. Thanks David.

Our next question comes from the line of Mark Hughes with choice. You May proceed with your question.

Yes, good afternoon, Hey, Mark Hello.

Hey.

On the risk management business I'll ask a question about clean.

You say that year over year, clearly frequency or claims counts are going to be up but it sounds like Q4, and Q1 and maybe even so far in Q2 are holding relatively steady is that the right way to think about that yeah.

Yes, I think theres, a little bit of a crossover here Mark is COVID-19 claims started to climb and we started to see regular workers comp claim co op.

You'll have a little bit of that on our second quarter, but not much I think the COVID-19 claims are pretty well through our process at this point in Europe than the regular workers comp claims will far exceed that going forward, so that might be what youre what.

What youre seeing in that number.

On just the pricing environment. There is some talk of moderation you all seem to be pretty consistent.

The trends are holding steady similar rates of increase I think in the text you might have pointed to higher rates of increase from the second quarter.

Are you seeing any sort of moderation.

No we're not I think we're seeing.

Consistent demand for proper pricing, we've done a couple of years now into some hardening numbers. So.

So I do think that over time that will moderate but we're not seeing any lack of discipline in the market at this point and underwriters are continuing to ask for increases.

Yes, when youll get the Darwin the year over year dollar over dollar increases the dollars are still going up the rate or the percentage.

Not be as big as Ed just because you're on a bigger base, but theres still rate increases happening everywhere, even workers' comp is getting ready to at this point.

And then Doug any green shoots about extending the clean energy legislation.

Oh, you know Theres a lot of infrastructure packages out there and I think that there is a opportunity to realize this process does contribute.

Contributed some pretty good value to the environment. So there.

There's always hope.

Now if we get a.

On opportunity to in the infrastructure package or on the tax reconciliation process that might come through there's always hope on that.

Thank you.

Sure. Thanks Mark.

Our next question comes from the line of.

On Qunar with Goldman Sachs. You May proceed with your question.

Hi, good afternoon everybody.

Mike.

Hello.

First question on the contingent commissions, if I'm doing my math correct.

<unk> got to like 120 basis points or sales of margin expansion coming from contingency as debt does that resonate.

What do you assume as a margin on.

About 70% yes.

Yes, it might be a little effect I mean, a lot of contingent commissions go to.

When it comes that leadership.

Real comp, there's a piece of that that feels that so 70% might be a little rich but.

Some of it maybe 100 basis points, maybe not 100 to one okay.

Okay. So you got like 60 basis points of call it organic.

Margin expansion on coming.

Coming from contingent on the rest from countries if I wanted to divide it into buckets, probably almost a point from regular <unk>.

Then when you take out the contingent on you can't take out the margin from that.

Okay. That's helpful.

And Doug did I did I hear you say that you're switching over to cash EPS in 2022.

No I think what I was saying.

On the clean energy.

Segment, you're going to start seeing 120 day 100 $125 million to $150 million of additional cash flows that will come through our cash flow statement, well, obviously make sure that we call that out every quarter on how much is that because it's the rundown of that deferred tax asset.

Sits on our balance sheet that moves from being a non cash asset into a cash on cash.

Cash asset so we'll make sure we highlight it.

As we go forward.

Got it okay. Thank you very much and congrats on the quarter. Thanks.

Sure.

Our next question comes from the line of Mayor Shields with K B W. You May proceed with your question.

Thanks, I guess, the big Dumb question that I'm struggling with is that if we're seeing rate increases hold flat and we assume that the economy.

Comes back wouldn't that point to organic growth on a year over year basis, well above five.

Hope so.

Add two or three more trucks, you got to ensure that was out of two or three more trucks. So if exposure units overtake the recovery from rate on that.

The programs that we design you'd see more of that hitting the bottom line, but if it just purely rate.

Can mitigate some of that through through different program structure.

Okay. That's very helpful. And then if I can dig just a little deeper on the <unk>.

The claims workers' compensation claim that youre seeing in the trend.

Is there a material difference to your revenues when you're handling traditional work comp claims versus COVID-19.

Well, there's two different there's different pieces and there is the liability piece and then there's the medical or the medical only piece in a traditional worker's comp.

I think debt.

Our longer tail liability type orders comp claim is more <unk>.

<unk> to us than just the.

Kind of the recurring medical only claims or basically paying the bills on it. So you would see that you would.

The revenues that come off of a liability related to workers comp claim would probably exceed the COVID-19.

Claims.

Okay perfect that's.

That's very helpful. Thanks.

Thanks, Brian.

Our last question comes from the line of sales with Parnell with Deutsche Bank. You May proceed with your question.

Yeah, Thanks, and good evening.

Just a few quick ones I think most have been asked and answered, but so as we think about the.

The appropriate base for our margin from first quarter 2022.

Is it 39, two that was printed or shall we make some kind of adjustment for the the margin benefit from the the contingents and supplemental.

Okay, So you're asking about a year from now and first quarter 2021.

I'll say I hope you think got out a second here is I think that yeah. When you look at our 39 two of the base price and start from you you heard the earlier question on we probably got a little lift from contingent commissions in that number. So you want to start off a little bit while our base and let's say by then we're holding half of our savings long term say.

Savings compared to where we are today.

Yeah.

Maybe there is $30 million worth of cost that are back into the structure by that time and spread that across.

A billion eight or a $1 nine.

That's probably the right way to think about next year.

Okay, but it's fair to say I mean, this is lumpy stuff as it should probably be normalized for.

Say that again I'm sorry.

It's fair to say that any of the lumpy kind of impacts.

On contingent over earning we.

We should probably normalized for that as we think about the forward margin yeah I think so okay.

Okay Alright perfect.

And then from the risk management segment I guess.

There was a comment around it being in the upper single digits for the next few quarters.

It is the right way to think about this year.

Year over year or sequentially I guess in my mind, when I think about your comment about claim counts being kind of flattish fourth quarter to first quarter. It feels like that that's reflected in the revenues and as we think about claim counts expanding with the economy opening back up I guess.

Maybe 2021 is kind of the one of those this is where I look at this sequentially as opposed to on a year over year basis is that off base.

Either way as long as you understand that last year's second quarter, there was a trough and there'll be some recovery out of it this year relative to that quarter.

But if youre if youre basing it off the last two quarters, we wanted to do a run rate that way.

Probably not a bad way to do it either.

Okay, Alright, perfect I think that's all I had.

Thank you Phil.

<unk>, we're just getting started thanks for being with us.

Yeah.

This does concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation on drive the rest of your evening.

Q1 2021 Arthur J Gallagher & Co Earnings Call

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