Q2 2022 Arthur J. Gallagher & Co. Earnings Call
Life case that I'll touch on in a minute.
Rollover revenues were about $240 million consistent with our June IR day expectations net earnings growth was 36%.
And as expected, we posted adjusted EBITDA margins of 32% an outstanding quarter for the brokerage team.
Let me walk you around the world and break down our organic starting with our PC operations, our U S retail business posted 11% organic with strong new business retention and continued renewal premium increases.
<unk> placement services, our U S wholesale operations posted organic of 8%. This includes more than 15% organic and open brokerage and 4% organic in our MGA programs and binding businesses, New business was consistent with second quarter of 'twenty, one while retention was down just a bit from last year.
As we noted in our June IR day.
Shifting outside the U S. Our U K businesses posted organic of 8% with excellent new business overall, and another double digit organic growth quarter within our specialty Australia.
Australia, and New Zealand combined organic was more than 11% driven by strong new business stable retention and higher renewal premium increases.
Canada was up more than 14% organically and continues to benefit from renewal premium increases great new business and great retention.
Moving to our employee benefits brokerage and consulting business as I mentioned earlier, we were helped this quarter from a large life case, excluding this our benefits business organic was about 9% in line with our IR day expectations and driven by increased HR benefits consulting work and solid growth.
In our international and health and welfare businesses. Finally, our December reinsurance acquisition is right on target after controlling for breakage. Prior to closing second quarter organic was around 7% just fantastic and integration continues to progress nicely.
On budget and ahead of its original timeline. So reinsurance continues to be a really good story.
So headline brokerage segment, all inorganic of 10, 8% and upper 9% after controlling for the large life case, either way and excellent quarter.
Next let me give you some thoughts on the current PC market environment, starting in the primary insurance market.
Overall global second core.
Quarter renewal premiums, that's both rate and exposure combined were up 10, 5% that's higher than what our data showed for increases in renewal premiums in both the fourth quarter 'twenty, one and first quarter 'twenty two.
When I look at our renewal premiums by line for nearly all coverages second quarter increases were equal to or higher than first quarter. One exception to this was professional liability mostly D&O.
By geography renewal premiums were up double digits nearly everywhere again thats a combination of both rate and exposure. So next to no slowdown in premium increases during the quarter.
Additionally, we are not seeing any significant signs of economic slowdown impact second quarter mid term policy endorsements audits and cancellations continue to trend more favorable than a year ago.
Thus far in July mid term policy endorsements continuing to move higher year over year and renewal premium increases are consistent with second quarter, but remember our job as brokers is to help our clients mitigate premium increases and find suitable insurance programs that fit their budgets.
Moving to reinsurance.
As we noted in our first view report published by our reinsurance professionals earlier this month.
Our very real signs of hardening in the reinsurance market.
Property reinsurance pricing is up across the board and most notably for U S Hurricane and Australian property risks are up anywhere from 15 to more than 40%.
On the casualty side reinsurance placements experienced more modest price increases and we're a little bit less challenging regardless of firm or hardening reinsurance market will naturally show up in primary market rate increases.
And there are many other reasons for our carrier partners to maintain their cautious underwriting stance outside of reinsurance market conditions inflation geopolitical tensions and economic uncertainty to name a few these all translate into a difficult PC market conditions, continuing for our clients across retail.
Wholesale and reinsurance for this foreseeable future.
Moving to our employee benefit brokerage and consulting business U S labor market conditions remain broadly favorable <unk>.
Even with the decline in U S job postings in each of the last two months there remain more than 11 million job openings, that's more than double the number of people unemployed and looking for work.
We expect strong demand for our HR and benefits consulting services to continue.
Businesses, prioritize attracting retaining and motivating their workforce the timing of the large life case in covered lives changes in the second half of 'twenty, one will cause the benefits business to post lumpy quarterly organic results. This year, but that doesn't change is still favorable underlying environment.
So let me wrap up on the brokerage segment organic a great first half and looking like the Safford second half will lead us to a full year 22 organic over 9%, which would be an absolutely terrific year.
Moving on to mergers and acquisitions during the second quarter, we completed eight do tuck in brokerage mergers representing about $50 million of estimated annualized revenues.
Like to thank all of our new partners for joining us and extend a very warm welcome to our growing Gallagher family of professionals.
As I look at our tuck in merger and acquisition pipeline, we have more than 40 term sheets signed or being prepared representing nearly $350 million of annualized revenue. We know not all of these will close. However, we believe we will get our fair share.
Next I would like to move to our risk management segment Gallagher Bassett.
Second quarter organic growth was 10, 3% a bit better than our IR day expectation due to a strong June .
Adjusted EBITDA margin was 18, 9%, which is in line with our expectations.
For the year, we continued to see adjusted EBITDA margins near that 19% level.
We again saw increases in new arising claims across general liability property and core workers' compensation during the quarter.
Encouragingly property and liability claim counts are back to pre pandemic levels.
For workers comp claim counts have yet to fully rebound 2019 levels, which represents a nice opportunity for further growth.
Looking towards the second half of the year, we think organic revenue growth will continue to push 10% due to growing claim counts and new business.
I'll conclude my remarks, with some thoughts on our bedrock culture.
As I resumed traveling to our Gallagher offices around the globe I can report to you that our culture is as strong as ever and that's a reflection of our people are nearly 41000 colleagues working together for a common goal to serve our clients as I have said before our people underpin our culture.
Our culture that we believe is a true competitive advantage and drives our outstanding financial results.
Okay, I'll stop now and turn it over to Doug Doug.
Thanks, Pat and Hello, everyone, an excellent second quarter and terrific.
Today, I will touch on organic margins on our corporate segment using our earnings release.
And then make some comments using our CFO commentary document posted on our website.
And then with my typical comments on M&A debt in cash okay, starting with the earnings release.
Brokerage segment organic table on page three.
Fantastic headline online brokerage organic up 10, 8% as Pat said, we did benefit by about a point or so because of a large group wide case bound in late June weather without that great quarter by our sales team.
As for the rest of 2002 during our June IR day, we set third and fourth quarter would be somewhere around 8% due to a top benefits compare.
As we sit today, we're still seeing third quarter around that 8%, reflecting about a point of that tough benefits compare and we're becoming more bullish on fourth quarter call. It nicely over 8% in the fourth quarter.
That would lead to full year brokerage segment organic growth of over 9%. So today, we're forecasting full year organic growth better than what we were seeing at our June IR day.
Next turning to page five to the brokerage segment adjusted EBITDA margin table headline.
Headline all in adjusted EBITDAX margin of 32% right in line with our June IR day expectation recall, what we've been saying all year because of the rolling impact of the acquired reinsurance operations, which have substantial quarterly seasonality and because there are still expenses returning as we come out of the pandemic that was.
<unk> combination create quarterly margin change volatility.
As a recap we posted adjusted margin up 50 basis points in the first quarter down 97 basis points here in the second and were forecasting down 100 basis points in the third then back up 100 basis points in the fourth.
Because we are seasonally and largest in the first quarter those results would roll up to around 10 to 20 basis points of full year margin expansion.
These quarterly margin changes are right on and what we've been saying all year.
When I think of the inflation impact I, just don't see much here in 'twenty two on our expenses and as we discussed in June headline inflation doesn't significantly impact 80% of our expense base and.
And we have mitigation levers to pull on that other 20% if it comes to that.
Even with rising CPI, we remain comfortable with our 2020 margin outlook.
Looking towards 2003, all of that quarter margin change volatility should go away with the pandemic behind us and reinsurance fully rolled into our box.
Moving to the risk management segment on pages, five and six Pat hit the highlights 10, 3% organic and 18, 9% adjusted margins and excellent quarter.
This unit continues to show momentum with rebounding claim counts and a large new business win coming on next quarter.
It's looking now like organic revenue growth of around 10% in each of third and fourth quarters 2002, I remember that's on top of seven 2% growth in third quarter, 'twenty, one and 13% growth in fourth quarter 'twenty, one that would be a terrific outcome to overcome such a difficult compare.
Moving to page seven of the earnings release to the corporate segment shortcut table interest and banking is within our June IR day range adjusted M&A costs in clean energy and combined those combined also within our range of corporate after adjusting for some favorable tax item is slightly better than our June IR day range call. It.
Call it about a penny due to favorable FX remeasurement gains given the strength in the dollar.
Let's leave the earnings release and go to the CFO commentary document.
On page three these are typical brokerage and risk management modeling helpers, but the rally in the U S. Dollar since our June IR day. Please take a look at our updated FX guidance for the remainder of 'twenty two.
Late June strengthening also caused an extra penny headwind here in the second quarter versus our IR day guidance.
Next you will see our current estimate of integration costs. Most of this is related to <unk>.
The punch line is no change to our original estimate of $250 million for integration charges through the end of 2024 as I mentioned last quarter. The team is making excellent progress and is executing at a faster pace than our original plan.
Integration efforts around people real estate back office transition services are targeted to be mostly done by late 'twenty jet.
<unk>, our new reinsurance colleagues are now moving.
Into our combined Gallagher locations around the world and there is an excitement coming together.
As for technology and system rebuild we still see being having that done by the end of 'twenty three early 'twenty four.
So continued good news on that.
Reinsurance integration plan.
Next please take a look at the amortization of intangibles line.
When we call we know adjust out that out of our non-GAAP results.
Also take a look at footnote number two that will help you reconcile this number to what we have shown on the face of our GAAP financial statements.
Next to the change in estimated earn out payable.
This quarter of some component of the earn out payable adjustment has become more pronounced.
The punch line is found in footnote five.
The note admittedly is a little account moves.
But it is saying that the large non cash gain in our results. This quarter is mostly due to increases in interest rates and market volatility.
When these increase the value of our earn out liability declines thus, creating GAAP income. This game does not reflect any meaningful change.
So our expectations of the acquired brokerages, nor does it change our view of what will ultimately pay and earn outs.
The accounting is a bit like the change in interest rate assumptions and pension accounting except for this change in earn out liability goes through the P&L not through OCI as desk pensions.
In our view this is a no never mind that can dramatically impact comparability. So we adjusted out.
Turning now to page four our corporate segment outlook no changes in the third and fourth quarter estimates.
Flipping to page five clean energy.
Page is here to highlight that we have around $1 billion of tax credit carryover and with the Sunset of the program late last year. We're now in the cash harvesting in Europe . These investments.
You'll see in the pinkish column that the 2022 cash flow increase should be.
Hundred $25 million to $150 million and perhaps more in 'twenty three and beyond.
At this rate these investments will be.
A really nice seven year cash flow sweetener.
The possibility of an extension of the law still exists and we have idled our plants, rather than decommissioning them cost us a little to carry them, but it lets us remain well positioned to restart production of an extension happens.
Turning to page six the top of the page is the rollover revenue table that we've spoken about it in detail. We appreciate we appreciate all of those that have incorporated this disclosure into their models.
Moving down the page the bottom table as an update on our December reinsurance acquisition, you'll see that these numbers are almost spot on to our June IR day estimates.
Delivering $730 million of revenue and nearly $260 million of adjusted EBIT Act here in 'twenty, two would be very close to our pro forma when we inked the deal now.
That would be a really good outcome.
Moving on to cash and capital management and future M&A at June 30 available cash on hand was about $450 million.
Our operations continue to perform very well and we expect strong operating cash flows.
Add to that the cash flow sweetener from our clean energy investments and additional borrowing capacity it adds up to more than $4 billion of tuck in M&A capacity here in 'twenty, two and 'twenty three combined.
So those are my comments, an excellent quarter and first half and we're extremely well positioned for another terrific year back to your path. Thank.
Thanks, Doug.
I think we're ready to open it up to questions.
Yes.
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Our first question comes from the line of Elyse Greenspan Wells Fargo. Please proceed with your questions.
Hi, Thanks, good evening.
Next question Hi, My first question Pat.
And I'd ask you about recession, you said you guys were not seeing yet.
We're going to see any impact on your business wouldn't be in your results until 2023, so recognize right. There we're sitting here six months in advance.
Of hitting next year, but.
As you think about how things can play out from an economic slowdown.
Inflation is still good property casualty pricing, how good that all shake out from an organic growth perspective next year, just how you see.
See things today.
But I think it's not all that different than the discussion that we had in June .
We're seeing literally we look at this daily uninteresting pattern of our underlying clients business is doing well.
Theres still recruiting people or benefits HR folks are as busy as they can possibly be.
We watch for adjustments both in terms of audits and endorsements and those are all positive right now to put that in perspective, we have we do have a baseline on that during the pandemic.
<unk> and it was substantially and that was obviously substantially upside down so we do have a.
Good feel for that and we feel we feel good about it.
<unk>.
Inflation as Doug said really has an impact on about 20% of our expenses I think thats probably good research on the.
Team's part in terms of what's really subject to that but we'll be watching as you know we're going into budget time in the next six weeks or so and Theres a lot of discussion around this.
So don't hold me to it but I think that we're pretty we're in a pretty good spot and.
I think our mix of business bodes well.
I think that the other.
The way our expenses shake out.
An awful lot of those expenses are variable I think that's good a lot of upside for our salespeople this year obviously.
And I think that.
With rate increases.
With.
<unk>.
Interest rates up.
It's a pretty good environment for a broker so let me pile on that all of that because we don't want a whiteboard on that like Pat said, we're not seeing daily indications of our customers.
Gross slowing at this point.
Now admittedly that's looking at current and recent past activity and I think your question is really more about our future slow slowdown.
So when we looked at that what kind of cooling might we see whether it's a recession or just a slowdown in the economy, because obviously, they're not every recession is the same.
We did a lot of work on that and we see.
It happens when I say more like a normal recession, maybe more like.
1990, 91, and again what happened maybe in 2000 2001, and before 911, we do not see next year being of course like the subprime alright.
Shock recession.
It was seven or eight.
While the pandemic recession for a few months of 'twenty.
So it's also important to note that these more normal recessions in the early nineties and early two thousands.
Both lapses about eight months so.
We see it more like that.
It's also important point to remember that brokers.
We're in a very large portion of our revenues based on the amount of premium placed.
It goes up because of rate or because of exposure frankly, we're a little bit different on that so for us we think that like taking a look at nominal GDP is the bigger factor for our revenue much more than real GDP. So absolute sales payroll like that sat in property values or what premiums are placed out.
So then you say what torsten next year, while premium rate increases and you heard us say that we don't see them slowing over the next one.
Next year, or so and then really our spread between new business and lost.
Proficient brokers, so selling more insurance then we lose every year.
So when we put all that together for next year, the brokerage business during a normal recession during an inflating premium rate environment can still post terrific organic results. So that's how we're seeing it now and I talked to you about on the expense side. During during June that we think that we have some mitigating factors for that 20% that might be highly exposed to the yen.
<unk> component of that so it's a long answer to your question between patent eye on it but we think 'twenty three could still be a year of terrific organic growth, but let me be loaded another thought to Alicia we didn't talk about June .
But if you go back to 2007 2008, you go back to the pandemic lunches.
We learned again, which we have through many tough times that our clients will stop paying their people.
They stopped paying their premiums and thats, a pretty good business to be in regardless of the economy.
Okay.
Thanks have a real thorough answer my second question is maybe more short term Doug you said the fourth quarter brokerage outlook is a little bit better right and at the June IR day, what what's the reason for that.
I just think sustained rate increases.
Things are doing a great job of selling more than we're losing so I think that just the environment seems to be better where we're starting to see data come out of what's happening with second quarter rates versus first and there might have been just a little bit of rate.
Drop in the first quarter and that seems to be back on the.
On a positive slope now so yes.
You see that kind of in first quarter or is that when you go back over the last few years that maybe rate increases aren't quite as big as us.
Our in later quarters.
Because you get for the carriers.
Full year of the unearned.
Premium and the books by being maybe a little bit more competitive in the first quarter.
Second quarter bounce back up again, I think that we've had a chance to look at what's in our pipeline. So I would say it's in.
All fronts, we're just feeling more optimistic about where we're seeing the second half.
And then one last one you guys gave the M&A color. So it seems like you still have a good pipeline have you do you think there could be any timing shift and when deals get closed if people are concerned about a recession.
They're just potentially waiting to get a better multiple or.
Youre not observe that in the past, we do not expect that to happen this time around.
I think brokers are often opportunistic smart people if I had a business of sell now is one I would sell it.
Okay. Thanks for the color.
Thanks Luis.
Thank you. Our next question is come from the line if youre wrong with Jefferies. Please proceed with your questions. Good.
Good evening.
Hi, good evening.
And.
Congrats on a good quarter.
Sure.
First question Steve.
The large life piece that you mentioned.
What's the margin profile on that is that accretive or dilutive to the overall brokerage business. It's about the same.
It doesn't have the Leverages you would see in some of the other incremental amounts.
Okay.
And then.
FX did that have an impact on margins are only on revenues, while we adjust that out of our margin profile. So it would be just on the revenue side.
Okay.
And then another one.
I know you said you are still you haven't fully closed the books on clean coal.
Holding on hope that maybe you do see some.
Extension come through and in D. C. I guess would be where the Democrats coming to agreement and the Sun and the <unk>.
Weak or actually today alright.
Is it premature to say, what you've learned from that or if there is maybe an increasing chance of that clinical credit.
Continuing with semi.
Well, it's a 742 page draft Bill.
Lot of words searches on it I'm not seeing.
And that but if you get into that kind of.
<unk> in the Senate next week to see what other senators who might want to include in the package or look at it I think that.
Yes.
Were never out of at Intel.
And even if even if it doesn't come through in this package. It could be later in the year or two so it doesn't cost that much to carry the plants. Our utility partners have been very understanding about this or not not pressing us to decommission. So all of that we have been carrying for another six months, we will but if it happens it would be great. If that were in the cash harvest scenario just like we thought.
You know for the last 15 years, we're at that point now so harvesting the cash is pretty nice.
Alright can be continued and then good luck with the rest of the year.
Thank you very much.
Yeah.
Thank you. Our next question is comes from the line of David <unk> with Evercore. Please proceed with your questions.
Hi, Thanks, good afternoon.
I appreciate all the detail just on the mid term policy endorsements audits.
And I guess I'm wondering.
Just on the employee benefits business, maybe you could talk about what youre seeing there on HR consulting and benefits consulting.
Specifically with the pipeline any changes there or any signs of weakness at all that youre seeing.
Got it.
It's a it's it's really interesting to see as you can imagine I think we've talked about this when the pandemic hit.
That business shut down in a quarter.
<unk> now.
What an interesting turnaround for our clients now the biggest profit problem is attracting and retaining.
So there is this demand frankly at a level that exceeds what we saw pre pandemic.
I think that case things were kind of going along well.
Kind of fine and then everyone tried to.
Come down to the lowest amount of employee base. They could now theyre coming back their businesses are back as we said when we looked at our adjustments and endorsements and audits our clients' businesses. So far are robust and thats a demand that creates a demand for more people. So I mean I.
I can't get specific with you by exactly which practice group, it's the entire consulting part of our employee human resource and human capital business.
Doing extremely well this year, yes, let me add to that there is.
During the pandemic people, we're all about cost containment and so they cut down their costs and they were cut any discretionary costs.
Regardless of what happens with this recession and all the fed actions I think.
I just don't believe that it is going to have a dramatic impact on unemployment.
So I think that employers are really thinking about attracting retaining and motivating their talent. So I just don't see any type of eight months or a year long recession, putting a dent.
Uh huh.
And the employment numbers. So employers are still going to have to make sure. They are out there competing for talent and Thats, where we really provide value. So I don't see this like the pandemic or in 2008 again, we see it a lot if it happens like 90 in 2000 and there is still a war for talent back then to give you. An example, David.
Is one that kind of Florida and in the last month.
I won't mention any names, but we have a sizable client that has engaged us on a multi million dollar contract.
To improve and help them with their communication with their employee base.
This is a significant client obviously, but they are willing to spend.
<unk> millions of dollars in an outreach to existing employees to make sure. They understand why they've got it so great being part of their organization.
And communicating water in the benefits plans why do they take care of them, how they're educating what the career path is with the growth of the company means all those things that go into a solid communication plan.
How cool is that.
No that I mean that is exciting and said, yes definitely doesn't sound like at least now youre seeing really any sign of a slowdown. So I guess, maybe just switching gears if I think about.
If we do see a slowdown in next year I guess, one thing that I've noticed in the past couple of quarters.
In the press release sort of in the fine print there has been mention of office consolidations.
And.
I believe you spoke Doug I think glass.
On the June call about the agile workforce strategy.
So I guess could you maybe just talk a little bit more about what youre doing on the real estate front.
And if maybe that could be a bigger benefit.
Or a bigger lever to pull.
If we do get into tougher revenue backdrop, and maybe maybe if you could put some numbers around potential saves that would also be helpful.
Yes, I think when we talked about it early.
We were coming out of the pandemic, we thought there could be 30, or 40 or $50 million of annualized savings coming from real estate I think we're still on target about that I think we're harvesting maybe about $88 million a year on that effort and there is a couple of big office footprints that are coming up here in the next.
And the next year that I think that maybe it will be a little bit more on that.
Over this next year, what do we do and we're going to the office footprint.
Basically just covering 50 or 50% or so of the number of employees that we have more bringing technology to bear so that they are agile within the work.
Okay well locations.
For those employees that have to come in everyday clearly they haven't designated spot.
And we're finding that.
Yes.
Employees are responding to a very well, especially in cities, where there was a there was a substantial commute so I see us continuing to do that I don't know whether it would be a more rapid.
Exercise, if we had a normal recession over the next year I think Ah patients that we're making changes in the pace of the organization have you.
Got you.
You wait until the lease expires, and then downsize or you can get out of it and you end up paying the rent for the rest of it.
The rest of the terms, so I think a paced and measured approach to that.
Where we are and I don't see that changing.
As a result.
Normal recession happening over the next year I would tell you again on the anecdotal side.
These plans are a foot Doug leading the charge on this prior to the pandemic.
And I don't know about your experience with my experience and telling people that this isn't their workstation anymore or that that office is it's not a good experience.
And people being able to go home and get their job done.
And come back in the office, where we do believe the social connections are important and we're not eliminating our footprints, but allowing them to plug in.
In a plug and play way on the days that they should be there for customer contact for employee meetings.
It's kind of like the pandemic was a real helper.
Yes, I know it sounds like sorry go ahead.
That is it really if you don't get it.
I'll leave the office is too big.
I don't look like Theres, no <unk> going down in the office. So we do a lot of things to make sure that we can track the workforce.
Footprint respond to the workforce, it's like going into our restaurants.
We have the tables empty it doesn't feel like there's much of a vibe same number of people in a smaller restaurant you walk out, saying well that was really.
Happened in place right. So we're trying to make those experiences when people come into the office.
More collaborative more near one to each other and it's actually working that we're just in London, not too long ago.
A real bounce in everybody's step when they come into a full office.
Yeah, Doug just trying to do the age thing on me because I go to a full restaurant I can here.
Yeah.
Okay.
Yes, I agree with all of those changes and so yes, it sounds like 20% to $30 million of a benefit but it sounds like that's maybe a bit more gradual unless things change.
A couple of years.
Half years, we'll get it great. Thank you.
David.
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Our next questions come from the line of Greg Peters with Raymond James. Please proceed with your questions.
Hi, Good afternoon, Hey, good afternoon, everyone.
You provided a pretty robust answer about <unk>.
The recession.
Or a potential recession and its effect on your brokerage business.
But in your answer you kind of didn't really talk about its effect on the risk management business. So maybe.
If you did I missed it so because I was more focused on brokerage. So maybe you can pivot and just tell us about your whiteboard.
Sort of conclusions on the effect of a potential recession on the risk management business.
I don't think there was substantial employment changes in a normal recession. So.
Gallagher Bassett be so tied to the number of people employed in places, where there might be slips and falls et cetera, I think that.
I'm not saying they are immune to it and this next normal recession, but I think that theyre pretty resilience in that right now same thing with the benefits business. There is still a competition for talent I think that there is.
Pat say that there is $11 million open jobs right now for four 5 million people out of work or something like that so.
Think that.
I personally believe that this next if there is a slowdown it's about drawing up excess demand versus supply and Scott pays claims on what the supply is not the demand.
Right.
We sell stuff on supply not demand.
So I think that I think as a business.
You heard us say that.
Of all the lines of cover right now are adjusted by Gallagher Bassett, where comp is still one line, that's not and it's our core business in the U S is not back to pre pandemic claim counts. So it takes a while to build that back but as Doug said directly connected to the employee head count.
And so if.
If employee accounts get slashed that will have an impact on Scotch business, if they stay stable and what we're seeing on the benefit side is aggressive hiring aggressive attempts to retention.
<unk>.
I think we're in pretty good shape.
I was just.
As you're providing the answer I was I was recalling an old adage never really.
It tested it out to know whether it was true or not but as a recession is there was an onset of recession that claim counts workgroups comp claim counts would actually increases.
More employees during the worst would slip and fall in advance of actually.
<unk>.
The Grim Reaper I don't know if that's something that is.
I think thats it all lifestyle.
Yes, yes, exactly okay got that.
I think that that as workers comp premium rate increase and we're not we're not fully into big jumps in workers' comp, but if we get a harder market in workers' comp that will push our people to self insurance.
It leads to pretty good growth.
For Gallagher Bassett too so when they look at an alternative so.
We go into recession of our workers comp rates go up it's medical costs inflate et cetera, you might have you might have more people looking for.
For self insurance with Gallagher Bassett paying the claims.
Is it is it is it your view that the.
The work from home.
Versus work from work is one of the contributing factors to the lower claim count in workers' comp at least from what Youre seeing.
Gallagher Bassett.
Not really.
Okay.
Two other questions from your property answer regarding where your real estate footprint should I infer.
About 20000, or so of your employees are in full work from home.
We have property as target your real estate footprint is unknown.
Gallagher Bassett is move to a more virtual environment.
People are embracing that and really like the brokerage business is allowing agile work, we're working to be agile and to be flexible.
But these office footprints can actually handle everybody coming in at the same time and we are encouraging people to come in.
Yes, I think I got it.
We've looked at actually are designated as purely worked from home employees might be in the 8000 person range.
Okay.
I think part of that JV right.
I'm sorry, what was that last answer Pat a big part of that is Gallagher Bassett.
Okay.
And the final just a detailed question.
Sure you probably provided this before but I just forget.
Is there any cadence to how the.
Cash flow comes out from the energy business as we think about the annual sort of is it heavier in the first quarter.
Harvesting it or is it spread out evenly et cetera.
You get probably more closely correlates to the days that we do our estimated tax payments because we can anticipate using those credits and therefore, we would pay less than estimated tax payments.
That's done on a quarterly basis correct that's right.
Got it alright, thanks for your answers.
Thanks, Greg.
Thank you. Our next question is coming from the line of Mark Hughes with <unk> Securities. Please proceed with your questions.
Yes, Thank you and good afternoon.
Pat.
Renewal premium number you gave us the 10, 5% was that through the global P&C market.
Wait a minute Mark I don't think I gave you.
Renewal premiums.
Take a look.
Yes, I understand so you asked about the global second quarter renewal premiums, that's both rate and exposure were up 10%, yes, that's right.
Yes, we can.
Sure.
That was 8% in the first quarter.
I'd have to pull up the script on that but I just think thats right.
Okay, Alright, and then slightly tongue in cheek, but most of it seriously.
West, Virginia, Senator Joe mentioned as Eli the clean coal business.
Well I think it does I mean, we've got a lot of interest in the real question is are you willing to sponsor a change ines.
As a part of a compromised plan. So we'll find that out over the last over the next.
Over the next week or 10 days or.
10 months right.
I don't think.
Right.
It's a pretty small program to be honest, so I think theyre trying to get a deal done is there something that he is willing to champion.
Maybe not but we will see what happens and when we get into next week.
Yes.
<unk> business within the wholesale the 4% organic.
Do you think that will continue at that level or was there anything unusual this quarter.
No I think it's pretty it's just the nature of some of those programs and MCU.
Should hold should all be.
The better it is.
That stuff is pretty subject mark to the economy.
It's bars opening restaurants opening contractor starting with a wheelbarrow.
Houses does get hit by a lot.
Right.
Yeah, Okay, and then did I hear you comment on workers comp pricing I know you've talked about claims frequency in the <unk>.
A lot of other factors, but how about pricing in the quarter flat.
On rate.
It's growing it's actually showing.
Some nice mid single digit type growth numbers right now.
But rates are flat right.
Yes, yes.
It seems to be reasonably.
Your line that our carrier partners are happy to continue to grow and are satisfied with the results.
Sure.
Yeah understood I appreciate it thanks Mark.
Thank you. Our next question is coming from the line.
Meyer Shields with <unk>. Please proceed with your questions.
Great. Thanks, just a couple of quick ones.
First off when we look at supplemental and contingent.
As a percentage of core commissions and fees were down year over year is that reinsurance.
<unk> could have an impact on it yes that would be and I think it's a good point on that our R. R.
Our supplemental and contingents there is some dip.
Difference in contracts year over year.
Those two.
The other.
Not individual.
So, but together they were up 12% this quarter together.
Okay.
And then the second question on reinsurance.
How comfortable are you with the idea that the breakage that you factored in good way once we get into 2023 that can be a factor anymore.
I would say, it's behind US we've got a really good job.
The teams and we're not having substantial attrition on that in fact, I think we're in good shape on that so I would not expect.
We anticipated what we get from breakage and the teams holding we got that leadership team has done a amazingly good job I've talked about this quarter in quarter.
Really really happy with and proud of the fact that that team joined us.
7% organic growth in the second quarter. After the two to three years that they had prior to the acquisition getting completed in December we're nine months into this thing and Theyre generating 7% organic.
That's fantastic.
And we were sitting there.
Talking about breakage early is there going to be more and let's be honest breakages people left us and accounts in that business like to work with their team.
And so people staying.
Producing.
The other thing I would comment on is the amount of interaction.
And the amount of homes.
The reinsurance is to our retail brokerage operations on a global basis.
Is exceeding our expectations.
There are.
They are a risk sharing pools in the United States that we've done longer and better than anybody in the marketplace and along comes a fresh look and fresh markets and a team that works together with us.
The data sharing.
<unk>.
Discussion of our partner markets and the sharing there.
It's almost unbelievable to me on a multiple number of levels.
Good a fit this is.
Yeah.
Yes.
I understand that.
And then one last question I know this is nitpicky, but the large life deal that came in June is that something that recurs next year. That's a one time deal one time deal.
Yes.
Im Ty, but I wouldn't say that they're annually predictable year over year right.
They in Southwind.
Sure.
I'm sorry.
They buy when they buy it's not like it's saying you've got to have this all put to bed by January one or by October one.
Doesn't really drive necessarily with the calendar or fiscal year. The client it's whatever they want to put these pieces in place.
<unk> is what they were buying so you would not be predictable quarter over quarter over quarter.
Okay, that's what I thought maybe that thank you.
Thanks, Matt.
Thank you. Our next question is come from the line of Western Bloomer with UBS. Please proceed with your questions.
Hi, Thanks for taking my questions. My first one is on just a follow up on the <unk>, obviously, good organic there 7%. The investments ahead of schedule I'm curious, how you're thinking about growth and margin improvement in that business in 2023 could we potentially see organic come in above the 7% how should we think about potential margin improvement.
Potentially grow faster than the core portfolio currently.
Well remember that that margin for the year somewhere around 36%. So I think we're very happy with that margin I think holding that margin is the right answer for that business. It takes heavy investment they've been underinvested.
For the last three or four years on that.
It's not a business if you go back to our acquisition that was expecting substantial margin change.
That so we're happy with the margins where they are we think are competitive.
Sure there'll be opportunities.
For us to become more efficient and we do that every year, we always become more efficient, but I think theres, a ripe opportunity right now to hire.
Brokers in that space that would like to join us.
It's a hard thing going right now so it would be nice to take.
And higher up higher folks into that business.
So I think it's 34% for the years, where we are.
Got it. Thank you and then my follow up is just on M&A curious on what Youre seeing on the international M&A market.
Not more attractive from a multiple perspective or a competition perspective right now.
Or is maybe your term sheet disclosure more international U S weighted mix historically thank.
Kind of curious on what you're seeing internationally, it's not more international weighted it's about the same.
Multiples around the World you can throw ahead over them.
Yes.
Got it thank you.
Thanks, Leslie Thanks for being on the call after my Dear friend.
Thank you.
But all of it by the way of Douglas assessing living on it.
I think thats our questions were now I'd like to thank everyone on the call again for joining us.
Obviously, we're excited we had a fantastic second quarter and first half of 2022 I'd.
I'd like to thank all our colleagues around the globe for their hard work our carrier partners for their ongoing support and our clients for their continued trust. We look forward to speaking to you again at our September Investor Day meeting.
Thank you all everyone for being with us.
Thank you. This does conclude today's conference call you may disconnect your lines at this time.
Thank you for your participation and have a great night.