Q4 2022 Arthur J. Gallagher & Co. Earnings Call
We had a terrific finish to cap off an excellent year during the quarter for our combined brokerage and risk management segments, we posted 16% growth in revenue 11, 7% organic growth GAAP earnings per share of <unk> 83, adjusted earnings per share of $1.
<unk> 86 up 24% year over year reported net earnings margin of 9% adjusted EBITDA margin of 29, 6% up 120 basis points. We also completed 17 mergers totaling more than $140 million of estimated.
Annualized revenues in addition to announcing our agreement to acquire book another fantastic quarter by the team and our best fourth quarter in decades.
Let me give you some more detail on our fourth quarter performance, starting with our brokerage segment reported.
Revenue growth was 16%.
<unk> was 11% Doug will explain it does include a point from our annual 606 review brokerage organic in double digits is outstanding.
Acquisition rollover revenues were $107 million and our adjusted EBITDA margin was 31, 3% up 120 basis points and in line with our December IR day expectations.
Excellent quarter for the brokerage team.
Focusing on the brokerage segment organic let me walk you around the world and provide some more detailed commentary starting with our PC operations.
Our U S retail business posted 8% organic or new business was a bit better than last year offset somewhat by less nonrecurring business client retention and the combined impact of rate and exposure were both similar to last year's fourth quarter.
Risk placement services, our U S wholesale operations posted organic above 9%. This includes more than 12% organic and opened brokerage and about 7% organic in our MGA programs and binding businesses, New business was strong and retention was consistent with last year's fourth quarter.
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Shifting to outside the U S. Our U K businesses, both retail and specialty combined posted organic of 17% benefiting from excellent new business production strong retention and the continued impact of renewal premium increases.
Australia, and New Zealand combined organic was 12% net new versus lost business was consistent with last year and renewal premium increases were above fourth quarter 'twenty one levels.
Canada was up nearly 9% organically, reflecting solid new business and retention.
Moving to our employee benefit brokerage and consulting business organic was 3% consistent with our December IR day expectations, New business was similar to last year's fourth quarter and retention remained excellent.
And finally to reinsurance our legacy reinsurance operations crushed it some hard earned new business wins and quarterly organic well into double digits and recall that December was the first month, our newly acquired reinsurance operations were included in organic and while off a very small revenue base.
They too had a spectacular organic growth for the month.
So combined Gallagher re team continues to deliver outstanding results.
So again brokerage segment, all in organic double digits and with our outstanding fourth quarter finish full year organic came in at nine 7%. That's our best full year brokerage segment organic performance in decades, and even more impressive when you consider we grew on top of the eight.
Percent organic we've posted in 'twenty one.
Next let me give you some thoughts on the current PC market environment, starting the primary insurance market.
Overall global fourth quarter renewal premiums, that's both rate and exposure combined were up more than 9% that's consistent with the 8% to 10% renewal premium change we have been reporting throughout 'twenty two.
Fourth quarter renewal premium changes by line of business were broadly consistent with the first three quarters of 'twenty two with one exception, which is D&O D&O.
<unk> continues to be the one area where rates are flat to down slightly but in some cases, our customers are using the weaker pricing to purchase more women.
Exposures also continued to be consistent with the first three quarters of 'twenty, two indicating continued strength in our customers business activity in fact fourth quarter midterm policy endorsements audits and cancellations were better than fourth quarter 'twenty one levels.
Looking ahead these trends appear to be holding.
Thus far in January mid term policy endorsements and audit adjustments are trending higher than last year's level and global renewal premium increases are consistent with fourth quarter.
But remember our job is to help clients mitigate premium increases and provide an appropriate level of risk transfer that fits their budgets.
Shifting to reinsurance and the important January one renewals.
As we discussed in our first few market report published earlier. This month. It was a very late and complex reinsurance renewal season.
Not surprising U S peak zone property cat reinsurance saw some of the largest price increases, but it's worth noting for additional trends within property cat first attachment points were raised broadly second reinsurers pushed to remove prepaid reinstatement from some contract.
Third reinsurers in some cases, we're able to reduce coverage to named perils only in fourth top layers of mini programs saw the largest percentage increases as reinsurers sought to push up minimum premium rates.
On the casualty side prices were up in the single to low double digit range for most programs, while terms and conditions were more stable.
Despite the tough market backdrop of higher prices lower capacity and tightening terms the reinsurance team was able to deliver a favorable outcomes for our clients.
Looking forward the challenging reinsurance market conditions will no doubt put pricing pressure on the primary market during 'twenty three and that's on top of our primary carrier partners dealing with catastrophe losses, and secondary perils, including convective storms floods and wildfires high replacement.
Cost inflation from raw materials to shortages in labor.
Social inflation combined with the easing of the judicial system logjam escalating medical cost trends and ongoing geopolitical tensions. So there is good reason to expect continued price increases and cautious underwriting for the foreseeable future and as I mentioned before we are not seeing.
Any signs of exposure contraction.
Rather it seems our clients business activity remains unchanged from the past few quarters.
Excuse me.
Within employee benefits brokerage and consulting business the backdrop for 'twenty three is also broadly favorable.
Employers continue to add jobs and wages are growing so demand for our services offerings should remain robust.
So as I sit here today 23, it could be another fantastic year with brokerage organic growth nicely in the 7% to 9% range.
Sure.
Moving on to mergers and acquisitions.
We had a really active fourth quarter, completing 17, new tuck in brokerage mergers representing more than $140 million of estimated annual revenues I'd like to thank all of our new partners for joining us and extend a very warm welcome to our growing Gallagher family of professionals for the year, we completed 30.
<unk> six mergers representing annualized revenue of about $250 million. Additionally, we announced an agreement to acquire a buck a very complementary business, providing retirement HR and employee benefits consulting and administrative services with estimated annualized revenues of 280.
$1 million.
We expect the transaction to close during the second quarter and look forward to welcoming our new colleagues.
Moving to our merger and acquisition pipeline, we have nearly 45 term sheets signed or being prepared representing more than $300 million of annualized revenue. We know not all of these will close. However, we believe we will get our fair share.
Before I conclude my M&A comments, let me give you a quick recap on our reinsurance acquisition now that we have a full year in our books.
We had a fantastic 22, thanks to strong client retention.
Expansion of existing client relationships, some great new business wins and excellent growth in our pro rata business. The team is fully assimilated as delivering for clients and has a lot of momentum I believe we're on track for an even better 23, needless to say reinsurance continues to be an exciting.
Story.
Sure.
Moving on to our risk management segment Gallagher Bassett.
Fourth quarter organic growth was 15, 6% as a strong finish to the quarter pushed organic above our mid December expectations.
Core new arising claims increased during the quarter driven by recent new business wins and continued growth from existing clients and fourth quarter. Adjusted EBITDAX margin was great at 19, 3%, so putting it altogether Gallagher Bassett finished the year with an adjusted EBITDA margin of 18 five.
Percent and.
13, 3% organic benefiting from increased claim activity coming out of the pandemic and some really nice new business wins looking forward full year 'twenty through organic should be pushing 10% and adjusted EBIT margin should be around 19% that would be another fantastic year.
And I'd like to conclude with some comments regarding our bedrock culture.
It's a culture of teamwork client service excellence captured and celebrated in the Gallagher way.
It is the culture that drove full year 'twenty two results for our combined brokerage and risk management segments of 24% growth in adjusted revenues, 10% all in organic.
25% growth in adjusted EBITDA, adjusted EBITDA margin in excess of 32% and 20% growth in adjusted EPS, We have a culture that our people believe in embrace and live every day, it's our culture that will continue to drive us forward that is the Gallagher way.
Okay, I'll stop now and turn it over to Doug.
Doug.
Thanks, Pat and Hello, everyone, a fantastic fourth quarter to close out another outstanding year.
I'll start with our earnings release touching on organic margins in the corporate segment shortcut table.
Next I'll walk you through our CFO commentary document pointed out a few items for the next quarter and also provide our first look at our typical modeling helpers for 'twenty three.
Then I'll finish up with some comments on cash M&A capacity and capital management.
Okay, let's flip to page three of the earnings release to the brokerage segment organic table.
All in brokerage organic of 11% above the 9% to nine five that we foreshadowed in December two drivers of the upside first as Pat just discussed we had a really strong finish within our P&C and reinsurance brokerage operations second our annual update of sex, our sex assumptions added about a point to our headline organic.
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Recall under ASC six house excellent Thats routinely update our assumptions related to the amount of services provided before and after the placement of an insurance policy.
Based on our most recent operational analysis metrics in time studies more of our services being provided at the time of placement and more of a post placement service is being handled faster than our lower cost centers of excellence.
This causes lots of our revenue to be deferred and thus we recognized an additional $15 million of revenue in the quarter.
Small amount relative to our debt our total deferred revenue balance of nearly $435 million, but it does cause an additional point of organic so worth a call out today.
From an expense perspective, our updated <unk> assumptions also caused some additional compensation expense to be recognized during the quarter.
The bottom line of all that our fourth quarter organic revenues EBITDA and net earnings got a small boost and adjusted EBITDAX margin was not significantly impacted.
So 11% headline organic 10% controlling for <unk> at 120 basis points of margin expansion, that's a terrific quarter.
Looking forward to 'twenty three we're currently not seen a slowdown in our clients' business activity, we're not seeing signs of price moderation from the carriers and we still have loss cost inflation in labor market imbalances.
And that to our client for our sales and service culture.
Still seeing 23 organic in that 7% to 9% range as we stated during our December IR day.
Same with our margin outlook for 'twenty three we are still comfortable with our December commentary.
We think we can deliver about 50 basis margin expansion at 6% organic and fiduciary investment income could be a nice margin sweetener provided there isn't a surge in wage and cost inflation.
One other mines and heads up for 'twenty three.
On December 20, we announced our acquisition of Park business operations on an adjusted operates at an adjusted EBITDA margin around 20%. So please make sure a portion of your peg for future M&A revenues reflects that versus what you might pay for other markers.
Moving on to the risk management segment and the organic table at the bottom of page six.
You'll see at 15, 6% organic in the fourth quarter and full year organic in excess of 13%.
Some of that growth. This year comes from our clients' business activity still rebounding out of the pandemic and getting back to levels. They saw before the pandemic accordingly for 'twenty three we're seeing organic revenue approaching 10%.
Flipping to page seven the risk management adjusted EBITDA margin of 19, 3% in the quarter at 18, 5% for the full year.
We see a nice step up in 'twenty, three with margins around 19%, even as we continue to make investments to enhance the client experience and in analytics and tools to drive better claim outcomes. Another year of double digit growth in margin expansion would be another terrific year.
Turning to page eight to the corporate segment shortcut paywall and total adjusted results were favorable end of our December IR day forecast.
You'll also see two non-GAAP adjustments this quarter first our M&A transaction costs of $5 million after tax most relate to Bakken a little relates to a well trained and second as we discussed previously you will see a $31 million after tax gain related to legal and tax matters.
Now shifting to our CFO commentary document we posted on our IR website, starting on page three.
For fourth quarter Youll see most of the brokerage and risk management items are close to our December IR day estimates.
On the right hand side of the page, we're providing our first look at 'twenty three.
A couple of things worth highlighting.
First FX with last year's mid year strengthening in the U S. Dollar you'll see some volatility in how FX will impact our brokerage and risk management results in first half versus second half of 'twenty. Three please make sure to consider these impacts as you're planning your models.
Second our adjusted tax rate.
With the UK corporate tax rate, increasing to 25% effective April 1st providing our current estimate for full year 'twenty three tax rate.
More of an impact to our brokerage segment than it is to our risk management segment, given the given the size of our UK retail, London specialty and reinsurance operation.
One other thing the last slide is page might be a nice reference when making your picks for quarterly margins given our quarterly seasonality.
And finally, when you do make your margin impacts recall, we were still in the omicron portion of the pandemic during the first quarter of 'twenty. Two so we're not expecting as much margin expansion in first quarter our corner as we are in the second third and fourth quarter of 'twenty three.
Okay moving to page five this pages here to highlight the incremental cash flows from our clean energy investments over the coming years I remember that was coming through the cash flow statement not the P&L.
You'll also see that we have $773 million of available tax credits as of December 31, 2002, and that we forecast using about $180 million to $200 million in 'twenty, three and that should step up a bit in 'twenty four and each later here, that's a really nice cash flow boost to help fund our M&A.
When I look at the map it might say that an additional $773 million of free cash to buy maybe another $70 million of recurring EBIT.
At that 10% to 11 times multiple which would then have a nice arbitrage for our current trading levels.
Moving to page six on the rollover revenue table.
Fourth quarter rollover revenues came in higher than our December IR day guidance. Most of all that most all of that came from reinsurance over the last three weeks seasons have been yet been closing their books for 'twenty, two and we're getting updated ceded premium figures that translated into additional commission revenue for 'twenty two.
The sake of clarity nearly all of that upside is excluded from our organic results because that likely relates to pre December one 2002, which marked the first year anniversary of the acquisition.
Also please note that not all of that hits the bottom line because of production and incentive comp expense on that additional revenue that said, it's terrific to get the bump up.
Staying on page six but moving down to the bottom table that table shows our actual reinsurance acquisition results.
In a transition year the team over performed our pro forma expectations, that's impressive and terrific work by the team.
So now let me move to some final comments on cash capital management and future M&A.
At December 31 available cash on hand was about $325 million, our current cash position combined with strong expected cash flows and incremental borrowing positions us well for our pipeline of M&A opportunities in total we estimate towards $3 billion to fund potential M&A opportunities.
During 'twenty three which would include paying per box and also yesterday, our board of directors approved an increase in our quarterly dividend by <unk> <unk> per share that would imply an annual payout of $2 20 per share that's a seven 8% increase over 2002.
So with a strong organic outlook margin expansion opportunities and an ever growing M&A pipeline.
Vantage point as CFO , we are extremely well positioned for another fantastic year in 2003, I would like to thank the entire Gallagher team for another great quarter and outstanding year back to you Pat.
Thank you, Doug operator, I think we're ready for questions.
Alright. Thank you the call is now open for questions. If you have a question. Please pickup your handset and press star one on your telephone at this time.
If you're on a speaker phone please disable that function prior to pressing star one to ensure optimal sound quality you may remove yourself from the queue at any point by pressing star two again Thats star one for questions.
Our first question comes from the line of Weston Bloomer with UBS. Please proceed with your questions.
Hi.
Good afternoon. So my first question is on the reinsurance market and the growth you saw there is obviously a really strong end of the quarter and I think you've talked about high single digit growth. There for 2023. So did the end of the year kind of change how you think about that level of growth there.
How should we be thinking that going into next year.
I think we are definitely going to have some nice momentum I wouldnt.
I wouldn't bank on.
Some incremental big jump, but what I like about the momentum is when you come through a time like we did in this fourth quarter.
Interesting because you actually become much more valuable to your clients and it's not an easy time, when youre tussle and back and forth with the with the <unk>.
<unk> and the <unk>.
The reinsurers trying to get these things done terms are changing.
Catchment levels have changed but in the end as I said in my prepared remarks, we've got the placements made and I think we are in a very strong position going forward number one with those clients, but also with the opportunity to pick up some new business.
Great. Thank you and then my second question within brokerage as well I noticed the compensation ratio as a percentage of revenue dropped pretty materially I think you'd called out.
Some back office, Saint Laurent lower benefit costs offset by some hiring is there any way you can call out how much each of those had an impact or where I'm trying to go to the question is how much additional leverage do you have to kind of bring that lower.
In 2023.
Alright, let me see if I can break that out from memory here I don't have it in front of me exactly but when youre talking about being down was 180 basis points something like that.
Yeah.
Gone from memory, sorry, I'll look it up here.
Yes, I'll, probably a third of that is due to the continued efficiency that we bring by being able to push work into our lower cost centers of excellence I think that we.
To add some technology wins in that area too.
Help us make our workforce more effective on that and didn't have to put on additional heads as a result of.
Of that those technology investments and then I think that when it came to.
<unk>.
The other third is kind of escaping me right here.
Is there any change to the compensation structure that you make in this market too I know there is some.
Change is just a I guess higher organic accounts things like that no. We were pleased to pay our people for what they do and we haven't we haven't messed with that compensation arrangement with our production for us in particular in well over a decade.
Great. Thanks for the color.
Thanks Ross.
Thank you. Our next question comes from the line of Katy <unk> with Autonomous Research. Please proceed with your questions.
Hi, Good evening. Thank you I wanted to follow up on the almost 2000 Twenty's brokerage organic result would you mind, giving us some more color as to how pricing and exposure and net new business drove that year over year acceleration in organic and then from where you sit today, how do you see those fiber it seems like in 2020.
Sorry, you're asking for the quarter, you're asking for the full year, sorry, just so I've got that the baseline.
For the full year.
For the full year, so if I look at rate and exposure as I did on our new business, we had a terrific new business here. So I'll say that our net new business spread was about four points and the rest of that is probably right and exposure remember between that so maybe again you think about a third a third a third net new business.
Ms over lost business as a third right was a third and exposure unit growth was up there.
Got it Okay, and then as a quick follow up.
You have any comment on the degree to which fiduciary investment income will impact margins next year kind of thinking about that 50 bps expansion on 6% organic how much of that move from fiduciary investment income.
I think when we gave the guidance of six points.
Grow organically, 6%, we think we can show about 50 basis points of margin expansion on that investment income would be a sweetener to that to a certain extent, but I don't have that.
Clear line of sight, yet on the size of our raised floor in our hiring needs going into next year. We haven't we understand our budget. So I can't give you a specific number on it but.
<unk> gave me the uptick on what you think.
Inflation is going to be next year to take care of our folks and I can probably give you that number but I don't think were ready yet that might be able to give you some more of that in March.
Got it thanks, so much sure.
Thank you our next questions come from the line of Greg Peters with Raymond James. Please proceed with your questions.
Well good afternoon, everyone.
Okay great.
I'm going to stick on the margin.
Commentary.
In your press release on page four you talked about the operating expense ratio.
And some of the press.
<unk> on that.
So.
When you in your guidance.
50 basis points or so margin expansion provided 6% organic.
How do we think about those factors affecting your ability to expand margins and then just.
On the margin expansion can you can you break it out based on business unit.
Is it going to come in international that Youre going to get margin expansion is going to come into the employee benefits business you get margin expansion or can you source out where you think that's kind of what.
That's where the improvement is going to come from.
Alright, a couple of things.
On the operating expense ratio it was up.
Fourth quarter versus 21 fourth quarter was up about 30% to 40 basis points, let's call it 40 basis points.
On that I think the footnote on that is explaining where it's coming from mostly travel and entertainment some consulting use and investments in technology.
I'd say its probably half of that increase is investments that half of it is just the inflation that we're seeing in travel.
And then consulting costs on that.
I think the next question was.
How am I seeing that these are the next year remember.
We were still on that.
Omicron portion of the pandemic in the first quarter. So we are going to see a little more travel and entertainment expense return in our fourth our first quarter, but we don't see it being up significantly in the second third and fourth quarter. So we're looking at 50 basis points of expansion next year most of that will come in the later three quarters not in the first.
Quarter, and what was that there was another piece of your question Greg.
It was just when I think about within the brokerage business the different business units.
Floyd benefits international.
The retail Rps when when you look at it that way, where do you think the opportunities for margin expansion in the context of that 50 basis points or so guidance.
Yes, it's pretty much across all of them Greg.
That's correct.
Theres not theres no standout in there anywhere or laggard in there.
Makes sense okay.
The other just.
Sort of cleanup question.
And Buck consulting.
Can you give us is there any sort of cadence in terms of how the revenue flows and how the margins are I mean is it heavier in the first quarter, either revenue or margins or any sort of color you can add as we and and just as a follow up I assume that's also going to go get folded into the brokerage segment correct.
Yes, so it will be part of our brokerage segment and our employee benefit operation Yes.
We don't think we're going to close that in the first quarter. We think it's more of a second quarter close at this point.
Don't really have a good quarterly spread that I would feel comfortable giving on the call today for that because we have to apply our conforming accounting principles to theirs apply our 606 assumptions to it so I need a little more time to work through that and we just signed the deal 30 days ago and I just need till March to give you that.
<unk> quarterly spread.
Okay fair enough alright, thanks for the answers.
Thanks, Greg.
Thank you our next questions come from the line of Michael Ward with Citi. Please proceed with your questions.
Thanks, guys. Good afternoon, thanks for having me.
We heard I guess, one of your peers about talk about programs participants pushing back on capacity or trying to restructure commissions.
I was wondering if youre, if youre seeing something similar.
No.
Not really.
Okay.
Second one.
I guess was wondering your deal spend has kind of accelerated over the last few months it seems.
Hoping you could maybe discuss the drivers behind that.
Maybe talk about how you see 2023, playing out in this regard.
So we have definitely seen a change.
In the competitive environment.
Vis vis mergers and acquisitions in the last 60 days.
Not going to sit here and say, it's not still competitive it is.
But I would say that the number of bidders.
It is reduced and we are seeing maybe what I would call a more attentive.
Seller to exactly who the buyer is what the culture is the strategic value of that buyer than maybe existed 12 months ago.
Yes, we usually see a little bit of an uptick in the fourth quarter as people push to get things done by the end of the year, sometimes it's driven by tax or other financial planning.
That the sellers that want to get done, but if there is a noticeable change in the market I would say that.
We feel very good about our pipeline right now there are some names out there that are really nice to have looking at us so a little bit of an uptick in the fourth quarter nationally change in market competitiveness, a little bit, but I also think it's going to be pretty strong in the first couple of quarters of the year relative to what we saw this year in particular.
Super helpful. Thank you.
Thank you. Our next question is coming from the line of Elyse Greenspan with Wells Fargo. Please proceed with your question.
Hi, Thanks, maybe sticking on the M&A point, you guys seem pretty optimistic with the pipeline and you have announced a good number of deals of late but that will come to the CFO commentary sheet. You also write the multiples you're seeing on deals went up one turn my 10 to 11 times from nine to 10.
What are what are you seeing I guess in the market, that's driving up multiples a little bit.
I think its Max right now that's what we're seeing is I think that you are seeing some.
<unk>.
High performing.
Sure.
Names on the list where their growth factors are a little bit bigger than maybe there were in the past, but one turn on that I wouldn't overly react one way or another.
Okay.
And then with your margin guide for.
Kind of the 50 to 60 basis points of expansion are you assuming any any wage inflation embedded within that guide yes.
Yes, we're assuming that we're paying.
Is this year about similar to what we have for the last two years or so.
It's in the numbers.
Also again.
I did a little I did a small and yet during that.
<unk>, if you really look underneath that there's probably 10 or 15 basis points as we toggle for software as a service that might be.
Against that 50 basis points too so maybe it's more like 60 basis points, but then thats the accounting of where that that expense gets charge does influence that a little bit you and I talked about that in December I think tilly's.
And then on the reinsurance side.
Strong into the year.
Great rate increases we saw January one, but also we've seen a higher higher retention by primary company is and I don't think we've really been in in a similar environment right, where you have 40% price increase is with <unk>.
Perhaps less premium to the market. So when you put that all together.
This 23 feel like an environment, where you could show double digit organic growth within your reinsurance business.
Yes, I think we could.
Okay. Thank you thanks.
<unk> Suisse.
Thank you our next questions come from the line up Rob tops with Goldman Sachs. Please proceed with your questions.
Hey, My first question is on the UK retail and specialty organic of 17%.
Very strong and I was just wondering if you could talk a little bit about what's driving that growth.
Yes, as we said.
A very very strong new business in specialty.
<unk>.
But tenant rate increases.
As we've talked earlier, where there were some term changes and the like.
But also our aviation specialty team just crushed it this quarter and in the U K.
In our retail operation across United did extremely well also but I just think the.
We'll London based specialty team.
Reinsurance aviation just set a phenomenal close to the year.
That's great.
Just a question on the labor market.
Yeah. Another a number of companies are instituting layoffs I'm just curious what type of unemployment rate is embedded in your organic guide of 7% to 9%.
And if we did start to see some erosion there at what point in the year do you think we would start to see that impact potentially in your organic growth.
Let me just back up to our prepared comments again.
It's very very interesting first of all we don't play that much and in the high Tech.
Employee employee benefit business and it's not that biggest segment for us in terms of the layoffs, you're seeing that are making the newspaper and as I've said in previous quarters.
We're all reading the same papers right and we all see the same news news reports however.
Our middle market core business is doing our clients are doing extremely well and we keep reporting are or what we're seeing in our midterm endorsements.
And changes to policies and as we see both our renewals and the audits going forward our middle market.
Retail property casually benefits business. These.
These people are doing very very well truck counts are up our trucking business is very strong.
Our work comp renewals in terms of payrolls are not being diminished now that doesn't mean that if there is in fact, a global recession that it won't impact us So of course, it will but at this point in time, we're not seeing that.
So if you ask me, where do we see an impact on that type of growth as we go forward. This year I'll tell you our plans at present don't count on any.
Any recessionary pressure and that could be wrong.
Thanks.
Thank you. Our next question is come from the line of your on Qunar with Jefferies. Please proceed with your questions.
Hey, Good afternoon. This is Andrew on for your own.
Just looking at head count in brokerage it looks like Theres been a pretty good pickup year to date.
And in the quarter, specifically can we kind of talk about what's going on there in roles Youre hiring and the degree to which those hires have been reflected in organic yet.
Yes.
I remember those numbers are in back.
Considerably by our M&A program, so as we've as we closed the year out strong.
On M&A those numbers would be in the December numbers and not in last year's December numbers, and that would impact a quarter or two and I would I would want to comment on that as well we are not undergoing an organic surge in new hiring.
We have a very strong internship we bring on a very strong number of young people every year of course, we're always looking for good solid production hires.
But you are not seeing organic head count surge beyond the M&A activity that Doug just mentioned.
Great and as we think about supplemental and contingent commissions I suppose a part of that is based on underwriting profitability of those programs.
And when you think about 'twenty three is there kind of a loss trend that you bake into forward guidance, there or maybe more broadly what is your view on loss trends over the course of the next year.
You are talking about that carriers loss trends.
Our contingents Fred that relates to the contingent fundamentals are not subject typically to profit sharing arrangements or contingencies are and to date I would say, we put we probably factored nothing in in terms of having significant significant increases in our in our operating loss ratios.
Great. Thank you.
Okay.
Thank you. Our next question comes from the line of Mark Hughes with Truest. Please proceed with your questions.
Yes. Thank you good afternoon.
Another.
The CEO suggested.
You didn't see as much increase in property rates in the fourth quarter. Since you might've expected in light of the reinsurance market dynamics, but maybe thats something that buildup time goodbye.
Higher reinsurance rates do directly impact.
<unk>.
Would you share that observation do you think.
The property.
We could get firmer.
On the primary level.
I think property could get a lot firmer I would say in the fourth quarter. It was very firm.
Particular in anything that had to do with coastal any area that was exposed to wind.
And fire.
This market in terms of property is very difficult as it exists and yes the.
The changes to reinsurance at one one will filter additional pressure onto the retail buyer and we were out early telling our retail buyers about this.
And it is going to get more difficult in what is already a very extremely difficult situations.
If I remember our fourth quarter.
And hit right at the beginning of the fourth quarter at the replacements that were done in October and November that hadn't had the full impact of the $70 billion loss.
And then last quarter, you mentioned a potential spillover effect on casualty I don't know whether you updated your commentary on that this quarter, but do.
I think the reinsurance market, how much of an impact depending on.
Casualty GL.
Mark I don't have a number on that yet.
Just think that it's possible that in order to pay for some of these properties increases other lines are going to have to be tagged and I think I'll be able to feel that since it and maybe have a better number around that at the end of the first quarter.
And I may be wrong on that.
At this point I'm, not being told by our carriers that thats happening.
Okay.
Yes.
Thanks Mark.
Thank you our final question will come from the line of Michael Ward with Citi. Please proceed with your questions.
Thank you guys I just had a quick follow up.
Maybe on leases question and the potential for double digit growth in reinsurance.
Just wondering if that's.
If we should think about that as being achievable with current capacity or incremental capacity might need to come to the market and in order to get there.
So I think that it'll be achievable with existing capacity I was very pleased our reinsurance people were telling us in late November and December early December that they were very fearful. Some of these placements just weren't going to get done.
That is a nightmare.
All sides of the equation and in fact really really pleased and proud of the team that did the work.
To bring the programs together for the for our clients is January got going here. So I think on existing capacity of course.
The largest renewal season is now winding down it's not over but it's winding down and so I do think the increases going forward could come off existing capacity, however, having said that.
Any additional cap capacity would be very welcome and will be utilized quickly and would add to that.
Awesome. Thank you guys.
Thanks, Michael.
Alright, then let me just <unk>.
A few comments as a wrap up I want to thank you again for joining us this evening.
Obviously, I'm very pleased with our 22 financial performance I am still very excited about our future I want to thank our clients for their continued trust our 43000 plus colleagues for their passion hard work and dedication and finally I need dimension of our carrier partners. They do play an integral.
Role in meeting, our clients' insurance and risk management needs and we look forward to speaking with you all again at our IR.
So thank you for being with Us and.
We'll talk to you then.
Thank you. This does conclude today's conference call you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your day.