Q4 2024 Arthur J Gallagher & Co Earnings Call
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Speaker Change: It is now my pleasure to introduce J, Patrick Gallagher Junior.
Speaker Change: Chairman and CEO of Arthur J Gallagher <unk> company.
Speaker Change: Mr. Gallagher you may begin.
Speaker Change: Thank you very much good afternoon, and thank you for joining us for our fourth quarter 24 earnings call.
Speaker Change: On the call a few days talking to all our CFO other members of the management team and the heads of our operating divisions.
Speaker Change: Before I get to my comments about our financial results I'd like to acknowledge the tragic wildfires in California.
Speaker Change: Heartfelt thoughts are with all those impacted including our own Gallagher colleagues, our company and the industry has such an important role and responsibility helping families businesses and communities rebuild and restore their lives and like many times before Gallagher and the industry will rise to the occasion.
Speaker Change: Okay onto my comments regarding our financial performance, we had an excellent fourth quarter for our combined brokerage and risk management segments, we posted 12% growth in revenue, our 16th consecutive quarter of double digit revenue growth, 7% organic growth reported net earnings margin.
Speaker Change: 13.5% adjusted EBITDA growth of 17% and adjusted EBITDA margin of 31, 4% up 145 basis points year over year GAAP earnings per share of $1 56, and adjusted earnings per share of $2 51 up 15 per.
Speaker Change: Year over year.
Speaker Change: The December capital raise for the acquisition of assured partners creates some noise in these headline numbers, Doug will Peel back the impact in his comments, regardless another fantastic quarter to close out another terrific year by our team.
Speaker Change: Moving to results on a segment basis, starting with the brokerage segment reported revenue growth was 12%.
Speaker Change: Organic growth was seven 1% base Commission and fees were seven 8% in line with our expectations, which got offset a bit by slightly lower contingents. Adjusted EBITDAX margin expanded 168 basis points to 33, 1%, which includes interest income related to funds raised for the.
Speaker Change: The acquisition of assured partners, excluding that interest income margin expansion was 109 basis points.
Speaker Change: Let me give some insights behind our brokerage segment organic.
Speaker Change: With our PC retail operations, we delivered 6% organic overall.
Speaker Change: The UK, Australia, and New Zealand were all in the high single digits U S. Retail organic was around 5% and Canada was down a couple percent impacted by lower contingents, our global employee benefit brokerage and consulting business posted organic of about 10% a really strong finish that includes the catch up.
Speaker Change: The large life case sales that shifted from earlier in 'twenty four.
Speaker Change: Shifting to our reinsurance wholesale and specialty businesses in total organic up 9%, which overcame some expected market headwinds in our global aerospace business, so very strong growth, whether retail wholesale or reinsurance.
Speaker Change: Next let me provide some thoughts on the PC insurance pricing environment, starting with the primary insurance market.
Speaker Change: For all the global PC insurance market continues to grow with fourth quarter renewal premium increases that's both rate and exposure combined consistent with the past two quarters.
Speaker Change: As far in January renewal premium increases are ticking slightly higher than fourth quarter and are above 5% driven by increases in casualty lines like umbrella and commercial auto.
Speaker Change: Breaking down fourth quarter global renewal premium changes by product line, we saw the following.
Speaker Change: Property and professional lines were about flat workers' comp up 1% general liability up 4% commercial auto up 9% umbrella up 10% in personal lines up 9%. So we continue to see increases across most lines and geographies.
Speaker Change: Ours are behaving rationally and pushing for increases where it's needed to generate an acceptable underwriting profit.
Speaker Change: It's a great market for us to operate in because we can further differentiate ourselves with our leading tools data and expertise remember our job as brokers is to help clients find the best coverage that fits their budget, while mitigating price increases, we're becoming more successful securing lower pricing for our property customers.
Speaker Change: Especially cat exposed property, which enables them to buy more limit or reduce their deductibles, resulting in more coverage for the same spend.
Speaker Change: <unk> to the reinsurance market.
Speaker Change: Overall, one one renewals were orderly and reflected an environment that generally favorite reinsurance buyers.
Speaker Change: Growing demand for property Cat cover was met with sufficient reinsurance capacity, despite 2024 being an elevated year with more than $150 billion of estimated insured natural catastrophe losses. This resulted in property price declines that were greater at the top end of reinsurance towers and similar to January 20.
Speaker Change: For renewals reinsurers continue to exercise discipline on terms and did not revert to attachment points that expose them to greater frequency.
Speaker Change: Reinsurance buyers, especially coverages modest price declines across many lines of coverage, but again no softening in terms and conditions shifting to casually. While there was adequate reinsurance capacity reinsurers remained cautious on U S. Casualty risks due to elevated loss cost trends and potential reserve it.
Speaker Change: <unk> looking forward wildfire losses in casualty reserve increases seemed to be the stories here in January and time will tell how each of these ultimately impacts the market, regardless Gallagher re had a fantastic one one with some nice new business wins and should continue to excel in this environment.
Speaker Change: Moving to some comments on our customers' business activity.
Speaker Change: During the fourth quarter, our daily revenue indications from audits endorsements and cancellations remain in net positive territory. The same is true for full year 2024, while the activity is not quite as high as 23, the upward revenue adjustments. This past year are very close to full year 'twenty. Two so we continue to see solid climb.
Speaker Change: Business activity and no signs of a meaningful global economic slowdown.
Within the U S. The labor market remains strong since April 24, the number of open jobs has remained relatively steady and at a level that is still well above the number of unemployed people looking for work.
Speaker Change: Lawyers are looking for ways to grow their workforce and control their benefit costs and at the same time based wage increases and continued medical cost inflation. Both are headwinds that our professionals are helping to navigate.
Speaker Change: Regardless of market conditions, I believe we are well positioned to take share across our brokerage business remember.
Speaker Change: 90% of the time, we're competing against the smaller local broker that cannot match, our niche expertise outstanding service or extensive data and analytics offerings. So with some nice momentum in net new business production across our brokerage business. Our PC market is still seeing mid single digit pre.
Speaker Change: Liam growth and a strong U S labor market, we continue to see full year 'twenty five brokerage segment organic in the 6% to 8% range.
Speaker Change: Moving on to our risk management segment Gallagher Bassett.
Speaker Change: Revenue growth was 9%, including organic of six heading into 'twenty five we should continue to benefit from excellent client retention increases in our customers business activity and rising claim counts.
Adjusted EBITDA margin was 26% in line with our October expectations. Looking ahead, we still see full year twenty-five organic in that 6% to 8% range and margins around 25%.
Speaker Change: Shifting to mergers and acquisitions.
Speaker Change: During the fourth quarter, we completed 20, new tuck in mergers at fair prices, representing around $200 million of estimated annualized revenue, bringing the full year to $387 million for those new partners joining us I'd like to extend a very warm welcome to the Gallagher family of professionals.
Speaker Change: And of course, the Big News in December was signing an agreement to acquire assured partners with $2 $9 billion of annual pro forma revenue.
Speaker Change: Compelling opportunity to build upon our commercial middle market focus deepen our niche practice groups and further leverage our data and analytics, allowing us to provide even more value to clients. It should also expand our tuck in M&A reach and create more retail and specialty revenue opportunities across Gallagher.
Speaker Change: What is especially exciting is that the combination involves two highly innovative entrepreneurial and sales based cultures. Although we will continue to operate as two independent companies until close we have started discussions and are very impressed with the talent professionalism and excitement of the assured colleagues we.
Speaker Change: We will receive necessary approvals and complete the acquisition sometime here in the first quarter. In addition to the pending assured partners acquisition, we have about 45 term sheets signed or being prepared representing around $650 million of annualized revenue.
Speaker Change: Good firms always have a choice and it would be terrific. If they chose to partner with Gallagher.
Speaker Change: It was a strong closer to the year, let me reflect on our full year financial performance for brokerage and risk management combined.
Speaker Change: 15% growth in revenue seven 6% organic growth, 18% growth in adjusted EBITDAX 48, mergers completed with nearly $400 million in estimated annualized revenue and we signed a definitive agreement to acquire assured partners. These are terrific metrics and as proud as.
Speaker Change: I am of the excellent financial performance this year I'm more proud of the way our culture has stayed true as we continue to expand our culture is about our kylix guided by the Gallagher way and a rock solid foundation. They form based on every interaction we have whether it's clients carriers future merger partners with our Gallagher.
Speaker Change: <unk> around the globe frankly, our culture is unstoppable and that is the Gallagher way.
Speaker Change: Okay, I'll stop now and turn it over to Doug.
Doug Peel: Thanks, Pat and Hello, everyone.
Doug Peel: Today I'll quickly recap some soundbites from our quarter and replay our early thoughts on 2025, most of which Pat just touched on and then use the rest of my time to unpack the impact of the assured partners' financing activities on our results during the quarter, then I'll wrap up my prepared remarks with my usual comments on cash.
Doug Peel: M&A and capital management.
Doug Peel: Okay highlights from our fourth quarter and Youll see in our earnings release terrific base Commission and fee organic growth of seven 8% solid supplemental growth of four 7% and while contingents went backwards a bit this quarter, we don't see that as a trend by any means.
Doug Peel: Look to 2025 brokerage organic at relayed that we're in a favorable environment with rates still needing to increase to cover higher loss cost trillions of adult global premiums growing and inflating and our sales and service offerings, our Pat outpacing our competitors, which should increase both new business and our retentions.
Doug Peel: So as we sit here today, we still believe our full year 'twenty five brokerage segment organic growth should be in that 6% to 8% range. That's unchanged from what we said in October.
Doug Peel: As for brokerage margins, a little noise on page five of the earnings release. Please see the footnotes, you'll read that the margin was aided by about $20 million of interest income earned on cash we are holding to close Assurant partners adjusting for that our margins would have been 32, 5% up 109.
Doug Peel: Basis points over last year, that's nicely above our October expectation of margin expansion in the 90 to 100 basis point range.
Doug Peel: Looking ahead to 'twenty five we are still viewing margin expansion like we have and like we've said many times before we see margin expansion starting around full year organic growth of 4%.
Doug Peel: At 6%, maybe we could see 50 basis points and at 8%, perhaps a 100 basis points of expansion.
Doug Peel: Of course those ranges, Tim then be impacted by changes to interest income on our fiduciary assets and then the rolling impact of M&A.
Doug Peel: By our March IR day, maybe we will have a better read on where interest rates might go and also the impact of assured rolling into our numbers, but this time, we don't see either having a significant impact on those ranges.
Doug Peel: So really no change to how we're thinking about margins in 2025.
Doug Peel: As for our risk management, another solid corner, posting 6% organic admittedly a couple of million dollars below our October expectations, all stemming from a smaller quarter, our construction consulting revenues in the northeast and the north east that can be just a little bit lumpy.
Doug Peel: So adjusted margin expansion up 26% in the quarter was also in line with our October expectations and then looking forward, we're seeing full year 'twenty five organic also in that 6% to 8% range.
Doug Peel: <unk> again around 25% for the year.
Doug Peel: So a great quarter and full year by both our brokerage and risk management teams and both have a strong outlook for 'twenty five.
Doug Peel: Turning to page six of the earnings release in the corporate segment shortcut table for the interest and banking line were a bit better than our October forecast because we just we're not into our line as much as we thought at that time for the adjusted acquisition lines for M&A and clean energy goals, we're close to our October expectations.
Doug Peel: Then when you look at the corporate line in the corporate segment that was better than our expectation due to unrealized noncash foreign exchange Remeasurement income, which was partially offset by a return to actual tax catch up of about $4 million.
Doug Peel: So let's move from our earnings release, and the CFO commentary document that we posted on our IR website.
Doug Peel: First an overarching statement. Please take some time to read any headers are footnotes throughout this document to understand what information has or hasn't been updated for the assured partners deal.
Doug Peel: So let's move to page three for our modeling helpers across the board fourth quarter 'twenty four actual numbers were fairly close to what we provided back in October as for 25, we provided a first look of what we forecast again, none of these numbers include any impact from <unk> partners.
Doug Peel: Turning to page four our first look at our corporate segment outlook for full year 'twenty five.
Doug Peel: The only impact of assured as the interest is found in the interest and banking line. It includes additional interest expense from the $5 billion debt raise.
Doug Peel: Flipping to page five.
Doug Peel: The CFO commentary document to our tax credit carryforwards.
Doug Peel: As of year end about $770 million that will be used over the next few years. So still a nice sweetener to fund future M&A, we would not expect those numbers to move much because of the.
Doug Peel: He assured financing nor the roll in of assurance taxable income that's because of the interest shield and also the amortization of the $5 billion deferred tax asset that will get with Assurant partners that should save us about $1 $4 billion of taxes over the coming years.
Doug Peel: Flipping over to page six the investment income table.
Doug Peel: This table includes an assumption of 225 basis point rate cuts and 25. It includes interest income from cash we're holding to pay for assured assuming a late March March closed, but it does not include interest income from assurance fiduciary assets after closing.
Doug Peel: When you shipped out on page six to the rollover revenue table. The pinkish columns to the right include estimated revenues for brokerage M&A that we closed through yesterday.
Doug Peel: And then below that table, we've added a separate section for our shared partners revenues again, assuming a late March close which of course is highly dependent on regulatory approvals.
Doug Peel: Then just a reminder, you also need to make a pick for other future M&A.
Doug Peel: And then further down on that page, you'll see the risk management segment rollover revenues for 25 are expected to be approximately $5 million for each of the first two quarters.
Doug Peel: Alright, moving to page seven this is a new page to help you see the impact of the assured partners' financing on our fourth quarter 24 revenues EBIT net earnings and EPS by <unk> <unk>.
Doug Peel: Three items just to keep in mind, there was additional incremental interest income on our cash.
Doug Peel: We were holding to fund the acquisition.
Doug Peel: There was additional interest expense, we incurred on the newly issued $5 billion worth of debt and then the additional shares outstanding from the December equity offering.
Doug Peel: Youll see that for fourth quarter, it all nets out to nearly nothing but it does cause a little noise in our numbers also.
Doug Peel: Callout box on the right of that page provides some information on shares outstanding.
Doug Peel: Because of the assured partners' equity raised for our first quarter. This includes the full impact of the shares we issued in December and the exercise of the Green shoe in early January.
Doug Peel: Finally, if you flip the page eight youll see those pages just a repeat of what we provided in mid December assured presentation for ease of reference Theres No new news on this page.
Finalists movie cash capital management and M&A funding.
Doug Peel: Available cash on hand at December 31 was more than $14 billion of which approximately $13 5 billion will be used to fund insured partners. Since year end, we received another $1 $3 billion as the underwriters exercised the green shoe.
Doug Peel: So considering this and our strong expected free cash flow. We are in an excellent position to fund our M&A pipeline of opportunities.
Doug Peel: We're in 25, it's looking like we could have three $5 billion to fund future. M&A then it jumps up to nearly $5 billion 26, all while maintaining a solid investment grade rating.
Doug Peel: So an excellent quarter and an excellent year to have in our books as I reflect on 24 I have to say that we had a pretty terrific year.
Doug Peel: For the combined brokerage and risk management segments, we posted adjusted revenue growth of 14% organic of seven 6% overall margin expansion of 94 basis points and most importantly, we grew our EBITDA.
Speaker Change: 18% those are terrific numbers reflects what Pat said, that's our unstoppable culture. So that was where my comments back to you Pat.
Speaker Change: Thanks, Doug Rob you want to open it up for questions.
Gallagher: Mr. Mr Gallagher.
We will now open the call for questions.
Gallagher: 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.
Gallagher: You remove yourself from the queue at any point by pressing star two.
Gallagher: Additionally, we ask that each participant limit themselves to one question and one follow up.
Gallagher: Again, Thats star one for questions.
Gallagher: Our first question comes from the line of Mike <unk> with BMO capital markets. Please proceed with your question.
Mike: Hey, good evening first question.
Gallagher:
Speaker Change: Hi surrounding the cadence of organic growth next year loud and clear <unk> no change.
Speaker Change: I guess, we have for both segments I guess im more specifically focused on the brokerage segment.
Speaker Change: In terms of the cadence or seasonality or anything you'd like to call out to two of your peers called out kind of weaker seasonality in <unk>.
Speaker Change: We do know that.
Speaker Change: Reinsurance is overweight in the.
Speaker Change: Beginning of the year, two and maybe downwards pricing there could cause.
Speaker Change: The year over year tougher comps.
Speaker Change: Let me go back to that let me, let me start with the end of that is.
Speaker Change: There have been some price.
Speaker Change: So changes on the reinsurance, but our customers are buying more reinsurance. So when you look at the total spend for us.
Speaker Change: Our customers are spending we're really not seeing a decrease in like Pat said in his comments, we had a terrific new business quarter also going back to the first part of your question. Yes reinsurance is typically stronger in the first quarter and so you could see some seasonality of better organic growth in the first quarter than what develops for the rest of the year offsetting a little bit about that is we do have a.
Speaker Change: The amount of our health and welfare medical benefits that renew in the first quarter.
Speaker Change: Mitigate maybe a higher reinsurance on it and then throughout the year, our retail performing well, our wholesale seems to be getting stronger and stronger our programs are doing well, but yes, you would see a little seasonality because of reinsurance in the first quarter and our organic growth.
Speaker Change: Okay got it, but youre, saying actually it could be.
Speaker Change: Higher not lower even if even if reinsurance pricing is down.
Speaker Change: Okay.
Speaker Change: Because the demand okay.
Speaker Change: I have a chance to talk to you again at our March IR day, and we should have a better feel of the seasonality.
Speaker Change: For that too.
Speaker Change: Okay. So my last question is on.
Speaker Change: Do share investment income thinking through.
Speaker Change: Post the deal close if youre able to comment so.
Speaker Change: My understanding is that.
Speaker Change: The.
Speaker Change: The company purchasing kind of getting fully.
Speaker Change: Leverage its fiduciary income and that it had a lot of kind of.
Speaker Change: It's kind of it was direct payor relationships between the.
Speaker Change: The business is paying directly to the insurance carriers.
Speaker Change: And you guys might be able to optimize.
Speaker Change: Net working capital to gain more.
Speaker Change: Gary assets is that if that's what I'm describing is correct can you offer kind of a timeline and how that works in terms of kind of getting those.
Speaker Change: Asset balances onto your balance sheet.
Speaker Change: Yes, your recollection is correct and I think that if you go back.
Speaker Change: 10 years ago, when we went through our exercise of the consolidated bank accounts from around the World. This will be obviously, mostly in the U S. We did have some good success of picking up more.
Speaker Change: Fiduciary cash into our accounts and I think that would be invested so we do see that as an opportunity.
Speaker Change: We'll be better together on that metric so yes, there should be.
Speaker Change: Versus their run rate I'm guessing.
Speaker Change: Together, we will be built around that going forward.
Speaker Change: Doug is there just any is that kind of a one year process take.
Speaker Change: It takes many years.
Speaker Change: I Love.
Speaker Change: At 18 months, we shouldnt be talking about it anymore. So I think we can get it got it.
Speaker Change: Hopefully fast okay.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Gregory Peters with Raymond James.
Speaker Change: Proceed with your question.
Speaker Change: Good afternoon, everyone.
Speaker Change: Hey, Greg I guess.
Speaker Change: Like to start.
Speaker Change: With California.
Speaker Change: Given the substantial.
Speaker Change: Potential loss to the insured market.
Speaker Change: If you could give us some perspective of.
Speaker Change: Paul It might touch your operations.
Speaker Change: I'm interested in.
Speaker Change: The business going inside Rps, if theres any any impact on the wholesale market that you're seeing.
Speaker Change: If you can just talk about your perspectives of that is.
Speaker Change: Watch this disaster unfold that'd be great.
Speaker Change: Well first of all gross spread we reached out to thousands of clients already to make sure that they have the knowledge of how to file claims and what have you.
Speaker Change: How to get a hold of us if they're having difficulty in filing those claims we are presently tracking I forget the exact number today, but we have hundreds of claims so we're helping our clients with already.
Speaker Change: I think that you've got a situation Rus.
Speaker Change: To continue to unfold for us.
Speaker Change: We're a big player in California, we're a big player in Los Angeles, not huge in personal lines, there, but it's going to it's going to keep us incredibly busy for a number of months and then in terms of the impact of that Luckily again, we've been able to stay in touch with our people we have had our folks at <unk>.
Some instances were evacuated we did not lose anybody and don't have many of our folks who the velocity of their homes. So I think we'll be well in a strong place to help our clients.
Speaker Change: But I can't give you much more than that right now in terms of how it could impact our day to day activities out there.
Speaker Change: Okay, and then I guess my follow up question switch gears you you mentioned in your comments.
Speaker Change: How about the lower contingents.
Speaker Change: Just curious given the profitability we are seeing in the industry.
Speaker Change: I would've imagined that supplemental and it continued to be up.
Speaker Change: And I think your guidance for 'twenty fives suggests that they should.
Speaker Change: Go back up again, but maybe you could spend a minute and give us some color on what happened with contingency.
Speaker Change: In Europe, and then color on your outlook.
Speaker Change: Yeah, Great question, Greg Thanks for asking yes, like I said I ended my comments this isn't a trend and what you said is right. We would expect it to bounce back up again.
Speaker Change: Frankly, it's simply because of that.
Speaker Change: As we get the final year in loss ratio estimates in from the carriers.
Speaker Change: Coming out of just a little bit higher than what maybe we had been anticipating throughout the year and to put this in context, we see this as about as maybe a $7 million shortfall to what were thinking back in October.
Speaker Change: A third of it is two thirds of it is spread across hundreds of contracts and so if the loss ratios are ticking up just a little bit it might.
Speaker Change: That probably cost us $4 million of it and then another third is we had about three contracting.
Speaker Change: And programs in Canada.
Speaker Change: Just really kind of came in here in January with really really not very great results. So that's what.
Speaker Change: But if you look at on an annual basis, when you combined supplemental and contingents I think if I do the math here mentally we I think it was about 8% even with a small blip in the.
Speaker Change: In the fourth quarter, so it's still a terrific year.
Speaker Change: But I wouldnt over read that there was some.
Speaker Change: Systemic shift in what contingents and supplemental is there going to be going forward. So I would expect those numbers to.
Speaker Change: <unk>.
Speaker Change: Grow over and a blip this year considerably.
Just a clarification on that answer Doug.
Speaker Change: Is there a specific line of business and sort of cross broader.
Speaker Change: Business set.
Speaker Change: It's across the line right.
Speaker Change: So anything there we have hundreds of these contracts out.
Speaker Change: We get a lot of this information coming in here right around the first week or two of January.
Speaker Change: Thank you for your answers.
Speaker Change: I guess, another way of saying it on a $600 million number don't hold me to have maybe three or $4 million of what I would say loss ratio percentage I think our picks have been pretty good throughout the year.
Speaker Change: I would say so yes.
Speaker Change: Our next question comes from the line of Andrew <unk> with TD Securities. Please proceed with your question.
Speaker Change: Hey, good afternoon.
Speaker Change: Good question Alright, good morning.
Speaker Change: First question is around the risk management segment.
Speaker Change: Thinking back to last year, you had guided to 90% to 11% organic growth for this year and now for next year for 2004 that is now for 25.
Speaker Change: Guiding to six to eight which I still think is fabulous.
Speaker Change: What's kind of changing that guidance Susan.
Speaker Change: Quite as robust as it was.
Speaker Change: To start last year.
Speaker Change: Here's the thing is I think that this business can be a call we can get some pretty large.
Speaker Change: Hi.
Speaker Change: Contracts are come in it is a little bit more elephant hunting so to speak so this year.
Speaker Change: I think that we've got some nice new business in the pipeline coming into 'twenty five and so I think if you go back in the history of <unk>.
Speaker Change: Gallagher Bassett in our risk management segment, we have periods like this where it will grow mid single digits something like that and then I'll have a couple of nice large contracts, we still see that happening there are some of our government.
Speaker Change: Programs that we do down in Australia, I have some nice opportunity and then more and more we're proving to the carriers left and right that we can actually deliver better claim outcomes on that business and as a carrier decides to use us for their claims payment process on work comp and general liability, where not storm chasers remember.
Speaker Change: And then but it is a little bit more of a lumpy business as we as we get some pretty nice sites.
Speaker Change: So like you never know you could probably find another earlier this year right yes.
Speaker Change: Yes, that's right.
Speaker Change: Turning to our prospect list has always filled with elements.
Speaker Change: They're just hard there.
Speaker Change: And every once in a while.
Speaker Change: Got it and then I was just kind of curious about your operations in India.
Speaker Change: For excellence, where I think you have about 12000 employees right now and.
Speaker Change: As you look out this year.
Speaker Change: Do you need to add people given the partnership transaction can you keep it steady.
Speaker Change: As technology, making it such that you really don't need to hire that much.
Speaker Change: Well I think you've got both ends of that correct and we're going to be using technology quite a bit and as we use technology that does make that group, they're much more efficient and yet at the very same time, our organic growth and our acquisition growth puts a lot more demand in the structure.
Speaker Change: And so at about 12000 employees I think that at this time next year, you'll see us up additional thousands.
Speaker Change: The other thing to think about the value that it brings and what goes into our service centers remember those are our folks.
Speaker Change: They're not working for anybody else they worked for us it causes standardization it causes process improvement.
Speaker Change: I got to tell you that gives us a head start by years and years when it comes to implementing technologies and AI into the work that's already been standardized and truthfully as we develop AI technologies that replace some of that work there all of those folks have opportunities to because our <unk>.
Speaker Change: <unk>.
Speaker Change: They don't lose their jobs it just they move up higher in the value chain on it and so it's really a juggernaut in my opinion in terms of our ability to offer some of the very best service in the world.
Speaker Change: Unless you unless you standardize that service.
Speaker Change: Can't automated but b when you do standardize it it makes you better and better at the service for our clients just take certificates of insurance, we're going to issue $3 4 million of them pretty much are free.
Speaker Change: There arent any real brokers that can claim that.
Speaker Change: I see so maybe the Bottomline takeaways, you may add a thousand or two employees, but it is still scalable you're still getting better margin from that is that the right final takeaway that yes, you're right on the money.
Speaker Change: Thank you walk surprise me that in.
Speaker Change: And like for like five years, we've doubled that number.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Elyse Greenspan with Wells Fargo. Please proceed with your question.
Elyse Greenspan: Hi, Thanks, Good evening My first question.
Speaker Change: On the brokerage outlook for 'twenty five.
Elyse Greenspan: So you reaffirmed the <unk>, Doug I think when we last spoke in October you said, maybe benefits of five reinsurance isn't nine I want to confirm that's what you still see it and then you also had said you would provide I think baidu line and a little bit more detail at the December day rate, which did not happen could you give us a sense even away from benefits.
Speaker Change: Reinsurance just how you see.
Speaker Change: All your business is trending organically in the 6% to 8% 25 brokerage guide.
Speaker Change: I think yes, confirming everything you've said cellular I think Pat did a pretty good job in his script of telling you. How those businesses are growing right now I think those are good guesses for next year at this point.
Speaker Change: Okay. That's helpful and then my.
Speaker Change: My follow up question.
Speaker Change: How do you see how is there a pipeline.
Speaker Change: Transactions might you guys also did.
Speaker Change: Good number of bolt on deals in the quarter.
Speaker Change: In terms of the AP pipeline I know when you guys announced the deal you highlighted the fact that there was very little overlap on pipelines. So would you expect I guess once that deal closes at some point at the end of the Q1 I guess.
Speaker Change: That kind of just the quarterly level of M&A activity.
Speaker Change: Pick up from that from bringing the two firms together.
Speaker Change: So at least as pad also that I think that first of all the.
Speaker Change: We have to continue to operate these enterprises separately two we're close but we do know that there's very little overlap at all.
Speaker Change: And assured partners has been very very good at tuck in acquisitions and as you saw in our when were making the announcement there has not been that much overlap.
Speaker Change: Between things that we wanted to put on and things that they actually bought so there we view there.
Speaker Change: Pipeline is very very accretive to what we're doing and not a lot of overlap and I think thats going to be fantastic they've got a great team doing this stuff. We're impressed with what we've seen in due diligence and the like as to what they've done what they bought in the pricing. They are getting for that and I think you will see us increase substantially the number of deals.
Speaker Change: Now no they're small deals they're very good they're very good at tuck tuck in bolt ons in small <unk>.
Speaker Change: Privately held firms in it about many of the parts of the country that were not in.
Speaker Change: And then on <unk>.
Speaker Change: Sorry go ahead I'm sorry.
Speaker Change: Alright good.
Speaker Change: I was just going to say the $1 3 billion from the Green shoe right that wasn't contemplated right because the financing was there without it. So is that just extra cash that you have.
Speaker Change: The pipeline the capital that Doug was talking about in his comments.
Speaker Change: Yes, that's right.
Speaker Change: Okay. Thank you thanks.
Speaker Change: Thanks Luis.
Speaker Change: Our next question is from the line of Mark Hughes with <unk> Securities. Please proceed with your question.
Speaker Change: Okay.
Speaker Change: Yes. Thank you good afternoon.
Speaker Change: Hey, Mark Doug the guidance you gave for the first quarter contribution from assured partners is there any seasonality there or is that just the timing of the deal.
Speaker Change: Right now we've assumed that's just the timing of the deal.
Speaker Change: They will have some seasonality, especially in the benefit business and then anything that might be a public entity type business might be skewed to July so sorry.
Speaker Change: So you'd see a little bit of seasonality, but what you're seeing there is a pure straight line.
Speaker Change: I'm sure I have it.
Speaker Change: And then.
Speaker Change: Pat in the wholesale business you gave the wholesale and reinsurance together I think up 9%.
Speaker Change: Detail you can provide on the wholesale observations on the E&S market.
Speaker Change: Yeah.
Speaker Change: Let me take a look Mark I think I got that I think that you've got to look at our UK specialty at maybe around 7%.
Speaker Change: At U S specialty.
Speaker Change: The 10% <unk> pretty small in the quarter, it's just not a big quarter for us. So if you look at those two numbers when we get.
Speaker Change: Maybe that gets us back to that 9% number there.
Speaker Change: Okay.
Speaker Change: Understood. Thank you.
Speaker Change: Thanks Mark.
The next question is from the line of David <unk> with Evercore ISI. Please proceed with your question.
David: Hey, good evening.
Speaker Change: I had a question for Doug just trying to unpack the brokerage organic.
David: This quarter.
David: And I don't want to nitpick too much but.
David: You guys were looking for 8%.
David: And I'm just wondering.
David: Was the entire differential just the contingence and the life sales came back as expected and it was just totally offset by the contingence.
David: I was hoping he'd unpack that a little bit yes, you are right the base Commission and fees at seven 8% that business contingent and supplemental as had been running kind of consistent with that together. So so.
David: The difference of the 7 million Bucks that put it up into the upper 7% range somewhere pretty close to the base contingency so you're right you're spot on in your and your observation there.
David: Okay, great. Thanks for confirming and then I wanted to follow up just on.
David: <unk>.
David: I guess I was surprised the RPC.
Speaker Change: At 5% just given the property price was flat versus up for last quarter.
David: I'm wondering if.
David: Maybe it's mix, but I'm wondering if there's anything else from sort of like an increased purchasing or buy up dynamic that you guys are observing as the property market.
David: Property rates moderate year.
David: Well, we see that across that yes, we've always said it's been a long time, we've talked about this as rates are going up customers opt out of certain coverages because that might be by raising deductibles are reducing limits on it.
David: Sometimes they'll drop some copper just so and as rates if rates are I remember rates are still increasing I think it's important for everybody to realize that kind of across the board, where we're just still in a rate increase environment terabyte buying more insurance and reinsurance youre seeing that from the carriers that they are buying more and then the customers they are buying more coverage on it.
Insurance to values a big deal.
David: Much more pressure on ensuring to value.
Doug: Got it thanks, and then maybe just to sneak one else in one other one and Doug I think you had said.
Doug: Last call that the underlying brokerage business is running at like a 7% to 8% organic growth.
Speaker Change: Just on an underlying basis, but then the 25 range than the 6% to 8% range. So I guess I'm wondering is.
Speaker Change: Is that 6% just sort of conservatism like what sort of scenario would sort of get that.
Speaker Change: You guys out of that.
Speaker Change: 7% to 8% range.
Speaker Change: Well listen I think right now that we said way back in October.
Speaker Change: Next year I felt a lot like this year and we're kind of in that mid 7% range somewhere this year the range around it sitting and looking out over the next 11 five months I guess that the six to eight is consistent what we've said before.
Speaker Change: So we think we'd like to stick with that I think our team is working pretty hard to always always be better than the midpoint of the range obviously, but.
Speaker Change: The markets change, we will see what wildfires deal, we'll see casualty reserves.
Speaker Change: We will do we're still digesting that I will say on the wildfires. Maybe you know this I still don't know how the extra living expenses have been factored in.
Speaker Change: Wildfire.
Speaker Change: Estimates for the cat loss on that and then you can't open up.
Speaker Change: The news any day without somebody taken.
Speaker Change: Casualty reserve strengthening so those things.
Speaker Change: Yeah.
Speaker Change: Well cost carriers, taking a really hard look at what theyre doing with their rates so well.
Speaker Change: But then 2% is a pretty good guess is as we look for the year.
Speaker Change: It is a nice being in that range versus years ago. When we were pretty excited about one or 2% organic growth.
Speaker Change: No no no.
Completely great. Thank you.
Speaker Change: Thanks, David.
Speaker Change: Sure.
Speaker Change: Our next question is from the line of Katy <unk> with Autonomous Research. Please proceed with your question.
Speaker Change: Hi, Thank you good.
Speaker Change: Good evening.
Speaker Change: I guess my first question is thinking about.
Speaker Change: Last call I think.
Speaker Change: Doug you had mentioned that you expect brokerage organic growth in 2025.
Speaker Change: Split between the components to come from about half new business, and then perhaps a quarter each to rate and exposure.
Speaker Change: Has your perspective on the components of that brokerage organic growth guide changed in the context of the assured partners acquisition.
Speaker Change: No.
Speaker Change: Yeah, Pat Pat summarized it pretty quickly and Thats, where were still seeing happening right now.
Speaker Change: Yeah.
Speaker Change: Okay sounds good and then.
Speaker Change: It looks like international retail brokerage growth kind of <unk>.
Speaker Change: And used to cool off a little bit.
Speaker Change: How are you guys thinking about the environment for organic growth abroad. This year versus what looks like perhaps a little bit more stable growth in the U S.
Speaker Change: Okay, I think you've got to really look at that by geography. I mean, there is parts of the world that are just really really grown incredibly well we've set our board meeting and did a deep dive into some of our Latin American business is not huge and in part of it part of the whole overall enterprise, but incredibly nice growth there and so there is it depends.
Speaker Change: <unk>, Canada, a little bit of a slowdown this past quarter, we've talked about that but as you look across the whole patch.
Speaker Change: Patches.
Speaker Change: Hard to put a finger on it which is why we tried to give you a guidance in terms of the overall, how it should shake out.
Speaker Change: Definitely have some geographies that are doing extremely well.
Speaker Change: And just to have continued future growth that is going to be fantastic.
Speaker Change: One of the things I'm kind of looking at what we said this quarter versus what we said back in October we didn't have an opportunity to update you in December but U K retail, especially still in high single digits, and we said that it was 6% before UK retail I think we said, 8% this quarter, we're saying closer to 9%.
Canada may be the one that's.
Speaker Change: <unk> had up to you a little bit we said is more flattish and now we're down a point or so.
Speaker Change: And then you know.
Speaker Change: Australia, New Zealand, we said, it's about 10% maybe in October and we're still there.
Speaker Change: The very high single digits on that so I don't know if it's necessarily it might be just given that.
Speaker Change: <unk> piece that Pops out at that's causing you to have that perspective.
Speaker Change: I appreciate the additional color there thanks guys.
Speaker Change: Thanks you.
Speaker Change: The next question is from the line of my ourselves with VW. Please proceed with your question.
Speaker Change: Great. Thanks, I'd like to open claim and a Canadian.
Speaker Change: Yes.
Doug: Doug you mentioned, how your personal interaction.
Speaker Change: Okay.
Speaker Change: You mentioned, obviously accurately but there's a ton of.
Speaker Change: Adverse development that we're seeing in general liability and I was wondering whether there's any direct impact when you've got I don't know more frequent claims or more attorney involvement in terms of how Gallagher Bassett gross revenues.
Speaker Change: Well I mean, clearly it claim activity helps us Meyer I mean, there's no question about it but when it comes to severity, we don't participate in our clients up or down in terms of severity. We do everything we can to manage the final outcome and we contend and we believe we have the data and analytics to prove this but if you hire Gallagher Bassett.
Speaker Change: Outcomes, meaning your final settlements will be superior and that does not mean that we're taking advantage of the claimant that means that we're handling the claimants actually better than you see in the general market. So it's.
Speaker Change: <unk> got some severity out there.
Speaker Change: That creates frequency frequency definitely helps Gallagher Bassett.
Speaker Change: We get paid essentially on a per claim basis as does economic growth because with economic growth comes more employment and remember most of Gallagher Bassett. Its revenue is a good portion of our workers' compensation driven.
Speaker Change: Yes, I think one of the things all of those forces actually.
Speaker Change: Shouldn't cause clients to look at Gallagher Bassett, even more the way we can do news nurse case management. The way we have our managed care offering the way that we can understand.
Speaker Change: Where are there opportunities to.
Speaker Change: To use a different physicians, we also understand the attorneys because we deal with them. So often so when when claims get more complicated. It produces gallagher Bassett actually can show more value to the customer and I think that's the environment. We're in.
Speaker Change: Your pain.
12, 13 $14 billion of claims and they get pretty good at that and remember by and large about 60 to 65 on every premium dollar turns into a claim.
Speaker Change: The function of the industry, we're seeing that of course in the west coast and so.
Speaker Change: So if youre going to have an impact on your costs you better pay attention to that portion of the dollar that goes out the door and claims.
Speaker Change: Again, we think we do that at a level, that's better than the competitors, both tpa and carriers.
Speaker Change: Okay, No that's very helpful very thorough.
Speaker Change: Gary.
Speaker Change: I was just looking for an update on <unk>.
Speaker Change: The multiples for M&A, because we've seen not only your acquisition of assured partners, but a lot of the other big brokers out there who've made big acquisitions.
Speaker Change: Pizza or decelerate.
Speaker Change: Competition protecting.
Speaker Change: Well. This is of course is all speculation on my part, but remember we tried to share with you pretty much every quarter, what we are buying it and.
Speaker Change: Youre not seeing our tuck in acquisitions and the activity that we do on our smaller deals anywhere near the.
Speaker Change: Tree top levels of multiples that were that had been running up over the years I do think that the assured partners acquisition, we are very smart seller.
Speaker Change: We were an opportunistic buyer and I definitely think there is a signal there.
Speaker Change: Okay perfect. Thank you so much.
Speaker Change: Yeah.
Speaker Change: Our next question is from the line of Rob Cox with Goldman Sachs. Please proceed with your question.
Rob Cox: Hey, thanks.
Rob Cox: And I apologize for asking another question on brokerage organic but what.
Rob Cox: When you consider the 6% to 8% organic growth range.
Rob Cox: Could you give us some insight into what level of renewal premium change youre thinking about within that.
Rob Cox: Because I'm wondering if if youre, assuming sort of some of the acceleration that you think may be happening in the casualty market or if you don't need that to achieve the six to eight.
Rob Cox: I think that that estimate is not assuming that there is tailwind is produced by the fires in the casualty strengthening we've kind of see that in the current environment. We had like we said earlier.
Rob Cox: We think that net new business over loss will contribute about half of that number we think that that exposure will be about a quarter of it in rate will be about a quarter or so theres not a big assumption for rates in here.
Rob Cox: Nor is there a really big assumption for exposure unit growth I mean this is this is just what we're seeing in our our net new business wins right now, we're showing pretty well out there in the field and here go back to what we said before.
Rob Cox: When there's not as much chaos in the market, we get to show our tools and capabilities shine brighter in those environments, because when it's chaotic environment and customers are listening to big rate increases.
Theyre just trying to get their insurance plays there already.
Rob Cox: A bit stung by the fact that rates are up we work very hard to keep those rates down for them now.
Rob Cox: Now we will be able to go in and show prospects just in a level playing field here with things when things aren't chaotic you should be using our tools and capabilities.
Rob Cox: By your insurance through us or let us buy your insurance for you.
Rob Cox: Using our capabilities. So this is an environment, where we believe our new business.
Rob Cox: Will shine, we think our service offerings is getting better and better every day.
Rob Cox: Insights into who what.
Rob Cox: What clients might be a little shaky lets get out and talk to them and make sure that we get the renewal put Tibet. Soon so I think that this is an environment, where I think the.
Rob Cox: Folks can shine with the tools and capabilities that now I would have killed in the past as Doug alluded to when we were talking about up one up to four 5%.
Rob Cox: Premium rate growth as an environment.
Rob Cox: That would that would be Nirvana 10 years ago. So.
Rob Cox: It's a very strong place to be remember, we our job is to mitigate that for our clients, but it's a great place for us to show exactly what Doug was saying, which is our capabilities in particular in the areas of data and analytics, which I want to remind the listeners.
Rob Cox: You don't get a chance to listen to the smaller brokers that we're competing with on a quarterly basis.
Rob Cox: We're pulling away from them more and more with our capabilities and these clients so I'm talking to middle market clients.
Rob Cox: Very much appreciate the ability to sit and talk with them about people like you buy this or you should have this type of limit because in our data we see losses at this size that capability is just getting it's getting more and more attention.
Rob Cox: The buying community and it's differentiating us every single day to a greater level.
Rob Cox: That makes sense. Thank you for all the color.
Rob Cox: Pivoting to reinsurance brokerage.
Rob Cox: I just wanted to ask.
Rob Cox: I know your growth has been a good bit stronger than your two largest competitors in the reinsurance brokerage space for a number of years now.
Rob Cox: And.
Elyse Greenspan: Gallagher has a lower revenue base, but it doesn't seem like that would be the only driver of the outperformance. So I was hoping you could remind us what's driving gallagher's ability to deliver.
Speaker Change: It's been more like double digit organic growth in reinsurance.
Speaker Change: Well I think that is just blocking and tackling I think one of the things that we.
We've found there is a great sales team they are backed up by terrific analytics incredible capabilities in consulting on capital management and theirs.
Speaker Change: Theres no doubt being part of Gallagher has offered them some additional opportunities.
Speaker Change: Yes, I think that as a team up with our wholesale as our program folks and our.
Speaker Change: Our retailers.
Speaker Change: They get to see firsthand, what's going on in the retail.
Speaker Change: On the Street I think that helps them provide better insights to their to their.
Sure.
Speaker Change: The primary carriers and I think we're doing a terrific job of making them.
Speaker Change: Integrated part of US not just a unit within the holding company structure.
Speaker Change: BMO capital markets. Please proceed with your question.
Speaker Change: Oh great.
Speaker Change: The follow ups.
Speaker Change: Reinsurance as well.
Speaker Change: The strong results just curious.
Speaker Change: No.
Speaker Change: Maybe a mix and reinsurance do you potentially have a greater mix towards casualty.
Speaker Change: For specialty Europe focused.
Speaker Change: Then that could be helping kind of the outlook given casualty pricing is accelerating.
Speaker Change: Yes, we have a terrific casually book of business North American casually is a big part of our.
Speaker Change: U S business, but.
Speaker Change: Probably a little under weighted on property maybe versus the others.
So I think thats, probably more casually weighted.
Speaker Change: Exactly understand their book of business, but I think that what our perception is that run rate under weighed on property, but also about whereas the opinion right now it was a reinsurance buyer it's casually.
Speaker Change: And as we've talked about in these calls is there's no question about it.
Speaker Change: That's the.
Speaker Change: That's the area that's got some pain and our team is really really good at that.
Speaker Change: Got it maybe since it's not 615 I'll sneak one last one in just curious.
Speaker Change: Health inflation for employers at least some of the stats we've seen it it's expected to rise 25 versus 24.
Speaker Change: Maybe you disagree with that.
Speaker Change: Does that provide any uplift.
Speaker Change: <unk> organic for employee benefits or I know theres, a lot of building blocks for employee benefits.
Speaker Change: Yes.
Speaker Change: Every time, we get.
Speaker Change: Well, we're one of the.
Speaker Change: Clearly a leader in our capabilities to consult manage and place health and welfare and it's a huge problem for employers and it's gone up as it seems to never stopped doing and.
Speaker Change: So there's all kinds of tools that you need to have in your toolbox to handle that and we're very very good at that and by the way we're extremely good at it and the commercial middle market.
Speaker Change: I think there is maybe not as much competition frankly.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Thanks, Mike Thanks, Mike.
Speaker Change: Thank you.
Speaker Change: My final question is from a follow up from Alex Scott with Barclays. Please proceed with your question.
Speaker Change: Thank you all of this is Justin on for Alex.
Speaker Change: Kind of going back into the brokerage segment and the commercial middle market.
Speaker Change: Just wanted to ask I understand you know it seems like 90% of the time you guys are competing against independent brokers I was just curious in light of sort of the large scale acquisitions, that's been taking place whether or not you see sort of this.
Speaker Change: 90% number to dwindle over time, and just let me think about 25 million.
Speaker Change: Oh sure partners people are competing with those same independents and communities that we're not in today, which is only going to increase when you take when you take a look at our at bats.
Speaker Change: Number of at bats are going to go up substantially because of assured partners and 100% of those at bats.
Speaker Change: Not true 95% of those at bats are going to be against smaller players. Yes, I think the fragmented market out there is 30000 agents and brokers and those are companies not necessarily those with us.
Speaker Change: Brokerage license so we're competing against.
Speaker Change: 29000.
Speaker Change: 950.
Speaker Change: Brokers that are out there so assured partners will be absolutely there. It does it does it does help us.
Speaker Change: Go after those accounts that are in cities that we're not yet. So this is we think it's a great one plus one can equal more than two for sure.
Speaker Change: Sure thing thanks for the color.
Speaker Change: Thanks, Justin.
Speaker Change: Thanks, Rob I think we're ready to wrap up here and I just have a quick comment and that is thank you again for joining us this afternoon.
Speaker Change: As you all know now we had a great fourth quarter to finish an excellent year of financial performance a huge. Thank you goes out from this table to our 56000 colleagues around the globe. It's your creativity expertise and unwavering client focus that continue to set us apart we look forward to speaking with the investment community.
Speaker Change: Our mid March IR day, and thank you all for being with US This evening.
This does conclude today's conference call you may now disconnect your lines at this time.