Q2 2025 Arthur J. Gallagher & Co Earnings Call

Katie Sakys: Good afternoon and welcome to Arthur J. Gallagher & Co.'s second quarter 2025 earnings conference call. Participants have been placed on a listen-only mode. Your lines will be open for questions following the presentation. Today's call is being recorded. If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward-looking statements within the meaning of the securities laws. The company does not assume any obligation to update information or forward-looking statements provided on this call. These forward-looking statements are subject to risks and uncertainties that can cause actual results to differ materially. Please refer to the information concerning forward-looking statements and risk factors sections contained in the company's most recent 10K, 10Q, and AK filings for more details on such risks and uncertainties.

Good afternoon and welcome to Arthur J Gallagher & Company. Second quarter 2025 earnings conference call.

Participants have been placed on a listen-only mode.

Your lines will be open for questions following the presentation.

Today's call is being recorded.

If you have any objections, you may disconnect at this time.

Some of the comments made during this conference call, including answers given in response to questions a constitute forward-looking statements within the meaning of the Securities laws.

The company does not assume any obligation to update information or forward-looking statements provided on this call.

These forward-looking statements are subject to risks and uncertainties that can cause actual results of different material relief.

Katie Sakys: In addition, for reconciliations of the non-GAAP measures discussed on this call, as well as other information regarding these measures, please refer to the earnings release and other materials in the investor relations section of the company's website. It is now my pleasure to introduce J. Patrick Gallagher, Jr., Chairman and CEO of Arthur J. Gallagher & Co. Mr. Gallagher, you may begin.

Please refer to the information concerning forward-looking statements and risk factors sections contained in the company's most recent 10K, 10q and AK filings for more details on such risks and uncertainties.

In addition for reconciliations of the non-gaap measures discussed on this call, as well as other information regarding these measures, please refer to the earnings release and other materials and the investor relations section of the company's website.

J. Patrick Gallagher Jr.: Thank you. Good afternoon and thank you for joining us for our second quarter 25 earnings call. On the call with me today is Doug Howell, our CFO, and other members of the management team. We had a great second quarter. For our combined brokerage and risk management segments, we posted 16% growth in revenue, 5.4% organic growth, reported net earnings margin of 17.3%, adjusted EBITDA margin of 34.5%, up 307 basis points year over year, adjusted EBITDA growth of 26%, our 21st consecutive quarter of double-digit growth, GAAP earnings per share of $2.11 and adjusted earnings per share of $2.95. Another strong quarter by the team. Moving to results on a segment basis, starting with the brokerage segment, reported revenue growth was 17%. Organic growth was 5.3%, in line with our expectations despite headwinds from GAAP property renewal premium changes in June.

It is now my pleasure to introduce Jay Patrick Gallagher Jr., Chairman and CEO of Arthur J. Gallagher & Company. Mr. Gallagher, you may begin.

Thank you. Good afternoon and thank you for joining us for our second quarter, 25 earrings call

On the call for me today is Doug holler CFO and other members of the management team.

We had a great.

Quarter.

For Combined, brokerage and risk management segments. We posted 16% growth in Revenue 5.4%, organic growth reported, net earnings margin of 17.3%, adjusted Evac margin of 34.5% of 307 basis points year-over-year, adjusted Evac. Growth of 26% are 21st consecutive quarter of double-digit growth,

Cap earnings per share of $2.11 and adjusted earnings per share of $2.95 another strong quarter by the team.

J. Patrick Gallagher Jr.: Adjusted EBITDA margin expanded 334 basis points to 36.4%, with underlying margin up around 60 basis points. Doug will break down the margin expansion further in his comments. Let me provide you with some insights behind our brokerage segment organic. Within our retail operations, we delivered 4% organic overall, a reflection of the heavier weighting to property business this quarter. US organic was 5%, with PC a bit below and benefits a bit above that level. Outside the US, our international operations, primarily in the UK and Canada, Australia, and New Zealand, were collectively around 3%, with the UK a bit above and Canada a bit below 3%. Shifting to our reinsurance, wholesale, and specialty businesses, in total organic of nearly 7%. This includes 5% organic from Gallagher Re and more than 7% organic from our wholesale and specialty businesses.

Moving to results on a segment basis. Starting with the brokerage segment, reported Revenue growth was 17%. Organic growth was 5.3% in line with our expectations, despite headwinds from cat property. Renewal premium changes in June

Adjusted ebac, margin expanded 334 basis points to 36.4% with underlying margin up around 60 bucks. Doug will break down the margin expansion, further in his comments.

Let me provide you with some insights behind our brokerage segment organic

within our retail operations, we delivered 4% organic overall, a reflection of the heavier weighting to property business, this quarter

Us organic was 5% with PC, a bit below and benefits a bit above that level.

Outside the US, our International operations. Primarily in the UK and Canada, Australia, and New Zealand were collectively around 3% with UK a bit above in Canada a bit below, 3%.

J. Patrick Gallagher Jr.: So we continue to deliver organic growth across retail, wholesale, and reinsurance. Next, let me provide some thoughts on the PC insurance pricing environment, starting with the primary insurance market. Overall, the global PC insurance market remains rational, and we expect that to continue. Carriers today have insights into what products and geographies are generating appropriate returns and areas that need to be re-unwritten or repriced to improve profitability. Accordingly, we are seeing more carrier competition across property and continued caution within casualty lines. Breaking down second quarter global renewal premium changes, which includes both rate and exposure, we saw the following by product line: property down 7%. That's a couple of points below what we were seeing at the time of our early June IR day. Casualty lines up 8% overall, including general liability up 4%, commercial auto up 7%, and umbrella up 11%.

So, we continue to deliver organic growth across retail wholesale and reinsurance.

Next, let me provide some thoughts on the PC insurance pricing environment.

Starting with the primary Insurance Market.

Overall, the global PC Insurance Market remains rational, and we expect that to continue among carriers today. They have insights into what products and geographies are generating appropriate returns, as well as areas that need to be reevaluated or repriced to improve profitability accordingly. We are seeing more carrier competition across property and continued caution within casualty lines.

Breaking down second quarter, Global renewal premium changes which includes both rate and exposure. We saw the following by product line property down 7%. That's a couple points below what we were seeing at the time of our early, June IR de

Casualty lines up.

J. Patrick Gallagher Jr.: Package up 5%, D&O down 3%, workers' comp up about a point, and personal lines up 7%. Breaking down renewal premiums by client size, we continue to see significant differences. For clients generating less than $100,000 of revenue, renewal premiums were up 3%. For clients generating more than $100,000, renewal premiums were down 2%. As we discussed with you in June, second quarter renewal premium changes are more heavily influenced by property coverages than the other quarters. Excluding property, both small to mid-sized accounts and larger accounts are seeing global renewal premium increases in the 4 to 6% range. Now, good accounts will get some premium relief from that. However, accounts with poor loss experience are likely to see greater increases. Today's environment is actually ideal for us to show our expertise, product knowledge, and data-driven capabilities.

8% overall, including general liability of 4%, Commercial Auto up 7% and umbrella up 11%

package up 5% dno down, 3% workers comp up about a point and personal lines up 7%.

Breaking down renewal premiums like client size. We continue to see significant differences for clients generating less than 100,000 dollars of Revenue. Renewal premiums were up, 3% for clients generating more than 100,000 dollars. Renewal premiums were down 2%, as we discussed with you. In June second quarter, renewal premium changes are more heavily influenced by property, coverages than the other quarters excluding property, both small to mid-size accounts and larger accounts are seeing Global renewal premium increases in the 4 to 6% range.

Now, good accounts will get some premium relief from that. However, accounts with poor loss experience are likely to see greater increases.

J. Patrick Gallagher Jr.: Our talented team can help clients navigate market complexities while finding the best coverage. Moving to the reinsurance market now. June and July renewals reflected broadly similar conditions as earlier in the year. Property coverage continued to favor reinsurance buyers, particularly at CAT exposed risks, and increased limits being purchased are somewhat offsetting rate decreases. Casualty reinsurance dynamics reflected continued concerns over prior year loss development and rising loss trends from inflation and the litigation environment. Thus, pricing was flat to modestly higher. In a growing market with opportunities to differentiate clients' underwriting abilities and risk profiles, Gallagher Re will continue to perform very well. Moving to some comments on our customers' business activity. Our second quarter in July, revenue indications from audits, endorsements, and cancellations continue to be a nice positive.

Today's environment is actually ideal for us to show our expertise, product knowledge, and data-driven capabilities. Our talented team can help clients navigate market complexities while finding the best coverage as they move to the reinsurance market now.

June and July renewals reflected broadly, similar conditions as earlier in the year.

Property covers continued to favor. Reinsurance buyers, particularly at cat exposed risks and increased limits being purchased our somewhat offsetting rate decreases.

Casually, reinsurance dynamics reflected continued concerns over prior year loss development and rising loss trends from inflation and the litigation environment.

Thus pricing was flat to modestly higher in a growing Market with opportunities to differentiate clients underwriting, abilities and risk profiles. Calgary will continue to perform very well.

J. Patrick Gallagher Jr.: So we see solid client business activity in our data and no signs of a broad, meaningful global economic downturn, nor any changes from the prospect of tariffs. We will continue to watch these carefully for any early signs of changes in our clients' business activity. Within the US, we are seeing continued job growth, just not quite at the robust levels we saw during 2024. Additionally, trends from health insurance carriers continue to indicate ongoing increases in medical utilization and treatment costs. Our benefit professionals are well positioned to guide employers through these many challenges. So with a great first half in the books, we now see full year 25 brokerage segment organic in the 6.5% to 7.5% range. Doug will unpack our organic outlook by quarter in his comments. Regardless of market and economic conditions, I believe we are very well positioned.

Moving to some comments on our customers business activity, our second quarter and July Revenue indications from audits endorsements and cancellations continue to be a nice positive.

So we see solid client business activity in our data and no signs of a broad meaningful. Global economic downturn nor any changes from the prospect of tariffs,

We will continue to watch these carefully for any early signs of changes in our clients business activity.

We are seeing continued job growth. Just not quite at the robust levels. We saw during 2024, additionally Trends from health insurance carriers continue to indicate ongoing increase in medical utilization and treatment costs

Professionals are well positioned to guide employers through these many challenges.

So with a great first half of the books we now see full year, 25 brokerage segment organic in the 6 and a half to 7 and a half percent range. Douglas unpack, our organic Outlook by quarter and his comments

J. Patrick Gallagher Jr.: Today, our niche expertise, extensive data and analytics offerings, and global resources put us in a great place competitively. Moving on to our risk management segment, Gallagher Bassett. Second quarter revenue growth was 9%, including organic of 6.2%. We saw solid new business revenue in the second quarter as the new business sold that we spoke about last quarter began to generate revenue. Combined with our fantastic client retention, we believe we will see full year 25 organic in that 6 to 8% range. Second quarter adjusted EBITDA margin was 21%, a bit better than our June expectations. And looking ahead, we still see full year margin around 20.5%. And that would be another great year for Gallagher Bassett. Shifting to comments about mergers and acquisitions, starting with Assured Partners.

Regardless of market and economic conditions. I believe we are very well positioned today. Our Niche expertise extensive data and analytics offerings and global resources. Put us in a great place competitively.

Moving on to our risk management segment. Gallagher Bassett second quarter Revenue growth was 9%, including organic of 6.2%. We saw a solid new business revenue of the second quarter as the new business sold that we spoke about last quarter began to generate Revenue combined with our fantastic client retention. We believe We will see full year 25 organizations in that 6 to 8% range.

Second quarter adjusted, EAC margin was 21% a bit better than our June expectations, and looking ahead. We still see full year margin around 20 and a half percent and that would be another great year for Gallagher Bassett.

J. Patrick Gallagher Jr.: Since our early June IR day, we've made terrific progress and now believe we will be in a position to complete this transaction here in the third quarter. As for other M&A activity during the second quarter, we completed nine new mergers, representing around $290 million of estimated annualized revenue. For those new partners joining us, I'd like to extend a very warm welcome to the Gallagher family of professionals. Looking at our pipeline, we have around 40 term sheets signed or being prepared, representing around $500 million of annualized revenue. Good firms always have a choice, and it would be terrific if they chose to partner with Gallagher. I'll conclude with some comments about our bedrock Gallagher culture.

To comments about mergers and Acquisitions starting with assured partners.

As for other m&a activity, during the second quarter, we completed 9 new mergers, representing around 290 million dollars of estimated annualized Revenue.

For those new partners joining us, I'd like to extend a very warm welcome to the Gallagher family of professionals.

Looking at our pipeline, we have around 40 term, sheets signed or being prepared representing around 500 million dollars of annualized Revenue.

Confirms always have a choice and it would be terrific if they chose to partner with Gallagher.

J. Patrick Gallagher Jr.: During the second quarter, I had the pleasure of spending time with thousands of colleagues across the organization, including more than 500 college students from the 60th class of the Gallagher Internship Program. This rigorous two-month sales internship program is an essential investment in our future. And from many, my many interactions with this talented group, I am more than confident that our sales culture will remain strong for years to come. And that is the Gallagher way. Okay, I'll stop now and turn it over to Doug. Doug?

I'll conclude with some comments about our Bedrock, Gallagher culture during the second quarter. I had the pleasure of spending time with thousands of colleagues across the organization, including more than 500 college students from the 60th class at the Gallagher internship program.

This rigorous 2 months sales internship program is an inset essential investment in our future. And from many, my many interactions with this talented group, I am more than confident that our sales culture will remain strong for years to come. And that is the Gallagher way.

Douglas Howell: Thanks, Pat, and hello everyone. Today, I'll walk you through our earnings release and provide some comments on organic growth and margins by segment, including how we are seeing the rest of the year shape up. Next, I'll move to the CFO commentary document that we post on our IR website and walk you through our typical modeling helpers. And then I'll conclude my prepared remarks with my usual comments on cash, M&A, and capital management. All right, let's flip to page three of the earnings release. Brokerage segment organic growth of 5.3% was right in line with our June IR date guidance. With our first quarter organic at 9.5%, year to date we are at 7.6%. Looking forward to the second half of 25, we see third and fourth quarter organic each around 5% plus, which would put full year organic in the 6.5% to 7.5% range.

Okay, I'll stop now and turn it over to Doug. Doug. Uh, thanks Pat and hello everyone. Uh, today I'll walk you through our earnings release and provide some comments on organic growth and margins by segments, including how we are seeing the rest of the year Shape Up.

Next, I'll move to the CFO commentary document that we post on our IR website and walk you through our typical modeling helpers and then I'll conclude my prepared remarks with my usual comments on cash m&a and Capital Management.

All right, let's flip to Page 3 of the earnings release for the brokerage segment. Organic growth of 5.3% was right in line with our June IR date guidance, with our first quarter organic growth at 9.5%. Year to date, we are at 7.6%.

Douglas Howell: Let me give you four callouts on that. First, recall from our first quarter earnings call and our June IR day, our 9.5% first quarter organic growth had some positive timing that is now flipping to a headwind in the second half. Second, as we discuss every quarter, organic can be dependent on those large and lumpy life gains. Given the current interest rate outlook uncertainty, clients may accelerate or even delay when to buy policies. Third is property rates further decreases, or on the other hand, a large CAT here in wind season causing a quick shift higher would also influence our organic. And fourth are casualty rates. We are seeing some lines perhaps bottoming out and other lines continuing to steadily march higher. Flipping to page five of the earnings release to the brokerage segment adjusted EBITDA table.

We're going to put full your organic in the 6 and 1/2 to 7 and 1/2% range.

Let's uh let me give you a 4 call outside on that on that first recall from our first quarter earnings call and our June IR, de our 9.5%. First quarter organic growth had some positive timing that is now flipping to a headwind in the second half.

Douglas Howell: Second quarter adjusted EBITDA margin was 36.4%, up 334 basis points year over year and above our June IR day expectations. Let me walk you through our typical bridge from last year. First, if you pull out last year's 2024 second quarter earnings release, you'd see we reported back then adjusted EBITDA margin of 33.1%. Now, adjust that using current FX rates, which for this quarter is next to nothing, so just assume adjusted EBITDA margin levelized for FX would remain at 33.1%. Then organic growth of 5.3% gave us about 60 basis points of expansion this quarter. The roll-in impact of M&A used about 40 basis points. The impact of lower rates on fiduciary interest income used about 30 basis points. And then interest income on the cash we're holding for Assured Partners added about 340 basis points of margin this quarter.

Second quarter, adjusted Evac margin was 36.4% up, 334 basis points year-over-year and above our June ird, expectations. Let me walk you through our typical Bridge from last year.

First, if you pull out last year's 2024 second quarter earnings release, you'd see we reported back then an adjusted EVAC margin of 33.1%.

Now, adjust that using current F FX range, which Rich for this quarter is next to nothing. So just assume adjusted Evac margin. Levelized for FX would remain at 33.1%.

Then organic growth of 5.3%. Gave us about 60 basis points of expansion. This quarter, the rolling of impact the role in impact of m&a, used about 40 basis points,

Douglas Howell: Follow that bridge and it will get you to second quarter 2025 margin of 36.4%. That's great discipline by the teams. As for the second half of the year, we don't see anything that causes to change how we view underlying margin expansion potential. We call it organic greater than 4%. We should see some underlying margin expansion. Then say at 6.5% organic, perhaps around 70 basis points of expansion. And at 7.5% organic, around 90 basis points of expansion. I would say the same thing looking out towards 26.

The impact of lower rates on fiduciary, interest income used about 30 basis points and then interest income on the cash for holding for assured Partners, added about 340 basis points of margin this quarter, follow that bridge and it will get you to second quarter 2025 margin of 36.4%.

That's a great discipline by the team.

As for the second half of the year, we don't see anything that causes to change how we view. Underlying margin expansion potential.

Douglas Howell: We have a long list that will continue to benefit our productivity and quality, including a more stable labor environment, increased returns from our technology spends on client-facing sales and service tools, our proven early AI successes, further centralization of back office services, all on top of an industrial strength core operating system that can handle significantly more revenue with marginal costs. So in a soundbite, in any organic environment, we still see significant opportunities to get better, faster, and more productive, and thereby provide higher quality offerings to our clients at lower costs. Sticking on page five, risk management segment organic at 6.2%. As Pat said, that's a bit better than our expectations due to strong new business revenues from contracts that accepted in Q2. And for the year, we continue to see organic in that 68% range.

We call it organic greater than 4%. We should see some underlying margin expansion then say, at 6 and a half percent organic, perhaps around, 70 basis points of expansion. And at 7 and a half percent organic around, 90 basis points of expansion. I would say the same thing looking out towards 26. We have a long list that we, that will continue to benefit our productivity and quality.

Technology spends on client-facing sales and service tools are proven early AI successes. Further, centralization of back office services, all on top of an industrial-strength core operating system, can handle significantly more revenue with marginal costs. So in a sound bite, in any organic environment, we still see significant opportunity to get better, faster, and more productive. And therefore, we can provide higher quality offerings to our clients that will lower costs.

Douglas Howell: Adjusted EBITDA margin of 21% was better than our June IR day expectations. And looking forward, we still see full year margins closer to 20.5%. Turning now to page seven of the earnings release and the corporate segment shortcut table. Compared to our June IR day expectations, the adjusted interest in banking line and the clean energy line both were very close to our expectations. The adjusted acquisition cost line related to our typical tuck-in acquisitions came in a penny better, and the adjusted corporate line was 4 cents below. That's solely due to a larger non-cash unrealized FX remeasurement loss because the dollar weakened in June. That has already mostly reversed here in July, so it just shows the noise that this can create in our corporate segment results. So let's move now from the earnings release to the CFO commentary document that we post on our website.

Speaking on page 5 risk management segment, organic at 6.2% as Pat said, that's a bit better than our expectations due to strong, new business revenues from contracts that are conceptd in in Q2. And for the year, we continue to see organic in that 68% range.

The adjusted Evac margin of 21% was better than our June IRD expectations, and looking forward, we still see full-year margins closer to 20.5%.

Uh, turning now to page 7 of the earnings release and the corporate segment shortcut table compared to our June, IR, de expectations, uh, the adjusted interest in banking line, and the clean energy line. Both were very close to our expectations. We adjusted acquisition cost line related to our typical tuck in Acquisitions came in, at a penny better and the adjusted corporate line was 4 cents below that solely due to a larger non-cash unrealized FX re-measurement loss because the dollar weakened in June that has

Already mostly reversed here in July so it just shows the noise that this can create in our corporate segment results.

Douglas Howell: As a general statement, please read the headers and the footers on each page carefully on how numbers in this document include or exclude the impact of Assured Partners. Flipping to page three and our typical modeling helpers, most of the second quarter of 25 actual numbers were close to what we provided back in June. One callout here, a small flip from amortization to depreciation that cost us about a penny of adjusted EPS. That's simply because we updated opening balance sheet numbers related to a recent acquisition. Finally, on this page, please look at the FX disclosures for the brokerage and risk management segments as we refine your models. Turning now to page four and the corporate segment outlook for the second half of 25, there's not much change here from what we provided eight weeks ago.

So let's move now from the earnings release to the CFO commentary document that we posted on our website.

As a general statement, please read the Heathers in the Footers, on each page carefully on how numbers in this document include or exclude the impact of assured partners.

Hoping to page 3 and our typical modeling helpers. Most of the second quarter of 2025, actual numbers were close to what we provided back in June. I want to call out here a small flip from amortization to depreciation. That cost us about a penny of adjusted EPS. That's simply because we updated opening balance sheet numbers related to our recent acquisition.

finally on this page, please look at the FX disclosures uh for the brokerage and risk management segments, as we refine your models

Douglas Howell: So you can flip to page five to our tax credit carryovers. As of June 30, about $685 million, which we get over the next few years, and recall that those that benefit flows through our cash flow statement, not through the P&L. Also, no change to the value of these credits from the recent US OB3 tax bill, so that's good news. And while I'm at it, there isn't anything concerning to us in the other provisions of the new bill either. So that's good news too. Turning to page six, the investment income table. We've updated our forecast to reflect current FX rates and changes in fiduciary cash balances. These numbers assume two future 25 basis point rate cuts, one in September and one in December. You also see that the interest income associated with Assured Partners financing runs through the third quarter in this table.

Turning now, to page 4 and the corporate segment outlook for the second half of 25. There's not much change here from what we provided 8 weeks ago. So you can flip the page 5 to our tax credit carryovers as of June 30th about 685 million which we get over the next few years. And recall that those that that benefit flows through our cash flow statement, not through the p&l

Also, there is no change to the value of these credits from the recent U.S. OB3 tax bill, so that's good news. And while I'm at it, there isn't anything concerning to us regarding the other provisions of the new bill either, so that's good news too.

Turning to page 6, the investment income table. We've updated our forecasts to reflect current FX rates and changes in fiduciary. Cash balances, these numbers assumed 2 future. 25 basis point rate Cuts 1 in September and 1 in December.

Douglas Howell: If we close before that, obviously that number would come down. Shifting down the page to the rollover revenue table, only a small change from our June CFO commentary, and that was due to a refinement in the seasonality of revenues from our second quarter 25 acquisitions, which are more heavily weighted towards first quarter versus second, third, and fourth. And then looking forward, you'll see in the pinkish columns to the right, they included estimated revenues for brokerage M&A closed through yesterday. So there's our standard reminder you'll need to make a pick for future M&A, and also you'll need to make a pick for when AP might close. The purple section on that page should help with that. All right, moving to cash, capital management, and M&A funding.

You also see uh, that the interest income associated with assured Partners. Financing runs through the third quarter in this table, if we close before that. Obviously, that number would come down shifting down the page of the rollover Revenue table. Only a small change from our June CFO commentary, uh, that was due to a refinement in the seasonality of revenues from our second quarter. 25 Acqua towards first quarter versus second and third and fourth

And then looking forward, you'll see in the pinkish columns to the right. They included estimated revenues for brokerage and brokerage M&A closed through yesterday. So there's our standard reminder; you'll need to make a pick for future M&A, and also you'll need to make a pick for when AP might close. The purple section on that page should help with that.

Douglas Howell: Our available cash on hand at June 30 was about $14 billion and no outstanding borrowings on our line of credit. With our strong second half cash flows, we are in great position to fund another $2 billion of M&A here in 25, and it's looking like we would have about $5 billion in 26 before using any stock, all while maintaining a solid investment-grade debt rating. Think about that for a minute. Another $7 billion over the next 17 months. That should allow us to add another $6 to $700 million of EBITDA at a really nice arbitrage. And I'm bullish about this because for 20 years, we've invested in building the chassis that can support billions and billions more of revenue, provide world-class service, and enable thousands and thousands of talented producers to win at the point of sale. So our M&A strategy has a fantastic outlook.

All right, moving to cash Capital Management and m&a funding available cash on hand at June 30 was about 14 billion dollars and no outstanding borrowings on our line of credit with our strong second half, cash flows. We are in great position to fund another 2 billion dollars of m&a here in 25. And as looking like, we would have about 5 billion in 26 before, using any stock all, while maintaining a solid investment grade debt rating. Think about that for a minute, another 7 billion, over the next 17 months, that should allow us to add another 6 to 700 million dollars of ibid act at a really nice Arbitrage. And I'm bullish about this because for 20 years, we've invested in building the chassis that can support billions and billions more of Revenue.

Douglas Howell: So a great quarter and first half in the books, and we have an exciting future with AP, organic growth, margin expansion, M&A opportunities, all driven by a talented team with a bedrock culture. Those are my comments. Back to you, Pat.

At the point of sale, our M&A strategy has a fantastic outlook.

J. Patrick Gallagher Jr.: Thanks, Doug. Dale, you want to open it up for questions, please?

Katie Sakys: Sure, you got it. Thank you. The call is now open for questions. If you have a question, please pick up your handset and press star one on your telephone at this time. If you are on a speakerphone, please disable that function prior to pressing star one to ensure optimum sound quality. You may remove yourself from the queue at any point by pressing star two. Additionally, we ask that each participant limit themselves to one question and one follow-up. Again, that's star one for questions. Our first questions come from the line of Elise Greenspan with Wells Fargo. Please proceed with your questions.

So, a great quarter and first half in the books, and we have an exciting future with AP. Organic growth, margin expansion, and M&A opportunities, all driven by a talented team with a Bedrock culture. Those are my comments back to you. Pat, thanks. Doug, uh, JL, do you want to open up for questions, please?

Sure, you got it, thank you. The call is now open for questions. If you have a question please pick up your handset and press star 1 on your telephone at this time. If you are on a speakerphone, please disable that function prior to pressing star 1 to ensure Optimum sound quality.

You may remove yourself from the Queue at any point by pressing star 2.

Additionally, we ask that each participant, limit themselves to 1 question and 1 follow-up. Again that's star 1 for questions.

Our first questions come from the line of Elise Greenspan with Wells Fargo, please proceed with your questions.

Elyse Greenspan: Hi, thanks. Good evening. My first question, when was the date that you guys sent the information, the HSR information to the DOJ and responded to that request? And did you get a timing agreement there, or is it just a 30-day clock that starts once you gave them all the information?

Hi, thanks. Um, good evening, my first question. Um, when was the date that you guys? Um, you know, sent the information. Um, the HSR information to the doj and responded to that request and did you get, um, a timing agreement there or is it just a 30-day clock that starts? Once you gave them all the information?

J. Patrick Gallagher Jr.: Well, we aren't going to give out dates that we did this or did that. We are done responding to their second request, and we do continue to engage with them and respond to certain inquiries. And so the review is ongoing, so I'm not going to get into any more real details about timing. But our evaluation of where we stand, given the give and take back and forth and given the relationship, is that we'll be in a position to close the transaction during the third quarter. We're very, very excited about it.

Well, at least we, we aren't going to give out dates that we did this or did that, we are done responding to their second request. Uh, and we do continue to uh engage with them and respond to certain inquiries. Um and and so the the review is ongoing. So I'm not going to get into any more real details about timing but our evaluation of where we stand, given the give and take back and forth and given the relationship is it will be in a position to close the transaction during the third quarter, we're very, very excited about it.

Elyse Greenspan: Thank you. And then my second question, you know, you guys, I'm just trying to get a sense with the 5% brokerage outlook for the back half, I guess. Are you assuming a continuation of just pricing trends that we saw in Q2 and just the slowdown in property in June? And then if I recall from the June IR day, you were talking about some benefits business that was getting pushed to the back half. Is that still the expectation? And then what quarter are you expecting that might come on?

Douglas Howell: All right. So yeah, so let me just reiterate what I said is that, you know, we see the next two quarters in the 5-plus range too, not to be not to quibble over picking at one single number. And yeah, I think that there's some risk and opportunity with the life business. We'll see how that comes out. Obviously, sometimes those policies incept, depending on interest rates with what's happening with the Fed holding tight right now. Your guess might be as good as mine about whether they accelerate to close or whether they try to wait until a little longer, maybe into next year, to actually incept those policies. So there is some dependency on those large and lumpy life cases. Other things is those picks are based on what we're seeing in the property environment right now, what we're seeing in the casualty environment right now.

Thank you. Um, and then my second question, um, you know, you guys, um, I I'm just trying to get a sense with the 5% brokerage outlook for the back half, I guess. Are you assuming a continuation of just pricing trends that we saw in Q2 and just this slow down in property in June? And then, if I recall from the June, I day you were talking about some benefits business. That was getting pushed to the back half, is that still the expectation and then what quarter, um, are you expecting that might? Come on. All right? So, yeah. So let me just reiterate what I said is that, you know, we, we see the next 2 quarters in the 5 plus range too. Not to be not equivalent over a picking at 1 single number and um, yeah, I think that there's some, uh, risk and opportunity with the life business. We'll see how that comes out. Yeah, obviously, sometimes those policies and stuff depending on interest rates with what, uh, what's happening with the FED holding tight right now.

Douglas Howell: And you know, and again, some of that's influenced a little bit by, you know, the timing that we had, you know, coming out of the first quarter. It was such a great first quarter. There's a little headwind to that in the third and the fourth quarters. Overall, though, our business, you know, we're excited about it and we think that we could be in that 6.5% and 7.5% range for the year.

J. Patrick Gallagher Jr.: And we are heavier in the second quarter on property than we are the next two.

Your guests might be as good as mine about whether they accelerate to close or whether they try to wait until a little longer, uh, maybe into next year to to actually accept those policies. So, there is some dependency on those large and lumpy life case. Other other things is where those picks are based on what we're seeing in the property, uh, environment right now, what we're seeing in the casualty environment right now and, um, you know, and again some of that's influenced a little bit by, you know, the timing that we had, you know, coming out of the first car with such a great first quarter. There's a little headwind of that in the in in in the uh third and the fourth quarters overall though. Our business, you know, we're excited about it. And we think that we could be in that 6 and a half and 7 and a half percent range for the year and we are heavier in the second quarter on property than we are the next 2.

Elyse Greenspan: Thank you.

Katie Sakys: Thanks, Elise.

Douglas Howell: Thank you. Our next questions come from the line of Andrew Clagorman with TD Cowan. Please proceed with your question.

Andrew Kligerman: Thank you. On the property, I just heard an E&S writer say that, you know, we made the same point as you about June seeing a big drop-off, maybe 20 to 30%. Is that baked into your guidance for the balance of the year, something along the magnitude of 20 to 30% property lines, or is that just more?

Thank you. Our next question is come from the line of Andrew claggor with the TD Cowen, please proceed with your questions.

Thank you. Um, on the property.

Or just heard an ANS writer say that.

J. Patrick Gallagher Jr.: That's a bad number. That's a bad number. Whoever gave you that number, it's not what we're seeing. Absolutely not even close. So no, we didn't bake in a 20 or 30% decrease.

You know, we made the same point as you about June seeing a big drop off maybe 20 to 30%, um, is that baked into your guidance for the balance of the Year? Something along, magnitude of 20 to 30% property lines? Or is that just more? That's a bad number? That's a bad number, whoever gave you that number

Now, what we're seeing.

Absolutely, not even close.

So, no, we didn't bake any 20% or 30% decrease.

Andrew Kligerman: Right.

Douglas Howell: And property, you know, in that, you know, 7% range, a little bit plus or minus on that in June, you know, probably the pretty heavy quarter during, you know, we say in June. And so I think it's, you know, the other thing too is you got to understand, you got to always remember the difference between our revenues that could include exposure changes also. So as property rates might come off, if you talk pure rate, that might be one thing, but our customers are smart. When rates are dropping, they buy more copper. So when we give you a number, when we see property down 7%, that would include rates going down, but exposures or, you know, the consumption of that, of those risks is going up.

Right. And

Rates are dropping, they buy more cover. So when we give you a number, when we see property down 7% that would include rates going down but exposures are are you know, the the consumption of that of of those risks is going up.

Andrew Kligerman: Got it. And you know, and the number I gave you might have been off because it might have been weighted more towards E&S and large risk. So then maybe just.

J. Patrick Gallagher Jr.: No, that's a bad number. It's a bad number. It's a bad number on large accounts. It's a bad number on middle accounts. It's a bad number on small accounts.

Got it. And, you know, the number I gave you might have been off because it might have been weighted more towards ENS and large risks. That's a bad number.

It's a bad number bad. Number our logic. Bad number on middle accounts, is a bad number, on a small account.

Andrew Kligerman: Good to hear. And then maybe just shifting to your your pipeline. I mean, it sounds really exciting. You've done nine mergers, you know, already. You know, no disruption from Assured Partners. You can just kind of keep going at your regular pace.

Good to hear. And then maybe just shifting to your pipeline. I mean, it sounds really exciting. You've done 9 mergers.

J. Patrick Gallagher Jr.: I tell you what, I have to agree, if I was an outsider, I'd be pretty impressed. Our machine, and we're in just a great position, is driven by literally hundreds of people in the field around the world talking to folks that they admire and working with people who have been hired by folks to sell their business. And we're on that shortlist of virtually anybody that wants to take a look at possibly selling their enterprise, large or small. You know, our tuck-in acquisition business purchases are not all 50, 100 million. There's lots of twos, fives, tens. These are family businesses, and they're not PE roll-ups, and they're looking for a home for their people. And I couldn't be prouder of the fact that we're still at the high end of that checklist.

You know, no disruptions from assured Partners. You can just kind of keep going at at your regular pace.

I tell you what, I, I

Have to agree. If I was an outsider, I'd be pretty impressed. Um, our machine and we're in just a great position is driven by, literally hundreds of people in the field around the world talking to folks that they admire and working with people who are up in hired by folks to sell their business.

J. Patrick Gallagher Jr.: You want to know, you know, is Gallagher still the kind of company I'd like to join? And you're exactly right to pick up on the fact that nine closures at the very time that they know we're doing the biggest transaction in our history. So it is a testament to the company.

And we're on that short list of virtually anybody that wants to take a look at possibly, selling their Enterprise large or small. You know, our our, our tucking acquisition, uh, business or purchases are not all 50 100 million. There's lots of twos 5 tens, these are family businesses and they're not PE Roll-Ups and they're they they're looking for a home for their people and I couldn't be proud of the fact that there were still at the high end of that checklist. They want to know you know is Gallagher still the kind of company I'd like to join and you're exactly right to pick up on the fact that 9 closures at the very time that they know we're doing the biggest transaction in our history, so it it is a testament to what we call.

Andrew Kligerman: Thanks, Andrew.

Douglas Howell: Thank you. Thank you. Our next questions come from the line of Charlie Letterer with BMO Capital Markets. Please proceed with your questions.

Thank you.

Thank you. Our next question is come from the line, if Charlie letterer with BMO Capital markets, please proceed with your questions.

Gregory Peters: Hey, thanks. On the RPC numbers that you gave, Pat, would you be able to, I don't think I missed it, or I may have missed it, but did you be able to give an all-in RPC number? And I guess what would that look like with, you know, 3Q and 4Qs mixed instead of 2Q?

Hey, thanks. Um, I'm the the RPC numbers that you gave Pat. Um, would you be able to? I I don't think I missed or I may have missed it but did did would you be able to give a um, an all-in RPC number?

Um, and I guess what, what would that look like with?

Um you know 3 q and 4 Q's, mix instead of 2 Q.

J. Patrick Gallagher Jr.: Well, it'd be about 4%.

Douglas Howell: Yeah, I think you're picking up on something, Charlie. There seems to be a heavy focus on property. You know, property for us in the course of a year might be 35% of our business casualty, and we're seeing a steady march of casualty rates going forward. You know, recollection says the casualty is up about 8% and the mix and the weight of the business. So I think overall you're seeing a market that's still mid-single digits going up in terms of rates. So you're right to sniff out the difference between those two, and but the combined number in that, you know, that mid-single digits number is still a spot for the, and you're the second part of your question, we see that happening for the rest of the year. We are just in the beginning of wind season. So let's see what happens here.

Well, it'd be about 4%.

Douglas Howell: Over the next three months, that could change the market. We're at $80 billion of CAT losses, the biggest first half of the year ever in the history of our business. It's only been five months ago that the tragic California fires were there. I think carriers still have to digest that and how that's impacting their reserves still. There's still development to come out of that. So, you know, between the casualty rates still marching higher, property is, you know, you're at the plate taking a swing at it. We'll see what happens for the rest of the year.

Yeah, I think you're picking up on something. There seems to be a, a, a heavy focus on property. You know, property for us in the course of a year, might be 35% of our business casually. And we're seeing a steady March of casually rates. Going forward, uh, you know, recollection says that casualties up about 8%, uh, and the mix and the weight of the business. So I I think overall you're seeing a market that's still mid single digits going up in terms of rates. So, uh, you're right to snip out the difference between those 2 and wonder, but the combined number and that, you know, that mid sing single digits. Number is still, uh, spot for the your, the second part of your question. I we see that happening for the rest of the year. We are just in the beginning of when season, so let's see what happens here. Um uh or the next 3 months, I could change the market. We're at 80 billion dollars of of cat loss. Is the biggest first half of the year ever, in the history of our business. It's only been 5 months ago that the

Tragic. California fires were there and then carriers still have to digest that and how that's impacting their reserves still. They're still development to to come out of that. So, you know, between the casualty rates, still marching higher property is May you know you're you're you're at the plate, taking a swing at it. We'll see what happens for the rest of the year.

Gregory Peters: Got it. Thanks. And I guess the 4.7 in base organic, are you expecting acceleration off of that in the back half of the year, or I guess are you expecting supplemental and contingents to kind of drive organic a little? Yeah.

Douglas Howell: I kind of look at base and supplemental together, and that's pushing like 4.9% or 5%. So right in there what we're seeing going forward, the contingents. I think the carriers are doing well. We do well in the environments where carriers do well. So I think that it's nice to see that base and supplemental together still around 5%. Supplemental is maybe topping that up a little bit. So I think you're reading through that right. But you know, we're holding in there. Our fee accounts are doing well too. So you know, it wouldn't surprise me that that's the same number the next three quarters too, or next two quarters also.

Got it. Thanks. And I guess um, the 4.7 in in base organic. Um, are you expecting acceleration off of that in the back half of the year or, um, or I guess are you expecting, uh, supplemental and contingents to, to kind of Drive organic a little? Yeah, I I kind of look at base and supplementals together and there that's pushing like 49 or 5%. So right in there what we're seeing going forward, the contingents, uh I think the carriers are doing well, we do well in the environments where carriers do well. So I I think that it's nice to see that bases. Just basing supplemental together. Still around 5% uh supplementals may be topping that up a little bit. Uh so I I I think you're reading through that right. But, you know, we're holding in there where our fee accounts are doing well uh too. So um you know, I

Our next 2 quarters, also.

Gregory Peters: Thank you.

Thank you.

Douglas Howell: Thank you. Our next questions come from the line of Gregory Peters with Raymond James. Please proceed with your questions.

Thanks Joe.

Thank you. Our next questions come from the line of Gregory Peters with the Raymond James, please proceed with your questions.

Gregory Peters: Hey, good afternoon. So I think, Doug, as you were going through in rapid fire formation your comments, you alluded to the opportunities that you have to expand margins in all types of organic revenue environments. And I think it's particularly interesting as we think about next year. So could you go back and sort of unpack some of those comments and talk about the drivers, not for this year, but what you're seeing, you know, for 26 and beyond?

Hey, good afternoon. Um so uh I I think Doug as you were going through in Rapid Fire formation. Uh your comments you.

Douglas Howell: Well, listen, here's the thing. How about I promise this that I'll give you a little bit more detail in September when we do our IR day on some of those exact points. But in a nutshell, there is a culture of change inside of Gallagher that every day people are waking up and getting after making ourselves better. We know that we've got to get more productive every day. We've got some terrific AI projects that are underway that are starting to show early success. We now have 15,000 associates that we can use that are in our centers of excellence that provide good value to us. You know, they are the early founders of standardization, centralization that allows us to deploy AI into that information.

Um, alluded to the opportunities that you have to expand margins and all type of organic Revenue environments. And I think it's particularly interesting as we think about next year. So, could you go back and sort of unpack? Some of those comments and talk about the drivers that for this year but what you're seeing, you know, for 26 and Beyond

How about I promise this and I'll give you a little bit more detail in September. When we do our IR, de on some of those exact points. But in a nutshell, there is a culture of change inside of Gallagher that every day people are waking up and getting after making ourselves better. We know that we've got to get more productive every day. We've got some terrific AI projects that are underway, that are starting to show early success. We now have 15,000 Associates that, uh, that we can use that are in our our, our, uh, uh, uh, our centers of excellence that that provide good value to us, you know? They are, they are the, the early found

Douglas Howell: The technologies we're developing now have kind of toggled from hardening our environment against cyber and against just uptime and runtimes that now are really enabling the business. The presentation layers that we're providing our producers that show customers like you bought this and being able to advise our customers. It's a list that keeps going on and on and on. And every time you think the list is going to get smaller of opportunities to get better, it just grows. And so we've got a runway for years of how we can make ourselves better. And you know, the acquisition pipeline feeds us because we're putting more revenue over a cost structure that doesn't change dramatically.

Founders of of, of standardization centralization, uh, that allows us to deploy AI into that information. Uh, the Technologies, we're developing now have kind of toggled from hardening our environment against cyber, and against just, just uptime and, and run times. That now really enabling the business, uh, the the, the present presentation layers that we're providing our producers that show customers like you bought this and, and being able to advise them because it's a, it's a list of of that keeps going on and on and on and every time you think the list is going to get smaller of of opportunities to to get better, it just grows. And so we've got a runway for years of how we can make ourselves better. Um and you know the acquisition pipeline feeds that because we're putting more Revenue over a a a cost structure that doesn't change dramatically.

Gregory Peters: All right. I'll wait till September for more detail.

Douglas Howell: I'll do my best.

The way until September for more detail, um, I'll do my best.

Gregory Peters: I guess I want to go back to the Assured Partners transaction. I think the last time we were talking about it, or you were talking about it, I should say, you mentioned or highlighted that you had to suspend, I think, 11 of the 13 workstreams on the integration process. And with the timing, with a little bit more visibility on the timing, have you kickstarted those workstreams or processes for integration back up? I guess ultimately what I'm getting here is, you know, we previously mapped out, you know, some revenue and margin assumptions for the acquisition and just wondering if because of this delay, it's going to cause a delay in the recognition of some of the benefits as we start to integrate that operation at the end of this year or next year.

I um,

I guess, uh, I want to go back to the assured Partners transaction. I think the last time we were talking about it or you were talking about it, I should say, um, you you mentioned or highlighted that you had to suspend. I think 11 or the 13 work streams on the integration process and um with the timing of with a little bit more visibility on the timing. Have you kickstarted those? Some work streams

A process for integration backup. I guess what I'm ultimately getting at here is, you know, we previously mapped out some revenue and margin assumptions.

J. Patrick Gallagher Jr.: I think, Greg, it is fair to say we had to suspend some actual workstreams that were things like what producers would work with what other producers on accounts, what branches would be sharing what here or there. But we've had, you know, we've had a lot of time, and we have been allowed at the senior levels to continue to have dialogue, to work on the plan here. And so it's been, we've followed the rules very closely. We've had a longer period of time to review this, and we've been allowed to do more integration planning, just not getting into some of the details of some of these workstreams. So I'd say that we're really ready to hit the ground running.

Um, for the acquisition and just wondering if because of this delay, it's called, just it's going to cause a delay and the recognition is some of the the benefits as we start to integrate that operation at the end of this year, or next year, I think correct. It is fair to say, we had to suspend some actual work streams that were things. Like what producers would work with what other producers on accounts? What branches would be sharing what you're there. But we've had, you know, we've had a lot of time and we have been allowed at the, at the senior levels to continue to have dialogue to work on the plan here. Um, and so it's been we we filed the rules very closely. We've had a longer period of time to review this and we've been allowed to do more integration planning.

Just not getting into some of the details of some of these work streams. So I'd say that we're really ready to hit the ground running.

J. Patrick Gallagher Jr.: I think that if you recall when we announced this acquisition, we're very proud of the fact that we said it in its first year would be accretive. We still maintain that. I think we're going to see a bump in opportunities to sell stuff in geographies and places that we have not been represented. Remember, only 94% of these acquisitions done by AP, we didn't have a chance at. So these are fresh new bodies that are, you know, coming on our team. Seems like they're very excited. And we're looking forward to getting going.

Um, I think that if you recall, when we announced this acquisition, we're very proud of the fact that we said it in its first year, it would be accretive.

They're still maintain that. Uh I think we're going to see a bump in opportunities to sell stuff in geographies and places uh that we have not been represented. Remember only 94 with 94% of these Acquisitions done by AP. We didn't have a chance at. So these are fresh new bodies that are are you know, coming on our team,

Douglas Howell: Yeah. And Greg, just to clarify, I think you had your numbers backwards. I mean, there were 12 or 13 workstreams, and we really had to spend two of them or three of them, or something like that. So you're, I think if you spoke backwards on that. But I got to say, like Pat said, is that we've used this time to get ready when things happen. If we're delayed seven months in closing, eight months in closing, maybe we lost two or three months in that journey, to be honest. So we didn't lose the entire time. So we're still bullish on the opportunity to put two great companies together and get a lot of benefit out of it.

Is that, uh, that we've used this time to get ready when things happen? Uh, if we're delayed 7 months in closing, 8 months in closing, uh, maybe we lost 2 or 3 months in that journey, uh, to be honest. So we didn't lose the entire time. So we're still bullish on the opportunity to put, uh, 2 great companies together and get a lot of benefit out of it.

Gregory Peters: Got it. Thanks for the clarification on that too, Doug.

Douglas Howell: Sorry. Thank you. Our next questions come from the line of Jing Li with KBW. Please proceed with your questions.

Got it. Thanks for the clarification on that, too, Doug. Sorry.

Thank you. Our next question is come from the line of Jing, Li with KBW. Please receive with your question.

Jing Li: Hi. Good evening. Thank you for taking my question. My first question is on pricing. You mentioned that casualty, some lines bottoming out and some lines getting higher. Just curious, any specific lines that you want to call out? You kind of want to know the mix that drives it. And casualty line pricing is like 8% in 2Q, which is line with 1Q look pretty steady. Do you expect casualty rates going to be flat or bumpy when you increase this function?

Hi.

Good evening. I give what they can my question.

Um, my first question is on pricing.

Uh you mentioned that casually some lines brought it out and some lines um getting higher, just curious any specific lines that you want to call out.

Just kind of want to know the mix that drives it and casually line pricing is like 8% in Q2, which is aligning with Q1 and Q2, uh, looking pretty steady. Do you expect casual rates going to be flat or bumpy when it increases from here?

J. Patrick Gallagher Jr.: All right. Let me try to answer a little bit of that right off of my script, Jing. I think we're seeing property down seven, casualty overall up eight. But we did unpack that. General liability is up about four. Commercial auto continues to be up seven and umbrella up 11. That tells you a lot about what's going on in the underlying business of underwriters. Package, which is packaged together with other property type covers, is up five. But D&O, interestingly enough, is down three. Workers' comp is up about a point, and overall first lines are up seven. I think that's about as unpacked as we could get for you by line today. And I think that's pretty good data. What I'm seeing in the casualty market is a continuing caution, as we talked about under our reinsurance report.

All right, let me try to answer a little bit of that right off of my script. Okay, I think.

We're seeing property down 7, Casey overall update, but we did unpack that General liabilities of about 4 Commercial, Auto continues to be up 7. An umbrella up 11, that tells you a lot about what's going on in the underlying business of Underwriters.

The package, which is packaged together with other property type covers, is up 5, but DNO, interestingly enough, is down 3.

Workers cap is, you know, up about a point and overall first lines are up 7. I think that's about as unpacked as we could get for you by lying today, um, and I think that's pretty good data.

J. Patrick Gallagher Jr.: Carriers from a reinsurance perspective are still concerned about prior years. And when they look at that and look forward, they're not willing to throw the numbers out to some additional credits that are going to cause that problem from the past to get bigger. And I think if you add that to Doug's comments, I mean, we're one storm away from the market turning in property. I mean, so you're in a really interesting time in the market. These carriers are very good at knowing where they are or aren't making money, and they're very determined to try to keep their revenue coming in above loss costs. So it's a good time for us to be talking to clients about all this because they're confused, to be honest with you.

What I'm seeing in the casualty Market is a continuing caution. As we as we talked about under our reinsurance report carriers from a reinsurance perspective are still concerned about prior years. And when they look at that and and and look forward, they're not willing to throw the to throw the numbers out to some additional credits, they're going to cause that problem from the past to get bigger.

And I think if you add that to Doug's comments, I mean we're one storm away from the markets turning in property.

I mean that, so you, you're in a really interesting time in the market. These carriers are very good at knowing where they are and aren't making money, and they're very determined to try to keep their revenue coming in above loss costs.

So it's a good time for us to be talking to clients about all this because they're confused, to be honest with you.

Jing Li: Got it. Thank you. My second question is on the E&S market. One of your competitors kind of mentioned seeing some early signs of business coming back from E&S to their demand market. Are you seeing any similar trend, or what are you expecting from here?

J. Patrick Gallagher Jr.: Yeah, I would tell you this. First of all, every retail broker in the world has game plan number one in a market like this, and that's to reinstitute a direct play to take the wholesale commission away from the wholesaler. Now, that's a bold statement. There are wholesalers that have helped you write accounts. You're going to work together. So it's not, you can't say every single account, but that is clearly a strategy that a retailer will use to not have to split commissions.

Got it, thank you. Um, um, my second question is on the yes market. Um, one of your competitors' conventions is seeing some early signs of business coming back from yes to the middle market. Um, I think any similar trend or why expecting from here?

Yeah, I would tell you this: first of all, every retail broker in the world has Game Plan Number 1 in a market like this, and that's to reinstitute a direct play to take the wholesale commission away from the wholesaler.

Douglas Howell: And we're actually seeing in our submissions, our submission count is actually up. So when it comes to opportunities, we're still having a lot of opportunities to spruce. That's obviously in our wholesale and E&S market.

Now, that's a bold statement. There are wholesalers that have helped you write accounts. You're going to work together. So, you can't say every single account, but that is clearly a strategy that a retailer will use to not have to split commissions.

J. Patrick Gallagher Jr.: Now, also, there's a differentiation between programs and MGA type lines of coverage where you've got something that's in an underwriting environment that's excess and surplus. Those are growing nicely right now. They're continuing to grow. So it is a mixed bag, but as you saw in our results, our excess surplus and specialty business is up 7% at a very strong quarter. So this is not like all the businesses returning to the primaries. It's a logical balance.

And we're actually seeing in our submissions, our submission count is actually up. So uh, so when it comes to to Opportunities, we're still uh, we're still having a lot of opportunities to, to, to Pros. That's in our obviously, in our Wholesale, in the ens markets. Now also, there's a differentiation between programs and MGA type.

Lines of coverage where you've got something that's in an underwriting environment that's access and surplus.

Those are growing nicely right now. They're continuing to grow.

So it is a mixed bag but as you saw in our results, our excess Surplus and Specialty business was up 7% at a very strong quarter. So this is not like all the businesses returning to the primaries.

It's a logical balance.

Jing Li: Got it. Thank you so much.

J. Patrick Gallagher Jr.: Thank you.

Got it. Thank you so much.

Thank you.

Douglas Howell: Thank you. Our next question has come from the line of David Botamaden with Evercore ISI. Please proceed with your questions.

Thank you. Our next question has come from the line of David, motivating with Evercore. Isi, please proceed with your questions.

Gregory Peters: Hey, good evening. I just wanted to confirm that in the outlook for 5% plus organic growth in brokerage in the back half of the year, that you guys are assuming a continued 7% decline in property RPC. And then maybe if you could help us think through some of the sensitivity around that, if pricing came in maybe a little bit better or if it came in maybe a little bit worse, what sort of impact that might have to organic in the second half?

and brokerage in the back half of the year, that you guys are assuming a continued

Douglas Howell: Right. So you asked on the first part of the question, we were assuming property pricing that happened in June continuing through the year. But again, we're not as heavily weighted to property in the second half of the year. Second thing, I think the sensitivity in it, I think that we lose 40 basis points of organic every time there's a 2% drop in rate without any changes in ex, including increases in exposure that would come along with that. So it may be down a little bit more because of the changes in rates, but then because of increased consumption and people opting back in, I think the net impact is about 40 basis points for 2% of drop on net net property.

7% decline in property, RPC. And then, um, maybe you could help us think through, um, you know, some of the sensitivity around that if pricing came in maybe a little bit better or if it came in maybe a little bit worse, um, what sort of impact that might have, uh, to organic in the second half?

Right. So yes, on the first part of the question. We're assuming property pricing that happened in June continuing through the year but again we're not as heavily weighted to property in the second half of the Year. Second thing, I think the sensitivity is I think that we lose 40 basis points of organic. Every time there's a 2% drop in in uh uh uh uh rates, uh, without uh, without any changes in including increases in exposure, that would come along with that. So it maybe down a little bit more because of of the changes in rates, but then because of of increased consumption and people are being back in. I think the net impact

Because it's about 40 basis points for a 2% drop on net property.

Gregory Peters: Got it. Great. That's helpful. And then maybe just following up on that, I think you said in June, is that different than the down seven, or is that more than the down seven? Because I think you said five in April and May, and then it sounds like June was definitely worse than seven.

Douglas Howell: Yeah, maybe.

Gregory Peters: And you're seeing seven for the quarter.

Douglas Howell: Yeah, maybe June was eight or nine, something like that by the time it averages. But July, we're not seeing that in July.

Got it. Great. That's that's helpful. And then maybe just following up on that. I think you said in June, um, is, is that different than the down 7 or is that more than the down 7? Um, because I think you said 5 in April and May and then it was, it sounds like June was definitely worse than 7. Um yeah, maybe and just being 7 for the quarter. Yeah. Maybe 2

Is 8 or 9? Something like that. By the time it averages.

Uh, but July is, is we're not seeing that in July.

Gregory Peters: Got it. Okay. But you're assuming like the eight, nine in the outlook going forward. You know.

Douglas Howell: I think there's some moderation as you get halfway. Binding property business in the middle of the storm season can have so, it's not going to get quite the cuts that you get in earlier. So let's see what happens during storm season here. But I think that carriers have, you know, they've got a target of what they want to write, and you know, I think they may have, you know, they're going to hit that harder in the May and June timeframe because you get seven months of the entering premium.

Got it. Okay. But you're assuming, like, the 89 in the outlook going forward.

You know, I think there's some moderation as you get halfway binding property business in in, in the middle of the storm season can have. So it's not going to get quite the cuts that you get it in in earlier. So let's, let's see what happens during storm season here. But I think that I think that carriers of, you know, they've got they've got a target of what they want to write. And, you know, I think they may have uh, you know, that they're going to hit that harder in the May and June time frame because you get a, you get 7 months of the entering premium.

Gregory Peters: Right. No, that's fair. Thank you. And then for my second question, and I know it's early, but just wondering, you know, just given all the dynamics within the different lines, you know, I think you had said up 4% to 6% ex-property, and then obviously everything that's going on in property. Any sort of early thoughts in terms of how you're thinking about organic in brokerage in 2026?

Douglas Howell: Yeah, we're working through that right now. I think that, you know, our reinsurance business is still killing it. I think there's still opportunity there. Our benefit business in the first quarter was very good. So on an overall year-in and year-out basis, maybe where we close this year, you know, I think we got a shot at that next year. You know, wherever we end up this year, we probably could repeat that next year.

Right. Nope, that's fair. Thank you. Um, and then, um, for my second question, um, I know it's early, um, but just wondering, um, you know, just given all the dynamics within the different lines, you know, I think you had said up 4% to 6% next property and then obviously everything that's going on in property. Um, any sort of early thoughts in terms of how you're thinking about organic and brokerage in 2026?

It is still killing it. I think there are still opportunities there. The benefit business in the first quarter was very good, so on an overall year-in and year-out basis, maybe we will close this year.

You know, I think we got a shot at that next year. You know, wherever we end up this year, we probably could repeat that next year.

Gregory Peters: Got it. Thank you.

Douglas Howell: Appreciate it. Thank you. Our next questions come from the line of Mark Hughes with Truist Securities. Please proceed with your questions.

Got it. Thank you. Thanks, David.

Thank you. Our next questions come from the line of Mark Hughes with Truist Securities. Please proceed with your questions.

Gregory Peters: Yeah, thank you. Good afternoon.

J. Patrick Gallagher Jr.: Hey, Ben.

Gregory Peters: Pat, if I heard you properly, I think you said workers' comp is up one. And if I am looking at it right, it was up five last quarter. I know you said job growth may not be as robust and maybe there's a little less wage inflation, but anything else impacting that number?

Yeah, thank you. Good afternoon. Hey there, if I heard you properly, I think you said workers' comp is up 1. Um, and if I, uh, am looking at it right, it was up 5 last quarter. I know you said, uh,

J. Patrick Gallagher Jr.: I'm not seeing it, Mark. I think comp is surprising to me. The last 10 years, it's been pretty flattish. So I wouldn't read too much into that. We can unpack it every single quarter, but it's in a pretty tight range of not much movement. This is not an indication of it falling through the floor, and the second in the previous quarter was not an indication of a start to run-up.

Job growth may not be as robust, and maybe there's a little less wage inflation. But is there anything else impacting that number?

I'm not seeing it, Mark, I think.

Top is surprising.

To me, the last 10 years.

I wouldn't read too much into that.

We can unpack it every single quarter, but it's in a pretty tight range of not much movement.

This is not an indication of a fall through the floor, and the second quarter and the previous quarter were not indications of a start to run up.

Gregory Peters: The benefits organic, I think you said it was maybe a little bit faster than the overall US retail. Is that right? Do you have a specific number on that?

The benefits of organic growth, um, I think you said it was maybe a little bit faster than the overall U.S. retail. Is that right? Do you have a specific number on that?

Douglas Howell: We didn't provide that, but it might be two points better. Maybe a point, point and a half better.

Uh, we didn't provide that, but it might be 2 points, maybe a point point and a half better.

Gregory Peters: Okay. Very good. Thank you.

Douglas Howell: Thanks, Mark. Thanks Mark. Thank you. Our next question has come from the line of Andrew Anderson with Jefferies. Please proceed with your questions.

Okay, very good. Thank you. Thanks, Mark. Thanks, Mark.

Gregory Peters: Hey, good afternoon. I think I heard you say a 5% organic in reinsurances, and that's relative to some really strong quarters in recent history. Can you maybe break down just any impact on pricing on that organic number? And would also be interested in hearing maybe any benefit you saw from ILS activity.

Thank you. Our next question has come from the line of Andrew Anderson with Jefferies. Please proceed with your questions.

Hey, good afternoon. I think I heard you say a 5% organic growth in reinsurance, and that's relative to some really strong quarters in recent history. Can you maybe break down any impact on pricing for that organic number? And I would also be interested in hearing about any benefit you saw from IOS activity.

Douglas Howell: In the second quarter, not much benefit from ILS. And we've had a, you know, relatively speaking, it's not a big quarter on reinsurance. And just ask your question about the reinsurance 5% again. Maybe I didn't hear you right.

Gregory Peters: Just any impact from pricing that was a headwind to that five?

Douglas Howell: Maybe a little bit, but we're seeing some, the carriers are realizing there's some opportunities here to increase their purchase of reinsurance. So that more than offset that.

Um, in the second quarter, not much benefit from IOS and we've had a, you know, relatively speaking, it's not a big quarter on reinsurance. Just to ask your question about the reinsurance 5%, again, maybe I didn't hear you right. Just any impact from pricing? Uh, that was a headwind to that 5.

See what it can increase, uh, uh, their purchase of reinsurance, so that more than offsets that.

Gregory Peters: Great. And then I think in the script, you mentioned some early AI successes. Could you maybe elaborate a bit on those?

Douglas Howell: Well, listen, I told Greg I wasn't going to talk about it until September, so that wouldn't be very fair of me to go ahead and answer it. Listen, we're doing some really, Gallagher Bassett is really having some terrific results in their claim submissions. We're starting to do really well with policy review. You know, on the back office side, we're starting to get some momentum on kind of what I call near AI on bank reconciliations, etc., which still, you know, we still have a lot of those going on. And so there's a smattering of businesses, but the big things that stand out right now are claim summarization and policy review.

Great. And then I think in the script, you mentioned some early AI successes. Could you maybe elaborate a bit on those?

Uh well listen, I told Greg I wasn't going to talk about it until September so that wouldn't be very fair of me to go ahead and add to listen. We're doing some really Gallagher Bassett is really having some terrific results and their claim submissions. We're starting to do really well with policy review. Uh, you know, on the back office side, we're starting to get some momentum on on, kind of what I call near AI on Bank. Reconciliations, Etc, which still, you know, we still have a lot of those going on and so there's a smattering of of, of business. But the big things that stand out right now are are claimed summarization and policy review.

Gregory Peters: Thank you.

Thank you.

Douglas Howell: Thank you. Our final questions will come from the line of Katie Sackis with Autonomous Research. Please proceed with your questions.

Thank you. Our final questions will come from the line of Katie Sackett with Autonomous Research. Please proceed with your questions.

Elyse Greenspan: Hi. Thank you for squeezing me in. I think I heard you guys mention 7% growth on E&S business in the quarter. Would you be able to break that down a little bit further, thinking about the difference between open brokerage and MGAs?

J. Patrick Gallagher Jr.: Yeah, I think the faster grower of the two, MGAs, programs, and open market is clearly the MGA business. I don't have a stat ready off the top of my head. Let me just look down the table here.

Hi, thank you for, uh, sweeping me in. Um, I think I heard you guys mention 7% growth in the ENS business in the quarter. Would you be able to break that down a little bit further? I’m thinking about the difference between open brokerage and MGAs. Yeah, I think the, uh, the faster growth...

To mga's program.

And open market.

Business, I don't have a stat ready off the top of my head.

Douglas Howell: Yeah, listen, I can tell you this, is that the binding is up towards double digit. And the issue you've got to look at in open brokerage is the submissions are up, but because some of the renewal premiums are flat, it's primarily a property quarter. You know, for me to say that it was flat, that might be a little unfair because without context that we're still getting tons of submissions going into the open brokerage spot.

Um let me just look down the table here. Yeah listen I can I can tell you this is that the The Binding and I is up towards double digit and the the issue you've got to look at an open brokerage is a submissions are up but because some of the renewal premiums are flat and it's primarily a property quarter. You know, for me to say that it was flat. That might be a little unfair because it without contacts, that were still getting tons of submissions going into that into the open brokerage spot.

Elyse Greenspan: Thank you. I appreciate the additional context. And then just on thinking about the closure of the Assured Partners acquisition, I can appreciate that you don't have a whole lot of additional detail for us, but is there any changing in your thinking about the need to potentially divest some parts of that business or offer other remedies in order to get the deal over the finish line?

Thank you. I, I appreciate the additional context and then, um, just on on thinking about the the closure of the assured Partners acquisition, I can appreciate that. You don't have a whole lot of additional detail for us, but is there any changing in your thinking about the need to potentially divest

J. Patrick Gallagher Jr.: Absolutely not.

Some parts of that business offer other remedies in order to get the deal over the finish line. Absolutely not.

Elyse Greenspan: Excellent to hear. Thank you.

Excellent to hear.

J. Patrick Gallagher Jr.: Thanks, Katie. Okay, I think that's our last question. I've got just a quick thank you for everybody for joining us. I know it's late this afternoon. Appreciate it. We feel we had a great first half of 2025. Most importantly, I want to thank the 59,000 colleagues that we have for all their hard work. Thank you. And to all our clients around the globe, we're proud to be your trusted advisors. Thank you. And thank all of you for joining us. Have a great evening.

Thanks Katie.

Okay, I think that's our last question. I've got just a quick thank you for everybody for joining us. I know it's late this afternoon; I appreciate it. Uh, we feel we had a

Great. First, I want to thank the 59,000 colleagues that we have for all their hard work. Thank you. And to all our clients around the globe, we are proud to be your trusted advisors. Thank you. And thank all of you for joining us. Have a great evening.

Douglas Howell: Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Thank you; that does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.