Arthur J. Gallagher (AJG) Q2 2026 earnings call transcript

It is now my pleasure to introduce J. Patrick Gallagher Jr. , Chairman and CEO of Arthur J. Gallagher and Company. Mr. Gallagher, you may begin. Good afternoon and thank you for joining us for our second-quarter 26 earnings call. On the call for today's Doug Hall or CFO and other members of the management team. Before we get into the quarter, I want to take a moment to recognize the passing of Dave Johnson, a valued member of our Board of Directors. Dave helped guide Gallagher with wisdom, integrity, and sound judgment, and he cared deeply about our company, our values, and our people. On behalf of our Board, our leadership team, and all of our colleagues, we extend our deepest condolences to Dave's family and loved ones.

He will be greatly missed. And knowing Dave and the pride he took in this company, I believe he'd be very proud of what our team accomplished this quarter. Our team's disciplined execution delivered another excellent quarter reflecting the continued momentum across our business. For our combined brokerage and risk management segments, our two-pronged revenue growth strategy growing both organically and through acquisitions delivered total revenue growth of 24% in the second quarter. Organic growth was 6% reflecting continued strength across each of our businesses, and we continued to generate excellent profits. This quarter marks 25 consecutive quarters of double-digit adjusted EBITAC growth, and another quarter of solid underlying margin expansion. Doug will break that down for you in a few minutes.

On a segment basis, brokerage revenues were up 26% of which organic was 5%. We saw strong results from assured partners and growth across retail, PC, wholesale, reinsurance, and benefits. Nearly a year into the assured partner's combination, the business is performing well, retention remains strong, and the teams are working great together. Our risk management segment, Gallagher Bassett, posted revenue growth of 16%, which includes organic of 12%, driven by excellent new business and strong client retention.

Now I'll again touch on the four strategic pillars that have guided Gallagher's long-term growth for decades, growing organically, growing through mergers and acquisitions, improving our productivity and quality, and maintaining our culture.

First, organic growth. Our client retention remains strong. New business is excellent, and our clients underlying business activity continues to be positive. Insurance rates continue to contribute to growth, but less than they have over the past several years. In this environment, only about one point of our organic growth is tied to rates. The bigger drivers continue to be new business, strong retention, exposure growth, and the diversity of our model across PC, benefits, reinsurance, and claims. We're also benefiting from activity across construction, infrastructure, energy, and data centers. These areas create new and more complex client needs, where clients require more advice, broader capabilities, and deeper expertise, and that plays directly into Gallagher's advisory strengths.

Overall, we continue to view the global PC market as segment. Carers are looking to grow where they are earning acceptable returns and remain disciplined where underwriting margins require support. Property continues to ease, especially on larger and cat exposed risks. Small and middle market accounts remain more stable. Casually remains firmer given loss cost trends and underwriting discipline. Good loss experience accounts can typically see some premium relief while accounts with poor experience are seeing increases.

Let me spend a few minutes breaking down this by business. Within our global retail PC business, broad market themes remain consistent with last quarter, and as expected, the softness in property was more pronounced in the second quarter, given the seasonally heavier renewal mix. In the second quarter, we saw the following and renewal premium changes by line of business. Property was down 10%.

Casually lines, which included general liability, commercial auto, and umbrella were up 3% overall. Professional lines, including D&O and cyber, were up 1%. Workers comp up 2%, personal lines up 3%, and package up 2%. Excluding property, renewal premium changes increased 3% in the quarter, with higher increases in the US versus international markets. It's important to remember that premium changes in Gallagher's revenues do not move one for one.

As property pricing eases, many clients are opting in and using the savings to buy back coverage, increased limits, or improved structure after several years of opting out and making digital trade-offs. And in this environment, the value of our advice, advocacy, and market access becomes even more important. Within US access and surplus, we continue to see a bifurcated market.

Property, especially cat-exposed, is the most competitive area right now. That reflects a pricing reset after several years of a very strong hard market, not a reduction in demand, submissions and policy accounts remain healthy, and E&S continues to be an important solution for complex property risks. Casally remains firmer. Renewal premiums are up mid-single digits, and demand remains steady across general liability, access liability, and umbrella.

At its core, the E&S market is driven by complexity. AI-related infrastructure, including data centers, difficult liability risks, and other emerging specialty exposures often do not fit neatly in admitted markets. That creates a multi-year opportunity for our wholesale teams, because clients and carriers need expertise, structure, and speed, as well as market access.

Turning to London specialty, conditions are similar to what we are seeing in the US E&S market. North American cat-exposed property remains competitive, while D&O, professional lines, financial institutions, and cyber are more stable than they were earlier in the cycle. The clear exception is war-related risk. Marine, aviation, and political violence exposures tied to active conflict zones are seeing significant repricing and more selective deployment of capacity. Coverage remains available, but it requires careful structure and coordinated execution across markets. That is where our London-US and international teams work especially well together. We are helping clients navigate increasingly dynamic markets.

Moving to reinsurance, the market remains well capitalized, and renewal activity continues to reflect ample capacity. In the second quarter, we saw strong growth across lines and across geographies with excellent new business, helping offset rate headwinds. That performance reflects broad-based contributions from areas including facultative, casually, and capital advisory, demonstrating that gallery's growth is not solely dependent on the pricing cycle.

Conditions at the 4-1 renewals were generally consistent with those we saw at 1-1, with someone greater downward pricing pressure on the Japan-specific contracts. At the mid-year renewals, including 6-1, property cat pricing moved lower again, reflecting abundant capacity. Demand remained healthy, and many clients used the savings to improve structure by additional limits or better managed earnings volatility. Casual remains more disciplined, particularly for US-focused risks given loss cost trends and prior year development. Even in the software reinsurance markets, clients need more than price to need advice, structure, analytics, and access to capital that plays directly into gallery's strength.

Moving to employee benefits, we're seeing steady demand for employers from employers across health, retirement, benefits, executive benefits, life, and HR solutions. Our clients remain focused on talent, attraction, and retention while managing pressure from increased medical utilization, advanced treatments, and escalating prescription drug costs. That is why they value our advice, advocacy, creative plan design, and cross-management strategies, all of which continue to support demand and retention across our benefits business.

Moving on to Gallagher Bassett, GB had another terrific quarter driven by excellent new business and strong client retention. The team continues to broaden its capabilities and put data, AI, and machine learning to work in very practical ways. To improve service, drive better claims outcomes, and create further operating efficiencies. These investments continue to strengthen GB's competitive position, and with good momentum and a healthy pipeline of opportunities, GB is well positioned for another strong year in 2026.

Now, let me provide some comments on our view of the economy. The U. S. labor market remains healthy, with the number of job openings still ahead of the number of people looking for work. Our daily revenue indications have historically been a terrific indicator of economic activity, and our proprietary data from audits, endorsements, and cancellations showed solid business activity throughout the second quarter and through yesterday.

Our data continues to show that exposure units such as revenues, payroll, head counter, trucks on the road to name a few, are still in positive territory, and our clients' businesses are continuing to grow. So to wrap up my thoughts on our organic growth prospects, property pricing is moderating, and that's well understood. The property is only one part of our very large and very diverse portfolio. Client retention remains strong. New business activity is excellent. Client exposure growth is positive. We are also seeing clients opt back into coverage as pricing moderates, and our growth is broad-based across geographies, client sizes, and products.

Most importantly, clients continue to need our advice, advocacy, analytics, and market access. As risk becomes more complex, the value of Gallagher's expertise becomes more important, not less. That is why we remain confident in the durability of our results, and in our 2026 full-year organic growth outlook of 6%. Now, shifting to our second strategic pillar, mergers and acquisitions. During the second quarter, we completed seven new tuck-in acquisitions, representing around $63 million of estimated annualized revenue. Looking at our pipeline, our acquisition strategy continues to be a powerful driver of Gallagher's growth.

Since last April, we've completed 38 acquisitions, including Woodruff Sawyer and Assured Partners, and each one strengthens Gallagher in its own way, adding talent, capabilities, relationships, and new growth opportunities. Assured Partners is one example of that strategy work. The business is performing very well. Retention is strong, and the teams are already better together. We're collaborating on opportunities, sharing capabilities, putting Gallagher's tools, data, analytics, and expertise to work across the entire combined team. That is good for clients, good for colleagues, and a strong message to other high-quality firms thinking about their future.

For those new partners joining us, I'd like to extend a very warm welcome to the Gallagher family professionals. Good firms always have a choice, and it'd be terrific if they chose to partner with Gallagher.

Next, let me move to our third strategic pillar, continuously improving our productivity and quality. For more than two decades, we've been improving productivity and quality by standardizing workloads, building our centers of excellence, and bringing more of our data together around the world. AI, digitization, and automation are simply the next tools in that effort, and we are putting them to work across the broader Gallagher team. And the point is simple. These tools make our professionals faster, better informed, and more productive, but they do not replace judgment, advocacy, relationships, or accountability to our clients. Over time, they should help us serve clients better, further improve our quality, help us win new business, and keep us growing the right way.

Let me wrap up with our fourth strategic core, our culture. Gallagher is a growth culture company. Our culture helps us attract talent, welcome merger partners, and execute consistently across a large and diverse global company. And culture is what makes our investments in talent technology, data, and AI work. Our people are willing to learn new tools and new ways of working when these tools help them serve clients better, improve quality, and move faster.

That is what helps turn investment into execution. We have the scale, we have the data, we have the operating discipline, and because of our culture, our people put those capabilities to work every day. That drives productivity, improves quality, helps retention, helps new business, and over time, it shows up in our financial performance. So when we talk about Gallagher's performance, our culture is not separate from the numbers, it's embedded in them.

Okay, another excellent quarter behind us, a terrific future ahead of us. I'll stop now and turn it over to Doug to walk through the financial details. Doug?

All right, thanks, Pat, and hello everyone. Today I'll spend about two minutes flipping through our earnings release and give some quick highlights, and I'll spend about five minutes on the CFO commentary document that we post on our website, and then I'll close with a minute on cash, M&A, and capital management. Overall punchline, which you've probably already dug out, we had a great quarter right in line, and in mean cases better than we had forecasted in our June investor day. One housekeeping reminded before I jump in, in the first three quarters of 25, our brokerage segment earned investment income on the funds we are holding to buy assured partners.

Second quarter 25 revenues and EBITAC were benefited by investment income of $144 million, that's $0.42 per share. And then as a reminder, for the first quarter 25, that was $143 million, or 41 cents, and third quarter 25 results had $76 million or 22 cents of income. This is caused and will again cause in the third quarter a lot of comparability noise. Fortunately, this headline headache will be behind us by the fourth quarter.

Okay, let's go to the earnings release, page one. Removing from prior to the impact of investment income on AP funds, as I just noted, you've computed justed revenues, adjusted EBITAC, and adjusted EPS each up over 30 percent for a combined brokerage and risk management segments. That's an incredible quarter and demonstrates our four strategic pillars are delivering terrific shareholder value.

Next, when you combine brokerage organic at 5% from page three, and risk management organic at 12% from page five, you'll get to that 6% organic growth that Pat just cited. This is excellent execution right in line with our June IR day forecast. One other note, brokerage posted excellent combined supplemental and contingent growth and risk management had strong performance bonus revenues. Both reflect the value we bring to our clients and capital providers.

Moving to page four and top of page five, as we've been discussing for nearly a year, the current quarter percentages at the bottom of these tables are really not all that helpful when compared to the prior year because of the interest income we re-earned in 25 on the AP funds. That really clouds comparability. So it's better for me to defer comments on our brokerage EBITAC margin until I get to page seven of the CFO commentary.

That's sad when I do, you'll quickly see that our productivity and quality strategic pillar delivered strong underlying margin expansion this quarter, right in line with our IR day forecast.

So moving to page six, knowing back to these numbers from interest from holding AP funds, risk management showed continued operational efficiencies leading to an adjusted EBITAC margin up 140 basis points to 22.3%. That plus excellent revenue growth of 14% led to 22% growth in our adjusted EBITAC.

Looking forward, we see third quarter and full year 26 adjusted EBITAC margins north of 22%. Flipping to page seven, corporate segment adjusted results in total were a bit better than what we provided during our June investor day. That's mostly due to a small movement in unrealized FX. And as I've said before, this is a non-cash item, but it does move our corporate results around a bit as the foreign repurchased about 850,000 shares for approximately $170 million in the second quarter. That brings repurchases to about $480 million through June 30.

Okay, let's now go to the CFO commentary document, starting on page three. Most items here are very close to what we provided in June. A couple call-offs. The FX impact has been up to the latest exchange rates. And we have updated our non-cash urnout expense estimate to reflect a couple of urnout payments made in the quarter. So just double check these items as you consider that these are considered in your models.

Moving to page four, organic growth by business. Here are the punch lines. First, we saw another solid quarter of organic growth across each business and geography. APAC specialty and risk management, that's Gallagher Bassett, each had a really strong finish and all others right in line with our forecast provided during our June IR day.

Looking forward, we've added our third quarter organic growth outlook and updated our full year. For percentages, reflect the midpoint of our estimates and reflect similar new business retention, client business activity and economic conditions that Pat just provided, as well as our view of where rates might be. For full year, we brought up APAC and Gallagher Bassett a bit due to their strong second quarter and reinsurance rounded down really less than a point. So not much new news from our June IR day outlook. We are still comfortable with our full year total company, Organic Outlet of 6%. We're only at 5.5% and risk management at 9%. We post that and 26 will be another year of excellent organic growth.

Okay, let's move to the top of page five, the investment income table. A couple quick comments here. First on the left side, this is where you see the interest earned in 2025 and the funds we were holding to buy AP that I mentioned earlier. And second, our 26th forecast reflect current FX rates, changes in fiduciary cash balances, and assumes no rate cuts this year. Staying on page five, but shifting down to the rollover revenue table, which excludes assured partners, three comments here.

First, the second quarter, 26 columns subtotal of $66 million for brokerage came in pretty close to our estimates that we provided in June. Second, please make sure you adjust the prior year revenues for the amount noted in the divestiture and other line before you apply your organic growth assumptions. Then third, the pinkish columns to the right reflect 2026 revenues for M&A closed through yesterday. But remember, you'll also need to make a pick for future M&A.

Moving to page six, this is information on assured partners. Five comments here. First, assured partners, second quarter, EBITOC of $222 million came in at our June investor day estimates and we're really confident in our full year 26 outlook. That's really great performance.

Second, remember that forecasted numbers we provide in this table are at the midpoint of our estimates. As we convert locations onto our systems, there could be some small movements between quarters and some additional revenue netting like we have seen over the last couple quarters.

Third, my standard reminder that for third and fourth quarters 26, you should only model the delta between the future estimates in pink and the 25 numbers in blue. Otherwise, for example, you'd be double counting about $500 million of revenue in the third quarter.

Fourth, the footnote reminds you that the non-cash figures shown on this page, which reflect appreciation and earn out payable, are included within our estimates on page three. So please don't double count these. And fifth, importantly, you'll read in the footnote. We still see annualized run rate synergies of $160 million by the end of 26 and then up to $325 million by early 28.

Now one heads up here. This table does not include synergies. Those synergies are shown in the margin wall table on page seven for 26, so don't double count. So moving on to page seven, the brokerage segment margin bridge. This table makes it very easy to see all the components that influence our margin change period over period. So here's some punchline. AP is delivering margin left. Our productivity and quality efforts again delivered another terrific quarter of underlying margin expansion of 50 basis points.

Looking forward, you'll see to the far right, we're still forecasting full year 26 underlying margin expansion of 40 to 60 basis points. All of this is right in line for what we provided our June investor day and we deliver on that and it would mean another outstanding year of margin expansion.

Moving to page eight, our corporate segment. You'll see that our adjusted second quarter, as well as our outlook for the rest of the year, are very close to what we presented in June. So there's really no new news here. Also a reminder, the upper right box is where you find the impact of FX that I mentioned earlier. And then the lower box shows you the $3.4 billion of future tax savings from tax credits and tax deductible, intangible amortization. That means your models should reflect cash taxes paid at about 10% of EBITAC and you'll get close. These credits and deductible amortization shields created nice cash flow sweetener to fund future M&A.

All right, let me wrap up with a few comments and cash capital management at M&A funding. When I look forward, available cash on hand, expected free cash flows and future investment borrowings, we estimate close to $10 billion of capacity to deploy over the next two years. We still favor M&A, but it might also do share repurchases opportunistically. Currently our M&A pipeline remains strong as full of targets at attractive multiples. Staying consistent in our approach and disciplined in our pricing creates immediate shareholder value through a nice arbitrage. It also builds a bigger team that brings value to our clients and makes our offerings compelling to our prospects and that fuels our long-term growth. That creates long-term shareholder value.

Okay, those are my comments. Another fantastic quarter and continued expectation for another terrific year. Back to you, Pat.

Thanks, Doug. Operator, I think we're ready for some questions.

Can brokers, such as AJG, will they continue to show a D-cell trend? You all have shown more stability in the face of declining RPC, but maybe you can help us understand, do you feel like the RPC we've kind of based here in terms of pricing, in terms of expectations, taking out next 6-12 months, or even if it does go down a little bit, can AJG continue to do a couple and you feel like your organic is kind of based because you guys have done a much better job at selling and kind of just growing organically despite downwards RPC pressure, so any help there would be great. Oh, this is Pat Mike. Yeah, clearly. Look, the market's the market, but we hold ourselves accountable every day to sell a lot of insurance and to get new business on the books.

We measure that very clearly. Our pipeline is strong as could be. We look at what we're writing on an annualized basis literally every week. We thermometer that, we look at it, we know whether we're strong everywhere, and I will tell you around the world, as we said in our prepared remarks, the differentiation that we're seeing with the tools that we've built, our capability at getting it data, showing that the clients, it's making a difference. So I think our retention is solid, new business continues to be very strong. One metric we don't typically provide is velocity. What type of new business are we writing against trailing earnings? Those are very, very strong numbers in our company.

I don't want to give them out because then you'll ask me for a comparator every quarter. I'm not going to do that, but the fact is, we measure that all the time, so we know, look, what's happening. So I feel very good about being able to sell in this environment. I also feel good comparing this to past soft markets. Every other past soft market, the market has dropped like a brick across every line all at once. This is a property reset.

That's what this really is. And by the way, our clients deserve that. You know, when we talk to our clients in 17, 18, 20, 21, and we're trying to explain why prices have to triple, why at the same time, values have to triple or double, and why maybe we don't even have a full line of cover to offer them. So today, I think they're benefiting from that. And as we said, people are in fact buying more insurance. So look at this and I go look, it's a different market, Gallagher thrives on change, the complexity of the world today, what's going on in data centers, the supply chains and war risk. I think it tees us up very, very well for continued growth, and sorry for the long-winded answer, but yes, I think we'll grow through it.

I think the cost of AI will be de-minimous for the savings that we will be able to realize because we have already put in the cost effort to centralize and standardize our data and our it's the cost of implementing and then changing your environment. So I believe we have already spent that money, so the cost for us to continue to implement AI is pretty small relative to, let's say, another company or any company that's just starting from ground zero.

Right, two answers first. The numbers we do provide in the year with more behind us than there is in front of us. Obviously, the ranges get smaller around those numbers. So it is a midpoint of an estimate. Second of all, this is a ground up analysis. We believe that when we work through our data and we understand what's going on in our business, this is ground up and we give it to you as we get it from the divisions in the units that have been pretty damn close in the past. There is some variability around it, but I think we're sitting here on, you know, we've got five months of the year left, and this is an estimate.

I think if we post these numbers anywhere near these numbers, it's going to be a fantastic year. So yeah, it would say that we'd have a little bit of a step up in the fourth quarter relative to these numbers. Why is that? The second quarter is a little bit low because of the property renewals that, you know, and we won't see that as much in the fourth quarter. So that's probably the primary driver in it.

And I can give you at least anecdotally what we're seeing. We're running around 4% right now with assured partners. And I think that pretty well stacks up with a lot of the like for like businesses here in the US that that maybe a point lower the numbers that you see on page four for the, well, you don't see the fourth quarter, but for the full year do not include assured partners. But we think that, you know, we'll be a year into it. They have the sales tools on their does, and we're getting a lot of success coming out of it. But right now they're running around 4%.

There's an awful lot of demand, pent up new PE monies coming in, hang tight. It ain't evident. Multiples are coming down. And we're maintaining our discipline and we're closing deals. Now, also, let me see you slow down in our deal count. It's not as great as it was. And part of that, I believe, is sellers are actually reacting to the reset. They're realizing that the days of 15, 16, if you've got a platform, maybe 17 times the deck are over. And so you sit there and go, well, okay, does that mean you're not going to be a seller at these prices? And I'm not going to give you a range on the downside because they do vary by what business they're in, the geography in, they're in the size they are, whether they're a platform or not, and they are negotiated.

And there is competition. As I said in my prepared remarks, they all have choices. But clearly, pricing is coming down. We are not in the business of diluting our shareholders. And we stand by that and we're seeing reductions.

Yeah, we're still getting a nice arbitrage. If you go back to page three of the CFO commentary, we paid about 9.4 times in the first quarter. It is at 11.3 times here in the second quarter. But notably, there were two acquisitions that we did that have, we believe, trading with ourselves synergies. And we don't put those in. When we do our tuck in acquisitions, we don't assume synergies when we do the math. We talk about that forever. When we do a large D. O. I. shared partner share, we can estimate, you know, the synergies on that, we understand how being better together can create revenue and expense synergies. Typically, we don't do that when we report out our information on page three.

When you really peel it back, there's about two million dollars of additional revenues that are going to come out and, excuse me, even if it's going to come out of a couple of deals we did in the second quarter. But by and large, we're paying around nine times for, let's say, U. S. retail and benefits businesses. Hosella was getting just a little bit more and sometimes in the U. K. But again, if you factor in the synergies that we're getting, then you see down the page three, we're clearly down below 11 times, 10 times on the multiple. That creates still an immediate arbitrage and value for our shareholders because we're still getting that multiple, that pricing arbitrage there.

So, I wouldn't model a ton of share repurchases, but we'll certainly be opportunistic.

Not really. I mean, we think that we're not going to throttle more into organic hiring, but when I think there's a lot of folks that are going to be available in the future because I think the dream of where they are and PE-owned firms is probably turning into a little bit of a nightmare. So I believe that they might have more of an opportunity to hitch their star with us. So the market could present that opportunity. Those are market hires, Dean, but we also remember we are the biggest, the biggest commitment I know of the interns and our internship ends next week. It's 600 kids that have come in to look at our industry. Now we won't hire all those, but we'll make offers to the seniors probably to 50-60% of them and that's continuing on from the prior year and the prior year.

And these young people validate faster than most people think. So I think that we're in a pretty good spot to maintain a sales culture that is pretty darn unique. And I do think Doug's right. It will also attract others that find they just don't have the tools where they are. And you can talk about jumping on the AI bandwagon looking out to the future, but our clients are demanding this stuff today. And I think it does bode well. As Doug said, we are always open to recruit new season producers and we're loading the field with interns. Yeah, one thing just to point, we're really only running about 80% of our historical average on acquisitions right now.

So we're running 80%. So this isn't a huge step back in acquisition act, and we're doing about a 20% backwards. And that can change overnight when market conditions change.

So I think that that line is managed well and should continue to grow. And just as a reminder, I wouldn't place all that much stock on the individual lines because there are changes in contracts. So in this case, now we flipped, you know, a bunch of contingent contracts into supplemental here. And that's why you're seeing you got to look at the two numbers together and it's about 9% growth. One thing I will say maybe is that it sure shows you that the distribution is appreciated.

And I think that the value we bring and the value we bring to the clients and what we bring to our carrier and other capital providing partners, it shows that we bring a lot of value in this value chain.

All right. So to incremental to the underlying margin expansion that we talked about to that point, if you would call, I think I said if we could get about 5% savings in our production layer cost, maybe another 10 to 15% in our support layer cost, maybe the 20 to 30% our back office layer. I don't see any difference in that today.

And I think it'll take us three to five years to fully realize those levels. Now that math would produce 600 basis points of margin expansion. I've cautioned that maybe there's going to be offsets to a certain extent. So maybe we can harvest two thirds of that. So maybe there's 400 basis points there. And the way we look at it, we have 1000 projects, you know, the flowers blooming now, we've got dozens and dozens of real tangible projects that are showing, is showing immediate results. So I'm still very comfortable in viewing that it can make us better and more cost efficient.

It's real. It's happening. And I think the work that we put in the past is, we'll pay a huge dividend because we're already centralized in so many of our points. Here's a point. Never once over the last 20 years that we talked about that we were launching a program to move work to lower cost locations. We were not talking about the, we didn't talk about the investments that we were making system. If you go way back when, I said that there was probably one point of margin that was being reinvested every year in betterment type improvements.

That's true today. And I think that you have to understand this is just cultural for us. We do this every day. And it's not something where we're going to announce a huge transformation exercise. You'll just see us naturally do that over time.

Yeah, most all of it is not new business. I think that's what you've got to look at it. I think that the buyers are recognizing the value that we bring. And I think they're giving us a great shot to tell our story. So there's three of us at the table that are very strong at this. And I think they're realizing exactly how strong we are. So we're winning a lot of new business.

That's happening every day. And I think that I got to give it to our new partners that came from a shared partner. They recognize the value that other parts of Gallagher bring to their relationship with their customers. So that's good. I think from cost standpoint, I think that we're just hit it at exactly the right time where our US chassis have the ability for all the investment we put into them over time to handle a substantial amount of additional revenue. So the additional ads on IT real estate, back office costs are pretty small. So we're seeing this come on to our systems without adding as much cost as we thought it might.

So we're really picking up the volume advantages that we have here. I'd also add when Doug talks about better together, this is not just Gallagher tools being well received by a new Salesforce. The better together, we've got a lot of terrific new professionals from AP working with side by side the Gallagher folks and on their own terrific production going on.

First quarter was actually a little bit of a margin drag because of the seasonality of what we've done. So we haven't really, if you look at our outlook, roll-in of Tuck-in M&A, we're saying it's not going to provide much lift on margin in the next couple quarters. So when you aggregate them all together, you do get scale advantages, but when you're just rolling in 10 and quarter or something like that, those roll-ins are not providing much margin lift.

I think that with the shared partners coming on, we said, listen, we're just going to business that we went into eight years ago, something like that. And so I just think that that naturally provides a little bit of margin lift if they were if they were underperforming, but a lot of these that we get out of, it's just because they're just, they just don't fit in our current portfolio.

Are you talking about just our health and welfare benefit business that your question is out here. You're you know, we actually don't, you know, we take out the kind of a large life cases so that, you know, those can be lumpy, but they do fuel our organic little bit, but we've moved past that discussion. And our benefits coverage, you know, three to four percent, I think in today's environment is a pretty good growth rate in that business. You know, we're not seeing tons of employment growth in total happening. I think they're looking more and more at ways to attract talent. So, you know, there could be some upside to that number going forward as people understand that they really need our expertise to help them with talent, attraction, retention, and then also right now, you know, the employees are steering in the face massive amounts of medical cost inflation.

So I think that you could see an upside on that if you look at it over the next, you know, three months, six months, 15 months, something like that. I think that employers are going to need our services now that with, with, I'm not going to say it's a runaway inflation, but it's pretty close.

Yeah. Every firemark is, they're, they're, they're fraught. I mean, that's what we're here and everywhere you go, that the pricing that costs medical in particular is just killing us. So I do think that's going to provide us with more opportunity, but I agree with Doug that where we are now is probably about right.

Yeah. Listen, I actually think that they're seeing some they're having some good success with AI. I think that custom, you know, their, their customers are understanding the value they're bringing. They're doing a great job of telling this story about how it's not our cost that matters. It's the total cost of settling claims, you know, settling is getting their folks back to work, protecting brands by being better on the general liability side. I think that this is a business that's really reached it's a good scale point. So you could see, is it 50 basis points a year? Yeah. They continue to grow 12% a year like they've done some time and time. That's not unreasonable at all.

So this is a great business. It comes a little bit more lumpy as they track some larger customers, but it really is at a point right now where it's getting some scale advantages. But I can't, you can't underestimate the scale of the users market. I mean, I'm looking out at the insurance company marketplace as a place that I think over the next decade just throws in the towel. They just can't keep up. And we've got one example that I can't mention any names, but just our AI fraud detection capabilities has saved one, and this is auditable numbers. We've saved one client a hundred million dollars.

And I don't know what insurance company that has the capability we put forward on that account.

It's got a curiosity. What was the fraud?

Well, I think they just do a damn good job of getting after the claims and making sure that they get in front of the claimant and their employer, and they say that, listen, going down the litigation path isn't going to prove, isn't going to prove good for anybody, but the plaintiff's bar. And they have done a terrific job of educating that it's a return to work.

Three points of contact by nurses. Our nurse case managers have a really, really professional way of dealing with somebody. So the breaking down this barrier between the adversary claim adjuster with a resolution manager, and just that philosophical difference reduces the total cost of the claim. They are a resolution manager to manage this case versus a claim adjuster that just wants to fight you tooth and nail. Another part of this is AI, man. Take a look at one of the problems with the TPA, any claims organization. Hundreds, thousands, hundreds of thousands of claims poured in the door. It is porous. And sorting through that to figure out which one of these have I got to put my absolute top people on is, it's damn near impossible.

And it's that one that blows up. So the more we can scale AI to look at that stuff as it's coming in, the more we can say, well, well, well, flag this. And it could be territory. It could be welfare. It could be a million different things. It's all of a sudden sort this out, pull it off the conveyor belt, and manage it. We're getting better and better at saying to people, if you want to have an improvement in your outcomes, that's how to measure Gallagher Bassett. We're getting better improvement.

I'm trying to understand the seasonality in the specialty U. S. wholesale line, because you got the first class of the year at 4%, and you're still anticipating 6% for the full year. I didn't think there was that much seasonality in quarterly production. Well, those businesses are impacted by property, especially in the second quarter. And so I think there are also some nice 7-1 placements that come up on some of the larger, when we get into municipalities, pools, reciprocals tend to have a 7-1 renewal date. So there can be some seasonality. That benefits tend to have its biggest quarter in the first quarter, and then you get into some of our specialty lines that have 7-1 renewal dates on it.

Okay. So that third quarter is more than a fourth quarter. From and fourth quarter, also, and you start getting into complex placements that are going to, you know, you have a pretty good October one group also.

Yeah. We're just not seeing it, we're just not seeing it flowing back into the admitted market the way it was in the past. I think E and S is here to stay. I think the complexity of a lot of risk that we write, I think the nimbleness of that business is just not flowing back into the admitted market that maybe we would have seen 20 years ago.

The E and S market is not the market of last resource anymore. And I think it provides a really good deep niche of underwriting expert expertise. And our producers do a great job of making sure that they offer that to their customers because it is a viable solution.

Yeah, numerical, it's not moving the needle for overall Gallagher, but it is meaningful. Remember, our retail producers understand it needs to go to the place that's best for the customer. And I think there's an awareness build that's going on that RPS and RTS and some of our other specialty lines do provide a better solution for the client. But that's not a one year sale. It takes time. So it's not meaningfully moving it right now. But I think if we look back in three years, yeah, there's probably a hundred million dollars of opportunity that's going to come that will be better trading together than it is having to go to other organizations.

Yeah, let's figure this one out, Andrew. Seven trillion dollars of premium in the global market. Five of that ish, four to five of that trillion is non-life, non-health. So let's call it PC. I don't know what the personal lines number would be. About 65 percent of that turns into a claim every day. I think we got plenty of market.

Yeah, we pay them every year, not every day. Every year, about 60 percent of that trillions turns into a claim. Yeah, let's say right now, we're paying about 17 billion dollars in claims plus or minus on that.

And if Pat's math is right, you take 65 percent times 3 billion. Maybe there's 1.8 trillion, sorry, it's had 3 trillion, 1.8 trillion dollars in claims and we're touching 18 billion of it. So it is a huge market with a great opportunity. It's a market where a one-size-fits-all claim adjuster doesn't work anymore. You need deep, deep vertical claim resolution managers that are proficient in a deep vertical.

Settling a coffee shop slip and fall is not settling a trucking loss at 80 miles an hour. Trying to do camp in Ohio and in California. No problem. I'm licensing both. Not going to work. Sounds like you'll make it then. You don't make me think so.

Two things on that. I think the amortization will continue to refresh itself as we continue to do more M&A. So I think you're going to see that. It's the equivalent of an interest shield in your capital asset pricing model. So if you think about that, that will refresh itself. When it comes to the tax credits, you know, tax credits are becoming we're darn good at those. These are these are not loopholes. These are these are these are, you know, government permitted credits and we're good at it. And I think that we've got many years left to run through the six hundred and twenty eight million dollars of credits. We have sitting on our balance sheet, but we do have other projects that we're looking at that might keep that number up.

We might be able to continue to generate a hundred or two hundred million dollars of tax credits after those run out. We'll see what happens in the laws and the rules, but I think that we'll be in a position to be able to take a look at tax credit opportunities across the variety of fronts and globally also.

Thank you. Again, all of you for joining us this afternoon. We delivered another excellent quarter and continue to execute against the same strategy that has guided Gallagher for decades. We have struggled in greater growth, a powerful active M&A strategy, successful integration across our recent acquisitions and a culture that continues to differentiate us. Most importantly, to our more than seventy three thousand colleagues around the world, thank you. Your talent, dedication and commitment to clients are what makes this company great and that is the Gallagher way.

Thank you all for being with us and have a nice evening.