Good afternoon, and welcome to Arthur J. Gallagher & Company's Second Quarter 2022 Earnings Conference Call. Today's call is being recorded. 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. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary statements and risk factors contained in the company's 10-K, 10-Q and 8-K filings for more details on its forward-looking statements. 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, Chairman, President and CEO of Arthur J. Gallagher & Co. Mr. Gallagher, you may begin.

Thank you. Good afternoon, everyone. Thank you for joining us for our second quarter 2022 earnings call. On the call with me today is Doug Howell, our CFO; as well as the heads of our operating divisions. We had another excellent quarter of financial performance. For our combined Brokerage and Risk Management segments, we posted 22% growth in revenue, 10.7% organic growth, net earnings growth of 35%, adjusted EBITDAC growth of 23% and adjusted earnings per share growth of 19%. I'm extremely proud of how our nearly 41,000 colleagues around the globe performed during the quarter in the first half of the year. So let me give you some more detail on our second quarter Brokerage segment performance. During the quarter, reported revenue growth was 25%. Of that, 10.8% was organic. We did have a tailwind of about 1 point from an infrequent large life case that I'll touch on in a minute. Rollover revenues were about $240 million, consistent with our June IR Day expectations. Net earnings growth was 36%. And as expected, we posted adjusted EBITDAC margins of 32%, an outstanding quarter for the Brokerage team. Let me walk you around the world and break down our organic, starting with our PC operations. Our U.S. retail business posted 11% organic, with strong new business, retention and continued renewal premium increases. Risk Placement Services, our U.S. wholesale operations, posted organic of 8%. This includes more than 15% organic in open brokerage and 4% organic in our MGA programs and binding businesses. New business was consistent with the second quarter of '21, while retention was down just a bit from last year, as we noted in our June IR Day. Shifting outside the U.S., our U.K. businesses posted organic of 8% with excellent new business overall and another double-digit organic growth quarter within specialty. Australia and New Zealand combined organic was more than 11%, driven by strong new business, stable retention and higher renewal premium increases. Canada was up more than 14% organically and continues to benefit from renewal premium increases, great new business and great retention. Moving to our Employee Benefits Brokerage and Consulting business, as I mentioned earlier, we were helped this quarter from a large life case. Excluding this, our benefits business organic was about 9%, in line with our IR Day expectations and driven by increased HR benefits consulting work and solid growth in our International and Health and Welfare businesses. Finally, our December reinsurance acquisition is right on target. After controlling for breakage prior to closing, second quarter organic was around 7%, just fantastic, and integration continues to progress nicely on budget and ahead of its original timeline. So reinsurance continues to be a really good story. So headline Brokerage segment all in organic of 10.8% and upper 9% after controlling for the large life case, either way, an excellent quarter. Next, let me give you some thoughts on the current PC market environment, starting in the primary insurance market. Overall, global second quarter renewal premiums, that's both rate and exposure combined, were up 10.5%. That's higher than what our data showed for increases in renewal premiums in both the fourth quarter '21 and first quarter '22. When I look at our renewal premiums by line for nearly all coverages, second quarter increases were equal to or higher than first quarter. One exception to this was professional liability, mostly D&O. By geography, renewal premiums were up double digits, nearly everywhere. Again, that's a combination of both rate and exposure. So next to no slowdown in premium increases during the quarter. Additionally, we are not seeing any significant signs of economic slowdown. In fact, second quarter midterm policy endorsements, audits and cancellations continue to trend more favorable than a year ago. Thus far in July, midterm policy endorsements continue to move higher year-over-year, and renewal premium increases are consistent with the second quarter. But remember, our job as brokers is to help our clients mitigate premium increases and find suitable insurance programs that fit their budgets. Moving to reinsurance. As we noted in our first view report published by our reinsurance professionals earlier this month, there are very real signs of hardening in the reinsurance market. Property reinsurance pricing is up across the board. And most notably, for U.S. hurricane and Australian property risks are up anywhere from 15% to more than 40%. On the casualty side, reinsurance placements experienced more modest price increases and were a little bit less challenging. Regardless, a firm or hardening reinsurance market will naturally show up in primary market rate increases. And there are many other reasons for our carrier partners to maintain their cautious underwriting stance outside of reinsurance market conditions, inflation, geopolitical tensions and economic uncertainty to name a few. These all translate into difficult PC market conditions continuing for our clients across retail, wholesale and reinsurance for the foreseeable future. Moving to our Employee Benefit Brokerage and Consulting business, U.S. labor market conditions remained broadly favorable. Even with a decline in U.S. job postings in each of the last 2 months, there remain more than 11 million job openings, that's more than double the number of people unemployed and looking for work. We expect strong demand for our HR and benefits consulting services to continue as businesses prioritize attracting, retaining and motivating their workforce. The timing of the large life case and covered live changes in the second half of '21 will cause the Benefits business to post lumpy quarterly organic results this year, but that doesn't change the still favorable underlying environment. So let me wrap up on the Brokerage segment organic. A great first half and looking like the second half will lead us to a full year '22 organic over 9%, which would be an absolutely terrific year. Moving on to mergers and acquisitions. During the second quarter, we completed 8 new tuck-in brokerage mergers representing about $50 million of estimated annualized revenues. I'd like to thank all of our new partners for joining us and extend a very warm welcome to our growing Gallagher family of professionals. As I look at our tuck-in merger and acquisition pipeline, we have more than 40 term sheets signed or being prepared, representing nearly $350 million of annualized revenue. We know not all of these will close, however, we believe we will get our fair share. Next, I would like to move to our Risk Management segment, Gallagher Bassett. Second quarter organic growth was 10.3%, a bit better than our IR Day expectation due to a strong June. Adjusted EBITDAC margin was 18.9%, which is in line with our expectations. For the year, we continue to see adjusted EBITDAC margins near that 19% level. We again saw increases in new arising claims across general liability, property and core workers' compensation during the quarter. Encouragingly, property and liability claim counts are back to prepandemic levels. Core workers' compensation claim counts have yet to fully rebound to 2019 levels, which represents a nice opportunity for further growth. Looking towards the second half of the year, we think organic revenue growth will continue to push 10% due to growing claim counts and new business. I'll conclude my remarks with some thoughts on our bedrock culture. As I resume traveling to our Gallagher offices around the globe, I can report to you that our culture is as strong as ever, and that's a reflection of our people, our nearly 41,000 colleagues working together for a common goal to serve our clients. As I've said before, our people underpin our culture, a culture that we believe is a true competitive advantage and drives our outstanding financial results. Okay. I'll stop now and turn it over to Doug.

Thanks, Pat, and hello, everyone, an excellent second quarter and terrific count. Today, I'll touch on organic margins and the Corporate segment using our earnings release and then make some comments using our CFO commentary document posted on our website. I'll end then with my typical comments on M&A, debt and cash. Okay, starting with the earnings release to the Brokerage segment organic table on Page 3. Fantastic headline all-in brokerage organic of 10.8%. As Pat said, we did benefit by about 1 point or so because of a large group live case found in late June. With or without that, a great quarter by our sales team. As for the rest of '22, during our June IR Day, we said third and fourth quarter would be somewhere around 8% due to a tough benefits compare. As we sit today, we're still seeing third quarter around that 8%, reflecting about 1 point of that tough benefits compare, and we're becoming more bullish in fourth quarter, call it nicely over 8% in the fourth quarter. That would lead to full year Brokerage segment organic growth of over 9%. So today, we're forecasting full year organic growth better than what we were seeing at our June IR Day. Next, turning to Page 5 to the Brokerage segment adjusted EBITDAC margin table. Headline all-in adjusted EBITDAC margin of 32%, right in line with our June IR day expectation. Recall what we've been saying all year, because of the roll-in impact of the acquired reinsurance operations, which has substantial quarterly seasonality and because there are still expenses returning as we come out of the pandemic, those in combination create quarterly margin change volatility. As a recap, we posted adjusted margins up 50 basis points in the first quarter, down 97 basis points here in the second, and we're forecasting down 100 basis points in the third, then back up 100 basis points in the fourth. Because we are seasonally the largest in the first quarter, those results would roll-up to around 10 to 20 basis points of full year margin expansion. These quarterly margin changes are right on what we've been saying all year. When I think of the inflation impact, I just don't see much here in '22 on our expenses. And as we discussed in June, headline inflation doesn't significantly impact 80% of our expense base. And we have mitigation levers to pull on that other 20% if it comes to that. So even with rising CPI, we remain comfortable with our 2020 margin outlook. Looking towards '23, all that quarter margin change volatility should go away with the pandemic behind us and reinsurance fully rolled into our books. Moving to the Risk Management segment on Pages 5 and 6, Pat covered the key points. We recorded 10.3% organic growth and 18.9% adjusted margins, marking an excellent quarter. This unit continues to gain momentum with an increase in claim counts and a significant new business win expected next quarter. Currently, we anticipate organic revenue growth of approximately 10% for both the third and fourth quarters of 2022. It's important to note that this follows a 17% growth in the third quarter of 2021 and a 13% growth in the fourth quarter of 2021, making it a strong performance against challenging comparisons. Turning to Page 7 of the earnings release, we see the Corporate segment shortcut table. Interest in banking remains within our June IR Day guidance. Adjusted M&A costs in clean energy are also within our expectations. Additionally, after factoring in some favorable tax items, the Corporate segment is slightly exceeding our June IR Day range, by about $0.01, mainly due to favorable foreign exchange remeasurement gains from the dollar's strengthening. Now, let's proceed to the CFO commentary document. On Page 3, these are our typical Brokerage and Risk Management modeling helpers. With the rally in the U.S. dollar since our June IR Day, please take a look at our updated FX guidance for the remainder of '22. This late June strengthening also caused an extra $0.01 headwind here in the second quarter versus our IR Day guidance. Next, you'll see our current estimate of integration costs. Most of this is related to Willis Re. The punchline has no change to our original estimate of $250 million for integration charges through the end of 2024. As I mentioned last quarter, the team is making excellent progress and is executing at a faster pace than our original plan. Integration efforts around people, real estate, back-office transition services are targeted to be mostly done by late '22. In fact, our new reinsurance colleagues are now moving into our combined Gallagher locations around the world, and there's an excitement that is coming together. As for technology and system rebuild, we still see having that done by the end of '23 or early '24. So continued good news on the reinsurance integration front. Next, please take a look at the amortization of intangibles line. Recall we now adjust that out of our non-GAAP results. Also take a look at footnote number 2. That will help you reconcile this number to what we're showing in the face of our GAAP financial statements. Next to the change in estimated earn-out payable. This quarter, some component of the earn-out payable adjustment has become more pronounced. The punchline is found in footnote number 5. The note admittedly is a little account needs, but it's saying that the large noncash gain in our results this quarter is mostly due to increases in interest rates and market volatility. When these increase, the value of our earn-out liability declines, thus creating GAAP income. This gain does not reflect any meaningful change to our expectations of the acquired brokerages nor does it change our view of what we'll ultimately pay an earn-out. The accounting is a bit like the change in interest rate assumptions and pension accounting, except this change in earn-out liability goes to the P&L, not through OCI as do pensions. In our view, this is a no never mind but can dramatically impact comparability, so we adjusted out. Turning now to Page 4, our Corporate segment outlook. No changes in the third and fourth quarter estimates. Flipping to Page 5, Clean Energy. This page is here to highlight that we have around $1 billion of tax credit carryovers. And with the Sunset program late last year, we're now in the cash harvesting year of these investments. You'll see in the pinkish column that the 2022 cash flow increase should be $125 million to $150 million and perhaps more in '23 and beyond. At this rate, these investments will be a really nice 7-year cash flow sweetener. The possibility of an extension of the loss still exists, so we have idled our plans rather than decommissioning them, cost us a little to carry them, but it lets us remain well positioned to restart production if an extension happens. Turning to Page 6. The top of the page is the rollover revenue table that we've spoken about in detail. We appreciate all those that have incorporated this disclosure into their models. Moving down the page. The bottom table is an update on our December reinsurance acquisition. You'll see that these numbers are almost spot on to our June IR Day estimates. Delivering $730 million of revenue and nearly $260 million of adjusted EBITDAC here in '22 would be very close to our pro formas when we inked the deal. That would be a really good outcome. Moving on to cash and capital management and future M&A. At June 30, available cash on hand was about $450 million. Our operations continue to perform very well, and we expect strong operating cash flows. Add to that, the cash flow sweetener from our Clean Energy investments and additional borrowing capacity, it adds up to more than $4 billion of tuck-in M&A capacity here in '22 and '23 combined. So those are my comments. An excellent quarter and first half, and we're extremely well positioned for another terrific year. Back to you, Pat.

Thanks, Doug. Daryl, I think we're ready to open it up to questions.

Our first questions come from the line of Elyse Greenspan with Wells Fargo.

My first question, Pat, in June, I had asked you about recession. You said you guys were not seeing it. And if you were going to see an impact on your business, it wouldn't be in your results until 2023. So I recognize, right, that we're sitting here 6 months in advance of hitting next year. But as you think about how things can play out from an economic slowdown, we have inflation, still good property casualty pricing, how could that all shake out from an organic growth perspective next year to say if you see things today?

Well, I think it's not all that different than the discussion that we had in June. We're seeing literally, we look at this daily, an interesting pattern of our underlying clients' business is doing well. They're still recruiting people. Our benefits HR folks are as busy as they can possibly be. We watch for adjustments, both in terms of audits and endorsements, and those are all positive right now. To put that in perspective, we have a baseline on that during the pandemic, and it was obviously substantially upside down. So we do have a good feel for that, and we feel good about it. Inflation, as Doug said, really has an impact on about 20% of our expenses. I think that's probably good research on the team's part in terms of what's really subject to that, that we'll be watching. As you know, we're going into budget time in the next 6 weeks or so, and there's a lot of discussion around this. So don't hold me to it, but I think that we're pretty in a good spot. And I think our mix of business bodes well. I think that the way our expenses shake out, an awful lot of those expenses are variable, I think that's good. A lot of upside for our salespeople this year, obviously. And I think that with rate increases, with interest rates up, it's a pretty good environment for a broker.

Let me elaborate on that a bit because we don't want to dwell on it too much. Currently, we're not observing any signs of our customers' growth slowing down. This assessment is based on recent and current activities. Your inquiry seems to focus more on the potential for a future slowdown. In our analysis regarding possible cooling effects, whether due to a recession or simply a general economic slowdown, we've done extensive research. If a recession occurs, we anticipate it would resemble a typical recession, perhaps akin to what we experienced in 1990 and 1991, as well as the events of 2000 and 2001, prior to 9/11. We don't foresee next year resembling the severe downturn of the subprime financial crisis between '07 and '08 or the brief recession during the early months of '20. It’s crucial to remember that the more typical recessions in the early '90s and early 2000s each lasted around eight months. We approach it with that perspective. Another key point is that a significant portion of our revenue is dependent on the amount of premium placed. Should this increase due to rates or exposure, our circumstances differ slightly. We believe that nominal GDP is a more significant factor for our revenue than real GDP. The overall sales, payroll, as Pat mentioned, and property values are the bases for premium placements. Regarding your question about next year's premium rate increases, as we mentioned, we anticipate they will not slow in the coming year. Additionally, our ability to maintain a positive spread between new business and losses reflects our efficiency as brokers, consistently selling more insurance than we lose annually. Considering all these factors, we expect the brokerage business to achieve strong organic growth even during a typical recession within an environment of increasing premium rates. That's our current outlook. I also shared that we have mitigating strategies in place regarding expenses that could be significantly impacted by inflation. In summary, while this is a lengthy response, we believe that 2023 still has the potential for remarkable organic growth.

It's worth noting, Elyse, that we didn't discuss June. Reflecting on 2007, 2008, and the pandemic, we've learned that our clients prioritize premium payments over employee wages. Being in this position is advantageous regardless of economic conditions.

My second question is maybe more short term. Doug, you said the fourth quarter brokerage outlook is a little bit better, right, than at the June IR Day. What's the reason for that?

I believe that sustained rate increases are benefiting our teams, as we are selling more than we are losing. The overall environment appears to be improving. We are beginning to see data that compares second quarter rates to those in the first quarter, and although there was a slight drop in rates initially, we are now seeing a positive trend. Historically, first quarter rate increases have tended to be smaller than those in later quarters, likely because carriers are more competitive early on to secure the full year of premiums. The second quarter has rebounded, and after reviewing our pipeline, I can confidently say we are feeling more optimistic about the second half of the year.

You mentioned the M&A activity, which suggests you have a solid pipeline. Do you think there could be any delays in closing deals if people are worried about a recession? Are they possibly waiting for a better multiple, or have you not seen that in the past and don't expect it to happen this time?

No. I think brokers are opportunistic, smart people. If I had a business to sell, now is when I'd sell it.

Our next question has come from the line of Yaron Kinar with Jefferies.

And congrats on a good quarter. First question, the large life case that you mentioned, what's the margin profile on that? Is that accretive or dilutive to the overall Brokerage business?

It's about the same. So it doesn't have the leverage as you would see in some of the other incremental amounts.

Okay. Did foreign exchange have an impact on margins or just on revenues?

We adjust that out of our margin profile. So it would be just on the revenue side.

Okay. I understand you haven't fully wrapped up on clean coal yet and are still hopeful for some extension in D.C. With the Democrats reaching an agreement in the Senate recently, is it too early to share any insights on that? Is there a growing possibility that the clean coal credit will continue or be extended?

It's a 742-page draft bill that we're examining closely. I'm not sure how it fits in, but when the Senate votes next week, we might see other senators' interests in the package. We're always in the mix until decisions are made. Even if it doesn't get included now, there could be chances later this year or in the next couple of years. Maintaining the plant doesn't cost us much, and our utility partners have been quite accommodating; they're not pressuring us to shut it down. If we need to keep it running for another six months, we will. If we can make progress, that would be fantastic. If not, we’ll continue to focus on generating cash, which is where we've been aiming for the past 15 years, and right now, that approach is yielding positive results.

Our next question is come from the line of David Motemaden with Evercore.

I appreciate all the detail just on the midterm policy endorsements, audits. And I guess I'm wondering just on the Employee Benefits business, maybe you could talk about what you're seeing there on HR consulting and benefits consulting specifically with the pipeline? Any changes there? Any signs of weakness at all that you're seeing?

It's fascinating to observe the current situation. As we mentioned during the pandemic, businesses experienced shutdowns for a quarter. Now, there's a significant shift for our clients, as their main challenge is attracting and retaining talent. The demand has risen to levels surpassing what we experienced before the pandemic. Initially, things were stable, but businesses minimized their workforce to the lowest possible numbers. Now, as their operations have returned to pre-pandemic levels, there is a noticeable increase in demand for staff. While I can't provide specific details about individual practice groups, the entire consulting segment of our employee, human resource, and human capital business is performing exceptionally well this year.

Yes, let me add to that. During the pandemic, people focused on cost containment and reduced discretionary spending, which is independent of what occurs during this recession. I don't believe that it will significantly affect unemployment. Employers are prioritizing the attraction, retention, and motivation of their talent, so I don't expect any kind of 8-month or yearlong recession to impact employment numbers. Employers will continue to compete for talent, which is where we provide value. I don't see this situation resembling the pandemic or the events of 2008. Rather, I think it will be more similar to the circumstances of 1990 and 2000, where there was also a strong demand for talent.

I'll give you an example, David. This is one that kind of floored me in the last month. I won't mention any names, but we have a sizable client that has engaged us on a multimillion dollar contract to improve and help them with their communication with their employee base. This is a significant client, obviously, but they are willing to spend multiple millions of dollars in an outreach to existing employees to make sure they understand why they've got it so great being part of their organization. And communicating what are in the benefits plans, why they take care of them, how they're educating, what the career path is, what the growth of the company means, all those things that go into a solid communication plan, how cool is that?

No, I think that's exciting. It doesn't seem like you're seeing any signs of a slowdown at the moment. Switching gears, if we do see a slowdown next year, I've noticed in press releases over the past couple of quarters there has been mention of office consolidations. Doug, you talked about the agile workforce strategy during the June call. Could you elaborate on what you're doing in terms of real estate? Could this be a bigger advantage or strategy if we face a challenging revenue environment? Also, sharing some potential savings numbers would be helpful.

Yes. I think when we talked about it early, when we were coming out of the pandemic, we thought there could be $30 million or $40 million or $50 million of annualized savings coming from real estate. I think we're still on target about that. I think we're harvesting maybe about $8 million a year on that effort, and there's a couple of big office footprints that are coming up here in the next year that I think that maybe will be a little bit more on that over this next year. What are we doing? We're going to an office footprint that basically is covering 50% or so of the number of employees that we have. We're bringing technologies to bear, so their ads are within the work, so they're not dedicated locations. For those employees that have to come in every day, clearly, they have a designated spot. And we're finding that the employees are responding to it very well, especially in cities where there is a substantial commute. So I see us continuing to do that. I don't know whether it would be a more rapid exercise if we had a normal recession over the next year. I think the pace that we're making change is the pace that the organization has. And you got to either you wait until the lease expires and then downsize or you get out of it and you end up paying the rent for the rest of the term. So I think a paced and measured approach to that is where we are, and I don't see that changing if there was this normal recession happening over the next year.

I want to share that these plans were already in motion before the pandemic, with Doug leading the way. Based on my experience, informing people that this is no longer their workstation or that the office setting has changed is challenging. However, having the option to work from home and return to the office when necessary for social connections is valuable to us. We are not reducing our office presence but instead allowing flexible access on days needed for customer interactions and employee meetings. The pandemic has actually been beneficial in this regard.

Yes, I know it sounds like that. Please continue.

If the office is too big, it can seem like there's no energy. We take steps to ensure we can monitor the workforce and that the space aligns with it. It's akin to being in a restaurant where every other table is empty; it doesn't create much of a lively atmosphere. Conversely, in a smaller restaurant with the same number of people, you'd leave feeling it was a vibrant place. We aim to create experiences in the office that are more collaborative and closer together, and it's actually proving effective. Recently in London, there was a noticeable bounce in everyone's step when they entered a full office.

Yes. Doug is just trying to do the age thing on me because I go to a full restaurant, I can't hear...

Yes. No, I agree with all of those changes. And so yes, it sounds like $20 million to $30 million of a benefit, but it sounds like that's maybe a bit more gradual unless things change.

Our next questions come from the line of Greg Peters with Raymond James.

You provided a thorough answer regarding the recession and its impact on your brokerage business. However, you didn't address how it affects the Risk Management business. If you did, I may have missed it while focusing on Brokerage. Could you please share your insights on how a potential recession might influence the Risk Management business?

I don't believe there will be significant changes in employment during a typical recession. Given the tight employment situation at Gallagher Bassett, particularly in areas where slips and falls might occur, I think they are quite resilient in the current environment. The same applies to the Benefits business, where competition for talent remains strong. As mentioned, there are 11 million job openings and around 5 million people unemployed. Personally, I believe that if we do experience a slowdown, it will likely involve a decrease in excess demand rather than supply. Scott addresses claims based on supply, not demand, and our sales are driven by supply rather than demand. Therefore, I believe that as business continues...

Yes. Greg, you heard us mention that among all the lines of coverage currently adjusted by Gallagher Bassett, workers' compensation is one line that has not yet returned to pre-pandemic claim counts. It will take some time to get back to those levels, which, as Doug indicated, is directly linked to employee headcount. If employee counts are significantly reduced, that will affect Scott's business; however, if they remain stable, we will be in a better position. On the Benefits side, we are seeing proactive hiring and strong efforts for retention, which gives me a good sense about our current situation.

I was recalling an old thought while you were providing the answer, though I never really tested it to know if it was true. It seems that during a recession, workers' compensation claim counts actually increase as more employees experience accidents before facing serious consequences. I'm not sure if that's accurate, but it's something to consider.

I think that's an old life tale.

That as workers' comp premium rates increase, and we're not fully into big jumps in workers' comp. But if we get a harder market in workers' comp that will push more people to self-insurance, and that leads to pretty good growth for Gallagher Bassett, too. So when they look at self-insurance and alternatives. So if we go into a recession, but workers' comp rates go up as medical costs inflate, et cetera, you might have more people looking for self-insurance with Gallagher Bassett paying the claims.

Do you think that the choice between working from home and working in the office is one of the reasons for the decrease in workers' compensation claims, based on your observations at Gallagher Bassett?

No, not really.

Okay. Two other questions. From your property answer regarding where your real estate footprint, should I infer that about 20,000 or so of your employees are in full work from home if you said your property is target your real estate footprint is...

No, no, no. Gallagher Bassett has moved to a more virtual environment and that people are embracing that and really like that. The Brokerage business is allowing agile work. We're working to be agile and to be flexible. But these office footprints can actually handle everybody coming in at the same time, and we are encouraging people to come in.

Yes. I think, Greg, the number of people that actually are designated as purely work from home employees might be in the 8,000 person range.

A big part of that is Gallagher Bassett.

Okay. I have a detailed question, and I'm sure you've probably provided this before, but I just forgot. Is there any pattern to how cash flow comes from the energy business throughout the year? Is it heavier in the first quarter, are you taping into it, or is it distributed evenly?

That probably more closely correlates to the day that we do our estimated tax payments because we can anticipate using those credits. And therefore, we would pay less than estimated tax payment.

Our next questions come from the line of Mark Hughes with Truist Securities.

Pat, the renewal premium number you gave us the 10.5%, was that sort of the global P&C market?

Wait a minute, Mark. I don't think I gave you the renewal premiums. Take a look.

Well, I understand you asked about the global second quarter renewal premiums, that's both rate and exposure of 10.5%, yes, that's right. And that's higher....

That was 8% in the first quarter. Do I have that right?

I'd have to pull up the script on that, but ...

I do think that's right.

Okay. All right. And then I'll say this slightly tongue in cheek, but also seriously. West Virginia Senator, Joe Manchin, does he like the clean coal business?

I think he does have a lot of interest in it. The real question is whether he is willing to advocate for a change as part of a compromised plan. We'll find out over the next week or 10 days or even 10 months. I don’t believe there will be significant focus on this as it’s a pretty small program. I think they are trying to finalize a deal. Is this something he wants to support? Maybe not, but we will see what unfolds next week.

In the MGA business within wholesale, the 4% organic, do you think that will continue at that level? Or is there anything unusual this quarter?

No, I think it's just the nature of some of those programs and MGUs.

Yes, it should hold.

Should hold, not be better.

That's pretty subject to the economy. It's about bars opening, restaurants opening, and contractors starting with the wheelbarrow. Houses that get hit by hail a lot.

Our next question is coming from the line of Meyer Shields with KBW.

Just a couple of quick ones. First off, when we look at supplementals and contingents, as a percentage of core commissions and fees, they're down year-over-year. Is that reinsurance?

It could have an impact, and I think it's important to note that our supplementals and contingents show some differences in contract year-over-year. It's beneficial to consider those two together rather than separately. Overall, they were up 12% this quarter combined.

Okay. Perfect. And then a second question on reinsurance. How comfortable are you with the idea that the breakage that you factored in goes away once we get into 2023? Is that going to be a factor anymore?

I believe that issue is behind us now. We have effectively managed to retain our teams, and we are not experiencing significant attrition. In fact, we are in a good position regarding that. Therefore, I do not expect any major issues. We anticipated the breakage we accounted for, and the team is staying intact. The leadership team has performed exceptionally well.

I've discussed this regularly, and I'm extremely pleased and proud that this team has joined us. Achieving 7% organic growth in the second quarter after the acquisition completed in December, following 2 to 3 years of prior challenges, is impressive. We're now 9 months in, and they are generating 7% organic growth. That's remarkable. Initially, we were concerned about potential losses as people often prefer to work with their familiar teams. However, we're seeing strong retention and performance. Additionally, the collaboration and support that reinsurance provides to our global retail brokerage operations is surpassing our expectations. We have been successful with risk sharing pools in the U.S. longer than anyone else in the industry, and now we have fresh perspectives and markets working alongside us. The level of data sharing, discussions about our partner markets, and collaboration is astonishing and demonstrates how well this partnership fits.

That's tremendously positive. And then one last question. I know this is nitpicky. But the large life deal that came in June, is that something that occurs next year? Is this a onetime deal?

Onetime deal.

We get them from time to time, but I wouldn't say that they're annually predictable year-over-year.

Right.

They bind when they bind. It's not like it's saying you've got to have this all put to bed by January 1, by October 1. It doesn't really drive necessarily with the calendar or fiscal year of the client. It's whenever they want to put these cases in place is when they were buying. So it would not be predictable quarter over quarter over quarter.

Our next question has come from the line of Weston Bloomer with UBS.

My first question is a follow-up on Willis Re. There's a notable organic growth of 7%. With investments ahead of schedule, how are you approaching growth and margin improvement in that business for 2023? Is it possible that organic growth could exceed 7%? What should we expect regarding potential margin improvement? Could it potentially outpace the growth of the core portfolio?

Well, that margin for the year is somewhere around 36%. So I think that we're very happy with that margin. I think holding that margin is the right answer for that business. It takes heavy investment. They've been underinvested for the last 3 or 4 years on that. So that is not a business, if you go back to our acquisition that was expecting substantial margin change on that. So we're happy with the margins the way they are. We think they're competitive. Sure, there will be opportunities for us to become more efficient, and we do that every year. We always become more efficient. But I think there's a ripe opportunity right now to hire brokers in that space that would like to join us. It's a hot thing going right now. So it would be nice to take and hire folks in that business. I think it's 34% for the year where we are.

Got it. And then my follow-up is just on M&A. Curious on what you're seeing on the international M&A market. Is that more attractive from a multiple perspective or a competition perspective right now? Or is maybe your term sheet disclosure more international U.S. weighted versus historical? Just kind of curious on what you're seeing.

It's not more international weighted. It's about the same and multiples around the world, you can throw a hat over.

Thanks, Weston. Thanks for being on the call, Weston. Nice to hear from you.

Thank you all for joining us on the call. We are thrilled with our fantastic performance in the second quarter and the first half of 2022. I want to express my gratitude to our colleagues worldwide for their hard work, our carrier partners for their support, and our clients for their continued trust. We look forward to our September Investor Day meeting and appreciate everyone being with us.

Thank you. This does conclude today's conference call. You may disconnect your lines at this time. Thank you for your participation, and have a great night.