Good afternoon, and welcome to Arthur J. Gallagher & Companies First Quarter 2023 Earnings Conference Call. Our participants have been placed on a listen-only mode. Your lines will be opened 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 could 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 10-K, 10-Q and 8-K 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 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 & Company. Mr. Gallagher, you may begin.

Thank you very much. Good afternoon, and thank you for joining us for our first quarter 2023 earnings call. On the call for today is Doug Howell, our CFO as well as the heads of our operating divisions. We had an excellent first quarter to start the year. For our combined brokerage and risk management segments, we posted 12% growth in revenue, 9.7% organic growth. GAAP earnings per share of $2.52, adjusted earnings per share of $3.30 up 12% year-over-year. Reported net earnings margin of 21%, adjusted EBITDAC margin of 38%, up 29 basis points. We also completed 10 mergers totaling $69 million of estimated annualized revenue and we are recognized as the world's most ethical company for the thirteenth time, an outstanding quarter from the team. Let me give you some more detail on our first quarter performance starting with our Brokerage segment. Reported revenue growth was 12%. Organic was 9.1%. Acquisition rollover revenues were $61 million. Adjusted EBITDAC growth was 15% and we posted adjusted EBITDAC margin of 40.4%, right on our March IR Day expectations. A fantastic quarter for the brokerage team. Let me walk you around the world and provide some more detailed commentary on our brokerage organic. Starting with our retail brokerage operations. Our U.S. PC business posted over 7% organic. Core new business was up year-over-year, even growing over the tough renewal compare in D&O lines, while retention was similar to last year's first quarter. Our UK PC business also posted more than 7% organic due to strong new business production, stable retention and the continued impact of renewal premium increases. Our combined PC operations in Australia and New Zealand posted organic of 10%. Net new versus lost business was consistent with the prior year and renewal premium increases were ahead of first quarter 2022 levels. Rounding out the retail PC business, Canada was up 6% organically reflecting solid new business and consistent year-over-year retention. Our global employee benefit brokerage and consulting business posted organic of nearly 7%. New business remains strong and client retention was excellent. We saw growth across many of our practice groups with particular strength in HR consulting and pharmacy benefits. Shifting to our wholesale and specialty businesses. Risk placement services, our U.S. Wholesale operations posted organic of nearly 8%. This includes 16% growth in open brokerage and about 5% organic in our MGA programs and binding businesses. New business production and retention were both consistent with last year's first quarter. UK specialty posted organic of 17% benefiting from a strong start within aviation and the addition of new teams focused on North American risks. And finally, reinsurance, Gallagher posted 12% organic reflecting new business wins, great retention and a hardening property reinsurance market. Outstanding results from the Gallagher Re team. Pulling it all together Brokerage segment all in organic of 9.1% that's a bit above the top end of our first quarter expectation and a fantastic sales quarter by the team. Next, let me provide some thoughts on the PC insurance pricing environment, starting with the primary insurance market. Overall, global first quarter renewal premiums that's both rate and exposure combined were up more than 9%, consistent with the 8% to 10% renewal premium change we had been reporting throughout 2022. Renewal premium increases remain broad based across nearly all of our major geographies and product lines around the globe. For example, workers' comp is up low single digits, general liabilities up mid to high single digits. Umbrella and package are up in the low double digits, so most lines are trending similar to previous quarters. Two exceptions. First, public D&O where renewal premiums are down a bit and second property, where renewal premium increases are accelerating. For example, fourth quarter property renewal premiums were up 15% and through the first three months of 2023, we have seen increases of 15%, 20%, and 17%, respectively. So, our clients continue to feel cost pressures here due to rising replacement values, increasing frequency and severity of weather-related events and hard reinsurance conditions. We're not seeing signs that these lost costs and profitability pressures are likely to abate in the near term. So as we head to our largest primary insurance property quarter we are focused on helping our clients navigate and mitigate these premium increases. Moving to exposures. We are seeing continued strength in our customer's business activity. First quarter mid-term policy endorsements audits and cancellations combined were better than first quarter 2022 levels, greater than the eighth consecutive quarter of year-over-year increases. Shifting to reinsurance. During the heavy Japan-centric April renewals, reinsurance carriers continued to focus on increased pricing and tightening terms and conditions. This was across a broader range of territories and most all lines of business, so in even harder conditions compared to January 1. The casualty trading market saw orderly renewals and a sufficient supply of capital to fulfill the demand from underwriting enterprises. The property market continued to experience its recent challenges due to more limited underwriting capital. There were some green shoots in the ILS issuance, although pricing was typically less attractive to CDs than the traditional markets. Overall, there wasn't much new capacity entering the property market; regardless, our teams navigated the hard market and customers again managed to secure satisfactory cover. Those interested in more detailed commentary can find our April first view market report at our website. Looking forward, there is good reason to expect a cautious underwriting stance from carriers for the foreseeable future as they contemplate recent weather events, replacement cost increases, social inflation, and ongoing geopolitical tensions into their view of lost cost trend. So we expect insurance and reinsurance pricing increases to continue throughout 2023 and while it's early, likely into 2024. We also remain optimistic on our customer's business activity during 2023. We have yet to see any significant shifts to daily indications of client business activity thus far in April. We are also seeing encouraging employment levels for our benefits clients suggesting the economic backdrop for 2023 remains broadly favorable. Recent data shows the U.S. unemployment rate declining, continued growth in non-farm payrolls and a very wide gap between the amount of job openings and the number of people unemployed and looking for work. So I see demand for our products and services around attracting, retaining, and motivating workforces remaining strong. As we sit here today, we continue to see full-year 2023 brokerage segment organic in that 7% to 9% range and that would be another fantastic year. Moving on to mergers and acquisitions. We had an active first quarter completing 10 new tuck-in brokerage mergers representing about $69 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. Also in April, we officially welcomed the former Buck colleagues. Combined with our existing employee benefits brokerage and HR consulting business we will enhance our offerings and be better positioned to deliver superior human capital solutions for all of our clients. Moving to our pipeline, we have nearly 40 term sheets signed or being prepared representing more than $350 million of annualized revenue. Good firms always have a choice of who to partner with, and we'll be very excited if they choose to join Gallagher. Moving on to our Risk Management segment, Gallagher asset. First quarter organic growth was 14.3%, ahead of our expectations due to continued growth from recent new business wins and some revenue from first quarter New Zealand cyclone and flooding. We also saw core new arising claims increase in the low single digits during the quarter for existing clients across both workers' comp and liability. First quarter adjusted EBITDAC margin was also strong at 19.2%, ending up a bit ahead of our March expectations. Looking forward, we see full-year 2023 organic around 12% to 13% and adjusted EBITDAC margins holding up or above 19%, and that would be another excellent year. And I'll conclude with some comments regarding our Bedrock culture. I'm very pleased that just a few weeks ago, we were recognized as the World's Most Ethical Companies for the thirteenth time. We're honored to be one of only 135 companies globally to receive this award from the Ethisphere Institute. Our 45,000 plus colleagues embrace and celebrate the unique values that we have instilled in our company. The 25 tenets articulated in the Gallagher way continue to drive our global team's success today and we believe that our unique culture is a key differentiator and a competitive advantage. It's a strong culture of client focus, excellence, and inclusion and it continues to drive us forward. That is the Gallagher way. Okay, I'll stop now and turn it over to Doug.

Thanks, Pat, and good afternoon everyone. As Pat said, an excellent start to the year. Today, I'll begin with some comments using both our earnings release and our CFO commentary document that we post on our website. I'll touch on organic margins and provide some modeling helpers for the remainder of 2023. Then I'll finish up with my typical comments in cash, M&A capacity, and capital management. Okay, let's flip to page 2 of the earnings release. All in brokerage organic of 9.1%. Call it right at the top end of the range we foreshadowed at our March 16th IR Day, a nice finish from our London specialty operations and a little upside from reinsurance benefits. One call out on that table. Contingent didn't grow organically this quarter for three reasons. First, there's a little geography between supplementals and contingent call that about $2 million. Second, there was a bit of positive development in Q1 2022 from the prior year 2021 estimates. Call that $3 million and again, that's back in first quarter 2022, causing a little difficult compare. And third, we are not expecting one of our programs to pay as large of a contingent here in 2023 because of underlying loss ratio deterioration. Call that maybe towards a million. Regardless, base organic at 9.5% and all in at 9.1% that's a fantastic quarter by the team. Hoping to page 4 of the earnings release to the Brokerage segment adjusted EBITDAC table. We posted 40.4% for the quarter, before FX, that's up 56 basis points. And FX adjusted up 14 basis points over first quarter 2022. That's right in line with our March IR Day expectations when we discussed that first quarter 2022 expenses were lower than our expected run rate simply because we were still in the Omicron portion of the pandemic and that our tuck-in acquisitions are just not as seasonally weighted. But they don't roll in at 40 points of margin here in the first quarter. If you levelize for those two items, our margins expanded approximately 110 basis points. Maybe looking at it like a bridge from first quarter 2022 will be helpful. Investment income gave us 90 basis points of margin expansion. The normalization of Omicron T&E expenses and inflation on all T&E costs us 80 basis points. The seasonal impact from rolling M&A uses about 40 basis points. Organic gave us 70 basis points of expansion and some additional wages and IT investments used about 25 basis points. Follow that bridge and the math gets you close to that 14 basis points of FX adjusted expansion in the quarter. Looking forward, it's still early yet with a fantastic first quarter combined with pass-up commentary makes us more bullish on hitting that full-year brokerage organic in the 7% to 9% range and posting adjusted margins up 60 basis points to 80 basis points. Two small heads up on that. First, getting to that 7% to 9% organic for the full-year might be a little lumpy over the next three quarters given the large life case we sold in Q2 2022. And then the 606 deferred revenue accounting in our fourth quarter. We discussed both of those with you last year, so there's no new news here. Just a reminder for your modeling. Second, the 60 to 80 basis points of margin expansion is before the roll-in impact of Buck, which recall naturally runs lower margins. So when you include Buck, the math would show full-year margin expansion in that 20 to 30 basis points range. So moving on to the Risk Management segment and the organic table at the bottom of page 4. As Pat said, an excellent quarter, 14.3% organic growth. We did get a little tailwind this quarter because Omicron caused fewer claims arising in Q1 2022 and we also had some New Zealand cyclone claims activity. But most of this excellent result comes from strong new business wins in the second half last year. As for margins, put to page 5 of the earnings release. Risk Management posted adjusted Q1 EBITDAC margins of 19.2%. That's up 177 basis points over last year. As we look forward, we're seeing the rest of the year organic in that 12% to 13% range and full-year margins now finishing a bit above 19%. That would be the best full-year adjusted margin in Gallagher asset six-decade history. Another demonstration of the benefits of scale, intellectual capital, technology, and operational excellence. Let's turn to page 6 of the earnings release. That's our Corporate segment and also, when you take a look at pages 3 and 4 of the CFO commentary document, most all of the items are right in line with our March IR Day forecast. Three callouts on the CFO commentary document. When you see Page 3, you'll see a slight tick up in our expected book effective tax rate. That's entirely due to the UK rate hike to 25% that went effective April 1st. But remember what you're seeing is a book effective tax rate. Our cash taxes paid rate is substantially lower. Call that around 10% of our adjusted combined brokerage and risk management EBITDAC. That's because of the tax shield from interest, the amortization of purchase intangibles, and the incremental cash flows from our clean energy investments over the coming years. Page 5 of the CFO commentary shows those tax credits. We have over $700 million as of March 31st, and it shows that we're forecasting to use about $180 million to $200 million in 2023 with a step up in 2024 in each later year. That's a really nice cash flow sweetener to help fund future M&A. Then if you flip back to page 4 of the CFO commentary document, you'll see that we had a slight beat on the Corporate segment this quarter compared to our midpoint, but some timing in that beat. So you'll see full-year still about the same as what we forecasted at our March IR Day. Moving now to page 6 of the CFO commentary document, that table shows our rollover M&A revenues. It shows $61 million this quarter, which is pretty close to that $63 million we estimated during our March IR Day. And also looking forward, we've now included Buck in that table, but remember, you'll need to add your pick for other future M&A to these estimates. Let me move to some comments on cash, capital management, and future M&A. At March 31, available cash on hand was around $1 billion, but note that about $600 million was used to buy Buck in early April. So call it $400 million. This means we estimate that we have about $2 billion more to fund M&A for the rest of this year and our early look is another $3 billion or more in 2024 usually to fund our M&A program, utilizing only free cash and incremental debt while maintaining our strong investment-grade ratings. One final reminder, recall during our March IR Day, we mentioned that we would be reclassifying how we present fiduciary balances on our balance sheet and in our cash flow statement. These re-classes are purely GAAP geography, and we're doing so to better align our presentation with how many other brokers present their statements. You might notice some of that movement in the recast balance sheet on page 12 of their earnings release. To help you understand all of the movement there will be a comprehensive table in our 10-Q that we will file later next week. Again, all of this is to make our presentation more consistent with most of the other public brokers and all of the changes just gap geography. So those are my comments. Another terrific quarter and looking forward, we see strong organic growth, a great pipeline of M&A and continued opportunities for productivity improvements, all fueled by an amazing culture. I believe we are very well positioned to deliver another fantastic year. Back to you, Pat.

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

Thank you. This call is now open for questions. Our first question is from Weston Bloomer with UBS. Please go ahead with your question.

Hi. Good afternoon. My first question is on the margin expansion you're expecting for full-year 2023. How should we think about the cadence of that margin expansion as we move through the year? I think you'd previously guided to 1Q being lower relative to 2Q and 4Qs. Is that still largely the case excluding Buck or can you just help us think about the moving pieces as we go through the year?

Alright. So you're asking me about how do we fuel the margin extension quarter-to-quarter. Is that the question?

Yeah. More or less, because you highlighted some of the lumpy nature in organic. I'm just kind of curious on how that plays out on the margin as well.

Alright. Let me see if I can find that information for you. I should have it here, and I apologize for the delay. I believe that in the second quarter, we might be looking at flat results for the second and third quarters, with a potential increase of around 30 basis points in the fourth quarter.

And is there any seasonality to Buck's margin as well?

I'm sorry. Let me check that. I just looked at there are 9, I'm seeing probably 10 basis points of expansion in the second quarter, 20 in the third and maybe 20 in the fourth.

Great. And does that include seasonality to Buck as well? I think you had previously said it was roughly run rate.

That’s right. That includes Buck.

Okay. Great. And can you give a sense of how quickly Buck is growing? I see in the acquired revenue table that's, call it $77 million per quarter. I'm assuming that's including a few other deals in there, but I'm curious if that's assuming any growth for Buck or how quickly that business is currently growing?

Yeah. Buck has been pretty stable across the country last year, across the world last year. They have very strong growth in the U.K. and then their engagement last communications business. They just finished Q1 with their best sales quarter in the last five years. We're already beginning to have a lot of revenue synergy discussions, very organic early stages, built a pretty strong pipeline. We're already going on in on deals together. It's a little early to give predictions on what this looks like, but we do expect them to have mid-single digit growth this year.

Great. Thanks for taking my questions.

Thanks, Weston.

Thank you. Our next question is from Elyse Greenspan with Wells Fargo. Please proceed with your question.

Hi. Thanks. Good evening. My first question, maybe I'm just confused. I thought you said Brokerage margin can expand 50 basis points, sorry, 60 basis points to 80 basis points for the year. But then in response to Weston's question, you were talking about 10 basis points to 30 basis points of expansion over the next few quarters.

Alright. Question one is without the math that results from Buck because they run naturally lower margins. That was the question that we answered for Weston. The 60 basis points to 80 basis points is how we're looking at Gallagher before Buck. Does that help?

Okay. Got it. Yes. That helps. Thank you. And then in terms of the organic outlook, still kind of keeping the 7% to 9% range for the year. Can you just give us a sense of what you're embedding in there for the economy as well as pricing when you think about or you're just expecting a general stable environment over the next few quarters compared to what we saw in the Q1?

I think, Elyse, this is Pat. I think that we're just sort of predicting that it's a stable environment over the next three quarters. We're not seeing a lot of rate reduction. We are seeing continued, and by the way, I'd point out being a little proud about this. We've been the one saying we're not seeing recessionary pressure in the middle market by our clients around the United States in particular. Those businesses are continuing to grow and they are robust, even with the headwinds of higher interest rates and higher insurance costs. And those insurance costs are not backing off, and we can tell you this data day-to-day, line-by-line, geography-by-geography, country-by-country. So, I think that our commentary in our prepared remarks about it being a pretty firm market, looking like it's going to continue that way for all the reasons we enumerated, we view it that same way over the next three quarters.

Thanks. That's helpful. And then you guys, I know right, the laws related to your clean energy investments right expired at the end of ‘21, and you guys have kind of I think, or kept some of the plants open. Is there still the potential that you guys could generate more tax credits there or have you kind of not expecting that at this point?

We're preserving all the machines that allow us to generate those tax credits if there's something that might come out of an energy bill or a tax reconciliation bill yet this year. Those plants could be put back into service.

Do you think there's a high probability that could happen?

Elyse, I don't know if there's a high probability of anything getting done in Washington. So I mean, that I would hope so, but I wouldn't put high probability on anything coming out of there. Yes, but if the plant sits there for another year, they sit there for another year.

Thanks for the color.

Good. Thanks, Elyse.

Thanks, Elyse.

Thank you. Our next question is from Greg Peters with Raymond James. Please proceed with your question.

Well, good afternoon, everyone.

Hey, Greg.

So, I think before I get into the results, I wanted to step back and just talk about talent recruiting and employee producer retention, and maybe if you could give us an update on how that's progressing inside Arthur J. Gallagher. And I guess in a parallel question, there was some recent announcements of promotions in the c-suite and, Pat, I don't think you, I think you have plenty of gas left in the tank, so maybe you could provide some context about some of those announcements as well.

Let me first address a few points, Greg. Our recruiting efforts are ongoing, and we are continually looking for producers. We are excited that our 500 interns will start arriving in a few weeks in the United States, and globally, we have about 600 interns. We often recruit from this group, and our retention rate is consistently strong. I am confident in our pipeline and our ability to bring in new producers. There are no significant changes to our normal recruiting practices to announce at this time, and I feel very positive about that. Regarding producer retention, it remains very robust. We provide an excellent environment for skill development, and we compensate our employees well for their growth in business. Overall, I am pleased with our production recruits, new hires, and the retention levels we are achieving. Concerning the article that was mentioned, I want to clarify that we generally do not comment on news stories, and as the CEO, I feel very positive. Thank you.

I expected that kind of comment from you, so but thank you for validating it. I guess, my follow on question will deal with M&A. And I know you comment on this almost every quarter, but the interest rate environment has posed a changing landscape for M&A. We look at your multiples sits in the, Doug's CFO commentary tables, and it doesn't look like the multiples are changing much. Can you talk about how you view M&A at the current prices that are being in the marketplace? Do you think, you talk about the 40 term sheets or outstanding, it seems like you have 40 term sheets every quarter. But can you talk about, how the interest rate environment might change your perspective on what you're willing to pay?

Yes, I will. First of all, let me provide some context. According to a recent article on business insurance, M&A activity in the first quarter has decreased by about 29%. This follows several years of increased private equity entries and more deals being conducted. It appears we're experiencing a slowdown in the number of transactions, which seems to indicate a reduction in the number of new entrants. Some participants who were previously very active are now less so. Currently, we aren't observing a significant drop in multiples. If there were 20 bidders for a property 18 months ago, there are still 11 today. Therefore, I believe that, similar to any market, supply and demand dynamics mean that if demand continues to decline and interest rates are affecting available capital, we may eventually see multiples decline, but that isn't the case at this moment.

Got it. Thanks for the answers.

Thanks, Greg.

Thank you. Our next question is from Mike Zaremski with BMO Capital Markets. Please proceed with your question.

Hi, good afternoon. First question, in the prepared remarks, you talked about property rates accelerating. Any stats or any way we can dimension what percentage of your revenues on the Brokerage side touch that element of acceleration and it doesn't seem like from your organic guide that you're taking in that acceleration continuing or maybe I'm incorrect?

Well, listen, I can give you some percentage of our book, our property book we include package in there also is going to be somewhere around just doing the mental math here real quick, is around 27%, something like that of our first quarter, total revenues in the P&C units. One of the things that our guys do is they are and we all do out there is pretty good at mitigating some of that rate increase. So, when you look at it, property rates are going up 17%, you might see commissions going up 10% or 11%, 12% something like that because you increase deductibles, you bring down limits, you come up with some more creative programs in that. So, that is a line of business where the direct correlation between the premium increase and then the commissions that we get there's always a delta there.

I think that's a very good point. Every time in a firm market, we get that question. Rates are up on XYZ 12%. You're showing 6%. Why is that? Because our job is to not pass on the 12%, and we're good at that.

Got it. Okay. Thanks for the answer, Doug, that excludes reinsurance?

Yes. That's right. But most of our reinsurance are on renewal, so you've already seen that math.

I have a follow-up regarding investment income. I might have missed something since I joined the call a minute late, but is this the correct run rate for investment income? I noticed there may have been some book sales included in the numbers, which seem to be better than anticipated. Also, I'm aware there have been some fluctuations in the fiduciary balances. Should we be looking for more clarity on that?

Book sales were quite limited, totaling approximately $200,000 this quarter, which had no impact on our numbers. Our investment income as reflected in the financial statements also accounts for our premium funding businesses, so the majority of the investment income you see is real and contributes to our growth. If we analyze the outlook for the remainder of the year, following the significant increase in interest rates since last year, the rise in investment income won’t be as pronounced in the second half as it was in this first quarter. When considering the full year, I anticipate that the impact of investment income on our organic growth will be around 60 basis points for the full year, indicating a margin expansion from investment income in that range, while this quarter saw an increase of about 90 basis points. For the overall year, we could expect an increase between 60 and 70 basis points.

Okay. Great. And maybe just, well, last quick one. Given how much improvement Gallagher has shown in its margins over the last few years. Is there a way to dimension what percentage of the deals you guys look at have a better margin profile than Gallagher, or should we expect there to be up maybe similar like a Buck headwind sometimes going forward as you guys continue to do deals.

No. I think if you look at our pipeline and you project it, we would think that if I were standing in January of next year looking back, what's to be the impact of rolling M&A excluding Buck. So, all it might use about 10 basis points to 20 basis points of margin expansion. So, it has a significantly smaller impact on the full year because we're so seasonally large in the first quarter.

Thank you.

Our next question is from David Montemaden with Evercore. Please proceed with your question.

Hi. Thanks. I just had a question just on the margin. So, I've understand, Doug, so we got, the 90 basis points tailwind from fiduciary income here in the first quarter, maybe that ticks down for the full year, like 60 basis points sounds like Buck is about a 50 point headwind to offset that. And then, I guess, we have organic that should contribute 60 basis points to 80 basis points I guess. Could you talk about some of the other headwinds that are going to offset some of the margin expansion going forward? Because, yes, I'm struggling to get to the 20 basis points to 30 basis points this year.

Alright. Let me take a moment to summarize this. We built a connection this quarter compared to the first quarter of last year. If we look ahead to January 2024, expecting organic growth in the 7% to 9% range, here are some components we've discussed along with a few more. We previously suggested that investment income could contribute 60 to 80 basis points of margin expansion for the full year, but not reaching 90 basis points. We need to consider the normalization of Omicron travel and entertainment expenses and possible inflation in other travel costs throughout the year. By the second half of last year, we were back to full operations, which might reduce margin expansion by about 30 to 40 basis points. The ongoing impact of regular tuck-in acquisitions, excluding Buck, may contribute to a decrease of 10 to 20 basis points in margin expansion. This suggests a range of 70 to 100 basis points of pure organic margin expansion. Additionally, we have made further investments, including IT projects, which might require 20 to 50 basis points of margin expansion, totaling 5 to 8 million dollars per quarter. These ranges help illustrate the full year projections, resulting in a margin expansion of 60 to 80 basis points adjusted for FX. Including Buck would lower that margin expansion. I hope this overview clarifies how these components fit together, even though I can't predict the future. If we disregard Buck, we may see margin expansion of 60 to 80 basis points by year’s end. Given my nature, I would likely point out that we could achieve a total margin increase of 600 basis points over five years and remain optimistic about future productivity opportunities. A lot can change in nine months, but it would be fantastic for us to achieve that. These are my thoughts on the situation, and I hope they assist everyone in understanding the various contributing factors as you develop your models.

Yes. That helps a lot. Thanks for that. I appreciate that, Doug. Maybe just a follow-up, Doug, I think you said you sounded, or you did say you were bullish on hitting that full-year organic in the 7 to 9 range after being a little bit above that this quarter. It sounds like renewal premiums are chugging along. The economy is also chugging along. Is it really just the tougher comps that is holding you back from increasing that outlook? Or is there anything else that I that we should think about that that's on your guys' mind as you were thinking about the organic growth outlook over the rest of the year?

I believe the accounting for the deferred revenue under 606 in the fourth quarter, along with potentially some life cases, may affect us. Selling more life cases, which can be inconsistent, could cost us around 50 basis points. This, combined with the full-year organic growth, may reflect something like that. However, when we examine our daily data, particularly the overnight reports on renewals, I can say that April appears significantly stronger regarding premium increases than what we observed previously, even when adjusted for mix. The data indicates a positive trend across all lines and regions, with perhaps only a couple of smaller exceptions. So, we may come close to the 9% mark, but we remain confident in our target range of 7% to 9%.

Okay. Great. I appreciate that. And then maybe if I could just sneak one more in for Scott. Just on the Gallagher asset non-comp liability claims. Just it sounded like core underlying claims were up low single digits during the quarter. I'm wondering on liability lines, is that up low single digits a significant change to how that core underlying claims level was running in the previous quarters?

I mean there's a couple of things going on. One is we happen to be, if you look at kind of the new business we've been selling, it's been connected to more liability activity. So it's not necessarily that individual accounts are saying more. But the new business tends to be tilting a little bit in that direction.

Got it. Thank you.

Thank you. Our next question is from Mark Hughes with Truist. Please proceed with your question.

Yeah. Thank you. Good afternoon.

Hey, Mark.

Hey, Mark.

Pat, you've been pretty enthusiastic about what you're seeing around exposures. In the construction space, if banks are really tightening up, would you have started to see that? Would there be some early project work that would flow through your system? Do you have any kind of view on what you think will help or what will happen there given the banking crisis.

So, Mark, I'm not sure I'm understanding the question. If I look in my data, is the question around what we're seeing in the construction risks that we ensure?

Correct. Any early signs of pressure because of the banking situation?

In fact, construction continues to be fairly weak at the moment. However, there is a significant amount of infrastructure work currently underway, and our infrastructure contractors are performing well. Additionally, for the smaller contractors, their backlog remains strong.

Are you noticing any changes in the carriers' willingness to pay claims, especially considering inflation? Are you observing this in your interactions with the carriers?

No, I will say this. I'm proud of the industry market. One of the things that I think stays consistent is that our carriers and I'd say this on a broad-based basis are paying the legitimate claims that they have filed with them. And I think they're paying them in a timely fashion, and I think they're paying them fairly. Now you can get to certain jurisdictions. I don't mind mentioning it. Florida was assignment of benefits and litigation on behalf of the claims, and there's a battle going on there. But by and large, when you put a legitimate claim into the system, the insurance industry is a very efficient model of paying that claim. We are not sitting there with a lot of complaints from our claimants.

Very good. Thank you.

Thanks Mark.

Thank you. Our next question is from Josh Shanker with Bank of America. Please proceed with your question.

Thank you for accommodating me. I wanted to follow up on Greg's earlier question. You provided a hypothetical scenario, and I'll use it. Let's say there were originally 18 bidders for the property, but now there are only 11. While it was just a hypothetical situation, 11 still seems like a significant number to me. I'm curious if there are still many bidders in the market who have ample cash. Are they utilizing debt to make acquisitions in this environment? How are they securing their funding to remain active?

Well, a, I don't understand it, and I'm not smart enough to. So let's start with that. And b, yes, they're raising funds like crazy. One of our competitors that I won't name actually eliminated their integration team and their acquisition team. Announced publicly that they were no longer going to be actively pursuing acquisitions, they've got additional funding and they're back in the game. Go figure out who would sell to that. Not me. So then you go to other players that have been more consistent long term. And, yes, they received significant funding in the last 60 days. So they are flush. That capital's got to work. They didn't get it to put it interest. So there's competition out there.

And in terms of the price they are paying, I mean, I've always felt that there's not really a big patching going on. People want to come in partners with Gallagher and it's a choice acquirer compared to some others. Is there evidence that certain sellers are willing to not consider certain bidders who might be less of an attractive acquirer?

Well, I think so. So, I mean, I think that's a big part of our sales, that we are always talking about the fact that the differentiator here is twofold. One, we believe we have a great franchise that offers them the opportunity to expand their business. And if they love the business or they tend to stay in it, this is the best platform in our mind to trade from. So that starts it. And then, of course, you've got the cultural aspect. And we're competitive. We're not trying to sell the fact that that should give them a deep discount. But there are, you know, there are people that sell for various reasons, and we don't win them all.

Thank you for the answers. Appreciate it.

Sure, Josh.

Thank you. Our next question is from Meyer Shields with KBW. Please proceed with your question.

Thanks. Two sort of big picture questions if I can. First, Pat, you talked about within wholesale and specialty. Open brokerage is growing a lot faster than MGA and binding business. Is there something you could talk us through why there's that gap in growth rate?

Sure. I'll toss that to Joel. Go ahead, Joel.

Sure. So, on the wholesale side, obviously, you work with larger accounts and larger accounts that end up in the wholesale space typically are larger accounts with larger exposures and a little tougher to play. So that would be really the first. And then really the second thing is the inflow of tougher accounts today that are coming out of the admitted market and coming into the several lines market or E&S depending on what your terminology is, is more robust. They're coming in very quickly because of especially the difficulty in the property market. So you would see a higher organic in that line versus our MGA binding business, which is more consistent, growing nicely, but it's more consistent in the nature of smaller accounts. So it doesn't move the needle as much.

Look at it this way. Another way to put it, Meyer, is one is troubled business, frankly. When we're doing open market broker, brokers are coming to us because they need our help on tough to place accounts that are going up in price. Our MGAs and programs are consistently writing smaller accounts that are not distressed, that are looking for specialty coverage or specialty expertise.

Okay. No. That's very helpful. Thank you. That's definitely what I needed. Second question, I'm just wondering how should we think about reinsurance growth over the next year or so. Is there sort of a special maybe temporary boost because it's now under sort of doubters purview, and you can explain the benefits of that to the insurance company that you deal with worldwide and then once that happens, you're on a stable basis? Or is that a more enduring first of upside?

No, I think that's an enduring thing. When this team was part of our competitor, Willis, they had a very good block of business underneath them. A very good firm they were part of. And I would say in fact similar economic. So we're not changing that. But I think we do offer a different environment. We offer a different way of trading. We're bringing our retailers together with the reinsurance people at a much higher level or I shouldn't say higher level, at a much greater frequency with much greater interaction than they were used to, which I do believe will fuel their growth. And I think it will accelerate beyond what they would have achieved, but that's what it could have should and we'll never know.

Okay. Perfect. Thanks so much.

Thanks, Meyer.

Thank you. Our next question is from Rob Cox with Goldman Sachs. Please proceed with your question.

Hey, thanks. I just had one question on pricing. I think you all had commented previously that Australia, New Zealand are potentially seeing a reacceleration in rate and the UK is also seeming quite strong. So I'm just curious if you're seeing or expect to see more of a divergence in the pricing trajectory between the U.S. and the international business.

I think they're pretty close to the same. Yes, we're seeing some of those, but we're seeing, take D&O out of it right now. We are starting to see some uptick in workers' comp now. So, I mean, I don't see a lot of difference between what's going on in the U.S. and what's going on in Canada, New Zealand, Australia, and the UK. So it's pretty close.

Got it. Thank you.

Sure.

Thank you. Our next question is from Elyse Greenspan with Wells Fargo. Please proceed with your question.

Hi. Thanks. Just a follow-up on the margin side and thanks for all the color on the moving pieces. But within that 20 to 30 basis points, are you assuming that the fiduciary investment income is in line with the Q1 level over the remaining three quarters?

Yeah. That's pretty close. Yeah. That's right.

And then, you know, I know I had asked earlier kind of just a question just in terms of just it seems like you're assuming a stable economy. Right? We see some forecasts out there for decelerating GDP or perhaps GDP to go negative. What are you guys assuming for GDP over the balance of the year?

Well, here's the thing. Translating it directly into GDP is a different exercise. But one thing, you got to separate real versus nominal first and foremost. So I can only get a look at what's the growth in the insured values and insured, what's being assured there. Remember, we're not seeing that in our data right now. I'm looking down through our industry list right now, and we talked about construction earlier, heavy construction other than building construction contractors up 12.4%, construction special trade 8%, building construction up 8%. So you look through our industry list here, we're not seeing it. We're not seeing it in our dailies overnight. The cancellations are lower than before. Negative endorsements are lower than before. Audits are audits. They have a lag factor in there, so I wouldn't look at those two terribly carefully. But we're just not seeing this in our customer’s business at this point. And believe me, our customers, if they believe they're seeing a downturn one of the things they want to do is modify their insurance program because that's cash flow to them. So, we will know in two years how accurate our dailies are. But right now, they are pretty right over the last two years.

And so even, I guess, if we still like, if you were thinking about what's going to have the greater impact, do we think about it being the economy and GDP or PNC pricing when we think about the next few quarters?

Both.

But I think the pricing will far offset any modest contraction and exposure in it. I don't know what's going to contract in the next six months or what volumes are going to contract. We're just not seeing, at least.

But remember, Elyse, we are the beneficiary of inflation. There are very few industries out there that really get a benefit from inflation, and we do. So as building values go up and for and right now for the first time in the decade, carriers are very, very interested in what you're insuring to make sure you're ensuring the value. This inflation is hitting building costs very hard.

Thanks for all the color.

Thanks, Elyse.

Thanks, Elyse.

Thank you. Our next question is from David Montemaden with Evercore. Please proceed with your question.

Hi. Thanks for taking my follow-up. So I've noticed the last few quarters just in the adjusted compensation ratio commentary in brokerage. Just the impacts from savings related to back office headcount controls. Could you maybe just touch on that? I'm assuming some of this has to do with leveraging centers of excellence. But I don't think you had mentioned that as a tailwind when we think about the margin roll forward. So, I guess maybe just help me think through that, maybe not only for this year, but, like, broader picture. How big of an opportunity that is leveraging the centers of excellence.

Let's take a step back and consider our previous discussions about how sensitive our business is to inflation. We mentioned that around 40% of our costs remain neutral since they align closely with commission rates due to our incentive compensation structure. Approximately 40% of our overall cost structure is somewhat affected by inflation, while about 20% may be more directly influenced by rising prices in areas like transportation and gas. If we analyze this in the context of our nearly $6 billion cost base, we can estimate that if, for instance, 25% of our costs are impacted by the full inflation rate, it could represent around $4 billion affected by a 6% or 7% inflation rate. That amounts to a significant figure. However, I'm indicating that the real impact on our bottom line is only around $5 million to $8 million each quarter. This suggests that as we enhance productivity—through our offshore centers of excellence, technology, and other process improvements—we are effectively managing inflation pressures. Every day, we see considerable benefits from our efforts in productivity, quality, and our offshore operations. If we didn't have our offshore centers of excellence, the costs or expenses would increase significantly.

Got it. Nope. That makes sense. Thank you for that.

Sure. We're pretty proud of the quality that comes out of that operation too. Well, thank you very much everyone. Appreciate that and thank you for joining us today. As you could tell, we're extremely pleased with our start to the year. We posted a great quarter. I'd like to thank all our colleagues for their outstanding efforts this quarter. We are a people business, and I believe we have the best people at Gallagher. We look forward to speaking with you again at our IR Day in June. Have a nice evening, and thanks for being with us.

This concludes today's conference call. You may disconnect your lines at this time.