Good afternoon and welcome to Arthur J Gallagher and Company's first quarter 2025 earnings conference call. Participants have been placed on a listen-only mode. Your lines will be open for questions following the presentation. Today's call is being recorded. If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward-looking statements within the meaning of the securities laws. The company does not assume any obligation to update information or forward-looking statements provided on this call. These forward-looking statements are subject to risks and uncertainties that can cause actual results to differ materially. Please refer to the information concerning forward-looking statements and risk factors sections contained in the company's most recent 10-K, 10-Q, and 8-K filings for more details on such risks and uncertainties. In addition, for reconciliations of non-GAAP measures discussed on this call, as well as other information regarding these measures, please refer to the earnings release and other materials in the investor relations section of the company's website. It is now my pleasure to introduce J. Patrick Gallagher Jr., Chairman and CEO of Arthur J. Gallagher & Company. Mr. Gallagher, you may begin.

Good afternoon, and thank you for joining us for our first quarter 25 earnings call. On the call for you today is Doug Howell, our CFO, and other members of our management team. We had a combined brokerage and risk management segments. we posted 14 percent growth in revenue, 9 percent organic growth, reported net earnings margin of 23 percent, adjusted EBITDA margin of 41.1 percent, up 338 basis points year over year, adjusted EBITDA growth of 26 percent, our 20th consecutive quarter of double-digit growth, gap earnings per share of and adjusted earnings per share of $4.16, another excellent quarter by the team. Moving to results on a segment basis, reported revenue growth was favorable timing. Even without the timing impact, All In Organic was right in line with adjusted EBITDA margin, expanded 359 basis points to 43.4%, with underlying margins up a full percentage point. Doug will unpack this in his comments. Let me provide you with some insights behind our brokerage segment organic. Within our retail PC operation, organic overall. U.S. organic was north of 5%, while our international operations, primarily in the U.K., closer to 4%. Our global employee benefit brokerage and consulting business posted organic of more than seven wholesale and specialty businesses. In total, organic of 13%. This includes 20% organic from Gallagher-Re and 8%. We continue to report strong growth across retail PC, wholesale, reinsurance. Let me provide some thoughts on the PC insurance. The global PC insurance market continues to behave rationally, with carriers looking to grow in lines and geographies where there's an acceptable return and seeking rate increases where it's needed to generate an appropriate underwriting profit. Breaking down first quarter global renewal premium changes by product line, we saw the following. Property down 2%. D&O down personal lines up 8% overall, including general liability up 5%, commercial auto up 6%, and umbrella up 11%. Breaking down renewal premiums by client size, we continue to see a divergence between small to midsize accounts. For small to mid-sized accounts, which we define as accounts generating less than $100,000 of revenue, for large accounts or clients generating more than $100,000 of revenue, that said, priced by client loss experience, good accounts for getting some premiums like Gallagher can help businesses navigate a complex insurance and economic back for our clients while mitigating prices, the ideal market product knowledge, and our data-driven capabilities, which is mostly influenced by January 1st renewals, reflected an environment that generally favored to be able to meet increased client demand with sufficient discipline on terms. The Gallagher RE team shined. With excellent retention and some lower trading conditions as earlier in the year, January wildfire losses and continued casualty reserve increases remain a focus for the industry, but neither caused much upward movement in pricing given the large proportion of Japanese buyers in April. With that said, the year plays out. Regardless, Gallagher-E should continue. Moving to some revenue indications and cancellations, revenue adjustments are not quite as high as last year. We continue to see solid client business activity and no signs of meaningful global economic slowdown. Our daily revenue indications through the end of April are not showing any significant changes in our customers' business activity, giving us some early insights into our clients' business activity, mostly watching the U.S. labor market. And there continues to be a... The number of open jobs in the U.S. stood at more than 7 million, still at a level that is well above the number of unemployed people looking for work. We've also seen recent health insurance carry results show continued increases in the utilization and cost of health care. With these two trends as the backdrop, we are seeing more and more employers looking for ways to grow their workforce and control their benefit call creative solutions to solve these challenges regardless of market and economic conditions I believe we are well positioned to compete and to win from our niche expertise outstanding service or extensive data and analytics offer any complexity or 25 brokerage segment organic 6% including organic of about 4% we continue to see excellent client retention and strong new business production. However, sold new business within the risk management segment typically takes longer to materialize into revenue. Incept and begin to generate revenue in the coming months, see stronger revenue growth, bid-ag margin is 20.5% in line with our March expectations. We did 11 new tuck-in mergers representing around $100 million of S&P. We also announced the acquisition of Woodruff Sawyer during the quarter and completed that in early april million dollars of acquired revenue for those new partners joining us i'd like to extend a very warm welcome to the gallagher family of acquisition not much to update relative to our march ir day comment to close in the second half of 20 pipeline we have more than 40 term sheets signed or being prepared 50 million dollars of terms always have a choice and it would be terrific i'll conclude with some comments about our bedrock gallagher culture during our global sales award meeting in early March our unique Gallagher culture was on full display it was inspiring to watch the interactions among thousands of our colleagues across geographies differentiator is the Gallagher way commentary document that we post modeling helpers and then I'll conclude

my prepared remarks with my usual comments on cash M&A and capital management to a full year 25 organic in that six day will get you to first quarter 2025 margin of 43.4 percent like we will be pushing around 300 basis this point. Again, driven by strong underlying margin expansion of approximately 60 to 80 basis points, assuming organic in that 6 to 7 percent range, and also interest income related to the cash we're holding for AP, less a small offset by the rolling of M&A and lower interest rate. We would still expect underlying margin expansion, and then we'll also have the impact of investment income on the funds we're holding for AP. So in total, we're thinking expansion could be 250 to 280 basis. Of course, it would change if we get AP closed before September 30. As for fourth quarter, we would hope we'd have AP closed, so we would have underlying margin expansion still, but lose the extra investment income, yet have AP's fourth quarter results in our book to change how we view underlying margin expansion potential. See some underlying margin expansion. Management segment organic was 3.9%. That's a bit below our 5% expectation due to lower new business revenue half of the year, as we have already sold new contracts, but these have yet to start generating revenue. So we see organic moving back towards 6% to 8% throughout the year. Expectations, and looking forward, we still see full 31st. We have about an even more in 20s that will show up in our cash. M&A closed through yesterday. And just a reminder, you'll make a pick. And as Pat said, we have a winning culture. We're well on track for another great year.

I think we're ready to go to questions and answers thank you the call is now open for questions if you have a question please pick up your handset and press star one on your telephone at this time if you are on a speakerphone please please disable that function prior to pressing star one to ensure optimum sound quality you may remove yourself from the queue at any point by pressing star two additionally we ask that you each each participant limit themselves to one question and one follow-up Again, that's star one for questions. Our first questions come from the line of Elise Greenspan with Wells Fargo. Please proceed with your question.

Hi, thanks. Good evening. My first question, I wanted to start with the pretty impressive 20% growth that you guys saw in reinsurance.

Can you just try to break that down between what's coming from pricing, retention, new demand and then if you give us a sense like if it's new new or if it's you know business that you're you know taking from peers that's a pretty strong number well thanks elise and let me let me try to break down some of the 20 organic the first the three had a great quarter and a lot of it you know came with the january one renewals so let me break down three pieces our new business spread was responsible for more than half the organic this quarter in fact we had about 50 chunky deals was another 5% or so. Inflation, people buying more cover. As you see some rates come down, people have some room for additional. We have now better insights into it. And as I noted, it'll reverse the overall company. When we integrated them into working with retail and our wholesale and specialty people, that it would be a good match. Tremendous job. And the new business was outstanding.

That's great. And then my second question. So it sounds like you guys are still working, I guess, not a lot to update us. You said, like, working on a response to the DOJ. So is that something, I guess, you guys would expect to respond? I think there's, like, a 30-day clock once that happens. Is that something that, based on the timeline of a Q4 close, Doug, is that – would you expect to just respond to comments? I guess that would be something that would happen in the Q2. Is that your expectation?

All right. So we're obviously putting together all the information that's been requested, and we're working hard on it, both on our side and then the AP team is doing the same thing. We'll get that over to them sometime in mid-third quarter, and then it does start a clock ticking. They have the right to ask some questions, first getting that over.

Okay. And then I just – you mentioned that there was, I guess, some timing that impacted the first quarter, some kind of – was it a pull forward from other quarters? I think it was 1%, and then there was also going to be an impact in the Q2?

Yeah, all right. So let's go through that a little bit because I think it's a good question. First, it doesn't do anything to full year. Second, we're just getting some better insights into the development of our new reinsurance system. We've got a new benefit system. So those systems help us look into the treaties and then to the expected. While the timing this quarter was mostly in reinsurance, let's call that about two-thirds, and the other one-third is across our benefits business. But without this timing, the first quarter, you know, for reinsurance, was still in the upper teens, and it impacted, especially in benefits, each about a pair of little bit of that again in the second. And then, again, the timing will reverse itself compared to last year in the third and fourth quarters. We're a full-year organic, and we would say, you know, that this is going to be able to make better estimates earlier on in the year.

Thank you.

Thanks, Elise.

Thank you. Our next questions come from the line of Greg Peters with Raymond James. Please proceed with your questions.

So, Pat, in your comments, I think it was, yeah, Pat or it was you, that talked about the bifurcation of renewal pricing in the small to mid-to-count, which was you defined as less than $100,000, and then the mid to large account. I was wondering if you could provide some more color because the commentary we're hearing in the marketplace around that seems to suggest that the larger account business might be under a little bit more rate pressure, specifically in the property areas.

Well, that's exactly what I said, Greg. I mean, I think we're seeing in the large account area, and it's the typical economics. You can get a better deal standpoint. You get down into the smaller accounts all the way down to your personal lines. If you're bigger, you get a little bit better.

That makes sense. For my second question, my follow-up question, I'm going to pivot back to the pending acquisition of Assured Partners. You've obviously been working very closely with them for the last several months now and trying to get this to the finish line. And I know you were pretty forthcoming with, you know, details about how you expected margin improvement to materialize and, you know, retention and organic revenue growth to develop. And I'm just curious, now that, you know, we're here in May, if you have a different perspective or if there's any different changes you have on the views on the opportunity to insured partners, you know, for all of the areas I mentioned.

Well, thank you for the question, Greg. But I'll tell you, it's actually gotten stronger. I mean, we did our board meeting this week, and that was, of course, one of the key questions. Not by a lot, by maybe half a point to a point. So they're staying very consistent with what they've had for bonuses. When we did the deal, I didn't expect any breakage. We've seen it up to the people. We've had to be, that have been allowed to continue. And I'll tell you what, dealing with folks, they love the business, and they can't wait to get the two organizations together. There's no waffling. There's no mama crying. It's people that just want to go out and sell a lot of insurance. And we're very, very excited, more excited than we were in January.

Can you just, just a detailed question on that. Is the organic profile at Assured based on what you've seen just similar to what you're seeing inside your retail business?

Perfect.

Thanks, Greg.

Thank you. Our next question has come from the line of Mike Zaremsky with BMO Capital Markets. please proceed with your questions.

Thanks. Good evening. Doug, or I think Pat, you might pull this too. The one point of timing benefit in brokerage organic, is that in addition to the $26 million reversal on page six of the CFO commentary, which I'll admit is kind of over my We implemented our conforming accounting policies on some historic growth-up, so we didn't take credit for the $26 million to be measured by that.

It's just that if you gross up the revenues, you gross up the comp on the revenues, and a lot of those revenues triggered, it all washed to nothing. We repeated the note about that change in purchase accounting.

I got it. I'll make sure to go through that. But switching gears a bit, a question on also a brokerage organic. The RPC stat that you began giving out in recent years, which is helpful, I think it was 4% this past quarter. And organic, obviously tremendous, five plus points above that. But if we look kind of going back to the few years that you disclosed RPC, the gap between organic and RPC is much narrower. Curious, should the gap stay wider than historical, kind of implied by your guidance? And maybe part of the reason is reinsurance isn't included in RPC, but am I asking a question you think is fair?

Well, it's a fair question, Mike, but here are a couple of things. We were a different company than we were then, and number one, we've got many more large accounts. Our large account penetration continues to grow every month, and a lot of that business is on fees. Then also, when you take a look at the tools that are just unbelievable in terms of and drive new business, we've presented them to you. Anytime the market's in flux, and frankly, right now is a great time and job on your pricing as well as your coverage. So we're a different company, better opportunities, more fee business, larger platform, stronger players.

That makes sense. If I could just sneak one last follow-up in to, you know, you said that you'll respond to the, I guess, government about the assured data request in a number of months. Any color on, you know, why this data request would take such a long time? I'll give you one bit of color, Mike.

We're not talking a lot about this. That's intentional. It's a lot of data from both parties.

Appreciate it, Pat.

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

Yeah, thank you. Good afternoon. Pat, if I heard you properly, you said the workers' comp up 5% versus, I think it was up 1% last quarter. Is there something going on there?

Not really. I mean, we did actually plumb for that among Gallagher. Gallagher Bassett's biggest line of cover is looking at ourselves, is there any – you know, most of comp is fee schedule stuff with medical. I also do think it's what I think people are writing about.

And then on the property market, Pat, what's your sense of how this thing plays out? Obviously, it's sensitive to cat losses, so a lot of it depends. But in your experience where you've had kind of a run-up and then you start to see it turn back a little bit, how is this going to work over the next few quarters, couple of years?

Well, again, Mark, let me go back in my history, which is a long one now. the property markets, I would define it as fragile, right? When you're minting money, of course, you're going to give customers back some of the money you've made. But boy, the bill comes hard when it comes, and it's not gradual. And so, you know, it just seems that we're all concerned. In fact, you might recall a year ago or so, we surveyed over a thousand of our customers, middle market customers. Their number one concern was weather-related, climate change. And I think we all see it. We never had addiction as well, and it wasn't as severe. Whoever saw California wildfires coming, you combine those with some storms, both in California and around the world. Well, the thing about property is it can change on a dime. I feel about hard market clients. It's hard to explain to people why rates are jumping. You can do it in property because you can show them the losses. But I think you're right to ask the question. It's all well and good now. A bit of a decrease. Give some money back. The markets, if the wind blows, the story could change very quickly.

Very good. Well, everything is definitely crazy out there with the Cubs in first place. I'm with you.

No, Mark, that's the new normal.

All right.

Some people have a bad decade. We had a bad season.

Thanks, Mark.

Thank you. Thank you. Our next questions come from the line of David Motomaden with Evercore ISI. please proceed with your questions.

Hey, good evening. My question, I missed it just on the RPC for this quarter. I think you had said it was 5% last quarter. It was trending around 4% on the first two months of the quarter, this 1Q. Where did that end up for 1Q?

And within your outlook uh what are you guys assuming for the rest of the year so let me see if i can break that apart what's your question you want to know change was in the first quarter and what our outlook is for the rest of the year is that the question yeah what's what's embedded in the the the outlook that you gave the organic cadence that you gave basically about the same percent call it flat now we you know the casualty rates you know we've had a lot of quarters on casualty rates as consistently in that as we shape our organic for the rest of the year is assuming

a long time to look back. When markets became a little squishy, you'd see them fall quite dramatically across all lines, over 11%. This is a pretty logical market. So I don't think you're going to see. We do. We'll give it to you at our end.

Got it. Thank you. And then I guess I'm also wondering, you know, that difference difference between the middle market and large account. I guess I'm wondering just, you know, I know that there's typically the large account business is more cyclical, and you guys are underweight that. But outside of that, when you look at your middle market property book and small market property book, would you say that's more SES exposed, and therefore, um you know the pricing might be a little bit more durable there or is that just um is that not the right way to think about it uh i don't like to think about it that way and i'll tell you why convective storms are you know they're there seem to be localized in the midwest in lots of states that's although you have to say there are a heck of a lot more small accounts that fall necessarily harder on one book of business fact that the numbers are just great yep no that that makes sense um and then um lastly so i might be nitpicking here but i think um you guys has called out five percent organic in u.s retail and it sounds like that was maybe a little bit lighter um than what you guys were talking about in march i think you guys were were saying six percent um was there anything behind that outside of just the the general rpc trends that we spoke about.

Point one way or another on the...

No, definitely agree. Thank you.

Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next questions come from the line of Katie Sackis with Autonomous Research. Please proceed with your questions.

Hi, thank you. I guess my first question, I wanted to, you know, go back to Doug's comment on the cadence of brokerage organic growth that you expect to see for 2Q, 3Q, and 4Q. Back of the envelope math, I'm kind of getting to the midpoint of the 6% to 8% full-year guide. Which of those quarters, Doug, do you kind of see the most potential to upside versus your current estimates right now? And how does, you know, seasonality perhaps inform that view? Great. Super helpful. And then I apologize if this next question is a little bit nitpicky, but I noticed in the CFO commentary that the average EBITDAC multiple that you guys paid for your tuck-ins this quarter was slightly elevated at 11.5 times versus the 10 to 11 times guide. Is that just a result of some noise from one-off transactions, or is there any additional color that we should be aware of there?

If I peel apart the 11 that we closed in the quarter. I don't see anybody really off the map on that. So, you know, it being 10 to 11 is still.

Thank you.

Thanks, Katie. Thank you. Our next questions come from the line of Andrew Anderson with Jeffries. Please proceed with your questions.

Hey, good afternoon. The supplemental commissions within brokers were pretty strong. Was there any timing benefit there? And just maybe more broadly, could you talk about how you're thinking about that, those line items, the contingents and supplementals?

All right. So, supplementals in the first quarter. We've had some pretty good work as we start to negotiate contracts for the coming year. I think the team's done a good job of getting more carrier relationships under a supplemental. So, I wouldn't say that there's anything...

By and large, volume-based. Volumes up.

Gotcha. And then just within specialty, could you maybe talk about the growth difference between open brokerage and MGA, and I suppose where I'm going with this is I'm not sure if the MGAs are kind of weighted to property, but if we're seeing some compression in property rate, could that impact your MGA growth in the back half of the year?

Listen, our binding business had a terrific quarter. Mid-teens, the brokerage business was probably, you know, I think between the two, brokerage and binding. Our affinity business had a turn, but continuing to show really, really nice.

Thank you. Our next questions come from the line of Meyer Shields with KBW. Please proceed with your questions.

Great. Thanks so much.

Two big picture questions, if I can.

First, if my memory is correct, then one of the benefits you were talking about when you bought Gallagher-Re was that you could introduce reinsurance brokerage capabilities to all the carriers you place business with. And I'm wondering whether the 20% organic growth that you had in the first quarter, is that still a factor or has that played out? This is just the execution of the current team.

No, that's a big factor. And that's, you know, 15 deals to who, what, where, and what. These people are working together that they didn't know. They've introduced us to plenty of players we didn't know. The cross-pollinization, both in what we're doing in retail and things like pools.

Okay, that's very helpful. The second question, I'm just trying to put this together in my head. You've got more leverage with the big accounts because they've got more swag. I think that's the way Pat put it. On the other hand, there's a higher propensity towards fees there. So overall, is the larger account business more or less sensitive from your perspective, the revenue growth more or less sensitive to the cycle than in small and mid?

It's probably less because in a softening market, you don't get…

Thank you. Our last questions will come from the line of Kave Matazari with Deutsche Bank. Please proceed with your questions.

Thank you. I know you guys have a pretty good real-time pulse on the economy. Any other prepared remarks you mentioned, the U.S. labor market was still strong. But just wondering, in your conversations with clients, especially the middle market clients, what are they saying on the impact of tariffs on their business?

I think that you've read all the stuff, Kay, that there is out there. I mean, it's very client one way or another. Is it any time there's consternation, any time there's change? So if in fact tariffs create some additional loss costs or some additional value increases, change the language, et cetera, et cetera, but there's more pronounced in the middle and small account market.

That makes sense. My follow-up is on your international organic growth. I think you mentioned 4% if I remember correctly. I guess it's not a bad number in absolute terms, but it is a bit of a drag on the overall brokerage organic. Could you give us a bit of maybe regional color on what you're seeing internationally? Maybe like some regions being better than others?

Yeah, Canada's a flat market. You're thinking about maybe a softball.

Has our casual.

Yeah, that makes sense. In fact, I squeeze warmer in on the topic of international, like from an M&A, inorganic growth point of view, internationally, like where's your appetite, you know, geographically, where do you think there's going to be good opportunities to grow in the future?

Well, first of all, you know, we now trade extensively throughout the world, as we set an account anywhere in the world, we can't do. But if you take a look at premium, that's the ball we're following.

Thank you.

Thanks, Keith. Well, thank you, everyone. It's important that we thank the 57,000 colleagues around the globe for doing the work that creates these results, their creativity, dedication.

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