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

Good afternoon, and thank you for joining us for our second quarter 25 earnings call. On the call for me today is Doug Hall, our CFO, and other members of the management team. We had a great second quarter. For combined brokerage and risk management segments, we posted 16% growth in revenue, 5.4% organic growth, reported net earnings margin of 17.3%, adjusted EBITDA margin of 34.5%, up 307 basis points year over year, adjusted EBITDA growth of 26%, our 21st consecutive quarter of double-digit growth. Gap earnings per share of $2.11 and adjusted earnings per share of $2.95. Another strong quarter by the team. Moving to results on a segment basis starting with the brokerage segment reported revenue growth was 17 percent organic growth was 5.3 percent in line with our expectations despite headwinds from cap property renewal premium changes in june adjusted ebit act margin expanded 334 basis points to 36.4 percent with underlying margin up doug will break down the margin expansion further Let me provide you with some inorganic. Within our retail operations, organic overall, a reflection of the heavier weighting to property business this quarter. U.S. organic was 5%, with PC a bit below and benefits a bit above that level. Outside the U.S., our international operations, primarily in the U.K. and Canada, Australia, and New Zealand, were collectively around 3%, with the U.K. a bit above and Canada a bit below 3%. Shifting to our reinsurance, wholesale, and specialty businesses, in total organic of nearly 7%. This includes 5% organic from Gallagher Re, and more than 7% organic from our wholesale and specialty businesses. So we continue to deliver organic growth and reinsurance. Next, let me provide some thoughts on the PC insurance pricing environment. Starting with the price market remains rational, and we expect that to continue. Carriers today have insights into what products and geographies are generating appropriate returns and areas that need to be re-underwritten or profitability. Accordingly, we are seeing more carrier competition across property and continued caution within casualty lines. To order global renewal premium changes, which includes both rate and exposure, we saw the following. A couple points below what we were seeing at the time of our early June IR day, Viability up 4%, 7%, and umbrella up 11%. Premiums like client size, we continue to see significant differences. For clients generating less than $100,000 of revenue, 3%. For clients generating more than $100,000, renewal premiums were down 2%. As we discussed with you in June, second quarter renewal premium changes, both small to mid-sized accounts, seeing global renewal premium increases. Now, good accounts will get some premium relief from that, however, accounts will see greater increases. Ideal for us to show our expertise, team, and help clients navigate market complexities while finding the best coverage, moving to the reinsurance market, affected broadly similar conditions as earlier in the year, particularly on cat-exposed risks, and increased limits being purchased are somewhat offsetting rate decreases. dynamics reflected continued concerns over prior year loss development and rising loss trends from inflation and the litigation environment was flat to modestly higher. In a growing market with opportunities to differentiate clients under it, Gallagher-Ree will continue to perform in July revenue indications from audits, endorsements, and cancellations continue to be a nice and no signs of a broad meaningful global economic downturn nor any changes from the prospect of tariffs the robust levels we saw insurance carriers continue to indicate ongoing increases in medical utilization and treatment cause at employers pigment organic in the six and a half to seven and a half percent range doug will unpack our organic outlook by quarter in his comments and economic conditions i believe we are very well positioned today our niche expertise, extensive data and analytics offerings, and global resources put us in a great place, including organic of six. We saw solid new business revenue in the second quarter as the new business sold that we spoke about last quarter began to generate revenue. Combined with our fantastic client retention, we believe we will see full year 25 organic in that six EBITDA margin was 21%. Looking ahead, that would be another great year. Shifting to comments about mergers and acquisitions start early june ir day we've had progress and now believe we will be in a position to complete this transaction here in the third quarter during the second quarter we completed nine new mergers representing around 290 million dollars of estimate for those new partners joining us i'd like to extend a very warm welcome to the gallagher family of profound or being a million dollars of a conclude with some comments about our bedrock gallagher culture during the second quarter, I had the pleasure of spending time with 60th class of the Gallagher internship is an essential investment in my many interactions.

I'll walk you through our earnings release and provide some comments on organic growth and margins by segment, including how we are seeing the rest of the year shape up. I have a commentary document that we post on our IR website and walk you through our typical modeling helpers. And then I'll conclude my prepared remarks with my usual comments on cash, M&A, and capital management. All right, let's flip to page three of the earnings release. Brokerage segment organic growth of 5.3 percent was right in line with our June IR Day guidance. With our first quarter organic at 9.5 percent, year-to-date we are at seven to the second half of 25. We see quarter organics each around five-year organic in the six and a half to seven and a half percent. Let me give you a forecoping to a headwind in the second half. Dependent on those large and lumpy life cables. Given the current interest rate outlook uncertainty, the clients may accelerate or even delay when to buy property rates further decreases or on the other hand a large cap here in wind season causing a quick shift higher would also influence our organic and for their casualty rates we are seeing some lines perhaps to steadily march higher based to the brokerage segment adjusted EBITDA table second quarter adjusted EBITDA margin was 36.4 percent up 334 basis points year over year and walk you through our typical bridge from last year, 24 second quarter earnings release, you'd see we reported back then adjusted EBITDAQ margin of 33.1%. Now, adjust that using current F is next to nothing, so just assume adjusted EBITDAQ margin levelized for FX would remain at 33.1%. Then organic growth of 5.3% gave us about 60 basis points of impact, the role in impact of M&A used about 40 basis points, used about 30 for assured partners to margin this quarter. Follow that bridge and it will get you to second quarter 2025 margin of 36.4%. That's great discipline by the teams. We don't see anything that causes to change how we view underlying margin expansion potential. We call it organic greater than 4%. we should see some underlying margin points of expansion, and at 7.5% organic, around 90 basis points, the same thing looking out towards 26. We have a long list that will continue to benefit our productivity and quality, including a more stable labor environment, technology spends on client-facing sales and service tools, centralization of backup of an industrial strength that can handle significantly more revenue with marginal cost. In any organic environment, we still see significant opportunities to get better to our clients. Now, sticking on page five, risk management segment organic at 6.2%. As Pat said, that's a bit better than our expectations due to strong new business revenues from contracts that are incepted in Q2. And for the year, we continue to see organic in that 68% range. Adjusted EBITDA margin of 21% was better than our June IR day expectations. And looking forward, we still see full-year margins closer to 20.5%. Turning now to page 7 of the earnings release in the corporate segment shortcut table. Expectations. The adjusted interest in banking line and the clean energy line. The adjusted acquisition cost line related to our typical tuck-in acquisitions came in a penny better. And the adjusted corporate line was $0.04 below. That's solely due to a larger non-cash under a weekend in June. That has already mostly reversed here in July, so it just shows the noise that this can create. So let's move now from the earnings release to the CFO commentary document that we post on our website. As a general statement, please read the headers and the footers on each page carefully on how numbers in this document include or exclude the impact of assured partners. Flipping to page three and our typical modeling helpers, most of the second quarter of 25 actual numbers were close to what we provided back in June. appreciation that cost us about a penny of adjusted EPS. That's simply because we updated opening balance sheet numbers related to our recent acquisition. Finally on this page, please look at the FX disclosures for the brokerage and risk management segments as we refine your models. Turning now to page four and the corporate segment outlook for the second half of 25, there's not much change here from what we provided eight weeks ago. So you can flip to page five to our tax credit carryovers. As of June 30, about $685 million, which we get over the next few years. That benefit flows through our cash flow statement, not through the P&L. Investment income table has to reflect current FX rates and changes in fiduciary cash balances. These numbers assume two future 25. At the interest income revenue table, only a small change from our June CFO commentary. That was due to a refinement in the seasonality of revenues from our second quarter 25 acquisitions. which are more heavily weighted towards first quarter versus second. And then looking forward, you'll see in the pinkish columns to the right, they include an estimated revenues for brokerage M&A closed through yesterday. You'll need to make a pick for future M&A, and also you'll need to make a pick for when AP might close. The purple section on that page should help with that. An M&A fund, $18 billion and no outstanding borrowing, $2 billion of M&A here in 2025. and is looking like we would have about $5 billion in 26th grade debt rating. Just because for 20 years, we've invested in building a chassis that can support billions and billions more. A great quarter and first half in the books. And we have an exciting future with AP, organic growth, margin expansion, M&A opportunities, all driven by a talented team with a bedrock.

Sure, you got it. Thank you. The call is now open for questions. If you have a question, please pick up your handset and press star one on your telephone at this time. If you are on a speakerphone, please disable that function prior to pressing star 1 to ensure optimum sound quality. You may remove yourself from the queue at any point by pressing star 2. Additionally, we ask that each participant limit themselves to one question and one follow-up. Again, that's star 1 for questions. Our first questions come from the line of Elyse Greenspan with Wells Fargo. Please proceed with your questions.

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

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

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

All right. So, yeah. So let me just reiterate what I said. We see the next two quarters in the five-plus range, too, not to quibble over picking at one single number. And, yeah, I think that there's some risk and opportunity with the life business. We'll see how that comes out. Obviously, sometimes those policies and stuff, depending on interest rates, with what's happening with the Fed holding tight right now, your guess might be as good as mine about whether they accelerate to come dependency on those large and lumpy life cases. And the timing that we have in this, you know, we're excited.

Thank you. Thank you. Our next questions come from the line of Andrew Klagerman with TD Cowan. Please proceed with your questions.

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

That's a bad number. That's a bad number. Whoever gave you that number, it's not what we're seeing. Absolutely not even close. So, no, we didn't make any 20% or 30% decrease.

Yeah, we've seen a buck in June, and property rates might come off. If you talk pure rate, that might be one thing, but our customers are smart. When rates are dropping, when we give you a number, when we see property down 7%, that would include rates going down, but exposures are, you know, the...

Got it. And, you know, and the number I gave you might have been off because it might have been weighted more towards E&S and large risk.

That's a bad number. It's a bad number on small accounts.

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

I'll tell you what, our machine and we're the AdMire, and large or small, you know, I wouldn't be proud of the fact that we're still at the high end closures at this transaction.

Thank you. Thank you. Our next questions come from the line of Charlie Lederer with BMO Capital Markets. Please proceed with your questions.

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

Well, it would be about 4%.

Yeah, I think you're picking up on something, Charlie. There seems to be a property for us in the course of a year might be 35%. And we're seeing a steady march of casualty rates going forward. Recollection says the casualty is up about 8%, mixing the weight of the business. So I think overall you're seeing a market that we see that happening for the rest of the year. We are just in the beginning of wind season. So let's see what happens here. California fires were there.

I think carriers still have to digest that and how that's impacting their reserves still. there's still development to to come out of that easily rates still marching higher property is you know you're you're got it thanks and i guess um the 4.7 in in base organic um are you expecting acceleration off of that in the back half here or um or i guess are you expecting uh supplemental and contingents uh to kind of drive organic a little yeah i kind of look at base and supplementals

together and that's pushing like four nine or five percent so right in there what we're seeing going forward the contingents uh i think the carriers are doing well we do well in the environments where carriers do well so i i think that it's nice to see that bases base and supplemental together still around five percent uh supplementals may be topping that up a little bit uh so i i think you're reading through that right but you know we're holding in there where Our fee accounts are doing well, too.

Thank you.

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

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

Well, listen, here's what I've been getting after making ourselves better. Some terrific AI, 15,000 is hardening our environment against cyber and against just uptime and run times. They're now really enabling the business, the presentation layers that we're customers like you, but it keeps going on and on and on. And every time you think the list is going to get smaller to get better, and the acquisition pipeline feeds that because we're putting more revenue over a cost structure that doesn't change dramatically.

All right, I'll wait till September for more detail. I guess I wanna go back to the assured partners transaction. I think the last time we were talking about it, or you were talking about it, I should say, you mentioned or highlighted that you had to suspend, I think 11 of the 13 work streams on the integration process. And with the timing, with a little bit more visibility on the timing have you kick-started those some work streams uh processes for integration back up i guess ultimately what i'm getting here is you know we we previously mapped out you know some revenue and margin assumptions um for the acquisition and just wondering if because of this delay it's called this it's going to cause a delay and the recognition of some of the benefits as we start to integrate that operation at the end of this year and next year?

I think, Greg, it is fair to say we had to suspend some actual work streams that were things like what producers would work with what other producers on accounts, what branches would be sharing what here or there, but we've had, you know, we've had a lot of time and we have been allowed at the senior levels to continue to have dialogue, to work on the plan here um and so it's been we've followed the rules very closely we've had a longer period of time to review this and we've been allowed to do more integration planning just not getting into some of the details of some of these work streams so i'd say that we're really ready to hit the ground running um i think that if you recall when we announced this acquisition we're very proud of the fact that we said in its first year would be a creative we still maintain that uh i think we're going to see a bump in opportunities to sell stuff in geographies in places that we have not been represented. Remember, only 94% of these acquisitions done by AP, we didn't have a chance at. So these are fresh, new bodies that are, you know, coming on our team. Seems like they're very excited, and we're looking forward to getting going.

Yeah, and Greg, just to clarify, I think you had your numbers back. Over 13, I got to say, if we're delayed seven months in closing, eight months in closing, maybe we lost two or three months in that journey. Two great companies.

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

Sorry.

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

Hi. Good evening. Thank you for taking my question. My first question is on pricing. uh you mentioned that casually some lines bottom out and some lines um getting higher just curious any specific lines that you want to call out you kind of want to know the mix that drives it and casualty line pricing is like eight percent um in 2q which is lying with 1q uh look pretty steady do you expect casualty rates going to be flat or bumpy when it increases on fire here?

All right, let me try to answer a little bit of that right off of my script. We're seeing property down seven, casualties up about four, up 11 in the underlying business of underwriters. Together with others is up five, but D&O, interestingly enough, is down by line today, and I think that's pretty good. reinsurance perspective are still concerned about prior to some making money thank you um um my

second question is on the yes market um one of your competitors kind of mentioned seeing some early signs of business coming back from yes to the demand market um are you seeing any similar trend or or what are you expecting from here yeah i would i would tell you this first of all Now, every retail broker in the world has game plan number one in a market like this.

Submission count of that market.

Now, also, there's a, in an underrated, it is a mixed logical balance.

Thank you so much.

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

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

Right. So, yes, I'm affording through the year, but again, we're not as heavily sensitivity as I think that we lose 40 billion.

Got it. Great. That's that's helpful. And then maybe just following up on that, I think you said in June, um, is, is that different than the down seven or is that more than the down seven? Um, cause I think you said five in April and may, and then it was, it sounds like June was definitely worse than seven. Um, maybe it ended up being seven for the quarter.

Yeah, maybe June.

Got it. But you're assuming like the, the eight, nine in, in the outlet going forward.

You know, I think there's some moderation as you get halfway binding property business in the middle of the store, you know, they've got.

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

Yeah, we're working through that right now. I think that, you know, our reinsurance business opportunities are a benefit maybe where we close.

Got it. Thank you.

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

I'm not seeing it, Mark. I think to me, the last 10 years of not much movement through the floor was not an indication of a start to run up.

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

We didn't provide that, but it might be two points better. Maybe a point.

Okay, very good. Thank you.

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

Hey, good afternoon. I think I heard you say a five percent organic in reinsurance and that's relative to some really strong quarters in recent history can you maybe break down just any impact on pricing on that organic number and would also be interested in hearing maybe any benefit you saw from ios activity um again maybe i didn't hear you right okay just just any impact from pricing uh that was a headwind to that five uh maybe a little bit but we're we're seeing some some opportunities here to increase great and then i think in the the script you mentioned some early ai successes Can you maybe elaborate a bit on those?

Well, that's what I tell September, so we're doing some really good results review.

Thank you.

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

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

Yeah, I think the faster grower of the two, MGA's programs and open market is clearly the MGA business.

The issue you've got to look at is submissions are up, but because some of the renewal premiums are flat, it's primarily a property quarter. For me to say that it was flat, that might be a little unfair.

Thank you.

I appreciate the additional context.

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

Absolutely not.

Excellent to hear. Thank you.

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

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