Operator
Good afternoon and welcome to Arthur J. Gallagher and Company's second quarter 2026 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 10K, 10Q, and 8K 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 on 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 26 earnings call on the call with me today is doug howell our cfo and other members of the management team i want to take a moment to recognize the passing of dave johnson a valued member of our board of directors dave helped guide gallagher with wisdom integrity and sound judgment and he cared deeply about our company our values and our people on behalf of our board send our deepest condolences to dave's family and loved ones he will be greatly missed And knowing Dave and the pride he took in this company, I believe he'd be very proud of it. Our team's disciplined execution delivered another excellent quarter, reflecting the continued momentum across our business. For our combined brokerage and risk management segments, our two-pronged revenue growth strategy, growing both organically and through acquisitions, delivered total revenue growth of 24% in the second quarter. Organic growth was 6%, reflecting continued strength across each of our businesses. And we continue to generate excellent profits. Twenty-five consecutive quarters of double-digit adjusted EBITDA growth and another quarter of solid underlying margin expansion. Doug will break that down for you in a few minutes. We're up 26%, of which organic was 5%. We saw strong results from Assured Partners and growth across retail, appearance, and benefits. Nearly a year into the Assured Partners combination, the business is performing well, retention remains strong, and the teams are working great together. Gallagher Bassett's 18%, which includes organic of 12%, driven by excellent new business and strong client retention. Now I'll again touch on the four strategic pillars that have guided Gallagher's long-term growth for decades, growing organically, growing through mergers and acquisitions, and maintaining our culture. First, organic growth. Our client retention remains strong, new business is excellent, and our client's underlying business activity continues to be positive. Insurance rates continue to contribute to growth, but less than they have over the past several years. In this environment, only about one point of our organic growth and the diversity of our model across PC benefits, reinsurance, and claims, infrastructure, energy, and data centers. These areas create new and more complex client needs where clients require more advice, broader capabilities, and deeper expertise, and that plays directly into Gallagher's advisory strength. Overall, we continue to view the global PC market as segmented. Carriers are looking to grow or they are earning acceptable returns and remain disciplined where underwriting margins require support. Property continues to ease, especially on larger and cat-exposed risks. Small and middle market accounts remain more stable. Good loss experience accounts can typically see some premium relief, are seeing increases. In our global retail PC business, broad market themes remain consistent with last quarter. and as expected, the softness in property was more pronounced in the second quarter, given the seasonally heavier renewal mix. In the second quarter, we saw the following in renewal premium changes. The property was down 10%. Casualty lines, which included general liability, commercial auto, and umbrella, fashion lines, including D&O and cyber, were up 1%. Workers' comp up 2%, personal lines up 3%, and package up 2%. Excluding property, renewal premium changes increased 3% in the quarter, with higher increases in the U.S. versus international markets. It's important to remember that premium changes in Gallagher's revenues do not move one for one. As property pricing eases, many clients are opting in and using the savings to buy back coverage, increase limits, or improve structure after several years of opting out and making difficult tradeoffs. And in this environment, the value of our advice, advocacy, and market access becomes even more important. Within U.S. excess and surplus, we continue to see it bifurcated, especially CatEx flows is the most competitive area right now. That reflects a pricing reset after several years of a very strong, hard market, not a reduction in demand. Submissions and policy counts remain healthy, and ENS continues to be an important solution for complex property risks. single digits, and demand remains steady across general liability, access liability, and umbrella. At its core, the ENS market, AI-related infrastructure, including data centers, difficult liability risks, and other emerging specialty exposures, often do not fit neatly in admitted markets. That creates a multi-year opportunity for our wholesale teams, because clients and carriers need expertise as well as market access. Turning to London's specialty, Conditions are similar to what we are seeing in the U.S. E&S market. North American CAD exposed property remains competitive, while D&O, professional lines, financial institutions, and cyber are more stable than they were earlier in the cycle. The clear exception is war-related risk. Marine, aviation, and political violence exposures tied to active conflict zones are seeing significant repricing and more selective deployment of capacity. Coverage remains available and coordinated execution across markets. That is where our London, U.S., and international teams work especially well together. We are helping clients navigate increasingly dynamic markets. Moving to reinsurance, the market remains well-capitalized and renewal activity continues to reflect ample capacity. In the second quarter, we saw strong growth across lines and across geographies with excellent new business helping offset rate headwinds, including facultative, casualty, and capital advisory, demonstrating that Gallagher-Ready's growth is not solely dependent on the pricing cycle. Conditions at the 4-1 renewals were generally consistent with those we saw at 1-1, with somewhat greater downward pricing pressure on the Japan-specific contracts. At the mid-year renewals, including 6-1, property cap pricing moved lower again, reflecting abundant capacity, demand remained healthy, and many clients use the savings to improve structure, buy additional limits, or better manage earnings volatility, particularly for U.S.-focused risks given lost cost trends and prior year development. Even in the softer reinsurance markets, clients need more than price. They need advice, structure, analytics, and access to capital. That plays directly into Gallagher-Reeves' strength. To employee benefits, we're seeing steady demand for employee executive benefits, life, and HR solutions. Our clients remain focused on talent attraction and retention while managing pressure from increased medical utilization, prescription drug costs. That is why they value our advice, advocacy, creative plan design, and cross-management strategies, all of which continue to support demand and retention across. Moving on to Gallagher Bassett, GB had another terrific quarter driven by excellent new business and strong client retention. The team continues to broaden its capabilities and put data, AI, and machine learning to work in very claims outcomes. These investments continue to strengthen GB's competitive position. And with good momentum and a healthy pipeline of opportunities, GB is well-positioned for another strong year in 2026. Now, let me provide some comments on our view of the economy. The U.S. labor market remains healthy, with the number of job openings still ahead of the number of people looking for work. Our daily revenue indications have historically been a terrific indicator of economic activity. And our proprietary data from all showed solid business activity throughout the second quarter and through yesterday. Our data continues to show that exposure units such as revenues, payroll, headcount, or trucks on the road, to name a few, are still in positive territory and our clients' businesses are continuing to grow. So to wrap up my thoughts on our organic growth prospecting is moderating, and that's well understood. But property is only one part of activity is excellent. Client exposure growth is positive. We are also seeing clients opt back into coverage as pricing moderates, and our growth is broad-based across geographies, client sizes, and products. Most importantly, clients continue to need our advice, advocacy, analytics, and market access. As risk becomes more complex, the value of Gallagher's expertise becomes more important, not less. That is why we remain confident in the durability of our results and in our 2020 organic growth outlook. Now shifting to our second strategic pillar, mergers and acquisitions, tuck-in acquisitions, representing around $63 million of estimates. We have over 30 term sheets signed or being prepared, representing around $500 million of annualized revenue. A powerful driver of Gallagher's growth. Since last April, we've completed 38 acquisitions, including Woodrow-Sawyer and Assured Partners. and each one strengthens Gallagher in its own way. Adding talent and new growth opportunities is one example of that strategy at work. The business is performing very well, retention is strong, and the teams are already better together. We're collaborating on opportunities, sharing capabilities, putting Gallagher's tools, data, analytics, and expertise to work a higher combined team. That is good for clients and a strong message to other high-quality firms. For those new partners joining us, I'd like to extend a very warm welcome to the Gallagher family of professionals. Good firms always have a choice, and it'd be terrific with Gallagher. Next, let me move to our third and quality. For more than two decades, we've been improving productivity and quality by standardizing workflows, building our centers of excellence, and bringing more of our data together around the world. AI, digitization, and automation are simply the next tools in that effort, And we are putting them to work across the broader Gallagher team. And the point is simple, informed, and more productive. But they do not replace judgment, advocacy, relationships, or accountability to our clients. It's better, help us win new business, and keep us growing the right way. Gallagher is a growth culture company. Our culture helps us attract talent, welcome merger partners, and execute consistently across a large and diverse global company. and culture is what makes our investments in talent technology data and ai work our people are willing to learn new tools and new ways of working when these tools help them serve clients better improve quality and move faster we have the data we have the operating discipline and because of our culture our people put those capabilities to work every day that drives production helps new business it shows up in our financial performance so when we talk about archaeologists' performance, our culture's not separate from the numbers, it's embedded in them. Okay, another excellent quarter behind us, a terrific future ahead of us.
I'll stop now and turn it over to Doug to walk through the financial details. ...release and give some quick highlights, and I'll spend about five minutes on the CFO commentary document that we post on our website, and then I'll close with a minute on cash, M&A, and capital. The punchline, which you probably already dug out, we had a great quarter, right in line, and in many cases, better than we had forecasted in our June investor. Being reminded before I jump in, in the first three quarters of 25, our brokerage segment earned investment income on the funds we were holding. Second quarter 25 revenues and EBITDA were benefited by investment income of $144 million. That's 42 cents per share. And then as a reminder, For the first quarter, 25, that was $143 million, or 41 cents, and third quarter results had $76 million, or 22 cents of income. This has caused, and will again cause in the third quarter, a lot of comparability noise. Fortunately, this headline headache will be behind us for the earnings release. Removing from prior the impact of investment income on AP funds, as I just noted, You've computed adjusted revenues, adjusted EBITDA, and adjusted EPS, each up over 30% for a combined brokerage and risk management segment. This whole quarter demonstrates our four strategic pillars, organic at 5% from page 3 and risk management organic at 12% from page 5. You'll get to that 6% organic growth execution right in line with our June IR Day forecast. One other note, brokerage posted excellent combined supplemental and contingent growth and risk management had strong performance bonus revenues. Both reflect the balance and capital provided. Moving to page four and top of page five, as we've been discussing for nearly a year, the current quarter percentages at the bottom of these tables are really compared to the prior year because of the interest income we earned in 25 on the AP funds. That really clouds comparability. So it's better for me to defer comments on our brokerage EBITDA margin until I get to page 7 of the CFO commentary. That said, when I do, you'll quickly see that our productivity and quality strategic pillar delivered strong underlying margin expansion this quarter, right in line with our... So moving to page 6, no impact on these numbers from interest from holding AP funds. risk management showed continued operational efficiencies leading to an adjusted EBITDA margin up 140 basis points to 22.3%. That plus excellent revenue growth of 14% led to 22% growth in our adjusted EBITDA. Looking forward, we see third quarter and full year 26 adjusted EBITDA margins north of 22%. Flipping to page seven, corporate segment adjusted results in total were a bit better than what we provided during our June investor day. That's mostly due to a small movement in unrealized FX. And as I've said before, this is a non-cash item, but it does move our corporate results around a bit as the foreign exchange rate sponsor. We repurchased about 850,000 shares for approximately $170 million in the second quarter. That brings repurchases to about $480 million through June 30. Okay, let's now go to the CFO commentary document. Starting on page three, the FX impact has been up, and we have updated our non-cash earn-out expense estimate to reflect a couple of earn-out payments made in the quarter. So just double-check these items as you consider that these are considered in your models. Moving to page four, organic growth by business. Here are the punchlines. First, we saw another solid quarter of organic growth across each business and geography. Apex, specialty, and risk management, that's Gallagher-Bassett, each had a really strong finish and divided during our June IR day. Looking forward, percentages reflect the midpoint of our estimates and reflect similar new business retention, client business activity, and economic conditions that Pat just provided, as well as our view of where rates might be. For full year, we brought up APAC and Gallagher-Bassett a bit due to their strong second quarter and reinsurance rounded down really less than a point. So not much new news from our June IR day. Full year total company organic outlet of 6%, brokerage at 5.5% and risk management at 9%. We post that and 26 will be another year of excellent organic growth. Okay, let's move to the top of page five, the investment income table. A couple quick comments here. The 25 that I mentioned earlier and second, our 26 forecasts reflect current FX rates, changes in fiduciary cash balances, and assumes no rate cuts this year. Staying on page five, but shifting down to the rollover revenue table, which excludes assured partners. Three comments here. First, the second quarter 26 column subtotal of $66 million for brokerage came in pretty close to our estimates that we provided in June. Second, please make sure you adjust the prior year revenues for the amount noted in the divestiture and you apply your organic growth assumptions. For M&A close, remember you'll also need to make a pick for future M&A. Moving to page six, and this is information on Assured Partners. First, Assured Partners second quarter EBITDA of $222 million to full year 26 outlook. That's really great performance. Second, remember that forecasted numbers we provide in this table are at the midpoint of our estimates. As we convert locations onto our systems, there could be some small movements between quarters and some additional revenue netting like we have seen over the last couple of times. I stand a reminder that the delta between the future estimates in pink and the 25 numbers in blue. Otherwise, for example, you'd be double counting about five. The footnote reminds you that the non-cash figures shown on this page, which reflect depreciation and earn out payable, are included within our estimates on page three. So please don't double count these. And fifth, importantly, you'll read in the footnote, we still see annualized run rate synergies of $160 million by the end of 26, and then up to $325 million by early 28. Now, one heads up here. This table does, moving on to page 7, the brokerage segment margin bridge. This table makes it very easy to see all the components that influence our margin change, period over period. So here are some punchlines. AP is delivering marginless. Our productivity and quality efforts again delivered another terrific quarter of underlying margin expansion of 50 basis points. Looking forward, you'll see the far underlying margin expansion of 40 yesterday, and we deliver on that, and it would mean another outstanding year. Moving to page eight, our corporate segment, you'll see that our adjusted second quarter as well as our outlook for the rest of the year are very close to what we presented in June. So there's really no new news here. Also a reminder, the upper right box is where you find the impact of FX that I mentioned earlier. And then the lower box shows you the $3.4 billion of future tax deductible intangible amortization of EBITDAQ and you'll get close. These credits and deductible amortization shields create a nice cash flow sweetener to fund future M&A. Let me wrap up with a few comments on cash, capital management, and M&A funding. When I look forward, available cash on hand, expected free cash flows, and future investment-grade borrowings, we estimate close to $10 billion. We still favor M&A, but it might also do share repurchases opportunistically. Currently, our M&A pipeline remains strong and is full of targets at attractive multiples. Staying consistent in our approach and disciplined in our pricing creates immediate shareholder value through a nice arbitrage. It also builds a bigger team that brings value to our clients and makes our offerings expectation for another terrific year.
Operator
Thank you so much. The call is now open for questions. If you have a question, please pick up your handset and press star 1 on your telephone keypad at this time. If you're on 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 you limit yourself to one question and one follow-up question. Again, that's star one for questions. Our first questions come from the line of Mike Zaremsky with BMO Capital Markets. Please proceed with your questions.
Hey, good evening. I guess my questions specifically regarding RPC and pricing, and I believe reinsurance organic doesn't flow through RPC, so feel free to add it in your answer if you'd like. But, you know, we get asked a lot, I'm sure you do too, about, you know, if, quote, unquote, if the overall pricing environment continues to moderate into 27, you know, can brokers, you know, such as AJG, can, you know, will they continue to show a decel trend? And, you know, you all have shown kind of more stability in the face of, you know, declining RPC, but, you know, maybe you can kind of help us understand, you know, do you feel like the RPC we've kind of based here in terms of pricing, in terms of expectations, thinking out, you know, next six, 12 months, or even if it does go down a little bit, can you got, can AJ continue to kind of decouple and you feel like you're organic is kind of based because you guys have done a much better job at at at selling and kind of just growing organically despite uh downwards rpc pressure so any help there would be great
oh this is pat mike yeah clearly i look uh the market's the market but we hold ourselves accountable every day to sell a lot of insurance and to get new business on the books we measure that very clearly our pipeline as strong as could be we look at our we look at what we're writing on an annualized basis literally every week. We thermometer that. We look at it. We know whether we're strong. As we said in our prepared remarks, the differentiation that we're seeing, the capability of getting it data, showing that to clients, it's making a difference. So I think our retention needs to be very strong. One metric we don't typically provide is velocity. What type of new business are we writing against trailing earnings? Those are very, very strong numbers in our company. I don't want to give them up because then you'll ask me for a comparator every quarter, and I'm not going to do that. But the fact is, we measure that all the time, so we know, look, what's happening. So I feel very good about being able to sell in this environment. I also feel good comparing this to past soft markets. Every other past soft market, the market has dropped like a brick across every line all at once. This is a property reset. That's what this really is. And by the way, our clients deserve that. You know, when we talk to our clients in 17, 18, 20, 21, and we're trying to explain why prices have to triple, why at the same time values have to triple or double, and why maybe we don't even have a full line of cover. Today, I think they're benefiting from that. And as we said, people are, in fact, buying more insurance. So I look at this and I go, look, it's a different market. Gallagher thrives on change. the complexity of the world today, what's going on in data centers, the supply chains, and war risk. I think it tees us up very, very well for continued growth, and sorry for the long-winded answer, but yes, I think we'll grow through it.
Okay, that's helpful, and my follow-up probably for Doug regarding kind of your longish term, or maybe not so long-term kind of margin potential improvements due to technology such as AI, and kudos to you all for being the first out there with kind of a strong viewpoint. One of your peers came out with a strong viewpoint today as well with a timeframe that's fairly quick in terms of implementation in its early days. I guess one of the pushbacks we get is that some of these AI solutions might not have kind of locked down long-term costs that are known and could maybe creep up over time. And just any thoughts on that latter statement?
I think the to realize because we have already put in the cost.
Operator
Thank you. Our next questions come from the line of Elise Greenspan with Wells Fargo. Please proceed with your questions.
Hi, thanks. Good evening. My first question is on the brokerage organic, right? So I believe through the first half of the year, you guys, you know, around five, you know if we calculate it's it's a four six um you guide it to a five in the q3 and then the full year guide is a five and a half so i'm trying to kind of square and i know that this is the first year you guys have given a precise full year number normally it's a range but if the guide for the full year is five and a half um that implies something at least within range of a seven for the fourth quarter so i'm just trying to understand if you're just waiting to update the full-year guide after we get through the Q3 and you give us the fourth quarter, or are you assuming, you know, some kind of uplift in the fourth quarter, and what would that be driven by?
Right. Two answers. First, the numbers we do provide in the pink on the page floor, they are referred to the end of the, you know, the year, and we give it to you as we get it from, you know, we've got five months of the year left, and this is an estimate. I think if we post these numbers anywhere near these numbers, it's going to be a fantastic year. So, yes, it would say that we'd have a little bit of a step to these numbers. Why is that? The second quarter is a little bit, you know, we are more impacted by property in the second quarter, that seasonality, and we won't see that as much.
Thanks. And then my second question is on assured partners. You guys will, you know, annualize the deal, right, in the third quarter. So I know it's only going to be in organic, right, for a small part of the year, but if you could give us a sense of just the underlying growth AP has been seeing, and then within the CFO sheet, when you're thinking about part of the third quarter and the fourth quarter organic, what are you assuming for growth for AP?
All right. First, I think that we're at, sitting at this, is we're clearly not going to have a stub doing organic for assured partners, beginning with the fourth. The numbers that you see on Well, you don't see the assured partners, but we think that, you know, we'll be a year into it. They have the sales tools on their desk, and we're getting a lot of security.
Operator
Thank you. Our next questions come from the line of Greg Peters with Raymond James. Please proceed with your questions.
Well, hey, good afternoon. So I guess I'll pivot. One of the areas, the important areas is M&A for you guys. And, boy, the whole sector has experienced a massive step change lower in the valuations. Just curious if you've seen any flow through in terms of expectations from sellers on exit pricing as a result of what's happened to the valuation of the strategics. And any commentary on, I know there's a backlog of EE-sponsored vehicles out there looking for some sunlight. I'm just curious what kind of rhetoric you're hearing in the marketplace on that topic as well.
Well, I'll just do the anecdotal stuff, and Doug can give you the facts. And you've got a lot of consulting brokers out there selling into the community saying that, hey, if you've got a great firm, Those multiples haven't changed a bit. There's an awful lot of demand. Pent-up new PE money is coming in. Hang tight. It ain't happening. Multiples are coming down. And we're maintaining our discipline, and we're closing deals. Now, also, you see a slowdown in our deal count. It's not as great as it was. And part of that, I believe, is sellers are saying that the days of 15, 16, and if you've got a platform, maybe 17 times EBITDA, are over. And so you sit there and go, well, okay. does that mean you're not going to be a seller at these prices and I'm not going to give you a range on the downside because they do vary by what business they're in the geography in they're in the size they are whether they're a platform or not and they are negotiated and there is competition as I said my prepared remarks they all have choices coming down we are not in the business of diluting our shareholders and we stand by that and we're seeing the CFO times in the first quarter it is at 11.3 times here in the second quarter but
But notably, there were two acquisitions that we did that have, we believe, trading with ourselves synergies, and we don't put those in. When we do our tuck-in acquisitions, we don't assume synergies when we do the math. We've talked about that forever. When we do a large deal like Shared Partners, Shared, we can estimate synergies on that. We understand how being better together quickly. We don't do that when we report out our information on page three. When you really peel it back, there's about $2 million of EBITDA that's going to come out of a couple deals we did in the second quarter. But by and large, we're paying around nine times for, let's say, U.S. retail and benefits bidding just a little bit more, and sometimes in the U.K. But, again, if you factor in the synergies that we're getting and you see that on page three, we're clearly down, but it's still an immediate arbitrage and value for our shareholders because we're still getting that multiple, that pricing arbitrage there.
Excellent detail. Related to that, I noted your comments about the $10 billion of capital to deploy over the next two years. You also mentioned the repurchase activity in the second quarter, building upon what you did in the first quarter. So, you know, you're prolific with the guidance you provide. Given the reset of the stock price, do you think that, you know, we should start modeling in some normalized run rate of share repurchase unless there's a recovery? and just assume that's now part of the capital deployment strategy going forward?
Oh, you know, Greg, I think here's the acquisition pipeline is pretty darn good right now. And I think you're going to see the tools and capabilities that their customers need. They just can't do it. They just can't do it themselves. And so they need to, it's great with their customers. They're great to get to bring them an infrastructure that makes them better and provide it. Probably sitting on the sidelines a little bit right now, but I think they'll be back.
Got it. Thanks for the detail.
Operator
Thank you. Our next questions come from the line of Dean Cresci-Tiello with Wolf Research. Please proceed with your questions.
Hey, thanks for taking my question. Since your M&A growth has sort of slowed in recent periods, I was wondering, right, meaning you guys are onboarding less producers inorganically, does that kind of change your hiring strategy or do you not think about the two in tandem?
Be available in the future because I think the dream of where they are in PE-owned firms, it could present that opportunity.
But we also remember, with Ben's next week, it's six to look at our industry. Now, we won't hire all those, but we'll make offers to the seniors, probably to 50%, 60% of them, and that's continuing on from the prior year and the prior year, and these young people validate faster than most people think, so I think that we're in a pretty good spot to maintain a sales culture that is pretty darn unique, and I do think Doug's right. We'll also attract others that find they just don't have the tools where they are. And you can talk about jumping on the AI bandwagon and looking out to the future, but our clients are demanding this stuff today. Recruit new seasoned producers, and we're loading the field with interns.
Yeah, one thing, just a point. We're really only running about 80% of our historical average on acquisitions right now. So we're running 80%. So we're not – this isn't a huge step back in Acquisition Act. We're talking about a 20% backwards, and that can change overnight when market conditions change.
Understood. And then my follow-up, yeah, it seems like the organic growth in brokerage has been supported by strong organic and supplemental revenues. So can you just kind of highlight what's driving that and then maybe talk about the sustainability of that in the future?
Premium growth equals supplementals and contingents, primarily supplementals. And we are a premium contingent more on profitability, and that can go up and down if there's a reset in either premiums drastically or if there's a significant amount of loss. But those losses tend over the last few years to be typically property. So I think that that line is managed well and should continue to grow.
And just as a reminder, I wouldn't place all that much stock on the individual lines because there are changes in contracts. So in this case, contingent contracts into supplementals here, and that's why you're seeing – you've got to look at the two numbers together, and it's about 9% growth. One thing I will say maybe is that it sure shows you that – it shows that we bring a – As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad.
Operator
Our next questions come from the line of David Motumadden with Evercore ISI. Please proceed with your questions.
Hey, thanks. Good evening. Doug, in the past, you had thrown some numbers out there just in terms of potential cost savings from AI. I'm wondering if you have any thoughts in terms of when you think that those will be realized and then maybe a philosophical question. When you guys think about that, is that something where you would announce more of a formal program, or is that something that we will just see coming through as incremental margin expansion on top of the, I think it was 40 to 50 basis points of sort of normal operating leverage?
All right. So it's incremental to the underlying margin. I don't see any difference in that today, and I think it'll take us three to five years to fully realize those levels. Now, that math would produce 600 basis points of margin expansion. I caution that maybe there's going to be offsets to a certain extent, so maybe we can harvest two points there. And the way we look at it, we have 1,000 projects, you know, the flowers are blooming now. We've got dozens and dozens of real tangible projects that are showing immediate results. So I'm viewing that it can make us. And I think the – here's a point. 20 years did we talk about locations. We were not talking about the, we didn't talk about the investments that we were making in the system. If you go way back when, I said that there was probably one point of margin that was being reinvested every year in betterment type improvements. That's true today. And I think that you have to understand this is just cultural for us. We do this every day. and it's not something where we're going to announce a huge transformation exercise. You'll just see us naturally do that over time.
I appreciate that. And then maybe just as a follow-up, just on the reinsurance side, obviously still very good growth and the outlook was lowered a little bit but still solid at the 9%. Could you just unpack how much of that is specifically coming from share gain versus, you know, maybe buy up and just pure rate pressure? Just sort of thinking through the sustainability of that as we move forward into the next few years.
Yeah, most all of it is net new business. There's three of us at the table that are very strong at this, and I think they're really...
Operator
Thank you. Our next question is coming from the line of Andrew Anderson with Jeffries. Please proceed with your question.
Speaker 6
Hey, good afternoon. Just since announcing the AP transaction, the expected run rate synergy has increased a few times. Could you maybe just talk about whether that's coming from existing synergy buckets, simply proving larger than expected, or entirely new sources of savings and revenue opportunities?
I think we're getting more revenue synergies than we maybe initially looked at and announced that came from Assure Partners. They're parts of Gallagher brand point. I think that we're just, can we have the ability, substantial amount of additional revenue?
When Doug talks about Better Together, this is not just Gallagher tools being well-received by a new sales. better together, we've got a lot of terrific new professionals from AP working with side-by-side the Gallagher folks and on their own.
Thanks. And then looking at the geographic table, the organic table, and the geographic breakdown, it does seem like a lot of these regions, EMEA and APAC, are kind of decoupling from what I would think is an even softer price environment. So could you just talk a bit about how you are able to capture these market share gains, or maybe the exposure growth underlying it?
Let's make sure we put $50 billion. So the fact is there's a rush to go, and I think our folks are just showing that the tools and capabilities are letting us outshine the competitors. But there is so much market opportunity out there. We're not bumping up against any problems. So market share is pretty hard to measure, but $250 billion out of $7 trillion, you can do the math.
I'll tell you that when business annualized, it's an astounding number, and it grows every year. The harder we run, we don't make any progress in really denting the share, but we know we're taking share.
Operator
Thank you. Our next question has come from the line of Yaron Kinnar with Mizuho Securities. Please proceed with your questions.
Thanks. Good evening. I had a question with regards to the M&A being maybe at 80% of normal capacity. How much of a boost is that to margin in brokerage?
In terms of deal count, we've done 80% of our average over the last 10 years. In our margin, actually, if you're rolling it, it's probably because of the seasonality of what we've... So we haven't really, if you look at our outlook, rolling up tuck-in M&A, we're saying it's not going to... When you aggregate, but when you're just rolling in 10 a quarter or something like that.
Okay. And then conversely, I think the divestiture activity has been a little bit larger than normal the last few quarters. What kind of impact has that had on margins?
Well, listen, I think some of those businesses, they fit better elsewhere than they do inside of Gallagher. I think that with that, we said, listen, we're just going to refocus and get out of some business margin lift.
Operator
Thank you. Our next question has come from the line of Mark Hughes with Truist. Please proceed with your questions.
Yeah, thank you. Good afternoon. On the benefits business in USP&C, that's been lagging a little bit here lately. Is this the right kind of go-forward organic growth rate, or should that be a little bit faster?
Let me see if I understand the question. Are you talking about just your question? Actually, they do fuel our organically a little bit, but 3% to 4%, I think, in today's environment. We're not seeing tons of employment growth. There could be some upside to that number. We really need our expertise to help them with talent attraction, retention, and then also right now, the employees are inflation. So I think that you could see something like that. I think that employers are going to need our services now. I'm not going to say it's runaway inflation, but it's pretty cool.
And then on the risk management margin, Doug, I think you described 22% plus.
It seems like that just continues to move higher and higher. You've talked about AI, some new capabilities. Is there an upper bound? I think there used to be, maybe talking about 20%. Is it just one of these, it's going to keep going 50 bps is the way to think about it?
Yeah, listen, I actually think that they're having some good success with AI. I think their customers are understanding the value they're bringing. They're doing a great job of telling the business, getting their folks. This is a business that's really reached a good scale point. So you could see, is it 50 basis points a year? Yeah, if they continue to grow 12% a year like they've done from time to time, that's not unreasonable at all. So this is a great business.
It comes a little bit more lumpy. uh as they as they you know as they attract some larger customers and i can't you can't underestimate this i'm looking out at the insurance company marketplace as a place that i think over the next decade just throws in the towel we've got one example that i can't mention any names but just our ai fraud detect has saved one and this is auditable numbers we've saved one client 100 million dollars.
Instead of curiosity, what was the fraud?
Operator
Thank you. Our next questions come from the line of Meyer Shields with KBW. Please proceed with your questions.
Thanks. This is sort of a follow-up, I guess, to the last question. But we've been hearing for years about social inflation, and I was hoping you could talk about how Gallagher Bassett's ability to combat that has changed or improved over the last few years.
It wasn't. I think they just do a damn good job of getting after the claims and making sure that they get in front of the claimant and their employer, and they say that, listen, going down the litigation path isn't going to prove, and they have done a return to work, you know, breaking down this barrier between the adversary claimant and just that philosophical difference reduces the total cost of the claim. They are a resolution versus a claimant.
Take a look at one of the problems with the TPA, any claims organization, hundreds, thousands, hundreds of thousands of claims, sorting through that to figure out which one of these have I got to put my absolute top people on is damn near impossible, and it's that one that blows up. So the more we can, it's coming in, the more we can say, whoa, whoa, whoa, flag this, and it could be, it could be, tear it, sort this out, pull it off the conveyor belt and manage it. We're getting better and better at saying to people, if you want to have an improvement in your outcomes, that's how to measure Gallagher-Bassett, and we're getting better at proving that.
That's very helpful. I really appreciate it. And then second question, Doug, I'm looking at the updated organic growth by line of business. This is a tremendous table. I'm trying to understand the seasonality and specialty in U.S. wholesale where you can get first half of the year.
You broke up on us right when you asked the question.
I'm sorry. Am I coming through now? I'm trying to understand the seasonality in the specialty U.S. wholesale line because you've got the first half of the year at 4%, and you're still anticipating 6% for the full year. I didn't think that there was that much seasonality in quarterly production.
Well, that line, when we get into seasonality, that benefits tend to have its business, and then you get into some of our...
So it's a third quarter issue more than a fourth quarter.
Well, in the fourth quarter, all of a sudden, you start getting into complex placements that are going to, that, you know, you have a pretty good opportunity.
Okay, perfect. Thank you so much.
Operator
Thank you. Our next questions come from the line of Andrew Klaigerman with TD Cowan. Please proceed with your questions.
Great, thank you. Maybe just staying with that wholesale question with the guidance at 6%, could you talk a little bit about, And I think in your prepared remarks, you talked about the stability, even where property pricing is under pressure, you know, you're still seeing stable flows. So the part A of it is, are you seeing the flow of business kind of very stable from E&S to admitted? It's just not moving that much. It's just a pricing situation. And then with that 6% guidance, do you see that number kind of – we'll stay with the first part, and I'll come back to the 6%.
The E&S market is not the market of last, and I think it provides a really good niche. It is a buy.
Got it. And then just tying that to Assured Partners, because I think if Assured Partners wholesaling was going elsewhere, if it comes into A.J. Gallagher, that's considered organic growth. And if so, is that having a material impact on that six points of guidance? Any numbers you could put around that?
I'll let Doug talk about the numbers, but Andrew, I'll tell you that the consolidation of that wholesale work, which was, you're correct, spread between dozens if not hundreds of wholesalers, is going extremely well. AP was already about trying to figure out how to consolidate wholesale relationships. As you know, we own RPS, and RPS has become – it's been a very good working relationship that's grown between the two. Now, we were trading with them before, but we're seeing some very nice synergies there.
Yeah, New Miracle, it's not moving the needle for overall, Gallagher, but it is meaningful. Remember, our retail producers understand it needs to go to the place that's better, that ARPs do provide a better solution for the client. But that's not a one-year sale. It takes time. So it's not meaningfully moving it right now. But I think if we look back in three years, there's probably $100 million of opportunity that's going to cut together.
Got it. And if I could just sneak one last one on the risk management, I mean, just such awesome numbers, 10% and 12% organic in the last two quarters. Could you size the universe out there or the market that's available to you to continue this kind of awesome growth?
Yeah, let's figure this one out, Andrew. $7 trillion of premium in the global market. Trillion is non-life, non-health. So let's call it PC. I don't know what the personal line number would be.
Speaker 6
About 65% of that turns into a claim every day.
I think we've got plenty of market. Here, about 60% of that trillions turns into a claim.
It is. It is a huge market with great opportunity. And it's a market, a deep, deep version in California.
No problem. I'm licensed in both. Not going to work.
Sounds like you'll make a dent.
Operator
Thank you. Our final questions will come from the line of Mike Zaremsky with BMO Capital Markets. Please proceed with your questions.
Great. Just a quick numbers follow-up for Doug. On the 10% cash tax rate, as we think about modeling cash flow in outer years, Or should we be just glide-patching that up to the gap tax rate over time, or is it more of like a cliff in outer years?
We're darn good at those. These are government-permany years left, but we do have other projects that we're looking at that continue to generate 100 or 200 million. We'll see what happens to the laws, but I think that's in globally also. Thank you.
Again, all of you for joining us this afternoon. We delivered another excellent quarter and continue to execute against the same strategy that has guided Gallagher for decades. We have strong organic growth, a powerful active M&A strategy, successful integration across our recent acquisition. There are more than 73,000 colleagues around the world. Thank you. Your talent, dedication, and commitment to clients are what makes this company great, and that is the Gallagher way. Thank all of you for being with us, and have a nice evening.
Operator
Thank you. This does conclude today's conference call. You may disconnect your lines at this time.
