The operator introduces the conference call for Arthur J. Gallagher & Co's Second Quarter 2024 Earnings. The call is being recorded and participants are on listen-only mode. The company does not assume any obligation to update forward-looking statements. The Chairman and CEO, J. Patrick Gallagher, Jr., along with other members of the management team and division heads, discuss the company's excellent second quarter results, including 14% revenue growth and 7.7% organic growth. They also completed 12 new mergers totaling $72 million in estimated annualized revenue.

In the second quarter, the company saw a 35 basis point increase in net earnings margin and a 102 basis point increase in adjusted EBITDAC margin. GAAP earnings per share were up 15% year-over-year, while adjusted earnings per share were up 19%. The Brokerage segment reported a 14% revenue growth, with organic growth of 7.7% at the midpoint of guidance. In the PC retail operations, the US and Canada saw 6% growth, while the UK, Australia, and New Zealand saw 7% growth. The global employee benefit brokerage and consulting business had organic growth of 3%, and the reinsurance, wholesale, and specialty businesses had organic growth of 12%. The primary insurance marketplace saw a 5% increase in renewal premiums, with increases across all major geographies and most product lines.

The reinsurance market is seeing modest price declines due to increased capacity, but demand and exposure growth are keeping premiums flat. U.S. Casualty renewals are seeing tighter terms and conditions and some price increases as reinsurers carefully scrutinize submissions. Insurance and reinsurance carriers are behaving rationally and raising rates where needed. Property renewals are moderating, especially for larger accounts, while small and mid-sized clients are seeing increases of 7%. Casualty classes are seeing the greatest increases, particularly in umbrella and commercial auto, due to concerns about social inflation, medical expenses, and reserve issues.

Renewal premium increases are a rational response from carriers in the current insurance market, but our clients have experienced multiple years of increased costs. As a trusted adviser, Gallagher helps businesses navigate the market and find the best coverage while mitigating price increases. Overall, business activity remains solid and demand for our services is strong. We continue to win market share due to our superior value proposition, niche expertise, and outstanding service. In the Risk Management segment, revenue growth was 13%, driven by new business wins and higher customer activity. Adjusted EBITDAC margins were in line with expectations and we continue to benefit from outstanding retention and increases in new claims.

The company expects to see organic growth of 7% and margins of 20.5% in the next two quarters, leading to an outstanding year in 2024. They completed 12 new mergers in the second quarter and have a strong pipeline for future mergers. The company emphasizes the importance of their unique culture, the Gallagher Way, and how it has contributed to their success over the past 40 years. The speaker then hands over to Doug, who will provide updates on the company's earnings and organic growth and margins for the second half of the year.

The CFO discussed the company's performance in the Brokerage segment in the second quarter, noting organic growth of 7.7% in line with their forecast. They also mentioned a few large sales that were shifted to later in the year, as well as a small headwind from contingents. The company has made investments in people, sales tools, and data and analytics, which have led to strong new business production and favorable client retention. The insurance market conditions also remain supportive of growth, with renewal premium changes expected to be in the mid single-digit range for the second half of the year. The company maintains its outlook for 7-9% organic growth in the Brokerage segment for the full year.

The company's second quarter adjusted EBITDAC margin was 33.1%, an increase of 98 basis points over last year. This was due to a combination of organic growth, interest, and M&A activity. The Risk Management segment also had a strong quarter, with organic growth of 7.7% and margins at 20.6%. Looking ahead, the company expects similar performance in the third and fourth quarters, with organic growth of around 7% and margins around 20.5%. The corporate segment also had a solid quarter, with strong new business, retention, and claim count. Overall, the company is on track to achieve organic growth of 9% and margins of approximately 20.5% for the full year.

The adjusted second quarter numbers were slightly better than expected, mainly due to favorable tax items in the corporate expense line. The CFO also provided updates on foreign exchange impacts, amortization expenses for the Brokerage and Risk Management segments, and tax credit carryforwards. He also mentioned that the company received updated M&A valuation estimates and made some balance sheet adjustments, which may cause some noise in the reported GAAP results. The CFO also stated that the company expects a lower level of depreciation and amortization going forward.

The article discusses the breakdown of different components of investment income, premium finance revenues, book gains, and equity investments in third-party brokers. These items are not included in the organic growth computations presented in the earnings release. The company is still expecting two 25 basis point rate cuts in the second half of 2024 and has updated its estimates for current FX rates. The rollover revenue table shows $128 million and $142 million before divestitures, with the latter being better than the previous outlook due to strong performance from recent acquisitions. Cash and capital management are strong, with available cash of almost $700 million and the ability to fund $3.5 billion in M&A opportunities in 2024 and $4 billion in 2025 while maintaining an investment-grade debt rating. The company may also consider share repurchases if it does not use all of its funding for M&A. The company had an excellent quarter and first half of the year.

The company is expecting strong organic growth in the future due to new business wins, a growing M&A pipeline, and opportunities for productivity improvements. The CEO believes they are well positioned to have another successful year. During the question and answer session, it was revealed that the wholesale organic growth in the quarter was higher than expected, and the company is still expecting similar organic growth for next year. The margin expansion for next year is expected to follow a similar trend as this year's, without the impact of currency exchange and M&A activity.

The speaker, Douglas Howell, believes that next year's financial results will be similar to this year's, but there are some unknown factors that could impact it. They will work on margin expansion during budget season and may consider buybacks depending on their M&A spending and other financial commitments. There is currently upward pressure on M&A opportunities and the upcoming election could affect the timing of potential deals.

There is uncertainty surrounding M&A flow due to the presidential election, but the company is confident in their ability to use it to their advantage. If not, they will consider share repurchases. The pricing environment has seen a deceleration in renewal premium changes, which is affected by buyers opting in and out of coverages. This impacts the organic growth of the company, as well as the dynamic between large and small accounts.

The speakers discuss the behavior of customers in the market and how it affects their buying decisions. They also mention their job as brokers to mitigate market changes and work with clients to find solutions. They emphasize their success in serving clients and the flexibility they have in managing rates and exposure.

The speaker discusses the importance of insurance and risk management, emphasizing the need for individualized approaches rather than prescriptive ones. They also mention the increasing demand for reinsurance due to factors such as inflation and the risk of large jury awards.

The speaker discusses the increase in demand for seaside properties and then addresses a question about net new business wins. He explains that the spread between new and lost business has expanded by a full point in June year-to-date, and that non-recurring revenues are now in line with recurring business. He also mentions that the team will perform better in a stable rate environment and highlights their digital, data, and analytics expertise.

The speaker discusses the potential benefits of utilizing their reinsurance and wholesale partners at the point of sale, which could lead to increased new business and reduced losses. They also mention the success of their offshore centers of excellence and the potential for further opportunities in offshoring to drive margin improvement.

The speaker discusses the benefits of Gallagher's centers of excellence and how they are a unique product offering. They mention that these centers are an integral part of the team and will continue to grow as the company expands. The speaker also highlights the advantages of having a standardized and consistent operation, which will allow for the deployment of AI technology. They mention that the centers will be a differentiator for sales and service and that a majority of their global finance team is already operating out of these centers.

The speaker is discussing a potential share repurchase and mentions that the company has not been active in share repurchase since around 2007 or 2008. The next question is about a recent acceleration in July RPC and the speaker explains that it was seen in both property and casualty rates, with property comprising a larger portion of the business in the second quarter. The speaker expects casualty rates to continue to advance in the second half of the year.

The speaker is discussing a line in a press release about the adjusted comp ratio and mentions savings related to headcount controls. They clarify that this is not a systemic change, but rather a reflection of hiring back to the appropriate capacity. They also mention being cautious about casualty reserves and potential impacts on contingents.

Gallagher's risk management business has seen strong growth in recent years, with 2021 posting 12%, 2022 at 13%, and 2023 at 16%. This year, they are expecting 9% growth, but they have had some large wins that will not be reflected until mid-2023. However, they are seeing more opportunities in the $2 million to $10 million range and carriers are beginning to understand the value of their customizable solutions and better outcomes. Overall, they have paid over $12 billion in claims and are one of the top tiers in the U.S. in terms of claims paid.

The expertise of customizable services is becoming more well-known in the industry, leading to an increase in business opportunities. While there may be fewer major successes, there are more consistent smaller wins. The open brokerage segment is experiencing strong growth, while the binding and programs segment is seeing low to mid-single digit growth. The company is seeing an increase in submission counts, retention rates, and new business, indicating a shift towards excess and surplus as the preferred option.

The company's net new business has increased by one point in June year-to-date due to factors such as public entity clients expanding their coverage and facing renewal reductions. The revenue indications from audit endorsements and cancellations remain positive, with a similar rate of change compared to last year's second quarter.

The company's integrated approach, which combines multiple businesses and leverages programs, reinsurance, and Gallagher Bassett, has been successful in creating introductions and partnerships with carriers. The company regularly meets with insurance companies to discuss their broad relationship, including reinsurance, benefits, service, and property casualty production and marketing.

The company is doing well with its reinsurance and claims programs, and is looking at ways to improve its use of these programs by retailers. They have a large number of programs and are not simply taking all accounts to the market. The company is not currently planning on pursuing new tax credit projects, as they have enough credits for the next few years. The team is working on potential projects, but there is no rush as the market for tax credits is expected to grow in the future and insurance can now be obtained for them.

The speaker discusses a recent change in the law that will benefit their company in the future without requiring a large investment. They also mention the potential impact of interest rate cuts on their competitive edge and provide an update on private equity interest in the market. They express concern about the less transparent equity structures used by PE firms to buy family-owned brokers and note that sellers are becoming more aware of this issue. They also mention the high number of buyers in the market and the presence of private equity interest.

The speaker believes that the multiples have increased in the real estate market and that the transaction count has decreased. They also mention that sellers are becoming more discerning and that some roll-up companies are struggling to go public. The speaker also discusses their company's approach to acquisitions, which includes giving employees the opportunity to participate in equity and mentioning their employee stock purchase plan and LTIP program. Finally, the speaker mentions that the risk management guidance for the year is now around 9%, with a difference of a couple million dollars between the previous guidance of 9-11%.

The speaker states that the company has not made $5 million and that their insight for the rest of the year suggests their projected range will be towards the lower end. They also mention that the brokerage organic growth guide may be narrowed to 7.5% to 8.5% at the Investor Day, but they are still considering a wider range of 7% to 9%. The speaker emphasizes that anywhere in that range would be a terrific year. The company has very small exposure to contingent commissions during hurricane season. They also mention that most of their hurricane-exposed business is in the excess and surplus markets, which are not subject to contingents. The speaker briefly discusses the company's appetite for acquisitions in personal lines, specifically within high net worth and beyond.

In this paragraph, Douglas Howell and J. Patrick Gallagher discuss their company's focus on being an adviser rather than just a pure auto writer. They mention their success in the high net worth market and their excitement for future opportunities. They also express gratitude to their colleagues and optimism for the company's future.

The operator announces the end of the conference call and instructs participants to disconnect their lines.

This summary was generated with AI and may contain some inaccuracies.