NYSE:AJG Arthur J. Gallagher & Co. Q2 2023 Earnings Report $331.96 +0.17 (+0.05%) Closing price 04/24/2025 03:59 PM EasternExtended Trading$328.00 -3.96 (-1.19%) As of 08:02 AM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Arthur J. Gallagher & Co. EPS ResultsActual EPS$1.90Consensus EPS $1.86Beat/MissBeat by +$0.04One Year Ago EPS$1.70Arthur J. Gallagher & Co. Revenue ResultsActual Revenue$2.44 billionExpected Revenue$2.36 billionBeat/MissBeat by +$81.13 millionYoY Revenue Growth+19.50%Arthur J. Gallagher & Co. Announcement DetailsQuarterQ2 2023Date7/27/2023TimeAfter Market ClosesConference Call DateThursday, July 27, 2023Conference Call Time5:15PM ETUpcoming EarningsArthur J. Gallagher & Co.'s Q1 2025 earnings is scheduled for Thursday, May 1, 2025, with a conference call scheduled at 5:30 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Arthur J. Gallagher & Co. Q2 2023 Earnings Call TranscriptProvided by QuartrJuly 27, 2023 ShareLink copied to clipboard.There are 12 speakers on the call. Operator00:00:00Afternoon, and welcome to Arthur J. Gallagher and Company's Second Quarter 2023 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. Operator00:00:15If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward looking statements within the meaning of the securities laws. The company does not assume any obligation to update information or forward looking statements provided on this call. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the information concerning forward looking statements and risk factors sections contained in the company's most recent 10 ks, 10 Q and 8 ks filings for more details on such risks and uncertainties. Operator00:00:58In 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, President and CEO of Arthur J. Gallagher and Company. Mr. Operator00:01:21Gallagher, you may begin. Speaker 100:01:23Thank you very much. Good afternoon, everyone. Thank you for joining us for our Q2 'twenty three earnings call. On the call with me today is Doug Howell, our CFO As well as the heads of our operating divisions. We had a fantastic second quarter. Speaker 100:01:38For our combined Brokerage and Risk Management segments, we posted 20% revenue growth, 10.8 percent organic growth. And recall, we don't include interest income in our organic. If we did, our headline number would be 13.4% and over 14% if you levelize for last year's large life product sale. GAAP earnings per share of $1.48 adjusted earnings per share of $2.28 up 21% year over year Reported net earnings margin of 13.6 percent, adjusted EBITDAAC margin of 30 point 4%, up 52 basis points. We also completed 15 mergers totaling $349,000,000 of estimated annualized revenue. Speaker 100:02:28We had a terrific month to finish the quarter that fueled the upside versus our June IR debut. I could not be more pleased with our 2nd quarter performance and how our teams all around the globe continue to deliver incredible value for our clients. On a segment basis, let me give you some more detail on our 2nd quarter performance starting with our brokerage segment. Reported revenue growth was 20%. Organic was 9.7% or 12.3% if we include interest income and about 13% when levelizing for the large life product sale. Speaker 100:03:07Acquisition rollover revenues were $151,000,000 Adjusted EBITDA growth was 23% and we posted adjusted EBITDA margin expansion of about 50 basis points. Let me walk you around the world and provide some more detailed commentary on our brokerage organic. Again, Following figures do not include interest income. Starting with our retail brokerage operations. Our U. Speaker 100:03:35S. PC business posted 18% organic. New business production was up year over year, while retention was similar to last year's Q2. Our U. K. Speaker 100:03:45PC business posted 11% organic due to strong new business production. Canada was up 6% organically, Reflecting solid new business, similar retention versus last year and continued but somewhat more modest renewal premium increases. Rounding out the retail PC business, our combined operations in Australia and New Zealand posted more than 10% organic. Core new business wins were excellent and renewal premium increases were ahead of Q2 2022 levels. Our global employee benefit brokerage and consulting business posted organic of about 2%. Speaker 100:04:21That includes a 3 point headwind from last year's life product sale. Excluding the tough compare, organic would have been about 5% with core health and welfare up low single digits and many of our Consulting practice groups showed continued strength. Shifting to our reinsurance, wholesale and specialty businesses. Gallagher Re posted 11% organic, another outstanding quarter by the team, building upon their excellent first quarter results. Risk placement services, our U. Speaker 100:04:51S. Wholesale operations posted organic of 10%. This includes 19% growth in open brokerage and about 6% organic in our MGA Programs and Binding Businesses. And finally, U. K. Speaker 100:05:04Specialty posted organic of 19%, benefiting from excellent new business production and fantastic retention and a firm rate environment. Next, let me provide some thoughts on the PC insurance pricing environment, starting with the primary insurance market. Global 2nd quarter renewal premiums, which include both rate and exposure changes, were up 12%. That's ahead of the 8 10% renewal premium change we were reporting throughout 2022 and the Q1 of 2023. Renewal premium increases remain broad based and are up across all of our major geographies. Speaker 100:05:40We're also seeing increases across most product lines. Property is up more than 20%, General liability is up about 8%, workers' comp is up about 3%, umbrella and package are up about 11%, and most lines are trending similar or higher relative to previous quarters with 2 exceptions. 1st is public company D and O where renewal premiums are lower last year and second cyber, which is flat to down slightly year over year. But to put this all in perspective, These two lines combined represent around 5% of our year to date brokerage revenues and thus don't have much of an impact. So I believe the market continues to be rational, still pushing for rate where it's needed to generate an acceptable underwriting profit. Speaker 100:06:27Remember though, Our job as brokers is to help our clients find the best coverage while mitigating price increases to ensure their risk management programs fit their budgets. So not all these renewal premium increases show up in our organic. Shifting to the reinsurance market. Overall, the June July reinsurance renewals resulted in similar outcomes to what we saw during January renewals with most global reinsurance lines continuing to harden. Property continues to experience the most hardening, especially cat exposed treaties. Speaker 100:07:00Within the U. S, Florida property cat renewals More orderly than January due to an early start and well defined reinsurer appetites. Regardless, price increases were in the 25% to 40% range, causing many seasons to increase their retentions. While property capacity isn't abundant, we ultimately were able to place risk for most all of our seasons. As for casualty reinsurance renewals, the 2nd quarter showed more stable supply versus demand dynamics, resulting in price increases based on Product or risk specific factors. Speaker 100:07:34Looking forward, carriers are likely to continue their cautious underwriting posture Given the frequency and severity of weather events, replacement cost increases and social inflation, all of which Can impact current and prior accident year profitability. Add to that rising insurance costs and it's easy to make the case for pricing increases on most lines to continue here in 2023 and perhaps throughout 2024. Despite these and other inflationary cost pressures, Our customers' business activity remains strong. During the Q2, our daily indications of client business showed positive endorsements and audits. These positive policy adjustments have continued thus far in July. Speaker 100:08:18At the same time, labor market imbalances remain. Recent data shows the U. S. Unemployment rate declining, continued growth in non farm payrolls and a very wide gap between the amount of job openings and the number of people unemployed and looking for work and medical cost trends are on the rise. We anticipate these Cost to accelerate into 24 due to increased cost of services, more frequent high dollar claims and the impact of new therapies in specialty medications. Speaker 100:08:48So I see demand for our HR consulting and other benefits offerings remaining strong. So when I bring this all together, as we sit here today, we are more confident with full year brokerage organic in the 8% to 9% range It was an excellent second quarter in the books, more towards the upper end of that range. Posting that would be another fantastic year. Moving on to mergers and acquisitions. We had a very active second quarter. Speaker 100:09:17In addition to the Buck acquisition, which I will discuss in a moment, We completed 14 new tuck in brokerage mergers. Combined, these 15 mergers represent about 3 $49,000,000 of estimated annualized revenues. I'd like to thank all of our new partners for joining us and extend a very warm welcome to our growing Gallagher family of Professionals, moving to the Buck merger, which was completed in early April. Our integration efforts have begun and the combined business is off to a great start. While it's still early, I'm extremely pleased with how the teams are working together and excited about our combined prospects. Speaker 100:09:56Looking ahead, we have a very strong merger pipeline, including nearly 55 term sheets signed or being prepared, representing more than 7 $100,000,000 of annualized revenue. We know that not all of these will ultimately close, but we believe we will get our fair share. Moving on to our Risk Management segment, Gallagher Bassett. 2nd quarter organic growth was 18.1 Ahead of our expectations due to rising claim counts and continued growth from recent new business wins. These wins have been broad based and across all of various client segments, including large corporate enterprises, public entities, insurance carriers and captives. Speaker 100:10:40Growth in each of our client verticals is great affirmation in our ability to tailor our client offerings, utilize Industry leading technology and ultimately deliver superior outcomes for clients across the globe. 2nd quarter adjusted EBITDAC margin of 19.4% was very strong and at that the upper end of our June expectation. Looking forward, we see full year 'twenty two organic around 13% and adjusted EBITDAC margins pushing 20%. That would be another outstanding year. And I'll conclude with some comments regarding our Bedrock culture. Speaker 100:11:19This past quarter, I was on the road for a month visiting employees around the globe, traveling to New Zealand, Ireland, the UK and the Czech Republic. And I can say that our culture is thriving, which makes me incredibly proud. Some of those conversations included the more 500 young people in our 58 class of the Gallagher Summer Internship. This rigorous 2 month program is an essential investment in our future, ensuring our unique culture remains strong for years to come. As we continue welcoming new colleagues and merger partners into the Gallagher fold, I'm confident that each new addition will uphold the expertise, excellence and ethical conduct that make Gallagher the name so trusted worldwide And that is the Gallagher Way. Speaker 100:12:07All right, I'll stop now and turn it Speaker 200:12:08over to Doug. Doug? Thanks, Pat, and Hello, everyone. What a terrific quarter on all measures. Today, I'll walk through organic and margins by segment, including how we see the remainder of the year playing out. Speaker 200:12:21Then I'll provide some comments on our typical modeling helpers using the CFO commentary document that we post on our website, and I'll conclude my prepared remarks with a few comments on cash, Okay. Let's flip to Page 3 of the earnings release. Organic of 9.7%, that'd be 12.3% if we include interest income and a little over 13% when further levelizing For last year's large live product sale. That's a bit better than what we forecasted at our IR Day in June due to a fantastic Finished of the quarter across all of our divisions, especially U. S. Speaker 200:12:59Retail and London Specialty. You'll also see that contingents were up more than 20% organically. Probably a better way to look at it is in combination with supplementals because contracts can flip from time to time. Together up 12% is much more in line with our base commission and fee organic growth. So no matter which way you look at it, a fantastic organic growth quarter Looking forward, we see headline brokerage organic around 9% for 3rd quarter and about 8% for 4th quarter. Speaker 200:13:33It's important to recall that 4th quarter will have a tough compare because in Q4 'twenty two, We booked a change in estimate related to our 606 deferred revenue accounting. Controlling for that, Q4 'twenty three organic would be towards 9%. We highlighted this matter last year and again at our June IR Day, There's nothing new here. It's just a reminder as you update your models. With all that said, we remain bullish on our organic prospects for the second half. Speaker 200:14:05Accordingly, we now believe full year brokerage organic is looking like at the higher end of that 8% to 9% range. Again, these percentages do not include interest income. Flipping to Page 5 of the earnings release to the brokerage segment adjusted EBITDAX table. We posted adjusted EBITDAX margin of 32.1% expectation of expanding 10 basis points mostly due to the incremental organic growth. Looking at it like a bridge from Q2 2022, Organic gave us 100 basis points of expansion. Speaker 200:14:46Incremental interest income gave us 90 basis points of margin expansion. The impact roll in of M and A, which is mostly BUC, uses about 80 basis points. And then we also made Some incremental technology investments called out around $7,000,000 and some continued inflation on T and E called out about $5,000,000 which in total used about 60 basis points. Follow that bridge and the math gets you close to that 50 basis points of FX adjusted expansion in the quarter. As for our margin outlook, we expect about 40 to 50 basis points of expansion for each of the next two quarters. Speaker 200:15:23So for the year, We are a bit more optimistic in our April June views and now see full year margin expansion of 30 to 40 basis points That would be 70 to 90 basis points levelizing for the roll in impact of BUC. Again, both those percentages We talked about that during our June IR Day when we provided a vignette on how to model margins. Let me give you 2022 margins recomputed at current FX levels for your starting point. In Q3 2022, EBITDAX margins would have been around 31.7% versus the 32.3 Percent we reported. And as for Q4 2022, not nearly as much impact, call it around 31.3%. Speaker 200:16:15So now if you move to the Risk Management segment and the organic table at the bottom of Page 5 of the earnings release. Also, I had an excellent finish to the 2nd quarter, 18.1 percent organic growth. As Pat Mentioned, we continue to benefit from new business wins for the second half of twenty twenty two. Looking forward, we see organic The 3rd quarter around 14% and 4th quarter about 10%, which reflects the lapping of last year's larger new business wins. As for margins, when you flip to Page 6, and the adjusted margin EBITDA table, Risk Management posted 19.4%. Speaker 200:16:56That was on the upper end of our 19% to 19.5% June expectation. Looking forward, we see margins above 19.5% in each of the last two quarters of 23%. So Full year double digit organic and margins approaching 20%. That would lead to a record year for Gallagher Bassett. Now let's turn to Page 7 of the earnings release and the corporate segment shortcut table. Speaker 200:17:22In total, adjusted second quarter came and right at the midpoint of the range we provided during our June IR Day, even though we did experience a further $5,000,000 of FX related remeasurement Headwinds that cost us a couple of pennies in the quarter. Moving now let's move to the CFO commentary document. On Page 3, you'll see most of the second quarter results were in line with our June commentary. And looking ahead, you'll see that we've our outlook to reflect current FX rates and provide our usual modeling helpers for the second half of the year. Moving to Page 4 of the CFO commentary document and our corporate segment outlook for the second half. Speaker 200:18:03The punch line here is not much change Other than a modest week to corporate expense and interest in banking costs as we've assumed a slightly higher balance on our credit line given our robust M and A activity. Then on Page 5 of the CFO commentary, that shows our tax credit carry forwards. As of June 30, we have about $700,000,000 which Will be used over the next few years and that sweetens our cash flow and helps us fund the future M and A. Shifting to rollover M and A revenues on Page 6 of The CFO commentary document, dollars 151,000,000 in the quarter with Buck contributing nearly half of that. Remember, Numbers in this table only include estimates for M and A closed through yesterday. Speaker 200:18:45So you need to make a pick for future M and A and you should also increase interest expense if you assume We borrow for a portion of the purchase price. One other call out and that's back at the bottom of Page 3 of the earnings release. We did use a higher than normal amount of stock for tax free exchange mergers this quarter. That can be a little lumpy, but we do like doing them. It's attractive to the sellers that are looking to defer the full tax consequence of selling their firm, and it's also attractive to us because it fully aligns our new partners with our long term shareholders. Speaker 200:19:18As for future M and A, we remain very well positioned. At June 30, available cash on hand was more than $400,000,000 Our cash flows are strongest in the second half of the year and we have room for incremental borrowing all the while maintaining our strong investment grade ratings. We continue to see our full year 2023 M and A capacity upwards of $3,000,000,000 and another $3,000,000,000 or more in 2024 without using Any Equity. So another outstanding quarter by the team. From my position as CFO sitting halfway through the year, our full year 23 outlook on all measures continues to improve, better organic, better margins and a more robust M and A pipeline. Speaker 200:20:00Bottom line, we're in a great spot to deliver another record year of financial performance. Okay, back to you, Pat. Speaker 100:20:07Thanks, Doug. Operator, let's go ahead and open up for questions. Operator00:20:12Thank you. The call is now open for questions. Our first question is coming from the line of Weston Bloor with UBS. Please proceed with your questions. Speaker 300:20:40Hi, good evening. My first question, really good strong organic growth within brokerage and around 200 basis points above what You had said, I guess about a month ago. I was curious if you could expand on maybe what lines of businesses or geographies or Maybe was it supplementals or contingents that drove that outperformance? I'm curious what we can extrapolate for the back half of the year or what is more in nature? Speaker 200:21:07Yes. I think extrapolating to the back half of the year, we feel that our look towards 9% and then 8% adjusted to 9% for the second Two quarters is probably the best way to look at what we think for the rest of the year. The upside was due to U. S. And also U. Speaker 200:21:21K. Specialty. They just had a terrific end of June. So But we're seeing it across the globe. There is a noticeable uptick here in June of success on our sales And our retentions are good and there's some positive rate movement in those numbers too. Speaker 100:21:38Also, I would say, it's Clients are getting pretty darn weary of a hard market and they're looking for good advice. And where we're finding great strong growth is in property casualty, the basic blocking and tackling Workers' comp areas that in the United States at least, we stand an opportunity to stand really head and shoulders above our competition, especially the little guys. Speaker 300:22:00Great. Thanks. And second question on M and A. I believe you said 55 term sheets for $700,000,000 in revenue. If I I go back through my model. Speaker 300:22:08I believe that 700 is the highest I've seen maybe away from Gallagher Re. Yes. So could you maybe just expand Any shift in your M and A strategy or any like larger deals in the pipeline? Or could you maybe just expand on what you're seeing in the market more broadly as well? Speaker 400:22:24No, I Speaker 100:22:25think that what we're seeing is, 1st of all, remember, we talk about this quite often. We don't have one individual out prospecting. We've got Dozens and dozens of people that have now done deals in our company. They're out constantly talking to our competitors. The more deals we do, the more friends they have in the industry that they're telling it's working well, and they're pleased to be with us. Speaker 100:22:47And I think it's just a matter of straight up blocking and tackling when it comes to the typical making cold calls, talking to people, Renewing relationships we've had for years and people getting to a point where they're possibly ready to sell. Speaker 500:23:02Yes, I think Speaker 200:23:03they see our capabilities and I think some of the appeal of maybe selling to a PE firm, there's some concern about that given the increase in interest rates and the borrowing costs. There's been some stress on that side of the industry. And so we're seeing that folks are really more interested in being with Strategic now than trying to sell into a PE roll up. Speaker 300:23:25Got it. Thanks. Yes, it was double digit, I think $1,000,000 in revenue I got a little excited there. Operator00:23:33Me too. Speaker 300:23:35And then last one, just on fiduciary, you'd highlight around 90 bps Benefit in the quarter, is that roughly what you have baked into the back half of the year when we think about your guidance? Speaker 200:23:45Yes. I think that I think the biggest jump is here in Q2. I think in the second half of the year, you might see something like 70 basis points In the Q3 and it will give us maybe only 50 basis points of margin expansion in the Q4 just because rates have been popping up. Speaker 300:24:03Great. Thank you. Speaker 100:24:04Thanks, Weston. Operator00:24:07The next question comes from the line of Elyse Greenspan with Wells Fargo. Please proceed with your question. Speaker 600:24:12Hi, thanks. Good evening. My first question, Pat, I know when asked, you're typically willing to provide A little bit of an outlook on how you're seeing things more than just the current year. So based on how you think about things right now, how do you think From a thinking of the brokerage business from an organic growth perspective, how do you think 2024 is shaping up? Speaker 100:24:39Elyse, I think it's going to look a lot like 2023. I'm not seeing any hesitation of underwriters asking for rate. I do think the cycles have shifted. When you see cyber and D and O coming down, they probably are coming down and that's reasonable. Property through the roof is reasonable. Speaker 100:25:00What we're seeing in inflation in terms of lawsuit, Social inflation is what they're searching for. It's very, very troubling. And then you add inflation. We've been talking about inflation on this call now for over a year. And you look back in the reserves and inflation really it tips those into a very difficult spot And you're not going to get those healthy in 1 year. Speaker 100:25:25So I feel very strong about and I'll tell you, our insurance companies are very our partners are very smart about their numbers. They know where they're making money, where they're not making money, and they're telling us what they need. So I don't see people backing off on that. No one's walking in saying the gates are wide open. Let's just get Volume, it's a reasonable market that you can get deals done at a reasonable price. Speaker 100:25:49Our clients actually Understand inflation, they're living with it across the board. And inflation is good for a broker, honestly. So I think next year looks very, very strong. Speaker 600:26:01And then, Doug, I know, the bar was a little bit higher for the level of margin improvement this year. If 24, it looks like 23 from an organic revenue growth perspective. Would we see more margin improvement next year at the same level of organic that we saw this year? Speaker 200:26:19Well, I guess my reaction to that is going back to I think that you'd see some margin expansion at 6%. I don't know if you'd get it necessarily at 4%. I don't I think by the time you got up to 9%, it'd be better than 50 basis points of margin expansion. And we do have one more Quarter of rolling impact of Buck that would the underlying business would be going up, but that business runs a lower margin. So Depending on which question you're asking me, I would think that margin expansion in 2024 can be very similar to what we thought at This year, give us 6 points of organic, there might be 40, 50 basis points, give us 9 points of organic, you might get 75 to 80 out of it. Speaker 600:27:06And then, Pat, when you're talking about price increases, are you making that comment on like a nominal basis? Or Are you expecting that when you think about property casualty pricing, over the balance of this year in 2024 that will continue to exceed loss trend? Speaker 100:27:25Well, I think that's the battle, isn't it, Elyse? I mean, the carriers are very much wanting and telling us they need that. So yes, I think that would be the objective and we're finding that we can get it. So I do think that they're going to look at loss trends and they're going to try to Definitely keep the rate structure moving ahead of that. Speaker 600:27:47And one last one, do you have some initial thoughts on what we could see from We insurance pricing, at January 1, 24? Speaker 100:27:56No. It's too early for me to comment on that, I think we just finished July, not as big a month obviously as January, but interesting that the pricing was still very, very firm. The market after January 1 had a time had a chance to settle down, look at their books, understand January 1 was a nightmare. So as we said in our prepared remarks, July was a little bit more orderly, but still difficult. So give me another quarter on that one. Speaker 600:28:24Thank you. Speaker 100:28:25Thanks, Elyse. Operator00:28:27Our next question comes from the line of Mike Zaremski with BMO Capital Markets. Speaker 700:28:36Investment income, is this the new Run rate was better than expected or should we expect it to take another leg up I guess just of course the company is growing too. Speaker 200:28:52Listen, I think the impact on our numbers, I think that It's actually well, the change in margin from investment income was 90 basis points this quarter. We think it will be about 70 basis points in the 3rd and about 50 basis points of margin expansion in the 4th. So to me, I would say that the actual dollar amounts that you're seeing in The second quarter are not dissimilar to the dollar amounts that you would see in 3rd and 4th quarter. Speaker 700:29:32Okay. And you guys are firing on all cylinders. I'm just trying to poke some holes here. Let's see if I can. Speaker 100:29:38Let's do that, Mike. Operator00:29:40I mean, just realistic. Speaker 700:29:45U. K. Inflation, the stats look like it's high and there's wage pressures and Some at least a slowing GDP outlook. How does your business look there currently? Margins been growing as much there and any comments Speaker 100:30:07on that? Our retail business is on fire, Really on fire. And I give a lot of credit to the team on 2 areas. 1, as you know, we've spent money there in terms of branding. And we did not do that for years when we were putting together our Giles, Oval, Heath, those firms were trading under those names. Speaker 100:30:31We brought those together. We started talking about ourselves as Gallagher in the field. And our rugby partnerships there And the efforts that we spent on branding have paid incredible dividends. And people know who we are now across the entire U. K. Speaker 100:30:51And our people are taking advantage of that. And I just visited in I was in our London offices For a good part of June, I was in Dublin and Belfast, and I can just tell you this. There's a bounce in every retailer step. They're kicking ass, they're having fun and they're taking names and getting more business for next quarter. Speaker 700:31:13Okay. And just because Elyse asked for, I'm going to sneak in a quick one. In terms of the pricing environment Taking a kind of a step up, how much do you think is due to the reinsurance costs trying to be passed through? And it sounds like you don't it sounds like it's not a big deal because you're saying that next year could be similar to this year. So There wouldn't be a step down, but I'm curious if you think some of the momentum coming on the reinsurance side. Speaker 100:31:41Let's be clear. I'm saying that We're being told by our carrier CEOs that they have to cover their increasing cost base. That starts with inflation and their past Reserves and if you plan to rebuild a house for $1,000,000 2 years ago, you're not going to spend $1,000,000 So they are looking at those reserves. Then secondly, they're still in the process of making sure that we get our the values right. These values haven't been touched for a decade. Speaker 100:32:09They haven't needed to be touched. So now you've got a value increase, you've got exposure units growth. Then you add to that the cost of reinsurance, which is clearly a cost. They're not separating it out and telling our retail clients, well, this Part is for reinsurance. They're saying, look, guys, on this line of cover, we need 25 points. Speaker 100:32:30Go get it. And that will hold as long as we have to, in fact, do that to get the deal done. Now remember, We are scouring the mountain for the market for some that will do for 10 because that's our job. But right now, There's no break in that. Operator00:32:50Thank you. Speaker 200:32:53Thanks, Mike. Operator00:32:54Our next questions come from the line of Greg Peters with Raymond James. Please proceed with your questions. Speaker 500:33:00Hey, good afternoon, Pat and Doug. Hey, I wanted to have you for a moment talk about new business Because when you look at the organic results, 10.8%, you look at renewal pricing 12%, Well, you went through a bunch of lines, Pat, where pricing was clearly double digit. And so And you also made this comment about your clients having a budget. Just curious how much of the growth organic is rate Speaker 100:33:43Let Doug talk about the actual numbers because I'm more off the cuff and then I'll come back in on how I see the market shaping up. Go ahead, Doug. Speaker 200:33:51So Greg, our net new business versus loss business is up this year by 2 percentage points Compared to where it was there, rate is then that's the total rate and exposure is up About a point and a half. So you can see here that it's our net Our increased new is actually up more than the impact from rate is up. Speaker 100:34:22I'll add some color to that, Mike. Number 1, we're doing a much better job, I think, than ever of measuring kind of this new business stuff that you're talking about. We know That our average production is actually increasing in the income the commission income we're receiving on new business Has moved up from, Speaker 200:34:45let's call Speaker 100:34:45it, dollars 50,000 $60,000 into closer to $175,000 to $100,000 That's per item So we're actually finding those clients that have for a long time probably been pretty happy with either their local Broker or their relationship with a larger broker given us a chance and we're doing very, very well. We are a new business machine. And when I take a look at the percentage of trailing revenue that we try to accomplish every year in new business, our goal has always been 15% of trailing. We're just about right there. And that's and as our trailing revenue growth Continues, that pushes us in terms of our goals for more new business, and we are right on track with that. Speaker 100:35:34And when you start having 15%, 16%, 13% of trailing and new business, as long as you continue those retention levels, 94, 95, etcetera. You're getting very, very nice upside. Speaker 500:35:52Yes, that's good. Those are good numbers. I think I've opened up a can of worms because we're going to want to start tracking the net new business wins you guys are In your comments, Pat, you also talked about on the theme of poking holes, right? You talked about the employee benefits business Kind of stood out, that and the MGA business being low single digit, mid single digit type of organic. Maybe, I don't want to call that an underperforming, but relative to the group, I guess it kind of is. Speaker 500:36:32So maybe you could Spend a minute and talk about those two businesses because you called them out in your comments. Speaker 200:36:38Well, let's talk about the benefits business for us. It's adjusted for the large live 5%, I think that's pretty in line with maybe what some of the other brokers have talked about in their employee benefit space. So I wouldn't say it's necessarily out of whack compared to what's going on. That business right now doesn't have the loss cost increases that it's going to have. I think there's going to be medical inflation in that coming up. Speaker 200:36:58We work on a See on that a lot, but by and large medical cost inflation does have an impact. When you go back to my early days here in 2000 and 3 through 2,007, you were seeing medical loss inflation cost inflation in the double digits and that business was growing Yes, almost double digits also. So that will have an impact because you can't keep the inflation out of that space for too much longer. So that would happen. On the program business, there's some you just understand how in our case, there's some programs that if there's a change in the state or there's change in the carrier appetite, Sometimes that can cause a little bit of stress in that business, but still being in those single digit organic ranges are still pretty damn good in this environment. Speaker 100:37:38Yes. And let me add to that. Craig, right now, our clients are dealing with wage cost inflation as people say, look, I've got I'm having a hard time buying eggs. And they are not looking to be expanding benefit offerings. In fact, they're doing everything they can to mitigate increased costs and benefits, while at the same time being able to balance what they need to give their people in their regular income, while at the same time maintaining, as you know how difficult this is, They're employee based. Speaker 100:38:07So it is a really tough time and our consultants, our people are doing a great job. Outside of health and welfare, The effort in terms of our consulting business, the orders that are coming through are spectacular. So it's really a balance of all of that. And I agree with Doug. I think that it's a matter of them trying to deal with inflation in the cost of the cover, Inflation in their compensation costs for their people and doing everything, and that's where we make our living is helping to mitigate that. Speaker 100:38:38Plan design change, getting that down. And then lastly, a lot of that, as you know, we do on a fee. So when you're facing Compensation costs, inflation costs in the underlying purchase of health insurance, the last thing you're doing is giving GBS 10% rate increase. I think by I think getting 5 points is pretty damn good. Speaker 500:39:00Fair enough. Just I know you provided some data. It's just a final question. I know you provided some data around Buck and the integration. That's a business that Has had sort of a checkered past of success and maybe some challenges. Speaker 500:39:18Maybe spend a second, This is my last question, talking about the integration and why you think the outlook for that business is strong relative to its history. Speaker 100:39:27I'll tell you what, I am really excited about that business and I'm a quarter in, right? And we had our board meeting yesterday and the team that's involved The integrating and the onboarding, reporting out to our Board as we do on our large deals every quarter. The synergies there, first of all, the management team could not be more excited Be finding a home. They've been traded 5 times, and that's part of what you're talking about, Greg. You wake up and your name is not Changing, but the owners are changing and then you're changing it again. Speaker 100:39:57You don't know who's on first, who's on second. A big part of our effort of onboarding here has been to tell those people, look, You found your last place. Now let's go take care of clients. And there's nothing consultants like to hear more than that. So that has been a big message to them and I spent time with those folks in the U. Speaker 100:40:16K. I've spent time with them here. It's resonating. Our retention of people is Standing and the orders we're getting in 1 quarter are mind boggling. So I'm really Then you add to that, we do think there's some great synergies there and that's not cost takeouts that's cross selling. Speaker 100:40:34We're seeing some of that already And I think it's going to be just fine. And I'm 1 quarter in. Speaker 500:40:44Well, thank you for your answers and the answers make sense. Speaker 100:40:48Thanks, Greg. Operator00:40:51Next question is from the line of David Mogmaden with Evercore ISI. Please proceed with your questions. Speaker 800:40:59Hey, thanks. I just wanted to follow-up just on the Group Benefits organic And just on the deceleration, which still 5% is good, ex the life sale comp, but that was down versus 7 in the Q1, but it does sound like the acceleration is Specked, is that something is it second half expectation or is that something you think will start to move up higher in 2024? Speaker 100:41:33I wouldn't be modeling out, David, a huge acceleration there. I mean, I spent a lot of time with Doug on the street explaining why 3% organic was outstanding Yes, there's no I'm not looking at a business here that is accepting hard rates Given the fact that there's big loss cost trends or reinsurance trends, these are people buying insurance and in many instances is not buying insurance. That's the biggest part of what we do is help people self fund. And that 5% growth is earned with a lot of discussion with a client. It's more akin to what Gallagher Bassett's getting in terms of their renewal increases rather than what you look at on the PC side. Speaker 100:42:18So I'm very happy at 5%. I don't want to give you this idea that you're going to see some acceleration at 12%. That's not happening. Speaker 200:42:26That business also can be heavily 1st quarter weighted, so you get a little bit of that. Not only do you have to recognize the full year of an account that you sell on Health and welfare side, but the consulting in the Q1 tends to be a little heavier or a little you grow a little bit more than If you think about it, most people are oneone type benefit customers. So they're putting the final touches on their business in January And on some of the programs, so we tend to make a little bit more money in the Q1. Speaker 100:42:56Can I answer an underlying question I hear from you, David and the others? Why do we do the Buck deal? It looks like its growth isn't great, doesn't have the margins that a PC broker does. You realize where the pain is for our Clients right now and what we are is pain mitigation people. And sure, it's in property casualty, especially in property. Speaker 100:43:17And we're out there working every day to help them get that down. We're bringing self insurance plans, captive plans, group plans, what we can on the PC side. And every year, year in and out, our clients are dealing with how do we get people, how do we keep them, how do we pay them, And how do we motivate them and at the same time take care of their benefits needs? And to get a firm like Buck on our team, What I absolutely recognize is the best in the business, I mean it puts us over the top in that ability to respond to our clients' Needs across all of what we do for them. And I think 5% is outstanding. Speaker 100:43:52I want to tell the team congratulations. Speaker 800:43:58No, thanks. I appreciate that. That's helpful, Pat. And I guess just maybe just switching gears just on the property casualty rate increases. Yes. Speaker 800:44:12You gave some numbers earlier. I missed some of them. I was hoping you could talk a little bit about what you're seeing specifically on Casualty rates, and it sounds like we're seeing an acceleration there if I just strip out D and O and workers' Comp. But I'm wondering if that is in fact what you guys are seeing and how sustainable you guys think That acceleration is Speaker 100:44:41What I said in my prepared remarks, David, is that general liability is up about 8%. Workers' comp, which as you know has been Flat to down for a number of years is up about 3, and Umbrella and Packager up about 11. So now embedded in each of those lines are different reasons. General liability is social inflation, Probably aging population. Workers' comp is clearly it floats with medical costs It inflows with employment. Speaker 100:45:12Umbrella and Package is probably also looking at social inflation. And Property up 20% is clearly that's about exposure units and the need for rate. Speaker 200:45:26Yes, Dan, when I look at it, you want to break it down general liability and brother, other casualty, call that 8% to 9% is what we're seeing here on Commercial auto is 8.5 or more, and that's U. S. Business that I'm telling you about. So I think in the second quarter, call it 8% to 9% on casualty. Speaker 800:45:49Got it. And those did tick up versus 1Q, it sounds like? Speaker 100:45:56Yes. A little bit. Speaker 200:45:58Especially commercial auto, it's more around 6 and now it's 8.5 now. Speaker 800:46:04Got it. And then could you just level set me, if I think about full year, the business that Gallagher writes in brokerage. How much of that is coming from property at this point? Speaker 100:46:19Property is our largest line. Doug, you have that number? What was the specific question, sorry? How much of our business Property? Speaker 200:46:27About 30% here in the for the full year 2022. That's about 30% of what we write. Speaker 800:46:37Great. Thank Speaker 100:46:38you. Thanks, David. Operator00:46:41Our next question is from the line of Mark Hughes with Truist Securities. Please proceed with your question. Speaker 900:46:47Yes, thanks. Good afternoon. Speaker 200:46:48Hi, Mark. Speaker 900:46:51Pat, you talked about the Medical inflation, you think is going to accelerate, given that the broader measures of medical costs are Pretty calm these days. I wonder what gives you confidence that that's going to happen. Speaker 100:47:08Well, I don't know if I'd say it's confidence, Mark, I'm not so sure that's good news for the society or for our clients, but social inflation, medical malpractice cost cover And any kind of losses in that regard and the cost of employees. And you take hospitals right now, Are working very hard to make sure that their people stay with them. Their turnover rates with the pandemic and the like have increased. Keeping their employees is a big deal and the cost of doing that. Specialty drugs? Speaker 100:47:40And specialty Bill is helping me out here. Specialty drug costs and procedures are up significantly. Speaker 900:47:50Understood. Thank you very much. Speaker 200:47:51Thanks, Mark. Thanks, Mark. Operator00:47:54The next question is from the line of Katy Sakis with Autonomous Research. Please proceed with your question. Speaker 1000:48:01Hi, thanks. Good evening. I wanted to follow-up a little bit on the line of questioning on Buck. And clearly, An acquisition that definitely expands your ability to serve your clients and mix your portfolio. Kind of thinking about What you guys have seen in the Q1 of integration so far, is there any opportunity Tighten up the drag or the impact that Buck has on brokerage margins over the back half of the year. Speaker 1000:48:30Any opportunities you guys are seeing to increase cross sales or maybe find some expense synergies? Or should we kind of Speaker 100:48:42I think it's more 'twenty four. Go ahead, Doug. Speaker 200:48:44Yes, I would say 'twenty four. As 'twenty three, we're still getting Pete Andres, but also I'd like to as a friendly amendment to the statement, so the roll in natural impact of a business that Just it just runs naturally slightly lower margins, call it in the 20s somewhere versus in the 30s, right? So, the drag on us is what you see on the face of it, but they actually have a nice improvement opportunity as we join forces together to get better themselves. That's really what we're looking at. If we can take this business that's in the upper teens and move it into the mid-20s, I think that's a good march for that business. Speaker 200:49:20And I think Pat said it best. They've rolled through 5 different owners. They have spent so much of their time in the last couple of recent roles of becoming a Freestanding independent organization and there's extra cost that goes into that. By being a part of us and us being better together, I think we'll naturally see That natural improvement in their underlying margins. So they should be margin accretive after you get Yes. Speaker 200:49:49As they improve their margins, they will improve our margins once we get through the Q1 of 2024. Speaker 100:49:55Then Katie, to your point about cross selling, Let me be clear, we do see cross selling opportunities PC to Benefits, Benefits to PC for sure. But what we're very excited about Cross selling inside Gallagher Benefits Services. Their strength in the United States is in areas that we're not as Strong. We've always been in defined benefit pension consulting, for instance, but they come with terrific strengths there. And they're not Probably as strong, although they do quite well, but not probably as strong as we've been in health and welfare. Speaker 100:50:27So if you take a look at that, Now you're not trying to talk to a new party at a client. You're already dealing with the person who buys benefits. Let me bring in my partner who does health and welfare. And we're already seeing a lot of that. So I think there is good cross selling. Speaker 100:50:45I think that margin improvement will come and I'm excited about it. Speaker 1000:50:51Thank you so much. And then one more question The outlook for risk management Speaker 200:51:02Congratulations, Katie. Speaker 1000:51:03So sorry. Just one more question on risk management. Doug, your comments seem to imply a little bit of a sequential slowdown in organic on the back half of the year adjusting for Lapping last year's exceptional outperformance. I'm just kind of curious, is there anything you'd call out on that 14% and 10% organic growth guide that might be a slight headwind to growth as the year wraps up. Speaker 200:51:32It's just the nature of this business, if you look at it over the last 20 years is that you can get some pretty large clients that roll in to your business and they don't come as steady as let's say a smaller client smaller clients might do. So if you sell the likes of Large U. S. Corporation X and you sell them in the Q4 last year, you're going to get the benefit in the 4th quarter, 1st, 2nd, 3rd, and then you got to lap yourself in the 4th. So it's more the timing of new business on larger accounts that's causing that. Speaker 200:52:06But if you stack it up 18% this quarter and if you think 14% and 10%, when you get down to the end of the year, you're talking some nice, what is it, 13% organic Growth in that business. And then we do have some nice larger clients on the drawing board right now that we're proposing on. I don't know if they'll hit in the 4th quarter or they'll hit in the second Q3, it takes a year or 2 to sell these larger accounts. So it's just a little bit more naturally lumpy on a quarter by quarter basis. So I would encourage you to look at it on an annual basis. Speaker 200:52:36And if you think about what they did last year and then you're looking at this year at 2013, there's actually a sequential step up on an Speaker 1000:52:45Great. Thanks for your insights. Speaker 200:52:47Thanks, Jamie. Operator00:52:49Our next question comes from the line Meyer Celes with KBW. Please proceed with your questions. Speaker 200:52:58Yes, there Meyer. Speaker 100:53:02Sorry, I Speaker 1100:53:03was on mute. Am I coming through? Speaker 100:53:04Yes, you're coming through now. Speaker 1100:53:07Okay. Yes. Well, I'd probably do better when I'm mute. Same question from 2 perspectives. Are your Clients dealing with affordability issues and I'm asking that in the context of what you said about Pricing legitimately needing to go up and wondering how much of that can client how much more of that can client take? Speaker 1100:53:30And is that going to shift sort of The revenues that you get from commissions as opposed to captive management or something like that? Speaker 100:53:39Yes. And that's one of the things that gets us excited because that's the genesis of our growth. That's what took us to a place where we could get public in 'eighty four. We are the people that help folks deal with untenable situations and turn them basically into risk management approaches, let's call it larger tensions. We do that in a number of ways, whether it's by line, by state, whether it's by putting someone into a self captive, whether it's just Finding them a pool to be part of, that is a real defining aspect of Gallagher's capabilities. Speaker 100:54:15You know that. Speaker 1100:54:15Okay. Yes, I know that conceptually. I'm just trying to adjust the idea of how much more insured and take. I'm just trying to get my head around that, which maybe at odd with what underwriters actually need for rate. Speaker 200:54:32Go ahead. I think you have to look at it this way. What percentage of a customer's budget really is spent on insurance? And let's say some of the averages are 3%, 4%, 5% of what their total budget they're spending on insurance. So This isn't 30% of their cost structure. Speaker 200:54:50So how much more can customers take in terms of this? Our job is to make that as small as possible. Let's never ever forget that. That's what we do day in and day out. But how much more they can they take? Speaker 200:55:01Well, if their loss experience is bad, they're going to have to take some more. Speaker 100:55:04Well, also, if I remember, This is not anti underwriter. Underwriters are happy to have us help clients move away from loss to them. If there's more self assumption and they pick up an excess placement at the right rate, they're happy. It's not like they say, oh my God, you ripped all this premium away from me. They understand the partnership. Speaker 100:55:25So we're counseling on, look, take more rate, make it easier for that carrier To participate in this at the right place on this coverage map and we'll be able to get the limits you want, you got to take more skin in the game, that's all. And that I think is what we do better than anybody. Speaker 1100:55:44Okay. That's tremendously helpful. Same question on the reinsurance side. We've got property rates going up pretty dramatically. Is Gallagher Re telling its property Clients, that they should be buying more reinsurance in 2024 than they did in 2023? Speaker 100:56:01I'll tell you what, what I'm Impressed with our reinsurance people and it's way more sophisticated than I am frankly, but they are the best in the world at capital management with their clients. And this isn't a matter of us going in and talking to the local contractor that doesn't know what I'm going to do with a big time property increase or something like that. These are They see it coming. They know how to balance their portfolio. And really the advice Calgary gives is not Just buy it. Speaker 100:56:33It's all about and again, I mean, this is one of the things that's exciting to me in terms of my learnings with Calgary Is that they are right at the crux of helping these clients manage their capital. Speaker 1100:56:47Okay. And one final question, if I can, just because you talked about medical cost inflation. Is the medical cost inflation that you're anticipating On the, call it, consulting side, is that manifesting itself at all in workers' compensation claims that Gallagher Bassett is processing? Speaker 100:57:03Sure. Yes, absolutely. I mean a big part of workers' comp is medical only. That's escalating every month. It's our job to help mitigate that just like we do on the employee benefit side. Speaker 100:57:19Yes. Use of managed care is very, very important. Yes. Speaker 1100:57:24I'm just wondering. You'll have Speaker 200:57:25greater growth in expert Adjusting in services in Gallagher Bassett as medical cost inflation hits that too. Clients will look to a Gallagher Bassett to help them Reduce their total cost of risk and when medical inflation goes up that they will be clamoring for Gallagher Basset Services. Speaker 100:57:45And that's part of making sure we deliver the best outcomes. Speaker 1100:57:50No, absolutely. I'm just wondering when the workers' compensation Joyride comes to an end. This has been tremendously helpful. Thank you. Speaker 200:57:55Thanks, Meyer. Operator00:57:57Thank you. Our final question is from the line of Michael Ward with Citi. Please proceed with your question. Speaker 400:58:04Hey, guys. Thank you. I was just wondering on the M and A pipeline that you're talking about in the beginning. Is that would you say that's Skewed to P&C or could there be employee benefits in there too? Speaker 100:58:20Oh, there will be both. Yes, we keep a good strong pipeline on both. Now we're not going to have another Buck on that list. I mean Buck was one of the biggest players in that industry. Clearly moves us up in the ranking substantially, but there are plenty of smaller practitioners we'd love to have on board. Speaker 100:58:37Our tuck in acquisition Process has been benefits forever along with P and C, so that's not a new thing and there's lots of activity in that regard. Speaker 200:58:49Yes. I think fundamentally any smaller brokerage business that finds that they need more capabilities, whether it's P and C or benefits, It's the same decision by the owners of those businesses. They just think that they can use join us. Together, we'll be better as we service those clients The capabilities they can get from us, they'll get it from whether it's wholesale, whether it's retail, whether it's benefit, Even in Gallagher Bassett as they have specialty acquisitions there. If it's as the owners, it's the same reason they're selling themselves is because they need capabilities and they think Gallagher is the right place to get those capabilities. Speaker 400:59:31Great. That's helpful. Thank you. And then maybe in terms of internally, In terms of your own wage sort of inflation monitoring, just curious If that has calmed down a little bit as inflation overall has slowed down? Speaker 200:59:49Yes. Here's the thing. We didn't see the great resignation that you've read about in papers we've talked about that quite a bit. We were very fair with our employees on the amount of raised pools that we've given. Those raised pools are larger In 2022 and 2023 than they were in 2018 2019 on a per employee basis. Speaker 201:00:07So we've recognized that there is some cost That our employees have to bear and so we think that the raises we've given them have been very fair and have acknowledged the inflation in the environment. We haven't really sat down to plan for next year yet to see where we'd be in those raised pools, but obviously It would be fair with our folks, but as you see some of the inflation numbers are cooling down on what it cost to live. But by and large, I think that we've been very fair. Throughout our history, we have given raises every single year that I've been at Gallagher, and we recognize the importance of our employees to do that. So We haven't seen a big stress on that. Speaker 401:00:48Awesome. Thank you, guys. Speaker 101:00:51Thank you. Operator01:00:55Thank you. Our next question is from the line of Scott Heleniak with RBC Capital Markets. Speaker 401:01:03Just a quick question on the risk management side. Wondering if you could give a little detail on the claims count Differences and changes, in both claims count and severity and kind of what you're seeing versus either recent quarters or year over year. And I guess I'm more interested, I know you touched on a little bit, just on some of the casualty lines and workers' comp and liability and kind of what you're seeing there in terms of The counts and the average claim size that you're handling at Gallagher Bassett? Speaker 201:01:34All right. So three things on there. First, When you look at it, we were seeing more COVID claims last year and that's basically gone to very little at this point, yet we still grew through that. Kind of existing customers, we consider the claims arising for our existing customers to be flattish, maybe up a little bit. Now that was a trend that we were seeing also when you go back pre pandemic because as workplaces get safer and safer, so really the Success that you're seeing in the organic is really our new business and excellent retention. Speaker 201:02:06So that kind of tells you Flattish from existing customers, growing through the loss of COVID claims and better conservatively better new business And better retention. What are we seeing for severity within that? Severity is going up. There's no question on average As a percentage, I don't know if it's 5% or 7%, but overall something like that. Speaker 501:02:34Okay. That's a couple Speaker 401:02:36of detail. And then just another question on the M and A pipeline since it was So significant compared to recent quarters. Just wondering if you can also just talk about or comment on how much of that is how much of the you're seeing is international versus domestic. I'm not looking for a specific breakdown, but anything you can Share there on are you continuing to look at a lot more international deals than you had over the past few years? Speaker 101:03:04No, our international pipeline is Pretty steady. The majority of what we're looking at is U. S. Domestic. Speaker 401:03:11Yes. Okay. And then finally, any earlier read on July renewal premium? I know it's probably a little bit early, but how that's comparing to the 12%? Or is it just too early on that? Speaker 201:03:22Our July numbers are better than our June numbers. I looked at the overnights from last year and there is a noticeable difference. Now July is not over. A lot of your activity happens in the last week here, but right now our early reads month over month is there is another step up. Speaker 401:03:39Okay, interesting. Great. Thanks for all the answers. Speaker 101:03:43You bet. Operator01:03:45Thank you. The final question is follow-up from Weston Blumert with UBS. Speaker 301:03:52Hey, thanks for taking my follow-up question. Are you guys disclosing what free cash flow was in the 2Q or any updates on the level maybe as a percentage of revenue that you're expecting Full year, as you integrate Buck or given the strong 2Q? Speaker 201:04:06Well, Q2 is our notoriously smallest quarter because that's when we pay out all of our incentive compensation. We pay that in April, so the Q2 is our smallest. The second half of the year is the largest as a percentage. You all toil in that those numbers more than we do. That's just not really how we look at it. Speaker 201:04:24The fact is our cash flows Closely tracked to our EBITDA growth. As you know that because of our tax credits, our tax load as a percentage of our EBITDA It's usually somewhere in the 8% range. Our CapEx is pretty consistent with prior years, so you don't have a significant change in that. So the only thing that really kind of impacts our cash flows different than EBITDA would be a little bit taxes, a little bit a little growth in CapEx. And And then obviously, if we're paying integration costs, some Speaker 101:04:55of those will throw out Speaker 201:04:57in cash too on that. But right now, we track close our cash flows Track very close to what our EBITDA is. So the growth in the EBITDA is pretty much so what you're going to see in the growth in our cash flows. Speaker 301:05:11Got it. Thanks. And then maybe ex integration costs, is Buck maybe cash flow neutral or maybe slightly cash flow Negative just given the lower margin there? Speaker 201:05:22It's cash flow positive. I mean listen, the integration we're not spending that much on integration on this It's acquisition. So I would say over 3 years, I think we're going to spend $125,000,000 something like that. And it throws off cash flows in excess of that. Speaker 401:05:37It's a great it's a Speaker 101:05:39great business. Speaker 301:05:42Great. Thank you. Speaker 101:05:43All right. Thanks for With us this evening, everybody, I really appreciate you joining us. I think you could probably tell that myself and the team are extremely pleased with our 2nd quarter performance. We're reflecting on full year 'twenty three financial outlook relative to our early thinking. It has improved on every measure. Speaker 101:06:01As we sit here today, we remain very bullish on the second half. And most importantly, to our more than 48,000 colleagues around the globe, thank you. For all you do day in and day out, I believe our continued financial success is a direct reflection of our people and our culture. Thank you very much. We look forward to speaking with you again at our IR Day in September. Speaker 101:06:24Thanks for being with us. Operator01:06:26This does conclude today's conference call. You may now disconnect your line at this time.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallArthur J. Gallagher & Co. Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Arthur J. Gallagher & Co. Earnings Headlines$100 Invested In Arthur J. Gallagher 15 Years Ago Would Be Worth This Much TodayApril 24 at 9:51 PM | benzinga.comArthur J. Gallagher & Co. (NYSE:AJG) Receives Consensus Recommendation of "Hold" from BrokeragesApril 24 at 2:21 AM | americanbankingnews.comWarning: “DOGE Collapse” imminentElon Strikes Back You may already sense that the tide is turning against Elon Musk and DOGE. Just this week, President Trump promised to buy a Tesla to help support Musk in the face of a boycott against his company. But according to one research group, with connections to the Pentagon and the U.S. government, Elon's preparing to strike back in a much bigger way in the days ahead.April 25, 2025 | Altimetry (Ad)Arthur J. Gallagher price target raised to $346 from $308 at BarclaysApril 11, 2025 | markets.businessinsider.comArthur J Gallagher & Co (AJG) Receives a Hold from BarclaysApril 11, 2025 | markets.businessinsider.comEarnings Preview: What to Expect From Arthur J. Gallagher's ReportApril 11, 2025 | msn.comSee More Arthur J. Gallagher & Co. Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Arthur J. Gallagher & Co.? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Arthur J. Gallagher & Co. and other key companies, straight to your email. Email Address About Arthur J. Gallagher & Co.Arthur J. Gallagher & Co. (NYSE:AJG) engages in the provision of insurance brokerage, reinsurance brokerage, consulting, and third-party claims settlement and administration services. It operates through the following segments: Brokerage, Risk Management, and Corporate. The Brokerage segment consists of retail and wholesale insurance brokerage operations. The Risk Management segment provides contract claim settlement and administration services. The Corporate segment manages clean energy and other investments. The company was founded by Arthur J. Gallagher in 1927 and is headquartered in Rolling Meadows, IL.View Arthur J. Gallagher & Co. 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There are 12 speakers on the call. Operator00:00:00Afternoon, and welcome to Arthur J. Gallagher and Company's Second Quarter 2023 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. Operator00:00:15If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward looking statements within the meaning of the securities laws. The company does not assume any obligation to update information or forward looking statements provided on this call. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the information concerning forward looking statements and risk factors sections contained in the company's most recent 10 ks, 10 Q and 8 ks filings for more details on such risks and uncertainties. Operator00:00:58In 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, President and CEO of Arthur J. Gallagher and Company. Mr. Operator00:01:21Gallagher, you may begin. Speaker 100:01:23Thank you very much. Good afternoon, everyone. Thank you for joining us for our Q2 'twenty three earnings call. On the call with me today is Doug Howell, our CFO As well as the heads of our operating divisions. We had a fantastic second quarter. Speaker 100:01:38For our combined Brokerage and Risk Management segments, we posted 20% revenue growth, 10.8 percent organic growth. And recall, we don't include interest income in our organic. If we did, our headline number would be 13.4% and over 14% if you levelize for last year's large life product sale. GAAP earnings per share of $1.48 adjusted earnings per share of $2.28 up 21% year over year Reported net earnings margin of 13.6 percent, adjusted EBITDAAC margin of 30 point 4%, up 52 basis points. We also completed 15 mergers totaling $349,000,000 of estimated annualized revenue. Speaker 100:02:28We had a terrific month to finish the quarter that fueled the upside versus our June IR debut. I could not be more pleased with our 2nd quarter performance and how our teams all around the globe continue to deliver incredible value for our clients. On a segment basis, let me give you some more detail on our 2nd quarter performance starting with our brokerage segment. Reported revenue growth was 20%. Organic was 9.7% or 12.3% if we include interest income and about 13% when levelizing for the large life product sale. Speaker 100:03:07Acquisition rollover revenues were $151,000,000 Adjusted EBITDA growth was 23% and we posted adjusted EBITDA margin expansion of about 50 basis points. Let me walk you around the world and provide some more detailed commentary on our brokerage organic. Again, Following figures do not include interest income. Starting with our retail brokerage operations. Our U. Speaker 100:03:35S. PC business posted 18% organic. New business production was up year over year, while retention was similar to last year's Q2. Our U. K. Speaker 100:03:45PC business posted 11% organic due to strong new business production. Canada was up 6% organically, Reflecting solid new business, similar retention versus last year and continued but somewhat more modest renewal premium increases. Rounding out the retail PC business, our combined operations in Australia and New Zealand posted more than 10% organic. Core new business wins were excellent and renewal premium increases were ahead of Q2 2022 levels. Our global employee benefit brokerage and consulting business posted organic of about 2%. Speaker 100:04:21That includes a 3 point headwind from last year's life product sale. Excluding the tough compare, organic would have been about 5% with core health and welfare up low single digits and many of our Consulting practice groups showed continued strength. Shifting to our reinsurance, wholesale and specialty businesses. Gallagher Re posted 11% organic, another outstanding quarter by the team, building upon their excellent first quarter results. Risk placement services, our U. Speaker 100:04:51S. Wholesale operations posted organic of 10%. This includes 19% growth in open brokerage and about 6% organic in our MGA Programs and Binding Businesses. And finally, U. K. Speaker 100:05:04Specialty posted organic of 19%, benefiting from excellent new business production and fantastic retention and a firm rate environment. Next, let me provide some thoughts on the PC insurance pricing environment, starting with the primary insurance market. Global 2nd quarter renewal premiums, which include both rate and exposure changes, were up 12%. That's ahead of the 8 10% renewal premium change we were reporting throughout 2022 and the Q1 of 2023. Renewal premium increases remain broad based and are up across all of our major geographies. Speaker 100:05:40We're also seeing increases across most product lines. Property is up more than 20%, General liability is up about 8%, workers' comp is up about 3%, umbrella and package are up about 11%, and most lines are trending similar or higher relative to previous quarters with 2 exceptions. 1st is public company D and O where renewal premiums are lower last year and second cyber, which is flat to down slightly year over year. But to put this all in perspective, These two lines combined represent around 5% of our year to date brokerage revenues and thus don't have much of an impact. So I believe the market continues to be rational, still pushing for rate where it's needed to generate an acceptable underwriting profit. Speaker 100:06:27Remember though, Our job as brokers is to help our clients find the best coverage while mitigating price increases to ensure their risk management programs fit their budgets. So not all these renewal premium increases show up in our organic. Shifting to the reinsurance market. Overall, the June July reinsurance renewals resulted in similar outcomes to what we saw during January renewals with most global reinsurance lines continuing to harden. Property continues to experience the most hardening, especially cat exposed treaties. Speaker 100:07:00Within the U. S, Florida property cat renewals More orderly than January due to an early start and well defined reinsurer appetites. Regardless, price increases were in the 25% to 40% range, causing many seasons to increase their retentions. While property capacity isn't abundant, we ultimately were able to place risk for most all of our seasons. As for casualty reinsurance renewals, the 2nd quarter showed more stable supply versus demand dynamics, resulting in price increases based on Product or risk specific factors. Speaker 100:07:34Looking forward, carriers are likely to continue their cautious underwriting posture Given the frequency and severity of weather events, replacement cost increases and social inflation, all of which Can impact current and prior accident year profitability. Add to that rising insurance costs and it's easy to make the case for pricing increases on most lines to continue here in 2023 and perhaps throughout 2024. Despite these and other inflationary cost pressures, Our customers' business activity remains strong. During the Q2, our daily indications of client business showed positive endorsements and audits. These positive policy adjustments have continued thus far in July. Speaker 100:08:18At the same time, labor market imbalances remain. Recent data shows the U. S. Unemployment rate declining, continued growth in non farm payrolls and a very wide gap between the amount of job openings and the number of people unemployed and looking for work and medical cost trends are on the rise. We anticipate these Cost to accelerate into 24 due to increased cost of services, more frequent high dollar claims and the impact of new therapies in specialty medications. Speaker 100:08:48So I see demand for our HR consulting and other benefits offerings remaining strong. So when I bring this all together, as we sit here today, we are more confident with full year brokerage organic in the 8% to 9% range It was an excellent second quarter in the books, more towards the upper end of that range. Posting that would be another fantastic year. Moving on to mergers and acquisitions. We had a very active second quarter. Speaker 100:09:17In addition to the Buck acquisition, which I will discuss in a moment, We completed 14 new tuck in brokerage mergers. Combined, these 15 mergers represent about 3 $49,000,000 of estimated annualized revenues. I'd like to thank all of our new partners for joining us and extend a very warm welcome to our growing Gallagher family of Professionals, moving to the Buck merger, which was completed in early April. Our integration efforts have begun and the combined business is off to a great start. While it's still early, I'm extremely pleased with how the teams are working together and excited about our combined prospects. Speaker 100:09:56Looking ahead, we have a very strong merger pipeline, including nearly 55 term sheets signed or being prepared, representing more than 7 $100,000,000 of annualized revenue. We know that not all of these will ultimately close, but we believe we will get our fair share. Moving on to our Risk Management segment, Gallagher Bassett. 2nd quarter organic growth was 18.1 Ahead of our expectations due to rising claim counts and continued growth from recent new business wins. These wins have been broad based and across all of various client segments, including large corporate enterprises, public entities, insurance carriers and captives. Speaker 100:10:40Growth in each of our client verticals is great affirmation in our ability to tailor our client offerings, utilize Industry leading technology and ultimately deliver superior outcomes for clients across the globe. 2nd quarter adjusted EBITDAC margin of 19.4% was very strong and at that the upper end of our June expectation. Looking forward, we see full year 'twenty two organic around 13% and adjusted EBITDAC margins pushing 20%. That would be another outstanding year. And I'll conclude with some comments regarding our Bedrock culture. Speaker 100:11:19This past quarter, I was on the road for a month visiting employees around the globe, traveling to New Zealand, Ireland, the UK and the Czech Republic. And I can say that our culture is thriving, which makes me incredibly proud. Some of those conversations included the more 500 young people in our 58 class of the Gallagher Summer Internship. This rigorous 2 month program is an essential investment in our future, ensuring our unique culture remains strong for years to come. As we continue welcoming new colleagues and merger partners into the Gallagher fold, I'm confident that each new addition will uphold the expertise, excellence and ethical conduct that make Gallagher the name so trusted worldwide And that is the Gallagher Way. Speaker 100:12:07All right, I'll stop now and turn it Speaker 200:12:08over to Doug. Doug? Thanks, Pat, and Hello, everyone. What a terrific quarter on all measures. Today, I'll walk through organic and margins by segment, including how we see the remainder of the year playing out. Speaker 200:12:21Then I'll provide some comments on our typical modeling helpers using the CFO commentary document that we post on our website, and I'll conclude my prepared remarks with a few comments on cash, Okay. Let's flip to Page 3 of the earnings release. Organic of 9.7%, that'd be 12.3% if we include interest income and a little over 13% when further levelizing For last year's large live product sale. That's a bit better than what we forecasted at our IR Day in June due to a fantastic Finished of the quarter across all of our divisions, especially U. S. Speaker 200:12:59Retail and London Specialty. You'll also see that contingents were up more than 20% organically. Probably a better way to look at it is in combination with supplementals because contracts can flip from time to time. Together up 12% is much more in line with our base commission and fee organic growth. So no matter which way you look at it, a fantastic organic growth quarter Looking forward, we see headline brokerage organic around 9% for 3rd quarter and about 8% for 4th quarter. Speaker 200:13:33It's important to recall that 4th quarter will have a tough compare because in Q4 'twenty two, We booked a change in estimate related to our 606 deferred revenue accounting. Controlling for that, Q4 'twenty three organic would be towards 9%. We highlighted this matter last year and again at our June IR Day, There's nothing new here. It's just a reminder as you update your models. With all that said, we remain bullish on our organic prospects for the second half. Speaker 200:14:05Accordingly, we now believe full year brokerage organic is looking like at the higher end of that 8% to 9% range. Again, these percentages do not include interest income. Flipping to Page 5 of the earnings release to the brokerage segment adjusted EBITDAX table. We posted adjusted EBITDAX margin of 32.1% expectation of expanding 10 basis points mostly due to the incremental organic growth. Looking at it like a bridge from Q2 2022, Organic gave us 100 basis points of expansion. Speaker 200:14:46Incremental interest income gave us 90 basis points of margin expansion. The impact roll in of M and A, which is mostly BUC, uses about 80 basis points. And then we also made Some incremental technology investments called out around $7,000,000 and some continued inflation on T and E called out about $5,000,000 which in total used about 60 basis points. Follow that bridge and the math gets you close to that 50 basis points of FX adjusted expansion in the quarter. As for our margin outlook, we expect about 40 to 50 basis points of expansion for each of the next two quarters. Speaker 200:15:23So for the year, We are a bit more optimistic in our April June views and now see full year margin expansion of 30 to 40 basis points That would be 70 to 90 basis points levelizing for the roll in impact of BUC. Again, both those percentages We talked about that during our June IR Day when we provided a vignette on how to model margins. Let me give you 2022 margins recomputed at current FX levels for your starting point. In Q3 2022, EBITDAX margins would have been around 31.7% versus the 32.3 Percent we reported. And as for Q4 2022, not nearly as much impact, call it around 31.3%. Speaker 200:16:15So now if you move to the Risk Management segment and the organic table at the bottom of Page 5 of the earnings release. Also, I had an excellent finish to the 2nd quarter, 18.1 percent organic growth. As Pat Mentioned, we continue to benefit from new business wins for the second half of twenty twenty two. Looking forward, we see organic The 3rd quarter around 14% and 4th quarter about 10%, which reflects the lapping of last year's larger new business wins. As for margins, when you flip to Page 6, and the adjusted margin EBITDA table, Risk Management posted 19.4%. Speaker 200:16:56That was on the upper end of our 19% to 19.5% June expectation. Looking forward, we see margins above 19.5% in each of the last two quarters of 23%. So Full year double digit organic and margins approaching 20%. That would lead to a record year for Gallagher Bassett. Now let's turn to Page 7 of the earnings release and the corporate segment shortcut table. Speaker 200:17:22In total, adjusted second quarter came and right at the midpoint of the range we provided during our June IR Day, even though we did experience a further $5,000,000 of FX related remeasurement Headwinds that cost us a couple of pennies in the quarter. Moving now let's move to the CFO commentary document. On Page 3, you'll see most of the second quarter results were in line with our June commentary. And looking ahead, you'll see that we've our outlook to reflect current FX rates and provide our usual modeling helpers for the second half of the year. Moving to Page 4 of the CFO commentary document and our corporate segment outlook for the second half. Speaker 200:18:03The punch line here is not much change Other than a modest week to corporate expense and interest in banking costs as we've assumed a slightly higher balance on our credit line given our robust M and A activity. Then on Page 5 of the CFO commentary, that shows our tax credit carry forwards. As of June 30, we have about $700,000,000 which Will be used over the next few years and that sweetens our cash flow and helps us fund the future M and A. Shifting to rollover M and A revenues on Page 6 of The CFO commentary document, dollars 151,000,000 in the quarter with Buck contributing nearly half of that. Remember, Numbers in this table only include estimates for M and A closed through yesterday. Speaker 200:18:45So you need to make a pick for future M and A and you should also increase interest expense if you assume We borrow for a portion of the purchase price. One other call out and that's back at the bottom of Page 3 of the earnings release. We did use a higher than normal amount of stock for tax free exchange mergers this quarter. That can be a little lumpy, but we do like doing them. It's attractive to the sellers that are looking to defer the full tax consequence of selling their firm, and it's also attractive to us because it fully aligns our new partners with our long term shareholders. Speaker 200:19:18As for future M and A, we remain very well positioned. At June 30, available cash on hand was more than $400,000,000 Our cash flows are strongest in the second half of the year and we have room for incremental borrowing all the while maintaining our strong investment grade ratings. We continue to see our full year 2023 M and A capacity upwards of $3,000,000,000 and another $3,000,000,000 or more in 2024 without using Any Equity. So another outstanding quarter by the team. From my position as CFO sitting halfway through the year, our full year 23 outlook on all measures continues to improve, better organic, better margins and a more robust M and A pipeline. Speaker 200:20:00Bottom line, we're in a great spot to deliver another record year of financial performance. Okay, back to you, Pat. Speaker 100:20:07Thanks, Doug. Operator, let's go ahead and open up for questions. Operator00:20:12Thank you. The call is now open for questions. Our first question is coming from the line of Weston Bloor with UBS. Please proceed with your questions. Speaker 300:20:40Hi, good evening. My first question, really good strong organic growth within brokerage and around 200 basis points above what You had said, I guess about a month ago. I was curious if you could expand on maybe what lines of businesses or geographies or Maybe was it supplementals or contingents that drove that outperformance? I'm curious what we can extrapolate for the back half of the year or what is more in nature? Speaker 200:21:07Yes. I think extrapolating to the back half of the year, we feel that our look towards 9% and then 8% adjusted to 9% for the second Two quarters is probably the best way to look at what we think for the rest of the year. The upside was due to U. S. And also U. Speaker 200:21:21K. Specialty. They just had a terrific end of June. So But we're seeing it across the globe. There is a noticeable uptick here in June of success on our sales And our retentions are good and there's some positive rate movement in those numbers too. Speaker 100:21:38Also, I would say, it's Clients are getting pretty darn weary of a hard market and they're looking for good advice. And where we're finding great strong growth is in property casualty, the basic blocking and tackling Workers' comp areas that in the United States at least, we stand an opportunity to stand really head and shoulders above our competition, especially the little guys. Speaker 300:22:00Great. Thanks. And second question on M and A. I believe you said 55 term sheets for $700,000,000 in revenue. If I I go back through my model. Speaker 300:22:08I believe that 700 is the highest I've seen maybe away from Gallagher Re. Yes. So could you maybe just expand Any shift in your M and A strategy or any like larger deals in the pipeline? Or could you maybe just expand on what you're seeing in the market more broadly as well? Speaker 400:22:24No, I Speaker 100:22:25think that what we're seeing is, 1st of all, remember, we talk about this quite often. We don't have one individual out prospecting. We've got Dozens and dozens of people that have now done deals in our company. They're out constantly talking to our competitors. The more deals we do, the more friends they have in the industry that they're telling it's working well, and they're pleased to be with us. Speaker 100:22:47And I think it's just a matter of straight up blocking and tackling when it comes to the typical making cold calls, talking to people, Renewing relationships we've had for years and people getting to a point where they're possibly ready to sell. Speaker 500:23:02Yes, I think Speaker 200:23:03they see our capabilities and I think some of the appeal of maybe selling to a PE firm, there's some concern about that given the increase in interest rates and the borrowing costs. There's been some stress on that side of the industry. And so we're seeing that folks are really more interested in being with Strategic now than trying to sell into a PE roll up. Speaker 300:23:25Got it. Thanks. Yes, it was double digit, I think $1,000,000 in revenue I got a little excited there. Operator00:23:33Me too. Speaker 300:23:35And then last one, just on fiduciary, you'd highlight around 90 bps Benefit in the quarter, is that roughly what you have baked into the back half of the year when we think about your guidance? Speaker 200:23:45Yes. I think that I think the biggest jump is here in Q2. I think in the second half of the year, you might see something like 70 basis points In the Q3 and it will give us maybe only 50 basis points of margin expansion in the Q4 just because rates have been popping up. Speaker 300:24:03Great. Thank you. Speaker 100:24:04Thanks, Weston. Operator00:24:07The next question comes from the line of Elyse Greenspan with Wells Fargo. Please proceed with your question. Speaker 600:24:12Hi, thanks. Good evening. My first question, Pat, I know when asked, you're typically willing to provide A little bit of an outlook on how you're seeing things more than just the current year. So based on how you think about things right now, how do you think From a thinking of the brokerage business from an organic growth perspective, how do you think 2024 is shaping up? Speaker 100:24:39Elyse, I think it's going to look a lot like 2023. I'm not seeing any hesitation of underwriters asking for rate. I do think the cycles have shifted. When you see cyber and D and O coming down, they probably are coming down and that's reasonable. Property through the roof is reasonable. Speaker 100:25:00What we're seeing in inflation in terms of lawsuit, Social inflation is what they're searching for. It's very, very troubling. And then you add inflation. We've been talking about inflation on this call now for over a year. And you look back in the reserves and inflation really it tips those into a very difficult spot And you're not going to get those healthy in 1 year. Speaker 100:25:25So I feel very strong about and I'll tell you, our insurance companies are very our partners are very smart about their numbers. They know where they're making money, where they're not making money, and they're telling us what they need. So I don't see people backing off on that. No one's walking in saying the gates are wide open. Let's just get Volume, it's a reasonable market that you can get deals done at a reasonable price. Speaker 100:25:49Our clients actually Understand inflation, they're living with it across the board. And inflation is good for a broker, honestly. So I think next year looks very, very strong. Speaker 600:26:01And then, Doug, I know, the bar was a little bit higher for the level of margin improvement this year. If 24, it looks like 23 from an organic revenue growth perspective. Would we see more margin improvement next year at the same level of organic that we saw this year? Speaker 200:26:19Well, I guess my reaction to that is going back to I think that you'd see some margin expansion at 6%. I don't know if you'd get it necessarily at 4%. I don't I think by the time you got up to 9%, it'd be better than 50 basis points of margin expansion. And we do have one more Quarter of rolling impact of Buck that would the underlying business would be going up, but that business runs a lower margin. So Depending on which question you're asking me, I would think that margin expansion in 2024 can be very similar to what we thought at This year, give us 6 points of organic, there might be 40, 50 basis points, give us 9 points of organic, you might get 75 to 80 out of it. Speaker 600:27:06And then, Pat, when you're talking about price increases, are you making that comment on like a nominal basis? Or Are you expecting that when you think about property casualty pricing, over the balance of this year in 2024 that will continue to exceed loss trend? Speaker 100:27:25Well, I think that's the battle, isn't it, Elyse? I mean, the carriers are very much wanting and telling us they need that. So yes, I think that would be the objective and we're finding that we can get it. So I do think that they're going to look at loss trends and they're going to try to Definitely keep the rate structure moving ahead of that. Speaker 600:27:47And one last one, do you have some initial thoughts on what we could see from We insurance pricing, at January 1, 24? Speaker 100:27:56No. It's too early for me to comment on that, I think we just finished July, not as big a month obviously as January, but interesting that the pricing was still very, very firm. The market after January 1 had a time had a chance to settle down, look at their books, understand January 1 was a nightmare. So as we said in our prepared remarks, July was a little bit more orderly, but still difficult. So give me another quarter on that one. Speaker 600:28:24Thank you. Speaker 100:28:25Thanks, Elyse. Operator00:28:27Our next question comes from the line of Mike Zaremski with BMO Capital Markets. Speaker 700:28:36Investment income, is this the new Run rate was better than expected or should we expect it to take another leg up I guess just of course the company is growing too. Speaker 200:28:52Listen, I think the impact on our numbers, I think that It's actually well, the change in margin from investment income was 90 basis points this quarter. We think it will be about 70 basis points in the 3rd and about 50 basis points of margin expansion in the 4th. So to me, I would say that the actual dollar amounts that you're seeing in The second quarter are not dissimilar to the dollar amounts that you would see in 3rd and 4th quarter. Speaker 700:29:32Okay. And you guys are firing on all cylinders. I'm just trying to poke some holes here. Let's see if I can. Speaker 100:29:38Let's do that, Mike. Operator00:29:40I mean, just realistic. Speaker 700:29:45U. K. Inflation, the stats look like it's high and there's wage pressures and Some at least a slowing GDP outlook. How does your business look there currently? Margins been growing as much there and any comments Speaker 100:30:07on that? Our retail business is on fire, Really on fire. And I give a lot of credit to the team on 2 areas. 1, as you know, we've spent money there in terms of branding. And we did not do that for years when we were putting together our Giles, Oval, Heath, those firms were trading under those names. Speaker 100:30:31We brought those together. We started talking about ourselves as Gallagher in the field. And our rugby partnerships there And the efforts that we spent on branding have paid incredible dividends. And people know who we are now across the entire U. K. Speaker 100:30:51And our people are taking advantage of that. And I just visited in I was in our London offices For a good part of June, I was in Dublin and Belfast, and I can just tell you this. There's a bounce in every retailer step. They're kicking ass, they're having fun and they're taking names and getting more business for next quarter. Speaker 700:31:13Okay. And just because Elyse asked for, I'm going to sneak in a quick one. In terms of the pricing environment Taking a kind of a step up, how much do you think is due to the reinsurance costs trying to be passed through? And it sounds like you don't it sounds like it's not a big deal because you're saying that next year could be similar to this year. So There wouldn't be a step down, but I'm curious if you think some of the momentum coming on the reinsurance side. Speaker 100:31:41Let's be clear. I'm saying that We're being told by our carrier CEOs that they have to cover their increasing cost base. That starts with inflation and their past Reserves and if you plan to rebuild a house for $1,000,000 2 years ago, you're not going to spend $1,000,000 So they are looking at those reserves. Then secondly, they're still in the process of making sure that we get our the values right. These values haven't been touched for a decade. Speaker 100:32:09They haven't needed to be touched. So now you've got a value increase, you've got exposure units growth. Then you add to that the cost of reinsurance, which is clearly a cost. They're not separating it out and telling our retail clients, well, this Part is for reinsurance. They're saying, look, guys, on this line of cover, we need 25 points. Speaker 100:32:30Go get it. And that will hold as long as we have to, in fact, do that to get the deal done. Now remember, We are scouring the mountain for the market for some that will do for 10 because that's our job. But right now, There's no break in that. Operator00:32:50Thank you. Speaker 200:32:53Thanks, Mike. Operator00:32:54Our next questions come from the line of Greg Peters with Raymond James. Please proceed with your questions. Speaker 500:33:00Hey, good afternoon, Pat and Doug. Hey, I wanted to have you for a moment talk about new business Because when you look at the organic results, 10.8%, you look at renewal pricing 12%, Well, you went through a bunch of lines, Pat, where pricing was clearly double digit. And so And you also made this comment about your clients having a budget. Just curious how much of the growth organic is rate Speaker 100:33:43Let Doug talk about the actual numbers because I'm more off the cuff and then I'll come back in on how I see the market shaping up. Go ahead, Doug. Speaker 200:33:51So Greg, our net new business versus loss business is up this year by 2 percentage points Compared to where it was there, rate is then that's the total rate and exposure is up About a point and a half. So you can see here that it's our net Our increased new is actually up more than the impact from rate is up. Speaker 100:34:22I'll add some color to that, Mike. Number 1, we're doing a much better job, I think, than ever of measuring kind of this new business stuff that you're talking about. We know That our average production is actually increasing in the income the commission income we're receiving on new business Has moved up from, Speaker 200:34:45let's call Speaker 100:34:45it, dollars 50,000 $60,000 into closer to $175,000 to $100,000 That's per item So we're actually finding those clients that have for a long time probably been pretty happy with either their local Broker or their relationship with a larger broker given us a chance and we're doing very, very well. We are a new business machine. And when I take a look at the percentage of trailing revenue that we try to accomplish every year in new business, our goal has always been 15% of trailing. We're just about right there. And that's and as our trailing revenue growth Continues, that pushes us in terms of our goals for more new business, and we are right on track with that. Speaker 100:35:34And when you start having 15%, 16%, 13% of trailing and new business, as long as you continue those retention levels, 94, 95, etcetera. You're getting very, very nice upside. Speaker 500:35:52Yes, that's good. Those are good numbers. I think I've opened up a can of worms because we're going to want to start tracking the net new business wins you guys are In your comments, Pat, you also talked about on the theme of poking holes, right? You talked about the employee benefits business Kind of stood out, that and the MGA business being low single digit, mid single digit type of organic. Maybe, I don't want to call that an underperforming, but relative to the group, I guess it kind of is. Speaker 500:36:32So maybe you could Spend a minute and talk about those two businesses because you called them out in your comments. Speaker 200:36:38Well, let's talk about the benefits business for us. It's adjusted for the large live 5%, I think that's pretty in line with maybe what some of the other brokers have talked about in their employee benefit space. So I wouldn't say it's necessarily out of whack compared to what's going on. That business right now doesn't have the loss cost increases that it's going to have. I think there's going to be medical inflation in that coming up. Speaker 200:36:58We work on a See on that a lot, but by and large medical cost inflation does have an impact. When you go back to my early days here in 2000 and 3 through 2,007, you were seeing medical loss inflation cost inflation in the double digits and that business was growing Yes, almost double digits also. So that will have an impact because you can't keep the inflation out of that space for too much longer. So that would happen. On the program business, there's some you just understand how in our case, there's some programs that if there's a change in the state or there's change in the carrier appetite, Sometimes that can cause a little bit of stress in that business, but still being in those single digit organic ranges are still pretty damn good in this environment. Speaker 100:37:38Yes. And let me add to that. Craig, right now, our clients are dealing with wage cost inflation as people say, look, I've got I'm having a hard time buying eggs. And they are not looking to be expanding benefit offerings. In fact, they're doing everything they can to mitigate increased costs and benefits, while at the same time being able to balance what they need to give their people in their regular income, while at the same time maintaining, as you know how difficult this is, They're employee based. Speaker 100:38:07So it is a really tough time and our consultants, our people are doing a great job. Outside of health and welfare, The effort in terms of our consulting business, the orders that are coming through are spectacular. So it's really a balance of all of that. And I agree with Doug. I think that it's a matter of them trying to deal with inflation in the cost of the cover, Inflation in their compensation costs for their people and doing everything, and that's where we make our living is helping to mitigate that. Speaker 100:38:38Plan design change, getting that down. And then lastly, a lot of that, as you know, we do on a fee. So when you're facing Compensation costs, inflation costs in the underlying purchase of health insurance, the last thing you're doing is giving GBS 10% rate increase. I think by I think getting 5 points is pretty damn good. Speaker 500:39:00Fair enough. Just I know you provided some data. It's just a final question. I know you provided some data around Buck and the integration. That's a business that Has had sort of a checkered past of success and maybe some challenges. Speaker 500:39:18Maybe spend a second, This is my last question, talking about the integration and why you think the outlook for that business is strong relative to its history. Speaker 100:39:27I'll tell you what, I am really excited about that business and I'm a quarter in, right? And we had our board meeting yesterday and the team that's involved The integrating and the onboarding, reporting out to our Board as we do on our large deals every quarter. The synergies there, first of all, the management team could not be more excited Be finding a home. They've been traded 5 times, and that's part of what you're talking about, Greg. You wake up and your name is not Changing, but the owners are changing and then you're changing it again. Speaker 100:39:57You don't know who's on first, who's on second. A big part of our effort of onboarding here has been to tell those people, look, You found your last place. Now let's go take care of clients. And there's nothing consultants like to hear more than that. So that has been a big message to them and I spent time with those folks in the U. Speaker 100:40:16K. I've spent time with them here. It's resonating. Our retention of people is Standing and the orders we're getting in 1 quarter are mind boggling. So I'm really Then you add to that, we do think there's some great synergies there and that's not cost takeouts that's cross selling. Speaker 100:40:34We're seeing some of that already And I think it's going to be just fine. And I'm 1 quarter in. Speaker 500:40:44Well, thank you for your answers and the answers make sense. Speaker 100:40:48Thanks, Greg. Operator00:40:51Next question is from the line of David Mogmaden with Evercore ISI. Please proceed with your questions. Speaker 800:40:59Hey, thanks. I just wanted to follow-up just on the Group Benefits organic And just on the deceleration, which still 5% is good, ex the life sale comp, but that was down versus 7 in the Q1, but it does sound like the acceleration is Specked, is that something is it second half expectation or is that something you think will start to move up higher in 2024? Speaker 100:41:33I wouldn't be modeling out, David, a huge acceleration there. I mean, I spent a lot of time with Doug on the street explaining why 3% organic was outstanding Yes, there's no I'm not looking at a business here that is accepting hard rates Given the fact that there's big loss cost trends or reinsurance trends, these are people buying insurance and in many instances is not buying insurance. That's the biggest part of what we do is help people self fund. And that 5% growth is earned with a lot of discussion with a client. It's more akin to what Gallagher Bassett's getting in terms of their renewal increases rather than what you look at on the PC side. Speaker 100:42:18So I'm very happy at 5%. I don't want to give you this idea that you're going to see some acceleration at 12%. That's not happening. Speaker 200:42:26That business also can be heavily 1st quarter weighted, so you get a little bit of that. Not only do you have to recognize the full year of an account that you sell on Health and welfare side, but the consulting in the Q1 tends to be a little heavier or a little you grow a little bit more than If you think about it, most people are oneone type benefit customers. So they're putting the final touches on their business in January And on some of the programs, so we tend to make a little bit more money in the Q1. Speaker 100:42:56Can I answer an underlying question I hear from you, David and the others? Why do we do the Buck deal? It looks like its growth isn't great, doesn't have the margins that a PC broker does. You realize where the pain is for our Clients right now and what we are is pain mitigation people. And sure, it's in property casualty, especially in property. Speaker 100:43:17And we're out there working every day to help them get that down. We're bringing self insurance plans, captive plans, group plans, what we can on the PC side. And every year, year in and out, our clients are dealing with how do we get people, how do we keep them, how do we pay them, And how do we motivate them and at the same time take care of their benefits needs? And to get a firm like Buck on our team, What I absolutely recognize is the best in the business, I mean it puts us over the top in that ability to respond to our clients' Needs across all of what we do for them. And I think 5% is outstanding. Speaker 100:43:52I want to tell the team congratulations. Speaker 800:43:58No, thanks. I appreciate that. That's helpful, Pat. And I guess just maybe just switching gears just on the property casualty rate increases. Yes. Speaker 800:44:12You gave some numbers earlier. I missed some of them. I was hoping you could talk a little bit about what you're seeing specifically on Casualty rates, and it sounds like we're seeing an acceleration there if I just strip out D and O and workers' Comp. But I'm wondering if that is in fact what you guys are seeing and how sustainable you guys think That acceleration is Speaker 100:44:41What I said in my prepared remarks, David, is that general liability is up about 8%. Workers' comp, which as you know has been Flat to down for a number of years is up about 3, and Umbrella and Packager up about 11. So now embedded in each of those lines are different reasons. General liability is social inflation, Probably aging population. Workers' comp is clearly it floats with medical costs It inflows with employment. Speaker 100:45:12Umbrella and Package is probably also looking at social inflation. And Property up 20% is clearly that's about exposure units and the need for rate. Speaker 200:45:26Yes, Dan, when I look at it, you want to break it down general liability and brother, other casualty, call that 8% to 9% is what we're seeing here on Commercial auto is 8.5 or more, and that's U. S. Business that I'm telling you about. So I think in the second quarter, call it 8% to 9% on casualty. Speaker 800:45:49Got it. And those did tick up versus 1Q, it sounds like? Speaker 100:45:56Yes. A little bit. Speaker 200:45:58Especially commercial auto, it's more around 6 and now it's 8.5 now. Speaker 800:46:04Got it. And then could you just level set me, if I think about full year, the business that Gallagher writes in brokerage. How much of that is coming from property at this point? Speaker 100:46:19Property is our largest line. Doug, you have that number? What was the specific question, sorry? How much of our business Property? Speaker 200:46:27About 30% here in the for the full year 2022. That's about 30% of what we write. Speaker 800:46:37Great. Thank Speaker 100:46:38you. Thanks, David. Operator00:46:41Our next question is from the line of Mark Hughes with Truist Securities. Please proceed with your question. Speaker 900:46:47Yes, thanks. Good afternoon. Speaker 200:46:48Hi, Mark. Speaker 900:46:51Pat, you talked about the Medical inflation, you think is going to accelerate, given that the broader measures of medical costs are Pretty calm these days. I wonder what gives you confidence that that's going to happen. Speaker 100:47:08Well, I don't know if I'd say it's confidence, Mark, I'm not so sure that's good news for the society or for our clients, but social inflation, medical malpractice cost cover And any kind of losses in that regard and the cost of employees. And you take hospitals right now, Are working very hard to make sure that their people stay with them. Their turnover rates with the pandemic and the like have increased. Keeping their employees is a big deal and the cost of doing that. Specialty drugs? Speaker 100:47:40And specialty Bill is helping me out here. Specialty drug costs and procedures are up significantly. Speaker 900:47:50Understood. Thank you very much. Speaker 200:47:51Thanks, Mark. Thanks, Mark. Operator00:47:54The next question is from the line of Katy Sakis with Autonomous Research. Please proceed with your question. Speaker 1000:48:01Hi, thanks. Good evening. I wanted to follow-up a little bit on the line of questioning on Buck. And clearly, An acquisition that definitely expands your ability to serve your clients and mix your portfolio. Kind of thinking about What you guys have seen in the Q1 of integration so far, is there any opportunity Tighten up the drag or the impact that Buck has on brokerage margins over the back half of the year. Speaker 1000:48:30Any opportunities you guys are seeing to increase cross sales or maybe find some expense synergies? Or should we kind of Speaker 100:48:42I think it's more 'twenty four. Go ahead, Doug. Speaker 200:48:44Yes, I would say 'twenty four. As 'twenty three, we're still getting Pete Andres, but also I'd like to as a friendly amendment to the statement, so the roll in natural impact of a business that Just it just runs naturally slightly lower margins, call it in the 20s somewhere versus in the 30s, right? So, the drag on us is what you see on the face of it, but they actually have a nice improvement opportunity as we join forces together to get better themselves. That's really what we're looking at. If we can take this business that's in the upper teens and move it into the mid-20s, I think that's a good march for that business. Speaker 200:49:20And I think Pat said it best. They've rolled through 5 different owners. They have spent so much of their time in the last couple of recent roles of becoming a Freestanding independent organization and there's extra cost that goes into that. By being a part of us and us being better together, I think we'll naturally see That natural improvement in their underlying margins. So they should be margin accretive after you get Yes. Speaker 200:49:49As they improve their margins, they will improve our margins once we get through the Q1 of 2024. Speaker 100:49:55Then Katie, to your point about cross selling, Let me be clear, we do see cross selling opportunities PC to Benefits, Benefits to PC for sure. But what we're very excited about Cross selling inside Gallagher Benefits Services. Their strength in the United States is in areas that we're not as Strong. We've always been in defined benefit pension consulting, for instance, but they come with terrific strengths there. And they're not Probably as strong, although they do quite well, but not probably as strong as we've been in health and welfare. Speaker 100:50:27So if you take a look at that, Now you're not trying to talk to a new party at a client. You're already dealing with the person who buys benefits. Let me bring in my partner who does health and welfare. And we're already seeing a lot of that. So I think there is good cross selling. Speaker 100:50:45I think that margin improvement will come and I'm excited about it. Speaker 1000:50:51Thank you so much. And then one more question The outlook for risk management Speaker 200:51:02Congratulations, Katie. Speaker 1000:51:03So sorry. Just one more question on risk management. Doug, your comments seem to imply a little bit of a sequential slowdown in organic on the back half of the year adjusting for Lapping last year's exceptional outperformance. I'm just kind of curious, is there anything you'd call out on that 14% and 10% organic growth guide that might be a slight headwind to growth as the year wraps up. Speaker 200:51:32It's just the nature of this business, if you look at it over the last 20 years is that you can get some pretty large clients that roll in to your business and they don't come as steady as let's say a smaller client smaller clients might do. So if you sell the likes of Large U. S. Corporation X and you sell them in the Q4 last year, you're going to get the benefit in the 4th quarter, 1st, 2nd, 3rd, and then you got to lap yourself in the 4th. So it's more the timing of new business on larger accounts that's causing that. Speaker 200:52:06But if you stack it up 18% this quarter and if you think 14% and 10%, when you get down to the end of the year, you're talking some nice, what is it, 13% organic Growth in that business. And then we do have some nice larger clients on the drawing board right now that we're proposing on. I don't know if they'll hit in the 4th quarter or they'll hit in the second Q3, it takes a year or 2 to sell these larger accounts. So it's just a little bit more naturally lumpy on a quarter by quarter basis. So I would encourage you to look at it on an annual basis. Speaker 200:52:36And if you think about what they did last year and then you're looking at this year at 2013, there's actually a sequential step up on an Speaker 1000:52:45Great. Thanks for your insights. Speaker 200:52:47Thanks, Jamie. Operator00:52:49Our next question comes from the line Meyer Celes with KBW. Please proceed with your questions. Speaker 200:52:58Yes, there Meyer. Speaker 100:53:02Sorry, I Speaker 1100:53:03was on mute. Am I coming through? Speaker 100:53:04Yes, you're coming through now. Speaker 1100:53:07Okay. Yes. Well, I'd probably do better when I'm mute. Same question from 2 perspectives. Are your Clients dealing with affordability issues and I'm asking that in the context of what you said about Pricing legitimately needing to go up and wondering how much of that can client how much more of that can client take? Speaker 1100:53:30And is that going to shift sort of The revenues that you get from commissions as opposed to captive management or something like that? Speaker 100:53:39Yes. And that's one of the things that gets us excited because that's the genesis of our growth. That's what took us to a place where we could get public in 'eighty four. We are the people that help folks deal with untenable situations and turn them basically into risk management approaches, let's call it larger tensions. We do that in a number of ways, whether it's by line, by state, whether it's by putting someone into a self captive, whether it's just Finding them a pool to be part of, that is a real defining aspect of Gallagher's capabilities. Speaker 100:54:15You know that. Speaker 1100:54:15Okay. Yes, I know that conceptually. I'm just trying to adjust the idea of how much more insured and take. I'm just trying to get my head around that, which maybe at odd with what underwriters actually need for rate. Speaker 200:54:32Go ahead. I think you have to look at it this way. What percentage of a customer's budget really is spent on insurance? And let's say some of the averages are 3%, 4%, 5% of what their total budget they're spending on insurance. So This isn't 30% of their cost structure. Speaker 200:54:50So how much more can customers take in terms of this? Our job is to make that as small as possible. Let's never ever forget that. That's what we do day in and day out. But how much more they can they take? Speaker 200:55:01Well, if their loss experience is bad, they're going to have to take some more. Speaker 100:55:04Well, also, if I remember, This is not anti underwriter. Underwriters are happy to have us help clients move away from loss to them. If there's more self assumption and they pick up an excess placement at the right rate, they're happy. It's not like they say, oh my God, you ripped all this premium away from me. They understand the partnership. Speaker 100:55:25So we're counseling on, look, take more rate, make it easier for that carrier To participate in this at the right place on this coverage map and we'll be able to get the limits you want, you got to take more skin in the game, that's all. And that I think is what we do better than anybody. Speaker 1100:55:44Okay. That's tremendously helpful. Same question on the reinsurance side. We've got property rates going up pretty dramatically. Is Gallagher Re telling its property Clients, that they should be buying more reinsurance in 2024 than they did in 2023? Speaker 100:56:01I'll tell you what, what I'm Impressed with our reinsurance people and it's way more sophisticated than I am frankly, but they are the best in the world at capital management with their clients. And this isn't a matter of us going in and talking to the local contractor that doesn't know what I'm going to do with a big time property increase or something like that. These are They see it coming. They know how to balance their portfolio. And really the advice Calgary gives is not Just buy it. Speaker 100:56:33It's all about and again, I mean, this is one of the things that's exciting to me in terms of my learnings with Calgary Is that they are right at the crux of helping these clients manage their capital. Speaker 1100:56:47Okay. And one final question, if I can, just because you talked about medical cost inflation. Is the medical cost inflation that you're anticipating On the, call it, consulting side, is that manifesting itself at all in workers' compensation claims that Gallagher Bassett is processing? Speaker 100:57:03Sure. Yes, absolutely. I mean a big part of workers' comp is medical only. That's escalating every month. It's our job to help mitigate that just like we do on the employee benefit side. Speaker 100:57:19Yes. Use of managed care is very, very important. Yes. Speaker 1100:57:24I'm just wondering. You'll have Speaker 200:57:25greater growth in expert Adjusting in services in Gallagher Bassett as medical cost inflation hits that too. Clients will look to a Gallagher Bassett to help them Reduce their total cost of risk and when medical inflation goes up that they will be clamoring for Gallagher Basset Services. Speaker 100:57:45And that's part of making sure we deliver the best outcomes. Speaker 1100:57:50No, absolutely. I'm just wondering when the workers' compensation Joyride comes to an end. This has been tremendously helpful. Thank you. Speaker 200:57:55Thanks, Meyer. Operator00:57:57Thank you. Our final question is from the line of Michael Ward with Citi. Please proceed with your question. Speaker 400:58:04Hey, guys. Thank you. I was just wondering on the M and A pipeline that you're talking about in the beginning. Is that would you say that's Skewed to P&C or could there be employee benefits in there too? Speaker 100:58:20Oh, there will be both. Yes, we keep a good strong pipeline on both. Now we're not going to have another Buck on that list. I mean Buck was one of the biggest players in that industry. Clearly moves us up in the ranking substantially, but there are plenty of smaller practitioners we'd love to have on board. Speaker 100:58:37Our tuck in acquisition Process has been benefits forever along with P and C, so that's not a new thing and there's lots of activity in that regard. Speaker 200:58:49Yes. I think fundamentally any smaller brokerage business that finds that they need more capabilities, whether it's P and C or benefits, It's the same decision by the owners of those businesses. They just think that they can use join us. Together, we'll be better as we service those clients The capabilities they can get from us, they'll get it from whether it's wholesale, whether it's retail, whether it's benefit, Even in Gallagher Bassett as they have specialty acquisitions there. If it's as the owners, it's the same reason they're selling themselves is because they need capabilities and they think Gallagher is the right place to get those capabilities. Speaker 400:59:31Great. That's helpful. Thank you. And then maybe in terms of internally, In terms of your own wage sort of inflation monitoring, just curious If that has calmed down a little bit as inflation overall has slowed down? Speaker 200:59:49Yes. Here's the thing. We didn't see the great resignation that you've read about in papers we've talked about that quite a bit. We were very fair with our employees on the amount of raised pools that we've given. Those raised pools are larger In 2022 and 2023 than they were in 2018 2019 on a per employee basis. Speaker 201:00:07So we've recognized that there is some cost That our employees have to bear and so we think that the raises we've given them have been very fair and have acknowledged the inflation in the environment. We haven't really sat down to plan for next year yet to see where we'd be in those raised pools, but obviously It would be fair with our folks, but as you see some of the inflation numbers are cooling down on what it cost to live. But by and large, I think that we've been very fair. Throughout our history, we have given raises every single year that I've been at Gallagher, and we recognize the importance of our employees to do that. So We haven't seen a big stress on that. Speaker 401:00:48Awesome. Thank you, guys. Speaker 101:00:51Thank you. Operator01:00:55Thank you. Our next question is from the line of Scott Heleniak with RBC Capital Markets. Speaker 401:01:03Just a quick question on the risk management side. Wondering if you could give a little detail on the claims count Differences and changes, in both claims count and severity and kind of what you're seeing versus either recent quarters or year over year. And I guess I'm more interested, I know you touched on a little bit, just on some of the casualty lines and workers' comp and liability and kind of what you're seeing there in terms of The counts and the average claim size that you're handling at Gallagher Bassett? Speaker 201:01:34All right. So three things on there. First, When you look at it, we were seeing more COVID claims last year and that's basically gone to very little at this point, yet we still grew through that. Kind of existing customers, we consider the claims arising for our existing customers to be flattish, maybe up a little bit. Now that was a trend that we were seeing also when you go back pre pandemic because as workplaces get safer and safer, so really the Success that you're seeing in the organic is really our new business and excellent retention. Speaker 201:02:06So that kind of tells you Flattish from existing customers, growing through the loss of COVID claims and better conservatively better new business And better retention. What are we seeing for severity within that? Severity is going up. There's no question on average As a percentage, I don't know if it's 5% or 7%, but overall something like that. Speaker 501:02:34Okay. That's a couple Speaker 401:02:36of detail. And then just another question on the M and A pipeline since it was So significant compared to recent quarters. Just wondering if you can also just talk about or comment on how much of that is how much of the you're seeing is international versus domestic. I'm not looking for a specific breakdown, but anything you can Share there on are you continuing to look at a lot more international deals than you had over the past few years? Speaker 101:03:04No, our international pipeline is Pretty steady. The majority of what we're looking at is U. S. Domestic. Speaker 401:03:11Yes. Okay. And then finally, any earlier read on July renewal premium? I know it's probably a little bit early, but how that's comparing to the 12%? Or is it just too early on that? Speaker 201:03:22Our July numbers are better than our June numbers. I looked at the overnights from last year and there is a noticeable difference. Now July is not over. A lot of your activity happens in the last week here, but right now our early reads month over month is there is another step up. Speaker 401:03:39Okay, interesting. Great. Thanks for all the answers. Speaker 101:03:43You bet. Operator01:03:45Thank you. The final question is follow-up from Weston Blumert with UBS. Speaker 301:03:52Hey, thanks for taking my follow-up question. Are you guys disclosing what free cash flow was in the 2Q or any updates on the level maybe as a percentage of revenue that you're expecting Full year, as you integrate Buck or given the strong 2Q? Speaker 201:04:06Well, Q2 is our notoriously smallest quarter because that's when we pay out all of our incentive compensation. We pay that in April, so the Q2 is our smallest. The second half of the year is the largest as a percentage. You all toil in that those numbers more than we do. That's just not really how we look at it. Speaker 201:04:24The fact is our cash flows Closely tracked to our EBITDA growth. As you know that because of our tax credits, our tax load as a percentage of our EBITDA It's usually somewhere in the 8% range. Our CapEx is pretty consistent with prior years, so you don't have a significant change in that. So the only thing that really kind of impacts our cash flows different than EBITDA would be a little bit taxes, a little bit a little growth in CapEx. And And then obviously, if we're paying integration costs, some Speaker 101:04:55of those will throw out Speaker 201:04:57in cash too on that. But right now, we track close our cash flows Track very close to what our EBITDA is. So the growth in the EBITDA is pretty much so what you're going to see in the growth in our cash flows. Speaker 301:05:11Got it. Thanks. And then maybe ex integration costs, is Buck maybe cash flow neutral or maybe slightly cash flow Negative just given the lower margin there? Speaker 201:05:22It's cash flow positive. I mean listen, the integration we're not spending that much on integration on this It's acquisition. So I would say over 3 years, I think we're going to spend $125,000,000 something like that. And it throws off cash flows in excess of that. Speaker 401:05:37It's a great it's a Speaker 101:05:39great business. Speaker 301:05:42Great. Thank you. Speaker 101:05:43All right. Thanks for With us this evening, everybody, I really appreciate you joining us. I think you could probably tell that myself and the team are extremely pleased with our 2nd quarter performance. We're reflecting on full year 'twenty three financial outlook relative to our early thinking. It has improved on every measure. Speaker 101:06:01As we sit here today, we remain very bullish on the second half. And most importantly, to our more than 48,000 colleagues around the globe, thank you. For all you do day in and day out, I believe our continued financial success is a direct reflection of our people and our culture. Thank you very much. We look forward to speaking with you again at our IR Day in September. Speaker 101:06:24Thanks for being with us. Operator01:06:26This does conclude today's conference call. 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