NYSE:AJG Arthur J. Gallagher & Co. Q3 2024 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$2.26Consensus EPS $2.26Beat/MissMet ExpectationsOne Year Ago EPS$2.00Arthur J. Gallagher & Co. Revenue ResultsActual Revenue$2.77 billionExpected Revenue$2.78 billionBeat/MissMissed by -$13.60 millionYoY Revenue Growth+12.80%Arthur J. Gallagher & Co. Announcement DetailsQuarterQ3 2024Date10/24/2024TimeAfter Market ClosesConference Call DateThursday, October 24, 2024Conference 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 TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Arthur J. Gallagher & Co. Q3 2024 Earnings Call TranscriptProvided by QuartrOctober 24, 2024 ShareLink copied to clipboard.There are 13 speakers on the call. Operator00:00:00Good afternoon. Welcome to Arthur J. Gallagher and Company's Third Quarter 2024 Earnings Conference Call. Participants have been placed on listen only mode. Your lines will be open for questions following the presentation. Operator00:00:11Today's call is being recorded. If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward looking statements within the meaning of the securities laws. The company does not assume any obligation to update information or forward looking statements provided on this call. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Operator00:00:40Please 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. In addition, for reconciliations of the non GAAP measures discussed on this call, as well as other information regarding these measures, please refer to the earnings release and other materials in the Investor Relations section of the company's website. It is now my pleasure to introduce J. Patrick Gallagher, Jr, Chairman and CEO of Arthur J. Gallagher and Company. Operator00:01:13Mr. Gallagher, you may begin. Speaker 100:01:16Thank you very much. Good afternoon, everyone, and thank you for joining us for our Q3 'twenty four earnings call. On the call with me today is Doug Howell, our CFO other members of the management team and heads of our operating divisions. Before I get to my comments about our financial results, I'd like to acknowledge the damage and devastation caused by the recent storms and floods. Our thoughts are with those impacted by these events, including our own Gallagher colleagues. Speaker 100:01:41Our professionals are hard at work helping clients sort through their coverages, file claims and ultimately get losses paid. I'm really honored to be part of a company and an industry with such an important responsibility, helping families, businesses and communities rebuild and restore their lives, and that's a noble cause. Okay. On to my comments regarding our financial performance. We had a great Q3. Speaker 100:02:06For our combined Brokerage and Risk Management segments, we posted 13% growth in revenue, 6% organic growth, which does not include interest income, reported net earnings margin of 15.5%, adjusted EBITDAC margin of 31.9 percent, up 123 basis points year over year. GAAP earnings per share of $1.90 and adjusted earnings per share of $2.72 up 16% year over year, another fantastic operating quarter by the team. Moving to results on a segment basis, starting with the brokerage segment. Reported revenue growth was 13%. Organic growth was right in line with our expectations at 6%, which as we forecasted reflects about a point of timing headwind from those large life cases we have highlighted over the past couple of quarters. Speaker 100:03:03Doug will provide you with some good news from October related to these sales in his remarks. Adjusted EBITDAC margin expanded 137 basis points to 33.6%, which was better than our IR day expectations. Let me give some insights behind our brokerage segment organic. Within our PC retail operations, we delivered 5% in the U. S. Speaker 100:03:29And 7% outside the U. S. Internationally, Australia and New Zealand led the way with organic of more than 10%. The U. K. Speaker 100:03:38Was up 6% and Canada was flattish. Our global employee benefit brokerage and consulting business posted organic of about 4% and a few points higher excluding the timing differences from the large life case sales. Shifting to our Reinsurance, Wholesale and Specialty businesses, overall organic of 8%, so very strong growth whether retail, wholesale or reinsurance. Next, let me provide some thoughts on the PC insurance pricing environment, starting with the primary insurance market. Global 3rd quarter renewal premiums, which include both rate and exposure were up 5% and little change from the 6% we discussed at our September IR Day update a few weeks ago. Speaker 100:04:25Most lines and geographies had very similar renewal premium changes through all 3 months of the quarter with a couple of exceptions. September casualty renewal increases outside the U. S. Were lower relative to July August, driven by changes in business mix. Additionally, large account and E and S property renewal premium increases were a bit less in September than the 1st 2 months of the quarter, but neither of these appear to be a trend. Speaker 100:04:53Thus far in October, we are seeing large account property and international casualty renewal premium increases higher than September. Breaking down 3rd quarter renewal premium changes by product line, we saw the following: property up 4%, general liability up 6%, commercial auto up 7%, umbrella up 10%, workers' comp up 2%, D and O down about 5%, cyber was flat and personal lines up 11%. So overall increases continue to be broad based and rational in our view, with carriers still cautious in pushing for rate where it's needed to generate an acceptable underwriting profit. We shine in this environment. Our job as brokers is to help clients find the best coverage while mitigating premium increases. Speaker 100:05:47So while not all of the increases ultimately show up in our organic, a rational market allows us to further differentiate ourselves with our leading tools, data and expertise. Let me shift to the reinsurance market. The July 1 renewal season saw modest property price declines concentrated at the top end of reinsurance towers, while casualty renewal saw terms and conditions tighten and some modest price increases concentrated in the U. S. Clearly, a lot has happened in the property market over the past month, which is now adding some complexity to January 1 property renewals. Speaker 100:06:26It's still early, but we now believe a flattish renewal is more likely than the downward pressure previously being discussed. And don't forget, U. S. Hurricane season is not over for another month. For casualty risks, we believe reinsurance will remain cautious heading into next year, especially if there is more noise related to U. Speaker 100:06:46S. Reserve adequacy. We think differentiating underwriting practices will likely be the key to a successful renewal for clients. Overall, the reinsurance industry remains adequately capitalized and is likely to meet capacity demands at the upcoming January 1 renewals. We continue to believe Gallagaree will perform very well in 2025 regardless of how the market environment unfolds in the near term. Speaker 100:07:15Moving to some comments on our customers' business activity. Our daily revenue indications from audits, endorsements and cancellations were again in positive territory for the Q3. While the amount of upward revenue adjustments isn't as much as 2023, they are running in line with 2022. So client business activity remains solid and we are not seeing any signs of meaningful global economic slowdown. Within the U. Speaker 100:07:43S, the labor market is on solid footing. In fact, the number of open jobs increased in August and remained well above the number of unemployed people looking for work. Overall job growth, upward wage pressure and rising medical cost inflation continue to challenge employers looking for ways to grow their workforce and control their benefits costs. Regardless of market or economic conditions, I believe we are well positioned to take market share across our brokerage business. Remember, about 90% of the time, we are competing against the smaller local broker that cannot match our client value proposition, niche expertise, outstanding service and our extensive data and analytics offerings. Speaker 100:08:30Putting this all together, we continue to see full year 24 brokerage organic around 7.5% and that would be another outstanding year. Moving on to our Risk Management segment, Gallagher Bassett. Revenue growth was 12%, including organic of 6%. We continue to benefit from excellent client retention, increases in customer business activity, rising claim counts and new business wins. Adjusted EBITDAC margin was 20.8%, 35 basis points higher than last year and a bit above our September IR day expectation. Speaker 100:09:09Looking ahead, we see organic in the 4th quarter around 7% and full year organic pushing 9%. Margins for 4th quarter and full year should be in the 20.5% range and that too would be another outstanding year. Shifting to mergers and acquisitions. During the Q3, we remained disciplined completing 4 new mergers at fair prices representing $47,000,000 of estimated annualized revenue. For those new partners joining us, I'd like to extend a very warm welcome to the Gallagher family of professionals. Speaker 100:09:44Looking ahead, we have more than 100 mergers in our pipeline, representing approximately $1,500,000,000 of annualized revenue. Of these 100 potential partners, we have about 60 turn sheets signed or being prepared, representing around $700,000,000 of annualized revenue. Good firms always have a choice and it would be terrific if they chose to partner with Gallagher. Let me conclude with some comments regarding our culture. As we passed our 40th anniversary as a public company, I believe our greatest differentiator continues to be our bedrock culture. Speaker 100:10:23It's a culture that runs towards problems not away from them, a culture that supports one another and embraces teamwork, a culture that is grounded in the highest standards of moral and ethical behavior. It's a culture that will continue to guide our success for many years to come. Frankly, we love this business. We enjoy taking care of our customers and that is the Callager Way. Okay, I'll stop now and turn it over to Doug. Speaker 100:10:47Doug? Speaker 200:10:49Thanks, Pat, and hello, everyone. Today, I'll walk you through our earnings release. First, I'll comment on Q3 organic growth and margins by segment. Then I'll provide an update on how we are seeing organic growth and margin shape up for 4th quarter and provide an early look on 2025. Next, I'll move to the CFO commentary document that we post on our IR website and walk you through our typical modeling helpers. Speaker 200:11:14And I'll conclude my prepared remarks with my usual comments on cash, M and A and Capital Management. Okay. Let's flip to Page 3 of the earnings release. Headline Brokerage segment 3rd quarter organic growth of 6% without interest income. That's right in line with our September IR Day forecast during which we signaled about a point of headwind during due to the timing of large life sales. Speaker 200:11:39Recall that these life products are interest rate sensitive. So as we've been discussing, clients were waiting for lower interest rates. Well, the good news Pat mentioned happened over the last month or so. We are now seeing clients fund their policies. In fact, here in October, we have already caught up more than half of what had slipped from earlier quarters. Speaker 200:12:01So the quarterly lumpiness that we have been highlighting throughout the year is starting to swing the other way here in October and thus we are currently seeing 4th quarter organic towards 8% and full year pushing 7.5%. As we start to budget for 2025, our early thinking is brokerage segment full year organic growth might be in the 6% to 8% range. If so, that could mean a 25% similar to how 2024 might ultimately play out. We'll provide some more on our 2025 thinking at our December IR Day. But an early read through is, we remain upbeat on our ability to grow given the investments we have been making in the business, from adding niche experts to rolling out new sales and support tools to expanding our data and analytics offerings, we believe these actions are leading to higher new business production and strong client retention across the globe. Speaker 200:12:55And as Pat described, the market environment is still a tailwind for us. Flipping now to page 5 of the earnings release to the brokerage segment adjusted EBITDAC table. 3rd quarter adjusted EBITDAC margin was 33.6%, up 137 basis points over last year and above the upper end of our September IR Day expectations. Let me walk you through a bridge from last year. First, if you pull out last year's 2023 Q3 earnings release, you would see we reported back then adjusted EBITDAQ margin of 32.4 percent. Speaker 200:13:32But now using current period FX rates that would have been 32.2%. Then organic and interest gave us nearly 150 basis points of expansion this quarter. Finally, the impact of M and A and divestitures used about 10 basis points of margin this quarter. You follow that and that will get you to Q3 'twenty four margin of 33.6% and that's the 137 basis points of brokerage margin expansion. That is really, really great work by the team. Speaker 200:14:03As we look ahead to Q4 'twenty four, we are still expecting margin expansion in the 90 to 100 basis point range. And again, that would be off of Q4 2023 adjusted margin for FX, which currently is estimated to be about 20 basis points lower than last year's headline margin of 31.6%. If we do that, that would mean full year 2024 could show about 70 basis points of margin expansion and 90 basis points excluding the 1st quarter impact from the roll in of the Buck merger. Okay. Let's move on to the risk management segment and the organic and EBITDA tables on pages 56. Speaker 200:14:48It was another solid quarter. We posted organic of 6%. That's a point lower than our IR day guidance because we just missed qualifying for a full revenue bonus related to 1 large account. That said, Gallagher Bassett continues to see excellent client retention and strong new business production and still delivered an adjusted EBITDA margin of 20.8%, which is up 35 basis points over prior year and ahead of our IR day expectation. Looking forward, we see organic of 7% and margins around 20.5% in the 4th quarter. Speaker 200:15:23If we were to post that, we would finish the year with organic pushing 9% and margins of approximately 20.5%. That too would be great work by the team. As for 2025, our early thinking is for organic growth similar to the brokerage segment, call it in that 6% to 8% range. Turning now to Page 6 of the earnings release and the corporate segment shortcut table. In total, adjusted 3rd quarter numbers for interest in banking, clean energy and acquisition costs came in within our September IR Day expectations. Speaker 200:15:58The corporate line of the corporate segment was below our expectations due to approximately $9,000,000 of additional unrealized non cash foreign exchange remeasurement expense that developed during September and wasn't included in our IR day forecast. After tax call it about $0.03 That has already reversed here in October. So it really is a non cash nothing in our opinion, but the accounting does cause some noise. Let's now move to the CFO commentary document. Starting on page 3, modeling helpers. Speaker 200:16:33There's no new news here other than FX, so just consider these updated revenue and EPS impacts as you update your models. Turning to the corporate segment on page 4 of the CFO commentary document, no change to our outlook for Q4. Flipping now to Page 5 to our tax credit carry forwards shows $796,000,000 at September 30. While this benefit won't show up in the P and L, it does benefit our cash flow for the next few years, which helps us fund future M and A. Turning to page 6, the investment income table. Speaker 200:17:08We are now embedding 2 25 basis point rate cuts in the Q4 of 2024 and have updated our estimates in this table for current FX rates. Punch line here is our 4th quarter estimate does not change much from what we provided at our September IR day. Shifting down that page to the rollover revenue table, the Q3 'twenty four column subtotal is $111,000,000 $141,000,000 before divestitures. These are consistent with our September IR Day expectations. Looking forward, the pinkish columns to the right include estimated revenues for brokerage M and A through closed through yesterday. Speaker 200:17:49So just a reminder, you'll need to make a pick for future M and A. And when you move down on that page, you'll see the Risk Management segment rollover revenues for Q4 2024 are expected to be approximately $15,000,000 So moving to cash, capital management and M and A funding. Available cash on hand at September 30 was about $1,200,000,000 Considering this balance and our strong expected free cash flow, we are in an excellent position to fund our robust pipeline of M and A opportunities here in 2024. We currently estimate capacity of around $3,000,000,000 for M and A here in 2024 and is looking like we could have another $4,000,000,000 to fund M and A in 2025, all while making solid maintaining a solid investment grade rating. So it's another excellent quarter in the books. Speaker 200:18:41Through the 1st 9 months of the year for our combined Brokerage and Risk Management segments, we have delivered revenues up 16%, organic growth of 8%, net earnings up 20%, adjusted EBITDAQ up 18% and adjusted EPS up 17%. Those are terrific numbers and reflect an unstoppable culture. We are well on our way to another great year of financial results. Hats off to the team for all of their hard work. So back to you, Pat. Speaker 100:19:10Thanks, Doug. And operator, if we could go to questions and answers, please. Operator00:19:15Sure. Thank you. The call is now open for questions. Our first question comes from the line of Mike Zaremski with BMO Capital Markets. Please proceed with your question. Speaker 300:19:44Hey, thanks for the questions. First one is on the bridge from in the brokerage segment from 3Q organic to 4Q organic to kind of the 2 point uplift sequentially. Is are you saying most of that is life insurance? And if not, it sounds like RPC was still kind of more muted. But are you saying RPC is kind of is lifting off into is trending higher into 4Q? Speaker 300:20:19Just trying to understand some of the pieces there. Speaker 200:20:22All right. So I think when you renewal premium changes is what you're referring to as RPC, I'm assuming. We're not seeing underlying that our rates that what we're seeing for rates are not different all that much in the Q3 at all compared to what we saw in the 1st two quarters. And I think you're seeing that in a lot of the carrier releases right now too. So rates for the Q4 we're assuming about the same as what we're seeing here in the 3rd quarter which is the same as in the first and the second. Speaker 200:20:54As for the increase next quarter, yes, we are getting about a point of additional organic growth from the life insurance sales. But when you bake all this in, we think that it's we're running around 7.5% in our business right now. That's the underlying growth. When you take out the puts and takes quarter to quarter, we're nicely in that 7% to 8% range. Speaker 300:21:20Okay. Got it. So no other seasonality or anything there? Okay. Speaker 200:21:24We are a little slow in the Q4. It's not as big a quarter for reinsurance for us. And that has been an organic leader over the last couple of years. So yes, we do have a little bit of that impact because it's not we're not so heavily weighted in the Q4 to reinsurance. Speaker 300:21:44Okay. All right. That makes sense. Okay. Switching gears a bit to, I guess, the margins or just if I look at fiduciary investment income, looks like it was much better than expected, but I think you're guiding down. Speaker 300:22:00What caused the spike and why is it expected to go back down? Speaker 200:22:05Well, I think you have to look at our premium funding business there. So when you take a look at the table on Page 6 of the earnings release, I don't think we've changed our estimates all that much for the excuse me, of the CFO commentary. I don't think we've changed all our comments all that much for the Q4. Okay. Okay. Speaker 200:22:27Got it. You also realize there can be some times where we have obviously fluctuations in our fiduciary cash balances too that can impact that number. Speaker 300:22:37Okay, got it. And I guess, Doug, as a follow-up to some of the comments you made earlier on renewal price change. So actually from a number of the carriers we've seen so far, we have seen an uptick on the casualty side in terms of pricing. And I know in the past too, you guys have had a view that what you're seeing hearing from carriers is that they're under earning on some of the major casualty lines. So is that still kind of in your thought process as you think that you gave us some tidbits on how 25 could play out that there could be some price hardening on the casualty side? Speaker 100:23:16There's definitely some price concern on casualty across the board. And I don't know if that will filter into discipline on their part to continue to take it up more than we're presently seeing. But as you heard us earlier, umbrellas presently rising at about 10%. The only line in casualty seems to have a difficult time finding bottoms D and O. The rest, however, are showing strength. Speaker 200:23:42Yes. I just got one number here. Our U. S. Business, our casualty lines are up a full point, 3rd quarter versus 2nd quarter. Speaker 300:23:55Thank you. Operator00:23:58Our next question is from the line of Rob Cox with Goldman Sachs. Please proceed with your question. Speaker 400:24:05Hey, thanks. So appreciate all the guidance on the brokerage organic. I was just curious about the components. I think in the beginning of this year, you guys had talked about maybe it was a third, a third, a third exposure new business and pricing. I was just curious how you guys expect that might unfold in 2025? Speaker 200:24:28I think it's going to be half new business in excess of loss business and I think that it's going to split the rest of it between exposure and rate. Operator00:24:40Okay, got it. That's helpful. Speaker 400:24:44Yes, just curious, maybe it's a little bit tough to go through all the comments, but it seemed like maybe international retail decelerated a little bit more than the U. S. This quarter. I guess I was just curious also on your views between international and U. S. Speaker 400:25:06Retail going into next year. Speaker 100:25:09Well, I think that you're going to see strong international growth. That's where our strongest component is right now and that does not seem to be backing off. So if you look at our prepared remarks, we talked about the fact that we're a good part of our growth this quarter was international. Can you see if I can find that? Yes. Speaker 200:25:25I mean, our Australia and New Zealand operations killed it this quarter, so they're up nicely. Canada is a little flattish. I mean, if you want to do that, if you look at the U. K, there was a mix issue there in the Q3 also that you see through. But by and large, I wouldn't say that there's tatters anywhere that are causing this concern. Speaker 100:25:48International is up 10% this quarter and Doug's comment is right, led by New Zealand and Australia. Operator00:25:57Thanks guys. Appreciate it. Speaker 200:25:58Thanks. Operator00:26:01The next question is from the line of Elyse Greenspan with Wells Fargo. Please proceed with your questions. Speaker 500:26:07Hi, thanks. Good evening. My first question, embedded within your 4th quarter guidance, the 8% brokerage organic, is there any assumption for an impact on continued commissions from the recent storms? Speaker 200:26:21Yes. We don't think we're going to be heavily impacted maybe a couple of $1,000,000 from the storms, but that wouldn't move that maybe it moves it 10 basis points. Speaker 500:26:32Okay. And then within the guidance, right, I think you guys said 6 to 8 brokerage for next year. Are you assuming what are you assuming for the benefits business? But I understand there was some seasonality this year. Are you just assuming it's kind of in line with the rest of the segment? Speaker 500:26:51I know you typically wait a little longer to give the by segment guidance, but just because that's brought on some volatility this year, I wanted to get a sense of where you think that will head next year. Speaker 200:27:01Listen, if you want to pick the midpoint of that range, maybe benefits is around 5% and reinsurance is around 9%, something like that when you're looking for a couple of points on either side of the midpoint. Speaker 500:27:14For next year? Speaker 200:27:16Yes, for next year. Speaker 500:27:18Okay. And then with the M and A, I know like yield flow, right, has probably been a bit lighter through the 1st 3 quarters, right, than what we've seen in prior years. Do you guys think, just given it's a presidential election year, has that caused, I guess, a slowdown in just the closing of transactions? And are you expecting more activity in the Q4 early next year? How do you guys see things on that front? Speaker 100:27:46Well, I think if you take a look this is Pat. If you think if you look at the general marketplace in terms of acquisitions, there's been a bit of a slowdown in general across the board for the last year. We've got a great pipeline. In my experience, we've got one of the best pipelines we've ever had. So I think that possibly when the discomfort, if you want to call it that, or concentration on this election finally ends, Clearly, if the Democrats get in, I think there could be a rush for the door. Speaker 100:28:14I don't know what happens in the case the Republicans win. But at any rate, I think when things settle out, we do think there'll be continued great opportunity and I do think that there'll be a return to a little bit more robust market. Speaker 200:28:28Yes, I think we're going to be I think if you looked at it year to date in 2020 2021, we are closing around 2017 and 2022 we closed 2019, year to date 2024 we're at 27. Yes, last year we closed 37 year to date of these tuck in deals acquisitions. So it was a little slower this quarter, but I think as you heard from Pat's pretty detailed comments, our pipeline is terrific right now. Speaker 500:28:53And then one last one on like that corporate line within the corporate segment. Doug, I thought you said that it was worse, right, than September IR Day because of the FX remeasurement, but that reversed in the 4th quarter. But then the Q4 guide for corporate did change. Are you just not modeling that in yet? Speaker 200:29:11Yes. That's a good point. We might be a little bipolar on that. We might have been able to schedule a couple of extra pennies on that line for the reversal of what we saw at the end of the Q3, but that bounces around quite a bit. So I think that we'll see what happens. Speaker 200:29:26Again, so we just didn't feel like for a couple of pennies it was worth changing that number. Speaker 500:29:33Okay. Thank you. Speaker 100:29:35Thanks, Elyse. Operator00:29:38The next question is from the line of Gregory Peters with Raymond James. Please proceed with your question. Speaker 600:29:43Yes. Good afternoon, everyone. Just building on your last answer on acquisitions, one of the things that struck out or stuck out to me, I should say, is when I was going through the supplement was the weighted average multiple for tuck in pricing of acquisitions came down a lot in the Q3. Is there any maybe you can just help me understand what happened, why the multiple came down, because I don't feel like multiples are coming down in the marketplace. And Pat, in your prepared remarks, you seem to emphasize your price discipline a little bit more than usually referenced in talking about tuck in acquisitions. Speaker 100:30:28Yes. When we prepared the remarks, Greg, we did discuss whether in the past we've been undisciplined. Speaker 600:30:36Understood. No, Speaker 100:30:37I think it's just a good reminder. We have a lot of people listening to these calls, our own people included. And this is a theme for us that we want to do great deals at the right price. We've done that now for a good 30 years. And it's just a reminder to our own folks and to our listeners that we do a lot of acquisitions. Speaker 100:30:58We try to maintain a good discipline around the pricing and we seem to strike a fair balance between that and the great people who join us. Speaker 600:31:09And the multiple for the Q3 acquisitions came down materially. It's like I felt like they took a step back in time. Yes. Speaker 200:31:17One of those acquisitions was not priced, but I would say it was priced a little under market because we have some opportunity to help it get better. Speaker 600:31:26Okay. Another sort of nitpicking item, you were going through your earnings press release and I was going through the adjustments to earnings to get your adjusted EBITDA on Page 5 of brokerage. And one of the things that stuck out to me is just a huge jump up in workforce and lease termination related charges in the year this year versus last year in Q3 versus Q3 last year. Is there something going on on a bigger scale? Is this more offshoring that's going on? Speaker 600:32:05Or maybe you could just help I know it's a small item inside your income statement, maybe you could just give us a sense of what's going on there, please? Speaker 200:32:14Well, then, Greg I'm sorry, back to you. Speaker 100:32:16So I was just going to say, Greg, you hit on the offshoring thing is really continues to be a very strong play for us. And you'll recall years ago, we started with a very small group. We're 12,500 people strong there now. And as we do acquisitions and go across the board, illustrating the type of quality and the speed with which we can do things like issue certificates, there's pretty quick adoption. It's pretty good. Speaker 200:32:43Yes. I think you're seeing Greg, you're starting to see the flywheel just getting stronger and stronger as we benefit from scale. We benefit from technologies that we're deploying and we're benefiting from our offshore centers of excellence. It just gives us an opportunity to continue to optimize our workforce. And so I think you're seeing that this quarter, yes, popped up a little bit because we have some opportunities to optimize our workforce. Speaker 200:33:09So you'll see that from time to time. Speaker 600:33:12Great. And then just step back macro question and this will be the last one. I know your commercial customers set their budgets for the year. In the past, given the robust rate increases that you've had to sell, it seems like the market's beginning to stabilize a little bit more than, say, for it was 2 years ago. How are the budgets when you hear from your customers, how are the budgets changing for their insurance spend? Speaker 600:33:41Is it you're seeing more flat budgets? Are you still seeing them assume increases? Give us a sense of what's going on there. Speaker 100:33:49Really not flat, Greg, for two reasons. Exposure units, thankfully, are continuing to grow. This is why we go through our daily review of the things that are coming through audits, etcetera. We're seeing a robust economy and that's clearly in a big part of the middle market. And so from SME all the way through large accounts, we've got the data on that. Speaker 100:34:12People are expanding their exposure units, so budgets are going up. Secondly, we are very, very cautious. We are not leading customers to believe that there's any kind of nirvana relative to rates. That is not what's happening. We show them our detail that we go over with you quarterly. Speaker 100:34:28Property is up 4%, general liability is up 6%. You may not deserve that, that may not hit your P and L, but on the other hand, you may deserve 25%. And this is a rational market. We got to talk through that, which leads us right into discussing how much you retain, what you bring back into the coverage stack that you might not have had before. And that's where the real strength and art of being a broker is, is understanding that appetite for risk that each individual account has working with those primary buyers to decide how they're going to get their best spend. Speaker 100:35:05And it's not a discussion all around rate by any means. Speaker 200:35:08Yes. I think you take the K off out of the pricing cycle and have this rational pricing cycle that we're seeing right now. Our guys will show the tools and capabilities that we have and that will shine through and differentiate ourselves. That's why when I said before that I see a better new business versus lost business here, next year than we've even seen in the last couple of years. Speaker 100:35:33And by the way to that point Greg, we can take clients into our data now and I think you know this. We can say clients like you buy this and their quotes and cover looks like this. And by the way, their costs are this. Well, why is that? Think about selling or buying a house on the street. Speaker 100:35:48One's been taken care of, looks pretty darn good, has street appeal. The other looks like junk. Guess who gets the better price? Why don't we try to get you looking more like the house on the street people want to buy? And that back to my point of art is what it's all about to be a good broker. Speaker 100:36:05And that's why when we get a rate environment like this, I feel very confident talking to our salespeople about we better see some increased sales folks. Let's go. Speaker 600:36:17Fair enough. Thanks for the answers. Speaker 100:36:19Thanks, Greg. Operator00:36:22The next question is from the line of Dean Cristiano with KBW. Please proceed with your question. Speaker 700:36:29Hi. I was hoping if you guys could provide maybe some additional color on the sequential decrease in the organic growth in brokerage, especially in the context of that renewal premium change holding up pretty strong sequentially? Speaker 200:36:42Well, listen, I think I said earlier that our Q1 is strong because it's a heavy reinsurance quarter, right? We've talked about some of the life insurance being a little lumpy. But if you bounce those two things out of there a little bit, again, we're running around 7.5% organic growth each quarter. So while it looks like that on the face, yes, we're at 6% now, but warned that there was a full point of headwind against that. Also we're not seeing substantial rate differentials rates between the quarters. Speaker 200:37:15So really underlying it when you carve out the seasonality of a couple of our businesses, some of the mix differences between when property renews versus when casualty renews, the life lumpiness, you got to take our word for it. It's pretty steady underlying other than that those things that I've said. So it's pretty steady right now underlying. Speaker 100:37:37Yes. And if you want to go back 3 or 4 years, D and O is up 300%. So by line, by geography, these rates do make a difference, they move. So we're not seeing a D and O renewal anywhere near to 300%. In fact, it's off 5% or 6%. Speaker 100:37:53So the percentages do move. This is not an environment where you say for the next 10 years. Good news is it's 4% a quarter, bing bang boom. Speaker 700:38:04Got it. That makes sense. And then my second one, a few of your competitors have made some large acquisitions to help improve their middle market capabilities. And I was wondering what implications do you think that have on the competitive environment going forward sort of being that you guys are a dominant player in that space? Speaker 100:38:23I don't think it has any impact to be perfectly blunt on our business at all. Speaker 700:38:32Okay. Thank Speaker 100:38:33you. Thanks, Steve. Operator00:38:36The next question is from the line of Mark Hughes with Truist Securities. Please proceed with your question. Speaker 800:38:42Yes. Thank you. Good afternoon. Speaker 900:38:44Doug, did you give Speaker 800:38:46early margin thoughts for 2025 for brokerage and risk management? Speaker 200:38:51I have not. I will in December as we go through the budget, but I will say this. We post 6% to 8% for our organic growth next year. It's there, Mark. There's an opportunity for us to continue to get better. Speaker 200:39:05Our scale advantages are coming through our technologies using the offshore centers of excellence. It still gives us an opportunity in an environment that we're seeing with current wage inflation, with current inflation in other categories of our spends that we continue to have opportunities to get better and better. And when you're punching out 6% to 8% organic growth, the underlying margins will absolutely have opportunity for expansion. Speaker 800:39:35Very good. And then the did you give organic broken out by the wholesale components and then reinsurance? I think you might have given those collectively at up 8%, but do you happen to have the components of that? Speaker 200:39:51Yes. Listen, some of like our affinity businesses might be at 12%, some of our program businesses might be around that 6%. I think our open brokerage is somewhere around 9%, 8% or 9%. The reinsurance is somewhere around 8% or 9% this quarter. So I would say other than a couple, maybe the Affinity business just a little better this quarter and maybe the program business just a little below that 8%. Speaker 200:40:18But the reason why we lumped them together and it was just to shorten the script, but there's not a lot of difference when you're looking at around 8%. Speaker 800:40:31Understood. And then any comment, Pat, on the mix shift out of admitted into the P and F lines? Speaker 100:40:39Yes, I think it's very it's a really interesting one, Mark. I think we're seeing continued tremendous submission supply into our wholesaling operation RPS that has not slowed down, which is really interesting. And we are not seeing accounts flowing back to the primary market in any great extent. So the excess and surplus market, which we know has gobbled up a big chunk of the P and C market over the last 5, 10 years seems to be continuing its growth and it's maintaining its accounts. And I think that's we've got people in RPS that bring more than just pricing to the deal. Speaker 100:41:20There's a lot of expertise there. There's a lot of layering and structuring that goes into some of these deals that your local retailer, ourselves included. Quite honestly, 50% of our wholesale business goes to RPS. That's for a reason. So I think it's both professional capabilities as well as market access and that market is still growing nicely. Speaker 900:41:44Thank you very much. Speaker 200:41:45Thanks, Mark. Operator00:41:49Our next question is from the line of Alex Scott with Barclays. Please proceed with your question. Speaker 900:41:55Hi. Thanks for taking my question. So I mean, when I hear what you're saying about reinsurance and the strength and growth there, the wholesale business seems like it's growing very nicely as well. When I look at the 6 percent and I guess run rating closer to 7% and change, but does that mean I guess it obviously means that the businesses other than reinsurance and wholesale like the more core retail is doing something lower. Is there anything that's causing some of the price there to not flow through? Speaker 900:42:33Is that just maybe some of the property deceleration we saw? I'm just trying to understand that piece of it specifically. What are some of the trends you're seeing in puts and takes headed into next year for the core retail piece of it? Speaker 200:42:46Yes. Always keep in the back of your mind our benefits business. That business is running around 5%. Take out the large life cases and stuff that bounce around a little bit. So as that as you think about those that are above that 7% range, yes, you've listed them, but you also have to remember that the benefit businesses naturally runs down below that level. Speaker 200:43:10Some of our actuarial services businesses run a little bit lower than that. But as I look across the organic across all the operating, we mentioned that Canada was about flat. But by and large, there's a few that offset each other, but it's not like there's any one particular area that is systemically running below that level right now. Speaker 900:43:35Got it. And then maybe if we can go back to reinsurance, I mean the growth rate you're anticipating sounds pretty robust there despite the flight pricing. And I just want Speaker 800:43:45to see if you could Speaker 900:43:46add some color around that. I mean, does that have to do with demand? Can you talk a bit about what you're seeing in terms of your clients' demand for reinsurance? Speaker 100:43:54Yes. I think demand seems very, very strong, which is good news for us. Also, I think our level of expertise in helping clients in a market environment where there is capacity and they can move around how they play in that capacity, it's a very strong demand for our consulting capabilities around reinsurance, what's the next move for the carriers that are our customers. So you have both. You've got demand. Speaker 100:44:20I think you have more utilization. There's strong growth at the primary level and all of that flows up into the funnel for reinsurance. And as one of the top 3 players in that business, we have a lot of good prospects on the list. Speaker 900:44:35Great. Thanks for the responses. Speaker 100:44:37Sure. Thanks Alex. Operator00:44:41And our next question is from Katy Sakas with Autonomous Research. Please proceed with your question. Speaker 1000:44:49Hi. I apologize. Thank you for the question. I might be some background noise. There's a fire juggling on right now. Speaker 1000:44:55I want to circle back to the subject of valuations. You're thinking about acquisitions in the middle market that are really concentrated in excess of $15,000,000 of revenue. We've seen a couple of those lately. And the multiples on those deals have been a lot higher than we've seen in the past. I was curious how that compares to what you guys are seeing for those larger middle market deals and whether your appetite to participate in larger acquisitions has shifted at all? Speaker 200:45:31Listen, I think that there's no question the larger you are probably the higher the multiplo might be for somebody that's out there looking for an opportunity. But when we look at our tuck in acquisitions, I think that people understand that we'll pay a fair price. And the advantage is they get to stick with us. They get to come in and they get to work inside of a broker. The broker is selling to a broker. Speaker 200:45:52They understand that if they decide to take our stock that they get to participate in equal form as you do, as I do, as Pat does, everybody else in this room. It's one stock for every person. They get our resources. They get to put their employees and their clients into an environment where actually joining us is going to deliver considerably more career value and more insurance value to their customers. So many times they look at it and they say that they get the opportunity to continue on doing what they're going to do. Speaker 200:46:23And so they get excited about it 10, 11 or 12 multiple. That's the reality about it. They're making a great return for their family and they know they get to continue doing it with us for as long as they would like to do in their career. And that's valuable to them too. Don't forget that. Speaker 100:46:41Let's also take a look at the landscape. Now we don't talk about this I think enough because the big deals get big headlines and they are big platforms. We estimate there's 29,000 agents and brokers in America. Last year Business Insurance last July Business Insurance ranked the top 100 in the United States, number 100 to $30,000,000 in revenue. So there's 28,900 brokers in America, that's firms not people that are out there trading. Speaker 100:47:13And that's why we say 90% of the time, which continues to be consistent over the last decade, when we compete in the marketplace, we're competing with somebody smaller. And it's probably less than 10% of the time really that we're competing with Marsh and Aon, who are the only larger brokers in the world today. It's not that we don't compete, we do. There's a robust market at the top end. When you think about that, we can use our funds, as Doug says, at lower multiples. Speaker 100:47:39We can have 100 of these opportunities in our pipeline. We can be pricing out $70,000,000 of them and possibly put on $1,000,000,000 of revenue with people that want to join us, haven't joined somebody else, want to bring their culture and their people aboard a culture that fits and matches theirs, as Doug said, a brokerage run by brokers. It doesn't get the press, but it seems like a pretty good strategy and a good use of our cash to us. Speaker 1000:48:11It. Thank you so much for the color. Speaker 100:48:14Hey, you better evacuate, Katie. Operator00:48:18Our next question is from the line of David Mamadine with Evercore ISI. Please proceed with your question. Speaker 1100:48:25Hey, good evening. Just had a question in brokerage and the contingents were up 24% on an organic basis. I was wondering if you could just talk about what was driving that in the quarter? Speaker 200:48:40Listen, I think that when you're talking about that, it's another $7,000,000 or $8,000,000 of where it developed from. We just had between our benefits business and our U. S. Retail business, that's where we picked up a few extra contingents in the quarter or our estimation for those contingents in the quarter. So there was nothing special in there. Speaker 200:49:02And again, we might give a couple of million of that back next quarter because of the storms and floods. But by and large, I would say around the possibility of what could happen, it was a few $1,000,000 in both of those businesses. Got it. Okay. That's helpful. Speaker 1100:49:26And then I guess just a bigger picture question. I heard the commentary on the term sheets being prepared or that in the process of getting signed with $700,000,000 of revenues. Do you have any stats historically on just how many of those closed, like what percentage of those closed in the next year, just to help us level set how much the contribution could be going forward? Speaker 100:50:00You really don't, David. Here's the thing. Every one of Speaker 200:50:02these is a very interesting story unto itself. You've heard me say, I mean, Speaker 100:50:02I think the interesting story into itself. You've heard me say, I mean, I think the longest time we spent talking to a client talking to a prospect and getting to know each other was 20 years. So sometimes they happen in a quarter, sometimes they take a couple of years. And, but when we get to pricing and we get to putting together a letter of intent, we're getting serious. And that's a deal that's going to get decided in the next 6 months. Speaker 100:50:32So I don't really have a stat on how many of those do close, how many don't. It's a full on sales process. It's just like selling insurance frankly. If you don't have a lot in the hopper, you're not Speaker 600:50:43going to close a lot. Speaker 100:50:48We feel very good about these 60. You could ask this every quarter and I will try to give some color. Right now, we feel very good about the deals that we're proposing right now. I would think we'd have a good shot at an awful lot of those. Speaker 1100:51:05Okay. That's good to hear. And then just finally, so it sounded like the U. S. Retail P and C organic, it sounded like that slowed a little bit. Speaker 1100:51:15I think it was 5%, if I heard that right, and I think it was 6% last quarter. Was that just the large account property business that you were talking about that has reaccelerated here in the Q4? Speaker 200:51:29Yes. Listen, I'm just looking at my sheet here. If it moved, it moved to 0.5 point one way or another. We did have more. 1st quarter was just a little bit better than that, but 2nd quarter is about the same number as what we've got right now. Speaker 300:51:44Great. Thank you. Speaker 100:51:46Thanks, David. Operator00:51:48Our next question is from the line of Grace Kannert with Bank of America. Please proceed with your question. Speaker 1200:51:54Hi, everyone. I was hoping we could talk about the contingents a little bit more. Just given kind of the ongoing conversation around, the casualty market, I was wondering if how you all are thinking about any potential risk of maybe some of the pressures from the casualty line that we saw in contingents last quarter resurfacing over the next few months? Speaker 200:52:17If it did, we're talking a few $1,000,000 I mean I wouldn't call that as being a systemic issue that we're going to have to face. Just like with the storms, it's a few million. There are some corridors that we do have caps on our contingents. And so sometimes if there's if the carriers have, let's say, maybe a loss more losses than they had hoped, it may still let us get to our full contingent level because there's caps on that. So right now, we're not seeing a lot of pressure from that in not only in our past book, but as we look forward in the booking. Speaker 200:52:58And if carriers continue to strengthen their casualty rates the way they have been and what they're saying and what we're hearing from them, when we're reading about what they're saying, it should maintain our contingent level also. Speaker 1200:53:13Thank you. And just a quick follow-up on the lumpy wipe sales. If I'm understanding correctly, you all are expecting pretty much all of the timing issue to work itself out in 4Q? Or should we expect any sort of kind of lagging impact from that in early 2025 as well? Speaker 200:53:33What I said is already here in October, we have recouped half of what had been the timing that had come out of this 1st and second quarter excuse me, 2nd and third quarter. So we're going to pick up we so far have we think that we've got a pipeline maybe to recover at all between now and the end of the year. And then we'll start over again. Just like every other sales organization, we got to start over next year and go out there and see if we can gin up some opportunities. But this product is becoming more and more necessary for many not for profits in order for them to be competitive in their executive benefit package. Speaker 200:54:14So this is a product that we think has long legs over the next several or many years. Speaker 1200:54:23Thank you. Speaker 200:54:25Thanks, Grace. Operator00:54:28Thank you. Our last question is from the line of Mike Zaremski with BMO Capital Markets. Please proceed with your question. Speaker 300:54:36Great. Just a quick follow-up on life insurance. So, just ballpark, what percentage of your brokerage revenues are life insurance? And I don't know if you want to break it out into this new product that might be more lumpy or just growing faster over time than traditional life? Speaker 200:54:55The lumpy business that we're talking about is about $125,000,000 business. Speaker 300:55:03Okay. Okay. Then that helps explain why it could move organic by that much. Okay. Thank you. Speaker 300:55:08That's all. Have a nice night. Speaker 100:55:10Thanks, Mike. I think that's it, operator. Thank you again, everyone, for joining us this afternoon. We had an excellent Q3 and we're well on our way to delivering another excellent year of financial performance. I'd like to thank our 55,000 colleagues around the globe for their hard work and dedication to our clients. Speaker 100:55:28We look forward to speaking with you again in person at our December Investor Meeting in New York City. Thank you very much for being with us this evening. We'll talk to you then. Operator00:55:37This does conclude today's conference call. You may disconnect your lines at this time.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallArthur J. Gallagher & Co. Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress 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.comCrypto’s crashing…but we’re still profitingMost traders are panicking right now. Bitcoin’s dropping. Altcoins are bleeding. The stock market’s a mess. The news is screaming fear. But while most traders watch their portfolios tank…April 25, 2025 | Crypto Swap Profits (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. 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There are 13 speakers on the call. Operator00:00:00Good afternoon. Welcome to Arthur J. Gallagher and Company's Third Quarter 2024 Earnings Conference Call. Participants have been placed on listen only mode. Your lines will be open for questions following the presentation. Operator00:00:11Today's call is being recorded. If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward looking statements within the meaning of the securities laws. The company does not assume any obligation to update information or forward looking statements provided on this call. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Operator00:00:40Please 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. In addition, for reconciliations of the non GAAP measures discussed on this call, as well as other information regarding these measures, please refer to the earnings release and other materials in the Investor Relations section of the company's website. It is now my pleasure to introduce J. Patrick Gallagher, Jr, Chairman and CEO of Arthur J. Gallagher and Company. Operator00:01:13Mr. Gallagher, you may begin. Speaker 100:01:16Thank you very much. Good afternoon, everyone, and thank you for joining us for our Q3 'twenty four earnings call. On the call with me today is Doug Howell, our CFO other members of the management team and heads of our operating divisions. Before I get to my comments about our financial results, I'd like to acknowledge the damage and devastation caused by the recent storms and floods. Our thoughts are with those impacted by these events, including our own Gallagher colleagues. Speaker 100:01:41Our professionals are hard at work helping clients sort through their coverages, file claims and ultimately get losses paid. I'm really honored to be part of a company and an industry with such an important responsibility, helping families, businesses and communities rebuild and restore their lives, and that's a noble cause. Okay. On to my comments regarding our financial performance. We had a great Q3. Speaker 100:02:06For our combined Brokerage and Risk Management segments, we posted 13% growth in revenue, 6% organic growth, which does not include interest income, reported net earnings margin of 15.5%, adjusted EBITDAC margin of 31.9 percent, up 123 basis points year over year. GAAP earnings per share of $1.90 and adjusted earnings per share of $2.72 up 16% year over year, another fantastic operating quarter by the team. Moving to results on a segment basis, starting with the brokerage segment. Reported revenue growth was 13%. Organic growth was right in line with our expectations at 6%, which as we forecasted reflects about a point of timing headwind from those large life cases we have highlighted over the past couple of quarters. Speaker 100:03:03Doug will provide you with some good news from October related to these sales in his remarks. Adjusted EBITDAC margin expanded 137 basis points to 33.6%, which was better than our IR day expectations. Let me give some insights behind our brokerage segment organic. Within our PC retail operations, we delivered 5% in the U. S. Speaker 100:03:29And 7% outside the U. S. Internationally, Australia and New Zealand led the way with organic of more than 10%. The U. K. Speaker 100:03:38Was up 6% and Canada was flattish. Our global employee benefit brokerage and consulting business posted organic of about 4% and a few points higher excluding the timing differences from the large life case sales. Shifting to our Reinsurance, Wholesale and Specialty businesses, overall organic of 8%, so very strong growth whether retail, wholesale or reinsurance. Next, let me provide some thoughts on the PC insurance pricing environment, starting with the primary insurance market. Global 3rd quarter renewal premiums, which include both rate and exposure were up 5% and little change from the 6% we discussed at our September IR Day update a few weeks ago. Speaker 100:04:25Most lines and geographies had very similar renewal premium changes through all 3 months of the quarter with a couple of exceptions. September casualty renewal increases outside the U. S. Were lower relative to July August, driven by changes in business mix. Additionally, large account and E and S property renewal premium increases were a bit less in September than the 1st 2 months of the quarter, but neither of these appear to be a trend. Speaker 100:04:53Thus far in October, we are seeing large account property and international casualty renewal premium increases higher than September. Breaking down 3rd quarter renewal premium changes by product line, we saw the following: property up 4%, general liability up 6%, commercial auto up 7%, umbrella up 10%, workers' comp up 2%, D and O down about 5%, cyber was flat and personal lines up 11%. So overall increases continue to be broad based and rational in our view, with carriers still cautious in pushing for rate where it's needed to generate an acceptable underwriting profit. We shine in this environment. Our job as brokers is to help clients find the best coverage while mitigating premium increases. Speaker 100:05:47So while not all of the increases ultimately show up in our organic, a rational market allows us to further differentiate ourselves with our leading tools, data and expertise. Let me shift to the reinsurance market. The July 1 renewal season saw modest property price declines concentrated at the top end of reinsurance towers, while casualty renewal saw terms and conditions tighten and some modest price increases concentrated in the U. S. Clearly, a lot has happened in the property market over the past month, which is now adding some complexity to January 1 property renewals. Speaker 100:06:26It's still early, but we now believe a flattish renewal is more likely than the downward pressure previously being discussed. And don't forget, U. S. Hurricane season is not over for another month. For casualty risks, we believe reinsurance will remain cautious heading into next year, especially if there is more noise related to U. Speaker 100:06:46S. Reserve adequacy. We think differentiating underwriting practices will likely be the key to a successful renewal for clients. Overall, the reinsurance industry remains adequately capitalized and is likely to meet capacity demands at the upcoming January 1 renewals. We continue to believe Gallagaree will perform very well in 2025 regardless of how the market environment unfolds in the near term. Speaker 100:07:15Moving to some comments on our customers' business activity. Our daily revenue indications from audits, endorsements and cancellations were again in positive territory for the Q3. While the amount of upward revenue adjustments isn't as much as 2023, they are running in line with 2022. So client business activity remains solid and we are not seeing any signs of meaningful global economic slowdown. Within the U. Speaker 100:07:43S, the labor market is on solid footing. In fact, the number of open jobs increased in August and remained well above the number of unemployed people looking for work. Overall job growth, upward wage pressure and rising medical cost inflation continue to challenge employers looking for ways to grow their workforce and control their benefits costs. Regardless of market or economic conditions, I believe we are well positioned to take market share across our brokerage business. Remember, about 90% of the time, we are competing against the smaller local broker that cannot match our client value proposition, niche expertise, outstanding service and our extensive data and analytics offerings. Speaker 100:08:30Putting this all together, we continue to see full year 24 brokerage organic around 7.5% and that would be another outstanding year. Moving on to our Risk Management segment, Gallagher Bassett. Revenue growth was 12%, including organic of 6%. We continue to benefit from excellent client retention, increases in customer business activity, rising claim counts and new business wins. Adjusted EBITDAC margin was 20.8%, 35 basis points higher than last year and a bit above our September IR day expectation. Speaker 100:09:09Looking ahead, we see organic in the 4th quarter around 7% and full year organic pushing 9%. Margins for 4th quarter and full year should be in the 20.5% range and that too would be another outstanding year. Shifting to mergers and acquisitions. During the Q3, we remained disciplined completing 4 new mergers at fair prices representing $47,000,000 of estimated annualized revenue. For those new partners joining us, I'd like to extend a very warm welcome to the Gallagher family of professionals. Speaker 100:09:44Looking ahead, we have more than 100 mergers in our pipeline, representing approximately $1,500,000,000 of annualized revenue. Of these 100 potential partners, we have about 60 turn sheets signed or being prepared, representing around $700,000,000 of annualized revenue. Good firms always have a choice and it would be terrific if they chose to partner with Gallagher. Let me conclude with some comments regarding our culture. As we passed our 40th anniversary as a public company, I believe our greatest differentiator continues to be our bedrock culture. Speaker 100:10:23It's a culture that runs towards problems not away from them, a culture that supports one another and embraces teamwork, a culture that is grounded in the highest standards of moral and ethical behavior. It's a culture that will continue to guide our success for many years to come. Frankly, we love this business. We enjoy taking care of our customers and that is the Callager Way. Okay, I'll stop now and turn it over to Doug. Speaker 100:10:47Doug? Speaker 200:10:49Thanks, Pat, and hello, everyone. Today, I'll walk you through our earnings release. First, I'll comment on Q3 organic growth and margins by segment. Then I'll provide an update on how we are seeing organic growth and margin shape up for 4th quarter and provide an early look on 2025. Next, I'll move to the CFO commentary document that we post on our IR website and walk you through our typical modeling helpers. Speaker 200:11:14And I'll conclude my prepared remarks with my usual comments on cash, M and A and Capital Management. Okay. Let's flip to Page 3 of the earnings release. Headline Brokerage segment 3rd quarter organic growth of 6% without interest income. That's right in line with our September IR Day forecast during which we signaled about a point of headwind during due to the timing of large life sales. Speaker 200:11:39Recall that these life products are interest rate sensitive. So as we've been discussing, clients were waiting for lower interest rates. Well, the good news Pat mentioned happened over the last month or so. We are now seeing clients fund their policies. In fact, here in October, we have already caught up more than half of what had slipped from earlier quarters. Speaker 200:12:01So the quarterly lumpiness that we have been highlighting throughout the year is starting to swing the other way here in October and thus we are currently seeing 4th quarter organic towards 8% and full year pushing 7.5%. As we start to budget for 2025, our early thinking is brokerage segment full year organic growth might be in the 6% to 8% range. If so, that could mean a 25% similar to how 2024 might ultimately play out. We'll provide some more on our 2025 thinking at our December IR Day. But an early read through is, we remain upbeat on our ability to grow given the investments we have been making in the business, from adding niche experts to rolling out new sales and support tools to expanding our data and analytics offerings, we believe these actions are leading to higher new business production and strong client retention across the globe. Speaker 200:12:55And as Pat described, the market environment is still a tailwind for us. Flipping now to page 5 of the earnings release to the brokerage segment adjusted EBITDAC table. 3rd quarter adjusted EBITDAC margin was 33.6%, up 137 basis points over last year and above the upper end of our September IR Day expectations. Let me walk you through a bridge from last year. First, if you pull out last year's 2023 Q3 earnings release, you would see we reported back then adjusted EBITDAQ margin of 32.4 percent. Speaker 200:13:32But now using current period FX rates that would have been 32.2%. Then organic and interest gave us nearly 150 basis points of expansion this quarter. Finally, the impact of M and A and divestitures used about 10 basis points of margin this quarter. You follow that and that will get you to Q3 'twenty four margin of 33.6% and that's the 137 basis points of brokerage margin expansion. That is really, really great work by the team. Speaker 200:14:03As we look ahead to Q4 'twenty four, we are still expecting margin expansion in the 90 to 100 basis point range. And again, that would be off of Q4 2023 adjusted margin for FX, which currently is estimated to be about 20 basis points lower than last year's headline margin of 31.6%. If we do that, that would mean full year 2024 could show about 70 basis points of margin expansion and 90 basis points excluding the 1st quarter impact from the roll in of the Buck merger. Okay. Let's move on to the risk management segment and the organic and EBITDA tables on pages 56. Speaker 200:14:48It was another solid quarter. We posted organic of 6%. That's a point lower than our IR day guidance because we just missed qualifying for a full revenue bonus related to 1 large account. That said, Gallagher Bassett continues to see excellent client retention and strong new business production and still delivered an adjusted EBITDA margin of 20.8%, which is up 35 basis points over prior year and ahead of our IR day expectation. Looking forward, we see organic of 7% and margins around 20.5% in the 4th quarter. Speaker 200:15:23If we were to post that, we would finish the year with organic pushing 9% and margins of approximately 20.5%. That too would be great work by the team. As for 2025, our early thinking is for organic growth similar to the brokerage segment, call it in that 6% to 8% range. Turning now to Page 6 of the earnings release and the corporate segment shortcut table. In total, adjusted 3rd quarter numbers for interest in banking, clean energy and acquisition costs came in within our September IR Day expectations. Speaker 200:15:58The corporate line of the corporate segment was below our expectations due to approximately $9,000,000 of additional unrealized non cash foreign exchange remeasurement expense that developed during September and wasn't included in our IR day forecast. After tax call it about $0.03 That has already reversed here in October. So it really is a non cash nothing in our opinion, but the accounting does cause some noise. Let's now move to the CFO commentary document. Starting on page 3, modeling helpers. Speaker 200:16:33There's no new news here other than FX, so just consider these updated revenue and EPS impacts as you update your models. Turning to the corporate segment on page 4 of the CFO commentary document, no change to our outlook for Q4. Flipping now to Page 5 to our tax credit carry forwards shows $796,000,000 at September 30. While this benefit won't show up in the P and L, it does benefit our cash flow for the next few years, which helps us fund future M and A. Turning to page 6, the investment income table. Speaker 200:17:08We are now embedding 2 25 basis point rate cuts in the Q4 of 2024 and have updated our estimates in this table for current FX rates. Punch line here is our 4th quarter estimate does not change much from what we provided at our September IR day. Shifting down that page to the rollover revenue table, the Q3 'twenty four column subtotal is $111,000,000 $141,000,000 before divestitures. These are consistent with our September IR Day expectations. Looking forward, the pinkish columns to the right include estimated revenues for brokerage M and A through closed through yesterday. Speaker 200:17:49So just a reminder, you'll need to make a pick for future M and A. And when you move down on that page, you'll see the Risk Management segment rollover revenues for Q4 2024 are expected to be approximately $15,000,000 So moving to cash, capital management and M and A funding. Available cash on hand at September 30 was about $1,200,000,000 Considering this balance and our strong expected free cash flow, we are in an excellent position to fund our robust pipeline of M and A opportunities here in 2024. We currently estimate capacity of around $3,000,000,000 for M and A here in 2024 and is looking like we could have another $4,000,000,000 to fund M and A in 2025, all while making solid maintaining a solid investment grade rating. So it's another excellent quarter in the books. Speaker 200:18:41Through the 1st 9 months of the year for our combined Brokerage and Risk Management segments, we have delivered revenues up 16%, organic growth of 8%, net earnings up 20%, adjusted EBITDAQ up 18% and adjusted EPS up 17%. Those are terrific numbers and reflect an unstoppable culture. We are well on our way to another great year of financial results. Hats off to the team for all of their hard work. So back to you, Pat. Speaker 100:19:10Thanks, Doug. And operator, if we could go to questions and answers, please. Operator00:19:15Sure. Thank you. The call is now open for questions. Our first question comes from the line of Mike Zaremski with BMO Capital Markets. Please proceed with your question. Speaker 300:19:44Hey, thanks for the questions. First one is on the bridge from in the brokerage segment from 3Q organic to 4Q organic to kind of the 2 point uplift sequentially. Is are you saying most of that is life insurance? And if not, it sounds like RPC was still kind of more muted. But are you saying RPC is kind of is lifting off into is trending higher into 4Q? Speaker 300:20:19Just trying to understand some of the pieces there. Speaker 200:20:22All right. So I think when you renewal premium changes is what you're referring to as RPC, I'm assuming. We're not seeing underlying that our rates that what we're seeing for rates are not different all that much in the Q3 at all compared to what we saw in the 1st two quarters. And I think you're seeing that in a lot of the carrier releases right now too. So rates for the Q4 we're assuming about the same as what we're seeing here in the 3rd quarter which is the same as in the first and the second. Speaker 200:20:54As for the increase next quarter, yes, we are getting about a point of additional organic growth from the life insurance sales. But when you bake all this in, we think that it's we're running around 7.5% in our business right now. That's the underlying growth. When you take out the puts and takes quarter to quarter, we're nicely in that 7% to 8% range. Speaker 300:21:20Okay. Got it. So no other seasonality or anything there? Okay. Speaker 200:21:24We are a little slow in the Q4. It's not as big a quarter for reinsurance for us. And that has been an organic leader over the last couple of years. So yes, we do have a little bit of that impact because it's not we're not so heavily weighted in the Q4 to reinsurance. Speaker 300:21:44Okay. All right. That makes sense. Okay. Switching gears a bit to, I guess, the margins or just if I look at fiduciary investment income, looks like it was much better than expected, but I think you're guiding down. Speaker 300:22:00What caused the spike and why is it expected to go back down? Speaker 200:22:05Well, I think you have to look at our premium funding business there. So when you take a look at the table on Page 6 of the earnings release, I don't think we've changed our estimates all that much for the excuse me, of the CFO commentary. I don't think we've changed all our comments all that much for the Q4. Okay. Okay. Speaker 200:22:27Got it. You also realize there can be some times where we have obviously fluctuations in our fiduciary cash balances too that can impact that number. Speaker 300:22:37Okay, got it. And I guess, Doug, as a follow-up to some of the comments you made earlier on renewal price change. So actually from a number of the carriers we've seen so far, we have seen an uptick on the casualty side in terms of pricing. And I know in the past too, you guys have had a view that what you're seeing hearing from carriers is that they're under earning on some of the major casualty lines. So is that still kind of in your thought process as you think that you gave us some tidbits on how 25 could play out that there could be some price hardening on the casualty side? Speaker 100:23:16There's definitely some price concern on casualty across the board. And I don't know if that will filter into discipline on their part to continue to take it up more than we're presently seeing. But as you heard us earlier, umbrellas presently rising at about 10%. The only line in casualty seems to have a difficult time finding bottoms D and O. The rest, however, are showing strength. Speaker 200:23:42Yes. I just got one number here. Our U. S. Business, our casualty lines are up a full point, 3rd quarter versus 2nd quarter. Speaker 300:23:55Thank you. Operator00:23:58Our next question is from the line of Rob Cox with Goldman Sachs. Please proceed with your question. Speaker 400:24:05Hey, thanks. So appreciate all the guidance on the brokerage organic. I was just curious about the components. I think in the beginning of this year, you guys had talked about maybe it was a third, a third, a third exposure new business and pricing. I was just curious how you guys expect that might unfold in 2025? Speaker 200:24:28I think it's going to be half new business in excess of loss business and I think that it's going to split the rest of it between exposure and rate. Operator00:24:40Okay, got it. That's helpful. Speaker 400:24:44Yes, just curious, maybe it's a little bit tough to go through all the comments, but it seemed like maybe international retail decelerated a little bit more than the U. S. This quarter. I guess I was just curious also on your views between international and U. S. Speaker 400:25:06Retail going into next year. Speaker 100:25:09Well, I think that you're going to see strong international growth. That's where our strongest component is right now and that does not seem to be backing off. So if you look at our prepared remarks, we talked about the fact that we're a good part of our growth this quarter was international. Can you see if I can find that? Yes. Speaker 200:25:25I mean, our Australia and New Zealand operations killed it this quarter, so they're up nicely. Canada is a little flattish. I mean, if you want to do that, if you look at the U. K, there was a mix issue there in the Q3 also that you see through. But by and large, I wouldn't say that there's tatters anywhere that are causing this concern. Speaker 100:25:48International is up 10% this quarter and Doug's comment is right, led by New Zealand and Australia. Operator00:25:57Thanks guys. Appreciate it. Speaker 200:25:58Thanks. Operator00:26:01The next question is from the line of Elyse Greenspan with Wells Fargo. Please proceed with your questions. Speaker 500:26:07Hi, thanks. Good evening. My first question, embedded within your 4th quarter guidance, the 8% brokerage organic, is there any assumption for an impact on continued commissions from the recent storms? Speaker 200:26:21Yes. We don't think we're going to be heavily impacted maybe a couple of $1,000,000 from the storms, but that wouldn't move that maybe it moves it 10 basis points. Speaker 500:26:32Okay. And then within the guidance, right, I think you guys said 6 to 8 brokerage for next year. Are you assuming what are you assuming for the benefits business? But I understand there was some seasonality this year. Are you just assuming it's kind of in line with the rest of the segment? Speaker 500:26:51I know you typically wait a little longer to give the by segment guidance, but just because that's brought on some volatility this year, I wanted to get a sense of where you think that will head next year. Speaker 200:27:01Listen, if you want to pick the midpoint of that range, maybe benefits is around 5% and reinsurance is around 9%, something like that when you're looking for a couple of points on either side of the midpoint. Speaker 500:27:14For next year? Speaker 200:27:16Yes, for next year. Speaker 500:27:18Okay. And then with the M and A, I know like yield flow, right, has probably been a bit lighter through the 1st 3 quarters, right, than what we've seen in prior years. Do you guys think, just given it's a presidential election year, has that caused, I guess, a slowdown in just the closing of transactions? And are you expecting more activity in the Q4 early next year? How do you guys see things on that front? Speaker 100:27:46Well, I think if you take a look this is Pat. If you think if you look at the general marketplace in terms of acquisitions, there's been a bit of a slowdown in general across the board for the last year. We've got a great pipeline. In my experience, we've got one of the best pipelines we've ever had. So I think that possibly when the discomfort, if you want to call it that, or concentration on this election finally ends, Clearly, if the Democrats get in, I think there could be a rush for the door. Speaker 100:28:14I don't know what happens in the case the Republicans win. But at any rate, I think when things settle out, we do think there'll be continued great opportunity and I do think that there'll be a return to a little bit more robust market. Speaker 200:28:28Yes, I think we're going to be I think if you looked at it year to date in 2020 2021, we are closing around 2017 and 2022 we closed 2019, year to date 2024 we're at 27. Yes, last year we closed 37 year to date of these tuck in deals acquisitions. So it was a little slower this quarter, but I think as you heard from Pat's pretty detailed comments, our pipeline is terrific right now. Speaker 500:28:53And then one last one on like that corporate line within the corporate segment. Doug, I thought you said that it was worse, right, than September IR Day because of the FX remeasurement, but that reversed in the 4th quarter. But then the Q4 guide for corporate did change. Are you just not modeling that in yet? Speaker 200:29:11Yes. That's a good point. We might be a little bipolar on that. We might have been able to schedule a couple of extra pennies on that line for the reversal of what we saw at the end of the Q3, but that bounces around quite a bit. So I think that we'll see what happens. Speaker 200:29:26Again, so we just didn't feel like for a couple of pennies it was worth changing that number. Speaker 500:29:33Okay. Thank you. Speaker 100:29:35Thanks, Elyse. Operator00:29:38The next question is from the line of Gregory Peters with Raymond James. Please proceed with your question. Speaker 600:29:43Yes. Good afternoon, everyone. Just building on your last answer on acquisitions, one of the things that struck out or stuck out to me, I should say, is when I was going through the supplement was the weighted average multiple for tuck in pricing of acquisitions came down a lot in the Q3. Is there any maybe you can just help me understand what happened, why the multiple came down, because I don't feel like multiples are coming down in the marketplace. And Pat, in your prepared remarks, you seem to emphasize your price discipline a little bit more than usually referenced in talking about tuck in acquisitions. Speaker 100:30:28Yes. When we prepared the remarks, Greg, we did discuss whether in the past we've been undisciplined. Speaker 600:30:36Understood. No, Speaker 100:30:37I think it's just a good reminder. We have a lot of people listening to these calls, our own people included. And this is a theme for us that we want to do great deals at the right price. We've done that now for a good 30 years. And it's just a reminder to our own folks and to our listeners that we do a lot of acquisitions. Speaker 100:30:58We try to maintain a good discipline around the pricing and we seem to strike a fair balance between that and the great people who join us. Speaker 600:31:09And the multiple for the Q3 acquisitions came down materially. It's like I felt like they took a step back in time. Yes. Speaker 200:31:17One of those acquisitions was not priced, but I would say it was priced a little under market because we have some opportunity to help it get better. Speaker 600:31:26Okay. Another sort of nitpicking item, you were going through your earnings press release and I was going through the adjustments to earnings to get your adjusted EBITDA on Page 5 of brokerage. And one of the things that stuck out to me is just a huge jump up in workforce and lease termination related charges in the year this year versus last year in Q3 versus Q3 last year. Is there something going on on a bigger scale? Is this more offshoring that's going on? Speaker 600:32:05Or maybe you could just help I know it's a small item inside your income statement, maybe you could just give us a sense of what's going on there, please? Speaker 200:32:14Well, then, Greg I'm sorry, back to you. Speaker 100:32:16So I was just going to say, Greg, you hit on the offshoring thing is really continues to be a very strong play for us. And you'll recall years ago, we started with a very small group. We're 12,500 people strong there now. And as we do acquisitions and go across the board, illustrating the type of quality and the speed with which we can do things like issue certificates, there's pretty quick adoption. It's pretty good. Speaker 200:32:43Yes. I think you're seeing Greg, you're starting to see the flywheel just getting stronger and stronger as we benefit from scale. We benefit from technologies that we're deploying and we're benefiting from our offshore centers of excellence. It just gives us an opportunity to continue to optimize our workforce. And so I think you're seeing that this quarter, yes, popped up a little bit because we have some opportunities to optimize our workforce. Speaker 200:33:09So you'll see that from time to time. Speaker 600:33:12Great. And then just step back macro question and this will be the last one. I know your commercial customers set their budgets for the year. In the past, given the robust rate increases that you've had to sell, it seems like the market's beginning to stabilize a little bit more than, say, for it was 2 years ago. How are the budgets when you hear from your customers, how are the budgets changing for their insurance spend? Speaker 600:33:41Is it you're seeing more flat budgets? Are you still seeing them assume increases? Give us a sense of what's going on there. Speaker 100:33:49Really not flat, Greg, for two reasons. Exposure units, thankfully, are continuing to grow. This is why we go through our daily review of the things that are coming through audits, etcetera. We're seeing a robust economy and that's clearly in a big part of the middle market. And so from SME all the way through large accounts, we've got the data on that. Speaker 100:34:12People are expanding their exposure units, so budgets are going up. Secondly, we are very, very cautious. We are not leading customers to believe that there's any kind of nirvana relative to rates. That is not what's happening. We show them our detail that we go over with you quarterly. Speaker 100:34:28Property is up 4%, general liability is up 6%. You may not deserve that, that may not hit your P and L, but on the other hand, you may deserve 25%. And this is a rational market. We got to talk through that, which leads us right into discussing how much you retain, what you bring back into the coverage stack that you might not have had before. And that's where the real strength and art of being a broker is, is understanding that appetite for risk that each individual account has working with those primary buyers to decide how they're going to get their best spend. Speaker 100:35:05And it's not a discussion all around rate by any means. Speaker 200:35:08Yes. I think you take the K off out of the pricing cycle and have this rational pricing cycle that we're seeing right now. Our guys will show the tools and capabilities that we have and that will shine through and differentiate ourselves. That's why when I said before that I see a better new business versus lost business here, next year than we've even seen in the last couple of years. Speaker 100:35:33And by the way to that point Greg, we can take clients into our data now and I think you know this. We can say clients like you buy this and their quotes and cover looks like this. And by the way, their costs are this. Well, why is that? Think about selling or buying a house on the street. Speaker 100:35:48One's been taken care of, looks pretty darn good, has street appeal. The other looks like junk. Guess who gets the better price? Why don't we try to get you looking more like the house on the street people want to buy? And that back to my point of art is what it's all about to be a good broker. Speaker 100:36:05And that's why when we get a rate environment like this, I feel very confident talking to our salespeople about we better see some increased sales folks. Let's go. Speaker 600:36:17Fair enough. Thanks for the answers. Speaker 100:36:19Thanks, Greg. Operator00:36:22The next question is from the line of Dean Cristiano with KBW. Please proceed with your question. Speaker 700:36:29Hi. I was hoping if you guys could provide maybe some additional color on the sequential decrease in the organic growth in brokerage, especially in the context of that renewal premium change holding up pretty strong sequentially? Speaker 200:36:42Well, listen, I think I said earlier that our Q1 is strong because it's a heavy reinsurance quarter, right? We've talked about some of the life insurance being a little lumpy. But if you bounce those two things out of there a little bit, again, we're running around 7.5% organic growth each quarter. So while it looks like that on the face, yes, we're at 6% now, but warned that there was a full point of headwind against that. Also we're not seeing substantial rate differentials rates between the quarters. Speaker 200:37:15So really underlying it when you carve out the seasonality of a couple of our businesses, some of the mix differences between when property renews versus when casualty renews, the life lumpiness, you got to take our word for it. It's pretty steady underlying other than that those things that I've said. So it's pretty steady right now underlying. Speaker 100:37:37Yes. And if you want to go back 3 or 4 years, D and O is up 300%. So by line, by geography, these rates do make a difference, they move. So we're not seeing a D and O renewal anywhere near to 300%. In fact, it's off 5% or 6%. Speaker 100:37:53So the percentages do move. This is not an environment where you say for the next 10 years. Good news is it's 4% a quarter, bing bang boom. Speaker 700:38:04Got it. That makes sense. And then my second one, a few of your competitors have made some large acquisitions to help improve their middle market capabilities. And I was wondering what implications do you think that have on the competitive environment going forward sort of being that you guys are a dominant player in that space? Speaker 100:38:23I don't think it has any impact to be perfectly blunt on our business at all. Speaker 700:38:32Okay. Thank Speaker 100:38:33you. Thanks, Steve. Operator00:38:36The next question is from the line of Mark Hughes with Truist Securities. Please proceed with your question. Speaker 800:38:42Yes. Thank you. Good afternoon. Speaker 900:38:44Doug, did you give Speaker 800:38:46early margin thoughts for 2025 for brokerage and risk management? Speaker 200:38:51I have not. I will in December as we go through the budget, but I will say this. We post 6% to 8% for our organic growth next year. It's there, Mark. There's an opportunity for us to continue to get better. Speaker 200:39:05Our scale advantages are coming through our technologies using the offshore centers of excellence. It still gives us an opportunity in an environment that we're seeing with current wage inflation, with current inflation in other categories of our spends that we continue to have opportunities to get better and better. And when you're punching out 6% to 8% organic growth, the underlying margins will absolutely have opportunity for expansion. Speaker 800:39:35Very good. And then the did you give organic broken out by the wholesale components and then reinsurance? I think you might have given those collectively at up 8%, but do you happen to have the components of that? Speaker 200:39:51Yes. Listen, some of like our affinity businesses might be at 12%, some of our program businesses might be around that 6%. I think our open brokerage is somewhere around 9%, 8% or 9%. The reinsurance is somewhere around 8% or 9% this quarter. So I would say other than a couple, maybe the Affinity business just a little better this quarter and maybe the program business just a little below that 8%. Speaker 200:40:18But the reason why we lumped them together and it was just to shorten the script, but there's not a lot of difference when you're looking at around 8%. Speaker 800:40:31Understood. And then any comment, Pat, on the mix shift out of admitted into the P and F lines? Speaker 100:40:39Yes, I think it's very it's a really interesting one, Mark. I think we're seeing continued tremendous submission supply into our wholesaling operation RPS that has not slowed down, which is really interesting. And we are not seeing accounts flowing back to the primary market in any great extent. So the excess and surplus market, which we know has gobbled up a big chunk of the P and C market over the last 5, 10 years seems to be continuing its growth and it's maintaining its accounts. And I think that's we've got people in RPS that bring more than just pricing to the deal. Speaker 100:41:20There's a lot of expertise there. There's a lot of layering and structuring that goes into some of these deals that your local retailer, ourselves included. Quite honestly, 50% of our wholesale business goes to RPS. That's for a reason. So I think it's both professional capabilities as well as market access and that market is still growing nicely. Speaker 900:41:44Thank you very much. Speaker 200:41:45Thanks, Mark. Operator00:41:49Our next question is from the line of Alex Scott with Barclays. Please proceed with your question. Speaker 900:41:55Hi. Thanks for taking my question. So I mean, when I hear what you're saying about reinsurance and the strength and growth there, the wholesale business seems like it's growing very nicely as well. When I look at the 6 percent and I guess run rating closer to 7% and change, but does that mean I guess it obviously means that the businesses other than reinsurance and wholesale like the more core retail is doing something lower. Is there anything that's causing some of the price there to not flow through? Speaker 900:42:33Is that just maybe some of the property deceleration we saw? I'm just trying to understand that piece of it specifically. What are some of the trends you're seeing in puts and takes headed into next year for the core retail piece of it? Speaker 200:42:46Yes. Always keep in the back of your mind our benefits business. That business is running around 5%. Take out the large life cases and stuff that bounce around a little bit. So as that as you think about those that are above that 7% range, yes, you've listed them, but you also have to remember that the benefit businesses naturally runs down below that level. Speaker 200:43:10Some of our actuarial services businesses run a little bit lower than that. But as I look across the organic across all the operating, we mentioned that Canada was about flat. But by and large, there's a few that offset each other, but it's not like there's any one particular area that is systemically running below that level right now. Speaker 900:43:35Got it. And then maybe if we can go back to reinsurance, I mean the growth rate you're anticipating sounds pretty robust there despite the flight pricing. And I just want Speaker 800:43:45to see if you could Speaker 900:43:46add some color around that. I mean, does that have to do with demand? Can you talk a bit about what you're seeing in terms of your clients' demand for reinsurance? Speaker 100:43:54Yes. I think demand seems very, very strong, which is good news for us. Also, I think our level of expertise in helping clients in a market environment where there is capacity and they can move around how they play in that capacity, it's a very strong demand for our consulting capabilities around reinsurance, what's the next move for the carriers that are our customers. So you have both. You've got demand. Speaker 100:44:20I think you have more utilization. There's strong growth at the primary level and all of that flows up into the funnel for reinsurance. And as one of the top 3 players in that business, we have a lot of good prospects on the list. Speaker 900:44:35Great. Thanks for the responses. Speaker 100:44:37Sure. Thanks Alex. Operator00:44:41And our next question is from Katy Sakas with Autonomous Research. Please proceed with your question. Speaker 1000:44:49Hi. I apologize. Thank you for the question. I might be some background noise. There's a fire juggling on right now. Speaker 1000:44:55I want to circle back to the subject of valuations. You're thinking about acquisitions in the middle market that are really concentrated in excess of $15,000,000 of revenue. We've seen a couple of those lately. And the multiples on those deals have been a lot higher than we've seen in the past. I was curious how that compares to what you guys are seeing for those larger middle market deals and whether your appetite to participate in larger acquisitions has shifted at all? Speaker 200:45:31Listen, I think that there's no question the larger you are probably the higher the multiplo might be for somebody that's out there looking for an opportunity. But when we look at our tuck in acquisitions, I think that people understand that we'll pay a fair price. And the advantage is they get to stick with us. They get to come in and they get to work inside of a broker. The broker is selling to a broker. Speaker 200:45:52They understand that if they decide to take our stock that they get to participate in equal form as you do, as I do, as Pat does, everybody else in this room. It's one stock for every person. They get our resources. They get to put their employees and their clients into an environment where actually joining us is going to deliver considerably more career value and more insurance value to their customers. So many times they look at it and they say that they get the opportunity to continue on doing what they're going to do. Speaker 200:46:23And so they get excited about it 10, 11 or 12 multiple. That's the reality about it. They're making a great return for their family and they know they get to continue doing it with us for as long as they would like to do in their career. And that's valuable to them too. Don't forget that. Speaker 100:46:41Let's also take a look at the landscape. Now we don't talk about this I think enough because the big deals get big headlines and they are big platforms. We estimate there's 29,000 agents and brokers in America. Last year Business Insurance last July Business Insurance ranked the top 100 in the United States, number 100 to $30,000,000 in revenue. So there's 28,900 brokers in America, that's firms not people that are out there trading. Speaker 100:47:13And that's why we say 90% of the time, which continues to be consistent over the last decade, when we compete in the marketplace, we're competing with somebody smaller. And it's probably less than 10% of the time really that we're competing with Marsh and Aon, who are the only larger brokers in the world today. It's not that we don't compete, we do. There's a robust market at the top end. When you think about that, we can use our funds, as Doug says, at lower multiples. Speaker 100:47:39We can have 100 of these opportunities in our pipeline. We can be pricing out $70,000,000 of them and possibly put on $1,000,000,000 of revenue with people that want to join us, haven't joined somebody else, want to bring their culture and their people aboard a culture that fits and matches theirs, as Doug said, a brokerage run by brokers. It doesn't get the press, but it seems like a pretty good strategy and a good use of our cash to us. Speaker 1000:48:11It. Thank you so much for the color. Speaker 100:48:14Hey, you better evacuate, Katie. Operator00:48:18Our next question is from the line of David Mamadine with Evercore ISI. Please proceed with your question. Speaker 1100:48:25Hey, good evening. Just had a question in brokerage and the contingents were up 24% on an organic basis. I was wondering if you could just talk about what was driving that in the quarter? Speaker 200:48:40Listen, I think that when you're talking about that, it's another $7,000,000 or $8,000,000 of where it developed from. We just had between our benefits business and our U. S. Retail business, that's where we picked up a few extra contingents in the quarter or our estimation for those contingents in the quarter. So there was nothing special in there. Speaker 200:49:02And again, we might give a couple of million of that back next quarter because of the storms and floods. But by and large, I would say around the possibility of what could happen, it was a few $1,000,000 in both of those businesses. Got it. Okay. That's helpful. Speaker 1100:49:26And then I guess just a bigger picture question. I heard the commentary on the term sheets being prepared or that in the process of getting signed with $700,000,000 of revenues. Do you have any stats historically on just how many of those closed, like what percentage of those closed in the next year, just to help us level set how much the contribution could be going forward? Speaker 100:50:00You really don't, David. Here's the thing. Every one of Speaker 200:50:02these is a very interesting story unto itself. You've heard me say, I mean, Speaker 100:50:02I think the interesting story into itself. You've heard me say, I mean, I think the longest time we spent talking to a client talking to a prospect and getting to know each other was 20 years. So sometimes they happen in a quarter, sometimes they take a couple of years. And, but when we get to pricing and we get to putting together a letter of intent, we're getting serious. And that's a deal that's going to get decided in the next 6 months. Speaker 100:50:32So I don't really have a stat on how many of those do close, how many don't. It's a full on sales process. It's just like selling insurance frankly. If you don't have a lot in the hopper, you're not Speaker 600:50:43going to close a lot. Speaker 100:50:48We feel very good about these 60. You could ask this every quarter and I will try to give some color. Right now, we feel very good about the deals that we're proposing right now. I would think we'd have a good shot at an awful lot of those. Speaker 1100:51:05Okay. That's good to hear. And then just finally, so it sounded like the U. S. Retail P and C organic, it sounded like that slowed a little bit. Speaker 1100:51:15I think it was 5%, if I heard that right, and I think it was 6% last quarter. Was that just the large account property business that you were talking about that has reaccelerated here in the Q4? Speaker 200:51:29Yes. Listen, I'm just looking at my sheet here. If it moved, it moved to 0.5 point one way or another. We did have more. 1st quarter was just a little bit better than that, but 2nd quarter is about the same number as what we've got right now. Speaker 300:51:44Great. Thank you. Speaker 100:51:46Thanks, David. Operator00:51:48Our next question is from the line of Grace Kannert with Bank of America. Please proceed with your question. Speaker 1200:51:54Hi, everyone. I was hoping we could talk about the contingents a little bit more. Just given kind of the ongoing conversation around, the casualty market, I was wondering if how you all are thinking about any potential risk of maybe some of the pressures from the casualty line that we saw in contingents last quarter resurfacing over the next few months? Speaker 200:52:17If it did, we're talking a few $1,000,000 I mean I wouldn't call that as being a systemic issue that we're going to have to face. Just like with the storms, it's a few million. There are some corridors that we do have caps on our contingents. And so sometimes if there's if the carriers have, let's say, maybe a loss more losses than they had hoped, it may still let us get to our full contingent level because there's caps on that. So right now, we're not seeing a lot of pressure from that in not only in our past book, but as we look forward in the booking. Speaker 200:52:58And if carriers continue to strengthen their casualty rates the way they have been and what they're saying and what we're hearing from them, when we're reading about what they're saying, it should maintain our contingent level also. Speaker 1200:53:13Thank you. And just a quick follow-up on the lumpy wipe sales. If I'm understanding correctly, you all are expecting pretty much all of the timing issue to work itself out in 4Q? Or should we expect any sort of kind of lagging impact from that in early 2025 as well? Speaker 200:53:33What I said is already here in October, we have recouped half of what had been the timing that had come out of this 1st and second quarter excuse me, 2nd and third quarter. So we're going to pick up we so far have we think that we've got a pipeline maybe to recover at all between now and the end of the year. And then we'll start over again. Just like every other sales organization, we got to start over next year and go out there and see if we can gin up some opportunities. But this product is becoming more and more necessary for many not for profits in order for them to be competitive in their executive benefit package. Speaker 200:54:14So this is a product that we think has long legs over the next several or many years. Speaker 1200:54:23Thank you. Speaker 200:54:25Thanks, Grace. Operator00:54:28Thank you. Our last question is from the line of Mike Zaremski with BMO Capital Markets. Please proceed with your question. Speaker 300:54:36Great. Just a quick follow-up on life insurance. So, just ballpark, what percentage of your brokerage revenues are life insurance? And I don't know if you want to break it out into this new product that might be more lumpy or just growing faster over time than traditional life? Speaker 200:54:55The lumpy business that we're talking about is about $125,000,000 business. Speaker 300:55:03Okay. Okay. Then that helps explain why it could move organic by that much. Okay. Thank you. Speaker 300:55:08That's all. Have a nice night. Speaker 100:55:10Thanks, Mike. I think that's it, operator. Thank you again, everyone, for joining us this afternoon. We had an excellent Q3 and we're well on our way to delivering another excellent year of financial performance. I'd like to thank our 55,000 colleagues around the globe for their hard work and dedication to our clients. Speaker 100:55:28We look forward to speaking with you again in person at our December Investor Meeting in New York City. Thank you very much for being with us this evening. We'll talk to you then. Operator00:55:37This does conclude today's conference call. You may disconnect your lines at this time.Read morePowered by